SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q
------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------
Commission file number 1-8689
DIXON TICONDEROGA COMPANY
Incorporated pursuant to the Laws of Delaware State
------------------
Internal Revenue Service -- Employer Identification No. 23-0973760
195 International Parkway, Heathrow, FL 32746
(407) 829-9000
------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The total number of shares of the registrant's Common Stock, $1 par value,
outstanding on March 31, 2003, was 3,192,832.
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
------------------------------------------
INDEX
-----
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Information
Consolidated Balance Sheets --
March 31, 2003 and September 30, 2002 3
Consolidated Statements of Operations -- For The
Three and Six Months Ended March 31, 2003 and 2002 4
Consolidated Statements of Comprehensive Income
(Loss) -- For The Three and Six Months Ended March 5
31, 2003 and 2002
Consolidated Statements of Cash Flows -- For The
Six Months Ended March 31, 2003 and 2002 6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-14
Item 3. Quantitative and Qualitative Disclosures About Market 15
Risk
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16-18
Signatures 19
Certifications 20-23
2
PART I - FINANCIAL INFORMATION
------------------------------
Item 1.
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
March 31, 2003 September 30,
(Unaudited) 2002
--------------- ---------------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 528,186 $ 2,589,493
Receivables, less allowance for
doubtful accounts of $1,360,643 at
March 31, 2003 $1,381,780 at
September 30, 2002 27,015,766 29,179,803
Inventories 32,425,247 28,761,337
Other current assets 3,009,970 3,914,817
--------------- ---------------
Total current assets 62,979,169 64,445,450
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 10,909,779 10,881,021
Machinery and equipment 13,988,566 16,948,612
Furniture and fixtures 1,530,263 1,607,449
--------------- ---------------
26,428,608 29,437,082
Less accumulated depreciation (17,073,773) (19,641,894)
--------------- ---------------
9,354,835 9,795,188
--------------- ---------------
OTHER ASSETS 7,775,227 7,872,957
--------------- ---------------
$ 80,109,231 $ 82,113,595
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 9,262,046 $ 7,463,458
Current maturities of long-term debt 18,235,597 12,341,735
Accounts payable 8,786,906 8,819,499
Accrued liabilities 5,318,792 12,485,494
--------------- ---------------
Total current liabilities 41,603,341 41,110,186
--------------- ---------------
LONG-TERM DEBT 14,926,228 16,383,106
--------------- ---------------
DEFERRED INCOME TAXES AND OTHER 1,486,046 1,183,467
--------------- ---------------
MINORITY INTEREST 563,520 583,841
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, par $1, authorized
100,000 shares, none issued -- --
Common stock, par $1, authorized 8,000,000
shares; issued 3,710,309 shares in
2003 and 2002 3,710,309 3,710,309
Capital in excess of par value 3,593,826 3,593,826
Retained earnings 24,068,906 25,107,752
Accumulated other comprehensive loss (5,924,315) (5,640,262)
--------------- ---------------
25,448,726 26,771,625
Less shareholder loans (557,721) (557,721)
Less - treasury stock, at cost
(517,477 shares) (3,360,909) (3,360,909)
--------------- ---------------
21,530,096 22,852,995
--------------- ---------------
$ 80,109,231 $ 82,113,595
=============== ===============
The accompanying notes are an integral part
of the consolidated financial statements.
3
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-------------------------------------------------
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2003 AND 2002
----------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
2003 2002 2003 2002
---- ---- ---- ----
REVENUES $18,892,890 $17,928,217 $34,762,680 $35,424,425
------------ ------------ ------------ ------------
COST AND EXPENSES:
Cost of goods sold 11,047,589 11,813,650 21,504,845 23,122,657
Selling and administrative expenses 6,753,058 5,919,676 12,481,294 12,533,123
Provision for restructuring and
related costs 229,138 150,951 303,688 325,801
Debt refinancing costs -- -- 624,662 --
------------ ------------ ------------ ------------
18,029,785 17,884,277 34,914,489 35,981,581
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 863,105 43,940 (151,809) (557,156)
OTHER INCOME -- -- 440,820 252,676
INTEREST EXPENSE (857,847) (931,675) (1,662,074) (1,806,176)
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAX
BENEFIT AND MINORITY INTEREST 5,258 (887,735) (1,373,063) (2,110,656)
INCOME TAX BENEFIT (155,983) (247,053) (592,536) (700,967)
MINORITY INTEREST 16,119 15,414 6,881 21,018
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 145,122 (656,096) (787,408) (1,430,707)
DISCONTINUED OPERATIONS, NET OF
INCOME TAXES (251,438) 130,806 (251,438) 130,806
------------ ------------ ------------ ------------
NET LOSS $ (106,316) $ (525,290) $(1,038,846) $(1,299,901)
============ ============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE
(BASIC):
Continuing operations $ 0.05 $ (0.21) $ (0.25) $ (0.45)
Discontinued operations (0.08) 0.04 (0.08) 0.04
------------ ------------ ------------ ------------
Net income (loss) $ (0.03) $ (0.17) $ (0.33) $ (0.41)
============ ============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE
(DILUTED):
Continuing operations $ 0.05 $ (0.21) $ (0.25) $ (0.45)
Discontinued operations (0.08) 0.04 (0.08) 0.04
------------ ------------ ------------ ------------
Net income (loss) $ (0.03) $ (0.17) $ (0.33) $ (0.41)
============ ============ ============ ============
Shares Outstanding:
Basic 3,192,832 3,177,462 3,192,832 3,177,462
============ ============ ============ ============
Diluted 3,192,832 3,177,462 3,192,832 3,177,462
============ ============ ============ ============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
4
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
------------------------------------------------------------------
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2003 AND 2002
----------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------- ---------------------------
2003 2002 2003 2002
----------- ----------- ------------- ------------
NET LOSS $ (106,316) $ (525,290) $ (1,038,846) $ (1,299,901)
OTHER COMPREHENSIVE INCOME (LOSS):
Current period adjustment to
recognize fair value of cash
flow hedges 23,390 79,706 37,647 150,969
Foreign currency translation
adjustments 146,804 244,333 (321,700) 902,511
----------- ----------- ------------- ------------
COMPREHENSIVE INCOME (LOSS) $ 63,878 $ (201,251) $ (1,322,899) $ (246,421)
=========== =========== ============= ============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
5
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
FOR THE SIX MONTHS ENDED MARCH 31, 2003 AND 2002
------------------------------------------------
2003 2002
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $ (787,408) $(1,430,707)
Net income (loss) from discontinued operations (251,438) 130,806
Adjustment to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 1,197,665 1,136,844
Deferred taxes 497,432 60,987
Provision for doubtful accounts receivable 236,856 109,935
Gain on sale of assets -- (208,290)
Gain attributable to foreign currency exchange (45,675) (3,595)
Income attributable to minority interest 6,881 21,018
Changes in assets and liabilities:
Receivables, net 1,667,022 2,542,287
Inventories (3,866,556) 476,966
Other current assets 1,089,308 (77,469)
Accounts payable and accrued liabilities (7,081,707) (3,641,961)
Other assets 82,466 (715,993)
---------------- ---------------
Net cash used in operations (7,255,154) (1,599,202)
---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment, net (746,501) (779,936)
Proceeds on sale of assets 208,290
--
---------------- ---------------
Net cash used in investing activities (746,501) (571,646)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from notes payable 2,166,530 2,049,647
Net proceeds from (principal reductions of)
long-term debt 4,436,984 (85,713)
Debt refinancing costs (549,193) --
Other non-current liabilities (99,745) (16,194)
---------------- ---------------
Net cash provided by financing activities 5,954,576 1,947,740
---------------- ---------------
Effect of exchange rate changes on cash (14,228) (17,517)
---------------- ---------------
Net decrease in cash and cash equivalents (2,061,307) (240,625)
Cash and cash equivalents, beginning of period 2,589,493 844,299
---------------- ---------------
Cash and cash equivalents, end of period $ 528,186 $ 603,674
================ ===============
Supplemental Disclosures:
Cash paid during the period:
Interest $ 3,326,285 $ 2,185,008
Income taxes 548,014 789,104
The accompanying notes to consolidated financial statements
are an integral part of these statements.
6
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. BASIS OF PRESENTATION:
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these financial statements
be read in conjunction with the financial statements and the notes thereto
included in the Company's latest annual report on Form 10-K. In the opinion
of the Company, all adjustments (solely of a normal recurring nature)
necessary to present fairly the financial position of Dixon Ticonderoga
Company and subsidiaries as of March 31, 2003, and the results of their
operations and cash flows for the three and six months ended March 31, 2003
and 2002, have been included. The results of operations for such interim
periods are not necessarily indicative of the results for the entire year.
In August 2001, the Emerging Issues Task Force ("EITF") issued EITF No.
01-02, "Accounting for Consideration Given by Vendor to a Customer or a
Reseller of Vendor's Product", which codified and reconciled the Task
Force's consensuses in EITF 00-14, "Accounting for Certain Sales
Incentives", EITF 00-22, "Accounting for Points and Certain Other Time
Based Sales Incentives or Volume Based Sales Incentive Offers, and Offers
of Free Products or Services to Be Delivered in the Future", and ETF 00-25,
"Vendor Income Statement Characterization of Consideration Paid to a
Reseller of the Vendor's Products". These EITF's prescribe guidance
regarding the timing of recognition and income statement classification of
costs inured for certain sales incentive programs to resellers and end
consumers. The adoption of EITF No. 01-09 had no impact on results of
operations. The Consolidated Statement of Operations for the three and six
months ended March 31, 2002 has been reclassified to reflect certain sales
incentives as reductions of gross revenue that were previously classified
as selling expenses.
Certain other prior year amounts have been reclassified to conform with the
current year classifications.
2. INVENTORIES:
Since amounts for inventories under the LIFO method are based on annual
determinations of quantities and costs as of the end of the fiscal year,
the inventories at March 31, 2003 (for which the LIFO method of accounting
are used) are based on certain estimates relating to quantities and costs
as of year end.
Inventories consist of (in thousands):
March 31, September 30,
2003 2002
---------- --------------
Raw materials $ 10,742 $ 11,014
Work in process 3,281 2,718
Finished goods 18,402 15,029
---------- --------------
$ 32,425 $ 28,761
========== ==============
3. RECENT ACCOUNTING PRONOUNCEMENTS:
In April 2002, the FASB issued Statement No. 145 "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections". The statement addresses the accounting for
extinguishment of debt, sale-leaseback transactions and certain lease
modifications. The statement is effective for transactions occurring after
May 15, 2002. The Company does not expect the adoption of Statement No. 145
to have a material impact on the Company's future results of operations or
financial position.
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". The statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and
7
Other Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring)." The provisions of Statement No. 146 are effective for exit
or disposal activities that are initiated after December 31, 2002. The
Company does not expect the adoption of Statement No. 146 to have a
material impact on the Company's future results of operations or financial
position.
In November 2002, the FASB issued FASB Interpretation No. (FIN) 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. FIN 45 elaborates
on the disclosures to be made by a guarantor about its obligations under
certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for
the fair value of the obligation undertaken in issuing the guarantee. The
recognition and measurement provisions of this Interpretation are effective
for all guarantees issued or modified after December 31, 2002. The Company
has no guarantees of others which require recognition or disclosure at this
time.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," amending FASB
Statement No. 123, "Accounting for Stock-based Compensation." This
statement provides two additional alternative transition methods for
recognizing an entity's voluntary decision to change its method of
accounting for stock-based employee compensation to the fair-value method.
In addition, the statement amends the disclosure requirements of FASB
Statement No. 123 so that entities will have to (1) make more-prominent
disclosures regarding the pro forma effects of using the fair-value method
of accounting for stock-based compensation, (2) present those disclosures
in a more accessible format in the footnotes to the annual financial
statements, and (3) include those disclosures in interim financial
statements. Statement No. 148's transition guidance and provisions for
annual disclosures are effective for fiscal years ending after December 15,
2002; earlier application is permitted. The provisions for interim-period
disclosures are effective for financial reports that contain financial
statements for interim periods beginning after December 15, 2002, and are
included herein as Note 8.
4. RESTRUCTURING AND RELATED COSTS:
In fiscal 2002, the Company provided approximately $1,155,000 for
restructuring and improvement related costs in connection with Phase 3 (the
final phase) of its Restructuring and Cost Reduction Program, which
includes a plant closure and further consolidation of its manufacturing
operations into the Company's Mexico facility and additional personnel
reductions, primarily in manufacturing and corporate activities. An
additional 120 employees (principally plant workers) were affected by the
final phase of the program. The carrying amount of additional property to
be held for disposal at completion of Phase 3 is approximately $200,000.
In the period ended March 31, 2003, the Company incurred approximately
$304,000 in additional restructuring costs associated with the
consolidation of certain manufacturing operations. The restructuring and
impairment related charges (principally severances, other employee costs
and contractual obligations) and utilization since September 30, 2002 are
summarized below (in thousands):
Employee severance
and related costs Other Total
------------------ -------- --------
Reserve balances at
September 30, 2002 $ 1,110 $ 45 $ 1,155
Period ended March 31, 2003
restructuring and related charges -- 304 304
Payments in quarter
ended March 31, 2003 (791) (307) (1,098)
------------------ -------- --------
Reserve balances at
March 31, 2003 $ 319 $ 42 $ 361
================== ======== ========
8
5. DEBT FINANCING COSTS:
In connection with the completion of its debt restructuring on October 3,
2002, the Company expensed approximately $625,000 of deferred financing
costs associated with its previous senior debt with a consortium of lenders
(which was repaid) and its previous subordinated debt agreements (which
were substantially modified).
6. LINE OF BUSINESS REPORTING:
Due to the Company's plan to exit the Industrial Group (Note 7), the
Company's continuing operations consist only of one principal business
segment - its Consumer Group. The following information sets forth certain
additional data pertaining to its operations for the three and six-month
periods ended March 31, 2003 and 2002 (in thousands).
Three Months Six Months
-------------------------- -------------------------
Operating Operating
Revenues Profit (Loss) Revenues Profit (Loss)
------------ ------------- ------------ -------------
2003:
United States $ 10,026 $ (560) $ 19,505 $ (1,619)
Canada 1,543 (4) 3,283 158
Mexico 6,940 1,129 11,284 1,040
United Kingdom 307 16 593 22
China 77 282 98 247
------------ ------------- ------------ ------------
$ 18,893 $ 863 $ 34,763 $ (152)
============ ============= ============ =============
2002:
United States $ 8,946 $ (898) $ 19,613 $ (1,710)
Canada 1,674 87 3,496 211
Mexico 7,076 806 11,833 871
United Kingdom 227 (3) 459 (8)
China 5 52 23 79
------------ ------------- ------------ -------------
$ 17,928 $ 44 $ 35,424 $ (557)
============ ============= ============ =============
The United States operating loss in each period includes unallocated
corporate expenses and debt refinancing costs in the 2003 six-month period.
7. DISCONTINUED OPERATIONS:
In September 2001, the Company formalized its decision to offer for sale
its New Castle Refractories division, the last business of its Industrial
Group. In December 2002, the Company entered into an agreement to sell this
division to local management. The transaction is expected to close in the
third quarter of fiscal 2003. Provision has been made for the expected
operating losses of the Industrial Group through the expected disposal
date, including additional provisions in the period ended March 31, 2003
discussed below.
9
Income (loss) from discontinued operations in the accompanying financial
statements are as follows (in thousands):
Three Months Ended Six Months Ended
March 31, March 31,
--------------------- ---------------------
2003 2002 2003 2002
--------- ---------- --------- ----------
Income from discontinued
operations before income taxes $ (371) $ 208 $ (371) $ 208
Income taxes (benefit) (120) 77 (120) 77
--------- ---------- --------- ----------
Income (loss) from discontinued
operations $ (251) $ 131 $ (251) $ 131
========= ========== ========= ==========
Earnings (loss) per share (basic) $ (0.08) $ 0.04 $ (0.08) $ 0.04
========= ========== ========= ==========
Earnings (loss) per share (diluted) $ (0.08) $ 0.04 $ (0.08) $ 0.04
========= ========== ========= ==========
The Company recognized losses in excess of amounts previously provided for
discontinued operations due to higher than expected energy costs during the
three months ended March 31, 2003. The Company recorded a pre-tax gain of
$208 on the sale of idle real estate in the three-month period ended March
31, 2002.
Assets and liabilities relating to discontinued operations and included in
the accompanying consolidated balance sheets are as follows (in thousands):
March 31, September 30,
2003 2002
------------ --------------
Current assets $ 4,106 $ 3,905
Property, plant and equipment, net 344 386
Current liabilities (1,607) (1,254)
Long-term liabilities and other, net (713) (813)
------------ --------------
Net assets of discontinued operations $ 2,130 $ 2,224
============ ==============
8. STOCK OPTIONS - PRO FORMA DISCLOSURES:
The Company has adopted the disclosure-only provisions of FASB Statements
No. 123 and No. 148, and, accordingly, there is no compensation expense
recognized for its stock option plans. Pro forma net loss and loss per
share would have been as follows if the fair value estimates were used to
record compensation expense:
Three Months Ended Six Months Ended
March 31, March 31,
2003 2002 2003 2002
----------- ----------- ------------- -------------
Net loss reported $(106,316) $(525,290) $(1,038,846) $(1,299,901)
Estimated stock compensation expense 22,747 25,608 45,494 51,215
----------- ----------- ------------- -------------
Pro forma net loss $(129,063) $(550,898) $(1,084,340) $(1,351,116)
=========== =========== ============= =============
Loss per share:
Basic $ (.04) $ (.17) $ (.34) $ (.43)
=========== =========== ============= =============
Diluted $ (.04) $ (.17) $ (.34) $ (.43)
=========== =========== ============= =============
10
Item 2.
-------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
RESULTS OF OPERATIONS
---------------------
REVENUES for the quarter ended March 31, 2003 increased $965,000 from the
same period last year. The changes are as follows:
Increase % Increase (Decrease)
(Decrease) ------------------------------
(in thousands) Total Volume Price/Mix
-------------- ----- ------ ---------
U.S. Consumer $ 1,080 12 14 (2)
Foreign Consumer (115) (1) (5) 4
U.S. Consumer revenue increased as anticipated due to delayed purchasing by
large educational wholesalers seeking to reduce inventory levels at the end of
the calendar year. Foreign revenue decreased slightly in Canada and Mexico with
small increases in China and the U.K.
Revenues for the six months ended March 31, 2003 decreased $662,000 from
the same period last year. The changes are as follows:
Increase % Increase (Decrease)
(Decrease) ------------------------------
(in thousands) Total Volume Price/Mix
-------------- ----- ------ ---------
U.S. Consumer $ (108) (1) 1 (2)
Foreign Consumer (554) (4) (7) 3
Foreign Consumer revenue decreased due principally to lower volume
reflecting deferred shipments in the mass retail channel. Price increases and a
favorable mix of products sold more than offset a 15% devaluation of the Mexican
peso as compared to the U.S. dollar (which had an effect in excess of $1
million).
While the Company has operations in Canada, Mexico and the U.K.,
historically only the operating results in Mexico have been materially impacted
by currency fluctuations. There has been a significant devaluation of the
Mexican peso at least once in each of the last three decades, the last one being
in August of 1998. In the short term after such devaluations, consumer
confidence has been shaken, leading to an immediate reduction in revenues in the
months following the devaluation. Then, after the immediate shock, and as the
peso stabilizes, revenues tend to grow. Selling prices tend to rise over the
long term to offset any inflationary increases in costs. The peso, as well as
any currency value, depends on many factors including international trade,
investor confidence and government policy, to name a few. These factors are
impossible for the Company to predict, and thus, an estimate of potential effect
on results of operations for the future cannot be made. This currency risk in
Mexico is presently managed through occasional foreign currency hedges, local
currency financing and by export sales to the U.S. denominated in U.S. dollars.
OPERATING INCOME increased $819,000 from the prior year quarter.
Restructuring costs increased $78,000 during the quarter, consisting primarily
of facility and freight costs related to manufacturing consolidation activities.
U.S. operating income increased $338,000 on higher revenue and increased margins
due to the favorable impact of consolidation and cost reduction efforts,
partially offset by increased freight costs. Foreign operating income increased
$481,000 due in part to higher margins from favorable pricing and product mix as
well as manufacturing efficiencies and lower wood costs associated with the
China operation. These factors contributed to a decrease in overall cost of
goods sold (58.5% of revenues as compared to 65.9% of revenues in the prior year
quarter). However, consolidated selling and administrative expenses increased
during the period (35.7% of revenues compared with 33.0% of revenues in the
prior year period). The increase is attributable to the aforementioned increase
in freight costs, as well as higher Mexico salaries and benefits.
Operating loss in the six months ended March 31, 2003 decreased $405,000
from the same period last year despite $625,000 in debt refinancing costs
expensed this year. U.S. Consumer operating income improved $716,000 (excluding
debt refinancing costs). Lower manufacturing costs due to the ongoing
consolidation and cost reduction efforts contributed to this improvement.
Foreign Consumer operating income increased $320,000 on favorable pricing and
product mix in Mexico. These factors led to lower overall cost of goods sold in
the period (61.9% of revenues as compared with 65.3% of revenues in the prior
year period).
11
OTHER INCOME represents import duty rebates received in each period
presented. Similar receipts in the future are subject to Federal legislation and
the activities of various foreign pencil manufacturers.
INTEREST EXPENSE decreased $74,000 and $144,000 in the three and six months
ended March 31, 2003, respectively, due to decreased average borrowings.
INCOME TAX benefit decreased $91,000 and $108,000 in the three and six
months ended March 31, 2003, respectively. The changes in before tax profit and
lower foreign tax rates (including temporary relief from taxation in China)
contributed to these changes.
MINORITY INTEREST represents approximately 3% of the net results from
operations of the Company's Mexico subsidiary.
DISCONTINUED OPERATIONS decreased $382,000 in the three and six months
ended March 31, 2003 as a result of additional provisions for higher than
anticipated energy costs for the Company's refractories business in the three
and six months ended March 31, 2003, compared to a gain on the sale of idle real
estate in the prior three and six month periods.
CURRENT ECONOMIC ENVIRONMENT AND EVENTS
---------------------------------------
Although not directly impacted by recent events in the U.S. and abroad,
management believes that softening economic conditions have recently affected
and could continue to affect the retail mass or other markets served by the
Company's Consumer Group and thus could lead to reduced overall revenues. In
addition, certain expenses that have risen recently (such as insurance and
energy costs) could continue to trend significantly higher in the coming years
due to recent events.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's cash flows used in operating activities increased $5.7
million in the six months ended March 31, 2003. Cash flows used in operations,
attributable to inventories, increased $4.3 million over the prior year period.
Safety stocks manufactured as a result of the Company's continuing consolidation
activities and increased purchases to build up Mexico inventories in
anticipation of higher back-to-school orders contributed to this increase. In
addition, significantly higher cash flows were used to extinguish certain
liabilities (including deferred accrued interest and restructuring accruals in
connection with the aforementioned manufacturing plant consolidations).
The Company's fiscal 2003 investing activities included approximately
$747,000 in net purchases of property and equipment, compared to $780,000 in the
prior year period. Generally, all major capital projects are discretionary in
nature and thus no material purchase commitments exist. Capital expenditures are
usually funded from operations and existing financing or new leasing
arrangements.
On October 3, 2002, the Company completed a financing agreement with a new
senior lender and its existing subordinated lenders to restructure its present
U.S. debt through fiscal 2005. Foothill Capital Corporation has provided a
three-year $28 million senior debt facility which replaces the Company's
previous senior debt with a consortium of lenders. The new senior debt
arrangement provides approximately $5 million in increased working capital
liquidity for operations and to make certain subordinated debt payments.
The senior debt facility includes a $25 million revolving loan, which bears
interest at either the prime rate, plus 0.75%, or the prevailing LIBOR rate,
plus 3.5%. Borrowings under the revolving loan are based upon 85% of eligible
U.S. and Canada accounts receivable, as defined; 50% of certain accounts
receivable having extended payment terms; and varying advance rates for U.S. and
Canada raw materials and finished goods inventories. The facility also includes
term loans aggregating $3 million, which bear interest at either the prime rate,
plus 1.5%, or the prevailing LIBOR rate, plus 4.25%. These loans are payable in
monthly installments of $50,000, plus interest, with the balance due in a
balloon payment in October 2005. The loan agreement also contains restrictions
regarding the payment of dividends as well as subordinated debt payments
(discussed below), a requirement to maintain a minimum level of earnings before
interest, taxes, depreciation and amortization and net worth and a limitation on
the amount of annual capital expenditures. To better balance and manage overall
interest rate exposure, the Company previously executed an interest rate swap
agreement that effectively fixed the rate of interest on $8 million of its
variable rate debt at 8.98% through August 2005.
These financing arrangements are collateralized by the tangible and
intangible assets of the U.S. and Canada operations (including accounts
receivable, inventories, property, plant and equipment, patents and trademarks)
and a guarantee by and pledge of capital stock of the Company's subsidiaries. As
of March 31, 2003, the Company had approximately $11 million of unused lines of
credit available.
On October 3, 2002, the Company also reached agreement with the holders of
$16.5 million of Senior Subordinated Notes to restructure the notes, extending
the maturity date to 2005. The Company is only required to pay monthly
installments of $50,000 through December 2003 and $150,000 per month from
January 2004 through the maturity date. However, the Company paid $1 million in
principal (and $2.1 million of accrued interest) at closing of the new senior
12
debt facility and expects to make additional excess payments to its subordinated
lenders over the next three years. Additional payments of $500,000 were made
prior to December 31, 2002. Payments to the subordinated lenders are subject to
certain restrictions imposed under the senior debt facility. Interest on the
balance of subordinated debt is paid quarterly. If the Company is unable to make
scheduled and additional excess payments totaling at least $7.5 million by 2005
(due to restrictions imposed under the new senior debt facility or otherwise)
the noteholders will receive warrants equivalent to approximately 1.6% of the
diluted common shares outstanding for each $1 million in unpaid principal, in
addition to warrants for 300,000 common shares with an exercise price of $7.24
per share (expiring in September 2003) now held by them. Any warrants received
or earned will be relinquished if the notes are paid in full during the term of
the new agreement. The agreement also grants the subordinated lenders a lien on
Company assets (junior in all aspects to the new senior debt collateral
agreements described above). The interest rate on the subordinated notes had
been 13.5% through June 30, 2002 [12% payable in cash and 1.5% payable-in-kind
(PIK)] plus an additional 2% on past due amounts. At closing, the interest rate
on the notes was changed to 12.5% (without PIK) through maturity in October
2005. The new subordinated note agreement includes certain other provisions,
including restrictions as to the payment of dividends and the elimination or
adjustment of financial covenants contained in the original agreement to conform
to those contained in the new senior debt agreements.
In addition, the Company's Mexico subsidiary presently has approximately
$14 million in bank lines of credit ($5 million unused), expiring at various
dates from May 2003 through November 2004, which bear interest at a rate based
upon either a floating U.S. bank rate or the rate of certain Mexico government
securities. The Company is awaiting approval on additional Mexico lines of
credit and is presently reviewing other debt proposals for this subsidiary. The
Company relies heavily upon the availability of the lines of credit in the U.S.
and Mexico for liquidity in its operations.
The Company believes that amounts available from its lines of credit under
its senior debt and under lines of credit available to its Mexican subsidiary
are sufficient to fulfill all current and anticipated operating requirements of
its business through 2005. The Company's Mexico subsidiary cannot assure that
each of its lines of credit will continue to be available after their respective
expiration dates, or that replacement lines of credit will be secured. However,
the Company believes there should be sufficient amounts available under its
present or future facilities or lines of credit to cover any potential
shortfalls due to any expiring lines of credit.
The Company has retained Wachovia Securities (formerly First Union
Securities) to advise and assist it in evaluating certain strategic
alternatives, including capital restructuring, mergers and acquisitions, and/or
other measures designed to maximize shareholder value.
13
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In April 2002, the FASB issued Statement No. 145 "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". The statement addresses the accounting for extinguishment of debt,
sale-leaseback transactions and certain lease modifications. The statement is
effective for transactions occurring after May 15, 2002. The Company does not
expect the adoption of Statement No. 145 to have a material impact on the
Company's future results of operations or financial position.
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". The statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(Including Certain Costs Incurred in a Restructuring)." The provisions of
Statement No. 146 are effective for exit or disposal activities that are
initiated after December 31, 2002. The Company does not expect the adoption of
Statement No. 146 to have a material impact on the Company's future results of
operations or financial position.
In November 2002, the FASB issued FASB Interpretation No. (FIN) 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 elaborates on the
disclosures to be made by a guarantor about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The recognition and
measurement provisions of this Interpretation are effective for all guarantees
issued or modified after December 31, 2002. The Company has no guarantees of
others that require disclosure at this time.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," amending FASB Statement
No. 123, "Accounting for Stock-based Compensation." This statement provides two
additional alternative transition methods for recognizing an entity's voluntary
decision to change its method of accounting for stock-based employee
compensation to the fair-value method. In addition, the statement amends the
disclosure requirements of FASB Statement No. 123 so that entities will have to
(1) make more-prominent disclosures regarding the pro forma effects of using the
fair-value method of accounting for stock-based compensation, (2) present those
disclosures in a more accessible format in the footnotes to the annual financial
statements, and (3) include those disclosures in interim financial statements.
Statement No. 148's transition guidance and provisions for annual disclosures
are effective for fiscal years ending after December 15, 2002; earlier
application is permitted. The provisions for interim-period disclosures are
effective for financial reports that contain financial statements for interim
periods beginning after December 15, 2002, and are included in Note 8 to
Consolidated Financial Statements.
FORWARD-LOOKING STATEMENTS
--------------------------
The statements in this Quarterly Report on Form 10-Q that are not purely
historical are "forward-looking statements" within the meaning of section 27A of
the Securities Act of 1933 and section 21E of the Securities Exchange Act of
1934, including statements about the Company's expectations, beliefs, intentions
or strategies regarding the future. Forward-looking statements include
statements regarding, among other things, the effects of the devaluation of the
Mexican peso; the sufficiency and continued availability of the Company's lines
of credit and its ability to meet its current and anticipated obligations;
management's inventory reduction plan and expectation for savings from the
restructuring and cost-reduction program; the Company's ability to increase
sales in its core businesses; and its expectations regarding the Company's
ability to utilize certain tax benefits in the future. Readers are cautioned
that any such forward-looking statements are not guarantees of future
performance and involve known and unknown risks, uncertainties and other factors
that could cause the actual results to differ materially from those expressed or
implied by such forward-looking statements. Such risks include (but are not
limited to) the risk that the Company's lenders will not continue to fund the
Company in the future; the cancellation of the lines of credit available to the
Company's Mexico subsidiary; the inability to maintain and/or secure new sources
of capital; manufacturing inefficiencies as a result of the inventory reduction
plan; difficulties encountered with the consolidation and cost-reduction
program; increased competition; U.S. and foreign economic factors; foreign
currency exchange risk and interest rate fluctuation risk, among others.
14
Item 3.
-------
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
As discussed elsewhere, the Company is exposed to the following principal
market risks (i.e. risks of loss arising from adverse changes in market rates):
foreign exchange rates and interest rates on debt.
The Company's exposure to foreign currency exchange rate risk in its
international operations is principally limited to Mexico and, to a lesser
degree, Canada. Approximately 40% of the Company's fiscal 2002 net revenues were
derived in Mexico and Canada, combined (exclusive of intercompany activities).
Foreign exchange transaction gains and losses arise from monetary assets and
liabilities denominated in currencies other than the business unit's functional
local currency. It is estimated that a 10% change in both the Mexican peso and
Canadian dollar exchange rates would impact reported operating profit by
approximately $500,000. This quantitative measure has inherent limitations
because it does not take into account the changes in customer purchasing
patterns or any adjustment to the Company's financing or operating strategies in
response to such a change in rates. Moreover, this measure does not take into
account the possibility that these currency rates can move in opposite
directions, such that gains from one may offset losses from another.
In addition, the Company's cash flows and earnings are subject to changes
in interest rates. As of March 31, 2003, approximately 60% of total short and
long-term debt is fixed, at rates between 8% and 12.5%. The balance of the
Company debt is variable, principally based upon the prevailing U.S. bank prime
rate or LIBOR rate. An interest rate swap, which expires in 2005, fixes the rate
of interest on $8 million of this debt at 8.98%. A change in the average
prevailing interest rates of the remaining debt of 1% would have an estimated
impact of $100,000 upon the Company's pre-tax results of operations and cash
flows. This quantitative measure does not take into account the possibility that
the prevailing rates (U.S. bank prime and LIBOR) can move in opposite directions
and that the Company has, in most cases, the option to elect either as the
determining interest rate factor.
15
PART II. OTHER INFORMATION
--------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------------------
(a) The Annual Meeting of Shareholders of Dixon Ticonderoga Company was held
on March 7, 2003.
(b) The following members of the Board of Directors were elected to serve
until the 2004 Annual Meeting or until their successors are elected and
qualified:
For Against Abstained
Ben Berzin, Jr. 2,688,175 94,818 18,043
Kent Kramer 2,782,993 0 18,043
Diego Cespedes Creixell 2,776,183 0 24,853
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
----------------------------------------
(a) Documents filed as part of this report:
--------------------------------------
1. Financial statements
--------------------
See index under Item 8. Financial Statements and Supplementary Data.
2. Exhibits
--------
The following exhibits are required to be filed as part of this
Quarterly Report on Form 10-Q:
(2) a. Share Purchase Agreement by and among Dixon Ticonderoga
de Mexico, S.A. de C.V., and by Grupo Ifam, S.A. de C.V.,
and Guillermo Almazan Cueto with respect to the capital
stock of Vinci de Mexico, S.A. de C.V., (English
translation). 4
(2) b. Asset Purchase Agreement dated February 9, 1999, by and
between Dixon Ticonderoga Company, as Seller and Asbury
Carbons, Inc., as Buyer. 6
(3) (i) Restated Certificate of Incorporation. 2
(3) (ii) Amended and Restated Bylaws. 1
(4) a. Specimen Certificate of Company Common Stock. 2
(4) b. Amended and Restated Stock Option Plan. 3
(10) a. First Modification of Amended and Restated Revolving
Credit Loan and Security Agreement by and among Dixon
Ticonderoga Company, Dixon Ticonderoga, Inc., First Union
Commercial Corporation, First National Bank of Boston and
National Bank of Canada. 1
(10) b. 12.00% Senior Subordinated Notes, Due 2003, Note and
Warrant Purchase Agreement. 1
(10) c. 12.00% Senior Subordinated Notes, Due 2003, Common Stock
Purchase Warrant Agreement. 1
(10) d. License and Technological Agreement between Carborundum
Corporation and New Castle Refractories Company, a division
of Dixon Ticonderoga Company. 1
(10) e. Equipment Option and Purchase Agreement between
Carborundum Corporation and New Castle Refractories
Company, a division of Dixon Ticonderoga Company. 1
16
(10) f. Product Purchase Agreement between Carborundum
Corporation and New Castle Refractories Company, a division
of Dixon Ticonderoga Company. 1
(10) g. Second Modification of Amended and Restated Revolving
Credit Loan and Security Agreement by and among Dixon
Ticonderoga Company, Dixon Ticonderoga, Inc., First Union
Commercial Corporation, First National Bank of Boston and
National Bank of Canada. 5
(10) h. Third Modification of Amended and Restated Revolving
Credit Loan and Security Agreement, Amendment to Loan
Documents and Assignment by and among Dixon Ticonderoga
Company, Dixon Ticonderoga, Inc., First Union Commercial
Corporation, BankBoston, N.A., National Bank of Canada and
LaSalle Bank. 7
(10) i. First Modification of Amended and Restated Term Loan
Agreement and Assignment by and among Dixon Ticonderoga
Company, Dixon Ticonderoga, Inc., First Union Commercial
Corporation, BankBoston, N.A., National Bank of Canada and
LaSalle Bank. 7
(10) j. Amendment No. 1 to 12.00% Senior Subordinated Notes, Due
2003, Note and Warrant Purchase Agreement.7
(10) k. Fourth Modification of Amended and Restated Revolving
Credit Loan and Security Agreement. 8
(10) l. Second Modification of Amended and Restated Term Loan
Agreement. 8
(10) m. Amendment No. 2 to Note and Warrant Purchase Agreement. 8
(10) n. Loan and Security Agreement by and among Dixon
Ticonderoga Company and its Subsidiaries and Foothill
Capital Corporation. 10
(10) o. Dixon Ticonderoga Company Amended and Restated Note and
Warrant Purchase Agreement, 12.5% Senior Subordinated
Notes, due October 3, 2005. 10
(21) Subsidiaries of the Company 9
(99.1) Certification by Officers
1 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1996, file number 0-2655, filed in Washington, D.C.
2 Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the period ended March 31, 1997, file number 0-2655, filed in Washington, D.C.
3 Incorporated by reference to Appendix 3 to the Company's Proxy Statement dated
January 27, 1997, filed in Washington, D.C.
4 Incorporated by reference to the Company's Current Report on Form 8-K dated
December 12, 1997, filed in Washington D.C.
5 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1998, file number 0-2615, filed in Washington, D.C.
6 Incorporated by reference to the Company's Current Report on Form 8-K dated
March 2, 1999, filed in Washington D.C.
17
7 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1999, file number 0-2615 filed in Washington, D.C.
8 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 2000, file number 0-2655 filed in Washington, D.C.
9 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 2001, file number 1-8689 filed in Washington, D.C.
10 Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the period ended December 31, 2002, file number 0-2655,filed in Washington, D.C.
(b) Reports on Form 8-K:
--------------------
None.
18
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIXON TICONDEROGA COMPANY
Dated: May 13, 2003
-------------------------------
By: /s/ Gino N. Pala
-------------------------------
Gino N. Pala
Chairman of Board and
Co-Chief Executive Officer
Dated: May 13, 2003
-------------------------------
By: /s/ Richard A. Asta
-------------------------------
Richard A. Asta
Executive Vice President of Finance
Chief Financial Officer
Dated: May 13, 2003
-------------------------------
By: /s/ John Adornetto
-------------------------------
John Adornetto
Vice President/Corporate Controller and
Chief Accounting Officer
19
CERTIFICATIONS
--------------
I, Gino N. Pala, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dixon Ticonderoga
Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a)designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b)evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c)presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a)all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b)any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies.
Date: May 13, 2003
/s/ Gino N. Pala
--------------------------------
Gino N. Pala
Chairman of Board, Co-Chief Executive
Officer and Director
20
CERTIFICATIONS
--------------
I, Richard F. Joyce, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dixon Ticonderoga
Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a)designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b)evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c)presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a)all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b)any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies.
Date: May 13, 2003
/s/ Richard F. Joyce
--------------------------------
Richard F. Joyce
Vice Chairman of Board, Co-Chief
Executive Officer, President and Director
21
CERTIFICATIONS
--------------
I, Richard A. Asta, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dixon Ticonderoga
Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a)designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b)evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c)presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a)all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b)any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies.
Date: May 13, 2003
/s/ Richard A. Asta
--------------------------------
Richard A. Asta
Executive Vice President of Finance,
Chief Financial Officer and Director
22
CERTIFICATIONS
--------------
I, John Adornetto, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dixon Ticonderoga
Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a)designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b)evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c)presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a)all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b)any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies.
Date: May 13, 2003
/s/ John Adornetto
--------------------------------
John Adornetto
Vice President and Corporate Controller
and Chief Accounting Officer
23
Exhibit 99.1
------------
CERTIFICATION BY OFFICERS
-------------------------
In connection with the Quarterly Report of Dixon Ticonderoga Company on
Form 10-Q for the period ended March 31, 2003 as filed with the Securities and
Exchange Commission on the date hereof the undersigned certify, pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Quarterly Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Quarterly Report fairly present, in all
material respects, the financial condition and results of operations of
the Company.
DIXON TICONDEROGA COMPANY
Dated: May 13, 2003
-------------------------------
By: /s/ Gino N. Pala
-------------------------------
Gino N. Pala
Chairman of Board, Co-Chief
Executive Officer and Director
Dated: May 13, 2003
-------------------------------
By: /s/ Richard F. Joyce
-------------------------------
Richard F. Joyce
Vice-Chairman of Board,
Co-Chief Executive Officer,
President and Director
Dated: May 13, 2003
-------------------------------
By: /s/ Richard A. Asta
-------------------------------
Richard A. Asta
Executive Vice President of Finance,
Chief Financial Officer and Director
Dated: May 13, 2003
------------------------------------
By: /s/ John Adornetto
------------------------------------
John Adornetto
Vice President/Corporate Controller and
Chief Accounting Officer