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 June 30, 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 June 30, 2003, was 3,202,149
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
------------------------------------------
INDEX
-----
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Information
Consolidated Balance Sheets --
June 30, 2003 and September 30, 2002 3
Consolidated Statements of Operations --
For The Three and Nine Months Ended June 30,
2003 and 2002 4
Consolidated Statements of Comprehensive Income (Loss) --
For The Three and Nine Months Ended June 30, 2003 and 2002 5
Consolidated Statements of Cash Flows --
For The Nine Months Ended June 30, 2003 and 2002 6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18-20
Signatures 21
Certifications 22-27
2
PART I - FINANCIAL INFORMATION
------------------------------
Item 1.
-------
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
June 30, 2003 September 30,
(Unaudited) 2002
--------------- ---------------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 629,943 $ 2,589,493
Receivables, less allowance for doubtful
accounts of $1,428,467 at June 30, 2003
and $1,381,780 at September 30, 2002 38,038,415 29,179,803
Inventories 33,400,859 28,761,337
Other current assets 4,542,822 3,914,817
--------------- ---------------
Total current assets 76,612,039 64,445,450
--------------- ---------------
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 11,004,432 10,881,021
Machinery and equipment 14,264,651 16,948,612
Furniture and fixtures 1,554,348 1,607,449
--------------- ---------------
26,823,431 29,437,082
--------------- ---------------
Less accumulated depreciation (17,605,454) (19,641,894)
--------------- ---------------
9,217,977 9,795,188
--------------- ---------------
OTHER ASSETS 6,242,309 7,872,957
--------------- ---------------
$ 92,072,325 $ 82,113,595
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 12,185,237 $ 7,463,458
Current maturities of long-term debt 20,744,254 12,341,735
Accounts payable 11,415,890 8,819,499
Accrued liabilities 7,002,054 12,485,494
--------------- ---------------
Total current liabilities 51,347,435 41,110,186
--------------- ---------------
LONG-TERM DEBT 14,572,330 16,383,106
--------------- ---------------
DEFERRED INCOME TAXES AND OTHER 1,015,978 1,183,467
--------------- ---------------
MINORITY INTEREST 600,425 583,841
--------------- ---------------
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 3,547,567 3,593,826
Retained earnings 25,859,464 25,107,752
Accumulated other comprehensive loss (4,723,067) (5,640,262)
--------------- ---------------
28,394,273 26,771,625
Less shareholder loans (557,721) (557,721)
Less treasury stock, at cost (508,160
shares at June 30, 2003 and 517,477
shares at September 30, 2002) (3,300,395) (3,360,909)
--------------- ---------------
24,536,157 22,852,995
--------------- ---------------
$ 92,072,325 $ 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 NINE MONTHS ENDED JUNE 30, 2003 AND 2002
----------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
2003 2002 2003 2002
---- ---- ---- ----
REVENUES $ 26,940,174 $ 28,147,596 $ 61,702,854 $ 63,572,021
------------ ------------ ------------ ------------
COST AND EXPENSES:
Cost of goods sold 15,535,113 18,005,461 37,039,958 41,128,118
Selling and administrative expenses 7,998,795 7,220,342 20,480,089 19,753,465
Provision for restructuring and
related costs 183,178 146,811 486,866 472,612
Debt refinancing costs -- -- 624,662 --
------------ ------------ ------------ ------------
23,717,086 25,372,614 58,631,575 61,354,195
------------ ------------ ------------ ------------
OPERATING INCOME 3,223,088 2,774,982 3,071,279 2,217,826
OTHER INCOME, NET 611,680 -- 1,052,500 252,676
INTEREST EXPENSE (990,806) (1,034,000) (2,652,880) (2,840,176)
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAX
(BENEFIT) AND MINORITY INTEREST 2,843,962 1,740,982 1,470,899 (369,674)
INCOME TAX (EXPENSE) BENEFIT (971,733) (359,493) (379,197) 341,474
MINORITY INTEREST (21,948) (23,530) (28,829) (44,548)
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 1,850,281 1,357,959 1,062,873 (72,748)
DISCONTINUED OPERATIONS, NET
OF INCOME TAXES (59,723) -- (311,161) 130,806
------------ ------------ ------------ ------------
NET INCOME $ 1,790,558 $ 1,357,959 $ 751,712 $ 58,058
============ ============ ============ ============
EARNINGS (LOSS) PER COMMON
SHARE (BASIC):
Continuing operations $ 0.58 $ 0.43 $ 0.33 $ (0.02)
Discontinued operations (.02) -- (.09) 0.04
------------ ------------ ------------ ------------
Net income $ 0.56 $ 0.43 $ 0.24 $ 0.02
============ ============ ============ ============
EARNINGS (LOSS) PER COMMON
SHARE (DILUTED):
Continuing operations $ 0.58 $ 0.43 $ 0.33 $ (0.02)
Discontinued operations (.02) -- (.09) 0.04
------------ ------------ ------------ ------------
Net income $ 0.56 $ 0.43 $ 0.24 $ 0.02
============ ============ ============ ============
Shares Outstanding:
Basic 3,199,043 3,187,709 3,194,902 3,180,878
============ ============ ============ ============
Diluted 3,199,043 3,187,709 3,194,902 3,180,878
============ ============ ============ ============
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 NINE MONTHS ENDED JUNE 30, 2003 AND 2002
----------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ---------------------------
2003 2002 2003 2002
----------- ----------- ------------- ------------
NET INCOME $1,790,558 $1,357,959 $ 751,712 $ 58,058
OTHER COMPREHENSIVE INCOME (LOSS):
Current period adjustment to
recognize fair value of cash
cash flow hedges 14,673 (107,421) 52,320 43,548
Foreign currency translation
adjustments 1,186,575 (1,524,191) 864,875 (621,680)
----------- ----------- ------------- ------------
COMPREHENSIVE INCOME (LOSS) $2,991,806 $ (273,653) $ 1,668,907 $ (520,074)
=========== =========== ============= ============
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 NINE MONTHS ENDED JUNE 30, 2003 AND 2002
------------------------------------------------
2003 2002
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from continuing operations $ 1,062,873 $ (72,748)
Net income (loss) from discontinued operations (311,161) 130,806
Gain on receipt of securities from insurance
company demutualizations (672,291) --
Adjustment to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 1,815,576 1,878,150
Deferred taxes 13,875 --
Provision for doubtful accounts receivable 260,478 154,457
Gain on sale of assets -- (208,290)
Gain attributable to foreign currency exchange (67,721) (37,828)
Income attributable to minority interest 28,829 44,548
Changes in assets and liabilities:
Receivables (8,552,684) (10,040,052)
Inventories (4,428,977) 4,277,291
Other current assets (290,523) (241,273)
Accounts payable and accrued liabilities (2,989,951) (935,900)
Other assets 1,421,865 (606,141)
------------- -------------
Net cash used in operations (12,709,812) (5,656,980)
------------- -------------
ASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (747,931) (1,088,146)
Proceeds on sale of assets -- 208,290
Proceeds on sale of securities received
from insurance company demutualizations 607,262 --
------------- -------------
Net cash used in investing activities (140,669) (879,856)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from notes payable 5,876,929 5,338,269
Net proceeds from long-term debt 5,585,430 1,432,600
Deferred financing costs (549,193) (586,198)
Sales of treasury stock 14,255 23,516
Other non-current liabilities (99,745) 40,736
------------- -------------
Net cash provided by financing activities 10,827,676 6,248,923
------------- -------------
Effect of exchange rate changes on cash 63,255 19,907
------------- -------------
Net decrease in cash and cash equivalents (1,959,550) (268,006)
Cash and cash equivalents, beginning of period 2,589,493 844,299
------------- -------------
Cash and cash equivalents, end of period $ 629,943 $ 576,293
------------- -------------
Supplemental Disclosures:
Cash paid during the period:
Interest $ 4,279,085 $ 2,459,790
Income taxes 606,442 1,289,057
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 for the fair presentation of the financial position of Dixon
Ticonderoga Company and subsidiaries as of June 30, 2003, and the results
of their operations and cash flows for the nine months ended June 30, 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 nine
months ended June 30, 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 June 30, 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):
June 30, September 30,
2003 2002
---------- -----------
Raw materials $ 13,243 $ 11,014
Work in process 3,594 2,718
Finished goods 16,564 15,029
---------- -----------
$ 33,401 $ 28,761
========== ===========
7
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
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, with earlier application 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 9.
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.
8
In the period ended June 30, 2003, the Company incurred approximately
$487,000 in additional restructuring costs associated with the
consolidation of certain manufacturing operations. The restructuring and
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 June 30, 2003
restructuring and related charges 163 324 487
Payments in period ended
June 30, 2003 (1,108) (369) (1,477)
------------------ -------- ---------
Reserve balances
at June 30, 2003 $ 165 $ -- $ 165
================== ======== =========
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. OTHER INCOME:
Other income, net in the period ended June 30, 2003, includes $672,000 of
gains from the receipt of securities by the Company as a policyholder
following the demutualization of certain insurance companies. Through June
30, 2003, the Company realized $542,000 in gains on the sale of such
securities. In July 2003, the remaining $130,000 in securities were sold
for cash in an amount approximating their carrying value at June 30, 2003.
Additionally, the Company received $380,000 and $253,000 in import duty
rebates in the 2003 and 2002 periods, respectively.
7. LINE OF BUSINESS REPORTING:
Due to the Company's sale of its remaining Industrial Group division (Note
8), the Company's continuing operations consist only of one principal
business segment - its Consumer Group. The following information sets forth
certain additional data pertaining to its operations for the three and nine
month periods ended June 30, 2003 and 2002 (in thousands).
9
Three Months Nine Months
-------------------------- -------------------------
Operating Operating
Revenues Profit (Loss) Revenues Profit (Loss)
------------ ------------- ------------ -------------
2003:
United States $ 16,064 $ 789 $ 35,569 $ (830)
Canada 3,179 468 6,463 626
Mexico 7,291 1,734 18,575 2,774
United Kingdom 366 42 958 64
China 40 190 138 437
------------ ------------- ------------ -------------
$ 26,940 $ 3,223 $ 61,703 $ 3,071
============ ============= ============ =============
2002:
United States $ 16,606 $ 759 $ 36,218 $ (950)
Canada 2,702 335 6,198 546
Mexico 8,542 1,612 20,376 2,482
United Kingdom 297 18 761 10
China 1 51 19 130
------------ ------------- ------------ -------------
$ 28,148 $ 2,775 $ 63,572 $ 2,218
============ ============= ============ =============
The United States operating profit (loss) in each period includes
unallocated corporate expenses and debt refinancing costs in the 2003 nine
months period.
8. 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 closed effective July 31,
2003. At closing, the Company received consideration of $500,000 in the
form of a seven-year amortizing note receivable and net cash proceeds of
approximately $3 million, which were utilized to reduce its senior debt.
The Company retained tax and certain other net liabilities of approximately
$800,000. Provision has been made for the expected operating losses of the
Industrial Group through the closing date, including additional provisions
of $90,000 and $461,000 in the three month and nine month periods ended
June 30, 2003, respectively, as depicted below.
Income (loss) from discontinued operations in the accompanying financial
statements are as follows (in thousands):
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- ---------------------
2003 2002 2003 2002
--------- ---------- --------- ----------
Income (loss) from discontinued
operations before income taxes $ (90) $ -- $ (461) $ 208
Income taxes (benefit) (30) -- (150) 77
--------- ---------- --------- ----------
Income (loss) from discontinued
operations $ (60) $ -- $ (311) $ 131
========= ========== ========= ==========
Earnings (loss) per share (basic) $ (0.02) $ -- $ (0.09) $ 0.04
========= ========== ========= ==========
Earnings (loss) pershare (diluted) $ (0.02) $ -- $ (0.09) $ 0.04
========= ========== ========= ==========
The Company recorded a pre-tax gain of $208 on the sale of idle real estate
in the nine month period ended June 30, 2002.
10
Assets and liabilities relating to discontinued operations and included in
the accompanying consolidated balance sheets are as follows (in thousands):
June 30, September 30,
2003 2002
------------ --------------
Current assets $ 4,313 $ 3,905
Property, plant and equipment, net 317 386
Current liabilities (1,430) (1,254)
Long-term liabilities and other, net (545) (813)
------------ --------------
Net assets of discontinued operations $ 2,655 $ 2,224
============ ==============
9. 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 Nine Months Ended
June 30, June 30,
2003 2002 2003 2002
------------- ------------- ------------- ------------
Net profit reported $ 1,790,558 $ 1,357,959 $ 751,712 $ 58,058
Estimated stock compensation expense 22,747 25,608 68,241 76,823
------------- ------------- ------------- ------------
Pro forma net income (loss) $ 1,767,811 $ 1,332,351 $ 683,471 $ (18,765)
============= ============= ============= ============
Income (loss) per share:
Basic $ .55 $ .42 $ .21 $ (.01)
============= ============= ============= ============
Diluted $ .55 $ .42 $ .21 $ (.01)
============= ============= ============= ============
11
Item 2.
-------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
RESULTS OF OPERATIONS
---------------------
REVENUES for the quarter ended June 30, 2003, decreased $1,208,000 from the
same quarter last year. The changes are as follows:
Increase % Increase (Decrease)
(Decrease) ------------------------------
(in thousands) Total Volume Price/Mix
-------------- ----- ------ ---------
U.S. Consumer $ (542) (3) 1 (4)
Foreign Consumer (666) (7) (15) 8
U.S. Consumer revenue volume increases in the retail market were offset by
unfavorable mix and continued competitive pricing pressures in all markets.
Foreign Consumer revenues were lower, reflecting a decrease in Mexico of
$1,251,000. A major cause of this was the devaluation of the Mexican peso
(approximately $790,000). Price increases in Mexico partially offset volume
declines, caused by lower demand in the mass market resulting in a further net
decrease of $460,000. These decreases were partially offset by an increase in
the value of the Canadian dollar of $330,000 and volume increases in Canada and
the U.K. We expect to experience continued competitive pricing pressures,
particularly in the U.S. markets, making it difficult for the Company to grow
revenues significantly.
Revenues for the nine months ended June 30, 2003, decreased $1,869,000 from
the same period last year. The changes are as follows:
Increase % Increase (Decrease)
(Decrease) ------------------------------
(in thousands) Total Volume Price/Mix
-------------- ----- ------ ---------
U.S. Consumer $ (649) (2) 1 (3)
Foreign Consumer (1,220) (8) (13) 5
U.S. Consumer revenue decreased slightly in all markets due to unfavorable
mix and price decreases. Foreign Consumer revenue includes a decrease of
$1,801,000 in Mexico where the Mexican peso devaluation resulted in decrease of
$2,360,000. Price increases in Mexico offset volume declines resulting in a net
increase of $559,000. Mexico decreases were partially offset by increases in the
value of the Canadian dollar of $430,000 and volume increases in the U.K.
While the Company has operations in Canada, Mexico and the U.K.,
historically only the operating results in Mexico have been materially impacted
by currency fluctuations. There has been a significant devaluation of the
Mexican peso at least once in each of the last three decades, the last one being
in August 1998. In the short term after such a devaluation, consumer confidence
has been shaken, leading to an immediate reduction in revenues in the months
following the devaluation. Then, after the immediate shock, and as the peso
stabilizes, revenues tend to grow. Selling prices tend to rise over the long
term to offset any inflationary increases in costs. The peso, as well as any
currency value, depends on many factors including international trade, investor
confidence, and government policy, to name a few. These factors are impossible
for the Company to predict, and thus, an estimate of potential effect on results
of operations for the future cannot be made. This currency risk in Mexico is
presently managed through occasional foreign currency hedges, local currency
financing and by export sales denominated in U.S. dollars.
OPERATING INCOME in the quarter ended June 30, 2003 increased $448,000 over
the same quarter last year. Foreign Consumer increased $418,000. Manufacturing
efficiencies in Mexico, due to increased production for U.S. distribution, were
partially offset by the revenue factors discussed above. Canadian operating
profit increased due to the strengthening Canadian dollar and the China
operation improved from increased manufacturing efficiencies. U.S. Consumer
operating profits remained flat with improved gross profit margins from
restructuring efforts partially offset by the effects of its lower revenues.
Higher workers' compensation insurance rates, professional fees and bank charges
reflected in selling and administrative expenses also decreased operating
profits. The above mentioned U.S. and foreign manufacturing savings resulted in
an overall decrease in consolidated cost of goods sold (57.7% of revenues as
compared to 64.0% of revenues in the prior year quarter.) The increases in other
U.S. costs discussed above principally contributed to an increase in
12
consolidated selling and administrative costs (29.7% of revenues as compared to
25.7% of revenues in the prior year quarter).
Operating income for the nine months ended June 30, 2003 increased $853,000
over the prior year. U.S. operating income improved $121,000 despite a $625,000
charge for debt restructuring costs and higher bank charges and legal and
professional costs. These factors were offset by manufacturing efficiencies and
cost savings from the Company's consolidation strategy. Foreign operating income
increased $732,000. Increased gross profit margins in Mexico were partially
offset by higher administrative personnel costs. These costs and the
aforementioned U.S. administrative cost increases contributed to higher overall
consolidated selling and administrative expenses (33.2% of revenues as compared
to 31.1% in the prior year). The China subsidiary had significantly higher
profits from plant efficiencies due to increased production. The U.S. and
foreign manufacturing efficiencies and consolidation efforts contributed to a
decrease in consolidated cost of sales (60.0% of revenues as compared to 64.7%
in the prior year).
OTHER INCOME increased $612,000 over the prior year quarter due to gains
from securities received by the Company as a policyholder following the
demutualization of certain insurance companies. Other income increased $800,000
over the nine months ended June 30, 2002, due to the gains from the receipt of
securities from insurance company demutualizations and larger import duty
rebates received in the 2003 period.
INTEREST EXPENSE decreased $43,000 and $187,000 in the quarter and nine
months ended June 30, 2003, respectively (net of interest allocated to
discontinued operations, as discussed in Note 7 to Consolidated Financial
Statements). The decreases are primarily due to lower average borrowing rates
during the current year periods.
INCOME TAX increased $612,000 and $721,000 for the quarter and nine months
ended June 30, 2003, respectively, due principally to higher pretax income, as
well as a lower effective tax rate in Mexico due to an unanticipated refund of
approximately $170,000 in the prior year period.
MINORITY INTEREST represents approximately 3% of the results of operations
of the Company's Mexico subsidiary.
CURRENT ECONOMIC ENVIRONMENT AND EVENTS
---------------------------------------
Although not directly impacted by recent events in the U.S. and abroad
(such as September 11, 2001 and the Mid-East crisis), softening economic
conditions appeared to have an effect in certain U.S. markets and thus could
lead to reduced overall annual revenues. In addition, certain expenses (such as
insurance and financing costs) have increased and could be significantly higher
in the coming years due to tightening in the various financial markets in light
of these events.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's cash flows used in operating activities increased by
approximately $7 million in the period ended June 30, 2003, due to higher
inventories at the expanding Mexico facility. This inventory increase reflects
safety stocks on items recently being manufactured in Mexico; higher wood supply
following the expansion in China production; and increased stock levels in
anticipation of large fourth quarter orders in Mexico. In addition,
significantly higher cash flows were used to extinguish certain liabilities
(including deferred accrued interest and restructuring accruals). These factors
were partially offset by improved accounts receivable management and higher
operating profits.
The Company's fiscal 2003 investing activities included approximately
$748,000 in net purchases of property and equipment, compared to $1.1 million in
the prior year period. The 2003 expenditures were offset by approximately
$737,000 in proceeds from the sale of securities (see Note 6 to Consolidated
Financial Statements). 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.
In October 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.
13
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 June 30, 2003, the Company had approximately $10 million of unused lines of
credit available.
In October 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
debt facility and expects to make additional excess payments to its subordinated
lenders over the next three years. Additional payments of approximately $1.6
million were made prior to June 30, 2003. 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. Absent a refinancing of our
subordinated debt, management does not expect to be able to make all of the
additional excess payments due by 2005. Accordingly, Company shareholders may
experience dilution as a result of the issuance of shares of common stock to the
subordinated lenders. 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 ($2 million unused), expiring at various
dates from August 2003 through October 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.
14
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.
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 9 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,
including payments due under its subordinated debt; management's expectation for
savings from the restructuring and cost-reduction program; the Company's ability
to increase revenues 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 shareholders ownership will be diluted by the
issuance of common stock to the Company's subordinated lenders; the Company's
lenders will not continue to fund the Company in the future; the cancellation of
15
the lines of credit available to the Company's Mexico subsidiary; the inability
to maintain and/or secure new sources of capital; manufacturing inefficiencies;
difficulties encountered with the consolidation and cost-reduction program;
increased competition; decreases in revenues; U.S. and foreign economic factors;
foreign currency exchange risk and interest rate fluctuation risk, among others.
16
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 June 30, 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.
17
PART II. OTHER INFORMATION
--------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
----------------------------------------
(a) Documents filed as part of this report:
--------------------------------------
1. Financial statements
--------------------
See index under Item 8. Financial Statements and Supplementary Data.
2. Exhibits
--------
The following exhibits are required to be filed as part of this
Quarterly Report on Form 10-Q:
(2) a. Share Purchase Agreement by and among Dixon Ticonderoga de
Mexico, S.A. de C.V., and by Grupo Ifam, S.A. de C.V., and
Guillermo Almazan Cueto with respect to the capital stock
of Vinci de Mexico, S.A. de C.V., (English translation). 4
(2) b. Asset Purchase Agreement dated February 9, 1999, by and
between Dixon Ticonderoga Company, as Seller and Asbury
Carbons, Inc., as Buyer. 6
(3)(i) Restated Certificate of Incorporation. 2
(3)(ii) Amended and Restated Bylaws. 1
(4) a. Specimen Certificate of Company Common Stock. 2
(4) b. Amended and Restated Stock Option Plan. 3
(10) a. First Modification of Amended and Restated Revolving Credit
Loan and Security Agreement by and among Dixon Ticonderoga
Company, Dixon Ticonderoga, Inc., First Union Commercial
Corporation, First National Bank of Boston and National
Bank of Canada. 1
(10) b. 12.00% Senior Subordinated Notes, Due 2003, Note and
Warrant Purchase Agreement. 1
(10) c. 12.00% Senior Subordinated Notes, Due 2003, Common Stock
Purchase Warrant Agreement. 1
(10) d. License and Technological Agreement between Carborundum
Corporation and New Castle Refractories Company, a division
of Dixon Ticonderoga Company. 1
(10) e. Equipment Option and Purchase Agreement between Carborundum
Corporation and New Castle Refractories Company, a division
of Dixon Ticonderoga Company. 1
(10) f. Product Purchase Agreement between Carborundum Corporation
and New Castle Refractories Company, a division of Dixon
Ticonderoga Company. 1
(10) g. Second Modification of Amended and Restated Revolving
Credit Loan and Security Agreement by and among Dixon
Ticonderoga Company, Dixon Ticonderoga, Inc., First Union
Commercial Corporation, First National Bank of Boston and
National Bank of Canada. 5
18
(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
(31.1) Chairman of the Board and Co-Chief Executive Officer
Certification pursuant to Exchange Act Rule 13a-14 as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
(31.2) Vice Chairman of the Board and Co-Chief Executive Officer
Certification pursuant to Exchange Act Rule 13a-14 as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
(31.3) Executive Vice President of Finance and Chief Financial
Officer Certification pursuant to Exchange Act Rule 13a-14
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
(32.1) Chairman of the Board and Co-Chief Executive Officer
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(32.2) Vice Chairman of the Board and Co-Chief Executive Officer
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(32.3) Executive Vice President of Finance and Chief Financial
Officer Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
19
1Incorporated 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.
2Incorporated 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.
3Incorporated by reference to Appendix 3 to the Company's Proxy Statement dated
January 27, 1997, filed in Washington, D.C.
4Incorporated by reference to the Company's Current Report on Form 8-K dated
December 12, 1997, filed in Washington D.C.
5Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1998, file number 0-2655, filed in Washington, D.C.
6Incorporated by reference to the Company's Current Report on Form 8-K dated
March 2, 1999, filed in Washington D.C.
7Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1999, file number 0-2655, filed in Washington, D.C.
8Incorporated 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.
9Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 2002, file number 0-2655, filed in Washington, D.C.
10Incorporated 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:
--------------------
On May 14, 2003, the Company filed a Form 8-K which included as an exhibit
its press release, dated May 12, 2003 regarding its second fiscal quarter
results.
20
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
Date: August 14, 2003 By: /s/ GINO N. PALA
--------------- -----------------
Gino N. Pala
Chairman of Board, Co-Chief
Executive Officer and Director
Date: August 14, 2003 By: /s/ RICHARD A. ASTA
--------------- -----------------------
Richard A. Asta
Executive Vice President of Finance,
Chief Financial Officer and Director
Date: August 14, 2003 By: /s/ JOHN ADORNETTO
--------------- -----------------------
John Adornetto
Vice President, Corporate Controller and
Chief Accounting Officer
21
Exhibit 31.1
------------
CHAIRMAN OF THE BOARD AND CO-CHIEF EXECUTIVE OFFICER
----------------------------------------------------
CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13A-14 AS ADOPTED
-------------------------------------------------------------
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
---------------------------------------------------------
I, Gino N. Pala, Chairman of the Board and Co-Chief Executive Officer of
Dixon Ticonderoga Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dixon Ticonderoga
Company for the quarter ended June 30, 2003;
2. Based on my knowledge, this quarterly report does not contain any untrue
statements 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 we 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
quarterly 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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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;
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not 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 and material weaknesses.
Date: August 14, 2003 By: /s/ GINO N. PALA
--------------- ----------------
Gino N. Pala
Chairman of Board, Co-Chief Executive Officer
and Director
22
Exhibit 31.2
------------
VICE CHAIRMAN OF BOARD AND CO-CHIEF EXECUTIVE OFFICER
-----------------------------------------------------
CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13A-14 AS ADOPTED
-------------------------------------------------------------
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
---------------------------------------------------------
I, Richard F. Joyce, Vice Chairman of Board, Co-Chief Executive Officer,
President and Director of Dixon Ticonderoga Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dixon Ticonderoga
Company for the quarter ended June 30, 2003;
2. Based on my knowledge, this quarterly report does not contain any untrue
statements 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 we 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
quarterly 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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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;
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not 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 and material weaknesses.
Date: August 14, 2003 By: /s/ RICHARD F. JOYCE
--------------- --------------------
Richard F. Joyce
Vice Chairman of Board, Co-Chief Executive
Officer, President and Director
23
Exhibit 31.3
------------
EXECUTIVE VICE PRESIDENT OF FINANCE AND CHIEF FINANCIAL OFFICER
---------------------------------------------------------------
CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13A-14 AS ADOPTED
-------------------------------------------------------------
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
---------------------------------------------------------
I, Richard A. Asta, Executive Vice President of Finance, Chief Financial
Officer and Director of Dixon Ticonderoga Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dixon Ticonderoga
Company for the quarter ended June 30, 2003;
2. Based on my knowledge, this quarterly report does not contain any untrue
statements 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 we 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
quarterly 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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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;
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not 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 and material weaknesses.
Date: August 14, 2003 By: /s/ RICHARD A. ASTA
--------------- -------------------
Richard A. Asta
Executive Vice President of Finance,
Chief Financial Officer and Director
24
Exhibit 32.1
------------
CHAIRMAN OF THE BOARD AND CO-CHIEF EXECUTIVE OFFICER
----------------------------------------------------
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
-------------------------------------------------
AS ADOPTED PURSUANT TO SECTION 906
----------------------------------
OF THE SARBANES-OXLEY ACT OF 2002.
----------------------------------
In connection with the Quarterly Report of Dixon Ticonderoga Company (the
"Company") on Form 10-Q for the period ending June 30, 2003, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Gino N.
Pala, Chairman of Board and Co-Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) the 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 Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
A signed original of this written statement required by Section 906 has
been provided to the Company and will be retained by the Company and furnished
to the Securities and Exchange Commission or its staff upon request.
Date: August 14, 2003 By: /s/ GINO N. PALA
--------------- ----------------
Gino N. Pala
Chairman of Board, Co-Chief Executive Officer
and Director
25
Exhibit 32.2
------------
VICE CHAIRMAN OF BOARD AND CO-CHIEF EXECUTIVE OFFICER
-----------------------------------------------------
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
-------------------------------------------------
AS ADOPTED PURSUANT TO SECTION 906
----------------------------------
OF THE SARBANES-OXLEY ACT OF 2002.
----------------------------------
In connection with the Quarterly Report of Dixon Ticonderoga Company (the
"Company") on Form 10-Q for the period ending June 30, 2003, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Richard
F. Joyce, Vice Chairman of Board and Co-Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
(1) the 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 Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
A signed original of this written statement required by Section 906 has
been provided to the Company and will be retained by the Company and furnished
to the Securities and Exchange Commission or its staff upon request.
Date: August 14, 2003 By: /s/ RICHARD F. JOYCE
--------------- --------------------
Richard F. Joyce
Vice Chairman of Board, Co-Chief Executive
Officer, President and Director
26
Exhibit 32.3
------------
EXECUTIVE VICE PRESIDENT OF FINANCE AND CHIEF FINANCIAL OFFICER
---------------------------------------------------------------
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
-------------------------------------------------
AS ADOPTED PURSUANT TO SECTION 906
----------------------------------
OF THE SARBANES-OXLEY ACT OF 2002.
----------------------------------
In connection with the Quarterly Report of Dixon Ticonderoga Company (the
"Company") on Form 10-Q for the period ending June 30, 2003, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Richard
A. Asta, Executive Vice President of Finance and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the 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 Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
A signed original of this written statement required by Section 906 has
been provided to the Company and will be retained by the Company and furnished
to the Securities and Exchange Commission or its staff upon request.
Date: August 14, 2003 By: /s/ RICHARD A. ASTA
--------------- -------------------
Richard A. Asta
Executive Vice President of Finance,
Chief Financial Officer and Director