UNITED STATES
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 SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 333-58233
DIAMOND BRANDS INCORPORATED
(Exact name of registrant as specified in its charter)
MINNESOTA 411565294
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1800 CLOQUET AVENUE 55720
CLOQUET, MINNESOTA
(Address of principal executive offices) (Zip Code)
(218) 879-6700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [x] No [x]
As of November 13, 2000, 1,481,258 shares of common stock of the Registrant
were issued and outstanding. Of total outstanding shares of common stock on
November 10, 2000, 330,266 were held of record by affiliates. There is no
established public trading market for such stock.
Documents incorporated by reference: None
DIAMOND BRANDS INCORPORATED
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM - 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flow
Notes to Consolidated Financial Statements
ITEM - 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
ITEM - 3. Quantitative and Qualitative Disclosures about
Market Risk
PART II - OTHER INFORMATION
ITEM - 6. Exhibits and Reports on Form 8-K
SIGNATURE
DIAMOND BRANDS INCORPORATED
Consolidated Balance Sheets (Unaudited)
(In Thousands, Except Share and Per Share Amounts)
September 30, December 31,
2000 1999
------------- ------------
ASSETS
CURRENT ASSETS:
Accounts receivable, net of allowances of $1,264 and $1,354 $ 12,013 $ 14,311
Inventories 15,764 12,084
Deferred income taxes 3,250 2,671
Prepaid expenses 474 590
Net assets from discontinued operations - 1,589
--------- ---------
Total current assets 31,501 31,245
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation of $22,017 and $20,210 18,941 16,188
GOODWILL 23,841 24,381
DEFERRED INCOME TAXES 3,701 10,212
DEFERRED FINANCING COSTS 6,202 7,988
--------- ---------
$ 84,186 $ 90,014
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-tem debt (note 3) $ 79,300 $ 4,625
Accounts payable 3,045 5,768
Accrued expenses 12,883 7,702
--------- ---------
Total current liabilities 95,228 18,095
POSTRETIREMENT BENEFIT OBLIGATIONS 1,497 1,497
LONG-TERM DEBT, net of current maturities (note 3) 137,962 228,736
--------- ---------
Total liabilities 234,687 248,328
--------- ---------
COMMITMENTS AND CONTINGENCIES
Redeemable preferred stock, $0.01 par value; 1,000,000 shares authorized; 46,300 and 46,400
issued and outstanding, net of subscriptions receivable of $867 and $917 46,503 41,684
STOCKHOLDERS' DEFICIT:
Common stock, $.01 par value; 50,000,000 shares authorized;
1,481,258 and 1,482,600 shares issued and outstanding 15 15
Warrants 10,458 10,484
Additional paid in capital 1,488 1,488
Accumulated deficit (208,965) (211,985)
--------- ---------
Total stockholders' deficit (197,004) (199,998)
--------- ---------
$ 84,186 $ 90,014
========= =========
The accompanying notes are an integral part of
these consolidated balance sheets.
DIAMOND BRANDS INCORPORATED
Consolidated Statements of Operations (Unaudited)
(In Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- ---------
NET SALES $ 22,343 $ 24,234 $ 73,044 $ 76,120
COST OF SALES 16,471 14,682 50,397 47,050
-------- -------- -------- --------
Gross profit 5,872 9,552 22,647 29,070
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,341 2,812 9,166 9,219
GOODWILL AMORTIZATION 180 180 540 540
-------- -------- -------- --------
Operating income 2,351 6,560 12,941 19,311
INTEREST EXPENSE 5,886 6,366 17,985 18,765
-------- -------- -------- --------
Income (loss) from continuing operations before provision (benefit)
for income taxes and extraordinary item (3,535) 194 (5,044) 546
PROVISION (BENEFIT) FOR INCOME TAXES (1,343) 150 (1,804) 433
-------- -------- -------- --------
Income (loss) from continuing operations before extraordinary item (2,192) 44 (3,240) 113
DISCONTINUED OPERATIONS (Note 2):
Loss from discontinued operations, net of income tax benefit of
$530, $1,672, $530 and $2,628, respectively (795) (2,505) (795) (3,941)
-------- -------- -------- --------
Loss on disposal, net of income tax benefit of $9,696 for 1999 - (14,543) - (14,543)
-------- -------- -------- --------
Loss from discontinued operations (795) (17,048) (795) (18,484)
-------- -------- -------- --------
Loss before extraordinary item (2,987) (17,004) (4,035) (18,371)
Extraordinary gain from extinguishment of debt, net of income tax provision
of $8,265 (note 5) - - 12,398 -
-------- -------- -------- --------
Net income (loss) (2,987) (17,004) 8,363 (18,371)
Preferred stock dividends and accretion 1,660 1,443 4,843 4,211
-------- -------- -------- --------
Net income (loss) applicable to common stock $ (4,647) $(18,447) $ 3,520 $(22,582)
======== ======== ======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
DIAMOND BRANDS INCORPORATED
Consolidated Statements of Cash Flows (Unaudited)
(In Thousands)
Nine Months Ended
September 30,
------------------------
2000 1999
--------- ------------
OPERATING ACTIVITIES:
Net income (loss) $ 8,363 $(18,371)
Net assets of discontinued operations 1,589 25,930
Extraordinary gain from extinguishment of debt (20,663) -
Adjustments to reconcile net income(loss) to net cash provided by (used for)
operating activities from continuing operations-
Depreciation and amortization 3,148 3,007
Deferred income taxes 5,932 (11,891)
Accretion of debentures 3,749 4,808
Change in operating assets and liabilities-
Accounts receivable 2,298 (3,551)
Inventories (3,680) (936)
Prepaid expenses 116 286
Accounts payable (2,723) 1,787
Accrued expenses 5,181 2,888
-------- --------
Net cash provided by operating activities of continuing operations 3,310 3,957
-------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (4,559) (2,949)
-------- --------
Net cash used for investing activities of continuing operations (4,559) (2,949)
-------- --------
FINANCING ACTIVITIES:
Borrowings under bank revolving line of credit 19,150 17,400
Repayments of bank revolving line of credit (14,100) (16,150)
Repayments of long-term debt (3,375) (1,875)
Proceeds from issuance of debt 124 -
Repurchase of common stock (500) -
Redemption of preferred stock (50) -
Debt issuance costs - (383)
-------- --------
Net cash provided by (used for) financing activities of continuing operations 1,249 (1,008)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS - -
CASH AND CASH EQUIVALENTS, beginning of period - -
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ - $ -
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 10,405 $ 10,537
======== ========
Income taxes $ - $ 7
======== ========
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:
Retirement of discount debentures in exchange for convertible debt by an affiliate $ 9,425 $ -
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
DIAMOND BRANDS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Diamond Brands Incorporated ("Holdings") and its wholly owned subsidiary,
Diamond Brands Operating Corp. ("Operating Corp") and Operating Corp.'s
wholly owned subsidiaries, Forster Inc. and Empire Candle, Inc. (Empire)
after elimination of all material intercompany balances and transactions.
Holdings and Operating Corp. are collectively referred to as "the Company".
The consolidated financial statements have been restated to reflect the
candle operation as a discontinued operation as further discussed in Note 2.
The Company is a leading manufacturer and marketer of a broad range of
consumer products including wooden matches, toothpicks, clothespins and
wooden crafts and plastic cutlery and straws. The Company's products are
marketed primarily in the United States and Canada under the nationally
recognized Diamond and Forster brand names.
The interim consolidated financial statements of the Company are unaudited;
however, in the opinion of management, all adjustments necessary for a fair
presentation of such consolidated financial statements have been reflected
in the interim periods presented. The significant accounting policies and
certain financial information which are normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States, but which are not required for interim
reporting purposes, have been condensed or omitted. The accompanying
consolidated financial statements of the Company should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-K.
2. DISCONTINUED OPERATIONS
Effective September 30, 1999, the board of directors of the Company approved
the divestiture of the candle operations of the Company and recorded a total
charge for the loss from discontinued operations of approximately
$18,500,000, net of tax. For segment reporting purposes, the candle
operations were previously reported as the candles reportable segment.
On December 14, 1999, the Company entered into an agreement to sell the net
assets of Empire, which was included in the candle operations. The agreement
provided for the sale of certain assets and liabilities of Empire for a
total consideration of approximately $2,900,000. The sale resulted in a
decrease of the net loss on disposal of discontinued operations of
$2,300,000, net of tax, during the fourth quarter of 1999.
On November 1, 2000, the former owner of the candle operation was awarded a
judgement against Empire Candle, Inc. stemming from legal action regarding
certain inventory. For the period ended September 30, 2000, $795,000, net of
tax, was charged to discontinued operations to reflect this judgement and
additional deductions.
Net sales from discontinued operations were $0 and approximately $14,400,000
for the nine months ended September 30, 2000 and 1999, respectively
3. LONG TERM DEBT
The Company's existing senior credit agreement contains financial covenants.
As of September 30, 2000, the Company was not in compliance with the
financial covenants contained in the senior credit agreement. However, the
Company obtained a temporary waiver for non-compliance with such financial
covenants on October 13, 2000. The temporary waiver extends through March
31, 2001 and contains temporary financial covenants for the quarters ending
September 30, 2000 and December 31, 2000. The Company will be allowed to
continue to borrow under its senior credit agreement during the waiver
period so long the Company remains in compliance with its temporary
financial covenants and satisfies other customary conditions. As of
September 30, 2000, the Company was in compliance with all of the temporary
covenants contained in the waiver.
In order to continue borrowing under the senior credit facility after March
31, 2001, the Company must obtain another waiver prior to March 31, 2001.
Because another waiver is required in order to extend the existing waiver
past March 31, 2001, the Company has classified the Company's obligations
under the senior credit agreement as current liabilities on the accompanying
September 30, 2000 Consolidated Balance Sheet. See further discussion in the
Liquidity and Capital Resources section of Management's Discussion and
Analysis.
On April 26, 2000, certain shareholders made a $9.425 million 12 7/8% bridge
loan to the Company. The proceeds were used to retire $45 million face
value, $31.1 million accreted value, senior discount debentures on April 27,
2000. Effective June 2, 2000, the bridge loan plus accrued interest was
exchanged for $9.549 million of 12-7/8% convertible debt (See Note 6).
4. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
deferred tax assets arise primarily due to net operating loss carryforwards
expiring in various years through 2019. The Company believes the deferred
tax assets will be realizable through future profitable operations.
5. SEGMENT REPORTING
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company has one reportable segment,
consumer products, after the sale of the Company's candle operations (see
Note 2). The consumer product segment consists of plastic cutlery and
straws, matches, toothpicks, clothespins, wooden crafts and various
woodenware items sold primarily to grocery, mass and drug store channels.
Detailed revenue by product sold was as follows for the nine months ended
September 30 (in thousands):
2000 1999
-------- --------
Cutlery/straws $ 35,509 $ 33,316
Woodware 20,819 22,261
Wooden lights 13,947 16,975
Institutional/other 10,897 11,386
Discounts and Allowances (8,128) (7,818)
-------- --------
Total $ 73,044 $ 76,120
======== ========
6. EXTRAORDINARY ITEM
As discussed in Note 3, certain shareholders made a $9.425 million 12 7/8%
bridge loan to the Company with the proceeds used to retire $45 million face
value, $31.1 million accreted value, senior discount debentures. The
transaction was completed on April 27, 2000, and is presented as an
extraordinary gain from extinguishment of debt, net of income taxes of $8.3
million, of $12.4 million in the related consolidated statements of
operations.
7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This statement requires
the recognition of derivative instruments as assets and liabilities, based
on their fair value, and specifies certain methods for the recognition of
related gains and losses. In June 2000, the FASB issued SFAS No. 138, which
amends and clarifies certain guidance in SFAS No. 133. Diamond is in the
process of implementing the appropriate process to adopt these statements
effective January 1, 2001. Currently, Diamond does not anticipate the
adoption to materially impact its result of operations.
DIAMOND BRANDS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF CONTINUING OPERATIONS
The Company manufactures and markets consumer products, consisting primarily of
plastic cutlery/straws, wooden matches, toothpicks, clothespins and wooden
crafts. The Company's products are marketed primarily under the nationally
recognized Diamond and Forster brand names, which have been in existence since
1881 and 1887, respectively.
The Company derives its revenue primarily from the sale of its products to
substantially all major grocery stores, drug stores, mass merchandisers and
warehouse clubs in the United States. During the nine months ended September 30,
2000, sales to the Company's top 10 customers accounted for approximately 49.5%
of the Company's gross sales, with one customer accounting for approximately
20.5% of the Company's gross sales. The following table sets forth, for the
period indicated, certain historical statements of operations data, as well as
the Company's EBITDA and EBITDA margin, for the continuing operations of the
Company, with 1999 comparable results of continuing operations restated to
exclude discontinued operations.
THREE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1999
2000 1999
------ -------
(dollars in millions)
Total Total
------ -------
Net Sales $ 22.3 $24.2
Cost of Sales 16.5 14.7
----- -----
Gross Profit 5.8 9.5
Gross Profit % 26.0% 39.3%
Selling, General
and Administration Expense 3.3 2.8
Goodwill Amortization .2 .2
----- -----
Operating Income (1) $ 2.3 $ 6.5
====== =====
Interest Expense $ 5.9 $ 6.4
====== =====
EBITDA (2) $ 3.1 $ 7.3
====== =====
EBITDA Margin (3) 13.9% 30.2%
====== ======
(1) Excludes amortization of deferred financing costs.
(2) EBITDA represents operating income plus depreciation and amortization
(excluding amortization of deferred financing costs). The Company believes
that EBITDA provides useful information regarding the Company's ability to
service its debt; however, EBITDA does not represent cash flow from
operations as defined by generally accepted accounting principles and should
not be considered as a substitute for net income as an indicator of the
Company's operating performance or cash flow as a measure of liquidity.
(3) EBITDA margin represents EBITDA as a percentage of net sales.
Net sales for the Company were $22.3 million for the three months ended
September 30 2000, a $1.9 million or 7.9% decrease from net sales of $24.2
million for the three months ended September 30, 1999. Net sales of plastic
cutlery/straws increased 5.2%, but were offset by 14.7% decreased net sales in
all other product lines, including wooden matches and other woodenware products.
Gross profit was $5.8 million or 26.0% of net sales for the three months ended
September 30, 2000, compared to $9.5 million or 39.3% for the same period in
1999. Lower sales volume and increased raw material costs cause the lower gross
profit. Rising polystyrene costs, the primary plastic cutlery component, as well
as increased packaging costs adversely impacted gross margins.
Selling, general and administrative expenses were $3.3 million for the three
months ended September 30, 2000, compared to $2.8 million for the comparable
1999 period. Office staff reductions were made in the 3rd Quarter, 2000. As a
result, the quarter was impacted by a severance charge of $.3 million.
Interest expense for the three months ended September 30, 2000 was $5.9 million
compared to $6.4 million for the comparable 1999 period. Interest expense
decreased primarily due to lower interest expense associated with the retirement
of $45 million face value discounted bonds with $9.5 million convertible debt.
See Notes 3 and 5 in Notes to Consolidated Financial Statements.
RESULTS OF DISCONTINUED OPERATIONS
Effective September 30, 1999, the Board of Directors approved the divestiture of
the Candle operations of the Company and recorded a total charge from the loss
of the discontinued operations of approximately $18.5 million, net of tax. For
segment reporting purposes, the candle operations were previously reported as
the "Candles" reportable segment.
Effective December 14, 1999, the Company entered into an agreement to sell
certain assets and liabilities of Empire for total consideration of
approximately $2.9 million. The sale resulted in a decrease of the net loss from
discontinued operations of $2.3 million, net of tax, during the fourth quarter
of 1999.
On November 1, 2000, the former owner of the candle operation was awarded a
judgement against Empire Candle, Inc. stemming from legal action regarding
certain inventory. For the period ended September 30, 2000, $795,000, net of
tax, was charged to discontinued operations to reflect this judgement and
additional deductions.
RESULTS OF CONTINUING OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1999
2000 1999
------------ ------------
(dollars in millions)
Total Total
------ -------
Net Sales $ 73.0 $76.1
Cost of Sales 50.4 47.1
------ -----
Gross Profit 22.6 29.0
Gross Profit % 31.0% 38.1%
Selling, General
and Administration Expense 9.2 9.2
Goodwill Amortization .5 .5
------ -----
Operating Income (1) $ 12.9 $19.3
===== =====
Interest Expense $ 18.0 $18.8
====== =====
EBITDA (2) $ 15.3 $21.5
====== =====
EBITDA Margin (3) 21.0% 28.3%
====== =====
(1) Excludes amortization of deferred financing costs.
(2) EBITDA represents operating income plus depreciation and amortization
(excluding amortization of deferred financing costs). The Company believes
that EBITDA provides useful information regarding the Company's ability to
service its debt; however, EBITDA does not represent cash flow from
operations as defined by generally accepted accounting principles and should
not be considered as a substitute for net income as an indicator of the
Company's operating performance or cash flow as a measure of liquidity
(3) EBITDA margin represents EBITDA as a percentage of net sales.
Net sales were $73.0 million for the nine months ended September 30, 2000, a
$3.1 million or 4.1% decrease from net sales of $76.1 million for the nine
months ended September 30, 1999. Net sales of plastic cutlery/straws increased
7.2%, but were offset by 10.9% decreased net sales in all other product lines,
including wooden lights and other woodenware products.
Gross profit was $22.6 million or 31.0% of net sales for the nine months ended
September 30, 2000, compared to $29.0 million or 38.1% for the comparable 1999
period. Lower sales volume and increased raw material costs cause the lower
gross profit. Rising polystyrene costs, the primary plastic cutlery component,
as well as increased packaging costs adversely impacted gross margins.
Selling, general and administrative expenses were $9.2 million for the nine
months ended September 30, 2000, compared to $9.2 million for the comparable
1999 period.
Interest expense for the nine months ended September 30, 2000 was $18.0 million
compared to $18.8 million for the comparable 1999 period. Interest expense
decreased primarily due to lower interest expense associated with the retirement
of $45 million face value discounted bonds with $9.5 million convertible debt.
See Notes 3 and 5 in Notes to Consolidated Financial Statements.
RESULTS FROM DISCONTINUED OPERATIONS
On November 1, 2000, the former owner of the candle operation was awarded a
judgement against Empire Candle, Inc. stemming from legal action regarding
certain inventory. For the period ended September 30, 2000, $795,000, net of
tax, was charged to discontinued operations to reflect this judgement and
additional deductions.
EXTRAORDINARY ITEM
Certain shareholders made a $9.425 million 12 7/8% bridge loan to the Company
with the proceeds used to retire $45 million face value, $31.1 million accreted
value, senior discount debentures. The transaction was completed on April 27,
2000, and is presented as an extraordinary gain from extinguishment of debt, net
of income taxes of $8.3 million, of $12.4 million in the related consolidated
statements of operations. See Notes 3 and 5 in Notes to Consolidated Financial
Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's existing senior credit agreement contains financial covenants. As
of September 30, 2000, the Company was not in compliance with the financial
covenants contained in the senior credit agreement. However, the Company
obtained a temporary waiver for non-compliance with such financial covenants on
October 13, 2000. The temporary waiver extends through March 31, 2001 and
contains temporary financial covenants for the quarters ending September 30,
2000 and December 31, 2000. The Company will be allowed to continue to borrow
under its senior credit agreement during the waiver period so long as the
Company remains in compliance with its temporary financial covenants and
satisfies other customary conditions. As of September 30, 2000, the Company was
in compliance with all of the temporary covenants contained in the waiver.
In order to continue borrowing under the senior credit facility after March 31,
2001, we must obtain another waiver prior to March 31, 2001. Because another
waiver is required in order to extend the existing waiver past March 31, 2001,
we have classified the Company's obligations under the senior credit agreement
as current liabilities on the accompanying September 30, 2000 Consolidated
Balance Sheet. We cannot provide any assurances that we will be successful in
negotiating additional waivers or amendments to our senior credit agreement. If
we fail to obtain additional waivers or amendments, and cannot refinance the
existing senior credit facility or secure an additional source of liquidity, the
indebtedness under our senior credit facility may become due and our financial
condition and results of operation may be materially adversely affected. The
Company has been advised by its independent
public accountants that unless additional waivers or amendments are obtained
prior to December 31, 2000, the auditor's report on those financial statements
may contain qualifications.
The Company is highly leveraged. The Company's high degree of leverage may have
important consequences for the Company, including that (i) the ability of the
Company to obtain additional financing, if necessary, for working capital,
capital expenditures, acquisitions or other purposes may be impaired, or such
financing may not be available on terms favorable to the Company; (ii) a
substantial portion of the Company's cash flow will be used to pay the Company's
interest expense and, in the cases of indebtedness incurred in the future,
possible principal repayments, which will reduce the funds that would otherwise
be available to the Company for its operations and future business
opportunities; (iii) a substantial decrease in net operating cash flows or an
increase in expenses of the Company could make it difficult for the Company to
meet its debt service requirements and force it to modify its operations; (iv)
the Company may be more highly leveraged than its competitors, which may place
it at a competitive disadvantage; and (v) the Company's high degree of leverage
may make it more vulnerable to a downturn in its business, the general economy
or interest rate increases. Any inability of the Company to service its
indebtedness or to obtain additional financing, as needed, would have a material
adverse effect on the Company's business.
CASH FLOW - OPERATING ACTIVITIES. Cash provided by operating activities was $3.3
million for the nine months ended September 30, 2000. Cash provided by operating
activities was $4.0 million for the comparable 1999 period. Cash used for
inventory and accounts payable was $7.3 million higher while cash provided by
accounts receivable and other accrued expenses was $8.1 million higher.
CASH FLOW - INVESTMENT ACTIVITIES. Capital expenditures of $4.6 million for the
nine months ended September 30, 2000, were primarily used to expand capacity at
the cutlery plant. Planned capital expenditures for 2000 are $3.2 million.
Capital expenditures for the comparable period in 1999 were $2.9 million.
CASH FLOW - FINANCING ACTIVITIES. Cash provided by financing activities was $1.2
million for the nine months ended September 30, 2000, as compared to cash used
for financing activities of $1.0 million for the same period in 1999. Line of
credit net borrowings were $5.05 million for the nine months ended September 30,
2000, compared to 1999 nine months net borrowings of $1.25 million.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This document contains statements that constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. When
used in this document, the words "anticipates," "plans," "believes,"
"estimates," "expects," and similar expressions are intended to identify
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, but are not limited to:
the Company's highly leveraged capital structure, its substantial principal
repayment obligations, price and product changes and promotional activity by
competitors, the loss of a significant customer, the difficulties of integrating
acquisitions, adverse publicity and product liability claims and dependence on
key employees. The risk factors described herein could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statements of the Company and investors, therefore, should not place undue
reliance on any such forward-looking statements. Further, any forward-looking
statement speaks only as of the date on which such statement is made, and the
Company undertakes no obligation to update any forward-looking statement or
statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time, and it is not possible for management to
predict all such factors. Further, management cannot assess the impact of each
such factor on the Company's business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in reported market risks since December 31, 1999.
See discussion at Item 7a in the Company's annual report on Form 10-K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit No.
10.1 Amendment No. 2 to credit agreement dated April 21, 1998.
27 Financial data schedule worksheet
b. Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
September 30, 2000.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIAMOND BRANDS INCORPORATED (Registrant)
By:/s/ William L. Olson
-------------------------------------------------------
William L. Olson, Vice President of Finance
(authorized officer, principal financial and accounting
officer)
Date: November 13, 2000
-----------------