Unless you haven’t ever used a pencil in your life, you have at least once experienced the Dixon Ticonderoga. For an entry-level, mass-produced pencil it is the best you can find. Strong lead, smooth writing and quality workmanship has kept these guys number one for many years. Let’s take a look back at how and where it all began:
Early History: An Entrepreneur in Search of a Market
For Joseph Dixon, the bustle of commerce along the waterfront in his native Marblehead, Massachusetts, provided the inspiration for his lifelong work, an inspiration that was remarkable for two reasons: it came from a sight seen nearly every day by the residents of Marblehead and it came to Dixon when he was only 13 years old. Born in 1799, Dixon was the son of a local ship owner and, naturally, spent a considerable amount of time at the harbor watching ships arrive and depart from Marblehead’s busy port. Bound for destinations along the Eastern Seaboard, to ports in Europe, and to as far away as the Orient, the ships left loaded with goods, the weight of which functioned as a ballast to keep the vessels upright. When ships returned without any goods, ship owners filled their hulls with sand or stones to give their ships the necessary ballast to counteract the weight of the ship’s sails. Ship owners, like Dixon’s father, who sailed between the Orient and Marblehead, used Ceylonese graphite as ballast for their ships, then dumped the graphite once back home. This wasted substance, which generally was discarded in the bay, was the source of Dixon’s inspiration, the common occurrence he noticed one fateful day in 1812 that led to the creation of Dixon Ticonderoga and the country’s dependence on the ubiquitous and indispensable pencil.
With the help of a local chemist named Francis Peabody and a cabinetmaker named Ebenezer Martin, Dixon was able to make a crude pencil, certainly not the first such writing instrument, but an item that was regarded nevertheless as somewhat of an oddity by Americans at the time. Pencils first appeared shortly after 1564, when a storm in Cumberland, England, uprooted a large tree and exposed a rich deposit of plumbago, or “black lead,” the purest form of graphite yet discovered. Shepherds used chunks of this graphite to mark their sheep. These early versions–sticks of graphite known as “marking stones”–were considerably more primitive than Dixon’s first attempts, but after several centuries of gradual improvements, pencils began to rival goose quills as the writing instruments of choice, the most noteworthy among the pencil’s adherents being Napoleon Bonaparte, who reportedly became upset when his campaign to overrun Europe led to a paucity of graphite pencils. Accordingly, it was not so much the originality of Dixon’s work with pencils, but his persistence in marketing the products that earned him the distinction as one of the pioneers of the U.S. pencil industry.
The same year in which Dixon’s waterfront observations led him to make his first pencil, the War of 1812 broke out, stanching the flow of British graphite into the United States, but dwindling supply did not spark increased demand. Americans, in contrast to Europeans, still had not developed an affinity for pencils. That relationship would be engendered later, by another war; Dixon, meanwhile, moved on to other interests, maintaining through his teenage years his fascination with pencils while pursuing an education in printing, medicine, and chemistry.
Ten years after his first introduction to pencil fabrication, Dixon, age 23, married the daughter of the cabinetmaker who had helped him construct his first pencil. Together, Dixon and Hannah Martin–who established a company in 1827 that would eventually be called the Joseph Dixon Crucible Company–began experimenting with different ways to make pencils, a process that accidentally led to considerable success with another product, one of several innovative successes credited to Dixon. Through their experimentation with graphite, the Dixons discovered the substance could be used as an effective stove polish, which they marketed, to widespread demand, as Dixon’s Stove Polish. The product sold exceptionally well throughout the country, giving the couple sufficient profits to develop and refine their pencil business. The result of their labor and monetary investment were pencils they could produce and sell for ten cents apiece, but demand for their products still eluded them.
Dixon, however, did not go the route of a penniless entrepreneur selling his product to an unreceptive audience. Instead, he continued to find other, more marketable uses for graphite that met with considerable success. With the start of the Mexican-American War in 1846, iron and steel production in the United States increased substantially, and Dixon, producing a heat-resistant graphite crucible (a vessel used for melting iron and steel at high temperatures) shared in the profits spawned by increased military spending. He built a crucible factory in Jersey City, New Jersey, and moved the Joseph Dixon Crucible Company there in 1847, manufacturing crucibles, stove polish, and, of course, pencils. Dixon’s crucibles sold well, but as before his attempt to generate profits from producing pencils met with disappointing results. After his first year of business, Dixon pocketed $60,000 from the sale of crucibles and lost $5,000 from selling pencils, financial results indicative of his more than 20-year history in the pencil business and his almost begrudging success with other products.
Success in Selling Pencils, Later 1800s
The country’s next war finally engendered Dixon’s long-awaited dream, as more and more Americans began buying and using pencils. More easily carried than quills and ink, pencils became popular with Union and Confederate soldiers during the Civil War, and their use spread throughout the country. By 1866, Dixon had invented a wood planing machine that churned out 132 pencils per minute, enabling him to meet the rising demand for his four-inch long, cedar pencils. Three years later, however, just as the pencil segment of the Joseph Dixon Crucible Company began to perform on an equal level with his stove polish and crucible segments, Dixon died, 57 years after his work with pencils had begun. In addition to his accomplishments with stove polish and graphite crucibles, Dixon had also designed a camera with a mirror–the precursor to the modern photographic viewfinder–and had patented a double-crank steam engine. He had also invented a new method for tunneling underwater, developed a photolithography process used in printing banknotes that was designed to thwart counterfeiters, and attracted the prestigious company of fellow American inventors Robert Fulton, Samuel Morse, and Alexander Graham Bell. None of these achievements, however, ranked in Dixon’s mind as equal to his lifelong achievements with pencils.
After Dixon’s death, his son-in-law took control of the company and presided over the first decade of genuine success in selling vast numbers of pencils. By 1872, the factory in Jersey City was making 86,000 pencils a day, which was roughly one-third of American consumption at the time. The following year, the company purchased the Ticonderoga, New York-based American Graphite Company. The addition of American Graphite and the city in which it was located (near a fort of the same name that passed between British and American control during the American Revolution) eventually–in 1913–led to a brand name change in the company’s pencils. Dixon pencils became Dixon Ticonderoga pencils, although the company continued to be known as the Joseph Dixon Crucible Company. Meantime, leadership of the company devolved into receivership in 1883, when a bank president named Edward F.C. Young assumed control of the company, which he then passed to his son-in-law, George T. Smith.
By World War I, competition in the pencil market had intensified. European manufacturers had joined the fray, led by German and Japanese pencil producers, while in the United States, four pencil manufacturers, the “Big Four,” battled for market share. Along with Eberhard Faber, American, and Eagle, Dixon was one of the four pencil manufacturers in the country that wielded overwhelming control over the market, together accounting for 90 percent of the pencil sales in the United States. Despite their enviable position, Dixon and the other three dominant pencil manufacturers began clamoring for increased tariffs in the early 1920s to staunch the flow of cheaper German and Japanese pencils entering the United States. A decade later, as foreign competition mounted and the Great Depression tapered demand, the Big Four’s market share slipped to 75 percent.
World War II resuscitated the American economy and along with it the demand for pencils. By 1942, despite shortages of graphite, clay, metal, and rubber, 1.5 billion pencils were being produced annually, and Dixon, as one of the largest in the industry, captured a lion’s share of the booming market. After the war, demand slipped slightly to 1.3 billion pencils a year, but whatever the annual volume of demand, the industry’s Big Four, almost exclusively, continued to supply it. By 1954, however, the Big Four’s 30-year dominance of the industry had drawn the attention of federal officials and each was charged with violating the Sherman Antitrust Act. Together, Dixon, Eberhard Faber, American, and Eagle generated $15 million in annual sales, accounted for 50 percent of domestic sales and 75 percent of export sales, and controlled all aspects of pencil production, which, as the U.S. government alleged, included price-fixing. Each entered pleas of no contest, agreed in a consent decree to desist from further illegal practices, and paid a nominal $5,000 fine apiece. Also in 1954, Joseph Dixon Crucible Company de Mexico S.A. was established to manufacture pencils and color pencils for the Mexican and U.S. markets.
Following the company’s legal turmoil, Dixon began to feel pressure from the pencil industry’s fifth largest competitor, Empire, which prompted Dixon to redesign the packaging of its products and effect a merger, in 1957, with the American Crayon Company. Based in Sandusky, Ohio, American Crayon manufactured “Old Faithful” pencils, Prang school and marking crayons, and Tempera colors and art materials, which were then added to the Dixon product line, giving the company a broader supply of graphite lead pencils and valuable connections with the nation’s school system, one of American Crayon’s primary customers.
Gino Pala, Bryn Mawr, and the Creation of Dixon Ticonderoga in the Early 1980s
While for Dixon the next two decades passed without any major developments, significant events were occurring elsewhere that would result in a change in ownership for the venerable pencil and crucible manufacturer. Several years after Dixon merged with American Crayon, a series of events began unfolding in a small, family owned bar and restaurant. The restaurant was Pala’s Café in Wilmington, Delaware, run by Gino N. Pala, who left school in the 11th grade and began working in his father’s fruit market in 1944. Shortly after his 21st birthday, Pala began running the family restaurant and bar in Wilmington, which by the mid-1960s had become a meeting place for the city’s lawyers and real estate developers. During this time, some of the executives who frequented Pala’s Café began inviting Pala to join them in their investments. Pala, who had been running the café for roughly 20 years by this time and had profited from a furniture business he and his brother had opened in 1954, had the cash and began investing it with some of his customers. One customer with whom Pala became particularly involved was David K. Brewster, a former deputy attorney general and securities commissioner of Delaware. In 1975 Pala and Brewster bought 20 percent of the shares in a company called Electric Hose & Rubber for $1.6 million, then initiated a proxy fight to gain control of the company. They lost the battle, but the company’s management ended up buying the shares back for $2.4 million, giving each investor a healthy profit.
Pala and Brewster combined forces again in 1978, paying $1.5 million for a 51 percent stake in a failing real estate, restaurant, and bus company named Bryn Mawr Corporation. With $9 million of debt, Bryn Mawr needed much attention, so Pala ceded control of his restaurant to a younger brother, then moved to Florida and began selling off Bryn Mawr’s assets. Several years and $25 million in assets later, Pala had revived Bryn Mawr, enabling the company to net $10 million in pretax profits. Pala and Brewster then began looking for another acquisition, and in 1981 found one: the Joseph Dixon Crucible Company.
Dixon had since become a lackluster performer, earning $1 million in 1981 on revenues of $64 million, then recording a $1 million loss the following year as revenues slipped to $57 million. After acquiring 13 percent of Dixon’s stock, Pala and Brewster convinced the company’s management to approve a merger between Bryn Mawr and Dixon, which was concluded in 1983. Concurrent with the merger, the Joseph Dixon Crucible Company became Dixon Ticonderoga Company, adding the brand name of its famous yellow and green pencils to its corporate title. Headquarters were shifted to Vero Beach, Florida, where Bryn Mawr had been based. Shortly thereafter, the company exited the crucible business entirely. In 1982, meantime, as this merger was being effected, Dixon acquired Wallace Pencil Company and its production facility in Versailles, Missouri. Subsequently, Dixon’s pencil-making operations were gradually shifted from Jersey City to this Versailles (pronounced ver-SALES) plant.
Once in control, Pala sold off some of the company’s assets, consolidated operations, revamped some of the company’s manufacturing plants, and by 1985 had paid off $5.4 million of debt. Under Pala’s stewardship, Dixon prospered for the next three years, expanding the scope of its operations and the breadth of its product line along the way. In 1986 Dixon purchased David Kahn Inc., a manufacturer of writing instruments marketed under the Wearever brand name, then two years later acquired Ruwe Pencil, National Pen & Pencil, and St. Louis Pencil. By 1988, the company’s net income had eclipsed $3 million on revenues of nearly $80 million. Shortly thereafter, however, problems began to surface as the company’s three-year period of financial growth turned into a retrogressive slide.
Early 1990s Difficulties Followed by a Brief Resurgence
In an effort to explain Dixon’s anemic financial performance, Pala later related to the Orlando Business Journal that “I hired guys that I thought could run the company, [but] they didn’t know how to run a business,” an imputation that was evident in the precipitous drop in Dixon’s net income. Now based in Maitland, Florida (near Orlando), the company lost $5 million in 1990, halfway through an injurious earnings drought that left Dixon without a profit in 1989, 1990, and 1991. To effect a recovery, Pala reorganized Dixon’s sales, marketing, and customer service operations, closed down two inefficient manufacturing plants in Ontario and Shelbyville, Tennessee, and trimmed superfluous layers of middle management. By virtue of such measures, Dixon once again returned to the black in 1992, when the company reported a modest yet reassuring $327,000 in net income.
After recording a meager $3,000 gain in net income in 1993, the company plotted its course for the mid-1990s and beyond, revitalized but yet to capitalize financially on the steps its management had taken to provide for a more profitable future. By reformulating the company’s marketing strategy to embrace national office wholesalers and streamlining its manufacturing operations in the early 1990s, Pala and Dixon’s management had repositioned the company for such a future.
The strategic initiatives implemented by Pala did indeed prove largely successful for most of the 1990s. Results for 1994 were strong: $3.3 million in profits on revenues of $92.1 million, the latter up 12 percent from the previous year. In September 1994, in an unintentionally well-timed move, Dixon sold 49.9 percent of its formerly wholly owned Mexican subsidiary through an initial public offering (IPO) on the Mexican stock market. The IPO provided the company with about $5 million in proceeds, which helped it reduce its total debt by $7.5 million, or nearly 20 percent. It also insulated Dixon from the Mexican peso devaluation of December 1994, which put severe strains on the Mexican economy and engendered a sharp drop in sales at the company’s Mexican subsidiary.
By 1996, with direct sales to consumers via mass-market retailers continuing to increase, Dixon Ticonderoga achieved revenues in excess of $100 million for the first time. That same year, the firm moved its headquarters yet again, this time to Heathrow, Florida (north of Orlando). One year later it introduced what it claimed was the first new crayon in 100 years. Prang Soybean Crayons debuted in 1997, made not from paraffin wax, an oil-drilling byproduct, as other crayons were, but from soybeans, touted by Dixon as “a renewable resource” and “environmentally friendly.” Dixon further contended that the new crayons did not flake and offered smoother application and brighter color than petroleum-based crayons. Packaging for the entire Prang line was concurrently overhauled, featuring black boxes adorned with animals and a new logo. Backed by a major marketing campaign, the new crayon line graced the shelves of such national retailers as Wal-Mart, Target, Staples, Office Depot, and OfficeMax. Also in 1997, Dixon acquired Vinci de Mexico, S.A. de C.V., a manufacturer of paints, chalk, and crayons for the Mexican and South American markets.
During the late 1990s, revenues at Dixon Ticonderoga peaked in 1998 at $124.7 million, while profits reached a height of $6.7 million the following year. The latter figure was aided in great measure by the sale that year of the firm’s graphite division to Asbury Carbons Inc. for $23.5 million. The divestment was intended both to improve Dixon’s balance sheet and to heighten its focus on its growing consumer products business, which now accounted for 80 percent of overall revenue. As sales began falling in 1999, Dixon reduced its workforce of 1,550 by about 150 employees and further consolidated its U.S. manufacturing operations as cost-saving measures.
Early 2000s: Return to Red Ink, Possible End to Independence
In March 1999 Richard F. Joyce, Pala’s son-in-law, was named president and co-CEO, with Pala remaining chairman (a position he had held since February 1989) and co-CEO. Joyce had joined Dixon as corporate counsel in July 1990 and had also served as vice-chairman of the board since January 1990. The new management team had to immediately contend with declining sales, a return to red ink, and mounting cash-flow problems. One of the key factors sparking this latest challenge to the venerable firm was increasing competition from overseas pencil makers, particularly from China. Although demand for pencils in the United States grew in the 1990s, American pencil makers actually shipped fewer pencils at the end of the decade than at the beginning. The main reason was that cheap imports from China helped increase foreign manufacturers’ share of the U.S. market from 16 percent to more than 50 percent–despite the U.S. government’s imposition in 1994 of heavy antidumping duties on Chinese pencils. Throughout the 1990s, Dixon pursued various ways to cut its pencil manufacturing costs, such as shifting from California incense cedar to lower-priced Indonesian jelutong wood, for all but its premium Ticonderoga brand; and buying erasers from a Korean rather than its traditional U.S. supplier.
Although the pencil industry won renewed duties on pencil imports from China in mid-2000, Dixon reached the conclusion that it had to shift more of its own manufacturing outside of the United States in order to survive. During 2000 it moved some production to Mexico and established a wholly owned production subsidiary in China. The Chinese plant began producing wooden slats, which were shipped to Mexico for assembly along with U.S.-produced graphite and erasers from Korea. Its Mexican manufacturing operations were also overhauled: Three plants were closed, 125 workers were terminated, and manufacturing operations were consolidated in a single, 300,000-square-foot facility. A restructuring charge of $1.6 million resulted in a loss of nearly $800,000 for 2000 on sales of $102.9 million.
Revenues fell to $90.5 million in 2001, and then stagnated at around $89 million over the following three years. The red ink continued through 2003 in part because of restructuring, debt refinancing, and other costs. During 2002 the company closed its crayon plant in Sandusky, Ohio (making the Versailles plant its only U.S. manufacturing facility), shifting the production to Mexico and eliminating an additional 115 jobs. A restructuring charge of $1.6 million was taken that year. In addition, Dixon divested its last remaining industrial division, selling New Castle Refractories to local management in late 2003. Dixon Ticonderoga was now focused exclusively on consumer products. Special items led to a net loss of $1.4 million for 2003, but Dixon managed to turn a profit on its continuing operations, a hopeful sign for the future.
Early in 2004 Dixon entered into talks with Jarden Corp. about being acquired by the Rye, New York-based company. Jarden had been growing rapidly during the early 2000s by acquiring a series of consumer product manufacturers. But Jarden, which had been considering a $5 per share bid for Dixon–for a total of $16.5 million–pulled out of the potential deal in March. Dixon, meanwhile, went on to post its best annual results since 1999 for the fiscal year ending in September 2004, finally reaping the benefits of its years-long consolidation, cost-containment, and debt-reduction efforts. Profits totaled $1.7 million on revenues of $88.2 million. It appeared, however, that the newly resurgent firm founded nearly two centuries earlier by Joseph Dixon would finally lose its independent status. In December 2004 Dixon Ticonderoga entered into an agreement to be acquired by Fila-Fabbrica Italiana Lapis ed Affini S.p.A., a producer of design and writing instruments, art materials, and modeling paste based in Milan. The Italian firm’s brands included Giotto, Tratto, Pongo, Das, and Dido. Fila agreed to pay $7 per share in cash for Dixon’s stock, or $22.4 million.