-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CGURDlx2KAheVYUhS56CKdar8z2Nh1/j+oUXjrJr94yo7FjbdHf7xDqp9tEDGY+L KvXVcCWor0exMkX0fYzqeQ== 0000950128-99-000680.txt : 19990415 0000950128-99-000680.hdr.sgml : 19990415 ACCESSION NUMBER: 0000950128-99-000680 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TUSCARORA INC CENTRAL INDEX KEY: 0000821538 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS FOAM PRODUCTS [3086] IRS NUMBER: 251119372 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17051 FILM NUMBER: 99593820 BUSINESS ADDRESS: STREET 1: 800 FIFTH AVE CITY: NEW BRIGHTON STATE: PA ZIP: 15066 BUSINESS PHONE: 4128438200 MAIL ADDRESS: STREET 1: 800 FIFTH AVENUE CITY: NEW BRIGHTON STATE: PA ZIP: 15066 FORMER COMPANY: FORMER CONFORMED NAME: TUSCARORA PLASTICS INC DATE OF NAME CHANGE: 19920703 10-Q 1 TUSCARORA INCORPORATED 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------- -------------------- Commission file number 000-17051 Tuscarora Incorporated (Exact name of registrant as specified in its charter.) Pennsylvania 25-1119372 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 800 Fifth Avenue New Brighton, Pennsylvania 15066 (Address of principal executive offices) (Zip Code) 724-843-8200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of April 1, 1999, 9,498,197 shares of Common Stock, without par value, of the registrant were outstanding. 2 TUSCARORA INCORPORATED INDEX
Page ---- Part I. Financial Information Item 1. Financial Statements. Condensed Consolidated Balance Sheets at February 28, 1999 and August 31, 1998 3 Condensed Consolidated Statements of Income - Three and six month periods ended ended February 28, 1999 and February 28, 1998 4 Condensed Consolidated Statements of Cash Flows - Six months ended February 28, 1999 and February 28, 1998 5 Notes to Condensed Consolidated Financial Statements 6 - 8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 9 - 12 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 13 Item 6. Exhibits and Reports on Form 8-K. 14
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TUSCARORA INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, AUGUST 31, 1999 1998 ------------- ------------- (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,132,223 $ 5,452,281 Trade accounts receivable, net of provision for losses 34,861,763 34,239,819 Inventories 22,414,945 20,158,857 Prepaid expenses and other current assets 3,471,559 1,955,310 ------------- ------------- 61,880,490 61,806,267 PROPERTY, PLANT AND EQUIPMENT, net 98,169,274 97,538,209 OTHER ASSETS Goodwill 8,800,820 8,905,355 Other non-current assets 3,401,310 3,916,075 ------------- ------------- Total Assets $ 172,251,894 $ 172,165,906 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 5,321,709 $ 5,321,709 Accounts payable 14,664,012 14,178,763 Accrued income taxes 334,747 337,711 Accrued payroll and related taxes 870,668 1,133,192 Other current liabilities 4,504,494 5,975,400 ------------- ------------- 25,695,630 26,946,775 LONG-TERM DEBT - less current maturities 59,284,091 61,184,124 DEFERRED INCOME TAXES 1,297,299 1,677,978 OTHER LONG-TERM LIABILITIES 2,848,955 2,833,072 ------------- ------------- Total Liabilities 89,125,975 92,641,949 SHAREHOLDERS' EQUITY Preferred Stock - par value $.01 per share; authorized shares, 2,000,000; none issued -- -- Common Stock - without par value; authorized shares, 50,000,000; issued shares, 9,537,474 at February 28, 1999 and 9,530,856 at August 31, 1998 9,537,474 9,530,856 Capital surplus 1,512,514 1,435,582 Retained earnings 72,953,045 68,240,138 Foreign currency translation adjustments (405,757) 392,150 ------------- ------------- 83,597,276 79,598,726 Less cost of reacquired shares of Common Stock; 34,820 shares at February 28, 1999 and 4,620 at August 31, 1998 (471,357) (74,769) ------------- ------------- Total Shareholders' Equity 83,125,919 79,523,957 ------------- ------------- Total Liabilities and Shareholders' Equity $ 172,251,894 $ 172,165,906 ============= =============
Note: The consolidated balance sheet at August 31, 1998 has been taken from the audited financial statements and condensed. See notes to condensed consolidated financial statements. 3 4 TUSCARORA INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended February 28, February 28, February 28, February 28, 1999 1998 1999 1998 ------------- ------------- ------------ -------------- Net Sales $ 53,640,580 $ 55,919,163 $114,106,315 $117,211,469 Cost of Sales 41,626,953 44,515,644 87,005,377 90,709,009 ------------ ------------ ------------ ------------ Gross profit 12,013,627 11,403,519 27,100,938 26,502,460 Selling and Administrative Expenses 7,749,612 8,164,765 15,400,526 16,030,718 Restructuring Costs - 3,495,336 - 3,495,336 Interest Expense 1,182,085 1,176,773 2,393,916 2,333,940 Other (Income) Expense - net (9,397) (36,866) (130,230) (55,506) ------------ ------------ ------------ ------------ Total expenses 8,922,300 12,800,008 17,664,212 21,804,488 ------------ ------------ ------------ ------------ Income (loss) before income taxes 3,091,327 (1,396,489) 9,436,726 4,697,972 Provision (Benefit) for Income Taxes 1,199,092 (507,204) 3,580,084 1,814,786 ------------ ------------ ------------ ------------ Net income (loss) $ 1,892,235 $ (889,285) $ 5,856,642 $ 2,883,186 ============ ============ ============ ============ Basic net income (loss) per common share $.20 $(.09) $.62 $.31 ==== ===== ==== ==== Diluted net income (loss) per common share $.20 $(.09) $.61 $.30 ==== ===== ==== ==== Weighted average common shares outstanding Basic 9,509,061 9,482,331 9,518,002 9,445,777 ========= ========= ========= ========= Diluted 9,597,506 9,482,331 9,598,541 9,642,152 ========= ========= ========= =========
See notes to condensed consolidated financial statements. 4 5 TUSCARORA INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED FEBRUARY 28, 1999 1998 ---- ---- Operating Activities Net Income $ 5,856,642 $ 2,883,186 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 7,843,839 7,982,665 Amortization 607,943 568,378 Write down of assets due to restructuring -- 2,085,774 Provision for losses on receivables 137,879 118,457 Decrease in deferred income taxes (321,861) (1,080,320) Loss (gain) on disposition of property, plant and equipment, net (184,065) 84,260 Stock compensation expense 6,127 7,063 Changes in operating assets and liabilities, net of effects of business acquisitions: Decrease (increase): Trade accounts receivable (322,949) (1,331,388) Inventories (1,796,889) (3,673,335) Prepaid expenses and other current assets (1,823,205) (1,862,623) Other non-current assets (67,677) (143,462) Increase (decrease): Accounts payable 264,647 793,468 Accrued income taxes 28,089 (909,092) Accrued payroll and related taxes (277,209) 11,508 Other current liabilities (1,361,263) 375,685 Other long-term liabilities (133,737) (18,061) ------------ ------------ Cash provided by operating activities 8,456,311 5,892,163 ------------ ------------ Investing Activities Purchase of property, plant and equipment (7,681,740) (12,973,758) Business acquisitions, net of cash acquired (2,379,324) (87,882) Proceeds from sale of property, plant and equipment 694,810 476,477 ------------ ------------ Cash (used for) investing activities (9,366,254) (12,585,163) ------------ ------------ Financing Activities Proceeds from long-term debt 1,000,000 6,000,000 Payments on long-term debt (2,890,006) (2,812,093) Dividends paid (1,143,735) (1,042,887) Proceeds from sale of Common Stock 77,414 122,980 Payments to reacquire Common Stock (396,588) -- ------------ ------------ Cash provided by (used for) financing activities (3,352,915) 2,268,000 ------------ ------------ Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents (57,200) 25,490 ------------ ------------ Net decrease in cash and cash equivalent (4,320,058) (4,399,510) Cash and Cash Equivalents at Beginning of Period 5,452,281 5,095,149 ------------ ------------ Cash and Cash Equivalents at End of Period $ 1,132,223 $ 695,639 ============ ============
See notes to condensed consolidated financial statements. 5 6 TUSCARORA INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Condensed Consolidated Financial Statements The condensed consolidated balance sheet at February 28, 1999 and the consolidated statements of income and consolidated statements of cash flows for the periods ended February 28, 1999 and February 28, 1998 have been prepared by the Company, without audit. In the opinion of Management, all adjustments necessary to present fairly the financial position, results of operations and changes in cash flows at February 28, 1999 and for the periods presented have been made. The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements prepared in accordance with generally accepted accounting principles. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's 1998 Annual Report to Shareholders and incorporated by reference in the Company's annual report on Form 10-K for the fiscal year ended August 31, 1998. The results of operations for the period ended February 28, 1999 are not necessarily indicative of the operating results to be expected for the full year. 2. Inventories Inventories are summarized as follows:
February 28, August 31, 1999 1998 ---- ---- Finished goods $ 10,717,185 $ 10,454,863 Work in process 582,024 257,055 Raw materials 9,719,937 7,510,482 Supplies 1,395,799 1,936,457 ------------ ------------ $ 22,414,945 $ 20,158,857 ============ ============
3. Comprehensive Income As of September 1, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income", which establishes rules for the reporting and display of comprehensive income and its components. SFAS No. 130 requires foreign currency translation adjustments which are reported separately in shareholders' equity to be included in comprehensive income. The adoption of this Statement had no impact on the Company's net income or shareholders' equity. Total comprehensive income for the three and six month periods ended February 28, 1999 and 1998 was as follows:
Three Months Ended Six Months Ended February 28, February 28, 1999 1998 1999 1998 ---- ---- ---- ---- Net Income $ 1,892,235 $ (889,285) $ 5,856,642 $ 2,883,186 Foreign currency translation (loss) gain (691,202) (116,731) (797,907) 78,116 ----------- ----------- ----------- ----------- Comprehensive income $ 1,201,033 $(1,006,016) $ 5,058,735 $ 2,961,302 =========== =========== =========== ===========
At February 28, 1999 and 1998, accumulated other comprehensive income (expense) which consisted entirely of foreign currency translation adjustments, amounted to ($405,757) and $128,115, respectively. 6 7 4. Net Income Per Share The following table sets forth the computation of basic and diluted net income per common share in accordance with the provisions of SFAS No. 128.
Three Months Ended Six Months Ended February 28, February 28, 1999 1998 1999 1998 ---- ---- ---- ---- Net income $ 1,892,235 $ (889,285) $ 5,856,642 $ 2,883,186 =========== =========== =========== =========== Weighted average common shares outstanding - basic 9,509,061 9,482,331 9,518,002 9,445,777 Effect of dilutive securities: Stock options 88,445 -- 80,539 196,375 ----------- ----------- ----------- ----------- Weighted average common shares outstanding - diluted 9,597,506 9,482,331 9,598,541 9,642,152 Basic net income per common share $ 0.20 $ (0.09) $ 0.62 $ 0.31 =========== =========== =========== =========== Diluted net income per common share $ 0.20 $ (0.09) $ 0.61 $ 0.30 =========== =========== =========== ===========
Securities not included in the computation of diluted net income per share for each period presented were as follows:
Three Months Ended Six Months Ended February 28, February 28, 1999 1998 1999 1998 ---- ---- ---- ---- Stock options 454,825 820,653 454,825 90,100 Option price range $14.96-$19.16 $5.17-$14.96 $14.96-$19.16 $19.16 Expiration date 10/24/05 - 7/20/98- 10/24/05 - 10/22/07 10/22/07 10/22/07 10/22/07
The options to purchase shares of Common Stock not included in the computation of diluted net income per share for the three months ended February 28, 1999 and the six months ended February 28, 1999 and 1998 were excluded because the exercise price of the stock options was greater than the average market price of the Common Stock during the periods. No stock options outstanding during the three months ended February 28, 1998 were included in the computation of diluted net income per share due to the net loss for the period. 5. Increase in Authorized Shares An amendment of the Company's Restated Articles of Incorporation to increase the number of authorized shares of the Company's Common Stock, without par value, from 20,000,000 shares to 50,000,000 shares and to increase the number of authorized shares of the Company's Preferred Stock, par value $.01 per share, from 1,000,000 shares to 2,000,000 shares was adopted by the Company's shareholders at the Company's Annual Meeting of Shareholders held on December 17, 1998. The amendment became effective upon the filing of Articles of Amendment with the Pennsylvania Department of State on December 21, 1998. 7 8 6. Business Acquisition On February 2, 1999, the Company acquired the custom molding business, including the associated real estate, of Berry Packaging, Inc. in Sallisaw, Oklahoma for cash. The aggregate purchase price, part of which will be paid to the seller based on sales realized by the business acquired, is not material. The acquisition has been accounted for as a purchase and a portion of the purchase price has been allocated to goodwill. 7. Share Repurchase Program In October 1998, the Company's Board of Directors authorized the repurchase of up to 250,000 shares of the Company's Common Stock at prices not to exceed $15 per share through the end of August 1999. During the six months ended February 28, 1999, the Company purchased 30,200 shares of Common Stock at prices ranging from $12-5/16 to $13-15/16. 8. Claims and Contingencies A lawsuit seeking substantial compensatory and punitive damages as a result of the alleged wrongful death of an employee was filed against the Company in December 1996. In addition, a number of legal and administrative proceedings against the Company involving claims of employment discrimination are pending. In the opinion of Management, the disposition of these proceedings should not have a material adverse effect on the Company's financial position or results of operations. 9. Other Information In 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information", which must be adopted by the Company before the end of the 1999 fiscal year. In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which must be adopted by the Company by the end of its 2001 fiscal year. These Statements, when adopted by the Company, are not expected to have a material effect on the consolidated financial statements. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS - SECOND QUARTER FISCAL 1999 COMPARED TO SECOND QUARTER FISCAL 1998 Net sales for the three months ended February 28, 1999 were $53.6 million, a decrease of $2.3 million, or 4.1%, compared with net sales of $55.9 million in the same period of fiscal 1998. The decrease in net sales is attributable to modestly lower selling prices to customers due to lower polystyrene resin prices and decreased sales to certain customers in the appliance and high technology industries. Gross profit for the three months ended February 28, 1999 was $12.0 million, a 5.4% increase from $11.4 million in the same three month period of fiscal 1998. The gross profit margin increased to 22.4% from 20.4% in the previous year. The increase in gross profit margin is attributable to the operating efficiencies and lower raw material costs. The Company expects that, given comparable sales levels, the gross profit margin will continue to improve during the balance of the fiscal year. Selling and administrative expenses for the current three-month period were $7.7 million, a 5.1% decrease compared to $8.2 million in the previous period. Selling and administrative expenses decreased slightly as a percent of net sales to 14.4% from 14.6% in the same period last year. The dollar decrease in selling and administrative expenses is due primarily to the restructuring initiative taken in the second quarter of fiscal 1998 which is discussed below under the heading "Effect of Restructuring in Fiscal 1998". Net sales and operating loss for the U.K. operations for the three months ended February 28, 1999 were $5.9 million and ($104,000), respectively, compared to $6.1 million and ($753,000), respectively, in the same period of fiscal 1998. Interest expense for the three months ended February 28, 1999 amounted to $1.2 million, a 0.5% increase over the same period of fiscal 1998. Income (loss) before income taxes for the three months ended February 28, 1999 amounted to $3.1 million compared to ($1.4) million in the same period of fiscal 1998 after reflecting the restructuring charge. The effective tax rate increased to 38.8% compared to 36.3% in the same period of fiscal 1998. The effective tax rate for the three months ended February 28, 1998 was lower than normal due to the nondeductible nature of certain losses incurred as a result of the restructuring charge taken during the period. Net income (loss) for the three months ended February 28, 1999 was $1.9 million compared to ($889,000) in the same period of fiscal 1998 after reflecting the restructuring charge. 9 10 RESULTS OF OPERATIONS - SIX MONTHS ENDED FEBRUARY 28, 1999 COMPARED TO SIX MONTHS ENDED FEBRUARY 28, 1998 Net sales for the six months ended February 28, 1999 were $114.1 million, a decrease of $3.1 million, or 2.6%, compared to net sales of $117.2 million in the same period of fiscal 1998. The decrease in net sales is attributable to modestly lower selling prices to customers due to lower polystyrene resin prices throughout the period, lower sales in the United Kingdom during the first fiscal quarter than in the prior year and decreased sales to certain customers in the appliance and high technology industries. Gross profit for the six months ended February 28, 1999 was $27.1 million, a 2.3% increase from $26.5 million in the same period of fiscal 1998. The gross profit margin increased to 23.8% from 22.6% in the previous year. The increase in gross profit margin is attributable primarily to improved operating efficiencies at several key manufacturing facilities, including those in the United Kingdom, and to the lower raw material costs. Selling and administrative expenses for the current six-month period were $15.4 million, a 3.9% decrease compared to $16.0 million in the previous period. Selling and administrative expenses decreased slightly as a percent of net sales to 13.5% from 13.7% in the same period last year. The dollar decrease in selling and administrative expenses is due primarily to the restructuring initiative taken in fiscal 1998 (see "Effect of Restructuring in Fiscal 1998" below). Net sales and operating loss for the United Kingdom operations for the six months ended February 28, 1999 were $12.5 million and ($130,000), respectively, compared with $13.9 million and ($690,000), respectively, in the same period of fiscal 1998. Interest expense for the six months ended February 28, 1999 amounted to $2.4 million, a 2.6% increase over the same period of fiscal 1998. Income before income taxes for the six months ended February 28, 1999 amounted to $9.4 million compared to $4.7 million in the same period of fiscal 1998 after reflecting the restructuring charge. The effective tax rate decreased to 37.9% compared to 38.6% in the same period of fiscal 1998 due primarily to lower effective state income tax rates. Net income for the six months ended February 28, 1999 was $5.9 million compared to 2.9 million earned in the same period of fiscal 1998 after reflecting the restructuring charge. The Company is pleased with both the improvement in the gross profit margin and the decrease in selling and administrative expenses as a percent of net sales during the first two quarters of fiscal 1999. The Company's net income for the four fiscal quarters ended February 28, 1999 represents a Company record for four consecutive fiscal quarters. EFFECT OF RESTRUCTURING IN FISCAL 1998 In February 1998, the Company initiated a $3.5 million restructuring plan, the principal component of which was a charge of approximately $2.1 million to cover the write-down of the carrying values of certain property and equipment no longer employed in the Company's operations. The restructuring charge also included employee termination costs of approximately $1.0 million as approximately 30 employees were terminated or accepted an early retirement package. In connection with the employee terminations, certain product design centers were consolidated. The balance of $400,000 related to other restructuring costs associated with the plan. Approximately $411,000 of the restructuring costs related to the U.K. operations. 10 11 The restructuring was completed by the end of fiscal 1998 without any adjustment to the restructuring charge. As of February 28, 1999, only $255,000 of the amount accrued remained to be paid. Payments will continue through August 2002. The Company estimates that the cost savings from the restructuring during the three months ended February 28, 1999 amounted to approximately $530,000, of which approximately $117,000 resulted in a reduction in cost of sales and approximately $413,000 resulted in a reduction in selling and administrative expenses. There were similar cost savings in the preceding fiscal quarters since the plan was initiated and similar cost savings are expected for a number of years. The restructuring plan did not have a significant effect on the Company's operations, and the cost savings resulting from implementation of the plan are substantially as expected. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities for the six months ended February 28, 1999 amounted to $8.5 million compared to $5.9 million for the same period in fiscal 1998. Depreciation and amortization amounted to $8.5 million and $8.6 million for the six-month periods ended February 28, 1999 and 1998, respectively. Because a substantial portion of the Company's operating expenses are attributable to depreciation and amortization, the Company believes that its liquidity would not be adversely affected should a period of reduced earnings occur. Cash and cash equivalents as of February 28, 1999 amounted to $1.1 million compared to $5.5 million at August 31, 1998 and $2.8 million at November 30, 1998. The decreases result from cash used for investing and financing activities exceeding the cash provided by operating activities. Inventories increased from $20.2 million to $22.4 million during the six months ended February 28, 1999 as the Company took advantage of the low prices for the polystyrene resins. Capital expenditures for property, plant and equipment during the six months ended February 28, 1999 amounted to $7.7 million, including approximately $191,000 for environmental control equipment. Close to one-half of the capital expenditures was for buildings and leasehold improvements, including the purchase of the EPS custom molding facility in Lewisburg, Tennessee, which was previously leased, additional expenditures at the Company's new custom molding facility in Brenham, Texas and installation of custom molding capabilities at the integrated materials facility in Hayward, California. A majority of the balance of the capital expenditures was for molding presses and related equipment. In February 1999, the Company acquired the custom molding business of Berry Packaging, Inc. in Sallisaw, Oklahoma (see Note 6 to the Condensed Consolidated Financial Statements). The Company will continue to look for acquisitions which will mesh well with the Company's business. Long-term debt amounted to $59.3 million at February 28, 1999, of which $56.0 million was borrowed under a credit agreement with the Company's principal bank, including $35.2 million out of an available $48.0 million revolving credit facility. In December 1998, the Company's principal bank approved an increase in the aggregate amount available under the revolving credit facility to $48.0 million from $40.0 million. Long-term debt amounted to $61.2 million at August 31, 1998. On December 16, 1998, the Company declared a regular semi-annual cash dividend of $0.12 per share payable on January 8, 1999 to shareholders of record on December 28, 1998. Cash dividends of $0.11 per share were paid in both January and July 1998. Cash provided by operating activities as supplemented by the amount available under the bank credit agreement should be sufficient to enable the Company to continue to fund its operating requirements, capital expenditures and cash dividends. 11 12 MARKET RISKS There have been no material changes in the Company's exposure to market risks since August 31, 1998. YEAR 2000 ISSUES The Company has addressed the possible effect on the Company and its business of a malfunction of computers and other equipment with computer microchip processors that cannot properly process dates after December 31, 1999. The scope of the Company's efforts has included (i) an evaluation of the Company's business information systems and manufacturing machinery and equipment, primarily its custom molding machines, (ii) an evaluation of the Year 2000 readiness of major raw material suppliers to determine if the Company should anticipate any problems in obtaining needed raw materials and (iii) an evaluation of significant customers whose Year 2000 readiness could cause a loss of business that might be material to the Company. The Company has completed the evaluation of its business information systems and manufacturing machinery and equipment. Changes have been made as necessary. The Company believes its business information systems and manufacturing machinery and equipment are Year 2000 compliant. All major raw material suppliers have been contacted and have responded and, based on the information it has obtained, the Company does not anticipate there will be problems in obtaining necessary raw materials. The evaluation of the readiness of significant customers is not yet complete. Customers representing approximately 75% of the Company's total sales have been contacted concerning their Year 2000 readiness and to date responses have been received from approximately 65% of the customers contacted. No negative responses have been received. The Year 2000 readiness of third parties is beyond the Company's control and, although not anticipated, the most reasonably likely worst case scenario of failure of the Company's key suppliers and customers to resolve their Year 2000 issues would be a short-term shutdown of manufacturing operations at one or more of the Company's facilities. In order to minimize the risk of failure of third parties to correct their Year 2000 issues in a timely manner, the Company is preparing a contingency plan that would be put into effect if one or more of its plants were to be rendered inoperative. The plan will likely include stockpiling of various raw materials and finished goods, purchasing raw materials from a number of suppliers with which the Company does not currently do business and creating a plan to quickly move manufacturing machinery and/or production molds from plants rendered inoperative to other similar plants to fulfill production requirements. The Company's contingency plan is expected to be completed by the end of the third quarter of fiscal 1999. Management believes, based on its own investigation and the information it has obtained, that any unforeseen problems that might arise should be resolved without materially affecting the Company's business, results of operations or financial condition. The cost to the Company to date of assessing and remediating Year 2000 issues has not been significant. Estimated future costs are also not expected to be of any significance. OTHER The impact of inflation on both the Company's financial position and results of operations has been minimal and is not expected to adversely effect fiscal 1999 results. In 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information", which must be adopted by the Company before the end of the 1999 fiscal year. In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which must be adopted by the Company before the end of its 2001 fiscal year. These Statements, when adopted by the Company, are not expected to have a material effect on the consolidated financial statements. 12 13 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Shareholders was held on December 17, 1998. The holders of 8,385,723 shares of the Company's Common Stock (approximately 88.1% of the shares entitled to be voted) were present at the meeting in person or by proxy. The matters voted upon at the meeting were (i) the election of three persons to serve as directors for a three-year term expiring at the annual meeting of shareholders in 2001, (ii) the adoption of an amendment of the Company's Restated Articles of Incorporation to increase the authorized number of shares of the Company's Common Stock, without par value, from 20,000,000 shares to 50,000,000 shares and to increase the authorized number of shares of the Company's Preferred Stock, par value $.01 per share, from 1,000,000 shares to 2,000,000 shares and (iii) the ratification of the appointment of Ernst & Young, LLP as the independent public accountants to audit the financial statements of the Company and its subsidiaries for the 1999 fiscal year. David I. Cohen, Abe Farkas and John P. O'Leary, Jr., the nominees of the Company's Board of Directors, were elected to serve as directors until 2001. There were no other nominees. Shares were voted as follows:
Withhold Name For Vote For ---- --- -------- David I. Cohen 8,083,362 302,361 Abe Farkas 8,078,451 307,272 John P. O'Leary, Jr. 8,087,026 298,697
The amendment of the Company's Restated Articles of Incorporation to increase the authorized number of shares of the Company's Common Stock and Preferred Stock was adopted; affirmative votes, 5,617,854 shares; negative votes, 1,767,532 shares; and abstained, 97,903 shares. The appointment of Ernst & Young, LLP as the independent public accountants for the 1999 fiscal year was ratified: affirmative votes, 8,239,434 shares; negative votes, 122,688 shares; and abstained, 23,602 shares. 13 14 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The exhibits listed below are filed as a part of this quarterly report.
Exhibit No. Document ----------- -------- 4 Third Amendment, effective December 31, 1998, to the Loan Agreement, dated as of August 14, 1996, between the Company and Mellon Bank, N.A. with First Amended and Restated Revolving Credit Note, dated December 31, 1998, attached. 27 Financial Data Schedule.
(b) Reports on Form 8-K No events which resulted in the filing of a current report on Form 8-K occurred during the fiscal quarter ended February 28, 1999. 14 15 SIGNATURES 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. Tuscarora Incorporated (Registrant) Date: April 14, 1999 By /s/ John P. O'Leary, Jr. -- ---------------------------- John P. O'Leary, Jr., President and Chief Executive Officer Date: April 14, 1999 By /s/ Brian C. Mullins -- ---------------------------- Brian C. Mullins, Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) 15 16 TUSCARORA INCORPORATED FORM 10-Q FOR QUARTER ENDED FEBRUARY 28, 1999 EXHIBIT INDEX The following exhibits are filed as a part of this quarterly report on Form 10-Q.
Exhibit No. Document ----------- -------- 4 Third Amendment, effective December 31, 1998, to the Loan Agreement, dated as of August 14, 1996, between the Company and Mellon Bank, N.A. with First Amended and Restated Revolving Credit Note, dated December 31, 1998, attached. 27 Financial Data Schedule.
16 EX-4 2 THIRD AMENDMENT TO LOAN AGREEMENT 1 EXHIBIT 4 THIRD AMENDMENT TO LOAN AGREEMENT Amendment, dated as of the 31st day of December, 1998, by and between Tuscarora Incorporated, a Pennsylvania corporation (the "Borrower"), and Mellon Bank, N.A., a national banking association (the "Bank") ("Third Amendment"). W I T N E S S E T H: WHEREAS, the Borrower and the Bank entered into that certain Loan Agreement, dated as of August 14, 1996, by and between the Borrower and the Bank pursuant to which the Bank has extended to the Borrower a revolving credit facility in the original principal amount not to exceed Forty Million and 00/100 ($40,000,000.00) Dollars and a term facility in the original principal amount of Thirty Seven Million and 00/100 ($37,000,000.00) Dollars, as amended by (i) the First Amendment to Loan Agreement, dated as of February 20, 1998, by and between the Borrower and the Bank, and (ii) the Second Amendment to Loan Agreement, dated as of October 16, 1998, by and between the Borrower and the Bank (as amended from time to time, the "Agreement"); and WHEREAS, the Borrower desires to amend certain provisions of the Agreement, and the Bank desires to permit such amendments pursuant to the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the premises contained herein and other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: 1. All capitalized terms used herein, which are defined in the Agreement, should have the same meaning herein as in the Agreement unless the context clearly indicates otherwise. 2. The first sentence of Section 2.01(a) of the Agreement is hereby deleted in its entirety and in its stead is inserted the following: (a) Revolving Credit Loans. Subject to the terms and conditions and relying upon the representations and warranties set forth in this Agreement and the other Loan Documents, the Bank agrees to make, continue or convert loans (the "Revolving Credit Loans") to the Borrower at any time or from time to time on or after the Closing Date and to and including the day immediately preceding the Revolving Credit Expiry Date, in an aggregate principal amount not exceeding at any one time outstanding Forty Eight Million and 00/100 ($48,000,000.00) Dollars (the "Revolving Credit Facility Commitment"). 2 3. The Borrower hereby reconfirms and reaffirms all representations and warranties, agreements and covenants made by it pursuant to the terms and conditions of the Agreement, except as such representations and warranties, agreements and covenants may have heretofore been amended, modified or waived in writing in accordance with the Agreement. 4. The Borrower hereby represents and warrants to the Bank that (a) the Borrower has the legal power and authority to execute and deliver this Third Amendment; (b) the officers of the Borrower executing this Third Amendment have been duly authorized to execute and deliver the same and bind the Borrower with respect to the provisions hereof; (c) the execution and delivery hereof by the Borrower and the performance and observance by the Borrower of the provisions hereof and the Agreement and all documents executed or to be executed herewith and therewith, do not violate or conflict with the organizational agreements of the Borrower or any Law applicable to the Borrower or result in a breach of any provision of or constitute a default under any other agreement, instrument or document binding upon or enforceable against the Borrower; (d) this Third Amendment, the Agreement and the documents executed or to be executed by the Borrower in connection herewith or therewith constitute valid and binding obligations of the Borrower in every respect, enforceable in accordance with their respective terms. 5. The Borrower represents and warrants that (i) no Event of Default (as defined in the Agreement) exists under the Agreement, nor will any occur as a result of the execution and delivery of this Third Amendment or the performance or observance of any provision hereof and (ii) it presently has no claims or actions of any kind at law or in equity against the Bank arising out of or in any way relating to the Agreement or the Loan Documents. 6. Each reference to the Agreement that is made in the Agreement or any other document executed or to be executed in connection therewith shall hereafter be construed as a reference to Agreement as amended hereby. 7. Except as amended hereby, all of the terms and conditions of the Agreement shall remain in full force and effect. This Third Amendment amends the Agreement and is not a novation thereof. 8. This Third Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. -2- 3 IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto have caused this Third Amendment to be duly executed as of the date first above written.
ATTEST: Tuscarora Incorporated By: /s/ Brian C. Mullins By: /s/ John P. O'Leary, Jr. ---------------------------------- --------------------------------------- Print Name: Brian C. Mullins Print Name: John P. O'Leary, Jr. -------------------------- ------------------------------- Title: Sr. Vice President & Treasurer Title: President & Chief Executive Officer ------------------------------- Mellon Bank, N.A. By: /s/ Dwayne R. Finney --------------------------------------- Title: Vice President ---------------------------------------
-3- EX-27 3 FINANCIAL DATA SCHEDULE
5 6-MOS AUG-31-1999 AUG-31-1998 FEB-28-1999 1,132,223 0 35,599,558 737,795 22,414,945 61,880,490 197,158,783 98,989,509 172,251,894 25,695,630 59,284,091 0 0 9,537,474 73,588,445 172,251,894 114,106,315 114,106,315 87,005,377 87,005,377 0 137,879 2,393,916 9,436,726 3,580,084 5,856,642 0 0 0 5,856,642 0.62 0.61
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