-----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, KXALgjxkw/B9NCRwSk2b0RRZgU724pwDv3OjOffUK7h9G0hbq13/ajjOR1tN78CN +ajo7+JF3+ZGNhmJ41MvCg== 0000950128-99-000866.txt : 19990716 0000950128-99-000866.hdr.sgml : 19990716 ACCESSION NUMBER: 0000950128-99-000866 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990715 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: 99665111 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, INC. 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 May 31, 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 the 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 at least the past 90 days. Yes X No --- --- As of July 1, 1999, 9,462,239 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 May 31, 1999 and August 31, 1998 3 Condensed Consolidated Statements of Income - Three and nine month periods ended May 31, 1999 and May 31, 1998 4 Condensed Consolidated Statements of Cash Flows - Nine months ended May 31, 1999 and May 31, 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 - 13 Part II. Other Information Item 1. Legal Proceedings 14 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
MAY 31, AUGUST 31, 1999 1998 ------------- ------------- (UNAUDITED) ASSETS ------ CURRENT ASSETS Cash and cash equivalents $ 3,071,189 $ 5,452,281 Trade accounts receivable, net of provision for losses 36,169,133 34,239,819 Inventories 22,270,124 20,158,857 Prepaid expenses and other current assets 5,183,871 1,955,310 ------------ ------------ 66,694,317 61,806,267 PROPERTY, PLANT AND EQUIPMENT, net 98,887,238 97,538,209 OTHER ASSETS Goodwill 8,660,627 8,905,355 Other non-current assets 3,294,495 3,916,075 ------------ ------------ Total Assets $177,536,677 $172,165,906 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES Current maturities of long-term debt $ 5,321,709 $ 5,321,709 Accounts payable 16,800,273 14,178,763 Accrued income taxes -- 337,711 Accrued payroll and related taxes 947,180 1,133,192 Other current liabilities 4,158,317 5,975,400 ------------ ------------ 27,227,479 26,946,775 LONG-TERM DEBT - less current maturities 60,553,375 61,184,124 DEFERRED INCOME TAXES 1,180,491 1,677,978 OTHER LONG-TERM LIABILITIES 2,679,571 2,833,072 ------------ ------------ Total Liabilities 91,640,916 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, 9,540,190 at May 31, 1999 and 9,530,856 at August 31, 1998 9,540,190 9,530,856 Capital surplus 1,542,400 1,435,582 Retained earnings 75,952,008 68,240.138 Foreign currency translation adjustment (327,018) 392,150 ------------ ------------ 86,707,580 79,598,726 Less cost of reacquired shares of Common Stock; 63,220 shares at May 31, 1999 and 4,620 shares at August 31, 1998 (811,819) (74,769) ------------ ------------ Total Shareholders' Equity 85,895,761 79,523,957 ------------ ------------ Total Liabilities and Shareholders' Equity $177,536,677 $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 NINE MONTHS ENDED MAY 31, MAY 31, 1999 1998 1999 1998 ------------- ------------- ------------- ------------- Net Sales $59,703,336 $59,607,631 $173,809,651 $176,819,100 Cost of Sales 46,008,568 46,429,276 133,013,945 137,138,285 ----------- ----------- ------------ ------------ Gross profit 13,694,768 13,178,355 40,795,706 39,680,815 Selling and Administrative Expenses 7,984,533 7,551,497 23,385,059 23,582,215 Restructuring Costs -- -- -- 3,495,336 Interest Expense 1,078,593 1,288,094 3,472,509 3,622,034 Other (Income) Expense (135,473) 117,743 (265,703) 62,237 ----------- ----------- ------------ ------------ Total expenses 8,927,653 8,957,334 26,591,865 30,761,822 ----------- ----------- ------------ ------------ Income before income taxes 4,767,115 4,221,021 14,203,841 8,918,993 Provision for Income Taxes 1,768,152 1,650,773 5,348,236 3,465,559 ----------- ----------- ------------ ------------ Net income $ 2,998,963 $ 2,570,248 $ 8,855,605 $ 5,453,434 =========== =========== ============ ============ Basic net income per common share $0.32 $0.27 $0.93 $0.58 ===== ===== ===== ===== Diluted net income per common share $0.31 $0.27 $0.92 $0.56 ===== ===== ===== ===== Cash dividend declared per common share $0.00 $0.00 $0.12 $0.11 ===== ===== ===== =====
See notes to condensed consolidated financial statements. 4 5 TUSCARORA INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED MAY 31, 1999 1998 ------------ ------------ Operating Activities Net Income $ 8,855,605 $ 5,453,434 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 11,980,162 12,067,400 Amortization 910,636 858,930 Write down of assets due to restructuring -- 2,085,774 Provision for losses on receivables 123,584 356,387 Decrease in deferred income taxes (436,863) (1,160,104) (Gain) loss on disposition of property, plant and equipment, net (104,109) 269,928 Stock compensation expense 9,090 10,357 Changes in operating assets and liabilities, net of effects of business acquisitions: Decrease (increase): Trade accounts receivable (1,739,750) (1,623,654) Inventories (1,651,362) (2,237,954) Prepaid expenses and other current assets (2,768,498) (1,440,766) Other non-current assets (84,678) (164,082) Increase (decrease): Accounts payable 2,396,594 (2,426,705) Accrued income taxes (901,730) 234,330 Accrued payroll and related taxes (202,451) 154,095 Other current liabilities (1,735,575) (94,217) Other long-term liabilities (303,975) (22,873) ------------ ------------ Cash provided by operating activities 14,346,680 12,320,280 ------------ ------------ Investing Activities Purchase of property, plant and equipment (12,692,624) (20,849,776) Business acquisitions, net of cash acquired (2,422,169) (135,145) Proceeds from sale of property, plant and equipment 760,798 1,060,164 ------------ ------------ Cash used for investing activities (14,353,995) (19,924,757) ------------ ------------ Financing Activities Proceeds from long-term debt 3,500,000 8,000,000 Payments on long-term debt (4,120,281) (3,989,189) Dividends paid (1,143,735) (1,042,887) Proceeds from sale of Common Stock 107,053 166,811 Payments to reacquire Common Stock (737,050) -- ------------ ------------ Cash provided by (used for) financing activities (2,394,013) 3,134,735 ------------ ------------ Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents 20,236 34,227 ------------ ------------ Net decrease in cash and cash equivalents (2,381,092) (4,435,515) Cash and Cash Equivalents at Beginning of Period 5,452,281 5,095,149 ------------ ------------ Cash and Cash Equivalents at End of Period $ 3,071,189 $ 659,634 ============ ============
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 May 31, 1999 and the consolidated statements of income and consolidated statements of cash flows for the periods ended May 31, 1999 and May 31, 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 May 31, 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 May 31, 1999 are not necessarily indicative of the operating results to be expected for the full year. 2. Inventories Inventories are summarized as follows:
May 31, August 31, 1999 1998 ----------- ----------- Finished goods $10,801,641 $10,454,863 Work in process 168,277 257,055 Raw materials 9,921,581 7,510,482 Supplies 1,378,625 1,936,457 ----------- ----------- $22,270,124 $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 nine month periods ended May 31, 1999 and 1998 was as follows:
Three Months Ended Nine Months Ended May 31, May 31, 1999 1998 1999 1998 ---------- ----------- ---------- ----------- Net Income $2,998,963 $2,570,248 $8,855,605 $5,453,434 Foreign currency translation (loss) gain 78,739 (32,771) (719,168) 45,345 ---------- ---------- ---------- ---------- Comprehensive income $3,077,702 $2,537,477 $8,136,437 $5,498,779 ========== ========== ========== ==========
At May 31, 1999 and August 31, 1998, accumulated other comprehensive income (expense) which consisted entirely of foreign currency translation adjustments, amounted to ($327,018) and $392,150, 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 Nine Months Ended May 31, May 31, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Net income $2,998,963 $2,570,248 $8,855,605 $5,453,434 ========== ========== ========== ========== Weighted average common shares outstanding - basic 9,488,484 9,488,238 9,508,055 9,482,156 Effect of dilutive securities: Stock options 68,737 149,858 76,294 179,916 ---------- ---------- ---------- ---------- Weighted average common shares outstanding - diluted 9,557,221 9,638,096 9,584,348 9,662,072 Basic net income per common share $0.32 $0.27 $0.93 $0.58 ===== ===== ===== ===== Diluted net income per common share $0.31 $0.27 $0.92 $0.56 ===== ===== ===== =====
Securities not included in the computation of diluted net income per share for the periods presented were as follows:
Three Months Ended Nine Months Ended May 31, May 31, 1999 1998 1999 1998 ------------- ----------- ------------- ---------- Stock options 971,819 310,487 866,734 147,795 Option price range $12.82-$19.16 $16.50-$19.16 $12.82-$19.16 $19.16 Expiration date 10/24/05 - 10/24/05- 10/24/05 - 10/22/07 10/25/08 10/22/07 10/25/08
The options to purchase shares of Common Stock not included in the computation of diluted net income per share for the periods presented were excluded because the exercise price of the stock options was greater than the average market price of the Common Stock during the periods. 5. 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 8 6. 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 nine months ended May 31, 1999, the Company purchased 58,600 shares of Common Stock at prices ranging from $9.94 to $13.94. 7. 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. 8. 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". In 1999, the FASB issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities: Deferral of the Effective Date of FASB Statement No. 133." This Statement defers for one year the effective date of SFAS No. 133. This Statement now will apply to all fiscal quarters of all fiscal years beginning after June 15, 2000," These Statements, when adopted by the Company, are not expected to have a material effect on the consolidated financial statements. 9. Subsequent Event On July 14, 1999, the Company announced that it had agreed to acquire the principal business and operating assets of Lane Container Company of Dallas, Texas. The transaction is expected to be completed on September 1, 1999. Lane Container has particular expertise in specialty corrugated containers, heavy wall corrugated fabrication and custom wood crating services and is expected to add in excess of $8 million of new revenues in fiscal 2000. The consideration to be paid consists of cash and assumed liabilities as well as additional cash consideration which may be paid to the seller based on sales realized by the business acquired. The acquisition will be accounted for as a purchase and it is expected that a portion of the purchase price will be allocated to goodwill. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - THIRD QUARTER FISCAL 1999 COMPARED TO THIRD QUARTER FISCAL 1998 Net sales for the three months ended May 31, 1999 were $59.7 million, an increase of $100,000, or 0.2%, compared with net sales of $59.6 million in the same period of fiscal 1998. The increase in net sales is attributable to higher sales in the consumer electronics sector, a return to more normal production levels by certain customers in the appliance and high technology industries when compared with the second quarter of fiscal 1999 and to a lesser extent, the acquisition of Berry Packaging, Inc. in February 1999. These items were offset by modestly lower selling prices to customers due to lower polystyrene resin prices. Higher selling prices to customers are expected in the latter part of the fourth quarter as an announced increase in EPS resin prices will result in higher selling prices for the Company's EPS products. Gross profit for the three months ended May 31, 1999 was $13.7 million, a 3.9% increase from $13.2 million in the same three-month period of fiscal 1998. The gross profit margin increased to 22.9% from 22.1% in the previous fiscal year. The increase in gross profit margin is attributable to higher operating efficiencies and the lower raw material costs. The Company expects that, with the improved operating efficiencies being experienced at certain of the Company's facilities, 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 $8.0 million, a 5.7% increase compared to $7.6 million in the previous period. Selling and administrative expenses increased as a percent of net sales to 13.4% from 12.7% in the same period last year. The dollar increase in selling and administrative expenses is due to increased employee costs. Net sales and operating income (loss) for the U.K. operations for the three months ended May 31, 1999 were $6.5 million and $136,000, respectively, compared to $6.2 million and ($485,000), respectively, in the same period of fiscal 1998. Interest expense for the three months ended May 31, 1999 amounted to $1.1 million, a 16.3% decrease from $1.3 million during the same period of fiscal 1998. Income before income taxes for the three months ended May 31, 1999 amounted to $4.8 million compared to $4.2 million in the same period of fiscal 1998. The effective tax rate decreased to 37.1% compared to 39.1% in the same period of fiscal 1998 due primarily to lower effective state income tax rates. Net income for the three months ended May 31, 1999 was $3.0 million compared to $2.6 million earned in the same period of fiscal 1998. 9 10 RESULTS OF OPERATIONS - NINE MONTHS ENDED MAY 31, 1999 COMPARED TO NINE MONTHS ENDED MAY 31, 1998 Net sales for the nine months ended May 31, 1999 were $173.8 million, a decrease of $3.0 million, or 1.7%, compared to net sales of $176.8 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 in the second fiscal quarter than in the prior year. Gross profit for the nine months ended May 31, 1999 was $40.8 million, a 2.8% increase from $39.7 million in the same period of fiscal 1998. The gross profit margin increased to 23.5% from 22.4% 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 nine-month period were $23.4 million, a 0.8% decrease compared to $23.6 million in the previous period. Selling and administrative expenses increased slightly as a percent of net sales to 13.5% from 13.3% in the same period last year. The dollar decrease in selling and administrative expenses is due to the restructuring initiative taken in fiscal 1998 (see "Effect of Restructuring in Fiscal 1998" below). Net sales and operating income (loss) for the United Kingdom operations for the nine months ended May 31, 1999 were $19.0 million and $5,000, respectively, compared with $20.1 million and ($1.2 million), respectively, in the same period of fiscal 1998. Interest expense for the nine months ended May 31, 1999 amounted to $3.5 million, a 4.1% decrease over the same period of fiscal 1998. Income before income taxes for the nine months ended May 31, 1999 amounted to $14.2 million compared to $8.9 million in the same period of fiscal 1998 after reflecting the restructuring charge. The effective tax rate decreased to 37.7% compared to 38.9% in the same period of fiscal 1998 due primarily to lower effective state income tax rates. Net income for the nine months ended May 31, 1999 was $8.9 million compared to $5.5 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 during the first three quarters of fiscal 1999. The Company's net income for the four fiscal quarters ended May 31, 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. 10 11 The restructuring was completed by the end of fiscal 1998 without any adjustment to the restructuring charge. As of May 31, 1999, only $206,000 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 May 31, 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 nine months ended May 31, 1999 amounted to $14.3 million compared to $12.3 million for the same period in fiscal 1998. Depreciation and amortization amounted to $12.9 million for each of the nine-month periods ended May 31, 1999 and 1998. 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 May 31, 1999 amounted to $3.1 million compared to $5.5 million at August 31, 1998 and $1.1 million at February 28, 1999. 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 $22.3 million during the nine months ended May 31, 1999 as the Company took advantage of the low prices for the polystyrene resins. Capital expenditures for property, plant and equipment during the nine months ended May 31, 1999 amounted to $12.7 million, including approximately $282,000 for environmental control equipment. Approximately one-third of the capital expenditures were 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 for cash (see Note 5 to the Condensed Consolidated Financial Statements) and on July 14, 1999, the Company announced that it had agreed to acquire the principal business and operating assets of Lane Container Company in Dallas, Texas (see Note 9 of 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 $60.6 million at May 31, 1999, of which $57.4 million was borrowed under a credit agreement with the Company's principal bank, including $37.7 million out of an available $48.0 million revolving credit facility. 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. On June 11, 1999, the Company declared a regular semi-annual cash dividend of $0.12 per share payable on July 2, 1999 to shareholders of record on June 22, 1999. 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 70% 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 has been working on a contingency plan that would be put into effect if one or more of its plants were to be rendered inoperative. The plan includes stockpiling of various raw materials and finished goods, purchasing raw materials from a number of new raw material suppliers and a plan to quickly move manufacturing machinery and/or production molds from any plants that might be rendered inoperative to other similar plants to fulfill production requirements. The Company's contingency plan should be fully reduced to writing and in final form by the end of the fiscal year. 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 of assessing and remediating Year 2000 issues has not been, and is not expected to be, significant. 12 13 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". In 1999, the FASB issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities: Deferral of the Effective Date of FASB Statement No. 133." This Statement defers for one year the effective date of SFAS No. 133. This Statement will now apply to all fiscal quarters of all fiscal years beginning after June 15, 2000. These Statements, when adopted by the Company, are not expected to have a material effect on the consolidated financial statements. 13 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings ----------------- John C. Bartram, Administrator of the Estate of Dwayne Scott Mount, Deceased v. Tuscarora Incorporated, et al., Case No. 96CV-0511 in the Court of Common Pleas of Marion County, Ohio. This lawsuit is described in the Company's Form 10-K for its fiscal year ended August 31, 1998. The information contained in the Form 10-K is incorporated herein by reference. It is the Company's understanding that recently the plaintiff settled its claims against Kaneka America Corporation and Kaneka Texas Corporation. Earlier the plaintiff voluntarily released its claims against Toyo Machine and Metal Co., Ltd. The result of these developments is that only Count I of the Complaint for Wrongful Death against the Company remains at issue. Count I states an intentional employer tort claim and alleges that the Deceased, an employee of the Company who was killed in May 1996 while working on a molding machine at the Company's custom molding plant in Marion, Ohio, was wrongfully killed as a result of certain alleged intentional conduct of the Company. Plaintiff seeks both compensatory and punitive damages from the Company of not less than $5,000,000. The Company is vigorously contesting the lawsuit which has been scheduled for trial in October 1999. The Company has denied the allegations against it and has asserted various defenses including that the plaintiff's claim is barred pursuant to the Ohio Workers' Compensation statute. In the opinion of Management, the disposition of the lawsuit should not have a material adverse effect on the Company's financial position or results of operations. 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 ----------- -------------------------------------------- 10 Employment Continuation Agreement, dated March 22, 1999, between James H. Brakebill and the Company. 27 Financial Data Schedule for the nine months ended May 31, 1999.
(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 May 31, 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: July 15, 1999 By /s/ John P. O'Leary, Jr. -------------------------------- John P. O'Leary, Jr., President and Chief Executive Officer Date: July 15, 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 MAY 31, 1999 EXHIBIT INDEX The following exhibits are filed as a part of this quarterly report on Form 10-Q.
Exhibit No. Document ----------- ------------------------------------------------- 10 Employment Continuation Agreement, dated March 22, 1999, between James H. Brakebill and the Company. 27 Financial Data Schedule for the nine months ended May 31, 1999.
EX-10 2 EMPLOYMENT CONTINUATION AGREEMENT 1 EXHIBIT 10 EMPLOYMENT CONTINUATION AGREEMENT THIS AGREEMENT is made effective for all purposes and in all respects as of the 22nd day of March, 1999, by and between Tuscarora Incorporated, a Pennsylvania corporation ("Employer"), and James H. Brakebill ("Employee"). This Agreement shall replace and supersede any previous employment arrangements between Employer and Employee. WITNESSETH WHEREAS, Employee is currently employed by Employer as Vice President of Manufacturing Services; and WHEREAS, Employee desires to leave his current position but to continue employment with the Employer as a Senior Technical Advisor; and WHEREAS, Employer desires to employ Employee as a Senior Technical Advisor; and WHEREAS, Employer and Employee wish to put into writing the terms and conditions of this new employment arrangement; NOW, THEREFORE, in consideration of the foregoing, of the mutual promises herein contained, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed as follows: 1. Employment. Effective as of any date designated by the Employee between April 1, 1999 and September 1, 1999, Employee shall be employed by Employer as a Senior Technical Advisor for the term described in paragraph 2 below, and in such capacity shall perform the duties described in paragraph 3 below. 2. Term. Subject to Section 5 hereof, the term of this Agreement shall be three (3) years, beginning on the date selected by Employee in accordance with paragraph 1 above. 3. Duties. (a) Employee shall consult on such technical matters as may be requested by the Employer from time to time during the term of this Agreement. Employee shall provide such services as follows: (i) For a maximum of sixty-five (65) hours per month during the first year of this Agreement; (ii) for a maximum of fifty (50) hours per month during the second year of this Agreement; and 2 (iii) for a maximum of thirty (30) hours per month during the third year of this Agreement. (b) To the extent necessary to provide the services required by subparagraph (a) above during the term of this Agreement, Employee shall devote his full attention and best abilities to his duties hereunder, to give proper time and attention to furthering Employer's business and to comply with all of Employer's rules, regulations, bylaws and other applicable corporate documents. Employee shall not, directly or indirectly, engage in any business or other conduct during the term of this Agreement which would detract from Employee's ability to apply his best efforts to the performance of his duties under this Agreement. 4. Compensation and Benefits. During the term of Employee's employment hereunder, Employer shall pay Employee the following salary, compensation and benefits: (a) Salary and Compensation. The Employer shall pay the employee the following compensation: (i) During the first year of the term of this Agreement, Employer shall pay Employee a salary of $10,000 per month. (ii) During the second year of the term of this Agreement, Employer shall pay Employee a salary of $7,500 per month. (iii) During the third year of the term of this Agreement, Employer shall pay Employee a salary of $5,000 per month. In the event the Employee works in any year more than twelve times the number of hours required per month for that year (as specified in Paragraph 3), the Employer shall pay the Employee an additional $150 for each hour in excess of the annual required hours. Upon completion of the third year of the term of this Agreement, Employee shall not be entitled to any further compensation under this Agreement. (b) Benefits. Employee shall be entitled to such benefits as any full-time employee of Employer employed in the same capacity; provided, however, that Employee shall not be eligible after Employer's 1999 fiscal year for either (i) vacation or holiday pay or (ii) an incentive bonus. (c) Expenses. The Employer shall reimburse the Employee for (or pay on his behalf) all reasonable travel and -2- 3 out-of-pocket expenses incurred by the Employee in performing his duties under this Agreement. (d) Disability. Notwithstanding Paragraph (a) above, if, during the term of this Agreement, Employee shall become eligible under either the Employer's short-term or long-term disability program then in effect (due to a disability or illness), the Employee shall be compensated in accordance with the terms of the applicable disability program during the period of his incapacity (not to exceed the then remaining term of this Agreement). 5. Termination. (a) If Employee dies during the term of this Agreement, Employee's employment hereunder shall automatically terminate as of the date of his death and all of Employer's obligations hereunder, other than any obligation with respect to the payment of unpaid salary or benefits earned by Employee prior to his death, shall terminate as of that date; Notwithstanding the preceding sentence, if Employee terminates employment on account of his death, (i) the payments required under Section 4(a) shall continue to be paid to his spouse (if she is then living) for a period not to exceed the lesser of (A) six (6) months or (B) the remaining term of this Agreement; and (ii) during the salary continuation period specified in Paragraph (a) (i) above, Employer shall pay the cost for Employee's spouse to continue (under the "COBRA" continuation health coverage rules) any health coverage she may have had on the date of Employee's death under an Employer-provided health program. Upon completion of the salary continuation period, Employee's spouse shall thereafter pay for the full cost of any continued health coverage to which she may be entitled under COBRA or other applicable law. (b) Employer may, by written notice to Employee, terminate Employee's employment under this Agreement for cause at any time, in which event this Agreement shall automatically terminate and Employee shall not be entitled to any further payments hereunder. For purposes of this Agreement, "cause" shall mean: (i) dishonesty; (ii) gross negligence or willful misconduct; (iii) fraudulent or unethical conduct; (iv) unreasonable neglect of or refusal to perform Employee's duties under this Agreement; -3- 4 (v) violation of any agreements, covenants, terms or conditions under this Agreement; and (vi) conduct which has injured or would injure Employer's business or reputation or otherwise adversely affect its interests. (c) Employee may terminate his employment under this Agreement at any time without cause. Written notice of such a termination shall be given to the other party at least one hundred and twenty (120) days prior to the intended date of termination. Upon Employee's termination of employment pursuant to this Paragraph (c), all of Employer's obligations under this Agreement, other than any obligation with respect to the payment of unpaid salary or benefits earned by Employee prior to his date of termination, shall terminate. (d) Any termination of Employee's employment hereunder shall not cause Sections 6 and 7 of this Agreement to terminate, but, rather, such Sections 6 and 7 shall continue in full force and effect to the extent provided therein. Employee shall return to Employer, upon Employee's termination of employment with Employer, all reports, books, records, manuals, correspondence, computer programs or other computer storage mediums in any form, papers, petty cash, checks, credit cards, customer lists, lists of resumes of personnel and other written, typed, printed or reproduced materials in whatever form or medium, within his possession, custody or control, whether furnished by Employer or prepared by Employee, which contain any information relating to the customers or business of Employer or any of its subsidiaries or affiliates. 6. Non-Competition. (a) Employee agrees that during the term of this Agreement and for one (1) year after the date on which his employment with Employer terminates, he shall: (i) not directly or indirectly have an interest or participate in the ownership, management, operation or control of, or be employed by, act as a consultant to, or otherwise be connected in any manner with, or have any direct or indirect financial interest (including, without limitation, an interest as a creditor) in, any business concern that does business in either North America or Europe that is (A) directly or indirectly competitive with Employer's business, (B) a supplier to Employer's business or to a business which is directly or indirectly competitive with Employer's business or (C) is a customer of Employer; (ii) not directly or indirectly solicit the trade of, or trade with, any customer, prospective customer, supplier, -4- 5 or prospective supplier of Employer for any business purpose other than for the benefit of Employer; and (iii) not solicit or induce, directly or indirectly, any employee of Employer to leave the employ of Employer to work with Employee or any other person or entity with whom Employee is or becomes affiliated. (b) Employee acknowledges and agrees that the remedy at law for any breach of the provisions of this Section 6 will be inadequate and that Employer shall, in addition to any other relief available to it, be entitled to injunctive relief and specific performance without the necessity of proving actual damage. If a court of competent jurisdiction shall finally determine that the restraints provided for in Section 6 hereof are too broad as to the geographic area, activity, or time covered, such provisions shall be deemed reformed to the maximum area, activity, or time covered permitted by applicable law and shall be enforced as such. (c) During the term of this Agreement, Employee shall give Employer written notice of his acquisition of an interest or acceptance of employment with a business concern which would be covered by Paragraph (a) (i) above but for the fact that it is not doing business in North America or Europe at least fourteen (14) days in advance of the date he is to acquire such interest or to begin such employment. 7. Confidentiality. Employee recognizes, that in the course of performing his services hereunder, Employer will disclose to him certain confidential information relating to the business of Employer. Information shall be considered "confidential" for purposes of this provision if it is private or confidential in that it is not generally known or available to the public. Employee will not, during or after the term of this Agreement, divulge, furnish or make accessible to anyone any trade secrets, customer lists, computer programs or confidential or privileged information of any kind with respect to the customers or business operations of Employer or any of its subsidiaries or affiliates, except as he may disclose in fulfillment of his duties under this Agreement or as required by law. 8. Survival. The covenants contained in Sections 6 and 7 hereof shall survive the termination of this Agreement for the period of time set forth in those Sections 6 and 7. 9. Venue. Any judicial proceeding brought against any of the parties to this Agreement on any dispute arising out of this Agreement or any matter related hereto, shall be brought in the courts of the Commonwealth of Pennsylvania or in any United States District Court in the Commonwealth of Pennsylvania -5- 6 and, by execution and delivery of this Agreement, each of the parties to this Agreement accepts the exclusive jurisdiction of such courts and agrees to be bound by any judgment rendered thereby in connection with this Agreement. 10. Remedies. If Employer prevails in any court action or proceeding for damages or injunctive relief relating to this Agreement, Employee agrees that, in addition to any other relief available under law, Employer shall be entitled to reasonable attorneys fees, costs and expenses of litigation incurred by Employer in securing the relief granted by the court. 11. Withholding. Employer shall withhold, in accordance with its established payroll practices and procedures, any amounts required to be withheld under applicable law or regulation from any compensation or benefits provided to Employee hereunder. 12. Notice. All notices, requests, demands and other communications provided for in this Agreement shall be in writing and shall be personally delivered or sent by certified or registered mail, return receipt requested, to the parties at their addresses designated below (or at such other address as the sender may be given by notice hereunder): (a) To Employer: c/o John P. O'Leary, Jr. or Brian C. Mullins Tuscarora Incorporated 800 5th Avenue New Brighton, PA 10566 (b) To Employee: 404 Canterbury Drive Coraopolis, PA 15108 13. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of Employer and its successors and assigns. This Agreement shall not be assignable by Employee unless Employer so agrees in writing and any attempted assignment by Employee in violation of this covenant shall be null and void. 14. Governing Law. The construction and interpretation of this Agreement shall at all times and in all respects be governed by the laws of the Commonwealth of Pennsylvania. 15. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or -6- 7 unenforceable for any reason, the remainder of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. 16. Entire Agreement. This Agreement contains the entire agreement and understanding by and between Employer and Employee with respect to Employee's employment hereunder, and no representations, promises, agreements or understandings, written or oral, not contained herein shall be of any force or effect to the fullest extent permitted by law. No change or modification hereof shall be valid or binding unless the same is in writing and signed by both of the parties hereto. 17. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. IN WITNESS WHEREOF, Employee has duly executed this Agreement and Employer has caused this Agreement to be executed by a duly authorized officer thereof as of the day and year first above written. TUSCARORA INCORPORATED By: /s/ John P. O'Leary, Jr. --------------------------- Title: President & CEO ------------------------ ATTEST: /s/ Brian C. Mullins - ---------------------- /s/ JAMES H. BRAKEBILL ------------------------------ JAMES H. BRAKEBILL WITNESS: /s/ Christina A. Starcher - -------------------------- -7- EX-27 3 FINANCIAL DATA SCHEDULE
5 9-MOS AUG-31-1999 SEP-01-1998 MAY-31-1999 3,071,189 0 36,877,770 708,637 22,270,124 66,694,317 195,809,555 96,922,317 177,536,677 27,227,479 60,553,375 0 0 9,540,190 76,355,571 177,536,677 173,809,651 173,809,651 133,013,945 133,013,945 0 123,584 3,472,509 14,203,841 5,348,236 8,855,605 0 0 0 8,855,605 0.93 0.92
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