-----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, Krp7TLxc8u8t2ghGJgSrDveeQp450ZP2FgwpSaZ2HExOTYma4WEmNBmCTR6TBU9C pevbleFk1Mj+TASYKvyrfg== 0000950152-97-008376.txt : 19971127 0000950152-97-008376.hdr.sgml : 19971127 ACCESSION NUMBER: 0000950152-97-008376 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19971126 SROS: NASD 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-K SEC ACT: SEC FILE NUMBER: 000-17051 FILM NUMBER: 97729792 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-K 1 TUSCORORA INC. 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FROM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended August 31, 1997 [ ] 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 0-17051 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) Registrant's telephone number, including area code: 412-843-8200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, without par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed be 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 . ------- ------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained , to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The registrant estimates that as of October 24, 1997 the aggregate market value of the shares of its Common Stock held by non-affiliates of the registrant was approximately $131,836,136. As of October 24, 1997, 9,476,040 shares of Common Stock of the registrant were issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's Annual Report to Shareholders for its fiscal year ended August 31, 1997 are incorporated by reference into Parts I and II of this annual report. Portions of the Proxy Statement for the registrant's Annual Meeting of Shareholders to be held on December 18, 1997 are incorporated by reference into Part III of this annual report. 2 PART I ITEM 1. BUSINESS. Tuscarora Incorporated (the "Company") was incorporated in 1962 as Tuscarora Plastics, Inc. The corporate name was changed in 1992 to reflect changes in the Company's business. The Company custom designs and manufactures interior protective packaging and material handling products and supplies customers with custom designed components for industrial and consumer products. In each of its markets, the Company's focus is to engineer a practical, cost effective solution to meet each customer's specific end-use requirements. The Company is the largest manufacturer of custom molded products made from expanded foam plastic materials in the United States and the United Kingdom. Interior protective packaging and material handling products and components are manufactured at the Company's custom molding facilities. Interior protective packaging products are also manufactured using materials, including corrugated paperboard, molded and/or diecut foam plastic shapes, thermoformed plastic shapes and wood, either alone or in various combinations, at the Company's integrated materials facilities. The range of material options offered enables the Company to be competitive vis-a-vis companies that offer only a single material capability. Interior protective packaging and material handling products and components are also manufactured at the Company's custom thermoforming facilities. For the 1997, 1996 and 1995 fiscal years, the interior protective packaging and material handling products have contributed approximately 86%, 86% and 88%, respectively, of the Company's net sales. The remainder is accounted for by the component products. The Company's principal markets are the high technology, consumer electronics, automotive and major appliance industries, but the Company competes in other market segments as well. For the 1997 fiscal year, the four major markets accounted for approximately 22%, 19%, 13% and 13%, respectively, of the Company's net sales. For the 1997, 1996 and 1995 fiscal years, the four major markets in the aggregate accounted for approximately 67%, 65% and 63%, respectively, of the Company's net sales. The Company serves more than 3,500 customers, substantially all of which are located in the United States, Mexico, Canada and the United Kingdom. For the 1997 fiscal year, no customer accounted for more than 6%, and the Company's ten largest customers accounted for 28%, of the Company's net sales. For information with respect to the location of the Company's manufacturing facilities, see "Manufacturing" below and Item 2 of this annual report. 3 INTERIOR PROTECTIVE PACKAGING AND MATERIAL HANDLING PRODUCTS The interior protective packaging products made from foam plastic materials and at the Company's integrated materials facilities are used to protect a wide range of finished consumer and industrial goods during shipment. The products are designed to reduce or eliminate damage that may occur during shipment and handling as a result of shock, vibration or wide temperature fluctuations. Goods packaged in the Company's protective packaging include such items as: Computers and computer peripherals Water heaters and air conditioners Televisions and VCRs Refrigerators Satellite dishes Microwave ovens Office equipment Coffee makers and other kitchen Vaccine containers appliances Liquid chemicals Toys Pharmaceuticals Outboard motors Military equipment Office furniture These goods, together with the Company's interior protective packaging, are generally placed inside exterior shipping containers prior to shipment. The material handling products generally serve the same purposes and functions as the packaging products but are used primarily in intra-plant and inter-plant movement of parts and components rather than shipment of finished goods. For example, automobile manufacturers and their suppliers transport parts to assembly plants using foam dunnage trays made by the Company. Material handling products also frequently serve as carriers to position parts for automated assembly. The Company also manufactures insulated shippers which transport temperature-sensitive materials for the chemical and pharmaceutical industries. The material handling products are generally more durable than the interior protective packaging products and are usually reusable, providing a cost-effective means of transporting materials that are sensitive or difficult to handle. Most of the material handling products are foam plastic shapes manufactured at the Company's custom molding facilities; however, certain material handling products, such as durable returnable material handling pallets and trays, are made from thermoformed materials and are manufactured in the Company's custom thermoforming operations. The interior protective packaging and material handling products made from expanded foam plastic materials possess an unusual combination of useful properties such as exceptional lightness, impact resistance and shock absorbency, toughness and strength, thermal insulating efficiency, temperature tolerance, buoyancy and chemical biological neutrality. The cost of the -2- 4 products to the customer is often less than alternative types of materials because, pound for pound, less material is required to provide equal or better protection. These products can also be easily and quickly handled thus reducing the customer's labor costs. Because foam plastic packaging shapes frequently require less space and are lighter than most other packaging materials, the customer is often able to reduce its product shipping costs. Similarly, properly designed foam plastic material handling devices often increase total yield per transportation container, thus reducing intra-plant or inter-plant freight cost. At the Company's integrated material facilities, foam plastics are combined with other materials such as corrugated paperboard to produce protective packaging products with properties superior to those provided by a single material. Thermoformed interior protective packaging products are generally used to hold finished goods in place inside an exterior container during shipment and handling. Thermoformed products are used where the shock absorbency or thermal insulating properties of foam plastic are not required. Because transparent plastic materials can be thermoformed, these materials are often used to create a package that allows the consumer to view the enclosed product. The Company supplies thermoformed packaging to most of the principal markets the Company serves as well as other markets. For the 1997, 1996 and 1995 fiscal year, sales of products manufactured by the Company's integrated materials facilities accounted for approximately 18%, 20% and 18%, respectively, of the Company's net sales. During the 1997 fiscal year, sales of products manufactured by the Company's thermoforming facilities, including components (see below), accounted for approximately 4% of the Company's net sales. This represents a substantial increase over prior years and resulted from the acquisition of two custom thermoforming businesses during the year (see "Business Acquisitions" below). COMPONENTS The Company manufactures foam plastic shapes which are used as components in automobiles, watercraft and recreational vehicles. Due to their light weight and high energy-absorbing properties, molded foam shapes are used as bumper cores and are positioned in door panels, steering wheels and dashboards to provide added passenger protection. Flotation and/or seating assemblies are made for the watercraft and recreational vehicles. The Company manufactures thermal insulation components which are foam plastic shapes used by appliance manufacturers to provide insulation in products such as home and commercial refrigerators, freezers, air conditioners and water coolers. The construction industry also uses these shapes as insulation in poured concrete or block walls, in prefabricated metal buildings and as core material for factory-manufactured steel exterior doors. In the high tech area, the Company has a license for E-PAC, a design-for-assembly technology, utilizing foam plastic shapes, developed by Hewlett Packard in Germany. E-PAC is a concept for the internal assembly of electronic components that enables electronic device manufacturers to reduce both material cost and assembly time by bundling delicate electronic componentry into a lightweight, protective carrier that is placed inside an exterior housing. The Company makes components such as garage door panels and motor vehicle trim from thermoformed materials manufactured at the Company's custom thermoforming facilities. -3- 5 CUSTOM DESIGN All the Company's products are custom designed. The Company has six design and testing centers ("tech centers") which support the Company's custom molding and integrated materials operations in the United States and Mexico and are strategically located throughout the United States. Separate tech centers support the manufacturing operations in the United Kingdom and the Company's custom thermoforming operations. The tech centers are staffed by design and engineering personnel who study and evaluate the requirements of the Company's customers. Four of the tech centers are certified International Safe Transit Association (ISTA) testing laboratories. The Company's customers make extensive use of the tech centers. With respect to the custom molding operations, prototype foam shapes are developed at the tech centers. After a shape is approved by the customer, one or more aluminum production molds are made and then shipped to a custom molding facility, generally the one nearest the customer, for production. The Company makes most of the production molds for its manufacturing operations in the United States and Mexico at a single mold making facility in the United States. In the United Kingdom, the building of the production molds is outsourced to a third party. The tech centers and mold making facility are equipped with computer-aided design (CAD) and computer-aided manufacturing (CAM) systems. MANUFACTURING The Company has 24 custom molding facilities and eight integrated materials facilities. All but five of the custom molding facilities and one of the integrated materials facilities are located in the United States. Most of the facilities in the United States are located east of the Mississippi River, but since 1990 the Company has established or acquired facilities in five Western states. The Company has custom thermoforming operations at three locations in the United States. The Company's manufacturing facilities are generally strategically situated near manufacturing facilities of major customers. The location of all the Company's manufacturing facilities, as well as the tech centers and the Company's mold making facility, is set forth under Item 2 of this annual report. Custom molded foam plastic products are produced by causing plastic beads to be blown into an aluminum production mold inserted in an automatic molding machine. Time and pressure controlled heat (in the form of steam) is applied to the beads in the mold, causing the beads to further expand, soften and fuse -4- 6 together to form the shape of the product which is then stabilized before removal from the molding machine. Significant capital expenditures for molding machines and other process equipment are required to manufacture custom molded products. Process equipment includes air compressors, steam boilers, cooling towers, conveyors, drying equipment and a wide variety of other standard industrial machinery items. The major items of expense in the manufacture of the custom molded products are the plastic resins from which the products are made, labor and the utilities needed to operate the process equipment. The manufacture of the integrated materials and thermoformed products is less capital intensive. In the integrated materials operations, the machinery and equipment consists primarily of machining and fabricating equipment for forming foam plastic and corrugated paperboard products. Fabrication of foam plastic involves the cutting of shapes from billets or planks of foam plastic using specialized cutting tools and hot wire equipment. Fabrication of corrugated paperboard involves slitting, die-cutting, folding and gluing the paperboard. Thermoforming is the process by which rigid sheets of hard thermoplastic, such as ABS or high density polyethylene, are heated and then vacuum and/or pressure formed over molds to create specific shapes. As a result of the two acquisitions during the 1997 fiscal year (see "Business Acquisitions" below), the Company has the ability to produce products from thin gauge material in a roll-fed in-line manufacturing process as well as from heavy gauge material through a sheet-fed process. Molded foam plastic shapes and thermoformed shapes used in the integrated materials products are shipped from the facility where these shapes are made to the appropriate integrated materials facility for integration with other materials. The major items of expense in the manufacture of the integrated materials and thermoformed products are the materials from which the products are made, labor and electricity costs. In general, the Company receives purchase orders from its customers which do not specify quantity production and delivery dates. Production against orders is determined by the customers' production schedules with the result that products are generally required to be produced and delivered on short notice. Accordingly, production levels are generally determined by customer release patterns rather than the backlog of purchase orders. The proximity of the Company's manufacturing facilities to the Company's customers ensures timely delivery of products and enables the Company to provide products without a significant shipping cost. Production flexibility also exists among the Company's facilities since molds and/or molding machines and other manufacturing equipment can be moved quickly from one facility to another. -5- 7 All the Company's manufacturing facilities have warehousing capacity for inventories of finished goods. Warehouses are located at other locations as well. Distribution of products from the manufacturing facilities and warehouses to customers is made by Company operated tractor-trailers and by common carrier. Most of the Company operated tractor-trailers are leased. SALES Sales are made primarily by the Company's own sales force which, including supporting technical personnel at the Company's tech centers, consists of approximately 101 salaried employees. Sales offices are located at each of the Company's tech centers. In addition, sales in certain geographic areas and certain accounts are handled by sales representatives paid on a commission basis who are assisted and supported by Company personnel. FOREIGN OPERATIONS The Company commenced doing business in the United Kingdom during the 1995 fiscal year when it acquired a business with custom molding facilities in Northampton, England and Glasgow, Scotland (see "Business Acquisitions" below). The Company established an additional custom molding facility in Spennymoor, England during the 1996 fiscal year (see "New Site Development" below) and acquired two other businesses during the 1997 fiscal year, one with a custom molding facility in Livingston, Scotland and the other with separate custom molding and integrated materials facilities in London, England (see "Business Acquisitions" below). As a result of these acquisitions, the Company has become the largest manufacturer of custom molded products made from expanded foam plastic materials in the United Kingdom as well as in the United States. The Company has also had a manufacturing facility in Juarez, Chih., Mexico since May 1994. This facility enables the Company to provide interior protective packaging for domestic customers that have established "Maquiladora" operations along the U.S. Mexican border. Maquiladora programs permit domestic companies to ship component parts in bond into Mexico, assemble them and then ship the assembled product in bond back into the United States for sale to their domestic customers. During the 1997 fiscal year, the Company announced that a similar manufacturing facility would be established in Tijuana, B.C., Mexico (see "New Site Development" below). Over time, it is expected that the Mexican facilities will also serve customers manufacturing and selling their products in Mexico. For information with respect to the Company's operations in the United States, the United Kingdom and Mexico, see Note 11 of the Notes to Consolidated Financial Statements contained in the Company's Annual Report to Shareholders for the -6- 8 1997 fiscal year and incorporated in this annual report by reference. The Company's operations in the United Kingdom and Mexico are conducted through subsidiaries. The Company has no other subsidiaries which play an important role in the Company's business. The Company's export sales from the United States to customers in Canada are not significant. RAW MATERIALS The materials from which the Company's custom molded products are made are expandable polystyrene ("EPS"), expanded polypropylene ("EPP"), expanded polyethylene ("EPE"), ARCEL(TM) and high heat-resistant styrene-based resins. All the resins are petroleum based. EPP and EPE are polyolefin resins and ARCEL(TM) is a co-polymer of polyethylene and polystyrene. EPS is received by the Company in an unexpanded state and in its raw form has an appearance much like table salt. ARCEL(TM) and the high heat-resistant resins are also received by the Company in an unexpanded state. Under conditions of time and pressure controlled heat, the raw material beads can be expanded to many times their original size with no increase in weight. The Company expands the beads to various densities depending upon the properties desired and stores the expanded beads until the final products are molded. In contrast, the EPP and EPE beads are already expanded when received by the Company and do not require further expansion before molding. Most of the Company's custom molded products are made from EPS. The other resins are particularly suitable for certain applications and are significantly more expensive. Accordingly, the products made from the other resins sell at higher prices than the products made from EPS. During the 1997, 1996 and 1995 fiscal years, approximately 20%, 22% and 20%, respectively, of the Company's net sales of custom molded products have been attributable to products made from the premium resins. The Company has never experienced a shortage of the resins used in the manufacture of the custom molded products and does not foresee that any shortage will occur. EPS, EPP and EPE are generally available from a number of suppliers who sell to any prospective purchaser. The high heat-resistant resins and ARCEL(TM) are each sold by a single supplier but are also generally available. The price of EPS declined during both the 1996 and 1997 fiscal years and resulted in some reductions in the selling prices to customers for products made from EPS in both years. The materials used in the manufacture of the integrated materials products (including corrugated paperboard and foam -7- 9 billets and planks) and thermoformed products are also readily available. COMPETITION The Company's interior protective packaging and material handling products compete with similar products made by others as well as with other types of protective products. A majority of the similar products is produced by independent manufacturers who generally market their products in a particular geographic area from a single or limited number of facilities. While the Company is considerably larger than most of the manufacturers of similar products, the Company's penetration in the total interior protective packaging market is still relatively small. A number of the companies which produce competing products, particularly paper and corrugated packaging products, are well established and have substantially greater financial resources than the Company. The components manufactured by the Company for thermal insulation represent a small portion of the overall market for insulation products. Because of the specialized nature of this market, the Company competes primarily with other manufacturers of similar foam plastic products, rather than with manufacturers of alternate insulation products. With the exception of E-PAC which is licensed technology, the other components manufactured by the Company can be provided by other vendors using similar or alternative materials. Competition between the Company and manufacturers of similar products is based primarily on product engineering, price and customer service. CAPITAL EXPENDITURES Capital Expenditures for property, plant and equipment during the 1997, 1996 and 1995 fiscal years (not including expenditures in connection with business acquisitions) amounted to $21,318,000, $23,129,000 and $20,689,000, respectively. Capital expenditures included above for land, buildings and improvements during the 1997, 1996 and 1995 fiscal years amounted to $5,892,000, $5,029,000 and $3,841,000, respectively. The 1997 fiscal year expenditures included $1,894,000 in connection with the establishment of new custom molding facilities in Storm Lake, Iowa, Brenham, Texas and Tijuana, B.C., Mexico (see "New Site Development" below) and $1,380,000 for major renovations of the existing custom molding facility in Cortland, New York. Capital expenditures included above for machinery and equipment during the 1997, 1996 and 1995 fiscal years amounted to $15,426,000, $18,100,000 and $16,848,000, respectively. During the 1997 fiscal year, $6,431,000 of these expenditures was for automatic molding machines, $4,898,000 for other process equipment used in the manufacture of custom molded products and $1,252,000 for machinery and equipment used to manufacture products at the integrated materials and custom thermoforming facilities. During -8- 10 the 1997 fiscal year, $1,494,000 was expended for environmental control equipment (see "Environmental Considerations" below). Capital expenditures during the 1998 fiscal year are expected to be less than during the 1997 fiscal year. BUSINESS ACQUISITIONS During the 1997 fiscal year, the Company through business acquisitions acquired two custom molding facilities, two integrated materials facilities and two custom thermoforming facilities. In September 1996, the Company acquired the custom thermoforming business of FormPac Corporation in Sandusky, Ohio; in October 1996, the Company acquired all the outstanding capital stock of EPS (Moulders) Ltd., a custom molding business in Livingston, Scotland; in April 1997, the Company acquired the custom thermoforming business of Thermoformers Plus in Chula Vista, California (near San Diego); in May 1997, the Company acquired the integrated materials business of Allgood Industries, Inc. in Hayward, California (near San Francisco); and in July 1997, the Company acquired all the outstanding capital stock of Arrowtip Mouldings Limited, a custom molding and fabricating business with separate custom molding and integrated materials facilities in London, England. The aggregate purchase price recorded for these acquisitions totaled $16,694,000, including notes and other obligations payable valued at $2,116,000 and contingent consideration valued at $754,000. During the 1996 fiscal year, the Company acquired one integrated materials business. In December 1995, the Company acquired all the outstanding capital stock of Alpine Packaging, Inc. in Colorado Springs, Colorado. For this acquisition, the Company issued 101,046 shares of its Common Stock and paid cash having an aggregate value of $1,691,000. During the 1995 fiscal year, the Company acquired one custom molding business and one integrated materials business. In September 1994, the Company acquired the integrated materials business of Astrofoam, Inc. in Holden, Massachusetts; and in February 1995, the Company acquired the custom molding business of M.Y. Trondex, Ltd. with custom molding facilities in Northampton, England and Glasgow, Scotland. The Glasgow facility has since been closed and its operations transferred to the new facility in Livingston, Scotland. The aggregate purchase price recorded for these acquisitions through the end of the 1997 fiscal year has amounted to $6,243,000. Approximately 65% of the increase in the Company's net sales during the 1997 fiscal year was attributable to acquisitions. -9- 11 The balance of the increase in net sales was attributable to the Company's core custom molding operations. For further information with respect to the above acquisitions, see Note 8 of the Notes to Consolidated Financial Statements included in the Company's Annual Report to Shareholders for the 1997 fiscal year and incorporated in this annual report by reference. The Company will continue to look for acquisitions which mesh well with the Company's business. NEW SITE DEVELOPMENT During the last two fiscal years, the Company has established a number of custom molding facilities through new site development. During the 1996 fiscal year, the Company leased and totally renovated a building in Spennymoor, England for a new custom molding facility where production commenced in June 1996; and in February 1997 production commenced at a new custom molding plant which the Company constructed in Storm Lake, Iowa. Also, in November 1996 and June 1997, the Company broke ground for new custom molding plants in Brenham, Texas and Tijuana, B.C., Mexico, respectively. Strategically located between Houston and Austin, Texas, the Brenham facility will serve the growing number of high tech companies in southeast Texas. Production is expected to commence at the Brenham facility in December 1997. The Tijuana facility is being constructed by the Company on a leased property and will initially serve domestic companies that have established "Maquiladora" operations along the U.S.-Mexican border in the Tijuana area. The facility will be similar to the Company's facility in Juarez, Chih., Mexico. Production is expected to commence late in the second quarter of the 1998 fiscal year. The Company will continue to develop new production sites as they are needed to meet the needs of its customers. SEASONALITY The Company's net sales and net income are subject to some seasonal variation both in the United States and the United Kingdom. In both areas, the Company's business generally declines in December due to a reduction in manufacturing activity by the Company's customers, and net income in the second fiscal quarter is also adversely affected by higher operating costs during the winter months. See Note 12 of the Notes to Consolidated Financial Statements included in the Company's Annual Report to Shareholders for the 1997 fiscal year and incorporated in this annual report by reference. -10- 12 EMPLOYEES As of August 31, 1997, the Company had 1,716 employees, of which 363 were employed in the United Kingdom and Mexico. Of the total, 436 were salaried employees and 1,280 were paid on an hourly basis. Of the hourly employees, 306 at eight manufacturing facilities are covered by collective bargaining agreements with eight different unions. The agreements expire at various dates from March 1998 through June 2000. The Company considers its labor relations to be good and has never suffered a work stoppage as a result of a labor conflict. ENVIRONMENTAL CONSIDERATIONS The Company has obtained air quality permits for all the custom molding facilities in the United States where products are being manufactured. Air quality permits are not required in the United Kingdom and Mexico. Certain of the permits restrict the amount of pentane (a blowing agent contained in the Company's foam plastic resins) which may be released during the manufacturing process and have resulted in capital expenditures for batch pre-expanders which allow the Company to use low pentane content EPS. Emission control systems have also been acquired for certain facilities. Air quality permits have not been required in connection with the manufacture of the Company's integrated materials and thermoformed products. Where required, water permits are obtained for all process related waste water and storm water discharges. The Company has acquired recycling equipment for all its custom molding and integrated materials facilities. The equipment includes (i) regrinders which enable the Company to reuse in-house scrap and products returned by customers, (ii) EPS densifiers which enable the Company to compact in-house scrap and products returned by customers for reprocessing in the polystyrene recycling market and (iii) balers which enable the Company to compact in-house corrugated paperboard scrap for reprocessing. In-house scrap resulting from the manufacture of thermoformed products is returned to the raw material suppliers of these materials for recycling. If necessary, the Company's products may also be safely landfilled or incinerated. During the 1997, 1996 and 1995 fiscal years, the Company's capital expenditures for environmental matters, including environmental control equipment, amounted to $1,745,00, $848,000 and $1,742,000, respectively. Capital expenditures for environmental matters during the 1998 fiscal year are expected to amount to approximately $1,100,000. -11- 13 In September 1994, the Company commenced a program under which environmental compliance audits are being conducted at all the Company's manufacturing facilities in the United States. At the end of the 1997 fiscal year, 14 audits had been completed. The audits have been conducted by an independent environmental consulting firm and have not resulted in plans for any significant additional capital expenditures for environmental matters. There has been public concern that using chloro-fluoro-carbons ("CFCs") in the manufacture of plastic products may deplete the Earth's upper atmospheric ozone layer. The Company does not use, nor has it ever used, CFCs in the manufacture of any of its products. REORGANIZATION In May 1997, the Company announced a reorganization into seven groups which will be managed as separate profit centers. The groups consist of the custom molding and integrated materials operations in six geographical regions (Midwest, East, Rocky Mountain/West Coast, Southern, Texas/Eastern Mexico border and the United Kingdom) and the Company's thermoforming operations. Under the reorganization, each group will be managed by a designated General Manager. At the same time, a company-wide Manufacturing Services Group was organized to provide support to all operations on a variety of matters including manufacturing, tooling, quality assurance, safety, environmental and technical assistance. [This space intentionally left blank.] -12- 14 ITEM 2. PROPERTIES. The Company's headquarters are located at 800 Fifth Avenue, New Brighton, Pennsylvania 15066. Custom Molding. The Company has 24 custom molding facilities at the following locations: Colorado Springs, Colorado New Brighton, Pennsylvania Putnam, Connecticut Greeneville, Tennessee Conyers, Georgia Lewisburg, Tennessee Streator, Illinois (two facilities) Martinsville, Indiana Brenham, Texas Storm Lake, Iowa Sterling, Virginia Chesaning, Michigan Pardeeville, Wisconsin Tupelo, Mississippi Juarez, Chih., Mexico Las Cruces, New Mexico London, England Cortland, New York Northampton, England Butner, North Carolina Spennymoor, England Marion, Ohio Livingston, Scotland During the 1997 fiscal year, the Company (i) acquired the custom molding facilities in Livingston, Scotland and London, England in business acquisitions (see "Business Acquisitions" under Item 1), (ii) completed the construction of the custom molding facility at Storm Lake, Iowa (see "New Site Development" under Item 1) and (iii) closed a custom molding facility in Glasgow, Scotland which was acquired during the 1995 fiscal year and transferred the operations there to the new facility in Livingston, Scotland. Since the end of the 1997 fiscal year, the facility in Brenham, Texas has been completed, and it is expected that production will commence there during December 1997. See also "New Site Development" under Item 1 for information with respect to the Brenham, Texas, facility and the commencement of construction of a new custom molding facility in Tijuana, B.C., Mexico. The Company also plans to install custom molding equipment at the integrated materials facility in Hayward, California which was acquired during the 1997 fiscal year (see below). The Company is planning to close the Martinsville, Indiana custom molding facility during the second or third quarter of the 1998 fiscal year. The closure would result from the Company's major customer for this facility moving its production to a plant near Juarez, Chih., Mexico. The Company would continue to serve this customer from the Company's custom molding facility in Juarez. The Company manufactures products from EPS at all its custom molding facilities except the facilities in Lewisburg, Tennessee and Storm Lake, Iowa which are dedicated polyolefins plants where products are only made from EPP or EPE. Products are also made from one or more of the Company's premium raw -13- 15 material resins at a majority of the other custom molding facilities. Integrated Materials. The Company has eight integrated materials facilities at the following locations: Hayward, California Beaver, Pennsylvania Colorado Springs, Colorado Greeneville, Tennessee Holden, Massachusetts Burlington, Wisconsin Saginaw, Michigan London, England The integrated materials facilities in Colorado Springs, Colorado, Greeneville, Tennessee and London, England are at different sites from the custom molding facilities at these locations. Some integrated materials operations are also conducted at the Company's custom molding facilities in Conyers, Georgia, Tupelo, Mississippi, Butner, North Carolina, Juarez, Chih., Mexico and Northampton, England. During the 1997 fiscal year, the Company (i) acquired the integrated materials facilities in Hayward, California and London, England in business acquisitions (see "Business Acquisitions" under Item 1) and (ii) transferred its integrated materials operation at Conyers, Georgia to the Company's custom molding facility in Conyers. Thermoforming. In September 1996 and April 1997, the Company acquired custom thermoforming facilities in Sandusky, Ohio and Chula Vista, California, respectively, in business acquisitions (see "Business Acquisitions" under Item 1). Since the September 1996 acquisition, the Company's thermoforming operations have been managed from Sandusky, Ohio, and thermoforming operations formerly located at the integrated materials facilities in Beaver, Pennsylvania and Burlington, Wisconsin have been transferred to Sandusky and Conyers, Georgia. The thermoforming facility in Conyers is at a separate site from the Company's custom molding facility in Conyers and was formerly also an integrated materials facility (see the preceding paragraph). Miscellaneous. The Company's mold making facility is in Sun Prairie, Wisconsin. This facility is considered a manufacturing facility because most of the aluminum production molds that are made by the Company at this facility are sold to and owned by the Company's customers. Most of the custom molding facilities are owned while a majority of the integrated materials facilities and all the thermoforming facilities are leased. The Company has options to purchase most of the leased facilities. The Company generally makes substantial leasehold improvements to, and exercises its options to purchase, the leased facilities. The leases expire at various dates through November 2007. In many cases, the leases may be extended at the Company's option. -14- 16 The Company's custom molding and integrated materials operations are supported by seven tech centers. These centers are located at the Company's headquarters in New Brighton, Pennsylvania, at the custom molding facilities in Colorado Springs, Colorado and Northampton, England, at the integrated materials facilities in Holden, Massachusetts and Burlington, Wisconsin and at separate facilities in Conyers, Georgia and Grand Blanc, Michigan. The Grand Blanc tech center primarily serves the automotive industry. In addition, the Company's thermoforming operations are supported by a tech center at the facility in Sandusky, Ohio. Sales offices are located at each of the tech centers. The Company has warehouse facilities at each manufacturing location. Additional warehouse facilities are located near the Company's manufacturing facilities and near the manufacturing facilities of major customers. The Company believes that its facilities are generally well suited for their respective uses and that they are generally adequately sized and designed to provide the operating efficiencies necessary for the Company to be competitive. The Company continually expands and modernizes its existing facilities and establishes new facilities as necessary to meet the demand for its products. Information with respect to the machinery and equipment used in the Company's' manufacturing operations and with respect to the Company's transportation equipment provided in Item 1 of this annual report is incorporated by reference in this Item 2. ITEM 3. LEGAL PROCEEDINGS. In December 1996, a Complaint for Wrongful Death was filed against the Company in John C. Bartram, Administrator of the Estate of Dwayne Scott Mount, Deceased, v. Tuscarora Incorporated and Toyo Machine and Metal Co., Ltd. in the Court of Common Pleas of Marion County, Ohio. In May 1996, Mr. Mount, an employee of the Company (the "Decedent"), was killed while working on a molding machine manufactured by defendant Toyo Machine and Metal Co., Ltd. ("Toyo") at the Company's custom molding facility in Marion, Ohio. Count I of the Complaint claims that the Decedent was wrongfully killed as a result of certain alleged intentional conduct of the Company and seeks both compensatory and punitive damages from the Company of not less than $5,000,000. Count II of the Complaint seeks damages from defendant Toyo for defective and/or negligent design of the machine. The Company has filed an Answer to the Complaint denying the allegations against the Company and asserting various defenses, including that the plaintiff's claim is barred pursuant to the Ohio Workers' Compensation Statute. The Company is vigorously defending this litigation. In the opinion of management, the disposition of this proceeding should not have a material adverse effect on the Company's financial position or results of operations. -15- 17 Since February 1992, the Company has been involved in cost recovery litigation with the United States Environmental Protection Agency ("USEPA") and other parties over clean up costs at the Smith's Farm Superfund Site in Bullitt County, Kentucky. The litigation is in the United States District Court for the Western District of Kentucky under the caption AKZO Coatings, Inc., et al. v. AC&S, Inc., et al. In May 1996, the USEPA, as part of a global settlement, negotiated a settlement with certain de minimis parties including the Company. In August 1997, a Consent Order, under which the Company paid $57,173 in cleanup costs, was signed by the Company and the other de minimis parties. The Consent Order is subject to approval of the USEPA and the Department of Justice after publication of notice and a 30-day public comment period. The Company expects the Consent Order to become final by the end of 1997. See Item 14(b) under Part IV of this annual report entitled "Reports on Form 8-K" for information with respect to the termination of the civil action entitled L. Marie Roberts v. Tuscarora Incorporated, Joe Alcott and Larry Mooneyhan brought in October 1995 in the State Court of Rockdale County, Georgia. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders of the Company during the fiscal quarter ended August 31, 1997. EXECUTIVE OFFICERS OF THE COMPANY In accordance with Instruction 3 to Item 401(b) of Regulation S-K, information with respect to the executive officers of the Company is set forth below. Name Age Office with the Company - -------------------- --- -------------------------------------- John P. O'Leary, Jr. 50 President and Chief Executive Officer Brian C. Mullins 56 Vice President and Treasurer David C. O'Leary 48 Vice President, Operations James H. Brakebill 60 Vice President, Manufacturing Services Del E. Goedeker 57 Vice President, Corporate Development John P. O'Leary, Jr. has been President and Chief Executive Officer of the Company since prior to September 1992. He has been a director of the Company since 1974 and became Chairman of the Board of Directors in August 1994. Brian C. Mullins has been Vice President and Treasurer of the Company since prior to September 1992. Mr. Mullins is the Company's chief financial and accounting officer. David C. O'Leary has been Vice President, Operations of the Company since May 1997; he was Vice President-Sales and Marketing from April 1994 to May 1997 and Vice President-Southern Division from prior to September 1992 to April 1994. Under the May -16- 18 1997 reorganization described under "Reorganization" in Part I of this annual report, the Company's seven General Managers report to Mr. O'Leary. James H. Brakebill has been Vice President, Manufacturing Services of the Company since May 1997; he was Vice President, Manufacturing from April 1994 to May 1997 and Vice President of Technology from prior to September 1992 to April 1994. Mr. Brakebill manages the Company's new Manufacturing Services Group. Del E. Goedeker was employed by, and became Vice President, Corporate Development, of, the Company in December 1996. Prior to this time, he had acted as a consultant to the Company on acquisition matters since May 1996. Mr. Goedeker was Vice President of the Vesuvius Companies Group of Cookson, Plc., a manufacturer of high performance refractories and ceramics primarily for the steel industry, from prior to September 1992 until his retirement on March 31, 1996. Mr. Goedeker is responsible for corporate development and has assumed a large share of the responsibility for the Company's business acquisitions and expansion. John P. O'Leary, Jr. and David C. O'Leary are brothers. The executive officers are elected annually by the Board of Directors at an organization meeting which is held immediately after each Annual Meeting of Shareholders. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded in the over-the-counter market on the National Market System of the National Association of Securities Dealers ("NASDAQ"). The Common Stock trades under the NASDAQ symbol TUSC. As of August 31, 1997, there were 808 holders of record of the Company's Common Stock. Information with respect to the market prices of, and the cash dividends paid with respect to, the Company's Common Stock during the fiscal years ended August 31, 1997 and 1996 appears under Note 12 - Quarterly Financial Data (unaudited) of the Notes to Consolidated Financial Statements on page 19 of the Company's Annual Report to Shareholders for the fiscal year ended August 31, 1997 and is incorporated herein by reference. -17- 19 ITEM 6. SELECTED FINANCIAL DATA. The selected financial data required by this Item 6 is furnished by the "Eleven Year Consolidated Financial Summary" which appears on the bottom half of the inside front cover of the Company's Annual Report to Shareholders for the fiscal year ended August 31, 1997 and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. The Management's Discussion and Analysis of Results of Operations and Financial Condition required by this Item 7 appears on pages 20 through 22 of the Company's Annual Report to Shareholders for the fiscal year ended August 31, 1997 and is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. This Item 7A is not applicable to the Company. The information required by this Item 7A is first required to be provided by the Company in its annual report on Form 10-K for the Company's fiscal year ended August 31, 1998. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The following financial statements and related notes and report appear on the pages indicated in the Company's Annual Report to Shareholders for the fiscal year ended August 31, 1997 and are incorporated herein by reference:
Page(s) in Annual Report Financial Statements and Related Report to Shareholders - --------------------------------------------------- --------------- Consolidated Statements of Income for the fiscal years ended August 31, 1997, 1996 and 1995............................................ 8 Consolidated Balance Sheets at August 31, 1997 and 1996............................................ 9 Consolidated Statements of Cash Flows for the fiscal years ended August 31, 1997, 1996 and 1995...................................... 10 Consolidated Statements of Shareholders' Equity for the fiscal years ended August 31, 1997, 1996 and 1995........................... 11 Notes to Consolidated Financial Statements........................ 12-19 Report, dated October 16, 1997, of Ernst & Young LLP.............. 20
The supplementary financial information required by this Item 8 is included in Note 12 - Quarterly Financial Data -18- 20 (unaudited) of the Notes to Consolidated Financial Statements and is also incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. The Company changed independent public accountants for the fiscal year ended August 31, 1997. Information with respect to the change in independent public accountants was previously reported by the Company in current reports on Form 8-K filed by the Company with the Commission on February 15, 1996 and November 14, 1996. PART III ITEMS 10 THROUGH 13. In accordance with the provisions of General Instruction G to Form 10-K, the information required by Item 10 (Directors and Executive Officers of the Registrant), Item 11 (Executive Compensation), Item 12 (Security Ownership of Certain Beneficial Owners and Management) and Item 13 (Certain Relationships and Related Transactions) is not set forth herein (except for the information concerning "Executive Officers of the Company" which appears at the end of Part I of this annual report) because the Company has already filed its definitive Proxy Statement for its Annual Meeting of Shareholders to be held on December 18, 1997, which includes such information, with the Commission. Such information is incorporated herein by reference, except for the information required to be included in the Proxy Statement by paragraphs (i), (k) and (l) of Item 402 of Regulation S-K. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. The financial statements, financial statement schedules and exhibits listed below are filed as part of this annual report: (a)(1) Financial Statements: The consolidated financial statements of the Company and its subsidiaries, together with the report of Ernst & Young LLP, dated October 16, 1997, appearing on pages 8 through 20 of the Company's Annual Report to Shareholders for the fiscal year ended August 31, 1997, are incorporated herein by reference (see Item 8 above). The report of S.R. Snodgrass, A.C., dated October 11, 1996, with respect to the financial statements of the Company as of August 31, 1996 and for each of the two years then ended was filed with the Company's annual report on Form 10-K for the fiscal year ended August 31, 1996 and is filed with this annual report as Exhibit 99. -19- 21 (a)(2) Financial Statement Schedules: Page in this Schedules and Related Report Annual Report - ------------------------------------------------- ------------- Schedule II - Valuation Account for the fiscal years ended August 31, 1997, 1996 and 1995 S-1 The report of Ernst & Young LLP with respect to Schedule II is contained in the consent of Ernst & Young LLP filed with this annual report as Exhibit 23.1. All other financial statement schedules are omitted either because they are not applicable or are not material, or the information required therein is contained in the consolidated financial statements or notes thereto set forth in the Company's Annual Report to Shareholders for its fiscal year ended August 31, 1997. (a)(3) Exhibits: Exhibit No. Document - ------- ------------------------------------------------------------ 3(i) Restated Articles of Incorporation, filed as Exhibit 3(i) to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1995 and incorporated herein by reference. 3(ii) By-Laws, as Amended and Restated effective December 15, 1994, filed as Exhibit 3(ii) to the Company's quarterly report on Form 10-Q for the fiscal quarter ended February 28, 1995 and incorporated herein by reference. 4 Loan Agreement, dated as of August 14, 1996, between the Company and Mellon Bank, N.A., with Revolving Credit Note and Term Note attached, filed as Exhibit 4 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1996 and incorporated herein by reference. 10.1 1985 Incentive Stock Option Plan, as amended by the Company's Board of Directors on October 29, 1987, filed on June 20, 1988 as part of Exhibit 10.2 to Amendment No. 1 to Registration Statement No. 33-17138 on Form S-1 and incorporated herein by reference.* 10.2 1989 Stock Incentive Plan, as amended by the Company's Board of Directors on October 13, 1994 and approved by the Company's shareholders on December 15, 1994, filed as Exhibit 10.3 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1995 and incorporated herein by reference.* -20- 22 Exhibit No. Document - ------- ------------------------------------------------------------ 10.3 1989 Stock Incentive Plan, as amended by the Company's Board of Directors effective August 31, 1996, filed as Exhibit 10.4 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1996 and incorporated herein by reference.* 10.4 Common Stock Purchase Plan for Salaried Employees, as amended by the Company's Board of Directors on October 11, 1996, filed as Exhibit 10.5 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1996 and incorporated herein by reference.* 10.5 Deferred Compensation Plan for Non-Employee Directors, as adopted by the Company's Board of Directors on December 14, 1994, filed as Exhibit 10.6 to the Company's quarterly report on Form 10-Q for the fiscal quarter ended February 28, 1995 and incorporated herein by reference.* 10.6 Retirement Policy and Plan for Non-Employee Directors, as amended by the Company's Board of Directors on December 14, 1994, filed as Exhibit 10.7 to the Company's quarterly report on Form 10-Q for the fiscal quarter ended February 28, 1995 and incorporated herein by reference.* 10.7 Written description of supplemental retirement benefit for Thomas P. Woolaway, filed as Exhibit 10.7 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1995 and incorporated herein by reference.* 10.8 First Amendment to the Tuscarora Incorporated and Subsidiary Companies Salaried Employees' Money Purchase Pension Plan, as adopted by the Company's Board of Directors on October 11, 1996, providing for additional employer contributions for certain of the Company's executive officers, filed as Exhibit 10.9 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1996 and incorporated herein by reference.* 10.9 Tuscarora Incorporated Supplemental Executive Retirement Plan, as adopted by the Company's Board of Directors on February 9, 1996, and related Consent of the Company's Compensation Committee, dated October 11, 1996, designating certain of the Company's executive officers as Plan participants, and form of Participation Agreement, filed as Exhibit 10.10 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1996 and incorporated herein by reference.* -21- 23 Exhibit No. Document - ------- ------------------------------------------------------------ 10.10 Indemnification and Insurance Agreement, dated August 12, 1988, between the Company and John P. O'Leary, Sr. (substantially identical agreements have been entered into with all the Company's directors), filed as Exhibit 10.3 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1988 and incorporated herein by reference. 11 Statement re Computation of Earnings Per Share, filed herewith. 13 Those portions of the Annual Report to Shareholders for the fiscal year ended August 31, 1997 which are expressly incorporated in this annual report by reference, filed herewith. 21 List of subsidiaries of the Company, filed herewith. 23.1 Consent of Ernst & Young LLP, filed herewith. 23.2 Consent of S.R. Snodgrass, A.C., filed herewith. 24 Powers of Attorney, filed herewith. 27 Financial Data Schedule, filed herewith. 99 Report, dated October 11, 1996, of S.R. Snodgrass, A.C., filed herewith. - ------------ * Management contract or compensatory plan, contract or arrangement required to be filed by Item 601(b)(10)(iii) of Regulation S-K. The Company agrees to furnish to the Commission upon request copies of all instruments defining the rights of holders of long-term debt of the Company and its subsidiaries which are not filed as a part of this annual report. Copies of the exhibits filed as a part of this annual report are available at a cost of $.20 per page to any shareholder upon written request to Brian C. Mullins, Vice President and Treasurer, Tuscarora Incorporated, 800 Fifth Avenue, New Brighton, Pennsylvania 15066. -22- 24 (b) Reports on Form 8-K: A current report on Form 8-K was filed by the Company on July 25, 1997. Under Item 5, the Company reported that on July 16, 1997, the State Court of Rockdale County, Georgia entered an Order dismissing the civil action entitled L. Marie Roberts v. Tuscarora Incorporated, Joe Alcott and Larry Mooneyhan. This action, which was commenced in October 1995, was previously reported in the Company's annual reports on Form 10-K for the fiscal years ended August 31, 1995 and August 31, 1996. The Order was entered following receipt by the Court of a letter from the plaintiff Roberts requesting that the proceeding be dismissed. Under Item 5, the Company also referred to its quarterly report to shareholders for the fiscal quarter ended May 31, 1997 which was mailed on July 22, 1997 and to a press release issued on July 25, 1997 with respect to the acquisition by the Company of the business and operations of Arrowtip Mouldings Limited, a manufacturer of custom molded and fabricated foam plastic products in the United Kingdom. The quarterly report and press release were filed as exhibits to the Form 8-K and reference was made under Item 5 to the quarterly report and press release for information with respect to the Company's fiscal fourth quarter performance. [This space intentionally left blank.] -23- 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Tuscarora Incorporated By /s/ JOHN P. O'LEARY, JR. -------------------------------- John P. O'Leary, Jr., President and Chief Executive Officer Date: November 26, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company in the capacities indicated on November 26, 1997: /s/ JOHN P. O'LEARY, JR. /s/ BRIAN C. MULLINS - ---------------------------- ------------------------- John P. O'Leary, Jr. Brian C. Mullins (Director and Chief (Principal Financial Executive Officer) Officer and Principal Accounting Officer) Thomas S. Blair David I. Cohen Abe Farkas Karen L. Farkas Robert W. Kampmeinert Jeffery L. Leininger David C. O'Leary Harold F. Reed, Jr. Thomas P. Woolaway By /s/ BRIAN C. MULLINS ------------------------- Brian C. Mullins, Attorney-in-Fact -24- 26 TUSCARORA INCORPORATED Schedule II - Valuation Account Years Ended August 31, 1997, 1996 and 1995
Balance at Charged to Balance at Beginning Costs and End Description of Period Expenses Deductions(1) of Period - ----------------- --------- -------- ------------- --------- Allowance for doubtful accounts Year Ended August 31, 1997 $787,175 $586,582 $699,068 $674,689 Year Ended August 31, 1996 694,675 381,196 288,696 787,175 Year Ended August 31, 1995 646,991 287,782 240,098 694,675
- ---------------- (1) Uncollected receivables written off, net of recoveries. S-1 27 TUSCARORA INCORPORATED FORM 10-K FOR FISCAL YEAR ENDED AUGUST 31, 1997 EXHIBIT INDEX The following exhibits are required to be filed with this annual report on Form 10-K. Exhibits are incorporated herein by reference to other documents pursuant to Rule 12b-23 under the Securities Exchange Act of 1934 as amended, as indicated in the index. Exhibits not incorporated herein by reference follow the index.
Exhibit No. Document ------- ------------------------------------------------------------------ 3(i) Restated Articles of Incorporation, filed as Exhibit 3(i) to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1995 and incorporated herein by reference. 3(ii) By-Laws, as Amended and Restated effective December 15, 1994, filed as Exhibit 3(ii) to the Company's quarterly report on Form 10-Q for the fiscal quarter ended February 28, 1995 and incorporated herein by reference. 4 Loan Agreement, dated as of August 14, 1996, between the Company and Mellon Bank, N.A. with Revolving Credit Note and Term Note attached, filed as Exhibit 4 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1996 and incorporated herein by reference. 10.1 1985 Incentive Stock Option Plan, as amended by the Company's Board of Directors on October 29, 1987, filed on June 20, 1988 as part of Exhibit 10.2 to Amendment No. 1 to Registration Statement No. 33-17138 on Form S-1 and incorporated herein by reference.* 10.2 1989 Stock Incentive Plan, as amended by the Company's Board of Directors on October 13, 1994 and approved by the Company's shareholders on December 15, 1994, filed as Exhibit 10.3 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1995 and incorporated herein by reference.* 10.3 1989 Stock Incentive Plan, as amended by the Company's Board of Directors effective August 31, 1996, filed as
28 TUSCARORA INCORPORATED FORM 10-K FOR FISCAL YEAR ENDED AUGUST 31, 1997
Exhibit No. Document - ------- ----------------------------------------------------------------- Exhibit 10.4 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1996 and incorporated herein by reference.* 10.4 Common Stock Purchase Plan for Salaried Employees, as amended by the Company's Board of Directors on October 11, 1996, filed as Exhibit 10.5 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1996 and incorporated herein by reference.* 10.5 Deferred Compensation Plan for Non-Employee Directors, as adopted by the Company's Board of Directors on December 14, 1994, filed as Exhibit 10.6 to the Company's quarterly report on Form 10-Q for the fiscal quarter ended February 28, 1995 and incorporated herein by reference.* 10.6 Retirement Policy and Plan for Non-Employee Directors, as amended by the Company's Board of Directors on December 14, 1994, filed as Exhibit 10.7 to the Company's quarterly report on Form 10-Q for the fiscal quarter ended February 28, 1995 and incorporated herein by reference.* 10.7 Written description of supplemental retirement benefit for Thomas P. Woolaway, filed as Exhibit 10.7 to the Company's annual report on Form 10-K for the Company's fiscal year ended August 31, 1995 and incorporated herein by reference.* 10.8 First Amendment to the Tuscarora Incorporated and Subsidiary Companies Salaried Employees' Money Purchase Pension Plan, as adopted by the Company's Board of Directors on October 11, 1996, providing for additional employer contributions for certain of the Company's executive officers, filed as Exhibit 10.9 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1996 and incorporated herein by reference.* 10.9 Tuscarora Incorporated Supplemental Executive Retirement Plan, as adopted by the Company's Board of Directors on February 9, 1996, and related Consent of the Company's Compensation Committee, dated October 11, 1996, designating certain of the Company's executive officers as Plan participants, and form of Participant Agreement, filed as Exhibit 10.10 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1996 and incorporated herein by reference.*
29 TUSCARORA INCORPORATED FORM 10-K FOR FISCAL YEAR ENDED AUGUST 31, 1997
Exhibit No. Document - ------- ----------------------------------------------------------------- 10.10 Indemnification and Insurance Agreement, dated August 12, 1988, between the Company and John P. O'Leary, Sr. (substantially identical agreements have been entered into with all the Company's directors), filed as Exhibit 10.3 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1988 and incorporated herein by reference. 11 Statement re Computation of Earnings Per Share, filed herewith. 13 Those portions of the Annual Report to Shareholders for the fiscal year ended August 31, 1997, which are expressly incorporated in this annual report by reference, filed herewith. 21 List of subsidiaries of the Company, filed herewith. 23.1 Consent of Ernst & Young LLP, filed herewith. 23.2 Consent of S.R. Snodgrass, A.C., filed herewith. 24 Powers of Attorney, filed herewith. 27 Financial Data Schedule, filed herewith. 99 Report, dated October 11, 1996, of S.R. Snodgrass, A.C., filed herewith.
- --------------- * Management contract or compensatory plan, contract or arrangement required to be filed by Item 601(b) (10) (iii) of Regulation S-K. EX-11 2 EXHIBIT 11 1 Exhibit 11 EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- PRIMARY Weighted average number of shares of Common Stock outstanding 9,164 9,194 9,231 9,362 9,452 Net effect of dilutive stock options - based on the treasury stock method using average market price 152 107 153 181 160 ----- ----- ----- ----- ----- TOTAL 9,316 9,301 9,384 9,543 9,612 ===== ===== ===== ===== ===== Net income $4,270 $5,703 $8,980 $9,653 $9,252 ===== ===== ===== ===== ===== Per share amount $ 0.46 $ 0.61 $ 0.96 $ 1.01 $ 0.97 ===== ===== ===== ===== ===== FULLY DILUTED Weighted average number of shares of Common Stock outstanding 9,164 9,194 9,231 9,362 9,452 Net effect of dilutive stock options - based on the treasury stock method using greater of average market price or closing market price 152 107 206 181 185 ----- ----- ----- ----- ----- TOTAL 9,316 9,301 9,437 9,543 9,637 ===== ===== ===== ===== ===== Net income $4,270 $5,703 $8,980 $9,653 $9,252 ===== ===== ===== ===== ===== Per share amount $ 0.46 $ 0.61 $ 0.95 $ 1.01 $ 0.96 ===== ===== ===== ===== =====
The per share and share numbers have been adjusted to reflect the 50% share distribution declared on December 18, 1996 payable on January 13, 1997 to holders of record on December 27, 1996. In thousands except per share data. EX-13 3 TUSCORORA INC. EXHIBIT 13 1 Exhibit 13 Consolidated Statements of Income
- ---------------------------------------------------------------------------------------------- YEAR ENDED AUGUST 31, 1997 1996 1995 - ---------------------------------------------------------------------------------------------- Net Sales $209,206,775 $182,589,621 $163,299,682 Cost of Sales 160,951,244 139,249,481 123,682,160 - ---------------------------------------------------------------------------------------------- Gross profit 48,255,531 43,340,140 39,617,522 - ---------------------------------------------------------------------------------------------- Selling and Administrative Expenses 28,636,840 24,524,593 21,831,518 Interest Expense 3,741,275 2,928,483 2,603,250 Other (Income) Expense--Net 436,154 (18,235) 148,636 - ---------------------------------------------------------------------------------------------- 32,814,269 27,434,841 24,583,404 - ---------------------------------------------------------------------------------------------- Income before income taxes 15,441,262 15,905,299 15,034,118 Provision for Income Taxes (Note 6) 6,146,001 6,252,682 6,053,854 - ---------------------------------------------------------------------------------------------- Net income $ 9,295,261 $ 9,652,617 $ 8,980,264 ============================================================================================== Net income per share of Common Stock (Note 1) $0.98 $1.03 $0.97 ============================================================================================== Weighted average number of shares of Common Stock outstanding 9,452,082 9,362,409 9,230,618 ==============================================================================================
Table of Contents to the Consolidated Financial Statements - ------------------------------------- Consolidated Statements of Income 8 Consolidated Balance Sheets 9 Consolidated Statements of Cash Flows 10 Consolidated Statements of Shareholders' Equity 11 Notes to Consolidated Financial Statements 12 Report of Independent Accountants 20 Management's Discussion and Analysis of Results of Operations and Financial Condition 20 Net income per share of Common Stock and the weighted average number of shares of Common Stock have been adjusted to reflect the 50% share distribution paid on January 13, 1997. The accompanying notes are an integral part of the consolidated financial statements. TUSCARORA INCORPORATED Annual Report 1997 8 2 Consolidated Balance Sheets
- --------------------------------------------------------------------------------------------------------------------------- Assets (August 31) 1997 1996 - --------------------------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents $ 5,095,149 $ 3,379,776 Trade accounts receivable, less allowance of $674,689 in 1997; $787,175 in 1996 31,667,668 26,094,406 Inventories (Note 2) 18,238,886 15,666,880 Prepaid expenses and other current assets 1,592,284 1,771,694 - --------------------------------------------------------------------------------------------------------------------------- Total current assets 56,593,987 46,912,756 - --------------------------------------------------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT Land 3,867,700 2,658,573 Buildings and improvements 55,320,144 45,197,923 Machinery and equipment 128,809,150 111,383,112 - --------------------------------------------------------------------------------------------------------------------------- Total 187,996,994 159,239,608 - --------------------------------------------------------------------------------------------------------------------------- Less accumulated depreciation (94,882,160) (80,529,962) - --------------------------------------------------------------------------------------------------------------------------- Net property, plant and equipment 93,114,834 78,709,646 - --------------------------------------------------------------------------------------------------------------------------- OTHER ASSETS Goodwill 8,540,479 3,406,779 Other non-current assets 4,138,260 2,140,261 - --------------------------------------------------------------------------------------------------------------------------- Total other assets 12,678,739 5,547,040 - --------------------------------------------------------------------------------------------------------------------------- Total assets $162,387,560 $131,169,442 =========================================================================================================================== Liabilities and Shareholders' Equity (August 31) - --------------------------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Current maturities of long-term debt (Note 3) $ 5,133,332 $ 5,346,335 Accounts payable 16,714,670 16,416,387 Accrued income taxes 390,008 153,930 Accrued payroll and related taxes 910,090 595,282 Other current liabilities 3,661,408 1,176,918 - --------------------------------------------------------------------------------------------------------------------------- Total current liabilities 26,809,508 23,688,852 - --------------------------------------------------------------------------------------------------------------------------- Long-term Debt (Note 3) 57,166,326 39,249,136 Deferred Income Taxes (Note 6) 2,417,725 2,069,988 Other Long-term Liabilities 3,176,653 1,334,577 - --------------------------------------------------------------------------------------------------------------------------- Total liabilities 89,570,212 66,342,553 - --------------------------------------------------------------------------------------------------------------------------- Commitments (Note 10) Shareholders' Equity Preferred Stock--par value $.01 per share; authorized shares, 1,000,000; none issued -- -- Common Stock--without par value, authorized shares, 20,000,000; issued shares, 9,479,241 in 1997, 9,426,923 in 1996 (Note 4) 9,479,241 9,426,923 Capital surplus (Note 4) 1,071,878 740,818 Retained earnings 62,291,940 54,825,048 Foreign currency translation adjustment 49,999 (38,690) - --------------------------------------------------------------------------------------------------------------------------- Total 72,893,058 64,954,099 - --------------------------------------------------------------------------------------------------------------------------- Less Common Stock in treasury--4,620 shares in 1997; 12,351 shares in 1996; at cost (75,710) (127,210) - --------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 72,817,348 64,826,889 - --------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $162,387,560 $131,169,442 ===========================================================================================================================
The number of shares and amounts of Common Stock have been adjusted to reflect the 50% share distribution paid on January 13, 1997. The accompanying notes are an integral part of the consolidated financial statements. TUSCARORA INCORPORATED Annual Report 1997 9 3 Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------------------------------------------------- YEAR ENDED AUGUST 31, 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 9,295,261 $ 9,652,617 $ 8,980,264 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 14,429,068 12,364,207 10,247,768 Amortization 857,319 612,773 641,745 Provision for losses on receivables 504,862 378,366 287,782 Increase (decrease) in deferred income taxes (69,674) 200,468 168,189 Loss on sale or abandonment of property, plant and equipment, net 524,449 80,883 64,425 Stock compensation expense 13,684 12,290 10,516 Changes in operating assets and liabilities, net of effects of business acquisitions: Decrease (increase): Trade accounts receivable 852,227 (2,588,248) (5,059,511) Inventories (521,990) 2,561,825 (2,468,166) Prepaid expenses and other current assets (961,419) (309,401) (393,767) Other non-current assets (179,702) (226,454) (289,188) Increase (decrease): Accounts payable (2,133,551) 726,863 1,100,205 Accrued income taxes 96,729 (281,410) 64,376 Accrued payroll and related taxes 249,493 100,695 (256,558) Other current liabilities (2,256,586) (884,162) 593,290 Other long-term liabilities 311,645 (53,049) 402,820 - --------------------------------------------------------------------------------------------------------------------------- Cash provided by operating activities 21,011,815 22,348,263 14,094,190 - --------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchase of property, plant and equipment (21,318,432) (23,128,792) (20,689,178) Business acquisitions, net of cash acquired (Note 8) (14,084,072) (513,239) (5,664,667) Proceeds from sale of property, plant and equipment 1,050,319 152,129 184,764 - --------------------------------------------------------------------------------------------------------------------------- Cash (used for) investing activities (34,352,185) (23,489,902) (26,169,081) - --------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from long-term debt 23,000,000 8,000,000 16,045,000 Payments on long-term debt (6,320,161) (4,854,866) (3,667,977) Dividends paid (1,828,369) (1,626,948) (1,415,195) Proceeds from sale of Common Stock 421,194 323,218 118,287 - --------------------------------------------------------------------------------------------------------------------------- Cash provided by financing activities 15,272,664 1,841,404 11,080,115 - --------------------------------------------------------------------------------------------------------------------------- EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (216,921) 20,244 (16,947) Net increase (decrease) in cash and cash equivalents 1,715,373 720,009 (1,011,723) - --------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,379,776 2,659,767 3,671,490 - --------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,095,149 $ 3,379,776 $ 2,659,767 - --------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA Income taxes paid $ 5,944,408 $ 6,243,828 $ 5,821,289 Interest paid $ 3,046,640 $ 3,302,840 $ 2,396,164 ===========================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. TUSCARORA INCORPORATED Annual Report 1997 10 4 Consolidated Statements of Shareholders' Equity
COMMON STOCK TREASURY SHARES ------------------ -------------------- CURRENCY SHARES CAPITAL RETAINED TRANSLATION ISSUED AMOUNT SURPLUS EARNINGS SHARES AMOUNT ADJUSTMENT TOTAL - --------------------------------------------------------------------------------------------------------------------------- Balance at August 31, 1994 9,290,571 $9,290,571 ($925,640) $39,234,310 69,938 ($419,292) $-- $47,179,949 - --------------------------------------------------------------------------------------------------------------------------- Net income 8,980,264 8,980,264 Sale of shares under employee stock purchase plan 9,666 9,666 110,652 120,318 Sale of shares under stock option plans (25,589) (50,550) 362,933 337,344 Shares acquired in payment of option price 21,910 (328,859) (328,859) Dividends paid ($0.15 per share) (1,415,195) (1,415,195) Foreign currency translation adjustment (100,460) (100,460) - --------------------------------------------------------------------------------------------------------------------------- Balance at August 31, 1995 9,300,237 $9,300,237 ($840,577) $46,799,379 41,298 ($385,218)($100,460)$54,773,361 - --------------------------------------------------------------------------------------------------------------------------- Net income 9,652,617 9,652,617 Sale of shares under employee stock purchase plan 9,020 9,020 131,374 140,394 Sale of unissued shares under stock option plans 16,620 16,620 124,214 140,834 Sale of shares under stock option plans (203,729) (31,950) 307,660 103,931 Shares acquired in payment of option price 3,003 (49,652) (49,652) Shares issued in connection with an acquisition 101,046 101,046 1,529,536 1,630,582 Dividends paid ($0.17 per share) (1,626,948) (1,626,948) Foreign currency translation adjustment 61,770 61,770 - --------------------------------------------------------------------------------------------------------------------------- Balance at August 31, 1996 9,426,923 $9,426,923 $740,818 $54,825,048 12,351 ($127,210) ($38,690)$64,826,889 - --------------------------------------------------------------------------------------------------------------------------- Net income 9,295,261 9,295,261 Sale of shares under employee stock purchase plan 9,873 9,873 147,384 157,257 Sale of unissued shares under stock option plans 42,445 42,445 244,929 287,374 Sale of shares under stock option plans (61,253) (21,530) 258,873 197,620 Shares acquired in payment of option price 13,799 (207,373) (207,373) Dividends paid ($0.19 per share) (1,828,369) (1,828,369) Foreign currency translation adjustment 88,689 88,689 - --------------------------------------------------------------------------------------------------------------------------- BALANCE AT AUGUST 31, 1997 9,479,241 $9,479,241 $1,071,878 $62,291,940 4,620 ($75,710) $49,999 $72,817,348 - ---------------------------------------------------------------------------------------------------------------------------
Share numbers, amounts, and cash dividends paid per share of Common Stock have been adjusted to reflect the 50% share distribution paid on January 13,1997. The accompanying notes are an integral part of the consolidated financial statements. TUSCARORA INCORPORATED Annual Report 1997 11 5 Notes to Consolidated Financial Statements - ------------------------------------------------------------------------------- NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Tuscarora Incorporated (the Company) is a multinational designer and manufacturer of interior protective packaging and material handling solutions, made from a variety of materials, for a broad range of manufactured products. The Company also supplies customers with molded foam plastic and thermoformed components for a number of industrial and consumer product applications. The principal end-use markets that the Company serves are the high technology, consumer electronics, automotive and major appliance industries. Principles of Consolidation The consolidated financial statements include the accounts of Tuscarora Incorporated and its subsidiaries. Significant inter-company accounts and transactions have been eliminated. Foreign Currency Translation The assets and liabilities of the Company's foreign subsidiaries are translated into U. S. dollars at current exchange rates. The revenues and expenses of these operations are translated at the average exchange rates prevailing during the year. These translation adjustments are accumulated in a separate component of shareholders' equity. Foreign currency transaction gains and losses are included in determining net income for the year in which the exchange rate changes. Cash Equivalents The Company considers all highly liquid investments with a maturity of 90 days or less to be cash equivalents. Concentrations of Credit Risk Financial instruments which potentially subject the Company to credit risk consist primarily of trade accounts receivable. Due to the large number of the Company's customers and their dispersion across many geographic areas, concentrations of credit risk with respect to trade accounts receivable are limited. This risk is further reduced by the Company's maintenance of credit insurance on certain large accounts. Inventories Inventories other than finished goods are stated at the lower of cost or market, cost being determined on the FIFO (first-in, first-out) method. Finished goods are stated at the lower of average cost or market and include the cost of material, labor and manufacturing overhead. Property, Plant and Equipment Land, buildings and equipment are stated on the basis of cost. Major renewals and betterments are capitalized while replacements and maintenance and repairs which do not improve or extend the life of the assets are charged against earnings in the year incurred. When properties are disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss on disposition is reflected in earnings. Provisions for depreciation of plant and equipment are computed on the straight-line method based on the following estimated useful lives. Building and improvements............ 10-30 years Machinery and equipment............... 3-10 years TUSCARORA INCORPORATED Annual Report 1997 12 6 Notes to Consolidated Financial Statements - ------------------------------------------------------------------------------- Other Assets Other assets consist primarily of intangible assets such as goodwill and covenants not to compete which have been acquired in connection with business acquisitions (see Note 8) and are amortized using the straight-line method. Goodwill is amortized over 15 years and the covenants over the period covered by each agreement. The carrying value of intangible assets is periodically reviewed by the Company and impairments are recognized when the expected future operating cash flows derived from such intangible assets is less than their carrying value. Interest Rate Agreements The Company has entered into interest rate swap, cap and floor agreements with its principal bank having a combined notional value of $42,375,000 at August 31, 1997. The purpose of these agreements is to reduce the impact of increases in interest rates on the Company's variable rate long-term debt. While there was no net out-of-pocket cost for these agreements, any amounts paid or received under the agreements are recognized as an adjustment to interest expense. The interest expense adjustments associated with, and the fair market value of, the agreements are not material. Income Taxes The provision for income taxes includes deferred taxes resulting from temporary differences in income for financial reporting and tax purposes using the liability method. Such temporary differences result primarily from differences in the carrying value of assets and liabilities. Stock-based Compensation Stock options granted by the Company are accounted for in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). In accordance with APB 25, no stock-based compensation expense has been recognized in the accompanying financial statements, since the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of option grant. Net Income Per Share Net income per share is based upon the weighted average number of shares of Common Stock outstanding and has been adjusted to reflect the 50% share distribution paid on January 13,1997. The weighted average number of shares outstanding at August 31, 1997, 1996 and 1995 was 9,452,082, 9,362,409 and 9,230,618, respectively. Common stock equivalents resulting from the assumed exercise of stock options are not dilutive in the calculation of earnings per share. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Accounting Pronouncements Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", SFAS No. 129, "Disclosure of Information about Capital Structure", SFAS No. 130, "Reporting Comprehensive Income", and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" were issued in 1997. These statements will be adopted by the Company when required, and are not expected to have a material effect on the consolidated financial statements. NOTE 2: INVENTORIES Inventories at August 31, 1997 and 1996 are summarized as follows:
- --------------------------------------------------------- AUGUST 31, 1997 1996 - --------------------------------------------------------- Finished goods $10,511,267 $9,739,590 Work in process 154,962 215,475 Raw Materials 5,820,100 4,233,990 Supplies 1,752,557 1,477,825 - --------------------------------------------------------- Total $ 18,238,886 $ 15,666,880 - ---------------------------------------------------------
TUSCARORA INCORPORATED Annual Report 1997 13 7 Notes to Consolidated Financial Statements - ------------------------------------------------------------------------------- NOTE 3: LONG-TERM DEBT The Company's credit agreement with its principal bank provides for a $40,000,000 revolving credit facility expiring on August 31, 2000 and a $37,000,000 eight-year term note repayable in quarterly installments, with final maturity on August 31, 2004. Under the credit agreement, the Company may choose as to both the revolving credit facility and the term note between various interest rate options for specified interest periods. The agreement provides for a commitment fee of 0.125% per annum on the average daily unborrowed funds under the revolving credit facility. Long-term debt outstanding at August 31, 1997 and 1996 is summarized as set forth below: The outstanding borrowings by the Company under the credit agreement with its principal bank are unsecured. The credit agreement contains covenants which require the Company to maintain a certain tangible net worth as well as certain financial ratios. These covenants also impose limitations on the amount which the Company may pay during any fiscal year for property, plant and equipment and in transactions accounted for as business acquisitions. At August 31, 1997, approximately $4,400,000 of retained earnings was available for the payment of cash dividends by the Company without causing a violation of any of the financial covenants. The agreement relating to the Company's industrial development bonds also contains financial covenants.
- ---------------------------------------------------------------------------------------------------------------------- INTEREST RATE AT AUGUST 31, AUGUST 31, 1997 1997 1996 - ---------------------------------------------------------------------------------------------------------------------- Notes under credit agreement with principal bank: Variable rate revolving credit note 6.75% $ 26,215,000 $ 3,215,000 Variable rate term note payable in quarterly installments, through August 31, 2004. 7.10% 32,375,000 37,000,000 Other long-term debt: Variable rate industrial development bonds subject to annual mandatory sinking fund redemption through December 1, 2000, with final payment on December 1, 2001 3.80% 2,875,000 3,300,000 Variable rate mortgage note payable in quarterly installments, through March 30, 2006 9.00% 729,175 812,507 Other 5.75% 105,483 267,964 - ---------------------------------------------------------------------------------------------------------------------- 62,299,658 44,595,471 Less amounts due within one year, included in current liabilities 5,133,332 5,346,335 ====================================================================================================================== Total long-term debt $57,166,326 $39,249,136 ======================================================================================================================
TUSCARORA INCORPORATED Annual Report 1997 14 8 Notes to Consolidated Financial Statements - ------------------------------------------------------------------------------- Aggregate maturities of long-term debt for the next five fiscal years are as follows:
- --------------------------------------------------------- August 31, - --------------------------------------------------------- 1998 $5,133,332 1999 5,133,332 2000 31,348,332 2001 5,133,332 2002 5,133,332 =========================================================
The amount becoming due in the fiscal year ended August 31, 2000 includes the $26,215,000 borrowed under the revolving credit facility with the Company's principal bank. The bank makes an annual determination as to whether to extend the expiration date of the revolving credit facility for an additional year. NOTE 4: COMMON STOCK In all transactions involving the authorized but unissued shares of the Company's Common Stock, an amount equal to $1.00 times the number of shares which is issued is credited to the Common Stock account and the balance of the purchase price is credited to the Capital Surplus account. NOTE 5: STOCK OPTIONS AND COMMON STOCK PURCHASE PLAN The Company has a 1989 Stock Incentive Plan (the "1989 Plan") and a prior stock option plan under which options to purchase shares of the Company's Common Stock have been granted to eligible employees. At August 31, 1997, a total of 187,725 shares remained available for the grant of stock options under the 1989 Plan. All outstanding stock options have been granted at 100% of the fair market value of the Company's Common Stock on the date of grant. The stock options have ten year option terms. The option price may be paid in cash, in already-owned shares of the Company's Common Stock or in a combination of cash and shares. Data concerning the outstanding stock options for each of the fiscal years in the three-year period ended August 31, 1997 follows:
1997 1996 1995 ------------------ ----------------- ------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE - --------------------------------------------------------------------------------------------------------------------- Balance at September 1 566,565 $10.87 478,035 $8.62 391,635 $7.48 Options granted 153,975 14.96 144,750 16.50 138,750 11.17 Options exercised (63,975) 7.58 (48,570) 5.04 (50,550) 6.68 Options expired (15,975) 14.89 (7,650) 14.15 (1,800) 10.56 - --------------------------------------------------------------------------------------------------------------------- Balance at August 31 640,590 $12.08 566,565 $10.87 478,035 $8.62 - --------------------------------------------------------------------------------------------------------------------- Exercisable at August 31 640,590 $12.08 566,565 $10.87 478,035 $8.62 - ---------------------------------------------------------------------------------------------------------------------
Stock options outstanding at August 31, 1997:
RANGE OF OPTIONS AT WEIGHTED AVERAGE WEIGHTED AVERAGE EXERCISE PRICES AUGUST 31, 1997 EXERCISE PRICE REMAINING CONTRACTUAL LIFE ===================================================================================================================== $5.17-$7.99 93,690 $6.39 2.2 years $8.00-$12.00 267,300 10.30 6.0 years $12.01-$16.50 279,600 15.69 8.7 years ===================================================================================================================== Total 640,590 =====================================================================================================================
TUSCARORA INCORPORATED Annual Report 1997 15 9 Notes to Consolidated Financial Statements - ------------------------------------------------------------------------------- Pro forma information regarding net income and net income per share, required by SFAS No. 123, has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. The fair value for the options granted in fiscal 1997 and 1996 was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions: a risk-free interest rate of 6.50%; a volatility factor of the expected market price of the Company's Common Stock of 0.28; a weighted average expected option life of seven years; and a 1.00% dividend yield. For purposes of the pro forma disclosure, the estimated fair value of the options granted (fiscal 1997 - $5.94 per share; fiscal 1996 - $6.55 per share) is charged to expense during the fiscal year of grant based on the vesting provisions of the award. For the fiscal years ended August 31, 1997 and August 31, 1996, the Company's reported and pro forma net income and net income per share are as follows:
======================================================== AS REPORTED: 1997 1996 - -------------------------------------------------------- Net income $ 9,295,000 $9,653,000 Net income per share $ 0.98 $ 1.03 - -------------------------------------------------------- PRO FORMA: - -------------------------------------------------------- Net income $ 8,380,000 $8,705,000 Net income per share $ 0.89 $ 0.93 ========================================================
Because the SFAS No. 123 method of accounting has not been applied to options granted prior to September 1, 1995, the resulting pro forma compensation cost may not be representative of the cost to be expected in future years. The Company has a Common Stock Purchase Plan under which most full-time salaried employees in the U.S. may participate. Employees may authorize salary deductions up to 8% of annual salary but not to exceed $300 per month, and the Company contributes an amount equal to 10% of the contributions of the participating employees. The contributions are used to purchase shares of the Company's Common Stock from the Company at current market value. NOTE 6: INCOME TAXES For the fiscal years ended August 31, 1997, 1996 and 1995, income(loss) before income taxes consist of the following:
- --------------------------------------------------------- YEAR ENDED AUGUST 31, 1997 1996 1995 - --------------------------------------------------------- U.S. operations $16,251,615 $15,639,009 $15,258,892 Foreign operations (810,353) 266,290 (224,774) - --------------------------------------------------------- Total $15,441,262 $15,905,299 $15,034,118 - ---------------------------------------------------------
The provision (benefit) for taxes on income consists of the following:
- --------------------------------------------------------- YEAR ENDED AUGUST 31, 1997 1996 1995 - --------------------------------------------------------- Current: Federal $5,365,323 $4,894,867 $4,751,053 State 741,814 1,140,588 1,121,211 Foreign 47,450 16,759 13,401 - --------------------------------------------------------- 6,154,587 6,052,214 5,885,665 - --------------------------------------------------------- Deferred: Federal 197,229 110,844 130,290 State 76,002 34,094 37,899 Foreign (281,817) 55,530 -- - --------------------------------------------------------- (8,586) 200,468 168,189 - --------------------------------------------------------- Total provision$6,146,001 $6,252,682 $6,053,854 - ---------------------------------------------------------
The following is a reconciliation of the statutory U.S. Corporate federal income tax rate to the effective income tax rate:
- --------------------------------------------------------- Year Ended August 31, 1997 1996 1995 - --------------------------------------------------------- U.S. Statutory rate applied to pre-tax income 35.0% 35.0% 35.0% State income taxes net of Federal tax benefit 5.3% 4.8% 5.0% Other (0.5%) (0.5%) 0.3% - --------------------------------------------------------- 39.8% 39.3% 40.3% =========================================================
TUSCARORA INCORPORATED Annual Report 1997 16 10 Notes to Consolidated Financial Statements - ------------------------------------------------------------------------------- Deferred tax assets and liabilities at August 31, 1997 and 1996 were comprised of the following:
- ------------------------------------------------------- AUGUST 31, 1997 1996 - ------------------------------------------------------- Deferred tax assets: Allowance for bad debts $238,445 $ 310,901 Supplemental pension benefits 502,317 432,865 Other 142,208 72,047 Deferred tax liabilities: Depreciation 3,085,036 2,809,804 Other 215,659 75,997 - ------------------------------------------------------- Net deferred tax liability $2,417,725 $2,069,988 - -------------------------------------------------------
NOTE 7: RETIREMENT BENEFITS The Company maintains non-contributory individual account defined contribution pension plans covering most employees in the U.S. and a contributory individual account defined contribution pension plan covering most salaried employees in the U.K. Under these pension plans, the Company contribution is 5-1/2% of total compensation for most employees. Benefits generally do not become vested until, but become fully vested upon, five full years of employment in the U.S. and two full years of employment in the U.K. Normal retirement under all plans is age 65. All contributions are made to the plan trustees and invested for the accounts of the participants. The Company contributions for the fiscal years ended August 31, 1997, 1996 and 1995 were $2,143,754, $1,557,721 and $1,409,179, respectively. The Company also maintains a Section 401(k) plan covering most salaried employees in the U.S. The Company makes matching contributions based upon the savings of participants, subject to certain limitations. All contributions are made to the plan trustee, are fully vested and are invested by the plan trustee among various investment options in accordance with instructions from the participants. The Company contributions for the fiscal years ended August 31, 1997, 1996 and 1995 were $108,510, $94,628 and $78,733, respectively. Effective September 1, 1996, the Company adopted a supplemental retirement plan under which benefits will be paid by the Company directly to certain key employees following their retirement. Benefits under the plan accrue each fiscal quarter and are reflected as a long-term liability. In addition, certain former executive officers of the Company or their beneficiaries are receiving supplemental retirement benefits directly from the Company, the future liability for which is also reflected as a long-term liability. As of August 31, 1997, the liability for the supplemental retirement benefits amounted to $1,194,743, of which $136,452 represents amounts payable within one year. The Company does not provide any other significant postretirement benefits. NOTE 8: ACQUISITIONS During the fiscal year ended August 31, 1997, the Company completed five acquisitions. In September 1996, the Company acquired the custom thermoforming business of FormPac Corporation in Sandusky, Ohio; in October 1996, the Company acquired all the outstanding capital stock of EPS (Moulders) Ltd., a custom molding business in Livingston, Scotland; in April 1997, the Company acquired the custom thermoforming business of Thermoformers Plus in Chula Vista, California; in May 1997, the Company acquired the integrated materials business of Allgood Industries, Inc. in Hayward, California; and in July 1997, the Company acquired all the outstanding capital stock of Arrowtip Group Ltd., a custom molded and fabricated foam packaging business in the United Kingdom. The aggregate purchase price recorded for these acquisitions totaled $16.7 million, including contingent consideration payable in certain of the acquisitions. The amount recorded as contingent consideration is based on readily attainable sales or on a specified minimum payment amount, and in the aggregate is not material. TUSCARORA INCORPORATED Annual Report 1997 17 11 During the fiscal year ended August 31, 1996, the Company acquired one business. In December 1995,the Company acquired all the outstanding capital stock of Alpine Packaging, Inc., a custom designer and manufacturer of specialty corrugated and technical/military specification packaging and wood pallets in Colorado Springs, Colorado. For this acquisition, the Company issued 101,046 shares of its Common Stock and paid cash having an aggregate value of $1.7 million during the 1996 fiscal year. The Consolidated Statement of Cash Flows for the fiscal year ended August 31, 1996 excludes the non-cash consideration issued in connection with the acquisition. During the fiscal year ended August 31, 1995, the Company acquired two businesses. In September 1994, the Company acquired the specialty corrugated and foam packaging business of Astrofoam, Inc. in Holden, Massachusetts, and in February 1995, the Company acquired the custom molding business of M.Y. Trondex Ltd. in the United Kingdom. The aggregate purchase price recorded for these acquisitions through the end of the 1997 fiscal year amounted to $6.2 million. All the above acquisitions have been accounted for as purchases. The operating results of the acquisitions are included in the Company's consolidated results of operations from the date of acquisition. The combined operating results, including the results from the acquired businesses had they been included at the beginning of the fiscal year, would not be materially different from the consolidated results of operations as reported. In certain of these acquisitions part of the purchase price was allocated to goodwill (1997-$5.1 million; 1996- $1.4 million; 1995-$1.1 million) and/or covenants not to compete (see Note 1 of the Notes to Consolidated Financial Statements). NOTE 9: LEASE COMMITMENTS Rental expense charged to operations for the fiscal years ended August 31, 1997, 1996 and 1995 amounted to $5,907,685, $4,223,461 and $3,889,162, respectively. The approximate net minimum rentals required to be paid under all non-cancelable operating leases during each of the next five fiscal years is as follows:
- ------------------------------------------------------- AUGUST 31, - ------------------------------------------------------- 1998 $4,542,830 1999 3,997,152 2000 3,623,135 2001 3,329,737 2002 2,650,066 Thereafter 6,555,903 =======================================================
Substantially all the rental payments represent commitments under leases for manufacturing and warehouse facilities and under leases for trucking equipment. The Company has the option to purchase certain of the manufacturing and warehouse facilities. NOTE 10: 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, legal and administrative proceedings against the Company involving claims of employment discrimination are pending and the Company is involved in legal and administrative proceedings, including one with respect to a Superfund site, which may result in the Company becoming liable for a portion of certain environmental cleanup costs. 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. NOTE 11:BUSINESS SEGMENTS The Company currently operates primarily in a single business segment as a designer and manufacturer of interior protective packaging, material handling solutions and componentry. TUSCARORA INCORPORATED Annual Report 1997 18 12 Notes to Consolidated Financial Statements - ------------------------------------------------------------------------------- The Company has operations in the United States, the United Kingdom and Mexico. Transfers between geographic regions are not significant. The geographic distribution of sales and operating profit for the fiscal years ended August 31, 1997, 1996 and 1995 and of identifiable assets as of August 31,1997, 1996, and 1995 is set forth below. Operating profit is gross profit less selling and administrative expenses.
- -------------------------------------------------------------------------------------------------------------------- AUGUST 31, 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------- Net Sales United States $178,587,326 $ 165,156,448 $ 156,516,410 United Kingdom 21,078,007 12,398,404 5,120,418 Mexico 9,541,442 5,034,769 1,662,854 - -------------------------------------------------------------------------------------------------------------------- Total $209,206,775 $ 182,589,621 $ 163,299,682 - -------------------------------------------------------------------------------------------------------------------- Operating Income (Loss) United States $17,383,589 $ 18,215,381 $ 18,774,060 United Kingdom (34,582) 357,303 (199,626) Mexico 2,269,684 242,863 (788,430) - -------------------------------------------------------------------------------------------------------------------- Total $19,618,691 $ 18,815,547 $ 17,786,004 - -------------------------------------------------------------------------------------------------------------------- Identifiable Assets United States $132,026,240 $ 115,485,089 $108,823,073 United Kingdom 25,311,617 11,224,548 6,633,274 Mexico 5,049,703 4,459,805 2,264,912 - -------------------------------------------------------------------------------------------------------------------- Total $162,387,560 $131,169,442 $117,721,259 - --------------------------------------------------------------------------------------------------------------------
NOTE 12:QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial information is as follows: (All per share amounts have been adjusted to reflect the 50% share distribution paid on January 13,1997.)
- -------------------------------------------------------------------------------------------------------------------- FISCAL QUARTER ENDED NOVEMBER 30 FEBRUARY 28 MAY 31 AUGUST 31 - -------------------------------------------------------------------------------------------------------------------- FISCAL 1997: Net Sales $53,441,000 $48,977,000 $52,593,000 $54,196,000 Gross Profit 13,706,000 11,522,000 11,398,000 11,630,000 Net Income 3,692,000 2,074,000 1,885,000 1,644,000 Per Share of Common Stock: Net Income $0.39 $0.22 $0.20 $0.17 Dividends Paid -- $0.09 -- $0.10 Stock Market Prices: High 15-1/2 19 17-1/2 17-5/8 Low 14-7/16 14-15/16 14-1/8 14-7/8
- -------------------------------------------------------------------------------------------------------------------- NOVEMBER 30 FEBRUARY 29 MAY 31 AUGUST 31 - -------------------------------------------------------------------------------------------------------------------- FISCAL 1996: Net Sales $47,296,000 $43,188,000 $45,113,000 $46,993,000 Gross Profit 11,957,000 9,913,000 10,550,000 10,920,000 Net Income 3,155,000 1,987,000 2,371,000 2,140,000 Per Share of Common Stock: Net Income $0.34 $0.21 $0.25 $0.23 Dividends Paid -- $0.08 -- $0.09 Stock Market Prices: High 17 17 16-9/16 16-1/2 Low 14-13/16 14-5/16 15-9/16 14 ====================================================================================================================
TUSCARORA INCORPORATED Annual Report 1997 19 13 Report of Independent Accountants - ------------------------------------------------------------------------------- TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF TUSCARORA INCORPORATED We have audited the accompanying consolidated balance sheet of Tuscarora Incorporated and subsidiaries as of August 31, 1997 and the related consolidated statements of income, changes in shareholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Tuscarora Incorporated as of August 31, 1996 and for each of the two years in the period then ended, were audited by other auditors whose report dated October 11, 1996, expressed an unqualified opinion on those statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 1997 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tuscarora Incorporated at August 31, 1997 and the consolidated results of its operations and its cash flow for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP --------------------- Pittsburgh, PA October 16, 1997 Management's Discussion and Analysis of Results of Operations and Financial Condition - ------------------------------------------------------------------------------- RESULTS OF OPERATIONS--FISCAL 1997 COMPARED TO FISCAL 1996 Net sales for the fiscal year ended August 31,1997 were $209.2 million, an increase of $26.6 million, or 14.6% over fiscal 1996. Approximately 65% of the increase in net sales was attributable to acquisitions. The Company acquired two custom molding businesses in the United Kingdom in October 1996 and July 1997, two integrated materials businesses in the United States in December 1995 and May 1997 and two thermoforming businesses in the United States in September 1996 and April 1997 (see Note 8 of the Notes to Consolidated Financial Statements). The balance of the increase in net sales was attributable to higher sales in the Company's core custom molding operations. The sales increase was achieved despite lower sales at the Company's existing integrated materials operations than in the prior fiscal year, two large customers adjusting inventory levels and reducing their packaging requirements and reductions in some selling prices. Net sales in the fourth quarter of fiscal 1997 were $54.2 million compared to $47.0 million in the same period last year, an increase of 15.3%. The fiscal year over prior fiscal year growth rate in net sales in the fourth quarter was comparable to the growth rate in the three previous quarters of fiscal 1997. Gross profit for the fiscal year ended August 31, 1997 was $48.3 million, or 23.1% of net sales, compared to $43.3 million, or 23.7% of net sales, in fiscal 1996. The decrease in the gross profit margin for the fiscal year is due primarily to well below-objective gross profit margins at the Company's United Kingdom facilities and at the expanding thermofoming operations. The gross profit margin was also negatively impacted by the lower sales to the two major customers and by operational difficulties at two of the Company's older manufacturing facilities. The decrease in gross profit margin occurred despite lower EPS raw materials costs than in the prior fiscal year. Selling and administrative expenses for the fiscal year ended August 31,1997 increased 16.8%, or $4.1 million, to $28.6 million and increased as a percentage of net sales to 13.7% from 13.4% in the previous fiscal year. The significant dollar increase was due primarily to increased employee and other costs added in connection with the acquisitions of the businesses in December 1995, September and October 1996, and May and July 1997. TUSCARORA INCORPORATED Annual Report 1997 20 14 Interest expense for the fiscal year ended August 31, 1997 was $3.7 million compared to $2.9 million in fiscal 1996. The increase of $800,000 was due to a higher level of outstanding debt throughout the year, primarily as a result of additional borrowings to finance the business acquisitions. Income before income taxes for fiscal 1997 decreased to $15.4 million from $15.9 million in fiscal 1996, a decrease of 2.9%. The Company's effective tax rate increased slightly to 39.8% from 39.3% in fiscal 1996. Net income for the fiscal year ended August 31, 1997 was $9.3 million, a decrease of 3.7% from the $9.7 million earned in fiscal 1996. The decrease was due primarily to the decrease in the gross profit margin. RESULTS OF OPERATIONS-- FISCAL 1996 COMPARED TO FISCAL 1995 Net sales for the fiscal year ended August 31, 1996 were $182.6 million, an increase of $19.3 million, or 11.8%, over fiscal 1995. Approximately 38% of the increase in net sales was attributable to the acquisition of a custom molding business in the United Kingdom and of an integrated materials business in Colorado Springs, Colorado in February and December 1995, respectively (see Note 8 of the Notes to Consolidated Financial Statements). The balance of the increase was attributable to higher sales of both custom molded and integrated materials products in most major markets which the Company serves, particularly the major appliance and consumer electronics industries. The increase was achieved despite a reduction in selling prices which occurred in December 1995 following decreases in EPS resin costs. Net sales in the fourth quarter of fiscal 1996 were $47.0 million, an increase of 3.2%, or $1.5 million, over net sales of $45.5 million in the same period of fiscal 1995 despite the selling price reduction referred to above. The fiscal year over prior year growth rate in net sales in the fourth quarter was smaller than in the previous three fiscal quarters of fiscal 1996, as many of the Company's large industrial customers reduced their production rates to adjust their finished goods inventories. Although the sales level slowed in the early part of the fourth quarter, sales activity increased significantly at the end of the quarter. Gross profit for the fiscal year ended August 31, 1996 was $43.3 million, or 23.7%, of net sales, compared to $39.6 million, or 24.3%, of net sales in fiscal 1995. The decrease in the gross profit margin was due primarily to lower than anticipated sales levels, particularly in the fourth quarter, which resulted in lower utilization of the Company's expanded manufacturing capacity and associated fixed costs. The decrease in the gross profit margin was also attributable to the lower selling prices. Selling and administrative expenses for the fiscal year ended August 31, 1996 increased 12.3%, or $2.7 million, to $24.5 million but remained steady as a percentage of net sales at 13.4%. The dollar increase was due primarily to increased employee and other costs added in connection with the acquisitions of the businesses in February and December 1995. Interest expense for the fiscal year ended August 31, 1996 was $2.9 million compared to $2.6 million in fiscal 1995. The increase of $300,000 was due to a higher level of outstanding debt throughout the year, most of which was borrowed in fiscal 1995. Income before income taxes for the fiscal year ended August 31, 1996 increased to $15.9 million from $15.0 million for fiscal 1995, an increase of 5.8%. The provision for income taxes for the fiscal year ended August 31, 1996 increased due to the increase in income before income taxes. The Company's effective tax rate decreased to 39.3% from 40.3%. The effective tax rate was higher in fiscal 1995 due to the net operating loss of the U.K. operations for which a tax benefit was not recorded. Net income for the fiscal year ended August 31, 1996 was $9.7 million, an increase of 7.5% from $9.0 million in fiscal 1995. The increase was due primarily to the increase in net sales and gross profit. Net sales and net income for fiscal year 1996 were Company records. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities amounted to $21.0 million, $22.3 million and $14.1 million in fiscal 1997, 1996 and 1995, respectively. Depreciation and amortization in fiscal 1997, 1996 and 1995 amounted to $15.3 million, $13.0 million and $10.9 million, 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. At August 31, 1997, the Company's accounts receivable and inventories were higher than at the end of the previous fiscal year due to the acquisitions during the fiscal year. TUSCARORA INCORPORATED Annual Report 1997 21 15 Capital expenditures for property, plant and equipment during fiscal 1997, 1996 and 1995 amounted to $21.3 million, $23.1 million and $20.7 million, respectively, including approximately $1.5 million, $900,000 and $1.7 million, respectively, for environmental control equipment. The largest amount of the capital expenditures during all three years has been for machinery and equipment. For fiscal 1997, the expenditures included machinery and equipment for new custom molding facilities in Storm Lake, Iowa, Brenham, Texas and Tijuana, B.C., Mexico, and for major renovations of the existing custom molding facility in Cortland, New York. During fiscal 1997, the Company acquired the custom thermoforming business of FormPac Corporation in Sandusky, Ohio and the custom molding business of EPS (Moulders) Ltd. in Livingston, Scotland in September and October 1996, respectively, and purchased the custom thermoforming business of Thermoformers Plus in Chula Vista, California, the integrated materials business of Allgood Industries, Inc. in Hayward, California and the custom molding and fabricating business of Arrowtip Group Ltd. in London, England in April, May and July 1997 respectively, for an aggregate of approximately $13.4 million in cash (see Note 8 of the Notes to Consolidated Financial Statements). Long-term debt increased from $39.2 at August 31, 1996 to $57.2 million at August 31, 1997, of which $54.0 was borrowed under a credit agreement with the Company's principal bank, including $26.2 out of an available $40.0 million under a revolving credit facility. During the twelve months ended August 31, 1997, $23.0 million was borrowed under the revolving credit facility primarily to fund the acquisitions during the fiscal year. At August 31, 1997, $13.8 million of the revolving credit facility remained available. See Note 3 of the Notes to Consolidated Financial Statements for additional information with respect to long-term debt. Cash dividends, after adjustment for the 50% share distribution paid on January 13, 1997, amounted to $1.8 million ($0.19 per share), $1.6 million ($0.17 per share) and $1.4 million ($0.15 per share) in fiscal 1997, fiscal 1996 and fiscal 1995, respectively. Cash provided by operating activities as supplemented by the amount available under the bank credit agreement should continue to be sufficient to fund the Company's operating needs, capital requirements and dividend payments. FINANCIAL RISK MANAGEMENT The Company has interest rate, credit, market and foreign currency risks. Information with respect to the interest rate and credit risks appears in Note 1 of the Notes to the Consolidated Financial Statements. The market risk stems from the Company's ownership of certain readily marketable securities which are held for investment and are included under other non-current assets on the Consolidated Balance Sheets. The fair market value of the securities is not material. The Company has not hedged against the foreign currency risk. Transactions with customers in Mexico are primarily in the maquiladora zones and are denominated in U.S. Dollars. Adjustments resulting from changes in the rate of exchange between U.S. Dollars and U.K. Pounds Sterling have not been significant. OUTLOOK While the Company's net sales continued to grow, the slight decline in net income for the 1997 fiscal year and in particular the operating loss incurred by the operations in the United Kingdom were significant disappointments. Management's focus for the 1998 fiscal year will be on improved profit performance from the Company's existing operations, particularly from those in the U.K. and from the newly expanded thermoforming operations. Capital expenditures are not expected to exceed the expenditures during the 1997 fiscal year and while the Company will continue to look for acquisitions which will mesh well with the Company's business, no significant acquisitions are presently being negotiated. Should a major acquisition develop, it is likely that there would be a refinancing of the Company's credit agreement with its principal bank. The new custom molding facilities in Brenham, Texas and Tijuana, Mexico are expected to commence production in the second quarter of fiscal 1998. While no other new production facilities are presently contemplated, the Company will continue to develop new production sites as they are needed to meet the needs of its customers. 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 1998 results. ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share", SFAS No. 129, "Disclosure of Information about Capital Structure", SFAS No. 130, "Reporting of Comprehensive Income", and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" were issued in 1997. These statements will be adopted by the Company when required, and are not expected to have a material effect on the consolidated financial statements. TUSCARORA INCORPORATED Annual Report 1997 22 16 ELEVEN YEAR CONSOLIDATED FINANCIAL SUMMARY
Year Ended August 31 1997 1996 1995 1994 1993 1992 - -------------------- -------- -------- -------- -------- -------- -------- Net sales $209,207 $182,590 $163,300 $120,085 $101,075 $ 95,809 Income before income taxes 15,441 15,905 15,034 9,017 6,285 8,289 Net income 9,295 9,653 8,980 5,703 4,270(a) 4,981 Depreciation and amortization 15,286 12,977 10,890 9,721 9,206 7,879 Weighted average shares outstanding 9,452 9,362 9,231 9,194 9,164 9,146 Net income per share 0.98 1.03 0.97 0.62 0.47(a) 0.54 Margin on sales 4.4% 5.3% 5.5% 4.7% 4.2% 5.2% Return on beginning shareholders' equity 14.3% 17.6% 19.0% 13.4% 10.9% 14.2% Working capital 29,784 23,224 22,390 16,548 15,893 13,463 Total assets 162,388 131,169 117,721 94,225 79,769 75,510 Long-term debt (excluding current portion) 57,166 39,249 36,510 25,284 23,930 22,121 Shareholders' equity 72,817 64,827 54,773 47,180 42,546 39,280 Shareholders' equity per share 7.70 6.92 5.93 5.13 4.64 4.29 Dividends per share 0.19 0.17 0.15 0.13 0.12 0.11 Year Ended August 31 1991 1990 1989 1988 1987 - -------------------- -------- -------- -------- -------- -------- Net sales $ 84,420 $ 85,458 $ 77,642 $ 65,583 $ 55,279 Income before income taxes 6,856 7,912 7,479 5,644 5,192 Net income 4,230 4,874 4,478 3,469 2,834 Depreciation and amortization 7,235 6,591 5,463 4,269 3,347 Weighted average shares outstanding 9,086 9,033 9,030 8,034 7,935 Net income per share 0.47 0.54 0.50 0.43 0.36 Margin on sales 5.0% 5.7% 5.8% 5.3% 5.1% Return on beginning shareholders' equity 13.4% 17.8% 19.0% 22.0% 21.1% Working capital 13,728 11,385 11,418 10,146 5,792 Total assets 63,775 60,677 53,138 46,777 40,132 Long-term debt (excluding current portion) 14,870 16,264 13,165 13,248 12,858 Shareholders' equity 35,152 31,451 27,360 23,574 15,762 Shareholders' equity per share 3.87 3.48 3.03 2.93 1.99 Dividends per share 0.09 0.09 0.08 0.07 0.06
In the above table, all dollar amounts, except per share data, are in thousands. The weighted average number of shares of Common Stock outstanding and the dividends and other per share amounts have been adjusted to reflect the 200% share distribution paid on October 1, 1987, the 100% share distribution paid on April 14, 1992 and the 50% share distribution paid on January 13, 1997. (a) Net income and net income per share for the 1993 fiscal year include income of $321,218 or 0.03 per share resulting from the cumulative effect of a change in the method of accounting for income taxes. EX-21 4 TUSCORORA INC. EXHIBIT 21 1 EXHIBIT 21 TUSCARORA INCORPORATED List of Subsidiaries -------------------- The following is a complete list of the subsidiaries of the Company: Name of Jurisdiction of Subsidiary Incorporation - --------------------------------------- --------------- Alpine Packaging, Inc.(1) Colorado Tuscarora International, Inc.(1) Delaware Tuscarora, S.A. de C.V.(2) Mexico Tuscarora Tijuana, S.A. de C.V.(2) Mexico Tuscarora Investment Corporation(1) Delaware Tuscarora Limited(1) England Tuscarora (Scotland) Limited(3) England Arrowtip Mouldings Limited(3) England Arrowtip Limited(4) England Anglian Expanded Products Limited(4) England - -------------------------- (1) 100% owned by Tuscarora Incorporation. (2) 4,999 shares are owned by Tuscarora International, Inc. and 1 share is owned by Tuscarora Incorporated. (3) 100% owned by Tuscarora Limited. (4) 100% owned by Arrowtip Mouldings Limited EX-23.1 5 TUSCORORA INC. EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report on Form 10-K of Tuscarora Incorporated of our report dated October 16, 1997, included in the 1997 Annual Report to Shareholders of Tuscarora Incorporated. Our audit also included the financial statement schedule of Tuscarora Incorporated as of August 31, 1997 listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. The financial statement schedules of Tuscarora Incorporated as of and for the years ended August 31, 1996 and 1995 were audited by other auditors whose report dated October 11, 1996, expressed an unqualified opinion on those schedules. In our opinion, the financial statement schedule as of and for the year ended August 31, 1997, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in Registration Statements on Form S-8 (No. 33-35373) pertaining to the 1985 Incentive Stock Option Plan of Tuscarora Incorporated; Form S-8 (No. 33-35373 and 333-06111) pertaining to the 1989 Stock Incentive Plan of Tuscarora Incorporated; and Form S-8 (No. 33-35587) pertaining to the Tuscarora Incorporated Common Stock Purchase Plan for Salaried Employees of our report dated October 16, 1997, with respect to the financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report on Form 10-K of Tuscarora Incorporated. /s/ ERNST & YOUNG LLP Pittsburgh, Pennsylvania November 26, 1997 EX-23.2 6 TUSCORORA INC. EXHIBIT 23.2 1 EXHIBIT 23.2 CONSENT OF S.R. SNODGRASS, A.C. We consent to the incorporation by reference of our report dated October 11, 1996, on our audits of the consolidated financial statements and financial statement schedule of Tuscarora Incorporated and subsidiaries as of August 31, 1996 and for each of the two years in the period ending August 31, 1996, which report is included in this Annual Report on Form 10-K, in the following registration statements: 1. Registration Statements No. 33-35373 and No. 333-06111 on Form S-8 for the 1985 Incentive Stock Option Plan and 1989 Stock Incentive Plan of Tuscarora Incorporated, filed under the Securities Act of 1933, as amended, and the Prospectus used in connection with such Registration Statements; and 2. Registration Statement No. 33-35587 on Form S-8 for the Tuscarora Incorporated Common Stock Purchase Plan for Salaried Employees, filed under the Securities Act of 1933, as amended, and the Prospectus used in connection with such Registration Statement. /s/ S.R. SNODGRASS, A.C. -------------------------- S.R. SNODGRASS, A.C. Certified Public Accountants Beaver Falls, PA November 26, 1997 EX-24 7 TUSCORORA INC. EXHIBIT 24 1 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the undersigned's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended August 31, 1997 of Tuscarora Incorporated, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person and hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. October 10, 1997 /s/ THOMAS S. BLAIR ----------------------------- Thomas S. Blair 2 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the undersigned's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended August 31, 1997 of Tuscarora Incorporated, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person and hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. October 10, 1997 /s/ DAVID I. COHEN ----------------------------- David I. Cohen 3 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the undersigned's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended August 31, 1997 of Tuscarora Incorporated, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person and hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. October 10, 1997 /s/ ABE FARKAS ----------------------------- Abe Farkas 4 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the undersigned's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended August 31, 1997 of Tuscarora Incorporated, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person and hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. October 10, 1997 /s/ KAREN L. FARKAS ----------------------------- Karen L. Farkas 5 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the undersigned's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended August 31, 1997 of Tuscarora Incorporated, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person and hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. October 10, 1997 /s/ ROBERT W. KAMPMEINERT ----------------------------- Robert W. Kampmeinert 6 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the undersigned's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended August 31, 1997 of Tuscarora Incorporated, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person and hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. October 10, 1997 /s/ JEFFERY L. LEININGER ----------------------------- Jeffery L. Leininger 7 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the undersigned's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended August 31, 1997 of Tuscarora Incorporated, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person and hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. October 10, 1997 /s/ DAVID C. O'LEARY ----------------------------- David C. O'Leary 8 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the undersigned's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended August 31, 1997 of Tuscarora Incorporated, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person and hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. October 10, 1997 /s/ HAROLD F. REED, JR. ----------------------------- Harold F. Reed, Jr. 9 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the undersigned's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended August 31, 1997 of Tuscarora Incorporated, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person and hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. October 10, 1997 /s/ THOMAS P. WOOLAWAY ----------------------------- Thomas P. Woolaway EX-27 8 TUSCORORA INC. EXHIBIT 27
5 12-MOS AUG-31-1997 AUG-31-1997 5,095,149 0 32,342,357 674,689 18,238,886 56,593,987 187,996,994 94,882,160 162,387,560 26,809,508 57,166,326 0 0 9,479,241 63,338,107 162,387,560 209,206,775 209,206,775 160,951,244 160,951,244 0 504,862 3,741,275 15,441,262 6,146,001 9,295,261 0 0 0 9,295,261 0.97 0.96 The Company declared a 50% share distribution on December 18, 1996 payable on January 13, 1997 to holders of record of the Company's Common Stock on December 27, 1996. Financial Data Schedules for prior periods were not restated.
EX-99 9 TUSCORORA INC. EXHIBIT 99 1 Exhibit 99 SNODGRASS Certified Public Accountants REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Tuscarora Incorporated We have audited the accompanying consolidated balance sheets of Tuscarora Incorporated and subsidiaries as of August 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material missstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tuscarora Incorporated and subsidiaries as of August 31, 1996 and 1995, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ S.R. SNODGRASS, A.C. ---------------------------------- S.R. Snodgrass, A.C. Beaver Falls, PA October 11, 1996 S.R. Snodgrass, A.C. 110 Central Square Drive Beaver Falls, PA 15010-7302 Phone: 412-843-4920 Facsimile: 412-847-5048 -----END PRIVACY-ENHANCED MESSAGE-----