1
Exhibit 13
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
Year Ended
August 31, 1995 1994 1993
- --------------------------------------------------------------------------------
Net Sales $163,299,682 $120,085,187 $101,075,026
Cost of Sales 123,682,160 92,476,379 79,567,085
- --------------------------------------------------------------------------------
Gross profit 39,617,522 27,608,808 21,507,941
- --------------------------------------------------------------------------------
Selling and Administrative Expenses 21,831,518 17,103,015 14,684,578
Interest Expense 2,603,250 1,327,689 1,306,744
Other (Income) Expense--Net (Note 5) 148,636 161,111 (768,843)
- --------------------------------------------------------------------------------
24,583,404 18,591,815 15,222,479
- --------------------------------------------------------------------------------
Income before income taxes
and cumulative effect
of accounting change 15,034,118 9,016,993 6,285,462
Provision for Income Taxes (Note 7) 6,053,854 3,313,954 2,336,299
- --------------------------------------------------------------------------------
Income before cumulative effect
of accounting change 8,980,264 5,703,039 3,949,163
Cumulative Effect of Accounting
Change (Note 7) -- -- 321,218
- --------------------------------------------------------------------------------
Net income $ 8,980,264 $ 5,703,039 $ 4,270,381
================================================================================
Earnings Per Share
Before cumulative effect
of accounting change $1.46 $0.93 $0.65
Cumulative effect of
accounting change -- -- $0.05
- --------------------------------------------------------------------------------
Net income per share of
Common Stock (Note 1) $1.46 $0.93 $0.70
================================================================================
Weighted average number of shares
of Common Stock outstanding 6,153,745 6,129,062 6,109,202
================================================================================
The accompanying notes are an integral part of the consolidated
financial statements.
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CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
Assets (August 31) 1995 1994
- -------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 2,659,767 $ 3,671,490
Trade accounts receivable, less allowance of
$694,675 in 1995; $646,991 in 1994 23,463,267 16,773,835
Inventories (Note 2) 18,018,610 14,270,863
Prepaid expenses and other current assets 1,452,542 919,084
- -------------------------------------------------------------------------------
Total current assets 45,594,186 35,635,272
- -------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Land 2,515,155 2,507,655
Buildings and improvements 40,284,731 36,499,948
Machinery and equipment 93,542,491 78,083,301
- -------------------------------------------------------------------------------
Total 136,342,377 117,090,904
- -------------------------------------------------------------------------------
Less accumulated depreciation (68,751,183) (61,734,573)
- -------------------------------------------------------------------------------
Net property, plant and equipment 67,591,194 55,356,331
- -------------------------------------------------------------------------------
OTHER ASSETS
Cash value of life insurance 390,148 318,076
Intangible and other long-term assets 4,145,731 2,915,815
- -------------------------------------------------------------------------------
Total other assets 4,535,879 3,233,891
- -------------------------------------------------------------------------------
Total assets $117,721,259 $ 94,225,494
- -------------------------------------------------------------------------------
Liabilities and Shareholders' Equity (August 31)
- -------------------------------------------------------------------------------
CURRENT LIABILITIES
Current maturities of long-term debt (Note 3) $ 4,819,255 $ 3,667,977
Accounts payable 15,515,024 13,350,738
Accrued income taxes 365,986 301,610
Accrued payroll and related taxes 490,190 747,693
Other current liabilities 2,013,544 1,019,436
- -------------------------------------------------------------------------------
Total current liabilities 23,203,999 19,087,454
- -------------------------------------------------------------------------------
LONG-TERM DEBT (Note 3) 36,510,150 25,284,404
DEFERRED INCOME TAXES (Note 7) 1,849,078 1,680,889
SUPPLEMENTAL PENSION BENEFITS (Notes 5 and 8) 976,730 992,798
OTHER LONG-TERM LIABILITIES 407,941 --
- -------------------------------------------------------------------------------
Total liabilities 62,947,898 47,045,545
- -------------------------------------------------------------------------------
COMMITMENTS (Note 11)
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, 6,200,158 in 1995,
6,193,714 in 1994 (Note 4) 6,200,158 6,193,714
Capital surplus (Note 4) 2,259,502 2,171,217
Retained earnings 46,799,379 39,234,310
Currency translation adjustment (100,460) --
- -------------------------------------------------------------------------------
Total 55,158,579 47,599,241
- -------------------------------------------------------------------------------
Less Common Stock in treasury--27,532 shares
in 1995; 46,625 shares in 1994; at cost (385,218) (419,292)
- -------------------------------------------------------------------------------
Total shareholders' equity 54,773,361 47,179,949
- -------------------------------------------------------------------------------
Total liabilities and shareholders' equity $117,721,259 $ 94,225,494
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated
financial statements.
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3
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------
Year Ended
August 31, 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 8,980,264 $ 5,703,039 $ 4,270,381
Cumulative effect of accounting change -- -- (321,218)
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation 10,247,768 9,148,076 8,549,927
Amortization 641,745 572,474 656,082
Provision for losses on receivables 287,782 180,000 205,000
Increase (decrease) in deferred income taxes 168,189 (670,475) (229,953)
Loss (gain) on sale or abandonment of
property, plant and equipment, net 64,425 7,217 (20,069)
Stock compensation expense 10,516 10,310 8,495
Company's share of White Knight's loss -- -- 32,059
Gain on sale of equity interest in White Knight -- -- (780,833)
Changes in operating assets and liabilities, net of
effects of business acquisitions:
Decrease (increase):
Trade accounts receivable (5,059,511) (2,500,622) (1,598,629)
Inventories (2,468,166) (3,531,860) (440,890)
Prepaid expenses and other current assets (393,767) 40,320 292,300
Cash value of life insurance (72,072) 542,504 (61,497)
Intangible and other long-term assets (201,854) 279,466 (267,747)
Increase (decrease):
Accounts payable 1,100,205 5,875,211 906,260
Accrued income taxes 64,376 301,610 (666,519)
Accrued payroll and related taxes (256,558) 124,317 32,408
Other current liabilities 593,290 (201,252) 337,850
Supplemental pension benefits 16,067 1,126,599 --
Other long-term liabilities 386,753 -- --
- ----------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 14,109,452 17,006,934 10,903,407
- ----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital spending
Purchase of property, plant and equipment (20,689,178) (12,433,432) (11,881,467)
Business acquisitions, net of cash acquired (See Note 9) (5,679,929) (3,712,807) (520,515)
Proceeds from sale of property, plant and equipment 184,764 52,844 348,269
Proceeds from sale of equity interest in White Knight -- -- 1,805,382
- ----------------------------------------------------------------------------------------------------------------
Cash (used for) investing activities (26,184,343) (16,093,395) (10,248,331)
- ----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from long-term debt 16,045,000 4,900,000 7,550,000
Payments on long-term debt (3,667,977) (3,092,636) (6,615,621)
Dividends paid (1,415,195) (1,225,751) (1,099,666)
Proceeds from sale of Common Stock 118,287 146,317 86,722
- ----------------------------------------------------------------------------------------------------------------
Cash provided by (used for)
financing activities 11,080,115 727,930 (78,565)
- ----------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (16,947) -- --
Net increase (decrease) in cash and
cash equivalents (1,011,723) 1,641,469 576,511
- ----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,671,490 2,030,021 1,453,510
- ----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,659,767 $ 3,671,490 $ 2,030,021
- ----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA
Income taxes paid $ 5,821,289 $ 3,602,117 $ 3,316,391
Interest paid $ 2,396,164 $ 1,206,026 $ 1,332,549
================================================================================================================
The accompanying notes are an integral part of the consolidated
financial statements.
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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, 1992 6,180,778 $6,180,778 $1,831,915 $31,586,307 74,716 ($318,897) -- $39,280,103
- ----------------------------------------------------------------------------------------------------------------------------------
Net income 4,270,381 4,270,381
Sale of shares under
employee stock
purchase plan 5,987 5,987 89,212 95,199
Sale of shares under
stock option plans 29,607 (6,950) 29,677 59,284
Shares acquired in
payment of
option price 4,888 (59,267) (59,267)
Dividends paid
($0.18 per share) (1,099,666) (1,099,666)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at
August 31,1993 6,186,765 $6,186,765 $1,950,734 $34,757,022 72,654 ($348,487) -- $42,546,034
- ----------------------------------------------------------------------------------------------------------------------------------
Net income 5,703,039 5,703,039
Sale of shares under
employee stock
purchase plan 6,949 6,949 98,098 105,047
Sale of shares under
stock option plans 122,385 (48,140) 288,004 410,389
Shares acquired in
payment of
option price 22,111 (358,809) (358,809)
Dividends paid
($0.20 per share) (1,225,751) (1,225,751)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at
August 31,1994 6,193,714 $6,193,714 $2,171,217 $39,234,310 46,625 ($419,292) -- $47,179,949
- ----------------------------------------------------------------------------------------------------------------------------------
Net income 8,980,264 8,980,264
Sale of shares under
employee stock
purchase plan 6,444 6,444 113,874 120,318
Sale of shares under
stock option plans (25,589) (33,700) 362,933 337,344
Shares acquired in
payment of
option price 14,607 (328,859) (328,859)
Dividends paid
($0.23 per share) (1,415,195) (1,415,195)
Currency translation adjustment ($100,460) (100,460)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
AUGUST 31, 1995 6,200,158 $6,200,158 $2,259,502 $46,799,379 27,532 ($385,218) ($100,460) $54,773,361
==================================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
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5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the
accounts of Tuscarora Incorporated (the Company)
and its wholly-owned subsidiaries. The 49% investment
in White Knight Packaging Corporation, which was
sold during the 1993 fiscal year, was accounted
for by the equity method (see Notes 5 and 10). All
significant inter-company accounts and transactions
have been eliminated.
Foreign Currency Translation
The financial statements of the Company's foreign
subsidiaries are maintained in their functional
currencies and translated into U.S. dollars in accordance
with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation". Assets and liabilities
are translated at current exchange rates in effect at
the balance sheet date, and shareholders' equity is
translated at historical exchange rates. Revenues and
expenses are translated at the average exchange rate
that prevailed during each period. Translation gains
or losses which result from the process of translating
foreign currency financial statements into U.S. dollars
are accumulated as a separate component of shareholders'
equity in accordance with SFAS No. 52.
In accordance with Statement of Financial
Accounting Standards No. 95, "Statement of Cash
Flows", cash flows from the Company's operations
in foreign countries are calculated based on their
functional currencies. As a result, amounts related
to operating assets and liabilities reported on the
Consolidated Statements of Cash Flows for fiscal
year 1995 will not necessarily agree with changes in
the corresponding balances on the Consolidated Balance
Sheets. The effect of exchange rate changes on cash
balances held in foreign currencies is reported on a
separate line below cash flows provided by financing
activities.
Concentrations of Credit Risk
Financial instruments, which potentially subject
the Company to concentrations of credit risk, consist
primarily of cash, cash equivalents and trade accounts
receivable. The Company maintains cash and cash
equivalents in several financial institutions which,
at times, may exceed federally insured limits. The
Company has not experienced any losses and does not
foresee a material risk associated with these accounts.
Concentrations of credit risk with respect to
trade accounts receivable are limited due to the large
number of customers and their dispersion across
many geographic areas. This risk is further reduced
by the Company's maintenance of credit insurance
on certain large accounts. The Company does not
currently foresee a material credit risk associated
with its receivables.
Inventories
Inventories other than finished goods are stated
at the lower of cost or market, cost being determined
on the FIF0 (first-in, first-out) method. Finished
goods are stated at the lower of average cost or mar-
ket and include the cost of material, labor and man-
ufacturing overhead.
5
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property, Plant and Equipment
Land, buildings and equipment are stated on the
basis of cost. Major renewals and betterments are
charged to the property accounts while replacements,
maintenance and repairs which do not improve or
extend the life of the assets are charged to income.
When properties are disposed of, the related cost
and accumulated depreciation are removed from the
respective accounts, and any profit or loss on dispo-
sition is credited or charged to income.
Provisions for depreciation of plant and equipment
are computed primarily on the straight-line method
based on the following estimated useful lives:
Building and improvements ............. 10-30 years
Machinery and equipment ............... 3-10 years
Intangible Assets
Intangible assets, which include amounts allocated
to covenants not to compete and goodwill acquired in
connection with acquisitions, are amortized using the
straight-line method over the periods estimated to be
benefitted. The periods do not exceed three years for
covenants not to compete and fifteen years for good-
will (see Note 9).
Income Taxes
The Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109), effective September 1, 1992.
SFAS No. 109 requires recognition of deferred tax assets
and liabilities for the expected future tax consequences
of events that have been included in the financial
statements and income tax returns. Under this method,
deferred tax assets and liabilities are determined based
on the difference between the financial statement and
the tax basis of assets and liabilities using tax rates
currently in effect.
Net Income Per Share
Net income per share has been computed on the
weighted average number of shares of Common Stock
outstanding. The fully diluted net income per share of
Common Stock has not been separately presented as
the amounts would not be materially different from
the net income per share of Common Stock shown.
Cash Equivalents
For purposes of the balance sheets and statements of
cash flows, cash equivalents include time deposits and
certificates of deposit with original maturities of 30
days or less.
Reclassification
Certain amounts in the Consolidated Statements of
Cash Flows for the years ended August 31, 1994 and
1993 have been reclassified to be consistent with the
1995 presentation.
NOTE 2: INVENTORIES
Inventories at August 31,1995 and 1994 are summa-
rized as follows:
- --------------------------------------------------------
August 31, 1995 1994
- --------------------------------------------------------
Finished goods $ 9,317,095 $ 6,851,928
Work in process 421,524 300,414
Raw materials 6,576,578 6,050,686
Supplies 1,703,413 1,067,835
- --------------------------------------------------------
Total $18,018,610 $14,270,863
========================================================
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7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: LONG-TERM DEBT
In June 1995, the revolving credit facility under the
credit agreement between the Company and its prin-
cipal bank was increased to $14,000,000 and extended
through January 31, 1998. The Company also con-
verted $12,000,000 of the amount borrowed under
the revolving credit facility to a ten-year term note
repayable in quarterly installments with final matu-
rity on July 1, 2005. The amount borrowed under the
revolving credit facility is convertible to an approxi-
mately five-year term note which is repayable in
quarterly installments commencing on April 1, 1998,
with final maturity on January 1, 2003. The commit-
ment fee is 1/8 of 1% per annum of the average daily
unborrowed funds.
Long-term debt outstanding at August 31, 1995
and 1994 is summarized as follows:
- ------------------------------------------------------------------------------------------------------------------
Interest Rate at August 31,
August 31, 1995 1995 1994
- ------------------------------------------------------------------------------------------------------------------
Notes under credit agreement with principal bank
Revolving credit note 6.99% $ 5,495,000 $ 1,450,000
Term notes payable by maturity:
Variable rate note payable in quarterly
installments, through June 1, 2000 7.57% 7,900,000 9,480,000
Variable rate note payable in quarterly
installments, through July 1, 2002 7.50% 2,800,000 3,200,000
Variable rate note payable in quarterly
installments, through July 1, 2004 7.50% 8,100,000 9,000,000
Variable rate note payable in quarterly
installments, through July 1, 2005 7.57% 12,000,000 --
Industrial development bonds and notes:
Variable rate bonds subject to annual mandatory
sinking fund redemption through December 1, 2000,
with final payment on December 1, 2001. 3.85% 3,725,000 4,150,000
Fixed rate note payable in monthly installments
through May 1, 1995 -- -- 62,005
Other long-term debt:
Variable rate mortgage note payable in quarterly
installments through March 30, 2006 9.25% 895,840 979,171
Non-interest bearing obligation payable in
periodic installments through April 30, 1997 -- 413,565 631,205
- ------------------------------------------------------------------------------------------------------------------
-- 41,329,405 28,952,381
Less amounts due within one year, included in current liabilities 4,819,255 3,667,977
- ------------------------------------------------------------------------------------------------------------------
Total long-term debt $36,510,150 $25,284,404
==================================================================================================================
The obligations of the Company to repay the
borrowings under the bank credit agreement and the
industrial development bonds are secured by mortgages
and security interests in certain of the Company's
property, plant and equipment.
The bank credit agreement and the agreement
relating to the industrial development bonds contain
covenants which require the maintenance of financial
ratios with respect to cash flow, interest coverage
and other matters and impose restrictions on capital
expenditures, indebtedness and disposition of capital
assets. At August 31, 1995, 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.
7
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aggregate maturities of long-term debt during
each of the five fiscal years ending after August 31,
1995 are as follows:
- --------------------------------------------------
Year Ending
August 31,
- --------------------------------------------------
1996 $4,819,255
1997 4,770,974
1998 4,588,332
1999 4,588,332
2000 4,588,332
==================================================
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: OTHER (INCOME) EXPENSE
Other (Income) Expense for the year ended August 31,
1995 consists primarily of a non-recurring charge to
income as a result of the Company's decision not to
retain exclusive rights to manufacture and market a
line of collapsible aluminum shipping containers
which were obtained in fiscal 1992. The Company is
still able to manufacture and market these products
on a non-exclusive basis.
For the fiscal year ended August 31, 1994, the net
expense of $161,111 shown under Other (Income)
Expense resulted primarily from the difference between
the excess of the proceeds over the carrying value of
life insurance policies owned by the Company on the
life of John P. O'Leary, Sr., the Company's co-founder
and Chairman of the Board who died during the fiscal
year, and the amount recorded by the Company as
the liability for future payments to Mr. O'Leary, Sr.'s
widow for supplemental pension benefits under the
terms of the employment agreement between the
Company and Mr. O'Leary, Sr.
The amount included under this caption for the
fiscal year ended August 31, 1993 consists primarily
of a gain of $780,833 which resulted from the
Company's sale of its 49% equity interest in White
Knight Packaging Corporation.
NOTE 6: STOCK OPTIONS AND COMMON STOCK
PURCHASE PLAN
In December 1994, shareholders approved an amend-
ment to the Company's 1989 Stock Incentive Plan
increasing the number of shares of the Company's
Common Stock that may be issued under the plan by
300,000. At August 31, 1995, a total of 308,550 shares
remained available for the grant of stock options under
the plan. The outstanding stock options have been
granted under this plan and a prior stock option plan.
All stock options have been granted at 100% of
the fair market value of the Company's Common
Stock on the date of grant (110% in the case of Ten
Percent Employees). The stock options have ten year
option terms (five years in the case of Ten Percent
Employees). The option price may be paid in cash,
in already-owned shares of the Company's Common
Stock or in a combination of cash or shares. Data
concerning the stock options outstanding during the
three fiscal years ended August 31,1995 is as follows:
- --------------------------------------------------------------------
Range of
Shares Option Price
- --------------------------------------------------------------------
Shares under option
August 31, 1992 237,680 $ 3.17-13.20
Options granted 43,600 16.44
Options expired -- --
Options exercised 6,950 8.53
- --------------------------------------------------------------------
Shares under option
August 31, 1993 274,330 $ 3.17-16.44
Options granted 44,200 15.00
Options expired 9,300 10.00-15.00
Options exercised 48,140 3.17-16.44
- --------------------------------------------------------------------
Shares under option
August 31, 1994 261,090 $ 3.17-16.44
Options granted 92,500 16.75
Options expired 1,200 15.00-16.44
Options exercised 33,700 3.17-16.44
- --------------------------------------------------------------------
SHARES UNDER OPTION
AUGUST 31, 1995 318,690 $ 3.17-16.75
====================================================================
The options outstanding at August 31, 1995
are exercisable and expire at various dates from
December 1995 to October 2004.
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 con-
tributes 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.
8
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: INCOME TAXES
The Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS No. 109),
"Accounting for Income Taxes" effective September 1,
1992. The adoption of SFAS No. 109 changed the
Company's method of accounting for income taxes
from the deferred method to an asset and liability
method (see Note 1). The cumulative effect of adopt-
ing the standard was a decrease in deferred income
taxes and a corresponding increase in net income of
$321,218, or $.05 per share, for the 1993 fiscal year.
The provision for income taxes consists of
the following:
- -------------------------------------------------------------------
Year Ended
August 31, 1995 1994 1993
- -------------------------------------------------------------------
Payable
Currently:
Federal $4,751,053 $3,252,570 $2,105,399
State 1,121,211 731,859 460,853
Foreign 13,401 -- --
- -------------------------------------------------------------------
5,885,665 3,984,429 2,566,252
- -------------------------------------------------------------------
Deferred:
Federal 130,290 (520,314) (178,150)
State 37,899 (150,161) (51,803)
- -------------------------------------------------------------------
168,189 (670,475) (229,953)
- -------------------------------------------------------------------
Total provision $6,053,854 $3,313,954 $2,336,299
===================================================================
The following is a reconciliation of the statutory
U.S. Corporate Federal income tax rate to the effec-
tive income tax rate:
- ----------------------------------------------------------------
Year Ended
August 31, 1995 1994 1993
- ----------------------------------------------------------------
U.S. Federal
income tax rate 35.0% 34.0% 34.0%
Changes in tax rate
resulting from:
State income taxes,
net of Federal
tax benefit 5.0% 4.3% 4.3%
Other 0.3% -1.5% -1.1%
- ----------------------------------------------------------------
Effective income
tax rate 40.3% 36.8% 37.2%
================================================================
Deferred tax assets and liabilities as of August 31,
1995, 1994 and 1993 were comprised of the following:
- ---------------------------------------------------------------------
August 31, 1995 1994 1993
- ---------------------------------------------------------------------
Deferred tax assets:
Allowance for
bad debts $ 270,045 $ 258,409 $ 256,969
Supplemental
pension
benefits 441,141 449,964 --
Other -- 23,964 3,994
Deferred tax liabilities:
Depreciation and
amortization 2,513,391 2,315,596 2,503,882
Other 46,873 97,630 108,445
- ---------------------------------------------------------------------
Net deferred
tax liability $1,849,078 $1,680,889 $2,351,364
=====================================================================
NOTE 8: RETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company maintains non-contributory individual
account defined contribution pension plans covering
most full-time employees in the U.S. and a contribu-
tory individual account defined contribution pension
plan covering most full-time salaried employees in
the U.K. Under these pension plans, the contribution
rate for each employee is generally 5 1/2% of total com-
pensation. 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 employ-
ment in the U.K. Normal retirement under all plans
is age 65. The contributions to the plans for the fiscal
years ended August 31, 1995, 1994 and 1993 were
$1,409,179, $1,163,002 and $1,088,476, respectively.
The unfunded past service liability at August 31,1995,
1994 and 1993 under the plans was approximately
$405,525, $382,626 and $456,074, respectively. The
past service liability is paid to the trustee of the applic-
able plans over a ten-year period.
The Company also maintains a Section 401(k) plan
covering most full-time salaried employees in the U.S.
Under this plan, participants may elect to defer and
have contributed to the plan on their behalf up to 7%
of their current compensation, subject to certain limi-
tations. Each month, the Company also contributes
to the account of each participant an amount equal
to 25% of the Salary Deferral Contributions made on
behalf of the participant which does not exceed 4% of
the participant's compensation for the month (3% prior
to January 1, 1994). All Salary Deferral Contributions
and Company Matching Contributions to the plan
9
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and earnings thereon are fully vested at all times. The
Company Matching Contributions to the plan for the
fiscal years ended August 31,1995, 1994 and 1993 were
$78,733, $54,755 and $49,768, respectively.
During the 1994 fiscal year, two key executive offi-
cers retired and are receiving supplemental pension
benefits. The Company charged $479,657 against
1994 fiscal year earnings which represented the liability
for future payments.
The Company adopted Statement of Financial
Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than
Pensions" (SFAS No. 106), effective September 1,
1992. SFAS No. 106 requires that the cost of postre-
tirement benefits be accrued during the years that
employees render services. The Company does not
provide significant postretirement benefits; the cum-
ulative effect of adopting this standard in the 1993
fiscal year was not material.
The Company adopted Statement of Financial
Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" (SFAS
No. 112), effective September 1, 1994. SFAS No. 112
requires recognition of benefits provided by an
employer to former or inactive employees after
employment but before retirement. The Company
does not provide significant postemployment benefits;
the cumulative effect of adopting this standard in
the 1995 fiscal year was not material.
NOTE 9: ACQUISITIONS
During the 1995 fiscal year, the Company acquired two
similar businesses. In September 1994, the Company
purchased substantially all the assets and assumed
substantially all the liabilities of the specialty corru-
gated and foam packaging business of Astrofoam,
Inc. in Holden, Massachusetts for approximately
$2,200,000; and in February 1995, the Company pur-
chased substantially all the assets and assumed sub-
stantially all the liabilities of the custom molding
business of M.Y. Trondex Limited in Northampton,
England and Glasgow, Scotland for approximately
$3,500,000, of which $2,900,000 was paid at the clos-
ing and the remainder is being paid over a three-year
period. In each case, the businesses acquired are being
operated at the same locations under leases from the
seller or a third party.
The Company also made acquisitions of two simi-
lar businesses during the 1994 fiscal year. In April
1994, the Company purchased substantially all the
assets and assumed substantially all the liabilities
of the custom molding and fabricating business of
Styro-Molders Corporation in Colorado Springs,
Colorado for $3,100,000 in cash, of which $2,400,000
was paid at the closing and the remainder is being
paid over a three-year period; and in September 1993,
the Company purchased the corrugated packaging
business and related machinery and equipment of
Box Pack Incorporated in Greeneville, Tennessee for
approximately $675,000 in cash. In each case, the
businesses acquired are being operated at the same
locations under leases from the seller.
The Company made one acquisition in the 1993
fiscal year. In October 1992, the Company purchased
the custom molded foam polypropylene business and
related machinery and equipment of Sentinel Products
Corporation in St. Johnsville, New York for approxi-
mately $500,000 in cash. In this case, the business
acquired was transferred to other Company facilities.
All the above acquisitions have been accounted for
as purchases. In certain of these acquisitions, (i) part
of the purchase price was allocated to a covenant not
to compete and/or goodwill (see Note 1) and (ii) the
Company agreed to pay additional consideration to
the seller based on the sales realized by, or the oper-
ating performance of, the business acquired over a
specified period after the acquisition. The additional
consideration is generally charged against selling
expense when paid.
NOTE 1O: SALE OF INVESTMENT
In April 1993, the Company sold its 49% equity
interest in White Knight Packaging Corporation for
$1,805,382. The investment, which was carried at cost
as adjusted for the amortization of goodwill and the
Company's proportionate share of White Knight's
earnings or losses, amounted to $1,024,549 at the time
of the sale. The investment in White Knight, a devel-
opment stage company that provides aseptic packag-
ing to marketers and distributors of dairy, juice and
other liquid food products, was acquired in February
1992 for $1,300,000.
10
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11: LEASE COMMITMENTS
Rental expense charged to operations for the fiscal
years ended August 31,1995,1994 and 1993 amounted
to $3,889,162, $2,825,219 and $2,606,500, respec-
tively. The approximate net minimum rental required
to be paid under all non-cancelable operating leases
during each of the five fiscal years ending after
August 31,1995 is as follows:
- -------------------------------------------
Year Ending
August 31,
- -------------------------------------------
1996 $2,938,957
1997 2,309,732
1998 1,936,561
1999 1,529,506
2000 1,216,714
Thereafter 3,690,894
===========================================
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 12: CLAIMS AND CONTINGENCIES
During the 1995 fiscal year, two lawsuits were filed
against the Company involving claims of sexual dis-
crimination and harassment in which compensatory
and punitive damages are sought. The Company is
vigorously contesting these lawsuits and believes that,
consistent with a policy in place for many years, it has
promptly, reasonably and effectively responded to all
incidents alleged. Other employment-related claims
are pending before Federal and state agencies.
The Company is also involved in several 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. With respect to these
matters, the Company believes that its share of the
costs should not be significant.
In the opinion of Management, the disposition of
the employment and environmental claims should not
have a material adverse effect on the Company's
financial position.
NOTE 13: QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial information is
as follows:
- ----------------------------------------------------------------------------------------
Fiscal Quarter Ended
November 30 February 28 May 31 August 31
- ----------------------------------------------------------------------------------------
FISCAL 1995:
Net Sales $38,920,000 $37,890,000 $40,970,000 $45,520,000
Gross Profit 9,778,000 8,776,000 9,774,000 11,289,000
Net Income 2,501,000 1,840,000 2,345,000 2,294,000
Per Share of Common Stock:
Net Income $0.41 $0.30 $0.38 $0.37
Dividends Paid -- $0.11 -- $0.12
Stock Market Prices:
High 18 1/4 21 22 23 3/4
Low 14 16 1/4 18 1/2 18 3/4
- ----------------------------------------------------------------------------------------
FISCAL 1994:
Net Sales $29,288,000 $26,660,000 $30,343,000 $33,794,000
Gross Profit 7,107,000 5,807,000 6,917,000 7,777,000
Net Income 1,648,000 903,000 1,519,000 1,633,000
Per Share of Common Stock:
Net Income $0.27 $0.15 $0.25 $0.26
Dividends Paid -- $0.10 -- $0.10
Stock Market Prices:
High 16 1/4 20 18 3/4 15 1/2
Low 12 1/4 14 14 13
========================================================================================
11
12
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 sub-
sidiaries as of August 31, 1995 and 1994, and the
related consolidated statements of income, sharehold-
ers' equity and cash flows for each of the three years
in the period ended August 31,1995. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an opin-
ion on these financial statements based on our audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those stand-
ards require that we plan and perform the audit to
obtain reasonable assurance about whether the finan-
cial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the finan-
cial statements. An audit also includes assessing the
accounting principles used and significant estimates
made by management, as well as evaluating the over-
all financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Tuscarora Incorpo-
rated and subsidiaries as of August 31, 1995 and 1994,
and the results of their operations and their cash flows
for each of the three years in the period ended August
31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 7 to the Consolidated
Financial Statements, effective September 1, 1992,
the Company changed its method of accounting for
income taxes.
/s/ S.R. SNODGRASS A.C.
Beaver Falls, PA
October 12, 1995
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS--FISCAL 1995
COMPARED TO FISCAL 1994
Net sales for the year ended August 31, 1995 were
$163.3 million, representing an increase of $43.2 mil-
lion, or 36.0%, over fiscal 1994. Approximately 42%
of the increase in net sales was due to the acquisitions
of similar businesses in Colorado Springs, Colorado
and Holden, Massachusetts in April and September
1994, respectively, and in the United Kingdom in
February 1995. The balance of the increase reflected
the continued strong demand from the Company's
existing customers in virtually all geographic and
end-use markets, particularly high technology, con-
sumer electronics, major appliances and automotive
and also higher selling prices to customers as a result
of the Company passing on higher raw material costs.
Net sales in the fourth quarter of fiscal 1995 were
$45.5 million, an increase of $11.7 million or 34.7%
over the fourth quarter of fiscal 1994 net sales
of $33.8 million. Substantial sales increases were
obtained during fiscal 1995 and the fourth quarter
of fiscal 1995 in both the Company's custom molding
and integrated materials operations.
Gross profit for the year ended August 31,1995
was $39.6 million, or 24.3% of sales, compared to
$27.6 million, or 23.0% of sales, for fiscal 1994. The
gross profit margin was favorably impacted by the
higher sales level which resulted in improvements in
manufacturing efficiency in both the Company's cus-
tom molding and integrated materials operations and
by the consumption in the first quarter of raw materi-
als purchased by the Company during the 1994 fiscal
year in advance of price increases from the Company's
suppliers. The increase in the gross profit margin was
partially offset by below-average margins at the U.K.
operations following their acquisition.
Selling and administrative expenses for the year
ended August 31,1995 increased $4.7 million, or
27.6%, but decreased as a percentage of net sales to
13.4% compared with 14.2% in fiscal 1994. The dollar
increase was due primarily to employee costs added
in connection with the acquisitions and increased
commissions associated with the higher sales level.
12
13
Interest expense for the year ended August 31,
1995 was $2.6 million compared to $1.3 million for
fiscal 1994. The increase of $1.3 million was due to a
higher level of outstanding debt coupled with higher
interest rates.
Income before income taxes for the year ended
August 31, 1995 increased to $15.0 million from
$9.0 million for fiscal 1994, an increase of 66.7%.
The provision for income taxes for the year ended
August 31, 1995 increased due to the increase in income
before income taxes. The Company's effective tax rate
increased to 40.3% from 36.8% primarily due to the
income tax effect in fiscal 1995 of an unused net oper-
ating loss of the U.K. operations and the exclusion
from taxable income in fiscal 1994 of the excess of
the proceeds over the carrying value of life insurance
policies owned by the Company.
Net income for the year ended August 31, 1995 was
$9.0 million, an increase of 57.5% from $5.7 million
for fiscal 1994. The increase was due primarily to the
increases in net sales and gross profit.
Net sales and net income for fiscal 1995 and the
net sales during the fourth quarter of fiscal 1995 were
Company records for a year and a fourth fiscal quar-
ter. The high level of sales and manufacturing activity
is continuing in fiscal 1996.
RESULTS OF OPERATIONS--FISCAL 1994
COMPARED TO FISCAL 1993
Net sales totaled $120.1 million in fiscal 1994 com-
pared with $101.1 million in fiscal 1993. The increase
of $19.0 million or 18.8% was attributable primarily
to consistent growth in the level of manufacturing
activity in the Company's major markets, including
high technology, automotive and consumer electron-
ics, and to the acquisitions of similar businesses in
September 1993 and April 1994. Net sales in the fourth
quarter of fiscal 1994 were $33.8 million, an increase
of $7.5 million or 28.4% over the fourth quarter of
fiscal 1993 net sales of $26.3 million. Increased sales
of products made from integrated materials and ther-
moformed products, the Company's newer products,
contributed to the net sales increases, particularly
during the fourth quarter.
Gross profit in fiscal 1994 was $27.6 million, a
28.4% increase from $21.5 million in fiscal 1993. The
gross profit margin increased to 23.0% in fiscal 1994
from 21.3% in fiscal 1993 primarily due to the increase
in net sales which provided a more efficient utilization
of manufacturing capacity. The increase resulted
despite higher raw material costs in the third and
fourth quarters of fiscal 1994 than in fiscal 1993 and
despite higher employee costs primarily associated
with the Company's newer products.
Selling and administrative expenses increased
$2.4 million or 16.5% in fiscal 1994 but decreased
as a percentage of net sales to 14.2% compared with
14.5% in fiscal 1993. The dollar increase was due
primarily to increased employee costs, including the
cost of certain supplemental pension benefits.
Interest expense in fiscal 1994 was $1.33 million
compared to $1.31 million in fiscal 1993. The increase
of $21,000 or 1.6% was due primarily to the increase
in the average outstanding borrowings.
Other (income) expense provided a net expense
in fiscal 1994 primarily due to the difference between
the excess of the proceeds over the carrying value
of life insurance policies owned by the Company on
John P. O'Leary, Sr., the Company's deceased co-
founder and Chairman, and the liability recorded by
the Company for future payments to Mr. O'Leary's
widow under the terms of his employment contract.
In fiscal 1993, other (income) expense provided a net
gain primarily due to the Company's sale of its 49%
equity interest in White Knight Packaging Corporation.
Income before income taxes in fiscal 1994 increased
to $9.0 million representing a 43.5% increase from
$6.3 million in fiscal 1993.
The provision for income taxes for fiscal 1994
increased due to the increase in income before income
taxes. The effective tax rate decreased to 36.8% from
37.2% primarily due to the exclusion from taxable
income of the excess of the proceeds over the carrying
value of the life insurance policies referred to above.
Before taking into account the adoption of FASB
Statement No. 109, effective in fiscal 1993, net income
for fiscal 1994 was $5.7 million, an increase of 44.4%
from net income of $3.9 million for fiscal 1993. This
increase was due primarily to the increases in net sales
and gross profit. Results reflecting the adoption of
FASB Statement No. 109, which only affected the
13
14
reported results for the first quarter of fiscal 1993, were
net income of $5.7 million for fiscal 1994 versus net
income of $4.3 million for fiscal 1993, a 33.5% increase.
Net sales and net income for fiscal 1994 and net
sales during the fourth quarter of fiscal 1994 were
Company records for a year and a fourth fiscal quar-
ter. The high level of sales and manufacturing activity
continued into fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities amounted
to $14.1 million, $17.0 million and $10.9 million in
fiscal 1995, fiscal 1994 and fiscal 1993, respectively.
Depreciation and amortization in fiscal 1995, fiscal 1994
and fiscal 1993 amounted to $10.9 million, $9.7 million
and $9.2 million, respectively. Because a substantial
portion of cash flow from operations results from
depreciation and amortization, the Company believes
that its liquidity would not be adversely affected
should a period of reduced earnings occur.
At August 31, 1995, the Company's accounts receiv-
able, inventories and accounts payable were signifi-
cantly higher than at the end of the previous fiscal
year primarily due to the acquisitions of the similar
businesses and to the increased sales and manufac-
turing activity during fiscal 1995. Inventories and
accounts payable were lower in relation to net sales
at August 31, 1995 than at August 31, 1994 when the
raw materials inventory and accounts payable were
unusually high due to accelerated purchases in
advance of announced price increases in the final
two quarters of fiscal 1994.
Long-term debt increased to $36.5 million at
August 31, 1995 from $25.3 million at August 31, 1994.
During fiscal 1995, the Company increased the revolv-
ing credit facility under its credit agreement with its
principal bank from $12.0 million to $14.0 million
and converted $12.0 million of the amount borrowed
under the revolving credit facility to a new ten-year
term loan under the credit agreement. The increased
borrowing during the fiscal year was used primarily
in connection with the acquisitions in September 1994
and February 1995 and for capital expenditures for
machinery and equipment, including equipment
utilizing next generation manufacturing technology
for a new EPS custom molding plant in Lewisburg,
Tennessee. At August 31, 1995, $8.5 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.
During fiscal 1995, fiscal 1994 and fiscal 1993, the
Company made capital expenditures in the amounts
of $26.4 million, $16.1 million and $12.4 million,
respectively, including approximately $1.7 million,
$1.1 million and $1.4 million, respectively, for environ-
mental control equipment. The largest amount of the
capital expenditures during all three years has been
for machinery and equipment, including machinery
and equipment purchased in connection with the
acquisition of similar businesses (see Note 9 of the
Notes to Consolidated Financial Statements). The
Company will continue to look for the acquisition
of similar and related businesses.
Cash dividends amounted to $1.4 million ($.23
per share), $1.2 million ($.20 per share) and $1.1 mil-
lion ($.18 per share) in fiscal 1995, fiscal 1994 and
fiscal 1993, respectively.
Cash provided by operating activities as supple-
mented by the amount available under the bank
credit agreement should continue to be sufficient to
fund the Company's operating requirements, capital
expenditures and dividend payments.
INFLATION
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 1996 results.
14
15
ELEVEN YEAR CONSOLIDATED FINANCIAL SUMMARY
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended
August 31 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------
Net sales $163,300 $120,085 $101,075 $95,809 $84,420 $84,458
Income before income taxes 15,034 9,017 6,285 8,289 6,856 7,912
Net income 8,980 5,703 4,270(a) 4,981 4,230 4,874
Depreciation and amortization 10,890 9,721 9,206 7,879 7,235 6,591
Weighted average number of shares outstanding 6,154 6,129 6,109 6,097 6,057 6,022
Net income per share 1.46 0.93 0.70(a) 0.82 0.70 0.81
Margin on sales 5.5% 4.7% 4.2% 5.2% 5.0% 5.7%
Return on beginning shareholders' equity 19.0% 13.4% 10.9% 14.2% 13.4% 17.8%
Working capital 22,390 16,548 15,893 13,463 13,728 11,385
Total assets 117,721 94,225 79,769 75,510 63,775 60,677
Long-term debt (excluding current portion) 36,510 25,284 23,930 22,121 14,870 16,264
Shareholders' equity 54,773 47,180 42,546 39,280 35,152 31,451
Shareholders' equity per share 8.90 7.70 6.96 6.44 5.80 5.22
Dividends per share 0.23 0.20 0.18 0.16 0.14 0.13
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended
August 31 1989 1988 1987 1986 1985
- ------------------------------------------------------------------------------------------------------------------------------
Net sales $ 77,642 $ 65,583 $55,279 $46,641 $45,206
Income before income taxes 7,479 5,644 5,192 3,587 3,503
Net income 4,478 3,469 2,834 2,210 2,025
Depreciation and amortization 5,463 4,269 3,347 2,811 2,563
Weighted average number of shares outstanding 6,020 5,356 5,290 5,288 5,274
Net income per share 0.74 0.65 0.54 0.42 0.38
Margin on sales 5.8% 5.3% 5.1% 4.7% 4.5%
Return on beginning shareholders' equity 19.0% 22.0% 21.1% 19.1% 20.3%
Working capital 11,418 10,146 5,792 5,086 5,004
Total assets 53,138 46,777 40,132 32,879 30,188
Long-term debt (excluding current portion) 13,165 13,248 12,858 11,005 10,474
Shareholders' equity 27,360 23,574 15,762 13,404 11,572
Shareholders' equity per share 4.54 4.40 2.98 2.53 2.19
Dividends per share 0.12 0.10 0.09 0.08 0.07
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
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 200% share distributions paid on November 30, 1985 and October 1, 1987 and a 100% share distribution paid on April 14,
1992.
15