1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) - --- X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the quarterly period ended February 29, 1996 - --- 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 the charter.) Pennsylvania 25-1119372 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 800 Fifth Avenue New Brighton, Pennsylvania 15066 (Address of principal executive offices) (Zip Code) 412-843-8200 (Registrant's telephone number, including area code) Not applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for at least the past 90 days. Yes X No --- --- As of April 2, 1996, 6,270,489 shares of Common Stock, without par value, of the registrant were outstanding. 2 Tuscarora Incorporated INDEX Page ---- Part I. Financial Information: Item 1. Financial Statements Condensed Consolidated Balance Sheets at February 29, 1996 and August 31, 1995 3 Condensed Consolidated Statements of Income - Three and six month periods ended February 29, 1996 and February 28, 1995 4 Condensed Consolidated Statements of Cash Flows - Six months ended February 29, 1996 and February 28, 1995 5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-10 Part II. Other Information: Item 4. Submission of Matters to a Vote of Security Holders 11 Item 6. Exhibits and Reports on Form 8-K 11 2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Tuscarora Incorporated CONDENSED CONSOLIDATED BALANCE SHEETS February 29, August 31, 1996 1995 ------------ ------------ (Unaudited) ASSETS ------ Current Assets Cash and cash equivalents $ 1,001,949 $ 2,659,767 Trade accounts receivable, net of provision for losses 24,063,393 23,463,267 Inventories 17,324,578 18,018,610 Prepaid expenses and other current assets 2,850,196 1,452,542 ------------ ------------ 45,240,116 45,594,186 Property, Plant and Equipment, net 71,933,457 67,591,194 Other Assets, net 4,714,251 4,535,879 ------------ ------------ Total Assets $121,887,824 $117,721,259 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current Liabilities Current maturities of long-term debt $ 4,821,571 $ 4,819,255 Accounts payable 13,526,587 15,515,024 Accrued income taxes 510,644 365,986 Accrued payroll and related taxes 495,374 490,190 Other current liabilities 1,457,375 2,013,544 ------------ ------------ 20,811,551 23,203,999 Long-Term Debt - less current maturities 37,538,876 36,510,150 Deferred Income Taxes 1,690,432 1,849,078 Supplemental Pension Benefits 927,591 976,730 Other Long-Term Liabilities 403,047 407,941 ------------ ------------ Total Liabilities 61,371,497 62,947,898 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, 6,254,181 at February 29, 1996 and 6,200,158 at August 31, 1995 6,254,181 6,200,158 Capital surplus 3,316,119 2,259,502 Retained earnings 51,129,265 46,799,379 Foreign currency translation adjustment (163,757) (100,460) ------------ ------------ 60,535,808 55,158,579 Less cost of reacquired shares of Common Stock; 1,289 shares at February 29, 1996 and 27,532 at August 31, 1995 19,481 385,218 ------------ ------------ Total Shareholders' Equity 60,516,327 54,773,361 ------------ ------------ Total Liabilities and Shareholders' Equity $121,887,824 $117,721,259 ============ ============ <FN> Note: The consolidated balance sheet at August 31, 1995 has been taken from the audited financial statements and condensed. See notes to condensed consolidated financial statements. 3 4 Tuscarora Incorporated CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Six Months Ended February 29, February 28, February 29, February 28, 1996 1995 1996 1995 ------------ ------------ ------------ ------------ Net Sales $ 43,188,022 $ 37,890,171 $ 90,483,738 $ 76,809,994 Cost of Sales 33,274,525 29,114,584 68,613,281 58,256,052 ------------ ------------ ------------ ------------ Gross profit 9,913,497 8,775,587 21,870,457 18,553,942 Selling and Administrative Expenses 5,985,773 5,137,071 12,100,041 10,229,988 Interest Expense 685,899 569,398 1,393,966 1,031,287 Other (Income) Expense (23,294) 27,798 (32,115) 151,602 ------------ ------------ ------------ ------------ 6,648,378 5,734,267 13,461,892 11,412,877 ------------ ------------ ------------ ------------ Income before income taxes 3,265,119 3,041,320 8,408,565 7,141,065 Provision for Income Taxes 1,278,424 1,201,321 3,267,425 2,800,222 ------------ ------------ ------------ ------------ Net income $ 1,986,695 $ 1,839,999 $ 5,141,140 $ 4,340,843 ============ ============ ============ ============ Net income per share $.32 $.30 $.83 $.71 ==== ==== ==== ==== Weighted average number of shares of Common Stock outstanding 6,241,537 6,150,701 6,211,577 6,149,380 ========= ========= ========= ========= See notes to condensed consolidated financial statements. 4 5 Tuscarora Incorporated CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended February 29, February 28, 1996 1995 ------------ ------------ Operating Activities Net Income $ 5,141,140 $ 4,340,843 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 5,817,025 4,888,635 Amortization 292,119 324,114 Provision for losses on receivables 238,132 290,000 (Decrease) in deferred income taxes ( 178,202) ( 149,926) (Gain) loss on sale of property, plant and equipment, net ( 4,044) 21,440 Stock compensation expense 5,855 5,051 Changes in operating assets and liabilities, net of effects of business acquisitions: Decrease (increase): Trade accounts receivable ( 329,594) ( 426,229) Inventories 773,364 ( 1,716,103) Prepaid expenses and other current assets (1,389,016) ( 917,045) Other assets ( 111,021) 505,423 Increase (decrease): Accounts payable (2,116,452) ( 2,043,937) Accrued income taxes 75,316 ( 215,479) Accrued payroll and related taxes 4,115 195,349 Other current liabilities ( 566,312) 535,277 Supplemental pension benefits ( 49,139) ( 37,536) ------------ ------------ Net cash provided by operating activities 7,603,286 5,599,877 ------------ ------------ Investing Activities Purchase of property, plant and equipment (9,714,540) ( 8,702,190) Business acquisitions, net of cash acquired 129,066 ( 5,679,929) Proceeds from sale of property, plant and equipment 12,080 156,715 ------------ ------------ Net cash (used for) investing activities (9,573,394) (14,225,404) ------------ ------------ Financing Activities Proceeds from long-term debt 3,500,000 8,711,500 Payments on long-term debt (2,589,890) ( 2,044,405) Dividends paid ( 811,254) ( 676,594) Proceeds from sale of Common Stock 215,560 34,210 ------------ ------------ Net cash provided by financing activities 314,416 6,024,711 ------------ ------------ Effects of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents ( 2,126) 2,651 ------------ ------------ Net (decrease) in cash and cash equivalents (1,657,818) ( 2,598,165) Cash and Cash Equivalents at Beginning of Period 2,659,767 3,671,490 ------------ ------------ Cash and Cash Equivalents at End of Period $ 1,001,949 $ 1,073,325 ============ ============ See notes to condensed consolidated financial statements. 5 6 Tuscarora Incorporated NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Condensed Consolidated Financial Statements The condensed consolidated balance sheet at February 29, 1996 and the consolidated statements of income and consolidated statements of cash flows for the periods ended February 29, 1996 and February 28, 1995 have been prepared by the Company, without audit. In the opinion of Management, all adjustments necessary to present fairly the financial position, results of operations and changes in cash flows at February 29, 1996 and for the periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's 1995 Annual Report to Shareholders and incorporated by reference in the Company's annual report on Form 10-K for the fiscal year ended August 31, 1995. The results of operations for the period ended February 29, 1996 are not necessarily indicative of the operating results to be expected for the full year. 2. Inventories Inventories are summarized as follows: February 29, August 31, 1996 1995 ------------ ------------ Finished goods $ 10,620,043 $ 9,317,095 Work in process 508,932 421,524 Raw materials 4,532,046 6,576,578 Supplies 1,663,557 1,703,413 ------------ ------------ $ 17,324,578 $ 18,018,610 ============ ============ 3. Acquisition On December 1, 1995, the Company exchanged 51,177 shares of its Common Stock and $20,038, having an aggregate value of $1,275,000, for all the outstanding capital stock of Alpine Packaging, Inc., a designer and manufacturer of specialty corrugated packaging, custom assembled wood pallets and technical/military specification packaging in Colorado Springs, Colorado. The Company will issue additional shares of its Common Stock to the Alpine shareholders based on the operating results of the business acquired, accounted for as a separate entity, for each of the years 1995 through 1998. The Company is continuing the business acquired at the same location under a long-term lease. The acquisition was accounted for as a purchase transaction. The Condensed Consolidated Statement of Cash Flows for the six months ended February 29, 1996 excludes the non-cash consideration related to the acquisition. 6 7 4. Claims and Contingencies Three lawsuits are pending against the Company involving claims of sexual discrimination 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 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 certain 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. The Company has accrued for its estimated share of the costs resulting from the environmental claims. 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. 5. Reclassification Certain amounts in the Consolidated Statements of Cash Flows for the six months ended February 28, 1995 have been reclassified to be consistent with the presentation for the six months ended February 29, 1996. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - SECOND QUARTER FISCAL 1996 COMPARED TO SECOND QUARTER FISCAL 1995 Net sales for the quarter ended February 29, 1996 were $43.2 million, representing an increase of $5.3 million, or 14.0%, over the same quarter of fiscal 1995. Approximately 49% of the increase in net sales was due to the acquisitions of the similar businesses of M.Y. Trondex Ltd. in Northampton, England and Glasgow, Scotland in February 1995 and Alpine Packaging, Inc. in Colorado Springs, Colorado in December 1995. The balance of the increase in net sales was due to increased demand in many of the Company's markets for both custom molded and integrated materials products. The sales increase was achieved despite a reduction in selling prices to most of the Company's custom molded customers commencing in December 1995 and to severe winter weather that stopped production at many of the Company's customers' manufacturing facilities. Gross profit for the quarter ended February 29, 1996 was $9.9 million, a 13.0% increase from $8.8 million in the second quarter of fiscal 1995. The gross profit margin decreased to 23.0% from 23.2% primarily as a result of the lower selling prices which were only partially offset by lower EPS resin costs and the severe winter weather which resulted in lower productivity at a number of the Company's manufacturing facilities. Selling and administrative expenses increased $849,000 or 16.5% for the quarter ended February 29, 1996 and increased slightly as a percentage of net sales to 13.9% compared to 13.6% in the same period of fiscal 1995. The dollar increase is due primarily to the expenses added as a result of the acquisition in February 1995, other increased employee costs and increased professional fees. Interest expense for the quarter ended February 29, 1996 was $686,000 compared to $569,000 in the second quarter of fiscal 1995. The increase of $117,000, or 20.5%, is due to an increase in long-term debt, most of which occurred in fiscal 1995, and to higher interest rates throughout the quarter than in the second quarter of fiscal 1995. Income before income taxes for the quarter ended February 29, 1996 increased to $3.3 million from $3.0 million in the same period of fiscal 1995, an increase of $300,000 or 7.4%. The provision for income taxes for the quarter ended February 29, 1996 increased due to the increased income before income taxes. Net income for the quarter ended February 29, 1996 was $2.0 million, an increase of 8.0% from the $1.8 million earned in the same quarter of fiscal 1995. The increase was due primarily to the increases in net sales and gross profit. The net sales and net income for the three months ended February 29, 1996 were Company records for a second fiscal quarter. 8 9 RESULTS OF OPERATIONS - SIX MONTHS ENDED FEBRUARY 29, 1996 COMPARED TO SIX MONTHS ENDED FEBRUARY 28, 1995 Net sales for the six months ended February 29, 1996 were $90.5 million, representing an increase of $13.7 million, or 17.8%, over the same period of fiscal 1995. The increase is attributable to the same factors as resulted in the increase for the quarter ended February 29, 1996. Approximately 42% of the sales increase was attributable to the M.Y. Trondex Ltd. and Alpine Packaging, Inc. acquisitions in February 1995 and December 1995, respectively. Gross profit for the six months ended February 29, 1996 was $21.9 million, a 17.9% increase from $18.6 million in the same period of fiscal 1995. The gross profit margin for both the first six months of fiscal 1996 and fiscal 1995 was 24.2%. The gross profit margin remained steady for the six month period, as the increase in margin during the first fiscal quarter, before selling prices were lowered, was offset by the decrease in margin during the second fiscal quarter. Selling and administrative expenses increased $1.9 million or 18.3% for the six months ended February 29, 1996 and increased slightly as a percentage of net sales to 13.4% compared to 13.3% in the same period of fiscal 1995. The dollar increase is due primarily to the expenses added as a result of the acquisition in February 1995, other increased employee costs and increased professional fees. Interest expense for the six months ended February 29, 1996 was $1.4 million compared to $1.0 million in the first six months of fiscal 1995. The increase of $363,000, or 35.2%, is due to the increase in long-term debt and to slightly higher interest rates during the first six months of fiscal 1996. Income before income taxes for the six months ended February 29, 1996 increased to $8.4 million from $7.1 million in the same period of fiscal 1995, an increase of $1.3 million or 17.7%. The provision for income taxes for the six months ended February 29, 1996 increased due to the increased income before income taxes. Net income for the six months ended February 29, 1996 was $5.1 million, an increase of 18.4% from the $.43 million earned in the same quarter of fiscal 1995. The increase was due primarily to the increases in net sales and gross profit. The net sales and net income were Company records for a six month period. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities for the six months ended February 29, 1996 amounted to $7.6 million compared to $6.0 million for the same period in fiscal 1995. Depreciation and amortization for the same six month periods amounted to $6.1 million and $5.2 million, respectively. Because a substantial portion of cash flow provided 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. 9 10 During the six months ended February 29, 1996, the Company's inventories and accounts payable decrease despite the higher manufacturing activity, primarily due to the Company maintaining minimum raw material inventory levels as raw material prices trended lower during the period. The Company's accounts receivable increased slightly as a result of the higher sales level during the period. Capital expenditures for property, plant and equipment during the six months ended February 29, 1996 amounted to $9.7, including $433,000 for environmental equipment. In December 1995, the Company exchanged 51,177 shares of its Common Stock and a small amount of cash having an aggregate value of $1.3 million for all the outstanding capital stock of Alpine Packaging, Inc. (see Note 3 to the Condensed Consolidated Financial Statements). Total debt of the Company amounted to $42.4 million at February 29, 1996, of which $37.8 million was borrowed under a credit agreement with the Company's principal bank, including $9.0 million out of an available $14.0 million under a revolving credit agreement. During the six months ended February 29, 1996, $3.5 million was borrowed under the above revolving credit agreement. Total debt amounted to $41.3 million at August 31, 1995. On December 14, 1995, the Company declared its regular semiannual cash dividend of $.13 per share payable on January 5, 1996 to shareholders of record on December 26, 1995. A cash dividend of $.11 per share was paid in January 1996. Cash provided by operating activities as supplemented by the amount available under the bank credit agreement should be sufficient to enable the Company to continue to fund its operating requirements, capital expenditures and cash dividends, as well as any payments required to satisfy any claims and contingencies referred to under Note 4 to the Condensed Consolidated Financial Statements. The Company will continue to look for the acquisition of similar or related businesses. INFLATION The impact of inflation on the Company's financial position and results of operations has not been significant during the periods discussed. 10 11 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Shareholders was held on December 14, 1995. The holders of 5,472,264 shares of the Company's Common Stock (approximately 88.48% of the shares entitled to be voted) were present at the meeting in person or by proxy. The matters voted upon at the meeting were (i) the election of three persons to serve as directors for a three-year term expiring at the annual meeting of shareholders in 1998, and (ii) the ratification of the appointment of S. R. Snodgrass, A.C. as the independent public accountants to audit the financial statements of the Company and its subsidiaries for the 1996 fiscal year. David I. Cohen, Abe Farkas and John P. O'Leary, Jr. the nominees of the Company's Board of Directors, were elected to serve as directors until 1998. There were no other nominees. Shares were voted as follows: Withhold Name For Vote For ---------------------- --------- -------- David I. Cohen 5,461,479 10,785 Abe Farkas 5,401,989 70,275 John P. O'Leary, Jr. 5,463,429 8,835 The appointment of S. R. Snodgrass, A.C. as the independent public accountants for the 1996 fiscal year was ratified: affirmative votes, 5,463,245 shares; negative votes, 4,344 shares; and abstained, 4,675 shares. ITEM. 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS The exhibits listed below are filed as a part of this quarterly report. Exhibit No. Document ----------- ------------------------------------------- 11 Computation of Net Income Per Share. 27 Financial Data Schedule. (b) REPORTS ON FORM 8-K On February 9, 1996, the Board of Directors of the Company appointed Ernst & Young LLP as independent accountants to audit the financial statements of the Company and its subsidiaries for the fiscal year ending August 31, 1997. The change in independent accountants was reported under Item 4 of a current report on Form 8-K which was filed on February 16, 1996. 11 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Tuscarora Incorporated (Registrant) Date: April 12, 1996 By /s/ John P. O'Leary, Jr. ------------------------------ John P. O'Leary, Jr., President and Chief Executive Officer Date: April 12, 1996 By /s/ Brian C. Mullins ------------------------------ Brian C. Mullins, Vice President and Treasurer (Principal Financial Officer and Principal Accounting Officer) 12 13 Tuscarora Incorporated FORM 10-Q FOR QUARTER ENDED FEBRUARY 29, 1996 EXHIBIT LIST The following exhibits are filed as a part of this quarterly report on Form 10-Q. Exhibit No. Document - ----------- --------------------------------------------- 11 Computation of Net Income Per Share. 27 Financial Data Schedule.