1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 31, 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 July 1, 1996, 6,274,068 shares of Common Stock, without par value, of the registrant were outstanding. 2 TUSCARORA INCORPORATED INDEX Page ---- Part I. Financial Information: Item 1. Financial Statements Condensed Consolidated Balance Sheets at May 31, 1996 and August 31, 1995 3 Condensed Consolidated Statements of Income - Three and nine month periods ended May 31, 1996 and May 31, 1995 4 Condensed Consolidated Statements of Cash Flows - Nine Months ended May 31, 1996 and May 31, 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 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 May 31, August 31, 1996 1995 ------------- ------------ (Unaudited) ASSETS ------ Current Assets Cash and cash equivalents $ 818,898 $ 2,659,767 Trade accounts receivable, net of provision for losses 23,129,616 23,463,267 Inventories 17,383,108 18,018,610 Prepaid expenses and other current assets 2,926,706 1,452,542 ------------ ------------ 44,258,328 45,594,186 Property, Plant and Equipment, net 76,050,677 67,591,194 Other Assets, net 5,069,555 4,535,879 ------------ ------------ Total Assets $125,378,560 $117,721,259 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY ----------- --- ------------- ------ Current Liabilities Current maturities of long-term debt $ 4,828,615 $ 4,819,255 Accounts payable 14,529,721 15,515,024 Accrued income taxes 212,729 365,986 Accrued payroll and related taxes 490,550 490,190 Other current liabilities 544,337 2,013,544 ------------ ------------ 20,605,952 23,203,999 Long-Term Debt - less current maturities 38,363,084 36,510,150 Deferred Income Taxes 1,723,232 1,849,078 Supplemental Pension Benefits 927,591 976,730 Other Long-Term Liabilities 407,572 407,941 ------------ ------------ Total Liabilities 62,027,431 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, 6,282,955 at May 31, 1996 and 6,200,158 at August 31, 1995 6,282,955 6,200,158 Capital surplus 3,852,902 2,259,502 Retained earnings 53,500,532 46,799,379 Foreign currency translation adjustment (141,150) (100,460) ------------ ------------ 63,495,239 55,158,579 Less cost of reacquired shares of Common Stock; 9,359 at May 31, 1996 and 27,532 at August 31, 1995 144,110 385,218 ------------ ------------ Total Shareholders' Equity 63,351,129 54,773,361 ------------ ------------ Total Liabilities and Shareholders' Equity $125,378,560 $117,721,259 ============ ============ 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 May 31, Nine Months Ended May 31, 1996 1995 1996 1995 ------------ ------------ ------------ ------------ Net Sales $ 45,113,282 $ 40,969,579 $135,597,020 $117,779,573 Cost of Sales 34,563,391 31,195,128 103,176,672 89,451,180 ------------ ------------ ------------ ------------ Gross profit 10,549,891 9,774,451 32,420,348 28,328,393 Selling and Administrative Expenses 5,903,900 5,267,184 18,003,941 15,497,172 Interest Expense 693,752 647,976 2,087,718 1,679,263 Other (income) Expense 78,323 22,951 46,208 174,553 ------------ ------------ ------------ ------------ 6,675,975 5,938,111 20,137,867 17,350,988 ------------ ------------ ------------ ------------ Income before income taxes 3,873,916 3,836,340 12,282,481 10,977,405 Provision for Income Taxes 1,502,649 1,491,173 4,770,074 4,291,395 ------------ ------------ ------------ ------------ Net income $ 2,371,267 $ 2,345,167 $ 7,512,407 $ 6,686,010 ============ ============ ============ ============ Net income per share $.38 $.38 $1.21 $1.09 ==== ==== ===== ===== Weighted average number of shares of Common Stock outstanding 6,266,136 6,152,569 6,229,896 6,150,454 ========= ========= ========= ========= See notes to condensed consolidated financial statements. 4 5 Tuscarora Incorporated CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended May 31, 1996 1995 ------------ ----------- Operating Activities Net Income $ 7,512,407 $ 6,686,010 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 9,062,681 7,501,718 Amortization 429,159 474,705 Provision for losses on receivables 360,000 392,820 (Decrease) in deferred income taxes ( 145,402) ( 30,455) Loss on sale of property, plant and equipment, net 96,387 43,695 Stock compensation expense 9,122 7,717 Changes in operating assets and liabilities, net of effects of business acquisitions: Decrease (increase): Trade accounts receivable 392,290 ( 835,196) Inventories 832,991 ( 5,457,903) Prepaid expenses and other current assets ( 1,463,571) ( 1,001,471) Other assets ( 178,432) 428,020 Increase (decrease): Accounts payable ( 1,134,610) 3,173,056 Accrued income taxes ( 222,581) 26,703 Accrued payroll and related taxes ( 1,704) 545,586 Other current liabilities ( 1,509,428) ( 867,425) Supplemental pension benefits ( 49,139) ( 58,952) ------------ ------------ Net cash provided by operating activities 13,990,170 11,028,628 ------------ ------------ Investing Activities Purchase of property, plant and equipment (17,135,608) (15,097,666) Business acquisitions, net of cash acquired 89,022 ( 5,679,929) Proceeds from sale of property, plant and equipment 12,080 173,937 ------------ ------------ Net cash (used for) investing activities (17,034,506) (20,603,658) ------------ ------------ Financing Activities Proceeds from long-term debt 5,500,000 9,545,000 Payments on long-term debt ( 3,758,638) ( 2,874,079) Dividends paid ( 811,254) ( 676,594) Proceeds from sale of Common Stock 277,602 79,064 ------------ ------------ Net cash provided by financing activities 1,207,710 6,073,391 ------------ ------------ Effects of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents ( 4,243) 32,731 ------------ ------------ Net (decrease) in cash and cash equivalents ( 1,840,869) ( 3,468,908) Cash and Cash Equivalents at Beginning of Period 2,659,767 3,671,490 ------------ ------------ Cash and Cash Equivalents at End of Period $ 818,898 $ 202,582 ============ ============ See notes to condensed consolidated financial statements. 5 6 Tuscarora Incorporated NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Condensed Consolidated Financial Statements The condensed consolidated balance sheet at May 31, 1996 and the consolidated statements of income and consolidated statements of cash flows for the periods ended May 31, 1996 and May 31, 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 May 31, 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 May 31, 1996 are not necessarily indicative of the operating results to be expected for the full year. 2. Inventories Inventories are summarized as follows: May 31, August 31, 1996 1995 ----------- ----------- Finished goods $10,632,932 $ 9,317,095 Work in process 363,912 421,524 Raw materials 4,818,061 6,576,578 Supplies 1,568,203 1,703,413 ----------- ----------- $17,383,108 $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 agreed to issue additional shares of its Common Stock and cash to the Alpine shareholders based on the operating results of the business acquired, accounted for as a separate entity, for each of the calendar years 1995 through 1998. On March 31, 1996, the Company issued 16,187 additional shares of its Common Stock and $40,044, having an aggregate value of $416,000 in payment of its obligation under the acquisition agreement for 1995. 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 nine months ended May 31, 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 nine months ended May 31, 1995 have been reclassified to be consistent with the presentation for the nine months ended May 31, 1996. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - THIRD QUARTER FISCAL 1996 COMPARED TO THIRD QUARTER FISCAL 1995 Net sales for the quarter ended May 31, 1996 were $45.1 million, representing an increase of $4.1 million, or 10.1%, over the same quarter of fiscal 1995. Approximately 19.4% of the increase in net sales was due to the acquisition of the similar business of Alpine Packaging, Inc. in Colorado Springs, Colorado in December 1995. The balance of the increase was due to increased sales in most of the Company's key 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. Notwithstanding the above, shipping rates slowed during the third quarter, particularly toward the end of the period, as many of the Company's large industrial customers reduced their production rates in order to adjust their finished goods inventories. The Company expects that fourth quarter shipments will be similarly affected. Gross profit for the quarter ended May 31, 1996 was $10.5 million, a 7.9% increase from $9.8 million in the third quarter of fiscal 1995. The gross profit margin decreased to 23.4% from 23.9% primarily as a result of the lower selling prices which were only partially offset by lower EPS resin costs. The decrease in gross profit margin occurred despite gross margin improvement in the Company's UK operations as well as in its integrated materials business. Selling and administrative expenses increased $637,000 or 12.1% for the quarter ended May 31, 1996 and increased slightly as a percentage of net sales to 13.1% compared to 12.9% in the same period of fiscal 1995. The dollar increase is due primarily to increased employee costs and increased professional fees. Interest expense for the quarter ended May 31, 1996 was $694,000 compared to $648,000 in the third quarter of fiscal 1995. The increase of $46,000, or 7.1%, is due to an increase in long-term debt most of which occurred in fiscal 1995. Income before income taxes for the quarter ended May 31, 1996 increased to $3.9 million from $3.8 million in the same period of fiscal 1995, an increase of $38,000 or 1.0%. The provision for income taxes for the quarter ended May 31, 1996 increased due to the increased income before income taxes. Net income for the quarter ended May 31, 1996 was $2.4 million, an increase of 1.1% from the $2.3 million earned in the same quarter of fiscal 1995. The increase was due primarily to the increases in net sales and gross profit. While the net sales and net income were Company records for a third fiscal quarter, the growth rate in both sales and net income was less than in the prior 1996 fiscal quarters. 8 9 RESULTS OF OPERATIONS - NINE MONTHS ENDED MAY 31, 1996 COMPARED TO THE NINE MONTHS ENDED MAY 31, 1995 Net sales for the nine months ended May 31, 1996 were $135.6 million, representing an increase of $17.8 million, or 15.1%, over the same period of fiscal 1995. Approximately 37.2% of the sales increase was attributable to the M.Y. Trondex Ltd. and Alpine Packaging, Inc. acquisitions in February 1995 and December 1995, respectively. The balance of the increase is attributable to higher sales of both custom molded and integrated materials products in most major markets that the Company serves, particularly the major appliance and automotive markets. The increase was achieved despite the reduction in selling prices commencing in December 1995. Gross profit for the nine months ended May 31, 1996 was $32.4 million, a 14.4% increase from $28.3 million in the same period of fiscal 1995. The gross profit margin for the current nine-month period decreased to 23.9% compared to 24.1% in the same period of fiscal 1995. The gross profit margin decrease is due primarily to lower selling prices which were only partially offset by reduced EPS resin costs. Selling and administrative expenses increased $2.5 million or 16.2% for the nine months ended May 31, 1996 and increased slightly as a percentage of net sales to 13.3% compared to 13.2% 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 nine months ended May 31, 1996 was $2.1 million compared to $1.7 million in the first nine months of fiscal 1995. The increase of $408,000, or 24.3%, is due to the increase in long-term debt and to slightly higher interest rates during the first nine months of fiscal 1996. Income before income taxes for the nine months ended May 31, 1996 increased to $12.3 million from $11.0 million in the same period of fiscal 1995, an increase of $1.3 million or 11.9%. The provision for income taxes for the nine months ended May 31, 1996 increased due to the increased income before income taxes. Net income for the nine months ended May 31, 1996 was $7.5 million, an increase of 12.4% from the $6.7 million earned in the same period 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 nine-month period. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities for the nine months ended May 31, 1996 amounted to $14.0 million compared to $11.0 million for the same period in fiscal 1995. Depreciation and amortization for the same nine month periods amounted to $9.5 million and $8.0 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 nine months ended May 31, 1996, the Company's inventories and accounts payable decreased 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. Capital expenditures for property, plant and equipment during the nine months ended May 31, 1996 amounted to $17.1, including approximately $580,000 for environmental equipment. In December 1995 and March 1996, the Company exchanged a total of 67,364 shares of its Common Stock and paid $60,082 in cash having an aggregate value of $1.7 million in connection with the acquisition of all the outstanding capital stock of Alpine Packaging, Inc. (see Note 3 to the Condensed Consolidated Financial Statements). Total long-term debt of the Company amounted to $43.2 million at May 31, 1996, of which $40.7 million was borrowed under a credit agreement with the Company's principal bank, including $11.0 million out of an available $14.0 million under a revolving credit agreement. During the nine months ended May 31, 1996, $5.5 million was borrowed under the revolving credit agreement. Total long-term 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. On June 14, 1996, the Company declared its regular semiannual cash dividend of $.13 per share payable on July 5, 1996 to shareholders of record on June 25, 1996. Cash dividends of $.11 and $.12 per share were paid in January and July 1995, respectively. 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 acquisitions 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 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS The following exhibits are filed as a part of this report: Exhibit No. Document ----------- ---------------------------------------------------- 11 Computation of Net Income Per Share. 27 Financial Data Schedule. (b) REPORTS ON FORM 8-K No events which resulted in the filing of a current report on Form 8-K occurred during the fiscal quarter ended May 31, 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: July 15, 1996 By /s/ John P. O'Leary, Jr. --------------------------------- John P. O'Leary, Jr., President and Chief Executive Officer Date: July 15, 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 MAY 31, 1996 EXHIBIT INDEX 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. 13