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Exhibit 99.1
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THIRD QUARTER 3
ENDED MAY 31, 1997
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TO OUR SHAREHOLDERS:
Results for the third fiscal quarter of FY97 were mixed. We were pleased to
have achieved record net sales for a third quarter of $52.6 million, an
increase of 17% over net sales of $45.1 for the same quarter last year.
However, we were disappointed to report net income of $1.9 million, compared
with net income of $2.4 million for the third quarter of the last fiscal year.
This resulted in earnings of $.20 per share, a 20% decrease from earnings of
$.25 per share in the same quarter last year.
For the nine months ended May 31, 1997, net sales totaled a record $155.0
million, an increase of 14% over net sales of $135.6 million for the year
earlier period. Net income was $7.7 million, compared to net income of $7.5
million, while earnings per share were $.81, compared to $.80 for the first
nine months of FY96.
The decline in net income for the quarter was largely due to the combined
impact of significantly substandard gross profit margins at two facilities
acquired in the first quarter of the current fiscal year and at two of the
company's existing U.S. manufacturing facilities, and decreased shipping levels
to two large customers who were adjusting their inventory levels and reducing
packaging requirements.
Recent shipping rates have shown some improvement over the early weeks of
the third quarter, and the operating problems at the two existing manufacturing
facilities have been fully identified and substantially corrected. However, we
continue to experience lower than expected gross profit margins at certain of
our manufacturing facilities, principally in the businesses recently acquired
and at plants newly opened in the current fiscal year. Also, sales to one of
our large customers continue to be substantially below prior years' levels.
These difficulties, combined with the additional selling, administrative and
interest expenses resulting from the acquisition on May 30, 1997 of an
integrated materials business in Hayward, California, are likely to negatively
impact net income for the fourth quarter of FY97.
Clearly, the rapid expansion of our business in the past year has not been
without a cost to current profits. The businesses we acquire are often not
strong performers. While this allows us to purchase these operations at
attractive prices, it does take time and management skill to bring their
profitability up to our objectives. Similarly, opening new manufacturing
facilities always has a cost in terms of training, to achieve desired
efficiency levels. Also, margins may be diminished as production is moved from
profitable plants and added to the base of business in the new facility.
In most years, when we have not been as aggressive and focused on sales
growth, the impact of acquisitions and the opening of new facilities has
usually been absorbed with minimal effect on the company's earnings. While we
may have been overly ambitious in growing the business this year, you can be
assured that we are focusing the best of our management abilities on bringing
the profit margins at all of our new businesses and manufacturing facilities up
to the high standards that we expect, and generally achieve, from our mature
operations. In the long run, I believe that the actions for growth that we have
taken, and will continue to take this year, will pay off handsomely.
On a related note, in May we announced the acquisitions of a thermoforming
business in Southern California and an integrated materials business in the
city of Hayward, on San Francisco Bay. We also announced the planned opening
next year of a foam molding plant in Tijuana, Mexico. Collectively, this
expansion will give us a significant presence on the West Coast, the one major
market in the U.S. in which we had not been actively participating.
While earnings for this quarter are certainly disappointing and the
earnings for the fourth quarter are likely to be adversely affected as well, we
believe that we have a sound, long-term strategy in place to grow a larger and
more profitable business. That has been the company's track record over many
years and we are confident we can continue on that path. Your support through
these less than ideal periods is most appreciated.
Very truly yours,
/s/ JOHN P. O'LEARY, JR.
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John P. O'Leary, Jr.
President & CEO
July 17, 1997
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
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Three Months Ended Nine Months Ended
May 31, May 31,
1997 1996 1997 1996
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Net Sales $52,592,726 $45,113,282 $155,009,971 $135,597,020
Cost of Sales 41,194,724 34,563,391 118,384,373 103,176,672
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Gross profit 11,398,002 10,549,891 36,625,598 32,420,348
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Selling and Administrative Expenses 7,276,063 5,903,900 21,199,529 18,003,941
Interest Expense 943,397 693,752 2,666,076 2,087,718
Other (Income) Expense 57,592 78,323 163,320 46,208
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8,277,052 6,675,975 24,028,925 20,137,867
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Income before income taxes 3,120,950 3,873,916 12,596,673 12,282,481
Provision for Income Taxes 1,235,572 1,502,649 4,945,935 4,770,074
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Net income $ 1,885,378 $ 2,371,267 $ 7,650,738 $ 7,512,407
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Net income per share $0.20 $0.25 $ 0.81 $ 0.80
Dividends per share - - $ 0.093 $ 0.087
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Weighted average number of shares of
Common Stock outstanding 9,464,026 9,399,204 9,445,777 9,344,844
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Net income per share, dividends per share and weighted average number of shares
of Common Stock outstanding for the three and nine months ended May 31, 1996
have been adjusted to reflect a 50% share distribution declared on December 18,
1996 for distribution on January 13, 1997 to shareholders of record on December
27, 1996.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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May 31, May 31,
1997 1996
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ASSETS
Current Assets $ 52,495,845 $ 44,258,328
Property, Plant and Equipment--Net 89,207,366 76,050,677
Other Assets--Net 9,731,984 5,069,555
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Total assets $151,435,195 $125,378,560
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities $ 22,820,520 $ 20,605,952
Long-Term Debt--less current maturities 52,150,579 38,363,084
Other Long-Term Liabilities 4,431,044 3,058,395
Shareholders' Equity 72,033,052 63,351,129
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Total liabilities and shareholders' equity $151,435,195 $125,378,560
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Packaging and Protective Products
SENSIBLE SOLUTIONS...SUPERIOR SERVICE
TUSCARORA INCORPORATED
IS INCORPORATED UNDER THE
LAWS OF THE COMMONWEALTH
OF PENNSYLVANIA.
STOCK TRANSFER AGENT
AND REGISTRAR:
CHASE MELLON
SHAREHOLDER SERVICES L.L.C.
FOUR STATION SQUARE
PITTSBURGH, PA 15219
TUSCARORA INCORPORATED
800 FIFTH AVENUE
RECYCLED NEW BRIGHTON, PA 15066
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