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Exhibit 99.2
TUSCARORA
February 2, 1998
TO ALL TUSCARORA PERSONNEL:
As you know, the company has just announced an expected shortfall in
earnings for the second quarter of fiscal 1998 and acknowledged that it will
take a one time charge of up to $3,500,000 to cover the cost of re-structuring
the business and the write-down of certain obsolete or impaired assets.
Although necessary, this action is painful and troubling to everyone associated
with the company - employees, shareholders, customers and vendors.
There are several factors that have led to this decision. In the final
analysis, Tuscarora, as a company, must provide proper financial returns on its
investment in order to offer shareholders, employees and other interested
parties the appropriate security and financial incentives expected from a
successful business. Although Tuscarora has remained profitable and in a strong
financial condition in recent quarters, it has not demonstrated a sufficiently
high level of profitability to support its current level of investment in the
business. We are, therefore, obliged to take appropriate action to improve the
interest of all Tuscarora stakeholders - employees, shareholders, customers and
vendors alike.
Specifically, there are four factors that are currently impacting the
overall performance of our business. The actions announced today are designed to
address all four issues:
UNDERPERFORMANCE IN THE UNITED KINGDOM
As has been previously acknowledged, our business in the U.K. has been
struggling for the past six months. Ironically, the primary cause for these
problems has been the fact that we were oversold in that market and did not
have the proper manufacturing capacity or cadre of experienced people available
to properly manage that situation. Normally, we welcome a period of high sales
volume as an opportunity to generate higher profits; however, in this instance,
that circumstances led to inefficiency and poor service which greatly depressed
profitability and strained customer relationships.
Our growth in the U.K., both through selling and design activities and
acquisitions has been very strong over the past three years. We currently enjoy
the largest market share in the foam plastic business in the U.K. Our group of
key management people in the U.K. is enthusiastic about the progress we have
made in the market, yet recognize that we have not had a sufficient number of
experienced personnel in place to manage this rapid growth.
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Steps are being taken in the U.K. to enhance our management skills,
including the hiring of new plant managers in Spennymoor and Northampton and
the initiation of an intensive technical training program for appropriate plant
personnel.
In addition, we are re-aligning our reporting structure to bring the U.K.
and our Eastern Division into closer and more formal contact. Gary Rodgers,
currently General Manager of the Eastern Division, will now also have
responsibility for the U.K. with Scott Biddinger and the entire U.K.
organization reporting through Gary. This change is designed primarily to allow
for a very intentional interaction between our plants and personnel in the
Eastern Division with our business in the U.K.
Generally, our plants in the Eastern Division are stable and profitable
and are home to some of our most experienced management people. In the course
of this re-organization, Ken Sears, currently Senior Plant Manager in charge of
Putnam, CT and Holden, MA operations will also be promoted to the position of
Manufacturing Manager.
I am confident we are very close to seeing significant performance
improvements in all of our U.K. sites. This action is designed to enhance and
expedite that process.
THERMOFORMING
We have also been experiencing sub-standard performance in our
thermoforming operations. Although much work remains to be done in this area,
we are already beginning to see some improvements in these results.
We have recently hired a new General Manager for this division, Joe
Knight. Joe comes to Tuscarora with many years of experience in the
thermoforming industry and is a welcome addition to our company. Charley Odle
has also been assigned full time to this division as Manufacturing Manager and
will work with Joe to improve our thermoforming operation in all three
locations - Sandusky, Conyers and Tijuana.
The Thermoforming Division will now formally report to Mike Grunnet,
currently General Manager of our Southern Division. Mike will be responsible
for the continued growth of Thermoforming and its integration throughout
Tuscarora.
SOUTHWEST
The enormous growth of our business in the maquiladora area of Juarez,
Mexico and in eastern Texas (primarily Compaq Computer) has also caused some
growth pain in that region. Explosive growth in this area prompted the
construction of a new molding plant in Brenham, Texas designed to support the
high technology industry in Houston and Austin. This growth has also driven
very rapid expansion of our existing facility in Juarez. Similar to our
situation in the U.K., this high level of activity has caused some inefficiency
and depressed current operating results. As the new plant in Brenham comes on
stream
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and further adjustments are made to our capabilities in Juarez, we expect
profitability in this area to improve.
In order to align these operations with other experienced management
personnel, Brenham, Texas will now be assigned to our Midwest Division and
become the responsibility of Ron Margeson, General Manager of out Midwest
Division. Ken Aberle, a long-time Tuscarora manager and currently Senior Plant
Manager for Pardeeville, WI and Storm Lake, IA will be promoted to Manufacturing
Manager in this division and will be responsible for the Brenham plant, as well
as for Pardeeville and Storm Lake. Ken has most recently been responsible for
the very successful start-up of the new plant in Storm Lake and his experience
with that process will be enormously valuable in helping Brenham to come on line
in an equally orderly and profitable way. Gary Smith will continue as
Manufacturing Manager in the Midwestern Division, as well, with responsibility
for Marion, Chesaning, Saginaw and Streator. Gary will have continued
involvement throughout the entire region as Ken assimilates his new
responsibilities.
Juarez and Las Cruces will be assigned to our Western Division and will now
report through Bob Sterritt, General Manager of that division. Bob has had prior
experience with these plants and will now assume direct responsibility for these
operations. With the pending start-up of out newest facility in Tijuana, Mexico,
we must now develop a strong team with skills specifically related to the issues
of doing business in Mexico and with the maquiladora region. In that regard, we
are actively recruiting for a senior operations person with experience in Mexico
and the maquiladora industry. We believe we are quite close to hiring such a
person to assist with the planning, control and management of our Mexican and
border related business.
OPERATING MARGINS
Although the traditional core of our business in the East, South and
Midwest sections of the U.S. has remained very profitable, we are experiencing
continued pressure on our operating margins as customers press for ever lower
prices and higher levels of service and quality. This squeeze is very much a
part of doing business in a global economy in the 90's and we must recognize
that recovering margin through higher prices is generally not an available
option. We must maintain our margins through greater efficiency, continued
growth, and tight cost control. In general our plants do an extraordinarily good
job of managing their operations in this difficult environment and have been
quite successful in matters of cost control at that level.
The downsizing that was announced today in out corporate overhead is a
reflection of the reality that we cannot achieve our profit objective solely
through cost reduction at the plant level. We must also lower our overhead
costs.
Accordingly, certain positions throughout our overhead structure have been
eliminated. This is a very painful and personal process and I deeply regret the
necessity to
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take this action. Virtually every position eliminated was held by a good, hard
working person who was doing a good job for Tuscarora. Unfortunately, we must
lower our overhead costs to reflect the reality of our business today. Those
jobs being eliminated are no longer viable or appropriate for our current
circumstance. As the company's earnings recover and we continue to grow,
certain of these jobs may well be re-instituted, but for now we must do with
less in our overhead structure.
Further changes in our corporate structure will be implemented as we also
reassign certain people and redefine certain functions. In the areas of
manufacturing services and technical support, although we are eliminating
certain existing positions, we will also be actively pursuing a program to
outsource many of these services. Likewise, we will be creating a more formal
purchasing function to aggressively go after reductions in our bought outside
costs. Brad Buettin will be assigned to this purchasing initiative and will work
directly for Jim Brakebill, Vice President of Manufacturing Services.
Although this is admittedly not a particularly good time to be announcing
promotions, this current re-organization has prompted us to recognize several
key senior managers in Tuscarora for the high quality of their work at Tuscarora
in the past and their increased levels of responsibility in the future. I am
pleased to announce that the following people will be named Vice President,
effective February 1, 1998:
Gary Rodgers Vice President in charge of our Eastern U.S. and
U.K. Divisions
Mike Grunnet Vice President in charge of our Southern U.S. and
Thermoforming Divisions
Ron Margeson Vice President in charge of our Midwestern Division (now
including Brenham, Texas)
Bob Sterritt Vice President in charge of our Western Division (now
including Juarez and Las Cruces)
Ed Wolford Vice President and Controller
Irene McAllister Vice President of Human Resources
All of the above named people have years of experience and records of
meaningful accomplishment with Tuscarora and I am confident that they will be
positive and pro-active in helping us get through this current re-organization
smoothly and onto more profitable operations as quickly as possible.
I recognize that a period like this is very unsettling and disruptive for
the entire organization. Please understand that these decisions have not been
made lightly and that everyone's cooperation and understanding is critically
important as we work through this.
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situation. There is no roadmap for this process and perfect answers are not
available for every circumstance.
When the dust settles in the coming days, the vast majority of current
people and facilities will remain. Our prognosis for improved profitability as
early as the third and fourth quarter of this fiscal year remains quite good.
Opportunities for continued growth remain abundant, through both new plant
openings and acquisition. The company's financial position remains rock solid,
with a strong balance sheet and continued high levels of cash flow from
operations.
Shareholders, employees, customers and vendors can all remain assured that
Tuscarora will continue to grow and prosper. This action is an unpleasant
necessity, but one that must be taken. Having spent my entire adult life
involved with this company, this action is particularly difficult and personal
for me, yet I know it must be done.
Fortunately, Tuscarora has not had to suffer many of these moments over
its 35 year history. The best remedy for healing at a time like this is an
expeditious completion of the job eliminations, continued hard work, dedication
and understanding by those remaining in the company's employ, and then a rapid
recovery of the company's earnings to re-establish positive momentum for the
future. I trust every Tuscarora employee will be helpful in re-energizing the
business and helping it to move forward in a positive fashion.
Thank you very much for your support and understanding in this difficult
matter.
Very truly yours,
/s/ John P. O'Leary, Jr.
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President & CEO
/cas