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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 November 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-17051
Tuscarora Incorporated
(Exact name of registrant as specified in the charter.)
Pennsylvania 25-1119372
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
800 Fifth Avenue
New Brighton, Pennsylvania 15066
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(Address of principal executive offices)
(Zip Code)
724-843-8200
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(Registrant's telephone number, including area code)
Not applicable
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(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
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As of January 2, 1999, 9,510,986 shares of Common Stock, without par value,
of the registrant were outstanding.
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TUSCARORA INCORPORATED
INDEX
Page
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Part I. Financial Information
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets at
November 30, 1998 and August 31, 1998 3
Condensed Consolidated Statements of Income -
Three months ended November 30, 1998 and November 30, 1997 4
Condensed Consolidated Statements of Cash Flows -
Three months ended November 30, 1998 and November 30, 1997 5
Notes to Condensed Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition. 8 - 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K. 10
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TUSCARORA INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, AUGUST 31,
1998 1998
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(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,772,397 $ 5,452,281
Trade accounts receivable, net of provision for losses 35,456,577 34,239,819
Inventories 20,254,378 20,158,857
Prepaid expenses and other current assets 3,015,727 1,955,310
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61,499,079 61,806,267
PROPERTY, PLANT AND EQUIPMENT, net 97,838,479 97,538,209
OTHER ASSETS
Goodwill 8,862,935 8,905,355
Other non-current assets 3,549,078 3,916,075
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Total Assets $ 171,749,571 $ 172,165,906
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 5,321,709 $ 5,321,709
Accounts payable 10,048,582 14,178,763
Accrued income taxes 2,299,935 337,711
Accrued payroll and related taxes 1,016,912 1,133,192
Other current liabilities 5,573,280 5,975,400
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24,260,418 26,946,775
LONG-TERM DEBT - less current maturities 59,956,433 61,184,124
DEFERRED INCOME TAXES 1,281,046 1,677,978
OTHER LONG-TERM LIABILITIES 2,932,729 2,833,072
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Total Liabilities 88,430,626 92,641,949
SHAREHOLDERS' EQUITY
Preferred Stock - par value $.01 per share;
authorized shares, 2,000,000; none issued -- --
Common Stock - without par value; authorized shares,
50,000,000; issued shares, 9,534,641 at November 30, 1998 and
9,530,856 at August 31, 1998 9,534,641 9,530,856
Capital surplus 1,477,296 1,435,582
Retained earnings 72,204,545 68,240,138
Foreign currency translation adjustment 285,445 392,150
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83,501,927 79,598,726
Less cost of reacquired shares of Common Stock;
12,820 shares at November 30, 1998 and 4,620
at August 31, 1998 (182,982) (74,769)
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Total Shareholders' Equity 83,318,945 79,523,957
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Total Liabilities and Shareholders' Equity $ 171,749,571 $ 172,165,906
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Note: The consolidated balance sheet at August 31, 1998 has been taken from
the audited financial statements and condensed.
See notes to condensed consolidated financial statements.
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TUSCARORA INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NOVEMBER 30,
1998 1997
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Net Sales $ 60,465,735 $ 61,292,306
Cost of Sales 45,378,424 46,193,365
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Gross profit 15,087,311 15,098,941
Selling and Administrative Expenses 7,650,914 7,865,953
Interest Expense 1,211,831 1,157,167
Other (Income) Expense - net (120,833) (18,640)
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Total expenses 8,741,912 9,004,480
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Income before income taxes 6,345,399 6,094,461
Provision for Income Taxes 2,380,992 2,321,990
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Net income $ 3,964,407 $ 3,772,471
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Basic net income per share $0.42 $0.40
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Diluted net income per share $0.41 $0.39
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Weighted average number of shares of
Common Stock outstanding:
Basic 9,526,844 9,475,833
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Diluted 9,598,995 9,700,093
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See notes to condensed consolidated financial statements.
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TUSCARORA INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED NOVEMBER 30,
1998 1997
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Operating Activities
Net Income $ 3,964,407 $ 3,772,471
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 3,901,926 3,903,109
Amortization 300,691 277,946
Provision for losses on receivables 40,560 (13,246)
Decrease in deferred income taxes (327,639) (148,936)
Loss (gain) on disposition of property, plant and equipment, net (100,185) 16,059
Stock compensation expense 3,101 3,475
Changes in operating assets and liabilities, net of effects of business
acquisitions:
Decrease (increase):
Trade accounts receivable (1,053,096) (5,627,547)
Inventories (71,869) (1,798,016)
Prepaid expenses and other current assets (1,141,650) (980,167)
Other non-current assets (40,498) (3,206)
Increase (decrease):
Accounts payable (4,285,096) 365,723
Accrued income taxes 1,996,026 1,631,597
Accrued payroll and related taxes (137,515) 52,348
Other current liabilities (756,727) 411,009
Other long-term liabilities (21,783) 43,670
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Cash provided by operating activities 2,270,653 1,906,289
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Investing Activities
Purchase of property, plant and equipment (3,735,249) (5,830,907)
Business acquisitions, net of cash acquired (87,851) (116,775)
Proceeds from sale of property, plant and equipment 192,021 464,784
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Cash (used for) investing activities (3,631,079) (5,482,898)
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Financing Activities
Payments on long-term debt (1,224,177) (1,177,082)
Proceeds from sale of Common Stock 42,397 34,779
Payments to reacquire Common Stock (108,213) --
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Cash (used for) financing activities (1,289,993) (1,142,303)
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Effect of Foreign Currency Exchange Rate Changes
on Cash and Cash Equivalents (29,465) (43,131)
Net decrease in cash and cash equivalents (2,679,884) (4,762,043)
Cash and Cash Equivalents at Beginning of Period 5,452,281 5,095,149
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Cash and Cash Equivalents at End of Period $ 2,772,397 $ 333,106
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See notes to condensed consolidated financial statements.
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TUSCARORA INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Condensed Consolidated Financial Statements
The condensed consolidated balance sheet at November 30, 1998 and the
consolidated statements of income and consolidated statements of cash flows
for the periods ended November 30, 1998 and November 30, 1997 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 November 30, 1998 and for the
periods presented have been made.
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required for complete financial statements
prepared in accordance with generally accepted accounting principles. 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 1998 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, 1998.
The results of operations for the period ended November 30, 1998 are
not necessarily indicative of the operating results to be expected for the
full year.
2. Inventories
Inventories are summarized as follows:
November 30, August 31,
1998 1998
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Finished goods $ 9,990,806 $10,454,863
Work in process 392,839 257,055
Raw materials 8,567,517 7,510,482
Supplies 1,303,216 1,936,457
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$20,254,378 $20,158,857
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3. Comprehensive Income
As of September 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". SFAS
No. 130 establishes new rules for the reporting and display of
comprehensive income and its components. SFAS No. 130 requires foreign
currency translation adjustments which are reported separately in
shareholders' equity to be included in comprehensive income. The adoption
of this Statement had no impact on the Company's net income or
shareholders' equity. Total comprehensive income for the three months ended
November 30, 1998 and 1997 was as follows:
November 30,
1998 1997
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Net Income $3,964,407 $3,772,471
Foreign currency translation adjustment (106,705) 194,847
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Comprehensive income $3,857,702 $3,967,318
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At November 30, 1998 and 1997, accumulated other comprehensive income
which consisted entirely of foreign currency translation adjustments,
amounted to $285,445 and $244,846, respectively.
4. Claims and Contingencies
A lawsuit seeking substantial compensatory and punitive damages as a
result of the alleged wrongful death of an employee was filed against the
Company in December 1996. In addition, a number of legal and administrative
proceedings against the Company involving claims of employment
discrimination are pending. In the opinion of Management, the disposition
of these proceedings should not have a material adverse effect on the
Company's financial position or results of operations.
5. Share Repurchase Program
In October 1998, the Company's Board of Directors authorized the
repurchase of up to 250,000 shares of the Company's Common Stock at prices
not to exceed $15 per share through the end of August 1999. During the
three months ended November 30, 1998, the Company purchased 8,200 shares of
Common Stock at prices ranging from $12-9/16 to $13-7/16.
6. Other Information
In 1997, the Financial Accounts Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures
about Segments of an Enterprise and Related Information", which must be
adopted by the Company before the end of the 1999 fiscal year. In 1998, the
FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", which must be adopted by the Company by the end of its
2001 fiscal year. These Statements when adopted by the Company are not
expected to have a material effect on the consolidated financial
statements.
7. Subsequent Events
An amendment of the Company's Restated Articles of Incorporation to
increase the number of authorized shares of the Company's Common Stock,
without par value, from 20,000,000 shares to 50,000,000 shares and to
increase the number of authorized shares of the Company's Preferred Stock,
par value $.01 per share, from 1,000,000 shares to 2,000,000 shares was
adopted by the Company's shareholders at the Company's Annual Meeting of
Shareholders held on December 17, 1998. The amendment became effective upon
the filing of Articles of Amendment with the Pennsylvania Department of
State on December 21, 1998.
On January 12, 1999, the Company announced an agreement to acquire the
custom molding business, including the associated real estate, of Berry
Packaging, Inc. in Sallisaw, Oklahoma for cash. The aggregate purchase
price to be paid for the business acquired is not material. The acquisition
is expected to be completed in February 1999. The Company also agreed to
pay additional consideration to the seller based on sales realized by the
business acquired. The acquisition will be accounted for as a purchase and
a portion of the purchase price will be allocated to a covenant not to
compete and to goodwill.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS - FIRST QUARTER FISCAL 1999
COMPARED TO FIRST QUARTER FISCAL 1998
Net sales for the three months ended November 30, 1998 were $60.5 million,
a decrease of $800,000, or 1.3%, compared with net sales of $61.3 million in the
same period of fiscal 1998. The decrease in net sales was attributable primarily
to lower sales in the United Kingdom and to modestly lower selling prices to
customers due to lower raw material prices.
Gross profit for the three months ended November 30, 1998 remained flat at
$15.1 million when compared to the first three months of fiscal 1998. The gross
profit margin increased to 25.0% from 24.6% in the previous year. The increase
in gross profit margin was attributable primarily to improved operating
efficiencies at several key manufacturing facilities, including those in the
United Kingdom, and to lower raw material costs in the current period when
compared to the same period last year.
Selling and administrative expenses for the current three-month period were
$7.7 million, a 2.7% decrease compared to $7.9 million in the previous period.
Selling and administrative expenses decreased slightly as a percent of net
sales to 12.7% from 12.8% in the same period last year. The dollar decrease is
due primarily to the restructuring initiative taken in fiscal 1998.
Net sales and operating income (loss) for the U.K. operations for the three
months ended November 30, 1998 were $6.6 million and ($26,000), respectively,
compared to $7.8 million and $63,000, respectively, in the same period of fiscal
1998.
Interest expense for the three months ended November 30, 1998 amounted to
$1.2 million, a 4.7% increase over the same period of fiscal 1998. The increase
of $55,000 is due primarily to additional borrowings in the 1998 fiscal year to
finance capital expenditures.
Income before income taxes for the three months ended November 30, 1998
increased to $6.3 million from $6.1 million in the same period of fiscal 1997,
an increase of $251,000 or 4.1%. The effective tax rate decreased to 37.5%
compared to 38.1% in the same period of fiscal 1998 due primarily to lower
effective state income tax rates.
Net income for the three months ended November 30, 1998 was $4.0 million,
an increase of 5.1% from the $3.8 million earned in the same period of fiscal
1998. The increase was due primarily to the higher gross profit margin and the
lower selling and administrative expenses. The net income for the three months
ended November 30, 1998 was a Company record for any quarterly fiscal period.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the three months ended November
30, 1998 amounted to $2.2 million compared to $1.9 million for the same period
in fiscal 1998. Depreciation and amortization amounted to $4.2 million for both
three-month periods. Accounts payable at November 30, 1998 were substantially
less than at the end of the 1998 fiscal year. Because a substantial portion of
the Company's operating expenses are attributable to depreciation and
amortization, the Company believes that its liquidity would not be adversely
affected should a period of reduced earnings occur.
Cash and cash equivalents as of November 30, 1998 amounted to $2.8 million
as compared to $5.5 million at August 31, 1998. The decrease resulted from
capital expenditures and payments on long-term debt exceeding the cash provided
by operating activities.
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Capital expenditures for property, plant and equipment during the three
months ended November 30, 1998 amounted to $3.7 million, including approximately
$136,000 for environmental control equipment. Close to one-half of the capital
expenditures was for land, buildings and leasehold improvements, including the
purchase of the EPS custom molding facility in Lewisburg, Tennessee, which was
previously leased, and additional expenditures at the Company's new custom
molding facility in Brenham, Texas. Most of the balance of the capital
expenditures was for molding presses and related equipment.
The only expenditures during the three months ended November 30, 1998
regarding business acquisitions were a small amount of additional consideration
required to be paid in connection with acquisitions in prior fiscal years;
however, on January 12, 1998 the Company announced that it has agreed to acquire
the custom molding business of Berry Packaging, Inc. in Sallisaw, Oklahoma (see
Note 7 to the Condensed Consolidated Financial Statements). The Company will
continue to look for acquisitions which will mesh well with the Company's
business.
Long-term debt amounted to $60.0 million at November 30, 1998, of which
$56.2 million was borrowed under a credit agreement with the Company's principal
bank, including $34.2 million out of an available $40.0 million under a
revolving credit facility. The bank has approved an increase in this facility to
$48.0 million which is expected to become effective in the second fiscal
quarter. Long-term debt amounted to $61.2 million at August 31, 1998. No
additional long-term debt was incurred during the three months ended November
30, 1998.
On December 16, 1998, the Company declared a regular semi-annual cash
dividend of $0.12 per share payable on January 8, 1999 to shareholders of record
on December 28, 1998. Cash dividends of $0.11 per share were paid in both
January and July 1998.
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.
MARKET RISKS
There have been no material changes in the Company's exposure to market
risks since August 31, 1998.
YEAR 2000 ISSUES
As previously reported, the Company has installed computer software that is
Year 2000 capable and has contacted its major equipment manufacturers and raw
material suppliers for confirmation that its machinery and equipment should
operate and its raw materials should be delivered without any problems relating
to Year 2000 issues. No adverse information has been received. The Company is in
the process of contacting its significant customers whose Year 2000 readiness
could cause a loss of business that might be material to the Company.
The costs associated with Year 2000 issues have not been, and are not
expected to be, significant. Based on its investigations and the information
obtained, the Company believes that it should not be materially adversely
affected by Year 2000 issues.
OTHER
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 1999 results.
In 1997, the Financial Accounts Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which must be adopted by the Company before
the end of the 1999 fiscal year. In 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which must be
adopted by the Company before the end of its 2001 fiscal year. These Statements
when adopted by the Company are not expected to have a material effect on the
consolidated financial statements.
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PART II. OTHER INFORMATION
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
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3(i) Restated Articles of Incorporation, as amended by the Company's
Shareholders at the Annual Meeting of Shareholders held on
December 17, 1998, and Statement with Respect to Shares of
Series A Junior Participating Preferred Stock.
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 November 30, 1998.
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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: January 14 , 1999 By /s/ John P. O'Leary, Jr.
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John P. O'Leary, Jr.,
President and
Chief Executive Officer
Date: January 14 , 1999 By /s/ Brian C. Mullins
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Brian C. Mullins,
Senior Vice President,
Chief Financial Officer
and Treasurer (Principal
Financial Officer and
Principal Accounting Officer)
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TUSCARORA INCORPORATED
FORM 10-Q FOR QUARTER ENDED NOVEMBER 30, 1998
EXHIBIT INDEX
The following exhibits are filed as a part of this quarterly report on
Form 10-Q.
Exhibit
No. Document
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3(i) Restated Articles of Incorporation, as amended by the Company's
Shareholders at the Annual Meeting of Shareholders held on
December 17, 1998, and Statement with Respect to Shares of
Series A Junior Participating Preferred Stock.
11 Computation of Net Income Per Share.
27 Financial Data Schedule.
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