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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 May 31, 1999
[ ] 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
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(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
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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)
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, 1999, 9,462,239 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
May 31, 1999 and August 31, 1998 3
Condensed Consolidated Statements of
Income - Three and nine month periods
ended May 31, 1999 and May 31, 1998 4
Condensed Consolidated Statements of
Cash Flows - Nine months ended May 31,
1999 and May 31, 1998 5
Notes to Condensed Consolidated Financial
Statements 6 - 8
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 9 - 13
Part II. Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TUSCARORA INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 31, AUGUST 31,
1999 1998
------------- -------------
(UNAUDITED)
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 3,071,189 $ 5,452,281
Trade accounts receivable, net of provision for losses 36,169,133 34,239,819
Inventories 22,270,124 20,158,857
Prepaid expenses and other current assets 5,183,871 1,955,310
------------ ------------
66,694,317 61,806,267
PROPERTY, PLANT AND EQUIPMENT, net 98,887,238 97,538,209
OTHER ASSETS
Goodwill 8,660,627 8,905,355
Other non-current assets 3,294,495 3,916,075
------------ ------------
Total Assets $177,536,677 $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 16,800,273 14,178,763
Accrued income taxes -- 337,711
Accrued payroll and related taxes 947,180 1,133,192
Other current liabilities 4,158,317 5,975,400
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27,227,479 26,946,775
LONG-TERM DEBT - less current maturities 60,553,375 61,184,124
DEFERRED INCOME TAXES 1,180,491 1,677,978
OTHER LONG-TERM LIABILITIES 2,679,571 2,833,072
------------ ------------
Total Liabilities 91,640,916 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, 9,540,190 at May 31,
1999 and 9,530,856 at August 31, 1998 9,540,190 9,530,856
Capital surplus 1,542,400 1,435,582
Retained earnings 75,952,008 68,240.138
Foreign currency translation adjustment (327,018) 392,150
------------ ------------
86,707,580 79,598,726
Less cost of reacquired shares of Common Stock;
63,220 shares at May 31, 1999 and 4,620 shares at
August 31, 1998 (811,819) (74,769)
------------ ------------
Total Shareholders' Equity 85,895,761 79,523,957
------------ ------------
Total Liabilities and Shareholders' Equity $177,536,677 $172,165,906
============ ============
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 NINE MONTHS ENDED
MAY 31, MAY 31,
1999 1998 1999 1998
------------- ------------- ------------- -------------
Net Sales $59,703,336 $59,607,631 $173,809,651 $176,819,100
Cost of Sales 46,008,568 46,429,276 133,013,945 137,138,285
----------- ----------- ------------ ------------
Gross profit 13,694,768 13,178,355 40,795,706 39,680,815
Selling and Administrative Expenses 7,984,533 7,551,497 23,385,059 23,582,215
Restructuring Costs -- -- -- 3,495,336
Interest Expense 1,078,593 1,288,094 3,472,509 3,622,034
Other (Income) Expense (135,473) 117,743 (265,703) 62,237
----------- ----------- ------------ ------------
Total expenses 8,927,653 8,957,334 26,591,865 30,761,822
----------- ----------- ------------ ------------
Income before income taxes 4,767,115 4,221,021 14,203,841 8,918,993
Provision for Income Taxes 1,768,152 1,650,773 5,348,236 3,465,559
----------- ----------- ------------ ------------
Net income $ 2,998,963 $ 2,570,248 $ 8,855,605 $ 5,453,434
=========== =========== ============ ============
Basic net income per common share $0.32 $0.27 $0.93 $0.58
===== ===== ===== =====
Diluted net income per common share $0.31 $0.27 $0.92 $0.56
===== ===== ===== =====
Cash dividend declared per common share $0.00 $0.00 $0.12 $0.11
===== ===== ===== =====
See notes to condensed consolidated financial statements.
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TUSCARORA INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED MAY 31,
1999 1998
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Operating Activities
Net Income $ 8,855,605 $ 5,453,434
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation 11,980,162 12,067,400
Amortization 910,636 858,930
Write down of assets due to restructuring -- 2,085,774
Provision for losses on receivables 123,584 356,387
Decrease in deferred income taxes (436,863) (1,160,104)
(Gain) loss on disposition of property, plant and equipment, net (104,109) 269,928
Stock compensation expense 9,090 10,357
Changes in operating assets and liabilities, net of effects of business
acquisitions:
Decrease (increase):
Trade accounts receivable (1,739,750) (1,623,654)
Inventories (1,651,362) (2,237,954)
Prepaid expenses and other current assets (2,768,498) (1,440,766)
Other non-current assets (84,678) (164,082)
Increase (decrease):
Accounts payable 2,396,594 (2,426,705)
Accrued income taxes (901,730) 234,330
Accrued payroll and related taxes (202,451) 154,095
Other current liabilities (1,735,575) (94,217)
Other long-term liabilities (303,975) (22,873)
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Cash provided by operating activities 14,346,680 12,320,280
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Investing Activities
Purchase of property, plant and equipment (12,692,624) (20,849,776)
Business acquisitions, net of cash acquired (2,422,169) (135,145)
Proceeds from sale of property, plant and equipment 760,798 1,060,164
------------ ------------
Cash used for investing activities (14,353,995) (19,924,757)
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Financing Activities
Proceeds from long-term debt 3,500,000 8,000,000
Payments on long-term debt (4,120,281) (3,989,189)
Dividends paid (1,143,735) (1,042,887)
Proceeds from sale of Common Stock 107,053 166,811
Payments to reacquire Common Stock (737,050) --
------------ ------------
Cash provided by (used for) financing activities (2,394,013) 3,134,735
------------ ------------
Effect of Foreign Currency Exchange Rate Changes
on Cash and Cash Equivalents 20,236 34,227
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Net decrease in cash and cash equivalents (2,381,092) (4,435,515)
Cash and Cash Equivalents at Beginning of Period 5,452,281 5,095,149
------------ ------------
Cash and Cash Equivalents at End of Period $ 3,071,189 $ 659,634
============ ============
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 May 31, 1999 and the
consolidated statements of income and consolidated statements of cash flows
for the periods ended May 31, 1999 and May 31, 1998 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, 1999 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 May 31, 1999 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,
1999 1998
----------- -----------
Finished goods $10,801,641 $10,454,863
Work in process 168,277 257,055
Raw materials 9,921,581 7,510,482
Supplies 1,378,625 1,936,457
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$22,270,124 $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", which establishes 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 and nine
month periods ended May 31, 1999 and 1998 was as follows:
Three Months Ended Nine Months Ended
May 31, May 31,
1999 1998 1999 1998
---------- ----------- ---------- -----------
Net Income $2,998,963 $2,570,248 $8,855,605 $5,453,434
Foreign currency translation (loss) gain 78,739 (32,771) (719,168) 45,345
---------- ---------- ---------- ----------
Comprehensive income $3,077,702 $2,537,477 $8,136,437 $5,498,779
========== ========== ========== ==========
At May 31, 1999 and August 31, 1998, accumulated other
comprehensive income (expense) which consisted entirely of foreign currency
translation adjustments, amounted to ($327,018) and $392,150, respectively.
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4. Net Income Per Share
The following table sets forth the computation of basic and
diluted net income per common share in accordance with the provisions of
SFAS No. 128:
Three Months Ended Nine Months Ended
May 31, May 31,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Net income $2,998,963 $2,570,248 $8,855,605 $5,453,434
========== ========== ========== ==========
Weighted average common
shares outstanding - basic 9,488,484 9,488,238 9,508,055 9,482,156
Effect of dilutive securities:
Stock options 68,737 149,858 76,294 179,916
---------- ---------- ---------- ----------
Weighted average common
shares outstanding - diluted 9,557,221 9,638,096 9,584,348 9,662,072
Basic net income per common share $0.32 $0.27 $0.93 $0.58
===== ===== ===== =====
Diluted net income per common share $0.31 $0.27 $0.92 $0.56
===== ===== ===== =====
Securities not included in the computation of diluted net income
per share for the periods presented were as follows:
Three Months Ended Nine Months Ended
May 31, May 31,
1999 1998 1999 1998
------------- ----------- ------------- ----------
Stock options 971,819 310,487 866,734 147,795
Option price range $12.82-$19.16 $16.50-$19.16 $12.82-$19.16 $19.16
Expiration date 10/24/05 - 10/24/05- 10/24/05 - 10/22/07
10/25/08 10/22/07 10/25/08
The options to purchase shares of Common Stock not included in
the computation of diluted net income per share for the periods presented were
excluded because the exercise price of the stock options was greater than the
average market price of the Common Stock during the periods.
5. Business Acquisition
On February 2, 1999, the Company acquired the custom molding
business, including the associated real estate, of Berry Packaging, Inc. in
Sallisaw, Oklahoma for cash. The aggregate purchase price, part of which
will be paid to the seller based on sales realized by the business
acquired, is not material. The acquisition has been accounted for as a
purchase and a portion of the purchase price has been allocated to
goodwill.
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6. 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 nine
months ended May 31, 1999, the Company purchased 58,600 shares of Common
Stock at prices ranging from $9.94 to $13.94.
7. 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.
8. Other Information
In 1997, the Financial Accounting 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". In 1999, the FASB issued SFAS No. 137 "Accounting for
Derivative Instruments and Hedging Activities: Deferral of the Effective
Date of FASB Statement No. 133." This Statement defers for one year the
effective date of SFAS No. 133. This Statement now will apply to all fiscal
quarters of all fiscal years beginning after June 15, 2000," These
Statements, when adopted by the Company, are not expected to have a
material effect on the consolidated financial statements.
9. Subsequent Event
On July 14, 1999, the Company announced that it had agreed to
acquire the principal business and operating assets of Lane Container
Company of Dallas, Texas. The transaction is expected to be completed on
September 1, 1999. Lane Container has particular expertise in specialty
corrugated containers, heavy wall corrugated fabrication and custom wood
crating services and is expected to add in excess of $8 million of new
revenues in fiscal 2000. The consideration to be paid consists of cash and
assumed liabilities as well as additional cash consideration which may be
paid to the seller based on sales realized by the business acquired. The
acquisition will be accounted for as a purchase and it is expected that a
portion of the purchase price will be allocated to goodwill.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THIRD QUARTER FISCAL 1999
COMPARED TO THIRD QUARTER FISCAL 1998
Net sales for the three months ended May 31, 1999 were $59.7 million,
an increase of $100,000, or 0.2%, compared with net sales of $59.6 million in
the same period of fiscal 1998. The increase in net sales is attributable to
higher sales in the consumer electronics sector, a return to more normal
production levels by certain customers in the appliance and high technology
industries when compared with the second quarter of fiscal 1999 and to a lesser
extent, the acquisition of Berry Packaging, Inc. in February 1999. These items
were offset by modestly lower selling prices to customers due to lower
polystyrene resin prices. Higher selling prices to customers are expected in the
latter part of the fourth quarter as an announced increase in EPS resin prices
will result in higher selling prices for the Company's EPS products.
Gross profit for the three months ended May 31, 1999 was $13.7
million, a 3.9% increase from $13.2 million in the same three-month period of
fiscal 1998. The gross profit margin increased to 22.9% from 22.1% in the
previous fiscal year. The increase in gross profit margin is attributable to
higher operating efficiencies and the lower raw material costs. The Company
expects that, with the improved operating efficiencies being experienced at
certain of the Company's facilities, the gross profit margin will continue to
improve during the balance of the fiscal year.
Selling and administrative expenses for the current three-month period
were $8.0 million, a 5.7% increase compared to $7.6 million in the previous
period. Selling and administrative expenses increased as a percent of net sales
to 13.4% from 12.7% in the same period last year. The dollar increase in selling
and administrative expenses is due to increased employee costs.
Net sales and operating income (loss) for the U.K. operations for the
three months ended May 31, 1999 were $6.5 million and $136,000, respectively,
compared to $6.2 million and ($485,000), respectively, in the same period of
fiscal 1998.
Interest expense for the three months ended May 31, 1999 amounted to
$1.1 million, a 16.3% decrease from $1.3 million during the same period of
fiscal 1998.
Income before income taxes for the three months ended May 31, 1999
amounted to $4.8 million compared to $4.2 million in the same period of fiscal
1998. The effective tax rate decreased to 37.1% compared to 39.1% in the same
period of fiscal 1998 due primarily to lower effective state income tax rates.
Net income for the three months ended May 31, 1999 was $3.0 million
compared to $2.6 million earned in the same period of fiscal 1998.
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RESULTS OF OPERATIONS - NINE MONTHS ENDED MAY 31, 1999
COMPARED TO NINE MONTHS ENDED MAY 31, 1998
Net sales for the nine months ended May 31, 1999 were $173.8 million,
a decrease of $3.0 million, or 1.7%, compared to net sales of $176.8 million in
the same period of fiscal 1998. The decrease in net sales is attributable to
modestly lower selling prices to customers due to lower polystyrene resin prices
throughout the period, lower sales in the United Kingdom during the first fiscal
quarter than in the prior year and decreased sales to certain customers in the
appliance and high technology industries in the second fiscal quarter than in
the prior year.
Gross profit for the nine months ended May 31, 1999 was $40.8 million,
a 2.8% increase from $39.7 million in the same period of fiscal 1998. The gross
profit margin increased to 23.5% from 22.4% in the previous year. The increase
in gross profit margin is attributable primarily to improved operating
efficiencies at several key manufacturing facilities, including those in the
United Kingdom, and to the lower raw material costs.
Selling and administrative expenses for the current nine-month period
were $23.4 million, a 0.8% decrease compared to $23.6 million in the previous
period. Selling and administrative expenses increased slightly as a percent of
net sales to 13.5% from 13.3% in the same period last year. The dollar decrease
in selling and administrative expenses is due to the restructuring initiative
taken in fiscal 1998 (see "Effect of Restructuring in Fiscal 1998" below).
Net sales and operating income (loss) for the United Kingdom
operations for the nine months ended May 31, 1999 were $19.0 million and $5,000,
respectively, compared with $20.1 million and ($1.2 million), respectively, in
the same period of fiscal 1998.
Interest expense for the nine months ended May 31, 1999 amounted to
$3.5 million, a 4.1% decrease over the same period of fiscal 1998.
Income before income taxes for the nine months ended May 31, 1999
amounted to $14.2 million compared to $8.9 million in the same period of fiscal
1998 after reflecting the restructuring charge. The effective tax rate decreased
to 37.7% compared to 38.9% in the same period of fiscal 1998 due primarily to
lower effective state income tax rates.
Net income for the nine months ended May 31, 1999 was $8.9 million
compared to $5.5 million earned in the same period of fiscal 1998 after
reflecting the restructuring charge.
The Company is pleased with both the improvement in the gross profit
margin and the decrease in selling and administrative expenses during the first
three quarters of fiscal 1999. The Company's net income for the four fiscal
quarters ended May 31, 1999 represents a Company record for four consecutive
fiscal quarters.
EFFECT OF RESTRUCTURING IN FISCAL 1998
In February 1998, the Company initiated a $3.5 million restructuring
plan, the principal component of which was a charge of approximately $2.1
million to cover the write-down of the carrying values of certain property and
equipment no longer employed in the Company's operations. The restructuring
charge also included employee termination costs of approximately $1.0 million as
approximately 30 employees were terminated or accepted an early retirement
package.
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The restructuring was completed by the end of fiscal 1998 without any
adjustment to the restructuring charge. As of May 31, 1999, only $206,000 of the
amount accrued remained to be paid. Payments will continue through August 2002.
The Company estimates that the cost savings from the restructuring
during the three months ended May 31, 1999 amounted to approximately $530,000,
of which approximately $117,000 resulted in a reduction in cost of sales and
approximately $413,000 resulted in a reduction in selling and administrative
expenses. There were similar cost savings in the preceding fiscal quarters since
the plan was initiated and similar cost savings are expected for a number of
years.
The restructuring plan did not have a significant effect on the
Company's operations, and the cost savings resulting from implementation of the
plan are substantially as expected.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the nine months ended May
31, 1999 amounted to $14.3 million compared to $12.3 million for the same period
in fiscal 1998. Depreciation and amortization amounted to $12.9 million for each
of the nine-month periods ended May 31, 1999 and 1998. 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 May 31, 1999 amounted to $3.1 million
compared to $5.5 million at August 31, 1998 and $1.1 million at February 28,
1999. The decreases result from cash used for investing and financing activities
exceeding the cash provided by operating activities. Inventories increased from
$20.2 million to $22.3 million during the nine months ended May 31, 1999 as the
Company took advantage of the low prices for the polystyrene resins.
Capital expenditures for property, plant and equipment during the nine
months ended May 31, 1999 amounted to $12.7 million, including approximately
$282,000 for environmental control equipment. Approximately one-third of the
capital expenditures were for buildings and leasehold improvements, including
the purchase of the EPS custom molding facility in Lewisburg, Tennessee, which
was previously leased, additional expenditures at the Company's new custom
molding facility in Brenham, Texas and installation of custom molding
capabilities at the integrated materials facility in Hayward, California. A
majority of the balance of the capital expenditures was for molding presses and
related equipment.
In February 1999, the Company acquired the custom molding business of
Berry Packaging, Inc. in Sallisaw, Oklahoma for cash (see Note 5 to the
Condensed Consolidated Financial Statements) and on July 14, 1999, the Company
announced that it had agreed to acquire the principal business and operating
assets of Lane Container Company in Dallas, Texas (see Note 9 of 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 $60.6 million at May 31, 1999, of which
$57.4 million was borrowed under a credit agreement with the Company's principal
bank, including $37.7 million out of an available $48.0 million revolving credit
facility. Long-term debt amounted to $61.2 million at August 31, 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. On June 11, 1999, the Company declared a regular
semi-annual cash dividend of $0.12 per share payable on July 2, 1999 to
shareholders of record on June 22, 1999. 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.
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MARKET RISKS
There have been no material changes in the Company's exposure to
market risks since August 31, 1998.
YEAR 2000 ISSUES
The Company has addressed the possible effect on the Company and its
business of a malfunction of computers and other equipment with computer
microchip processors that cannot properly process dates after December 31, 1999.
The scope of the Company's efforts has included (i) an evaluation of the
Company's business information systems and manufacturing machinery and
equipment, primarily its custom molding machines, (ii) an evaluation of the Year
2000 readiness of major raw material suppliers to determine if the Company
should anticipate any problems in obtaining needed raw materials and (iii) an
evaluation of significant customers whose Year 2000 readiness could cause a loss
of business that might be material to the Company.
The Company has completed the evaluation of its business information
systems and manufacturing machinery and equipment. Changes have been made as
necessary. The Company believes its business information systems and
manufacturing machinery and equipment are Year 2000 compliant.
All major raw material suppliers have been contacted and have
responded and, based on the information it has obtained, the Company does not
anticipate there will be problems in obtaining necessary raw materials.
The evaluation of the readiness of significant customers is not yet
complete. Customers representing approximately 75% of the Company's total sales
have been contacted concerning their Year 2000 readiness and to date responses
have been received from approximately 70% of the customers contacted.
No negative responses have been received.
The Year 2000 readiness of third parties is beyond the Company's
control and, although not anticipated, the most reasonably likely worst case
scenario of failure of the Company's key suppliers and customers to resolve
their Year 2000 issues would be a short-term shutdown of manufacturing
operations at one or more of the Company's facilities. In order to minimize the
risk of failure of third parties to correct their Year 2000 issues in a timely
manner, the Company has been working on a contingency plan that would be put
into effect if one or more of its plants were to be rendered inoperative. The
plan includes stockpiling of various raw materials and finished goods,
purchasing raw materials from a number of new raw material suppliers and a plan
to quickly move manufacturing machinery and/or production molds from any plants
that might be rendered inoperative to other similar plants to fulfill production
requirements. The Company's contingency plan should be fully reduced to writing
and in final form by the end of the fiscal year.
Management believes, based on its own investigation and the
information it has obtained, that any unforeseen problems that might arise
should be resolved without materially affecting the Company's business, results
of operations or financial condition. The cost to the Company of assessing and
remediating Year 2000 issues has not been, and is not expected to be,
significant.
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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 Accounting 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". In
1999, the FASB issued SFAS No. 137 "Accounting for Derivative Instruments and
Hedging Activities: Deferral of the Effective Date of FASB Statement No. 133."
This Statement defers for one year the effective date of SFAS No. 133. This
Statement will now apply to all fiscal quarters of all fiscal years beginning
after June 15, 2000. 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 1. Legal Proceedings
-----------------
John C. Bartram, Administrator of the Estate of Dwayne Scott Mount,
Deceased v. Tuscarora Incorporated, et al., Case No. 96CV-0511 in the Court of
Common Pleas of Marion County, Ohio. This lawsuit is described in the Company's
Form 10-K for its fiscal year ended August 31, 1998. The information contained
in the Form 10-K is incorporated herein by reference. It is the Company's
understanding that recently the plaintiff settled its claims against Kaneka
America Corporation and Kaneka Texas Corporation. Earlier the plaintiff
voluntarily released its claims against Toyo Machine and Metal Co., Ltd. The
result of these developments is that only Count I of the Complaint for Wrongful
Death against the Company remains at issue. Count I states an intentional
employer tort claim and alleges that the Deceased, an employee of the Company
who was killed in May 1996 while working on a molding machine at the Company's
custom molding plant in Marion, Ohio, was wrongfully killed as a result of
certain alleged intentional conduct of the Company. Plaintiff seeks both
compensatory and punitive damages from the Company of not less than $5,000,000.
The Company is vigorously contesting the lawsuit which has been
scheduled for trial in October 1999. The Company has denied the allegations
against it and has asserted various defenses including that the plaintiff's
claim is barred pursuant to the Ohio Workers' Compensation statute. In the
opinion of Management, the disposition of the lawsuit should not have a material
adverse effect on the Company's financial position or results of operations.
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
----------- --------------------------------------------
10 Employment Continuation Agreement, dated
March 22, 1999, between James H. Brakebill
and the Company.
27 Financial Data Schedule for the nine months ended
May 31, 1999.
(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, 1999.
14
15
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, 1999 By /s/ John P. O'Leary, Jr.
--------------------------------
John P. O'Leary, Jr.,
President and
Chief Executive Officer
Date: July 15, 1999 By /s/ Brian C. Mullins
--------------------------------
Brian C. Mullins,
Senior Vice President,
Chief Financial Officer
and Treasurer (Principal
Financial Officer and
Principal Accounting
Officer)
15
16
TUSCARORA INCORPORATED
FORM 10-Q FOR QUARTER ENDED MAY 31, 1999
EXHIBIT INDEX
The following exhibits are filed as a part of this quarterly report on
Form 10-Q.
Exhibit No. Document
----------- -------------------------------------------------
10 Employment Continuation Agreement, dated
March 22, 1999, between James H. Brakebill
and the Company.
27 Financial Data Schedule for the nine months ended
May 31, 1999.