<PAGE> 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 February 28, 1999
[ ] 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 000-17051
Tuscarora Incorporated
(Exact name of registrant as specified in its 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)
724-843-8200
(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 the past 90 days.
Yes X No
--- ---
As of April 1, 1999, 9,498,197 shares of Common Stock, without par
value, of the registrant were outstanding.
<PAGE> 2
TUSCARORA INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets at
February 28, 1999 and August 31, 1998 3
Condensed Consolidated Statements of
Income - Three and six month periods ended
ended February 28, 1999 and February 28, 1998 4
Condensed Consolidated Statements of
Cash Flows - Six months ended February 28,
1999 and February 28, 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 - 12
Part II. Other Information
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 6. Exhibits and Reports on Form 8-K. 14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TUSCARORA INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, AUGUST 31,
1999 1998
------------- -------------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,132,223 $ 5,452,281
Trade accounts receivable, net of provision for losses 34,861,763 34,239,819
Inventories 22,414,945 20,158,857
Prepaid expenses and other current assets 3,471,559 1,955,310
------------- -------------
61,880,490 61,806,267
PROPERTY, PLANT AND EQUIPMENT, net 98,169,274 97,538,209
OTHER ASSETS
Goodwill 8,800,820 8,905,355
Other non-current assets 3,401,310 3,916,075
------------- -------------
Total Assets $ 172,251,894 $ 172,165,906
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 5,321,709 $ 5,321,709
Accounts payable 14,664,012 14,178,763
Accrued income taxes 334,747 337,711
Accrued payroll and related taxes 870,668 1,133,192
Other current liabilities 4,504,494 5,975,400
------------- -------------
25,695,630 26,946,775
LONG-TERM DEBT - less current maturities 59,284,091 61,184,124
DEFERRED INCOME TAXES 1,297,299 1,677,978
OTHER LONG-TERM LIABILITIES 2,848,955 2,833,072
------------- -------------
Total Liabilities 89,125,975 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, 9,537,474 at February 28,
1999 and 9,530,856 at August 31, 1998 9,537,474 9,530,856
Capital surplus 1,512,514 1,435,582
Retained earnings 72,953,045 68,240,138
Foreign currency translation adjustments (405,757) 392,150
------------- -------------
83,597,276 79,598,726
Less cost of reacquired shares of Common Stock; 34,820 shares at February
28, 1999 and 4,620 at August 31, 1998 (471,357) (74,769)
------------- -------------
Total Shareholders' Equity 83,125,919 79,523,957
------------- -------------
Total Liabilities and Shareholders' Equity $ 172,251,894 $ 172,165,906
============= =============
</TABLE>
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.
3
<PAGE> 4
TUSCARORA INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28, February 28, February 28, February 28,
1999 1998 1999 1998
------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Net Sales $ 53,640,580 $ 55,919,163 $114,106,315 $117,211,469
Cost of Sales 41,626,953 44,515,644 87,005,377 90,709,009
------------ ------------ ------------ ------------
Gross profit 12,013,627 11,403,519 27,100,938 26,502,460
Selling and Administrative Expenses 7,749,612 8,164,765 15,400,526 16,030,718
Restructuring Costs - 3,495,336 - 3,495,336
Interest Expense 1,182,085 1,176,773 2,393,916 2,333,940
Other (Income) Expense - net (9,397) (36,866) (130,230) (55,506)
------------ ------------ ------------ ------------
Total expenses 8,922,300 12,800,008 17,664,212 21,804,488
------------ ------------ ------------ ------------
Income (loss) before income taxes 3,091,327 (1,396,489) 9,436,726 4,697,972
Provision (Benefit) for Income Taxes 1,199,092 (507,204) 3,580,084 1,814,786
------------ ------------ ------------ ------------
Net income (loss) $ 1,892,235 $ (889,285) $ 5,856,642 $ 2,883,186
============ ============ ============ ============
Basic net income (loss) per common share $.20 $(.09) $.62 $.31
==== ===== ==== ====
Diluted net income (loss) per common share $.20 $(.09) $.61 $.30
==== ===== ==== ====
Weighted average common shares
outstanding
Basic 9,509,061 9,482,331 9,518,002 9,445,777
========= ========= ========= =========
Diluted 9,597,506 9,482,331 9,598,541 9,642,152
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
TUSCARORA INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED FEBRUARY 28,
1999 1998
---- ----
<S> <C> <C>
Operating Activities
Net Income $ 5,856,642 $ 2,883,186
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation 7,843,839 7,982,665
Amortization 607,943 568,378
Write down of assets due to restructuring -- 2,085,774
Provision for losses on receivables 137,879 118,457
Decrease in deferred income taxes (321,861) (1,080,320)
Loss (gain) on disposition of property,
plant and equipment, net (184,065) 84,260
Stock compensation expense 6,127 7,063
Changes in operating assets and liabilities, net of effects of business
acquisitions:
Decrease (increase):
Trade accounts receivable (322,949) (1,331,388)
Inventories (1,796,889) (3,673,335)
Prepaid expenses and other current assets (1,823,205) (1,862,623)
Other non-current assets (67,677) (143,462)
Increase (decrease):
Accounts payable 264,647 793,468
Accrued income taxes 28,089 (909,092)
Accrued payroll and related taxes (277,209) 11,508
Other current liabilities (1,361,263) 375,685
Other long-term liabilities (133,737) (18,061)
------------ ------------
Cash provided by operating activities 8,456,311 5,892,163
------------ ------------
Investing Activities
Purchase of property, plant and equipment (7,681,740) (12,973,758)
Business acquisitions, net of cash acquired (2,379,324) (87,882)
Proceeds from sale of property, plant and equipment 694,810 476,477
------------ ------------
Cash (used for) investing activities (9,366,254) (12,585,163)
------------ ------------
Financing Activities
Proceeds from long-term debt 1,000,000 6,000,000
Payments on long-term debt (2,890,006) (2,812,093)
Dividends paid (1,143,735) (1,042,887)
Proceeds from sale of Common Stock 77,414 122,980
Payments to reacquire Common Stock (396,588) --
------------ ------------
Cash provided by (used for) financing activities (3,352,915) 2,268,000
------------ ------------
Effect of Foreign Currency Exchange Rate Changes
on Cash and Cash Equivalents (57,200) 25,490
------------ ------------
Net decrease in cash and cash equivalent (4,320,058) (4,399,510)
Cash and Cash Equivalents at Beginning of Period 5,452,281 5,095,149
------------ ------------
Cash and Cash Equivalents at End of Period $ 1,132,223 $ 695,639
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
TUSCARORA INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Condensed Consolidated Financial Statements
The condensed consolidated balance sheet at February 28, 1999 and
the consolidated statements of income and consolidated statements of cash
flows for the periods ended February 28, 1999 and February 28, 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 February 28, 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 February 28, 1999
are not necessarily indicative of the operating results to be expected for
the full year.
2. Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
February 28, August 31,
1999 1998
---- ----
<S> <C> <C>
Finished goods $ 10,717,185 $ 10,454,863
Work in process 582,024 257,055
Raw materials 9,719,937 7,510,482
Supplies 1,395,799 1,936,457
------------ ------------
$ 22,414,945 $ 20,158,857
============ ============
</TABLE>
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 six
month periods ended February 28, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28, February 28,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 1,892,235 $ (889,285) $ 5,856,642 $ 2,883,186
Foreign currency translation (loss) gain (691,202) (116,731) (797,907) 78,116
----------- ----------- ----------- -----------
Comprehensive income $ 1,201,033 $(1,006,016) $ 5,058,735 $ 2,961,302
=========== =========== =========== ===========
</TABLE>
At February 28, 1999 and 1998, accumulated other comprehensive
income (expense) which consisted entirely of foreign currency translation
adjustments, amounted to ($405,757) and $128,115, respectively.
6
<PAGE> 7
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.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28, February 28,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 1,892,235 $ (889,285) $ 5,856,642 $ 2,883,186
=========== =========== =========== ===========
Weighted average common
shares outstanding - basic 9,509,061 9,482,331 9,518,002 9,445,777
Effect of dilutive securities:
Stock options 88,445 -- 80,539 196,375
----------- ----------- ----------- -----------
Weighted average common
shares outstanding - diluted 9,597,506 9,482,331 9,598,541 9,642,152
Basic net income per common share $ 0.20 $ (0.09) $ 0.62 $ 0.31
=========== =========== =========== ===========
Diluted net income per common share $ 0.20 $ (0.09) $ 0.61 $ 0.30
=========== =========== =========== ===========
</TABLE>
Securities not included in the computation of diluted net income
per share for each period presented were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28, February 28,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Stock options 454,825 820,653 454,825 90,100
Option price range $14.96-$19.16 $5.17-$14.96 $14.96-$19.16 $19.16
Expiration date 10/24/05 - 7/20/98- 10/24/05 - 10/22/07
10/22/07 10/22/07 10/22/07
</TABLE>
The options to purchase shares of Common Stock not included in
the computation of diluted net income per share for the three months ended
February 28, 1999 and the six months ended February 28, 1999 and 1998 were
excluded because the exercise price of the stock options was greater than
the average market price of the Common Stock during the periods. No stock
options outstanding during the three months ended February 28, 1998 were
included in the computation of diluted net income per share due to the net
loss for the period.
5. Increase in Authorized Shares
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.
7
<PAGE> 8
6. 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.
7. 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 six
months ended February 28, 1999, the Company purchased 30,200 shares of
Common Stock at prices ranging from $12-5/16 to $13-15/16.
8. 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.
9. 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", 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.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS - SECOND QUARTER FISCAL 1999
COMPARED TO SECOND QUARTER FISCAL 1998
Net sales for the three months ended February 28, 1999 were $53.6
million, a decrease of $2.3 million, or 4.1%, compared with net sales of $55.9
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 and decreased sales to certain customers in the
appliance and high technology industries.
Gross profit for the three months ended February 28, 1999 was $12.0
million, a 5.4% increase from $11.4 million in the same three month period of
fiscal 1998. The gross profit margin increased to 22.4% from 20.4% in the
previous year. The increase in gross profit margin is attributable to the
operating efficiencies and lower raw material costs. The Company expects
that, given comparable sales levels, 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 $7.7 million, a 5.1% decrease compared to $8.2 million in the previous
period. Selling and administrative expenses decreased slightly as a percent of
net sales to 14.4% from 14.6% in the same period last year. The dollar decrease
in selling and administrative expenses is due primarily to the restructuring
initiative taken in the second quarter of fiscal 1998 which is discussed below
under the heading "Effect of Restructuring in Fiscal 1998".
Net sales and operating loss for the U.K. operations for the three
months ended February 28, 1999 were $5.9 million and ($104,000), respectively,
compared to $6.1 million and ($753,000), respectively, in the same period of
fiscal 1998.
Interest expense for the three months ended February 28, 1999 amounted
to $1.2 million, a 0.5% increase over the same period of fiscal 1998.
Income (loss) before income taxes for the three months ended February
28, 1999 amounted to $3.1 million compared to ($1.4) million in the same period
of fiscal 1998 after reflecting the restructuring charge. The effective tax rate
increased to 38.8% compared to 36.3% in the same period of fiscal 1998. The
effective tax rate for the three months ended February 28, 1998 was lower than
normal due to the nondeductible nature of certain losses incurred as a result of
the restructuring charge taken during the period.
Net income (loss) for the three months ended February 28, 1999 was $1.9
million compared to ($889,000) in the same period of fiscal 1998 after
reflecting the restructuring charge.
9
<PAGE> 10
RESULTS OF OPERATIONS - SIX MONTHS ENDED FEBRUARY 28, 1999
COMPARED TO SIX MONTHS ENDED FEBRUARY 28, 1998
Net sales for the six months ended February 28, 1999 were $114.1
million, a decrease of $3.1 million, or 2.6%, compared to net sales of $117.2
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.
Gross profit for the six months ended February 28, 1999 was $27.1
million, a 2.3% increase from $26.5 million in the same period of fiscal 1998.
The gross profit margin increased to 23.8% from 22.6% 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 six-month period
were $15.4 million, a 3.9% decrease compared to $16.0 million in the previous
period. Selling and administrative expenses decreased slightly as a percent of
net sales to 13.5% from 13.7% in the same period last year. The dollar decrease
in selling and administrative expenses is due primarily to the restructuring
initiative taken in fiscal 1998 (see "Effect of Restructuring in Fiscal 1998"
below).
Net sales and operating loss for the United Kingdom operations for the
six months ended February 28, 1999 were $12.5 million and ($130,000),
respectively, compared with $13.9 million and ($690,000), respectively, in the
same period of fiscal 1998.
Interest expense for the six months ended February 28, 1999 amounted
to $2.4 million, a 2.6% increase over the same period of fiscal 1998.
Income before income taxes for the six months ended February 28, 1999
amounted to $9.4 million compared to $4.7 million in the same period of fiscal
1998 after reflecting the restructuring charge. The effective tax rate decreased
to 37.9% compared to 38.6% in the same period of fiscal 1998 due primarily to
lower effective state income tax rates.
Net income for the six months ended February 28, 1999 was $5.9 million
compared to 2.9 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 as a percent of
net sales during the first two quarters of fiscal 1999. The Company's net income
for the four fiscal quarters ended February 28, 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. In connection with the employee terminations, certain product design
centers were consolidated. The balance of $400,000 related to other
restructuring costs associated with the plan. Approximately $411,000 of the
restructuring costs related to the U.K. operations.
10
<PAGE> 11
The restructuring was completed by the end of fiscal 1998 without any
adjustment to the restructuring charge. As of February 28, 1999, only $255,000
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 February 28, 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 six months ended
February 28, 1999 amounted to $8.5 million compared to $5.9 million for the same
period in fiscal 1998. Depreciation and amortization amounted to $8.5 million
and $8.6 million for the six-month periods ended February 28, 1999 and 1998,
respectively. 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 February 28, 1999 amounted to $1.1
million compared to $5.5 million at August 31, 1998 and $2.8 million at November
30, 1998. 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 $22.4 million during the six months ended
February 28, 1999 as the Company took advantage of the low prices for the
polystyrene resins.
Capital expenditures for property, plant and equipment during the six
months ended February 28, 1999 amounted to $7.7 million, including approximately
$191,000 for environmental control equipment. Close to one-half of the capital
expenditures was 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 (see Note 6 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 $59.3 million at February 28, 1999, of
which $56.0 million was borrowed under a credit agreement with the Company's
principal bank, including $35.2 million out of an available $48.0 million
revolving credit facility. In December 1998, the Company's principal bank
approved an increase in the aggregate amount available under the revolving
credit facility to $48.0 million from $40.0 million. 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. 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.
11
<PAGE> 12
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 65% 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 is preparing a contingency plan that would be put into
effect if one or more of its plants were to be rendered inoperative. The plan
will likely include stockpiling of various raw materials and finished goods,
purchasing raw materials from a number of suppliers with which the Company does
not currently do business and creating a plan to quickly move manufacturing
machinery and/or production molds from plants rendered inoperative to other
similar plants to fulfill production requirements. The Company's contingency
plan is expected to be completed by the end of the third quarter of fiscal 1999.
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 to date of
assessing and remediating Year 2000 issues has not been significant. Estimated
future costs are also not expected to be of any significance.
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", 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.
12
<PAGE> 13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on December 17,
1998. The holders of 8,385,723 shares of the Company's Common Stock
(approximately 88.1% of the shares entitled to be voted) were present at the
meeting in person or by proxy. The matters voted upon at the meeting were (i)
the election of three persons to serve as directors for a three-year term
expiring at the annual meeting of shareholders in 2001, (ii) the adoption of an
amendment of the Company's Restated Articles of Incorporation to increase the
authorized number of shares of the Company's Common Stock, without par value,
from 20,000,000 shares to 50,000,000 shares and to increase the authorized
number of shares of the Company's Preferred Stock, par value $.01 per share,
from 1,000,000 shares to 2,000,000 shares and (iii) the ratification of the
appointment of Ernst & Young, LLP as the independent public accountants to audit
the financial statements of the Company and its subsidiaries for the 1999 fiscal
year.
David I. Cohen, Abe Farkas and John P. O'Leary, Jr., the nominees of the
Company's Board of Directors, were elected to serve as directors until 2001.
There were no other nominees. Shares were voted as follows:
<TABLE>
<CAPTION>
Withhold
Name For Vote For
---- --- --------
<S> <C> <C>
David I. Cohen 8,083,362 302,361
Abe Farkas 8,078,451 307,272
John P. O'Leary, Jr. 8,087,026 298,697
</TABLE>
The amendment of the Company's Restated Articles of Incorporation to
increase the authorized number of shares of the Company's Common Stock and
Preferred Stock was adopted; affirmative votes, 5,617,854 shares; negative
votes, 1,767,532 shares; and abstained, 97,903 shares.
The appointment of Ernst & Young, LLP as the independent public
accountants for the 1999 fiscal year was ratified: affirmative votes, 8,239,434
shares; negative votes, 122,688 shares; and abstained, 23,602 shares.
13
<PAGE> 14
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed below are filed as a part of this quarterly report.
<TABLE>
<CAPTION>
Exhibit No. Document
----------- --------
<S> <C>
4 Third Amendment, effective December 31, 1998,
to the Loan Agreement, dated as of August 14,
1996, between the Company and Mellon Bank, N.A.
with First Amended and Restated Revolving Credit
Note, dated December 31, 1998, attached.
27 Financial Data Schedule.
</TABLE>
(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 February 28, 1999.
14
<PAGE> 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: April 14, 1999 By /s/ John P. O'Leary, Jr.
-- ----------------------------
John P. O'Leary, Jr.,
President and
Chief Executive Officer
Date: April 14, 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
<PAGE> 16
TUSCARORA INCORPORATED
FORM 10-Q FOR QUARTER ENDED FEBRUARY 28, 1999
EXHIBIT INDEX
The following exhibits are filed as a part of this quarterly
report on Form 10-Q.
<TABLE>
<CAPTION>
Exhibit No. Document
----------- --------
<S> <C>
4 Third Amendment, effective December 31, 1998,
to the Loan Agreement, dated as of August 14,
1996, between the Company and Mellon Bank, N.A.
with First Amended and Restated Revolving Credit
Note, dated December 31, 1998, attached.
27 Financial Data Schedule.
</TABLE>
16
<PAGE> 1
EXHIBIT 4
THIRD AMENDMENT TO LOAN AGREEMENT
Amendment, dated as of the 31st day of December, 1998, by and between
Tuscarora Incorporated, a Pennsylvania corporation (the "Borrower"), and Mellon
Bank, N.A., a national banking association (the "Bank") ("Third Amendment").
W I T N E S S E T H:
WHEREAS, the Borrower and the Bank entered into that certain Loan
Agreement, dated as of August 14, 1996, by and between the Borrower and the Bank
pursuant to which the Bank has extended to the Borrower a revolving credit
facility in the original principal amount not to exceed Forty Million and 00/100
($40,000,000.00) Dollars and a term facility in the original principal amount of
Thirty Seven Million and 00/100 ($37,000,000.00) Dollars, as amended by (i) the
First Amendment to Loan Agreement, dated as of February 20, 1998, by and between
the Borrower and the Bank, and (ii) the Second Amendment to Loan Agreement,
dated as of October 16, 1998, by and between the Borrower and the Bank (as
amended from time to time, the "Agreement"); and
WHEREAS, the Borrower desires to amend certain provisions of the Agreement,
and the Bank desires to permit such amendments pursuant to the terms and subject
to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises contained herein and other
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and intending to be legally bound hereby, the parties hereto agree
as follows:
1. All capitalized terms used herein, which are defined in the Agreement,
should have the same meaning herein as in the Agreement unless the context
clearly indicates otherwise.
2. The first sentence of Section 2.01(a) of the Agreement is hereby deleted
in its entirety and in its stead is inserted the following:
(a) Revolving Credit Loans. Subject to the terms and conditions and
relying upon the representations and warranties set forth in this Agreement
and the other Loan Documents, the Bank agrees to make, continue or convert
loans (the "Revolving Credit Loans") to the Borrower at any time or from
time to time on or after the Closing Date and to and including the day
immediately preceding the Revolving Credit Expiry Date, in an aggregate
principal amount not exceeding at any one time outstanding Forty Eight
Million and 00/100 ($48,000,000.00) Dollars (the "Revolving Credit Facility
Commitment").
<PAGE> 2
3. The Borrower hereby reconfirms and reaffirms all representations and
warranties, agreements and covenants made by it pursuant to the terms and
conditions of the Agreement, except as such representations and warranties,
agreements and covenants may have heretofore been amended, modified or waived
in writing in accordance with the Agreement.
4. The Borrower hereby represents and warrants to the Bank that (a) the
Borrower has the legal power and authority to execute and deliver this Third
Amendment; (b) the officers of the Borrower executing this Third Amendment have
been duly authorized to execute and deliver the same and bind the Borrower with
respect to the provisions hereof; (c) the execution and delivery hereof by the
Borrower and the performance and observance by the Borrower of the provisions
hereof and the Agreement and all documents executed or to be executed herewith
and therewith, do not violate or conflict with the organizational agreements of
the Borrower or any Law applicable to the Borrower or result in a breach of any
provision of or constitute a default under any other agreement, instrument or
document binding upon or enforceable against the Borrower; (d) this Third
Amendment, the Agreement and the documents executed or to be executed by the
Borrower in connection herewith or therewith constitute valid and binding
obligations of the Borrower in every respect, enforceable in accordance with
their respective terms.
5. The Borrower represents and warrants that (i) no Event of Default (as
defined in the Agreement) exists under the Agreement, nor will any occur as a
result of the execution and delivery of this Third Amendment or the performance
or observance of any provision hereof and (ii) it presently has no claims or
actions of any kind at law or in equity against the Bank arising out of or in
any way relating to the Agreement or the Loan Documents.
6. Each reference to the Agreement that is made in the Agreement or any
other document executed or to be executed in connection therewith shall
hereafter be construed as a reference to Agreement as amended hereby.
7. Except as amended hereby, all of the terms and conditions of the
Agreement shall remain in full force and effect. This Third Amendment amends the
Agreement and is not a novation thereof.
8. This Third Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts each of which, when so
executed, shall be deemed an original, but all such counterparts shall
constitute but one and the same instrument.
-2-
<PAGE> 3
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have caused this Third Amendment to be duly executed as of the date first
above written.
<TABLE>
<CAPTION>
ATTEST: Tuscarora Incorporated
<S> <C>
By: /s/ Brian C. Mullins By: /s/ John P. O'Leary, Jr.
---------------------------------- ---------------------------------------
Print Name: Brian C. Mullins Print Name: John P. O'Leary, Jr.
-------------------------- -------------------------------
Title: Sr. Vice President & Treasurer Title: President & Chief Executive Officer
-------------------------------
Mellon Bank, N.A.
By: /s/ Dwayne R. Finney
---------------------------------------
Title: Vice President
---------------------------------------
</TABLE>
-3-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> AUG-31-1998
<PERIOD-END> FEB-28-1999
<CASH> 1,132,223
<SECURITIES> 0
<RECEIVABLES> 35,599,558
<ALLOWANCES> 737,795
<INVENTORY> 22,414,945
<CURRENT-ASSETS> 61,880,490
<PP&E> 197,158,783
<DEPRECIATION> 98,989,509
<TOTAL-ASSETS> 172,251,894
<CURRENT-LIABILITIES> 25,695,630
<BONDS> 59,284,091
0
0
<COMMON> 9,537,474
<OTHER-SE> 73,588,445
<TOTAL-LIABILITY-AND-EQUITY> 172,251,894
<SALES> 114,106,315
<TOTAL-REVENUES> 114,106,315
<CGS> 87,005,377
<TOTAL-COSTS> 87,005,377
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 137,879
<INTEREST-EXPENSE> 2,393,916
<INCOME-PRETAX> 9,436,726
<INCOME-TAX> 3,580,084
<INCOME-CONTINUING> 5,856,642
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,856,642
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.61
</TABLE>
