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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, 2000
[ ] 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 (State or other jurisdiction of incorporation or organization) |
25-1119372 (IRS Employer Identification No.) |
800 Fifth Avenue New Brighton, Pennsylvania 15066 (Address of principal executive offices) (Zip Code) |
724-843-8200 (Registrants 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 January 1, 2001, 9,306,985 shares of Common Stock, without par value, of the registrant were outstanding.
Tuscarora Incorporated
INDEX
Page | ||||||
Part I. Financial Information | ||||||
Item 1. Financial Statements. | ||||||
Condensed Consolidated Balance Sheets at November 30, 2000 (Unaudited) and August 31, 2000 | 3 | |||||
Condensed Consolidated Statements of Income (Unaudited) Three months ended November 30, 2000 and November 30, 1999 | 4 | |||||
Condensed Consolidated Statements of Cash Flows (Unaudited) Three months ended November 30, 2000 and November 30, 1999 | 5 | |||||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 6 10 | |||||
Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition | 11 13 | |||||
Part II. Other Information | ||||||
Item 1. Legal Proceedings | 14 | |||||
Item 6. Exhibits and Reports on Form 8-K | 14 |
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Tuscarora Incorporated
(Unaudited) | ||||||||||||
November 30, | August 31, | |||||||||||
2000 | 2000 | |||||||||||
ASSETS | ||||||||||||
Current Assets | ||||||||||||
Cash and cash equivalents | $ | 2,197,787 | $ | 7,377,860 | ||||||||
Trade accounts receivable, net of provision for losses | 48,640,031 | 48,457,015 | ||||||||||
Inventories | 36,468,813 | 33,962,576 | ||||||||||
Prepaid expenses and other current assets | 3,710,666 | 3,801,453 | ||||||||||
91,017,297 | 93,598,904 | |||||||||||
Property, Plant and Equipment, net | 105,573,172 | 102,495,992 | ||||||||||
Other Assets | ||||||||||||
Goodwill, net | 10,163,512 | 8,371,686 | ||||||||||
Other non-current assets, net | 6,030,847 | 5,053,772 | ||||||||||
Total Assets | $ | 212,784,828 | $ | 209,520,354 | ||||||||
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||||||
Current Liabilities | ||||||||||||
Current maturities of long-term debt | $ | 5,200,183 | $ | 5,195,494 | ||||||||
Accounts payable | 13,536,657 | 19,994,070 | ||||||||||
Accrued income taxes | 2,087,606 | | ||||||||||
Accrued payroll and related taxes | 1,895,265 | 1,608,630 | ||||||||||
Other current liabilities | 8,187,838 | 6,332,526 | ||||||||||
30,907,549 | 33,130,720 | |||||||||||
Long-term Debt less current maturities | 80,559,077 | 78,763,774 | ||||||||||
Deferred Income Taxes | 559,269 | 579,076 | ||||||||||
Other Long-term Liabilities | 2,372,206 | 2,322,821 | ||||||||||
Total Liabilities | 114,398,101 | 114,796,391 | ||||||||||
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, 9,619,991 at November 30, 2000 and 9,602,418 at August 31, 2000 |
9,619,991 | 9,602,418 | ||||||||||
Capital surplus | 2,051,199 | 1,964,514 | ||||||||||
Retained earnings | 93,512,179 | 89,370,918 | ||||||||||
Accumulated other comprehensive income (loss) | (2,824,842 | ) | (2,314,459 | ) | ||||||||
102,358,527 | 98,623,391 | |||||||||||
Less cost of reacquired shares of Common Stock: | ||||||||||||
313,868 shares at November 30, 2000 and 309,268 shares at August 31, 2000 | (3,971,800 | ) | (3,899,428 | ) | ||||||||
Total Shareholders Equity | 98,386,727 | 94,723,963 | ||||||||||
Total Liabilities and Shareholders Equity | $ | 212,784,828 | $ | 209,520,354 | ||||||||
Note: The consolidated balance sheet at August 31, 2000 has been taken from the audited financial statements and condensed.
See notes to condensed consolidated financial statements (unaudited).
3
Tuscarora Incorporated
Three Months Ended November 30, | |||||||||
2000 | 1999 | ||||||||
Net Sales | $ | 76,088,019 | $ | 64,717,803 | |||||
Cost of Sales | 58,239,233 | 48,392,760 | |||||||
Gross profit | 17,848,786 | 16,325,043 | |||||||
Selling and Administrative Expenses | 10,050,307 | 8,232,837 | |||||||
Interest Expense | 1,652,217 | 1,192,236 | |||||||
Other (Income) Expense net | (531,966 | ) | (168,734 | ) | |||||
Total expenses | 11,170,558 | 9,256,339 | |||||||
Income before income taxes | 6,678,228 | 7,068,704 | |||||||
Provision for Income Taxes | 2,536,967 | 2,651,657 | |||||||
Net income | $ | 4,141,261 | $ | 4,417,047 | |||||
Basic net income per share of Common Stock | $ | 0.45 | $ | 0.47 | |||||
Diluted net income per share of Common Stock | $ | 0.44 | $ | 0.47 | |||||
See notes to condensed consolidated financial statements (unaudited).
4
Tuscarora Incorporated
Three Months Ended November 30, | |||||||||||
2000 | 1999 | ||||||||||
Operating Activities | |||||||||||
Net Income | $ | 4,141,261 | $ | 4,417,047 | |||||||
Adjustments to reconcile net income to cash provided by operating activities: | |||||||||||
Depreciation | 4,395,555 | 4,141,588 | |||||||||
Amortization | 335,645 | 331,317 | |||||||||
Provision for losses on receivables | 79,837 | 28,204 | |||||||||
Decrease in deferred income taxes | (19,807 | ) | (329,865 | ) | |||||||
Gain on disposition of property, plant and equipment, net | (28,490 | ) | (1,567 | ) | |||||||
Gain on disposition of investments | (460,254 | ) | | ||||||||
Loss of 50% owned affiliate | 9,813 | | |||||||||
Stock compensation expense | 3,239 | 3,003 | |||||||||
Changes in operating assets and liabilities, net of effects of business acquisitions: | |||||||||||
Decrease (increase): | |||||||||||
Trade accounts receivable | (370,662 | ) | (4,241,033 | ) | |||||||
Inventories | (2,477,909 | ) | (3,680,212 | ) | |||||||
Prepaid expenses and other current assets | 49,198 | (19,185 | ) | ||||||||
Other non-current assets | (215,110 | ) | (196,935 | ) | |||||||
Increase (decrease): | |||||||||||
Accounts payable | (6,373,647 | ) | 1,703,487 | ||||||||
Accrued income taxes | 2,118,255 | 2,469,105 | |||||||||
Accrued payroll and related taxes | 292,586 | (11,046 | ) | ||||||||
Other current liabilities | 1,872,580 | 111,095 | |||||||||
Other long-term liabilities | (24,903 | ) | (62,379 | ) | |||||||
Cash provided by operating activities | 3,327,187 | 4,662,624 | |||||||||
Investing Activities | |||||||||||
Purchase of property, plant and equipment | (5,889,041 | ) | (4,065,290 | ) | |||||||
Business acquisitions, net of cash acquired | (5,001,614 | ) | (3,483,510 | ) | |||||||
Proceeds from sale of property, plant and equipment | 35,000 | 50,401 | |||||||||
Other investing activities, net | 576,254 | | |||||||||
Cash used for investing activities | (10,279,401 | ) | (7,498,399 | ) | |||||||
Financing Activities | |||||||||||
Proceeds from long-term debt | 3,000,000 | 67,530,000 | |||||||||
Payments on long-term debt | (1,196,984 | ) | (65,070,095 | ) | |||||||
Proceeds from sale of Common Stock | 92,471 | 30,057 | |||||||||
Payments to reacquire Common Stock | (63,825 | ) | (567,413 | ) | |||||||
Cash provided by financing activities | 1,831,662 | 1,922,549 | |||||||||
Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents | (59,521 | ) | 981 | ||||||||
Net decrease in cash and cash equivalents | (5,180,073 | ) | (912,245 | ) | |||||||
Cash and Cash Equivalents at Beginning of Period | 7,377,860 | 6,090,066 | |||||||||
Cash and Cash Equivalents at End of Period | $ | 2,197,787 | $ | 5,177,821 | |||||||
See notes to condensed consolidated financial statements (unaudited).
5
Tuscarora Incorporated
1. Condensed Consolidated Financial Statements
The condensed consolidated balance sheet at November 30, 2000 and the consolidated statements of income and consolidated statements of cash flows of Tuscarora Incorporated (the Company) for the three months ended November 30, 2000 and November 30, 1999 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, 2000 and for the periods presented have been made and are of a normal recurring nature. |
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 Companys 2000 Annual Report to Shareholders and incorporated by reference in the Companys annual report on Form 10-K for the fiscal year ended August 31, 2000. |
The results of operations for the three months ended November 30, 2000 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, | |||||||
2000 | 2000 | |||||||
Finished goods | $ | 12,406,692 | $ | 12,099,704 | ||||
Work in process | 236,695 | 118,190 | ||||||
Raw materials | 21,888,414 | 19,938,692 | ||||||
Supplies | 1,937,012 | 1,805,990 | ||||||
$ | 36,468,813 | $ | 33,962,576 | |||||
3. Adoption of FASB No. 133, Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in its fair value are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivatives change in fair value will be immediately recognized in earnings. |
At September 1, 2000 the Company had an existing interest-rate swap agreement (a derivative) that effectively converts a portion of its floating-rate debt to a fixed-rate basis through July 1, 2004, thus reducing the impact of interest-rate changes on future interest expense. At November 30, 2000 and September 1, 2000, respectively, $8.7 million and $9.3 million (approximately 11%) of the Companys outstanding variable rate debt under bank credit agreements was designated as the hedged item to the interest-rate swap agreement. |
6
Also at September 1, 2000, the Company had an existing interest rate cap agreement, which capped the variable rate interest payments on a portion of its floating-rate debt through July 1, 2004 at 8.5%. At November 30, 2000 and September 1, 2000, respectively, $8.7 million and $9.3 million (approximately 11%) of the Companys outstanding variable rate debt under bank credit agreements was covered by the interest rate cap agreement. At November 30, 2000, interest rates on the portion of debt corresponding to the cap agreement were below the cap of 8.5%. The fair value of the cap agreement and its impact on earnings were not material to the financial statements. |
The adoption of Statement No. 133 on September 1, 2000 resulted in the cumulative effect of an accounting change of ($1,137) being recognized as comprehensive income and a first quarter unrealized loss of ($77,991) in other comprehensive income, offsetting the fair value of the swap agreement described above. The effect on earnings was not material to the financial statements of the Company. |
4. Comprehensive Income
Total comprehensive income, shown before the related income tax effect, for the three months ended November 30, 2000 and 1999 was as follows: |
Three Months Ended November 30, | ||||||||
2000 | 1999 | |||||||
Net Income | $ | 4,141,261 | $ | 4,417,047 | ||||
Foreign currency translation (loss) | (431,255 | ) | (123,050 | ) | ||||
Change in fair value of derivative instruments | (77,991 | ) | | |||||
Comprehensive income before the cumulative effect of a change in accounting principle | 3,632,015 | 4,293,997 | ||||||
Cumulative effect on prior years (to August 31, 2000) of the adoption of FAS 133 | (1,137 | ) | | |||||
Comprehensive income | $ | 3,630,878 | $ | 4,293,997 | ||||
The income tax benefit related to comprehensive income for the three months ended November 30, 2000 and 1999 was $193,887 and $46,159, respectively. Accumulated other comprehensive (loss) consists of: |
November 30, | August 31, | |||||||
2000 | 2000 | |||||||
Foreign currency translation adjustments | $ | (2,745,714 | ) | $ | (2,314,459 | ) | ||
Unrealized loss from derivative instruments | (79,128 | ) | | |||||
$ | (2,824,842 | ) | $ | (2,314,459 | ) | |||
7
5. Net Income Per Share
The following table sets forth the computation of basic and diluted net income per share of Common Stock in accordance with the provisions of SFAS No. 128: |
Three Months Ended November 30, | |||||||||
2000 | 1999 | ||||||||
Net income | $ | 4,141,261 | $ | 4,417,047 | |||||
Weighted average shares of Common Stock outstanding basic | 9,304,386 | 9,411,473 | |||||||
Effect of dilutive securities: | |||||||||
Stock options | 129,585 | 57,200 | |||||||
Weighted average shares of Common Stock outstanding diluted | 9,433,971 | 9,468,673 | |||||||
Basic net income per share of Common Stock | $ | 0.45 | $ | 0.47 | |||||
Diluted net income per share of Common Stock | $ | 0.44 | $ | 0.47 | |||||
Securities not included in the computation of diluted net income per share of Common Stock for the periods presented were as follows: |
Three Months Ended November 30, | ||||||||
2000 | 1999 | |||||||
Stock options | 412,825 | 1,044,470 | ||||||
Option price range | $ | 14.96-$19.16 | $ | 12.50-$19.16 |
The options to purchase shares of Common Stock not included in the computation of diluted net income per share of Common Stock for the periods presented were excluded because the exercise price of the stock options was higher than the average market price of the shares of Common Stock during the periods. |
6. Business Acquisition
In September 2000, the Company purchased the operating assets of the Mt. Pleasant, Tennessee facility of Polyfoam Packers Corporation. In addition to a state-of-the-art custom foam molding facility, the Company acquired new customer accounts that are expected to add approximately $3,000,000 of new revenues in the 2001 fiscal year. The total consideration consisted of cash paid at closing and additional cash consideration which may be paid to the seller based on certain sales made in the future by the business acquired. The aggregate consideration paid and to be paid is not material. The acquisition was accounted for as a purchase. |
In October 2000, the Company acquired a 50% interest in Hytherm Packaging Limited, a custom foam molding company in Cork, Ireland. The 50/50 joint venture with Hytherm (Ireland) Limited will conduct business under the name Tuscarora (Ireland) Limited. The purchase price was not material. |
8
7. Share Repurchase Program
In October 1998, the Companys Board of Directors authorized the repurchase of up to 250,000 shares of the Companys Common Stock at prices not to exceed $15 per share through August 31, 1999. This authorization was subsequently extended through August 31, 2001, with the maximum number of shares that may be repurchased increased to 500,000. There was no increase in the maximum price per share that may be paid. During the three month period ended November 30, 2000, the Company repurchased 4,600 shares of Common Stock at prices ranging from $13.81 to $13.94 per share. During fiscal 2000, the Company repurchased 170,800 shares of Common Stock at prices ranging from $10.94 to $13.94 per share and during fiscal 1999, the Company repurchased 123,850 shares of Common Stock at prices ranging from $9.94 to $13.94 per share. |
8. Business Segments and Geographical Information
The Company currently operates in a single business segment as a custom designer and manufacturer of protective packaging, material handling products and specialty components. The Company has product design, sales and manufacturing operations in the U.S. and the U.K., as well as in Maquiladora zones in Mexico. The geographic distribution of net sales and operating income (loss) for the three months ended November 30, 2000 and 1999 and of long-lived assets at November 30, 2000 and August 31, 2000 is set forth below. A portion of U.S. selling expenses has been allocated to the Mexican operations for all periods presented since most of the design and selling activity for the Mexican operations is performed by U.S. personnel. Operating income (loss) is gross profit less selling and administrative expenses. |
Three Months Ended November 30, | ||||||||||
2000 | 1999 | |||||||||
Net Sales | ||||||||||
United States | $ | 61,513,711 | $ | 52,156,322 | ||||||
United Kingdom | 7,423,699 | 6,501,414 | ||||||||
Mexico | 7,150,609 | 6,060,067 | ||||||||
Total | $ | 76,088,019 | $ | 64,717,803 | ||||||
Operating Income (Loss) | ||||||||||
United States | $ | 6,810,334 | $ | 7,789,206 | ||||||
United Kingdom | 479,056 | (58,550 | ) | |||||||
Mexico | 509,089 | 361,550 | ||||||||
Total | $ | 7,798,479 | $ | 8,092,206 | ||||||
November 30, | August 31, | |||||||||
2000 | 2000 | |||||||||
Long-lived Assets | ||||||||||
United States | $ | 101,025,581 | $ | 96,105,956 | ||||||
United Kingdom | 12,889,220 | 11,724,457 | ||||||||
Mexico | 7,852,730 | 8,091,037 | ||||||||
Total | $ | 121,767,531 | $ | 115,921,450 | ||||||
9
9. 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 1996. On May 22, 2000, the trial judge granted the Company's Motion for Summary Judgment, thus adjudicating the lawsuit in favor of the Company. The plaintiff appealed, and on December 13, 2000 the Court of Appeals affirmed the decision of the trial judge in granting the Motion for Summary Judgment. On December 22, 2000 the plaintiff filed an Application for Reconsideration with the Court of Appeals, and on January 3, 2001 the Company filed a Memorandum in Opposition to the Application for Reconsideration. (See Item 1 of Part II of this quarterly report.) The Company intends to vigorously oppose the Application for Reconsideration. 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 dispositions of the lawsuit and the proceedings should not have a material adverse effect on the Company's financial position or results of operations. |
10. Other Information
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements, to clarify the revenue recognition rules for certain types of transactions. The Company is currently evaluating the effect of implementing SAB 101, which is required to be adopted by the Company by the fourth quarter of the fiscal year ending August 31, 2001. |
11. Subsequent Event
In December 2000, the Company announced an agreement in principle to acquire the business of Technapack, Inc., located in Hillsboro, Oregon, near Portland, Oregon, for a combination of cash, the assumption of certain liabilities and certain contingent payments. Technapack is a designer and manufacturer of specialty protective packaging solutions constructed from corrugated paperboard, fabricated foams and wood. Technapacks primary focus is on supplying Northwestern U.S. customers in the high technology and electronics industry. The acquisition is expected to be closed on or about January 31, 2001 and will add in excess of $6,000,000 annually to the Companys revenues. The acquisition will be accounted for under the purchase method of accounting and a portion of the purchase price will be allocated to goodwill. The aggregate consideration to be paid in connection with this acquisition will not be material. |
10
Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
Results of Operations Three Months Ended
November 30, 2000
Compared to Three Months Ended November 30, 1999
Net sales for the three months ended November 30, 2000 were $76.1 million, an increase of $11.4 million, or 17.6%, over the same period of fiscal 2000. A significant majority of the increase in net sales was attributable to increased demand for the Companys products in virtually all end-use markets in North America, with continued strong growth in sales to customers in the high technology, telecommunications and consumer electronics industries. However, the high rate of sales growth in these markets began to slow in the latter part of the current period. The balance of the increase in net sales is due primarily to higher selling prices for certain products. The higher selling prices were necessitated by increased raw material costs throughout the prior fiscal year, particularly for expandable polystyrene resins and corrugated paper.
Gross profit increased 9.3% to $17.8 million for the three months ended November 30, 2000, as compared to $16.3 million in the three months ended November 30, 1999. Market conditions during fiscal 2000 and the first quarter of fiscal 2001 were such that significant increases in raw material costs and significant increases in gas and electric utility prices could not be proportionally passed along to the Companys customers in the form of price increases for the Companys products. As a result, gross profit as a percent of sales decreased to 23.5% for the three months ended November 30, 2000, as compared to 25.2% for the three months ended November 30, 1999.
Selling and administrative expenses for the three months ended November 30, 2000 increased 22.1%, or $1.8 million, to $10.1 million. This increase is primarily attributable to higher employee costs, sales commissions and other selling expenses incurred to support the significantly higher level of sales. As a percentage of net sales, selling and administrative expenses increased to 13.2% in the three month period ended November 30, 2000 up from 12.7% in the three month period ended November 30, 1999.
Net sales for the United Kingdom operations for the three months ended November 30, 2000 and November 30, 1999 were $7.4 million and $6.5 million, respectively. The 14.2% increase in net sales volume was accompanied by a 42.6% increase in gross profit. Gross profit for the three months ended November 30, 2000 was $1.5 million, or 20.5% of net sales, up from $1.1 million, or 16.4% of net sales for the three months ended November 30, 1999. Selling and administrative expenses decreased slightly for the first quarter of fiscal 2000, as compared to the first quarter of fiscal 1999. Operating income for the first three months of fiscal 2001 was $479,056, as compared to an operating loss of $58,550 in the first three months of fiscal 2000. These increases in sales, gross profit, and operating income demonstrate continued improved results in the UK, although trading conditions there remained weak.
Net sales and operating income for the Mexican operations for the three months ended November 30, 2000 were $7.2 million and $509,089, respectively, compared to $6.1 million and $361,550, respectively, in the three months ended November 30, 1999. The 18.0% increase in net sales resulted from growth in business from existing customers as well as business from customers relocating their manufacturing facilities to Mexico. During the three months ended November 30, 2000, gross profit for the Mexican operations amounted to $1.4 million, or 19.1% of net sales, compared to a gross profit of $1.0 or 17.0% of net sales in the same period of the prior fiscal year.
11
Interest expense increased 38.6%, to $1.7 million in the first quarter of fiscal 2001, up from $1.2 million in the first quarter of fiscal 2000. As a percent of net sales, interest expense increased to 2.2% in the current fiscal quarter from 1.8% in the same period of the prior fiscal year. This increase is attributable to higher levels of outstanding debt during the current period primarily incurred to fund capital expenditures and build significantly higher raw material inventory levels due to rising raw material prices in the prior fiscal year.
Other income and expense netted to $531,966 of income for the three months ended November 30, 2000 as compared to $168,734 of income for the three months ended November 30, 1999. A one time gain on the sale of an investment in the amount of $460,254 was recorded for the first quarter of fiscal 2001.
Income before income taxes for the three months ended November 30, 2000 decreased to $6.7 million from $7.1 million in the same period of the prior fiscal year, a decrease of 5.5%. The effective tax rate increased to 38.0% in the current period, up from 37.5% in the prior period.
Net income for the three months ended November 30, 2000 was $4.1 million, or $0.45 per share, down 6.2% compared with net income of $4.4 million, or $0.47 per share, for the three months ended November 30, 1999. Net income was most significantly impacted by increases in manufacturing costs during the first quarter of fiscal year 2001, as discussed above.
Liquidity and Capital Resources
Cash provided by operating activities for the three months ended November 30, 2000 amounted to $3.3 million, as compared to $4.7 million during the three months ended November 30, 1999. Depreciation and amortization amounted to $4.7 million for the three months ended November 30, 2000 compared to $4.5 million for the same period of the prior fiscal year. Because a substantial portion of the Companys 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.
Inventory and accounts receivable at November 30, 2000 increased slightly to $36.5 million and $48.6 million, respectively, up from $34.0 million and $48.5 million, respectively, at August 31, 2000. Raw material inventories at both November 30, 2000 and August 31, 2000 were at higher than normal levels in an effort to minimize the effects of previously announced price increases. The Company expects its inventory levels to decrease as raw material prices stabilize. The slight increase in accounts receivable was due principally to the higher sales during the period. Accounts payable decreased to $13.5 million at November 30, 2000, as compared to $20.0 million at August 31, 2000. This decrease was a result of normal operating activities.
Capital expenditures for property, plant and equipment during the three months ended November 30, 2000 amounted to $5.9 million, including approximately $325,000 for environmental control equipment. Approximately 25% of the capital expenditures were for land, buildings and leasehold improvements, primarily consisting of renovations to existing facilities. A majority of the balance of the capital expenditures was for molding presses and other manufacturing and auxiliary equipment.
Long-term debt increased to $80.6 million at November 30, 2000, up from $78.8 million at August 31, 2000. Increases in debt were made under the Companys revolving credit facility, primarily to fund the acquisition of the operating assets of Polyfoam Packers Corporation in September 2000 (see Note 6 to the Condensed Consolidated Financial Statements (Unaudited)).
12
During the three months ended November 30, 2000, the Company spent $63,825 in connection with its share repurchase program (see Note 7 to the Condensed Consolidated Financial Statements (Unaudited)). On December 18, 2000, the Company declared a regular semi-annual cash dividend of $0.15 per share payable on January 8, 2001 to shareholders of record on December 28, 2000. Cash dividends of $0.135 per share were paid in both January and July 2000.
Cash provided by operating activities as supplemented by the amount available under the Companys credit agreement should be sufficient to fund the Companys operating needs, capital requirements and dividend payments as well as the Companys share repurchase program.
Market Risks
The Company is exposed to market risk from changes in interest rates and foreign exchange rates. There has been no material change in the Companys exposure to market risks since August 31, 2000.
Other
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements, to clarify the revenue recognition rules for certain types of transactions. The Company is currently evaluating the effect of implementing SAB 101, which is required to be adopted by the Company by the fourth quarter of the fiscal year ending August 31, 2001.
Forward-Looking Statements
This Managements Discussion and Analysis of Results of Operations and Financial Condition and the Notes to Condensed Consolidated Financial Statements (Unaudited) contain, in addition to historical information, certain forward-looking statements. Such statements (which are typically identified by the words believe, should, expect, anticipate and other expressions that look to the future) are based on assumptions and expectations which, although believed to be reasonable based on information available to the Company, are inherently subject to risks and uncertainties and which, consequently, may or may not be realized. The Company undertakes no obligation to update or revise any forward-looking statements. The risks and uncertainties inherent in the assumptions and expectations could be material, and include, but are not limited to, economic and market conditions, the impact of competition, consumer buying trends, pricing trends, fluctuations in the cost and availability of raw materials and the ability to maintain favorable customer and supplier relationships and arrangements.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On December 13, 2000, in 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 for Marion County, Ohio) the Third District Court of Appeals, Marion County, Ohio (the Court of Appeals) affirmed the May 22, 2000 decision of the trial judge in granting the Company's Motion for Summary Judgment, and thus the Court of Appeals affirmed the trial judges adjudication of the lawsuit in favor of the Company. The lawsuit, which was filed against the Company in 1996, sought substantial compensatory and punitive damages as a result of the alleged wrongful death of an employee, and was described in full, most recently, in Item 3 of the Companys annual report on Form 10-K for the fiscal year ended August 31, 2000. On December 22, 2000, the plaintiff filed an Application for Reconsideration with the Court of Appeals, and on January 3, 2001 the Company filed a Memorandum in Opposition to the Application for Reconsideration. The Company intends to vigorously oppose the Application for Reconsideration. In the opinion of management, the final 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
None
(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, 2000.
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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) |
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Date: January 16, 2001 |
By /s/ John P. OLeary, Jr. John P. OLeary, Jr., President and Chief Executive Officer |
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Date: January 16, 2001 |
By /s/ Brian C. Mullins
Brian C. Mullins, Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) |
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