ITEM 1. BUSINESS.
Tuscarora Incorporated (the "Company") was incorporated in 1962 as Tuscarora Plastics, Inc. The corporate name was changed in 1992 to reflect changes in the Company's business.
The Company custom designs and manufactures interior protective packaging and material handling solutions for a broad range of manufactured products. The Company also supplies customers with components for industrial and consumer product applications. In each of the Company's markets, the focus is on engineering practical, cost effective solutions to meet each customer's specific end-use requirements.
A variety of materials are used in the manufacture of the Company's products. The Company is the largest manufacturer of custom molded products made from expanded foam plastic materials in the United States, and as a result of an acquisition in October 1996, has become the largest manufacturer of such products in the United Kingdom (see "Business Acquisitions" below). The Company also manufactures products using materials, including corrugated paperboard, molded and/or die-cut foam plastic shapes, thermoformed plastic shapes and wood, either alone or in various combinations. The range of material options offered enables the Company to be competitive vis-a-vis companies which offer only a single material capability.
For the 1996, 1995 and 1994 fiscal years, the interior protective packaging and material handling products contributed approximately 86%, 88% and 87%, respectively, of the Company's net sales. The remainder has been accounted for by the components.
The Company's major markets are the high technology, consumer electronics, major appliance and automotive industries, but the Company competes in many other market segments as well. For the 1996, 1995 and 1994 fiscal years, the four major markets combined accounted for approximately 65%, 63% and 60%, respectively, of the Company's net sales.
The Company serves more than 2,500 customers located in the United States, Mexico, Canada and the United Kingdom from over 30 manufacturing locations. For the 1996 fiscal year, no customer accounted for 10% or more, and the Company's ten largest customers accounted for 32.7%, of the Company's net sales.
The Company has four manufacturing locations in the United Kingdom and one in Mexico. All the other manufacturing facilities are located in the United States. All these are east of the Mississippi River except for facilities in Colorado and New Mexico.
INTERIOR PROTECTIVE PACKAGING AND MATERIAL HANDLING PRODUCTS
The interior protective packaging products are used to protect a wide range of finished consumer and industrial goods during shipment. The products are designed to reduce or eliminate damage that may occur during shipment and handling as a result of shock, vibration or wide temperature fluctuations. Goods packaged in the Company's protective packaging include such items as:
Computers and computer peripherals Water heaters and air conditioners Televisions and VCRs Refrigerators Satellite dishes Microwave ovens Office equipment Coffee makers and other kitchen Vaccine containers appliances Liquid chemicals Toys Pharmaceuticals Outboard motors Military equipment Office furniture
These goods, together with the Company's interior protective packaging, are generally placed inside exterior shipping containers prior to shipment.
The material handling products generally serve the same purposes and functions as the packaging products but are used primarily in intra-plant and inter-plant movement of parts and components rather than shipment of finished goods. For example, automobile manufacturers and their suppliers transport parts to assembly plants using foam dunnage trays made by the Company. Material handling products also frequently serve as carriers to position parts for automated assembly. The Company also manufactures insulated shippers which transport temperature-sensitive materials for the chemical and pharmaceutical industries. The material handling products are generally more durable than the interior protective packaging products and are usually reusable, providing a cost-effective means of transporting materials that are sensitive or difficult to handle.
The interior protective packaging products are foam plastic shapes manufactured at the Company's custom molding facilities or products manufactured at the Company's integrated materials facilities. Most of the material handling products are also foam plastic shapes manufactured at the Company's custom molding facilities; however, in addition certain material handling products, such as durable returnable material handling pallets and trays, are made from rigid plastic materials and are manufactured at the Company's rigid plastic facilities.
The packaging and material handling products manufactured at the Company's custom molding facilities possess an unusual combination of useful properties such as exceptional lightness, impact resistance and shock absorbency, toughness and strength, thermal insulating efficiency, temperature tolerance, buoyancy and chemical biological neutrality. The cost of the products to the customer is often less than alternative types of
materials because, pound for pound, less material is required to provide equal or better protection. These products can also be easily and quickly handled thus reducing the customer's labor costs. Because foam plastic packaging shapes frequently require less space and are lighter than most other packaging materials, the customer is often able to reduce its product shipping costs. Similarly, properly designed foam plastic material handling devices often increase total yield per transportation container, thus reducing intra-plant or inter-plant freight cost.
The Company's integrated material facilities often combine foam plastics with other materials such as corrugated paperboard to produce protective packaging products with properties superior to those provided by a single material.
For the 1996, 1995 and 1994 fiscal years, sales of products manufactured by the Company's integrated materials facilities accounted for approximately 21%, 19% and 13%, respectively, of the Company's net sales, reflecting growth in the integrated materials business.
COMPONENTS
The Company manufactures foam plastic shapes which are used as components in automobiles, watercraft and recreational vehicles. Due to their light weight and high energy-absorbing properties, molded foam shapes are used as bumper cores and are positioned in door panels, steering wheels and dashboards to provide added passenger protection. Flotation and/or seating assemblies are made for the watercraft and recreational vehicles.
The Company manufactures thermal insulation components which are foam plastic shapes used by the appliance industries to provide insulation in products such as home and commercial refrigerators, freezers, air conditioners and water coolers. The construction industry also uses these shapes as insulation in poured concrete or block walls, in prefabricated metal buildings and as core material for factory-manufactured steel exterior doors.
In the high tech area, during the 1996 fiscal year the Company obtained a license for E-PAC, a design-for-assembly technology, utilizing foam plastic shapes, developed by Hewlett Packard in Germany. E-PAC is a concept for the internal assembly of electronic components that enables electronic device manufacturers to reduce both material cost and assembly time by bundling delicate electronic componentry into a lightweight, protective carrier that is placed inside an exterior housing.
The Company makes components such as garage door panels and motor vehicle trim from rigid plastic materials.
CUSTOM DESIGN
All the Company's products are custom designed. The Company has six design and testing centers which support the Company's custom molding and integrated materials operations in the United States and Mexico and are strategically located throughout the United States. A separate design and testing center supports the Company's rigid plastics operations; and a separate design and testing center supports the manufacturing operations in the United Kingdom. The centers are staffed by design and engineering personnel who study and evaluate the requirements of the Company's customers. Four of the centers are certified International Safe Transit Association (ISTA) testing laboratories. The Company's customers make extensive use of the design and testing centers.
With respect to the custom molding operations, prototype foam shapes are developed at the design and testing centers. After a shape is approved by the customer, one or more aluminum production molds are made and then shipped to a custom molding facility, generally the one nearest the customer, for production. The Company makes most of the production molds for its manufacturing operations in the United States and Mexico at a single mold making facility in the United States. In the United Kingdom, the building of the production molds is outsourced to a third party.
The design and technical centers and mold making facility are equipped with computer-aided design (CAD) and computer-aided manufacturing (CAM) systems.
Sales offices are located at each of the design and testing centers.
MANUFACTURING
The Company has 22 custom molding facilities and seven integrated materials facilities and manufactures rigid plastic products at three locations. The facilities are generally strategically situated near manufacturing facilities of the Company's customers. The location of all the Company's manufacturing facilities, as well as the design and testing centers and related sales offices and the mold making facility, is set forth under Item 2
ITEM 2. PROPERTIES.
The Company's headquarters are located at 800 Fifth Avenue, New Brighton, Pennsylvania 15066.
The Company has custom molding facilities at the following locations:
Colorado Springs, Colorado New Brighton, Pennsylvania Putnam, Connecticut Greeneville, Tennessee Conyers, Georgia Lewisburg, Tennessee Streator, Illinois (two facilities) Martinsville, Indiana Sterling, Virginia Chesaning, Michigan Pardeeville, Wisconsin Tupelo, Mississippi Juarez, Mexico Las Cruces, New Mexico Northampton, England Cortland, New York Spennymoor, England Butner, North Carolina Glasgow, Scotland Marion, Ohio Livingston, Scotland
The Company purchased the custom molding facility in Tupelo, Mississippi which was previously leased in November 1995, completed the construction of the custom molding facility in Spennymoor, England in June 1996 (see "New Site Development" under Item 1) and acquired the custom molding facility in Livingston, Scotland in a business acquisition in October 1996 (see "Business Acquisitions" under Item 1). See also "New Site Development" under Item 1 for information with respect to additional custom molding facilities under construction and to be constructed.
The Company manufactures products from EPS at all its custom molding facilities except one of the facilities in Lewisburg, Tennessee which is a dedicated polyolefins plant. Products are also made from one or more of the Company's premium raw material resins at a majority of the custom molding facilities.
The Company has integrated materials facilities at the following locations:
Colorado Springs, Colorado Beaver, Pennsylvania Conyers, Georgia Greeneville, Tennessee Holden, Massachusetts Burlington, Wisconsin Saginaw, Michigan
The integrated materials facilities in Colorado Springs, Colorado, Conyers, Georgia and Greeneville, Tennessee are at different sites from the custom molding facilities at these locations. Some integrated materials operations are also conducted at the Company's custom molding facilities in Tupelo,
Mississippi, Butner, North Carolina, Juarez, Mexico and Northampton, England.
The Company acquired the integrated materials facility in Colorado Springs, Colorado in a business acquisition in December 1995 (see "Business Acquisitions" under Item 1). After this acquisition, the Company transferred its integrated materials operations at its custom molding plant in Colorado Springs to the new integrated materials facility.
The Company acquired a custom thermoforming facility in Sandusky, Ohio in a business acquisition in September 1996 (see "Business Acquisitions" under Item 1). After this acquisition, the Company transferred its rigid plastic operations in Beaver, Pennsylvania to the new thermoforming facility in Sandusky, Ohio and to the Company's other existing facilities where rigid plastic products are manufactured in Conyers, Georgia and Burlington, Wisconsin. In Conyers, Georgia and Burlington, Wisconsin, the rigid plastic products are manufactured at the same sites where integrated materials products are manufactured.
The Company's mold making facility is in Sun Prairie, Wisconsin. This facility is considered a manufacturing facility because most of the aluminum production molds that are made by the Company at this facility are sold to and owned by the Company's customers.
All the custom molding facilities in the United States are owned by the Company except the facility in Colorado Springs, Colorado and the EPS facility in Lewisburg, Tennessee. The Company has options to purchase these facilities. All the Company's other manufacturing facilities are leased (except for the custom molding facility in Livingston, Scotland and the integrated materials facility in Saginaw, Michigan), but the Company also has options to purchase many of these leased facilities. The Company generally makes substantial leasehold improvements to, and exercises its options to purchase, the leased facilities. The leases for the manufacturing facilities expire at various dates from June 1997 through November 2006. In many cases, the leases may be extended at the Company's option.
The Company's custom molding and integrated materials operations are supported by design and testing centers located at the Company's headquarters in New Brighton, Pennsylvania, at the custom molding facility in Colorado Springs, Colorado, at the manufacturing facilities in Holden, Massachusetts, Burlington, Wisconsin and Northampton, England and at separate facilities in Conyers, Georgia and Holly, Michigan. The Company's rigid plastic operations are supported by a design and testing center at the new custom thermoforming facility in Sandusky, Ohio. Sales offices are located at each of the design and testing centers.
The Company has warehouse facilities at each manufacturing location as well as in other locations. The
Company continues to own properties in Essex, Connecticut, Louisville, Kentucky, Baltimore, Maryland and Durham, North Carolina where former manufacturing operations have been discontinued. All but one of these properties is leased to a third party.
The Company believes that its facilities are generally well suited for their respective uses and that they are generally adequately sized and designed to provide the operating efficiencies necessary for the Company to be competitive. The Company continually expands and modernizes its existing facilities and establishes new facilities as necessary to meet the demand for its products.
Information with respect to the machinery and equipment used in the Company's manufacturing operations and with respect to the Company's transportation equipment provided in Item 1 of this annual report is also incorporated by reference in this Item 2.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
In June 1995, a Complaint was filed against the Company in Edwina Wilhoit v. Tuscarora, Inc., a civil action in the United States District Court for the Eastern District of Tennessee in Greeneville, Tennessee. The plaintiff, an employee at one of the Company's manufacturing facilities in Greeneville, Tennessee, alleged sexual harassment and assault by the Company's former plant manager in violation of Title VII of the 1964 Federal Civil Rights Act, as amended, the Tennessee Human Rights Act and Tennessee common law; and alleged a past pattern of sexual assault by the former plant manager. Substantial compensatory and punitive damages were sought. This matter, which was first reported in the annual report on Form 10-K for the 1995 fiscal year, was settled in July 1996 under a confidential agreement between the plaintiff and the Company.
In October 1995, a Complaint was filed against the Company in L. Marie Roberts v. Tuscarora Incorporated, et al., a civil action in the State Court of Rockdale County, Georgia. The plaintiff, a former employee at one of the Company's manufacturing facilities in Conyers, Georgia, alleged sexual harassment by the plaintiff's supervisor and the Company's plant manager, respectively, and sexual assault by the plaintiff's supervisor. The plaintiff alleged various causes of action under Georgia law and seeks an unspecified amount of compensatory and punitive damages. After investigation, the Company terminated the employment of the supervisor but determined that the plant manager was not at fault. On the basis that the plaintiff alleged a cause of action under Title VII of the 1964 Federal Civil Rights Act, as amended, the Company removed the action to the United States District Court for the Northern District of Georgia, Atlanta Division. In October 1996, a Motion for Summary Judgment filed by the Company was granted and the action in the United States District Court was dismissed as to plaintiff's
federal claims, but the District Court remanded any remaining state law claims to the State Court. The Company will continue to vigorously contest this proceeding which was also first reported in the annual report on Form 10-K for the 1995 fiscal year. Among other arguments, the Company will argue on res judicata and collateral estoppel grounds that the federal court action disposed of any state law claims against the Company.
Since 1992, the Company has been involved in cost recovery litigation with the United States Environmental Protection Agency (the "USEPA") and other parties over clean up costs at the Smith's Farm Superfund Site in Bullitt County, Kentucky. The litigation was commenced in February 1992 in the United States District Court for the Western District of Kentucky under the caption AKZO Coatings, Inc., et al. v. AC&S, Inc., et al. In 1988, the Company may have generated small amounts of scrap product and warehouse demolition waste debris that were transported to the site from the Company's custom molding facility in Louisville, Kentucky where operations have since been discontinued. The Company denies that either the scrap product or the demolition debris contained hazardous substances. In May 1996, the USEPA, as part of a global settlement, offered a settlement to certain de minimis parties, including the Company, under which the Company's share of the clean up costs would be approximately $70,000. The Company has notified the USEPA that the settlement proposed is acceptable. A Consent Order, which will contain a covenant not-to-sue and contribution protection, is being negotiated.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the Company during the fiscal quarter ended August 31, 1996.
EXECUTIVE OFFICERS OF THE COMPANY
In accordance with Instruction 3 to Item 401(b) of Regulation S-K, information with respect to the executive officers of the Company is set forth below.
John P. O'Leary, Jr. has been President and Chief Executive Officer of the Company since prior to September 1991. He has been a director of the Company since 1974 and became Chairman of the Board of Directors in August 1994.
Brian C. Mullins has been Vice President and Treasurer of the Company since prior to September 1991. Mr. Mullins is the Company's chief financial and accounting officer.
James H. Brakebill has been Vice President, Manufacturing of the Company since April 1994; he was Vice President of Technology from prior to September 1991 to April 1994. Mr. Brakebill is responsible for all manufacturing operations of the Company.
David C. O'Leary has been Vice President, Sales and Marketing of the Company since April 1994; he was Vice President-Southern Division from prior to September 1991 to April 1994. Mr. O'Leary is responsible for all sales and marketing activities of the Company.
John P. O'Leary, Jr. and David C. O'Leary are brothers.
The executive officers are elected annually by the Board of Directors at an organization meeting which is held immediately after each Annual Meeting of Shareholders.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the over-the-counter market on the National Market System of the National Association of Securities Dealers ("NASDAQ"). The Common Stock trades under the NASDAQ symbol TUSC. As of August 31, 1996, there were 824 holders of record of the Company's Common Stock.
Information with respect to the market prices of, and the cash dividends paid with respect to, the Company's Common Stock during the fiscal years ended August 31, 1996 and 1995 appears under Note 12 Quarterly Financial Data (unaudited) of the Notes to Consolidated Financial Statements on page 19 of the Company's Annual Report to Shareholders for the fiscal year ended August 31, 1996 and is incorporated herein by reference.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data required by this Item 6 is furnished by the "Eleven Year Consolidated Financial Summary" which appears on the bottom half of the inside front cover of the Company's Annual Report to Shareholders for the fiscal year ended August 31, 1996 and is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
The Management's Discussion and Analysis of Results of Operations and Financial Condition required by this Item 7 appears on pages 19 through 21 of the Company's Annual Report to Shareholders for the fiscal year ended August 31, 1996 and is incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements and related notes and report appear on the pages indicated in the Company's Annual Report to Shareholders for the fiscal year ended August 31, 1996 and are incorporated herein by reference:
The supplementary financial information required by this Item 8 is included in Note 12--Quarterly Financial Data (unaudited) of the Notes to Consolidated Financial Statements and is also incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
The information required by this Item 9 was included in current reports on Form 8-K filed by the Company with the Commission on February 15, 1996 and November 14, 1996.
PART III
ITEMS 10 THROUGH 13.
In accordance with the provisions of General Instruction G to Form 10-K, the information required by Item 10
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
The financial statements, financial statement schedules and exhibits listed below are filed as part of this annual report:
(a)(1) Financial Statements:
The consolidated financial statements of the Company and its subsidiaries, together with the report of S.R. Snodgrass, A.C., dated October 11, 1996, appearing on pages 8 through 19 of the Company's Annual Report to Shareholders for the fiscal year ended August 31, 1996, are incorporated herein by reference (see Item 8 above).
(a)(2) Financial Statement Schedules:
All other Financial Statement Schedules are omitted either because they are not applicable or are not material, or the information required therein is contained in the consolidated financial statements or notes thereto set forth in the Company's Annual Report to Shareholders for its fiscal year ended August 31, 1996.
(a)(3) Exhibits:
- --------------- * Management contract or compensatory plan, contract or arrangement required to be filed by Item 601(b)(10)(iii) of Regulation S-K.
The Company agrees to furnish to the Commission upon request copies of all instruments defining the rights of holders of long-term debt of the Company and its subsidiaries which are not filed as a part of this annual report.
Copies of the exhibits filed as a part of this annual report are available at a cost of $.20 per page to any shareholder of record upon written request to Brian C. Mullins, Vice President and Treasurer, Tuscarora Incorporated, 800 Fifth Avenue, New Brighton, Pennsylvania 15066.
(b)Reports on Form 8-K:
No current reports on Form 8-K were filed during the fiscal quarter ended August 31, 1996.
[This space intentionally left blank.]
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Tuscarora Incorporated
By /s/ JOHN P. O'LEARY, JR. ---------------------------------- John P. O'Leary, Jr., President and Chief Executive Officer
Date: November 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company in the capacities indicated on November 27, 1996:
/s/ JOHN P. O'LEARY, JR. /s/ BRIAN C. MULLINS - ------------------------- ----------------------- John P. O'Leary, Jr. Brian C. Mullins (Director and Chief (Principal Financial Executive Officer) Officer and Principal Accounting Officer)
Thomas S. Blair David I. Cohen Abe Farkas Karen L. Farkas Robert W. Kampmeinert David C. O'Leary Harold F. Reed, Jr. James I. Wallover Thomas P. Woolaway
By /s/ BRIAN C. MULLINS --------------------- Brian C. Mullins, Attorney-in-Fact
TUSCARORA INCORPORATED
Schedule II - Valuation Account Years Ended August 31, 1996, 1995 and 1994
- --------------- (1) Uncollected receivables written off, net of recoveries.
S-1
REPORT OF INDEPENDENT ACCOUNTANTS ON SCHEDULE
Tuscarora Incorporated New Brighton, Pennsylvania
Our report on the consolidated financial statements of Tuscarora Incorporated and subsidiaries has been incorporated by reference in this Form 10-K from the Company's 1996 Annual Report to Shareholders and appears on page 19 therein. In connection with our audits of such financial statements, we have also audited the related financial statement schedule which appears on page S-1 of this annual report on Form 10-K.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly the information required to be included therein.
/s/ S.R. SNODGRASS, A.C. --------------------------- Beaver Falls, Pennsylvania S.R. SNODGRASS, A.C., October 11, 1996 Certified Public Accountants
S-2
TUSCARORA INCORPORATED FORM 10-K FOR FISCAL YEAR ENDED AUGUST 31, 1996 EXHIBIT INDEX
The following exhibits are required to be filed with this annual report on Form 10-K. Exhibits are incorporated herein by reference to other documents pursuant to Rule 12b-23 under the Securities Exchange Act of 1934, as amended, as indicated in the index. Exhibits not incorporated herein by reference follow the index.
- -----------
* Management contract or compensatory plan, contract or arrangement required to be filed by Item 601(b)(10)(iii) or Regulation S-K.