Item 1. Business.
General
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 protective packaging and material handling products and supplies custom designed components for industrial and consumer product applications. The Company uses a variety of materials to produce its products. In each of its markets, the Company’s focus is to engineer a practical, cost effective solution to meet each customer’s specific end-use requirements.
Protective packaging and material handling products and components are manufactured using custom molded foam plastic materials and thermoplastics. Protective packaging and material handling products are also manufactured by using other materials, including corrugated paperboard, molded and/or diecut foam plastics, thermoformed plastics and wood either alone or in various combinations. The range of material options offered enables the Company to be competitive vis-à-vis companies that only offer products made from a single material.
In the 2000, 1999 and 1998 fiscal years, the protective packaging and material handling products contributed approximately 88%, 86% and 86%, respectively, of the Company’s net sales. The remainder was accounted for by the component products.
The Company has six principal target markets. Those markets are, and the approximate percentages of the Company’s net sales accounted for by each during fiscal year 2000 were, as follows: high technology and telecommunications -28%, automotive and recreational vehicles -17%, consumer electronics -16%, large and small appliances -14%, building products and office furniture -10% and pharmaceuticals and specialty chemicals -6%. The Company competes in other market sectors as well.
The Company serves more than 3,600 customers, located in North America and Europe. For the 2000 fiscal year, no customer accounted for more than 3%, and the Company’s ten largest customers accounted for approximately 21%, of the Company’s net sales.
Protective packaging products made from foam plastic and other materials are used to protect a wide range of finished 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 appliances
Vaccine containers
Telecommunications equipment
Liquid chemicals
Toys
Pharmaceuticals
Outboard motors
Military equipment
Office furniture
Until recently, the Company’s focus has been limited to providing interior protective packaging, i.e., packaging where the customer’s goods, together with the Company’s protective packaging, are placed inside exterior shipping containers prior to shipment. Presently, the Company more and more is providing protective packaging that includes outer containers made of corrugated paperboard, wood or thermoplastics. The Company also supplies customers with value added features such as molded or diecut partitions that position accessories such as electronic cables and operating manuals that are shipped with the customer’s goods. Similar value added features are also being provided in regard to the Company’s material handling products and components.
Material handling products generally serve the same purposes and functions as the protective 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 pharmaceutical and chemical industries. The material handling products are generally more durable than the protective packaging products and are usually reusable, providing a cost-effective means of transporting materials that are sensitive or difficult to handle. Most of the material handling products are foam plastic shapes; however, certain material handling products, such as durable returnable material handling pallets, trays and fixtures, are made from thermoformed as well as integrated materials.
The protective packaging and material handling products made from expanded foam plastic materials 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 and 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 products often increase total yield per transportation container, thus reducing intra-plant or inter-plant freight cost.
The protective packaging and material handling products made from a variety of materials are made by integrating foam plastic shapes with other materials such as corrugated paperboard and wood to produce products with superior properties and/or lower costs compared to products made from a single material. In addition, the Company’s product offerings include specialty corrugated containers and custom wood crating products.
Thermoformed products are used to hold goods and parts in place during shipment or handling. Thermoformed products are sometimes used where the shock absorbency or thermal insulating properties of foam plastic are not required. Because transparent plastic materials can be thermoformed, these materials are often used to create a package that allows the consumer to view the enclosed product. The Company supplies thermoformed products to most of the Company’s target markets.
The Company also manufactures molded 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, for example, in door panels, steering wheels and dashboards to provide added passenger protection. Flotation and/or seating assemblies are made for watercraft and recreational vehicles.
The Company manufactures thermal insulation components which are foam plastic shapes used by appliance manufacturers 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.
The Company also makes components from thermoformed materials. Components made from thermoformed materials are used in applications such as garage door panels and motor vehicle trim.
Custom Design
Virtually all of the Company’s products are custom designed. The Company has nine design and testing centers which support the Company’s sales efforts and manufacturing operations. The centers are staffed by design and engineering personnel who study and evaluate the requirements of the Company’s customers. Five 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 making of the production molds is outsourced to a third party.
The design and testing centers and mold making facility are equipped with and extensively use computer-aided design (CAD) and computer-aided manufacturing (CAM) systems. The locations of the design and testing centers and the mold making facility are set forth under Item 2
Item 2. Properties.
The Company’s headquarters are located at 800 Fifth Avenue, New Brighton, Pennsylvania 15066.
Manufacturing and Design and Testing Facilities. The Company’s manufacturing and design and testing facilities are located as follows:
During the 2000 fiscal year, the Company closed a custom molding facility in London, England and redistributed its business among other U.K. facilities. During the 2000 fiscal year, the Company, acquired the integrated materials facility in Dallas, Texas (see “Business Acquisitions” under Item 1), established a new integrated materials facility in Guadalajara, Mexico (see “New Site Development” under Item 1), transferred its integrated materials operations in Beaver, Pennsylvania to the facility in Darlington, Pennsylvania and discontinued an integrated materials facility in Lindon, Utah.
In September 2000, the Company acquired the custom molding facility in Mt. Pleasant, Tennessee (see “Business Acquisitions” under Item 1) and in October 2000, the Company acquired a 50% interest in the custom molding facility in Cork, Ireland (see “Business Acquisitions” under Item 1).
Other Facilities. 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 are owned by the Company’s customers.
Miscellaneous. Most of the custom molding facilities are owned while a majority of the other facilities are leased. The Company has options to purchase most of the leased facilities and generally makes substantial leasehold improvements to, and exercises its options to purchase, the leased facilities. The leases expire at various dates through March 2010. In many cases, the leases may be extended at the Company’s option.
The Company has warehouse facilities at each manufacturing location. Additional warehouse facilities are located near certain of the Company’s manufacturing facilities and near the manufacturing facilities of certain major customers. All the outside warehouse facilities are leased.
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 the Company’s transportation equipment is included in Item 1 of this annual report. The information is incorporated in this Item 2 by reference.
Item 3.
Item 3. Legal Proceedings.
John C. Bartram, Administrator of the Estate of Dwayne Scott Mount, Deceased v. Tuscarora Incorporated, et al. -Case No. 96CV-0511 in the Court of Common Pleas for Marion County, Ohio. In December 1996, the Administrator of the Estate of Dwayne Scott Mount (the “Decedent”) filed a Complaint for Wrongful Death in the captioned civil action against the Company and Toyo Machine and Metal Co., Ltd. (“Toyo”). Decedent, an employee of the Company, was killed in May 1996 while working on a molding machine at the Company’s custom molding plant in Marion, Ohio. The molding machine was manufactured by Toyo. Count I of the Complaint states an intentional employer tort claim and alleges that the Decedent was wrongfully killed as a result of certain alleged intentional conduct of the Company. Under Count I, plaintiff seeks both compensatory and punitive damages from the Company of not less than $5,000,000. Count II of the Complaint stated a products liability claim and alleged that the Decedent was wrongfully killed as a result of the defective design and/or manufacture of the molding machine by Toyo. Under Count II, plaintiff sought both compensatory and punitive damages from Toyo. In March 1999, plaintiff voluntarily dismissed, without prejudice, its claims against Toyo.
Having learned during discovery that the Company did not own the molding machine but used it under an agreement with Kaneka America Corporation (“Kaneka America”), the plaintiff, upon Motion made to the Court in April 1998, was permitted by the Court to file an Amended Complaint which named Kaneka America and Kaneka Texas Corporation (“Kaneka Texas”) as additional defendants. Kaneka America, the owner of the molding machine at the time it was acquired by the Company, leased the machine to Kaneka Texas in April 1992 and then sold it to Kaneka Texas in March 1995. The Amended Complaint added a Count III which stated a breach of contract claim against Kaneka America and/or Kaneka Texas alleging that the Decedent was wrongfully killed as a result of the failure of Kaneka America and/or Kaneka Texas to assist the Company in maintaining the safety of the molding machine pursuant to the agreement between the Company and Kaneka America. Under Count III, plaintiff sought both compensatory and punitive damages from Kaneka America and/or Kaneka Texas of not less than $5,000,000. In June 1999, plaintiff settled its claims against Kaneka America and Kaneka Texas for $75,000.
On May 22, 2000, the trial judge granted the Company’s Motion for Summary Judgment, thus adjudicating the lawsuit in favor of the Company. On May 23, 2000, the plaintiff filed an appeal with the Third District Court of Appeals, Marion County, Ohio. The Company is vigorously contesting the appeal. 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 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, 2000.
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.
Name
Age
Office with the Company
John P. O’Leary, Jr.
President and Chief Executive Officer
David C. O’Leary
Senior Vice President and Chief Operating Officer
Brian C. Mullins
Senior Vice President, Chief Financial Officer and Treasurer
John P. O’Leary, Jr. has been President and Chief Executive Officer of the Company since prior to September 1995. He has been a director of the Company since 1974 and became Chairman of the Board of Directors in August 1994.
David C. O’Leary has been a Vice President and the chief operating officer of the Company since May 1997. His title was changed to Senior Vice President and Chief Operating Officer in October 1998. He was Vice President-Sales and Marketing from prior to September 1995 to May 1997. The Vice Presidents in charge of the Company’s operating divisions report directly to David C. O’Leary.
Brian C. Mullins has been Vice President and Treasurer of the Company as well as its chief financial and accounting officer since prior to September 1995. His title was changed to Senior Vice President, Chief Financial Officer and Treasurer in October 1998.
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 organizational 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, 2000, there were 597 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, 2000 and 1999 appears in Note 19 -Quarterly Financial Data (unaudited) of the Notes to Consolidated Financial Statements contained in the Company’s Annual Report to Shareholders for the fiscal year ended August 31, 2000 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, 2000 and is incorporated herein by reference.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
The information required by this Item 7 appears under the caption “Management’s Discussion and Analysis of Results of Operations and Financial Condition” on pages 27 through 31 of the Company’s Annual Report to Shareholders for the fiscal year ended August 31, 2000 and is incorporated herein by reference.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The quantitative and qualitative disclosure about market risk required by this Item 7A appears in the Management’s Discussion and Analysis of Results of Operations and Financial Condition under the caption “Market Risks” on page 30 of the Company’s Annual Report to Shareholders for the fiscal year ended August 31, 2000 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, 2000 and are incorporated herein by reference:
The supplementary financial information required by this Item 8 appears in Note 19 -Quarterly Financial Data (unaudited) of the Notes to Consolidated Financial Statements contained in the Company’s Annual Report to Shareholders for the fiscal year ended August 31, 2000 and is also incorporated herein by reference.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There were no such events and therefore this Item 9 is not applicable.
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 schedule 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 Ernst & Young LLP, dated October 6, 2000, appearing on pages 13 through 27 of the Company’s Annual Report to Shareholders for the fiscal year ended August 31, 2000, are incorporated herein by reference (see Item 8 above).
(a)(2) Financial Statement Schedules:
The report of Ernst & Young LLP with respect to Schedule II is included in the consent of Ernst & Young LLP filed with this annual report as Exhibit 23.
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 the fiscal year ended August 31, 2000.
(a)(3) Exhibits:
Exhibit
No.
Document
3(i)
Restated Articles of Incorporation, as amended by the Company’s shareholders at the Annual Meeting of Shareholders held on December 17, 1998, and Statement with Respect to Shares of Series A Junior Participating Preferred Stock, filed as Exhibit 3(i) to the Company’s quarterly report on Form 10-Q for the fiscal quarter
*
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 upon written request to Brian C. Mullins, Senior Vice President, Chief Financial Officer and Treasurer, Tuscarora Incorporated, 800 Fifth Avenue, New Brighton, Pennsylvania 15066.
(b) Reports on Form 8-K:
The Company filed one current report on Form 8-K on June 12, 2000 reporting under Item 5 developments related to the John C. Bartram litigation in the Court of Common Pleas for Marion County, Ohio (see Item 3 of this annual report).
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.
Date: November 29, 2000
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 29, 2000:
/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)
David I. Cohen
Abe Farkas
Karen L. Farkas
Robert W. Kampmeinert
Jeffery L. Leininger
David C. O’Leary
Harold F. Reed, Jr. and
Thomas P. Woolaway,
Directors
By /s/ Brian C. Mullins
Brian C. Mullins,
Attorney-in-Fact
TUSCARORA INCORPORATED
Schedule II -Valuation Account
Years Ended August 31, 2000, 1999 and 1998
(1)
Uncollected receivables written off, net of recoveries.
S-1
TUSCARORA INCORPORATED
FORM 10-K FOR FISCAL YEAR AUGUST 31, 2000
EXHIBIT INDEX