SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
[ X ] OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
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 1-10258
Tredegar Industries, Inc.
(Exact name of registrant as specified in its charter)
Virginia 54-1497771
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1100 Boulders Parkway
Richmond, Virginia 23225
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (804) 330-1000
Indicate by check 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
The number of shares of Common Stock, no par value, outstanding as of
April 13, 1995: 9,035,697
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TREDEGAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
March 31 December 31
ASSETS 1995 1994
Cash and cash equivalents $ 5,001 $ 9,036
Accounts and notes receivable 91,458 73,248
Inventories 33,285 35,369
Income taxes recoverable 1,130 2,534
Deferred income taxes 14,778 14,014
Prepaid expenses and other 2,809 696
Total current assets 148,461 134,897
Property, plant and equipment 321,085 318,124
Less accumulated depreciation
and amortization 198,225 194,505
Net property, plant and equipment 122,860 123,619
Other assets and deferred charges 32,508 29,073
Goodwill and other intangibles 30,573 30,756
Total assets $ 334,402 $ 318,345
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 42,070 $ 31,486
Accrued expenses 42,131 41,288
Total current liabilities 84,201 72,774
Long-term debt 35,500 38,000
Deferred income taxes 21,682 20,336
Other noncurrent liabilities 16,419 15,357
Total liabilities 157,802 146,467
Shareholders' equity:
Common stock, no par value 136,691 136,150
Foreign currency translation
adjustment 605 327
Retained earnings 39,304 35,401
Total shareholders' equity 176,600 171,878
Total liabilities and
shareholders' equity $ 334,402 $ 318,345
See accompanying notes to financial statements.
2
TREDEGAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per-share amounts)
(Unaudited)
Three Months Ended
March 31
1995 1994
Net sales $151,083 $120,994
Other (expense) income, net (101) (231)
150,982 120,763
Cost of goods sold 128,005 102,250
Selling, general & administrative
expenses 12,421 11,295
Research & development expenses 1,970 1,839
Interest expense 723 1,177
Unusual items 650 9,521
143,769 126,082
Income (loss) from continuing
operations before income taxes 7,213 (5,319)
Income taxes 2,768 (226)
Income (loss) from continuing
operations 4,445 (5,093)
Income from discontinued operations - 8,693
Net income $ 4,445 $ 3,600
Earnings (loss) per share:
Continuing operations $ .49 $ (.47)
Discontinued operations - .80
Net income $ .49 $ .33
Shares used to compute earnings
(loss) per share 9,008 10,896
See accompanying notes to financial statements.
3
TREDEGAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months
Ended March 31
1995 1994
Cash flows from operating activities:
Continuing operations:
Income (loss) from continuing operations $ 4,445 $(5,093)
Adjustments for noncash items:
Depreciation 5,755 5,840
Amortization of intangibles 148 719
Write-off of intangibles - 9,521
Deferred income taxes 1,104 (2,682)
Accrued pension income and postretirement benefits, net (453) 298
Changes in assets and liabilities:
Accounts and notes receivable (14,873) (6,339)
Inventories 3,873 3,107
Income taxes recoverable 1,404 -
Prepaid expenses and other (2,113) (539)
Accounts payable 8,002 2,210
Accrued expenses and income taxes payable 269 5,115
Other, net (997) (1,055)
Net cash provided by continuing operating activities 6,564 11,102
Net cash provided by discontinued operating activities - 6,198
Net cash provided by operating activities 6,564 17,300
Cash flows from investing activities:
Continuing operations:
Capital expenditures (3,970) (3,824)
Acquisitions (net of $358 cash acquired) (3,637) -
Investments (800) -
Property disposals 175 280
Other, net 155 (124)
Net cash used in investing activities
of continuing operations (8,077) (3,668)
Discontinued operations:
Capital expenditures - (10)
Property disposals 7,927
Net cash provided by investing activities of
discontinued operations - 7,917
Net cash (used in) provided by investing
activities (8,077) 4,249
Cash flows from financing activities:
Dividends paid (542) (654)
Net decrease in borrowings (2,500) (19,000)
Other, net 520 (14)
Net cash used in financing activities (2,522) (19,668)
(Decrease) increase in cash and cash equivalents (4,035) 1,881
Cash and cash equivalents at beginning of period 9,036 -
Cash and cash equivalents at end of period $ 5,001 $ 1,881
Supplemental cash flow information:
Interest payments (net of amount capitalized) $ 84 $ 676
Income tax payments, net $ 1,810 $ 1,662
See accompanying notes to financial statements.
4
TREDEGAR INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying consolidated financial
statements of Tredegar Industries, Inc. and Subsidiaries ("Tredegar")
contain all adjustments necessary to present fairly, in all material
respects, Tredegar's consolidated financial position as of March 31,
1995, and the consolidated results of their operations and their cash
flows for the three months ended March 31, 1995 and 1994. All such
adjustments are deemed to be of a normal recurring nature. These
financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in
Tredegar's Annual Report on Form 10-K for the year ended December 31,
1994. The results of operations for the three months ended March 31,
1995 are not necessarily indicative of the results to be expected for
the full year.
2. On April 11, 1995, Tredegar's Board of Directors authorized a "Dutch
Auction" tender offer for up to one million shares of Tredegar's
common stock at a price range of $20 to $23 per share. The offer will
be funded with available cash and cash equivalents and borrowings
under Tredegar's revolving credit facilities. Additional information
(including pro forma data) concerning the offer is contained in
Tredegar's tender offer statement on Schedule 13E-4 filed with the
Securities and Exchange Commission on April 17, 1995.
During the first quarter of 1995, Tredegar granted stock options to
purchase 146,000 shares of Tredegar common stock at prices not less
than the fair market value on the date of grant ($17.375 to $18.75)
and for a term not to exceed 10 years.
3. The components of inventories are as follows:
(In thousands)
March 31 December 31
1995 1994
Finished goods $ 4,761 $ 4,970
Work-in-process 3,885 5,243
Raw materials 16,600 18,004
Stores, supplies and other 8,039 7,152
Total $33,285 $35,369
4. Unusual items in 1995 include a charge of $2.4 million ($1.6
million after income tax benefits or 17 cents per share) related to
the restructuring of APPX Software ("APPX") aimed at eliminating
operating losses and a recovery of $1.75 million ($1.1 million
after income taxes or 12 cents per share) related to a final
judgment in connection with a Film Products product liability
lawsuit. The APPX charge includes
5
estimated losses on the disposal of assets ($1,100,000), severance
costs ($600,000) and costs for the termination of leases and
certain contracts ($700,000). Product development efforts have
been curtailed while APPX continues to support its existing
products. APPX incurred operating losses (excluding unusual items)
in 1994 of $4.7 million ($3.1 million after income tax benefits) on
revenues of $2.5 million. APPX operating losses (excluding unusual
items) and revenues in the first quarter of 1995 were $478,000 and
$378,000, respectively, compared to $1,636,000 and $379,000,
respectively, in the first quarter of 1994.
Unusual items in 1994 include the write-off of goodwill and other
intangibles in APPX totalling $9.5 million ($7.6 million after income
tax benefits or 70 cents per share).
Net income and earnings per share from continuing operations, adjusted
for unusual items affecting the comparability of operating results,
are presented below:
(In thousands,
except per-share amounts)
Three Months
Ended March 31
1995 1994
Net income (loss) from
continuing operations $ 4,445 $(5,093)
After-tax effects of
unusual items:
Restructuring charges associated
with APPX 1,560 -
Recovery in connection with
a Film Products' product
liability lawsuit (1,068) -
Write-off of APPX
intangibles - 7,642
Income from continuing
operations as adjusted
for unusual items $ 4,937 $ 2,549
Earnings (loss) per share
from continuing operations:
As reported $ .49 $ (.47)
As adjusted for
unusual items .54 .23
5. Tredegar is reporting its former Energy segment, which was divested in
1994, as discontinued operations.
6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
First Quarter 1995 Compared with First Quarter 1994
Net income from continuing operations for the first quarter of 1995
was $4.4 million, or 49 cents per share, compared with a loss of $5.1
million, or 47 cents per share, in the first quarter of 1994. Unusual
items recognized in the first quarter of 1995 affecting the comparability
of operating results include a charge of $2.4 million ($1.6 million after
income tax benefits or 17 cents per share) for the restructuring of APPX
Software ("APPX") and a recovery of $1.75 million ($1.1 million after
income taxes or 12 cents per share) related to a final judgment in
connection with a Film Products product liability lawsuit. Unusual items
in the first quarter of 1994 affecting the comparability of operating
results includes a charge of $9.5 million ($7.6 million after income tax
benefits or 70 cents per share) for the write-off of goodwill and other
intangibles in APPX.
First quarter 1995 net income from continuing operations excluding
unusual items was $4.9 million, or 54 cents per share, compared with $2.5
million, or 23 cents per share, in the first quarter of 1994. Overall,
this significant increase was driven primarily by higher profits from
volume growth in Aluminum Extrusions. Other factors include a decrease in
losses at APPX due to restructuring, favorable performance in Molded
Products due to higher sales volume, lower interest expense from lower
average debt outstanding and accretion in earnings per share from share
repurchases in 1994. Film Products operating profits declined primarily
from lower domestic backsheet film volume and margins.
First quarter net sales increased 25% in 1995 due primarily to higher
selling prices reflecting higher aluminum and plastic resin costs. Sales
volume growth at Aluminum Extrusions, Molded Products and Brudi also
contributed to the increase (see Segment Results on page 9 for further
discussion).
The gross profit margin decreased to 15.3% in 1995 from 15.5% in 1994
due to lower margins in Film Products, partially offset by relatively lower
conversion costs on higher sales volume in Aluminum Extrusions and Molded
Products.
Selling, general and administrative expenses increased 10% over 1994
primarily in support of higher levels of sales. However, such expenses as
a percentage of sales declined from 9.3% in the first quarter of 1994 to
8.2% in the first quarter of 1995.
Research and development expenses increased 7% due to higher spending
at Molecumetics and higher product development spending at Film Products,
partially offset by the curtailment of product development spending at
APPX.
7
Interest expense for continuing operations decreased 39% as a result
of significantly lower average debt levels. The average interest rate on
debt outstanding during the first quarter of 1995 was 7.2% (all fixed-rate
debt) compared with 5.5% in 1994 (a mix of fixed and floating-rate debt).
Interest expense of $136,000 was allocated to discontinued operations in
the first quarter of 1994, based on relative capital employed.
The effective tax rate for continuing operations, excluding special
items, decreased to 37.2% in 1995 from 39.3% in 1994. The higher rate in
1994 reflects the combined effects of higher nondeductible goodwill
amortization and significantly lower income. A significant portion of the
nondeductible goodwill amortization was eliminated at the end of the first
quarter of 1994 with the write-off of APPX intangibles.
8
Segment Results
The following tables present Tredegar's net sales and operating profit
by segment for the three months ended March 31, 1995 and 1994.
Net Sales by Segment
(In thousands)
(Unaudited)
Three Months
Ended March 31
1995 1994
Plastics $ 82,634 $ 68,838
Metal Products 68,071 51,777
Technology 378 379
Total $151,083 $120,994
Operating Profit by Segment
(In thousands)
(Unaudited)
Three Months
Ended March 31
1995 1994
Plastics:
Ongoing operations $ 9,295 $ 8,995
Unusual items (a) 1,750 -
11,045 8,995
Metal Products 3,325 1,664
Technology:
Ongoing operations (1,655) (2,377)
Unusual items (b) (2,400) (9,521)
(4,055) (11,898)
Total $ 10,315 $ 1,239
Notes:
(a) Plastics segment unusual items consist of a recovery related to a
final judgment in connection with a Film Products product liability
lawsuit.
(b) Technology segment unusual items consist of a charge for restructuring
APPX in 1995 and a write-off of goodwill and other intangibles in APPX
in 1994.
Tredegar Film Products sales increased in 1995 due primarily to higher
average selling prices resulting from rising raw material costs. A decline
in domestic (which includes U.S. export business) backsheet film volume
from record levels in the first quarter of 1994 was partially offset by
higher volume in domestic permeable films, specialty films and at
9
foreign operations. Ongoing operating profit declined on lower volume
and margins in domestic backsheet film and lower margins in domestic
permeable films, partially offset by higher profits in specialty films
and at foreign operations. Lower margins in domestic backsheet and
permeable films were primarily driven by the combined effects of
substantially higher selling prices (reflecting higher plastic resin
costs) and lower profit per unit sold.
Tredegar Molded Products sales increased in 1995 due to higher prices
and volumes in all lines of business. Operating profit improved primarily
as a result of higher volume on relatively flat conversion costs.
Sales at Fiberlux improved over last year reflecting primarily higher
raw material costs. Operating results declined slightly.
Metal Products sales increased 31% over 1994 due primarily to higher
prices in Aluminum Extrusions reflecting higher aluminum costs and improved
sales at Brudi. Volume and profit improvements in Aluminum Extrusions
(volume increased 4.8%) were driven by growth in construction and
automotive markets and ongoing cost and quality improvements. Despite
higher sales at Brudi, operating profit declined due to accruals for bad
debt and warranty costs.
Sustaining the upward trend in Aluminum Extrusions' volume and profit
growth, which began in the first quarter of 1993, depends, in large
measure, on construction and automotive activity. A softening of these
markets, as evidenced recently by lower housing starts and continued
uncertainty regarding interest rates, could have an unfavorable impact on
growth and earnings.
Technology segment results for the first quarter of 1995 include a
charge of $2.4 million related to the restructuring of APPX aimed at
eliminating operating losses. Product development efforts have been
curtailed while APPX continues to support its existing products. APPX
incurred operating losses (excluding unusual items) in 1994 of $4.7 million
($3.1 million after income tax benefits) on revenues of $2.5 million. APPX
operating losses (excluding unusual items) and revenues in the first
quarter of 1995 were $478,000 and $378,000, respectively, compared to
$1,636,000 and $379,000, respectively, in the first quarter of 1994.
Excluding unusual items, Technology segment operating losses were $1.7
million and $2.4 million in the first quarters of 1995 and 1994,
respectively. Losses decreased as a result of cost reductions at APPX due
to the restructuring and the elimination of APPX intangibles amortization
with the write-off of such intangibles at the end of the first quarter of
1994, partially offset by higher research and development spending in
Molecumetics.
Liquidity and Capital Resources
Tredegar's total assets at March 31, 1995 were $334.4 million, an
increase of $16.1 million over December 31, 1994. The increase is due to
higher accounts receivable resulting from higher sales in Plastics and
Metal Products and the acquisition of a films business in Argentina,
partially offset by depreciation in excess of capital
10
expenditures of $1.8 million. Higher accounts payable reflect higher
raw material costs not fully reflected in inventories as a result of the
LIFO pricing method, and the recent acquisition in Argentina. The ratio
of current assets to current liabilities was 1.8 to 1 at March 31, 1995,
compared with 1.9 to 1 at December 31, 1994.
Debt was $35.5 million and $38 million at March 31, 1995, and December
31, 1994, respectively (including debt of $35 million at a fixed rate of
7.2% with an average remaining maturity of 5.25 years). Net debt (debt
less cash and cash equivalents) as a percentage of net capitalization was
14.7% at March 31, 1995, compared with 14.4% at December 31, 1994.
On April 11, 1995, Tredegar's Board of Directors authorized a "Dutch
Auction" tender offer for up to one million shares of Tredegar's common
stock at a price range of $20 to $23 per share. The offer will be funded
with available cash and cash equivalents and borrowings under Tredegar's
revolving credit facilities. Additional information (including pro forma
data) concerning the offer is contained in Tredegar's tender offer
statement on Schedule 13E-4 filed with the Securities and Exchange
Commission on April 17, 1995.
Net cash provided by continuing operating activities declined to $6.6
million in 1995 from $11.1 million in 1994 due to additional working
capital needed to support a higher level of sales activity. Despite this
working capital funding, cash from continuing operating activities exceeded
capital expenditures and dividends by $2 million. This excess cash
combined with the $9 million cash and cash equivalents balance at December
31, 1994, was used primarily for the films acquisition in Argentina ($3.6
million) and repayment of debt ($2.5 million), leaving approximately $5
million of cash and cash equivalents on hand at March 31, 1995.
11
PART II - OTHER INFORMATION
Item 5. Other Information.
On April 11, 1995, Tredegar's Board of Directors authorized a
"Dutch Auction" tender offer for up to one million shares of
Tredegar's common stock at a price range of $20 to $23 per share.
The offer will be funded with available cash and cash equivalents
and borrowings under Tredegar's revolving credit facilities.
Additional information (including pro forma data) concerning the
offer is contained in Tredegar's tender offer statement on
Schedule 13E-4 filed with the Securities and Exchange Commission
on April 17, 1995.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit No.
11 Statement re computation of earnings per share
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K have been filed for
the quarter ended March 31, 1995.
12
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.
Tredegar Industries, Inc.
(Registrant)
Date: April 17, 1995 /s/ N. A. Scher
Norman A. Scher
Executive Vice President,
Treasurer and Chief Financial
Officer (Principal Financial
Officer)
Date: April 17, 1995 /s/ D. Andrew Edwards
D. Andrew Edwards
Corporate Controller
(Principal Accounting Officer)
13
EXHIBIT INDEX
Exhibit No. Description
11 Statement re computation of earnings per share
27 Financial Data Schedule
14
EXHIBIT 11 - COMPUTATIONS OF EARNINGS PER SHARE
Tredegar Industries, Inc. and Subsidiaries
(In thousands, except per-share amounts)
(Unaudited)
Three Months
Ended March 31
1995 1994
Income (loss) from continuing operations $ 4,445 $(5,093)
Income from discontinued operations - 8,693
Net income $ 4,445 $ 3,600
Earnings (loss) per share as reported:
Income (loss) from continuing operations $ .49 $ (.47)
Income from discontinued operations - .80
Net income $ .49 $ .33
PRIMARY EARNINGS PER SHARE:
Shares issuable upon the assumed exercise
of outstanding stock options (1) 153 37
Weighted average common shares outstanding
during period 9,008 10,896
Weighted average common shares and common
stock equivalents 9,161 10,933
Primary earnings per share (2) $ .49 $ .33
FULLY DILUTED EARNINGS PER SHARE:
Shares issuable upon the assumed exercise
of outstanding stock options (3) 208 37
Weighted average common shares outstanding
during period 9,008 10,896
Weighted average common shares and common
stock equivalents 9,216 10,933
Fully diluted earnings per share (2) $ .48 $ .33
(1) Computed using the average market price during the related period.
(2) Common stock equivalents had an immaterial dilutive effect.
(3) Computed using the higher of the average market price during the
related period and the market price at the end of the related period.
5
1,000
3-MOS
DEC-31-1995
MAR-31-1995
5,001
0
96,557
5,099
33,285
148,461
321,085
198,225
334,402
84,201
35,500
136,691
0
0
39,909
334,402
151,083
150,982
128,005
128,005
14,410
631
723
7,213
2,768
4,445
0
0
0
4,445
.49
0
