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, 1996
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 of (I.R.S. Employer
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
30, 1996: 12,196,488
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Tredegar Industries, Inc.
Consolidated Balance Sheets
(In Thousands)
(Unaudited)
March 31, Dec. 31,
1996 1995
--------- --------
Assets
Current assets:
Cash and cash equivalents $ 63,721 $ 2,145
Accounts and notes receivable 61,794 71,673
Inventories 17,516 33,148
Income taxes recoverable -- 2,179
Deferred income taxes 16,459 14,882
Prepaid expenses and other 2,792 2,375
Net assets of Brudi held for sale 18,192 --
-------- --------
Total current assets 180,474 126,402
-------- --------
Property, plant and equipment, at cost 256,392 326,526
Less accumulated depreciation and amortization 164,155 204,074
-------- --------
Net property, plant and equipment 92,237 122,452
-------- --------
Other assets and deferred charges 35,606 35,186
Goodwill and other intangibles 19,831 30,012
======== ========
Total assets $328,148 $314,052
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 28,101 $ 31,105
Accrued expenses 36,392 38,648
Income taxes payable 6,868 --
-------- --------
Total current liabilities 71,361 69,753
Long-term debt 35,000 35,000
Deferred income taxes 19,545 22,218
Other noncurrent liabilities 15,926 16,560
-------- --------
Total liabilities 141,832 143,531
-------- --------
Shareholders' equity:
Common stock, no par value 113,119 112,908
Foreign currency translation adjustment 413 445
Retained earnings 72,784 57,168
-------- --------
Total shareholders' equity 186,316 170,521
-------- --------
Total liabilities and shareholders' equity $328,148 $314,052
======== ========
See accompanying notes to financial statements.
Tredegar Industries, Inc.
Consolidated Statements of Income
(In Thousands)
(Unaudited)
Three Months
Ended March 31
------------------------
1996 1995
------------ -----------
Revenues:
Net sales $ 141,387 $ 151,083
Other income (expenses), net (383) (101)
--------- ---------
Total 141,004 150,982
--------- ---------
Costs and expenses:
Cost of goods sold 113,734 128,005
Selling, general and administrative 11,220 12,421
Research and development 2,429 1,970
Interest 650 723
Unusual items (10,747) 650
--------- ---------
Total 117,286 143,769
--------- ---------
Income before income taxes 23,718 7,213
Income taxes 7,371 2,768
--------- ---------
Net income $ 16,347 $ 4,445
========= =========
Earnings per common and dilutive common
equivalent share $ 1.27 $ 0.33
========= =========
Shares used to compute earnings per
common and dilutive common equivalent
share 12,877 13,512
========= =========
See accompanying notes to financial statements.
Tredegar Industries, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months
Ended March 31
-----------------------
1996 1995
------------ ----------
Cash flows from operating activities:
Net income $ 16,347 $ 4,445
Adjustments for noncash items:
Depreciation 6,047 5,755
Amortization of intangibles 143 148
Deferred income taxes (2,623) 1,104
Accrued pension income and postretirement
benefits (401) (453)
Pretax gain on the sale of Molded Products (19,893) --
Pretax loss on the expected sale of Brudi 9,146 --
Changes in assets and liabilities, net of effects from divestitures and
acquisition:
Accounts and notes receivable (5,875) (14,873)
Inventories 1,638 3,873
Income taxes recoverable 2,179 1,404
Prepaid expenses and other (617) (2,113)
Accounts payable 2,911 8,002
Accrued expenses and income taxes payable 6,805 269
Other, net 141 (997)
-------- --------
Net cash provided by operating activities 15,948 6,564
-------- --------
Cash flows from investing activities:
Capital expenditures (7,817) (3,970)
Acquisition (net of $358 cash acquired) -- (3,637)
Investments (50) (800)
Property disposals 43 175
Proceeds from the sale of Molded Products
(net of transaction costs of $3,527) 53,973 --
Other, net 28 155
-------- --------
Net cash provided by (used in) investing
activities 46,177 (8,077)
-------- --------
Cash flows from financing activities:
Dividends paid (731) (542)
Net decrease in borrowings -- (2,500)
Other, net 182 520
-------- --------
Net cash used in financing activities (549) (2,522)
-------- --------
Increase (decrease) in cash and cash equivalents 61,576 (4,035)
Cash and cash equivalents at beginning of period 2,145 9,036
======== ========
Cash and cash equivalents at end of period $ 63,721 $ 5,001
======== ========
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,
1996, and the consolidated results of their operations and their cash
flows for the three months ended March 31, 1996 and 1995. 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,
1995. The results of operations for the three months ended March 31,
1996, are not necessarily indicative of the results to be expected for
the full year.
2. On March 29, 1996, Tredegar sold all of the outstanding capital stock
of its injection molding subsidiary, Tredegar Molded Products Company,
including Polestar Plastics Manufacturing Company (together "Molded
Products"), to Precise Technology, Inc. ("Precise") for cash
consideration of $57.5 million. In addition, Tredegar received
unregistered cumulative redeemable preferred stock of Precise with a
face amount of $2.5 million, which is not currently marketable.
Dividends on the preferred stock are payable quarterly at an annual
rate of 7% beginning June 30, 1996. The preferred stock is redeemable
in full on March 29, 2007 or earlier upon the occurrence of certain
events. Both dividends and redemption are subordinated to other
outstanding debt of Precise.
No value has been assigned by Tredegar to the preferred stock received
from Precise due to the uncertainty of redemption. Consistent
therewith, dividend income on such stock will not be recognized by
Tredegar until received.
Proceeds from the sale of Molded Products will be invested in cash
equivalents until other opportunities, in existing businesses or
elsewhere, are identified.
Tredegar recognized a gain of $19.9 million ($13.7 million after
income taxes) on the sale of Molded Products in the first quarter of
1996. The gain was partially offset by a first-quarter charge of $9.1
million ($5.7 million after income tax benefits) related to an
anticipated loss on Tredegar's divestiture of Brudi, Inc. and its
subsidiaries (together "Brudi"), which is expected to occur during the
second quarter of 1996. The Brudi charge includes a $1 million loss
accrued for payments remaining under a noncompetition and secrecy
agreement entered into when Tredegar acquired Brudi on April 1, 1991.
As of March 31, 1996, Brudi had net assets of $18.2 million (stated at
estimated proceeds from expected disposal less cost to sell).
Additional information on the sales and operating results for Molded
Products and Brudi is provided in Note 3 on page 6 and the segment
tables on page 9.
3. Historical and pro forma net income and earnings per common and
dilutive common equivalent share, adjusted for unusual items affecting
the comparability of operating results and the pro forma effects of
the Molded Products sale and the expected divestiture of Brudi (see
Note 2 on page 5), are presented below:
(In Thousands Except Per-Share
Amounts)
Three Months Year Ended
Ended March 31 Dec. 31,
------------------------- ----------
1996 1995 1995
--------- --------- ----------
Historical net income as reported $ 16,347 $ 4,445 $ 24,053
After-tax effects of unusual items:
Combined net gain on the sale of Molded
Products and the expected divestiture of Brudi (8,059) -- --
Gain on sale of Regal Cinema shares -- -- (451)
APPX Software restructuring charge -- 1,560 1,560
Recovery in connection with a Film Products
product liability lawsuit -- (1,068) (1,068)
-------- -------- -----
Historical net income as adjusted for unusual items 8,288 4,937 24,094
Pro forma adjustments:
Combined after-tax operating profit of Molded
Products and Brudi (737) (17) (1,696)
Reduction of Tredegar's after-tax cost for certain
benefit plans due to the curtailment of
participation by Molded Products employees 161 133 531
After-tax interest income on assumed investment
in cash equivalents of expected after-tax
divestiture proceeds at an annual rate of
5.40%, 5.95% and 5.90%, respectively 571 625 2,478
-------- -------- -----
Pro forma net income as adjusted for unusual items
and the pro forma effects of the Molded Products
sale and the expected divestiture of Brudi $ 8,283 $ 5,678 $ 25,407
======== ======== =====
Earnings per common and dilutive common
equivalent share (adjusted for 3-for-2 stock split
effective January 1, 1996):
As reported $ 1.27 $ 0.33 $ 1.80
As adjusted for unusual items 0.64 0.36 1.80
Pro forma as adjusted for unusual items and the
pro forma effects of the Molded Products sale
and the expected divestiture of Brudi 0.64 0.42 1.90
The pro forma operating results presented above assume that Tredegar
sold Molded Products and Brudi at the beginning of the periods shown
and invested related after-tax proceeds of approximately $48 million
and $21 million, respectively, in cash equivalents. The pro forma
financial information is unaudited and does not purport to be
indicative of the future results or financial position of Tredegar or
the net income and financial position that would actually have been
attained had the divestitures occurred on the dates or for the period
indicated.
4. The components of inventories are as follows:
(In Thousands)
March 31 Dec. 31
1996 1995
-------- --------
Finished goods $ 2,065 $ 4,619
Work-in-process 1,324 4,217
Raw materials 7,728 17,946
Stores, supplies and other 6,399 6,366
======= =======
Total $17,516 $33,148
============== =============
The decline in inventory during the period is due primarily to the
sale of Molded Products on March 29, 1996,and the classification in
current assets at March 31, 1996, of the net assets of Brudi expected
to be sold during the second quarter of 1996 (see Note 2 on page 5).
5. Interest payments (net of amount capitalized) for the three months
ended March 31, 1996 and 1995 were $20,000 and $84,000, respectively.
Income tax payments (net) for the three months ended March 31, 1996
and 1995 were $700,000 and $1.8 million, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
First Quarter 1996 Compared with First Quarter 1995
Net income for the first quarter of 1996 was $16.3 million or $1.27 per
share, up from $4.4 million or 33 cents per share in the first quarter of 1995.
Unusual items recognized in the first quarter of 1996 affecting the
comparability of operating results include a gain of $19.9 million ($13.7
million after income taxes) on the sale of Molded Products on March 29, 1996,
partially offset by a charge of $9.1 million ($5.7 million after income tax
benefits) related to an anticipated loss on Tredegar's divestiture of Brudi,
which is expected to occur during the second quarter of 1996 (see Note 2 on page
5 and Note 3 on page 6). 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) for the restructuring of APPX
Software and a recovery of $1.75 million ($1.1 million after income taxes)
related to a final judgment in connection with a Film Products product liability
lawsuit.
Net income excluding unusual items for the first quarter of 1996 was $8.3
million or 64 cents per share, up from $4.9 million or 36 cents per share in the
first quarter of 1995. The improved results were driven primarily by higher
volume in domestic and foreign disposable films (mainly films used in personal
hygiene products), and cost reductions and quality improvements in Aluminum
Extrusions.
First-quarter net sales decreased by 6.4% in 1996 due primarily to lower
selling prices, reflecting lower plastic resin and aluminum costs, and lower
volume in Aluminum Extrusions, partially offset by higher volume of disposable
films.
The gross profit margin during the first quarter of 1996 increased to 19.6%
from 15.3% in 1995 due to higher disposable films volume and lower plastic resin
costs in Film Products, cost reductions and quality improvements in Aluminum
Extrusions, and improved profitability at Brudi and Molded Products.
Selling, general and administrative expenses decreased by $1.2 million or
9.7% due primarily to cost reductions at APPX Software and Molded Products and
lower bad debt expenses and sales commissions in Aluminum Extrusions, partially
offset by selling, general and administrative expenses from the plastics films
business acquired in Argentina in March 1995.
Research and development expenses increased by $459,000 or 23.3% due to
higher product development spending at Film Products and higher spending at
Molecumetics.
Interest expense declined due to lower revolving credit facility fees and
slightly lower average debt outstanding.
The effective tax rate excluding unusual items declined to 36.1% from 37.2%
due primarily to a lower effective state income tax rate from proportionally
higher domestic income in states with lower tax rates, a reduction of certain
losses not deductible for state income tax purposes and proportionally higher
foreign income.
Segment Results
The following tables present Tredegar's net sales and operating profit by
segment for the three months ended March 31, 1996 and 1995.
Net Sales by Segment
(In Thousands)
(Unaudited)
Three Months Favorable
Ended March 31 (Unfav.)
------------------------
1996 1995 % Change
--------- -------- --------
Plastics:
Film Products and Fiberlux $ 59,457 $ 60,907 (2.4)
Molded Products 21,131 21,727 (2.7)
Metal Products:
Aluminum Extrusions 52,916 59,547 (11.1)
Brudi 7,512 8,524 (11.9)
Technology 371 378 (1.9)
======== ======== ======
Total net sales $141,387 $151,083 (6.4)
======== ======== ======
Operating Profit by Segment
(In Thousands)
(Unaudited)
Three Months Favorable
Ended March 31 (Unfav.)
------------------------
1996 1995 % Change
-------- --------- ---------
Plastics:
Film Products and Fiberlux $ 11,045 $ 8,897 24.1
Molded Products 1,011 398 154.0
Unusual items (a) 19,893 1,750 1,036.7
-------- -------- --------
31,949 11,045 189.3
-------- -------- --------
Metal Products:
Aluminum Extrusions 4,976 3,627 37.2
Brudi 223 (302) --
Unusual items (b) (9,146) -- --
-------- -------- --------
(3,947) 3,325 --
-------- -------- --------
Technology:
Ongoing operations (1,245) (1,655) 24.8
Unusual items (c) -- (2,400) 100.0
-------- -------- --------
(1,245) (4,055) 69.3
-------- -------- --------
Total operating profit 26,757 10,315 159.4
Interest expense 650 723 10.1
Corporate expenses, net 2,389 2,379 (0.4)
-------- -------- --------
Income before income taxes 23,718 7,213 228.8
Income taxes 7,371 2,768 (166.3)
======== ======== ========
Net income (d) $ 16,347 $ 4,445 267.8
======== ======== ========
Notes to Segment Tables:
(a) Includes a pretax gain recognized in the first quarter of 1996 on the
sale of Molded Products and a recovery recognized in the first quarter
of 1995 related to a final judgment in connection with a Film Products
product liability lawsuit (see Note 2 on page 5 and Note 3 on page 6)
(b) Represents a pretax charge for the anticipated loss on Tredegar's
divestiture of Brudi, which is expected to occur during the second
quarter of 1996 (see Note 2 on page 5 and Note 3 on page 6).
(c) Represents a pretax charge for the restructuring of APPX Software (see
Note 3 on page 6).
(d) See Note 3 on page 6 for historical and pro forma net income and
earnings per common and dilutive common equivalent share adjusted for
unusual items affecting the comparability of operating results and the
pro forma effects of the Molded Products sale and the expected
divestiture of Brudi.
Sales in Film Products decreased during the first quarter of 1996 due
to lower selling prices, reflecting lower plastic resin costs, partially offset
by higher volume in domestic and foreign disposable films. Operating profit
improved in Film Products due to higher disposable films volume and lower resin
costs, partially offset by startup costs associated with nonwoven film laminate
(cloth-like) backsheet production. Sales also declined in Molded Products and
Fiberlux, reflecting lower selling prices and raw material costs, while
operating profits and margins improved.
Sales in Aluminum Extrusions declined during the first quarter of 1996
by 11.1% due to lower volume (down 7.1%) and lower selling prices, which
reflected lower aluminum costs. Operating profit increased by $1.3 million or
37.2% due to higher margins resulting from lower aluminum costs, sales
commissions and bad debt expenses and quality improvements. Brudi sales declined
while operating profit improved due to lower bad debt expenses and higher
margins.
Ongoing Technology segment losses declined by $410,000 during the first
quarter of 1996 due to the restructuring of APPX Software, partially offset by
higher research and development spending at Molecumetics.
Liquidity and Capital Resources
Tredegar's total assets increased to $328.1 million at March 31, 1996,
from $314.1 million at December 31, 1995, due to the sale of Molded Products for
cash consideration of $57.5 million, which was $13.3 million greater than the
book value of its assets at December 31, 1995. Accounts payable, accrued
expenses, deferred income taxes and other noncurrent liabilities declined from
December 31, 1995 to March 31, 1996, due to the sale of Molded Products and the
classification in current assets at March 31, 1996, of the net assets of Brudi
expected to be sold during the second quarter of 1996. Income taxes payable of
$6.9 million primarily reflects the income taxes due on the gain from the sale
of Molded Products, which are expected to paid by June 15, 1996.
Debt at March 31, 1996 and December 31, 1995, consisted of a $35
million, 7.2% note maturing in June 2003 (annual principal payments of $5
million will begin in June 1997). At March 31, 1996, Tredegar had cash and cash
equivalents in excess of debt of $28.7 million, compared to net debt (debt in
excess of cash and cash equivalents) of $32.9 million at December 31, 1995.
Net cash provided by operating activities in excess of capital
expenditures and dividends increased to $7.4 million in the first quarter of
1996 from $2.1 million in 1995 due to improved operating results and the timing
of income tax payments (including income taxes due on the gain from the sale of
Molded Products), partially offset by higher capital expenditures. For the
quarter ended March 31, 1996, capital expenditures of $7.8 million exceeded
depreciation and prior-period capital expenditures by $1.8 million and $3.9
million, respectively, due to capital additions for new nonwoven film laminate
capacity, expansion of permeable film capacity in Europe and Brazil, and the
initial phases of a modernization program to upgrade certain areas of the
aluminum extrusions facility in Newnan, Georgia. Approximately $4.2 million is
expected to be spent on the Newnan program in 1996 and 1997, most of which will
occur in 1996.
The $7.4 million of excess cash generated during the first quarter of
1996 combined with the $2.1 million cash and cash equivalents balance at
December 31, 1995, the proceeds from the sale of Molded Products ($54 million
after transaction costs) and cash from property disposals and other sources
($200,000), resulted in a $63.7 million cash and cash equivalents balance at
March 31, 1996.
PART II - OTHER INFORMATION
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.
On March 29, 1996, Tredegar sold all of the outstanding
capital stock of its injection molding subsidiary, Tredegar
Molded Products Company, including Polestar Plastics
Manufacturing Company (together "Molded Products"), to Precise
Technology, Inc. ("Precise") for cash consideration of $57.5
million. In addition, Tredegar received unregistered
cumulative redeemable preferred stock of Precise with a face
amount of $2.5 million, which is not currently marketable.
Dividends on the preferred stock are payable quarterly at an
annual rate of 7% beginning June 30, 1996. Included in the
Form 8-K was pro forma financial information reflecting the
divestiture of Molded Products.
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: May 10, 1996 /s/ N. A. Scher
--------------------- -------------------------------------------
Norman A. Scher
Executive Vice President,
Treasurer and Chief Financial
Officer (Principal Financial
Officer)
Date: May 10, 1996 /s/ D. Andrew Edwards
--------------------- -------------------------------------------
D. Andrew Edwards
Corporate Controller
(Principal Accounting Officer)
EXHIBIT INDEX
Exhibit No. Description
11 Statement re computation of earnings per share
27 Financial Data Schedule
Exhibit 11 - Computations of Earnings Per Share
Tredegar Industries, Inc. and Subsidiaries
(In Thousands, Except Per-Share Amounts)
(Unaudited)
Three Months
Ended March 31
--------------------
1996 1995
------- -------
Net income $16,347 $ 4,445
======= =======
Earnings per common and dilutive common
equivalent share as reported (1) $ 1.27 $ 0.33
======= =======
PRIMARY EARNINGS PER SHARE:
Shares issuable upon the assumed exercise
of outstanding stock options (2) 690 230
Weighted average common shares outstanding
during period 12,187 13,512
------- -------
Weighted average common and dilutive common
equivalent shares 12,877 13,742
======= =======
Primary earnings per share (1) $ 1.27 $ 0.32
======= =======
FULLY DILUTED EARNINGS PER SHARE:
Shares issuable upon the assumed exercise
of outstanding stock options (3) 690 312
Weighted average common shares outstanding
during period 12,187 13,512
------- -------
Weighted average common and dilutive common
equivalent shares 12,877 13,824
======= =======
Fully diluted earnings per share (3) $ 1.27 $ 0.32
======= =======
Notes to Exhibit 11:
(1) Shares used to compute earnings per common and dilutive common
equivalent share include common stock equivalents for the first quarter
ended March 31, 1996. Common stock equivalents were not dilutive by 3%
or more during the first quarter ended March 31, 1995, and therefore
were excluded from the computation of earnings per common and dilutive
common equivalent share reported in the consolidated statements of
income for that period.
(2) Computed using the average market price during the related period.
(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.
Fully diluted earnings per common and dilutive common equivalent share
is not materially different (dilutive by 3% or more) from earnings per
common and dilutive common equivalent share reported in the
consolidated statements of income.
5
1,000
3-MOS
DEC-31-1996
MAR-31-1996
63,721
0
65,699
3,905
17,516
180,474
256,392
164,155
328,148
71,361
35,000
0
0
113,119
73,197
328,148
141,387
141,004
113,734
113,734
2,816
86
650
23,718
7,371
16,347
0
0
0
16,347
1.27
0.00
