SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSACTION 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
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange On Which Registered
COMMON STOCK NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
Aggregate market value of voting stock held by non-affiliates of the registrant
as of January 31, 1997:* $321,387,136.80
Number of shares of Common Stock outstanding as of January 31, 1997: 12,258,028
*In determining this figure, an aggregate of 4,095,815 shares of Common Stock,
reported in the registrant's proxy statement for the 1997 annual meeting of
shareholders as beneficially owned by Floyd D. Gottwald, Jr., Bruce C. Gottwald,
John D. Gottwald, William M. Gottwald and the members of their immediate
families has been excluded because the shares are held by affiliates. The
aggregate market value has been computed based on the closing price in the New
York Stock Exchange Composite Transactions on January 31, 1997, as reported by
The Wall Street Journal.
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DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Tredegar Industries, Inc.'s Annual Report to Shareholders for the
year ended December 31, 1996 (the "Annual Report"), are incorporated by
reference into Parts I, II, and IV of this Form 10-K.
2. Portions of Tredegar Industries, Inc.'s definitive Proxy Statement for its
1997 Annual Meeting of Shareholders filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934
(the "Proxy Statement") are incorporated by reference into Part III of this Form
10-K.
FORM 10-K TABLE OF CONTENTS/CROSS-REFERENCE
Proxy
Form 10-K Annual Report Statement
Part I page page page
1. Business ....................................................................... 1-5 20-22, 27-30, 32-33
2. Properties...................................................................... 5-6
3. Legal proceedings............................................................... None
4. Submission of matters to a vote of security holders............................. None
Part II
5. Market for registrant's common equity and related stockholder matters........... 50
6. Selected financial data......................................................... 18-19
7. Management's discussion and analysis of financial condition and
results of operations........................................................... 20-22, 24-30, 32-33
8. Financial statements and supplementary data..................................... 31-49
9. Changes in and disagreements with accountants on accounting and
financial disclosure............................................................ None
Part III
10. Directors and executive officers of the registrant*............................. 10 51 2-4, 5
11. Executive compensation*......................................................... 7-14
12. Security ownership of certain beneficial owners and management*................. 4-6
13. Certain relationships and related transactions*................................. None
Part IV
14. Exhibits, financial statement schedules and reports on Form 8-K
(a) Documents:
(1) Financial statements.......................................... 34-49
(2) Financial statement schedules................................. None
(3) Exhibits
(b) Reports on Form 8-K.................................................... None
(c) Exhibits
(d) Financial statement schedules
*Items 11, 12 and 13 and portions of Item 10 are incorporated by reference from
the Proxy Statement pursuant to instructions G(1) and G(3) of the General
Instructions to Form 10-K.
Only those portions of the Annual Report to Shareholders referred to in the
foregoing table of contents are to be deemed "filed" as part of this Form 10-K
report.
The Securities and Exchange Commission has not approved or disapproved of this
report or passed upon its accuracy or adequacy.
PART I
Item 1. BUSINESS
Description of Business
Tredegar Industries, Inc. ("Tredegar") is engaged directly or through
subsidiaries in the manufacture of plastic films, vinyl extrusions and aluminum
extrusions. Tredegar also has interests in various technologies, including
rational drug design research and computer software.
During the first quarter of 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"). During the second quarter of 1996, Tredegar completed the sale of
Brudi, Inc. and its subsidiaries (together, "Brudi"). See Note 19 on pages 47-49
of the Annual Report for further information regarding these divestitures.
The following discussion of Tredegar's business segments should be read
in conjunction with the information contained on pages 20-22, 24-30 and 32-33 of
the Annual Report referred to in Item 7 below.
Plastic Films and Vinyl Extrusions
Tredegar's plastics business is composed of the Film Products division
("Film Products") and Fiberlux, Inc. ("Fiberlux"). Film Products manufactures
plastic films for disposable personal products (primarily diapers and feminine
hygiene products) and packaging, medical, industrial and agricultural products.
Fiberlux produces vinyl extrusions for windows and patio doors. These products
are produced at various locations throughout the United States and are sold both
directly and through distributors. Tredegar also has films plants located in the
Netherlands, Brazil and Argentina, where it produces films primarily for the
European and Latin American markets. Tredegar expects to begin operating a
disposable films production line near Guangzhou, China, in late 1997 or early
1998. Film Products and Fiberlux compete in all of its markets on the basis of
the quality and prices of its products and its service.
Film Products
Film Products produces films for two major market categories:
disposables and industrial.
Disposables. Film Products is one of the largest U.S. suppliers of
embossed and permeable films for disposable personal products. In each of the
last three years, this class of products accounted for more than 30% of the
consolidated revenues of Tredegar.
Film Products supplies embossed films and nonwoven film laminates
(cloth-like) to domestic and international manufacturers for use as backsheet in
disposable products such as baby diapers, adult incontinent products, feminine
hygiene products and hospital underpads.
Film Products' primary customer for embossed films and nonwoven film laminates
for backsheet is The Procter & Gamble Company ("P&G"), the leading global
disposable diaper manufacturer. Film Products also sells embossed films to
several producers of private label products. Film Products competes with several
foreign and domestic plastic film products manufacturers in the backsheet
market.
Film Products also supplies permeable films to P&G for use as liners in
feminine hygiene products, adult incontinent products and hospital underpads.
Film Products also sells significant amounts of permeable films to international
affiliates of P&G.
The loss or significant reduction of business associated with P&G would
have a material adverse effect on Tredegar's business.
Industrial. Film Products produces coextruded and monolayer permeable films
under the name of VisPore(R). These films are used to regulate fluid
transmission in many industrial, medical, agricultural and packaging markets.
Specific examples include filter plies for surgical masks and other medical
applications, permeable ground cover, thermal pouches for take-out food, natural
cheese mold release cloths and rubber bale wrap.
Differentially embossed monolayer and coextruded films are also
produced by Film Products. Some of these films are extruded in a Class 10,000
clean room and act as a disposable, protective coversheet for photopolymers used
in the manufacture of circuit boards. Other films, sold under the name of
ULTRAMASK(R), are used as masking films to protect polycarbonate, acrylics and
glass from damage during fabrication, shipping and handling.
Film Products produces a line of oriented films for food packaging,
in-mold labels and other applications under the name Monax(R) Plus. These are
high strength, high moisture barrier films that allow both cost and source
reduction opportunities over current packaging mediums.
Raw Materials. The primary raw materials for films produced by Film Products are
low-density and linear low-density polyethylene resins, which Film Products
obtains from domestic and foreign suppliers at competitive prices.
Tredegar's management believes that there will be an adequate supply of
polyethylene resins in the immediate future. Changes in resin prices, and the
timing thereof, could have a significant impact on the profit margins of this
division. Resin prices are fairly volatile and are generally followed by a
corresponding change in selling prices.
Research and Development. Film Products has a technical center in Terre Haute,
Indiana. Film Products holds 36 U.S. patents and 15 U.S. trademarks.
Expenditures for research and development have averaged approximately $3.6
million per year during the past three years.
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Fiberlux
Fiberlux is a leading U.S. producer of rigid vinyl extrusions for
windows and patio doors. Fiberlux products are sold to fabricators and directly
to end users. The subsidiary's primary raw material, polyvinyl chloride resin,
is purchased from producers in open market purchases and under contract. No
critical shortages of polyvinyl chloride resins are expected.
Fiberlux holds one U.S. patent and three U.S. trademarks.
Aluminum Extrusions
Aluminum Extrusions is composed of The William L. Bonnell Company, Inc.
and Capitol Products Corporation (together, "Aluminum Extrusions"), which
produce soft alloy aluminum extrusions primarily for the building and
construction industry, and for transportation and consumer durables markets.
Aluminum Extrusions manufactures plain, anodized and painted aluminum
extrusions for sale directly to fabricators and distributors that use aluminum
extrusions in the production of curtain walls, moldings, architectural shapes,
running boards, tub and shower doors, boat windshields, window components and
furniture, among other products. Sales are made primarily in the United States,
principally east of the Rocky Mountains. Sales are substantially affected by the
strength of the building and construction industry, which accounts for the
majority of product sales.
Raw materials for Aluminum Extrusions, consisting of aluminum ingot,
aluminum scrap and various alloys, are purchased from domestic and foreign
producers in open-market purchases and under short-term contracts. Profit
margins for products in Aluminum Extrusions are sensitive to fluctuations in
aluminum ingot and scrap prices, which account for a significant portion of
product cost. Aluminum ingot prices are fairly volatile and are generally
followed by a corresponding change in selling prices; however, there is no
assurance that higher ingot costs can be passed along to customers. Tredegar
does not expect critical shortages of aluminum or other required raw materials
and supplies.
Aluminum Extrusions competes primarily based on the quality and prices
of its products and its service with a number of national and regional
manufacturers in the industry.
Aluminum Extrusions holds two U.S. patents and 12 U.S. trademarks.
Technology
Tredegar's technology interests include Molecumetics, Ltd.
("Molecumetics"), certain technology-related investments in which Tredegar's
ownership is less than 20% (see Note 7 on page 41 of the Annual Report for
additional information) and APPX Software, Inc. ("APPX Software").
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Molecumetics, a subsidiary of Tredegar, operates its rational drug
design research laboratory in Seattle, Washington. Molecumetics provides
proprietary chemistry for the synthesis of small molecule therapeutics and
vaccines. Using synthetic chemistry techniques, researchers can fashion small
molecules that imitate the bioactive portion of larger and more complex
molecules. For customers in the pharmaceutical and biotechnology industries,
these synthetically-produced compounds offer significant advantages over
naturally occurring proteins in fighting diseases because they are smaller and
more easily absorbed in the human body, less subject to attack by enzymes, more
specific in their therapeutic activity, and faster and less expensive to
produce.
APPX Software is a developer and producer of flexible software tools
and applications. The market for software products is very competitive and
characterized by short product life cycles.
Molecumetics holds three U.S. patents and three U.S. trademarks.
Molecumetics has filed a number of other patent applications with respect to its
technology. APPX Software owns 12 U.S. copyrights and holds seven U.S.
trademarks. Businesses included in the Technology segment spent $6.8 million in
1996, $5.0 million in 1995 and $5.4 million in 1994 for research and
development.
Miscellaneous
Patents, Licenses and Trademarks. Tredegar considers patents, licenses and
trademarks to be of significance for Film Products and its Molecumetics and APPX
Software subsidiaries. Tredegar routinely applies for patents on significant
patentable developments with respect to all of its businesses. Patents owned by
Tredegar and its subsidiaries have remaining terms ranging from 1 to 16 years.
In addition, Tredegar has licenses under patents owned by third parties.
Research and Development. During 1996, 1995 and 1994, approximately $11.1
million, $8.8 million and $8.3 million, respectively, was spent on
company-sponsored research and development activities in connection with the
businesses of Tredegar and its subsidiaries.
Backlog. Backlogs are not material to Tredegar.
Government Regulation. Laws concerning the environment that affect or could
affect Tredegar's domestic operations include, among others, the Clean Water
Act, the Clean Air Act, the Resource Conservation Recovery Act, the Occupational
Safety and Health Act, the National Environmental Policy Act, the Toxic
Substances Control Act, the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA"), regulations promulgated under these acts, and any
other federal, state or local laws or regulations governing environmental
matters.
- 4 -
The operations of Tredegar and its subsidiaries are in substantial compliance
with all applicable laws, regulations and permits. In order to maintain
substantial compliance with such standards, Tredegar may be required to incur
expenditures, the amounts and timing of which are not presently determinable but
which could be significant, in constructing new facilities or in modifying
existing facilities.
From time to time the Environmental Protection Agency may identify
Tredegar or one of its subsidiaries as a potentially responsible party with
respect to a Superfund site under CERCLA. To date, Tredegar, indirectly, is
potentially responsible with respect to three Superfund sites. As a result,
Tredegar may be required to expend amounts on remedial investigations and
actions at such Superfund sites. Responsible parties under CERCLA may be jointly
and severally liable for costs at a site, although typically costs are allocated
among the responsible parties.
In addition, Tredegar, indirectly, is potentially responsible for one
New Jersey Spill Site Act location. Another New Jersey site is being
investigated pursuant to the New Jersey Environmental Cleanup Responsibility
Act.
Employees. Tredegar and its subsidiaries employ approximately 2,200 people.
Item 2. PROPERTIES
General
Most of the improved real property and the other assets of Tredegar and
its subsidiaries are owned, and none of the owned property is subject to an
encumbrance that is material to the consolidated operations of Tredegar and its
subsidiaries. Tredegar considers the condition of the plants, warehouses and
other properties and assets owned or leased by Tredegar and its subsidiaries to
be generally good. Additionally, Tredegar considers the geographical
distribution of its plants to be well-suited to satisfying the needs of its
customers.
Tredegar believes that the capacity of its plants are adequate for
immediate needs of its businesses. Tredegar's plants generally have operated at
70-85 percent of capacity. Tredegar's corporate headquarters offices are located
at 1100 Boulders Parkway, Richmond, Virginia 23225.
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Tredegar has the following principal plants and facilities:
Film Products Locations Principal Operations
Carbondale, Pennsylvania Production of plastic films
LaGrange, Georgia
Manchester, Iowa
New Bern, North Carolina
Tacoma, Washington (leased)
Terre Haute, Indiana (2)
(technical center and
production facility)
Kerkrade, the Netherlands
Sao Paulo, Brazil
San Juan, Argentina
Fiberlux Locations Principal Operations
Pawling, New York Production of vinyl extrusions for
Purchase, New York (headquarters) (leased) windows and patio doors
Aluminum Extrusions Locations Principal Operations
Carthage, Tennessee Production of aluminum
Kentland, Indiana extrusions, finishing
Newnan, Georgia
Technology
Molecumetics leases its laboratory space in Bellevue, Washington.
Tredegar Investments, Inc. leases office space in Seattle, Washington. APPX
Software leases office space in Richmond, Virginia.
Item 3. LEGAL PROCEEDINGS
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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Executive Officers of Tredegar
Set forth below are the names, ages and titles of the executive
officers of Tredegar:
Name Age Title
John D. Gottwald 42 President and
Chief Executive Officer
Norman A. Scher 59 Executive Vice President,
Chief Financial Officer
and Treasurer
Michael W. Giancaspro 42 Vice President, Corporate
Planning
Steven M. Johnson 46 Vice President, Corporate
Development
Douglas R. Monk 51 Vice President and President,
Aluminum Extrusions
Anthony J. Rinaldi 59 Vice President and President,
Film Products
Frederick P. Woods 52 Vice President, Personnel
Except as described below, each of these officers has served in such
capacity since July 10, 1989. Each will hold office until his successor is
elected or until his earlier removal or resignation.
Michael W. Giancaspro. Mr. Giancaspro served as Director of Corporate Planning
from March 31, 1989, until February 27, 1992, when he was elected Vice
President, Corporate Planning.
Steven M. Johnson. Mr. Johnson served as Secretary of the Corporation until
February, 1994. Mr. Johnson served as Vice President, General Counsel and
Secretary from July 10, 1989, until July, 1992, when his position was changed to
Vice President, Corporate Development and Secretary.
Douglas R. Monk. Mr. Monk was elected Vice President on August 29, 1994. Mr.
Monk has served as President of The William L. Bonnell Company, Inc. and Capitol
Products Corporation since February 23, 1993. He also served as Director of
Operations of Tredegar's Aluminum Division.
- 7 -
Anthony J. Rinaldi. Mr. Rinaldi was elected Vice President on February 27, 1992.
Mr. Rinaldi has served as General Manager of Tredegar Film Products since July
1, 1991. During 1991, he also served as Managing Director of European
operations. Mr. Rinaldi served as Director of Sales and Marketing for Tredegar
Film Products from July 10, 1989 to June, 1991.
Frederick P. Woods. Mr. Woods served as Vice President, Employee Relations from
July 10, 1989 until December, 1993, when his position was changed to Vice
President, Personnel.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The information contained on page 50 of the Annual Report under the
captions "Dividend Information," "Stock Listing" and "Market Prices of
Common Stock and Shareholder Data" is incorporated herein by
reference.
Item 6. SELECTED FINANCIAL DATA
The information for the seven years ended December 31, 1996, contained
in the "Seven-Year Summary" on pages 18 and 19 of the Annual Report is
incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The textual and tabular information concerning the years 1996, 1995
and 1994 contained on pages 20 through 22, 24 through 30 and 32 and 33
of the Annual Report is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements contained on pages 35 through
38, the notes to financial statements contained on pages 39 through
49, the report of independent accountants on page 34, and the
information under the caption "Selected Quarterly Financial Data
(Unaudited)" on page 31 and related notes on page 32-33 of the Annual
Report are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
- 9 -
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained on pages 2 through 4 of the Proxy Statement
under the caption "Election of Directors" concerning directors and
persons nominated to become directors of Tredegar is incorporated
herein by reference. See "Executive Officers of Tredegar" at the end
of Part I above for information about the executive officers of
Tredegar.
The information contained on page 4 and 5 of the Proxy Statement under
the caption "Stock Ownership" is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information contained on pages 7 through 14 of the Proxy Statement
under the caption "Compensation of Executive Officers and Directors"
concerning executive compensation is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information contained on pages 4 through 6 of the Proxy Statement
under the caption "Stock Ownership" is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) Documents:
(1) Financial statements - the following consolidated
financial statements of the registrant are included
on pages 34 to 49 in the Annual Report and are
incorporated herein by reference in Item 8.
Report of independent accountants.
Consolidated balance sheets as of December 31, 1996
and 1995.
Consolidated statements of income, cash flows and
shareholders' equity for the years ended December 31,
1996, 1995 and 1994.
Notes to financial statements.
(2) None.
(3) Exhibits
3.1 Amended and Restated Articles of
Incorporation of Tredegar (filed as
Exhibit 3.1 to Tredegar's Annual Report on
Form 10-K for the year ended December 31,
1989, and incorporated herein by
reference)
3.2 Amended By-laws of Tredegar (filed as
Exhibit 3 to Tredegar's Quarterly Report
on Form 10-Q for the quarter ended June
30, 1996, and incorporated herein by
reference)
4.1 Form of Common Stock Certificate (filed as
Exhibit 4.3 to Tredegar's Annual Report on
Form 10-K for the year ended December 31,
1989, and incorporated herein by
reference)
4.2 Rights Agreement dated as of June 15,
1989, between Tredegar and NationsBank of
Virginia, N.A. (formerly Sovran Bank,
N.A.), as Rights Agent (filed as Exhibit
4.4 to Tredegar's Annual Report on Form
10-K for the year ended December 31, 1989,
and incorporated herein by reference)
4.2.1 Amendment and Substitution Agreement
(Rights Agreement) dated as of July 1,
1992, by and among Tredegar, NationsBank
of Virginia, N.A. (formerly Sovran Bank,
N.A.) and American Stock Transfer & Trust
Company (filed as Exhibit 4.2.1 to
Tredegar's Annual Report on Form 10-K for
the year ended December 31, 1992, and
incorporated herein by reference)
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4.3 Loan Agreement dated June 16, 1993 between
Tredegar and Metropolitan Life Insurance
Company (filed as Exhibit 4 to Tredegar's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993, and
incorporated herein by reference)
4.3.1 Consent and Agreement dated September 26,
1995, between Tredegar Industries, Inc.
and Metropolitan Life Insurance Company
(filed as Exhibit 4.2 to Tredegar's
Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995, and
incorporated herein by reference)
4.4 Revolving Credit Facility Agreement dated
as of September 7, 1995 among Tredegar
Industries, Inc., the banks named therein,
Chemical Bank as Administrative Agent and
NationsBank N.A. and LTCB Trust Company as
Co-Agents (filed as Exhibit 4.1 to
Tredegar's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995,
and incorporated herein by reference)
4.4.1 Extension Letter, dated September 16,
1996, extending the maturity date of the
Revolving Credit Facility Agreement dated
as of September 7, 1995 (filed as Exhibit
4.1 to Tredegar's Quarterly Report on Form
10-Q for the quarter ended September 30,
1996, and incorporated herein by
reference)
10.1 Reorganization and Distribution Agreement
dated as of June 1, 1989, between Tredegar
and Ethyl Corporation ("Ethyl") (filed as
Exhibit 10.1 to Tredegar's Annual Report
on Form 10-K for the year ended December
31, 1989, and incorporated herein by
reference)
*10.2 Employee Benefits Agreement dated as of
June 1, 1989, between Tredegar and Ethyl
(filed as Exhibit 10.2 to Tredegar's
Annual Report on Form 10-K for the year
ended December 31, 1989, and incorporated
herein by reference)
10.3 Tax Sharing Agreement dated as of June 1,
1989, between Tredegar and Ethyl (filed as
Exhibit 10.3 to Tredegar's Annual Report
on Form 10-K for the year ended December
31, 1989, and incorporated herein by
reference)
10.5 Indemnification Agreement dated as of June
1, 1989, between Tredegar and Ethyl (filed
as Exhibit 10.5 to Tredegar's Annual
Report on Form 10-K for the year ended
December 31, 1989, and incorporated herein
by reference)
*10.6 Tredegar 1989 Incentive Stock Option Plan
(included as Exhibit A to the Prospectus
contained in the Form S-8 Registration
Statement No. 33-31047, and incorporated
herein by reference)
*10.7 Tredegar Bonus Plan (filed as Exhibit 10.7
to Tredegar's Annual Report on Form 10-K
for the year ended December 31, 1989, and
incorporated herein by reference)
*10.8 Savings Plan for the Employees of Tredegar
(filed as Exhibit 4 to the Form S-8
S-8 Registration Statement No. 33-64647,
and incorporated herein by reference)
- 12 -
*10.9 Tredegar Retirement Income Plan (filed as
Exhibit 10.9 to Tredegar's Annual Report
on Form 10-K for the year ended December
31, 1990, and incorporated herein by
reference)
*10.10 Agreement dated as of June 1, 1989,
between Tredegar and Norman A. Scher
(filed as Exhibit 10.10 to Tredegar's
Annual Report on Form 10-K for the year
ended December 31, 1989, and incorporated
herein by reference)
*10.10.1 Termination Agreement (with respect to
Employment Agreement) dated as of December
31, 1996, between Tredegar and Norman A.
Scher (filed herewith)
*10.11 Tredegar 1992 Omnibus Stock Incentive Plan
(filed as Exhibit 10.12 to Tredegar's
Annual Report on Form 10-K for the year
ended December 31, 1991, and incorporated
herein by reference)
*10.12 Tredegar Industries, Inc. Retirement
Benefit Restoration Plan (filed as Exhibit
10.13 to Tredegar's Annual Report on Form
10-K for the year ended December 31, 1993,
and incorporated herein by reference)
*10.13 Tredegar Industries, Inc. Savings Plan
Benefit Restoration Plan (filed as Exhibit
10.14 to Tredegar's Annual Report on Form
10-K for the year ended December 31, 1993,
and incorporated herein by reference)
*10.14 Tredegar Industries, Inc. 1996 Incentive
Plan (filed herewith )
10.15 Stock Purchase Agreement by and between
Tredegar Investments, Inc. and Precise
Technology, Inc. made as of March 11, 1996
(filed as Exhibit 99.1 to Tredegar's
Report on Form 8-K, dated March 29, 1996,
and incorporated herein by reference)
(Schedules and exhibits omitted;
Registrant agrees to furnish a copy of any
schedule or exhibit to the Securities anf
Exchange Commission upon request.)
10.16 Stock Purchase Agreement, and the
amendment thereto, by and between Tredegar
Industries, Inc. and Long Reach Holdings,
Inc. made as of March 27, 1996 (filed as
Exhibit 10 to Tredegar's Quarterly Report
on Form 10-Q for the quarter ended June
30, 1996, and incorporated herein by
reference) (Schedules and exhibits
omitted; Registrant agrees to furnish a
copy of any schedule or exhibit to the
Securities and Exchange Commission upon
request.)
11 Statement re: Computation of Earnings Per
Share
13 Tredegar Annual Report to Shareholders for
the year ended December 31, 1996 (See Note
1)
21 Subsidiaries of Tredegar
23.1 Consent of Independent Accountants
27 Financial Data Schedule
*The marked items are management contracts or compensatory
plans, contracts or arrangements required to be filed as
exhibits to this Form 10-K.
- 13 -
(b) Reports on Form 8-K
None
(c) Exhibits
The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Statement Schedules
None
Note 1. With the exception of the information incorporated in this Form
10-K by reference thereto, the Annual Report shall not be deemed
"filed" as a part of Form 10-K.
- 14 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
Dated: February 19, 1997 By /s/ John D. Gottwald
-------------------------
John D. Gottwald
President
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
registrant and in the capacities indicated on February 19, 1997.
Signature Title
/s/ John D. Gottwald President
(John D. Gottwald) (Principal Executive Officer
and Director)
/s/ N. A. Scher Executive Vice President,
(Norman A. Scher) Treasurer and Director
(Principal Financial Officer)
/s/ D. Andrew Edwards Corporate Controller
(D. Andrew Edwards) (Principal Accounting Officer)
/s/ Austin Brockenbrough, III Director
(Austin Brockenbrough, III)
/s/ Phyllis Cothran Director
(Phyllis Cothran)
- 15 -
/s/ R. W. Goodrum Director
(Richard W. Goodrum
Director
(Bruce C. Gottwald)
/s/ Floyd D. Gottwald, Jr. Director
(Floyd D. Gottwald)
Director
(Andre B. Lacy)
/s/ Emmett J. Rice Director
(Emmett J. Rice)
- 16 -
EXHIBIT INDEX
3.1 Amended and Restated Articles of Incorporation of Tredegar (filed as
Exhibit 3.1 to Tredegar's Annual Report on Form 10-K for the year
ended December 31, 1989, and incorporated herein by reference)
3.2 Amended By-laws of Tredegar (filed as Exhibit 3 to Tredegar's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
and incorporated herein by reference)
4.1 Form of Common Stock Certificate (filed as Exhibit 4.3 to Tredegar's
Annual Report on Form 10-K for the year ended December 31, 1989, and
incorporated herein by reference)
4.2 Rights Agreement dated as of June 15, 1989, between Tredegar and
NationsBank of Virginia, N.A. (formerly Sovran Bank, N.A.), as
Rights Agent (filed as Exhibit 4.4 to Tredegar's Annual Report on
Form 10-K for the year ended December 31, 1989, and incorporated
herein by reference)
4.2.1 Amendment and Substitution Agreement (Rights Agreement) dated as of
July 1, 1992, by and among Tredegar, NationsBank of Virginia, N.A.
(formerly Sovran Bank, N.A.) and American Stock Transfer & Trust
Company (filed as Exhibit 4.2.1 to Tredegar's Annual Report on Form
10- K for the year ended December 31, 1992, and incorporated herein
by reference)
4.3 Loan Agreement dated June 16, 1993 between Tredegar and Metropolitan
Life Insurance Company (filed as Exhibit 4 to Tredegar's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993, and
incorporated herein by reference)
4.3.1 Consent and Agreement dated September 26, 1995, between Tredegar
Industries, Inc. and Metropolitan Life Insurance Company (filed as
Exhibit 4.2 to Tredegar's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995, and incorporated herein by
reference)
4.4 Revolving Credit Facility Agreement dated as of September 7, 1995
among Tredegar Industries, Inc., the banks named therein, Chemical
Bank as Administrative Agent and NationsBank N.A. and LTCB Trust
Company as Co-Agents (filed as Exhibit 4.1 to Tredegar's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995, and
incorporated herein by reference)
4.4.1 Extension Letter, dated September 16, 1996, extending the maturity
date of the Revolving Credit Facility Agreement dated as of
September 7, 1995 (filed as Exhibit 4.1 to Tredegar's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996, and
incorporated herein by reference)
10.1 Reorganization and Distribution Agreement dated as of June 1, 1989,
between Tredegar and Ethyl (filed as Exhibit 10.1 to Tredegar's
Annual Report on Form 10-K for the year ended December 31, 1989, and
incorporated herein by reference)
*10.2 Employee Benefits Agreement dated as of June 1, 1989, between
Tredegar and Ethyl (filed as Exhibit 10.2 to Tredegar's Annual
Report on Form 10-K for the year ended December 31, 1989, and
incorporated herein by reference)
10.3 Tax Sharing Agreement dated as of June 1, 1989, between Tredegar and
Ethyl (filed as Exhibit 10.3 to Tredegar's Annual Report on Form
10-K for the year ended December 31, 1989, and incorporated herein
by reference)
10.5 Indemnification Agreement dated as of June 1, 1989, between Tredegar
and Ethyl (filed as Exhibit 10.5 to Tredegar's Annual Report on Form
10- K for the year ended December 31, 1989, and incorporated herein
by reference)
*10.6 Tredegar 1989 Incentive Stock Option Plan (included as Exhibit A to
the Prospectus contained in the Form S-8 Registration Statement No.
33-31047, and incorporated herein by reference)
*10.7 Tredegar Bonus Plan (filed as Exhibit 10.7 to Tredegar's Annual
Report on Form 10-K for the year ended December 31, 1989, and
incorporated herein by reference)
*10.8 Savings Plan for the Employees of Tredegar (filed as Exhibit 4 to the
Form S-8 Registration Statement No. 33-64647, and incorporated herein
by reference)
*10.9 Tredegar Retirement Income Plan (filed as Exhibit 10.9 to
Tredegar's Annual Report on Form 10-K for the year ended
December 31, 1990, and incorporated herein by reference)
*10.10 Agreement dated as of June 1, 1989, between Tredegar and Norman
A. Scher (filed as Exhibit 10.10 to Tredegar's Annual Report on
Form 10-K for the year ended December 31, 1989, and incorporated
herein by reference)
*10.10.1 Termination Agreement (with respect to Employment Agreement) dated as
of December 31, 1996, between Tredegar and Norman A. Scher (filed
herewith)
*10.11 Tredegar 1992 Omnibus Stock Incentive Plan (filed as Exhibit 10.12
to Tredegar's Annual Report on Form 10-K for the year ended
December 31, 1991, and incorporated herein by reference)
*10.12 Tredegar Industries, Inc. Retirement Benefit Restoration Plan (filed
as Exhibit 10.13 to Tredegar's Annual Report on Form 10-K for the
year ended December 31, 1993, and incorporated herein by reference)
*10.13 Tredegar Industries, Inc. Savings Plan Benefit Restoration Plan
filed as Exhibit 10.14 to Tredegar's Annual Report on Form 10-K for
the year ended December 31, 1993, and incorporated herein by
reference)
*10.14 Tredegar Industries, Inc. 1996 Incentive Plan (filed herewith)
10.15 Stock Purchase Agreement by and between Tredegar Investments, Inc.
and Precise Technology, Inc. made as of March 11, 1996 (filed as
Exhibit 99.1 to Tredegar's Report on Form 8-K, dated March 29, 1996,
and incorporated herein by reference)(Schedules and exhibits omitted;
Registrant agrees to furnish a copy of any schedule or exhibit to the
Securities and Exchange Commission upon request.)
10.16 Stock Purchase Agreement, and the amendment thereto, by and between
Tredegar Industries, Inc. and Long Reach Holdings, Inc. made as of
March 27, 1996 (filed as Exhibit 10 to Tredegar's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, and incorporated
herein by reference) (Schedules and exhibits omitted; Registrant
agrees to furnish a copy of any schedule or exhibit to the Securities
and Exchange Commission upon request.)
11 Statement re: Computation of Earnings Per Share
13 Tredegar Annual Report to Shareholders for the year ended December
31, 1996 (See Note 1)
21 Subsidiaries of Tredegar
23.1 Consent of Independent Accountants
27 Financial Data Schedule
*The marked items are management contracts or compensatory plans, contracts or
arrangements required to be filed as exhibits to this Form 10-K.
EXHIBIT 10.10.1
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT, dated as of the 31st day of December, 1996,
by and between TREDEGAR INDUSTRIES, INC., a Virginia corporation (the "Company")
and NORMAN A. SCHER, an individual residing at 5 Cedaridge Road, Richmond,
Virginia 23229 ("Executive").
WHEREAS, the Company and Executive have entered into that certain
Employment Agreement dated as of June 1, 1989 (the "Employment Agreement") and
the Company and Executive desire to terminate such Employment Agreement;
NOW, THEREFORE, in consideration of mutual promises contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Effective as of the close of business on December 31, 1996, the
Employment Agreement is hereby terminated and shall have no further force or
effect with respect to the employment relationship between the Company and
Executive.
2. Except for the termination of the Employment Agreement the rights
and obligations of the Company and Executive set forth therein, this Termination
Agreement shall not otherwise affect the employment relationship between the
Company and Executive, including without limitation Executive's obligations
under the Patent and Confidentiality Agreement referred to in the Employment
Agreement and any independently existing obligations of the Company under the
compensation, benefit and welfare plans in which the Company's senior management
is eligible to participate.
3. This Termination Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
4. This Termination Agreement shall be governed by and construed in
conformity with the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, parties hereto have executed this Termination
Agreement as of the date first above written.
TREDEGAR INDUSTRIES, INC.
By: /s/ John D. Gottwald
John D. Gottwald
President
/s/ N. A. Scher
Norman A. Scher
EXHIBIT 10.14
TREDEGAR INDUSTRIES, INC.
1996 INCENTIVE PLAN
ARTICLE I DEFINITIONS
1.01. Administrator................................................... 1
1.02. Affiliate....................................................... 1
1.03. Agreement....................................................... 1
1.04. Board........................................................... 1
1.05. Code............................................................ 1
1.06. Committee....................................................... 1
1.07. Common Stock.................................................... 1
1.08. Company......................................................... 1
1.09. Corresponding SAR............................................... 1
1.10. Exchange Act.................................................... 1
1.11. Fair Market Value............................................... 2
1.12. Initial Value................................................... 2
1.13. Incentive Award................................................. 2
1.14. Option.......................................................... 2
1.15. Participant..................................................... 2
1.16. Plan............................................................ 2
1.17. SAR............................................................. 2
1.18. Stock Award..................................................... 3
1.19. Ten Percent Shareholder......................................... 3
ARTICLE II PURPOSES
ARTICLE III ADMINISTRATION
ARTICLE IV ELIGIBILITY
ARTICLE V STOCK SUBJECT TO PLAN
5.01. Shares Issued................................................... 6
5.02. Aggregate Limit................................................. 6
5.03. Reallocation of Shares.......................................... 7
ARTICLE VI OPTIONS
6.01. Award........................................................... 7
6.02. Option Price.................................................... 7
6.03. Maximum Option Period........................................... 8
6.04. Nontransferability.............................................. 8
6.05. Transferable Options............................................ 9
6.06. Employee Status................................................. 9
6.07. Exercise........................................................ 10
6.08. Payment......................................................... 10
6.09. Installment Payment............................................. 11
6.10. Shareholder Rights.............................................. 12
6.11. Disposition of Stock............................................ 12
ARTICLE VII SARS
7.01. Award........................................................... 12
7.02. Maximum SAR Period.............................................. 13
7.03. Nontransferability.............................................. 13
7.04. Transferable SARs............................................... 14
7.05. Exercise........................................................ 14
7.06. Employee Status................................................. 15
7.07. Settlement...................................................... 15
7.08. Shareholder Rights.............................................. 15
ARTICLE VIII STOCK AWARDS
8.01. Award........................................................... 15
8.02. Vesting......................................................... 16
8.03. Performance Objectives.......................................... 16
8.04. Employee Status................................................. 16
8.05. Shareholder Rights.............................................. 17
ARTICLE IX INCENTIVE AWARDS
9.01. Award........................................................... 17
9.02. Terms and Conditions............................................ 18
9.03. Nontransferability.............................................. 18
9.04. Transferable Incentive Awards................................... 19
9.05. Employee Status................................................. 19
9.06. Shareholder Rights.............................................. 19
ARTICLE X ADJUSTMENT UPON CHANGE IN
COMMON STOCK
ARTICLE XI COMPLIANCE WITH LAW AND
APPROVAL OF REGULATORY BODIES
ARTICLE XII GENERAL PROVISIONS
12.01. Effect on Employment and Service................................ 22
12.02. Unfunded Plan................................................... 22
12.03. Rules of Construction........................................... 22
ARTICLE XIII AMENDMENT
ARTICLE XIV DURATION OF PLAN
ARTICLE XV EFFECTIVE DATE OF PLAN
TREDEGAR INDUSTRIES, INC.
1996 INCENTIVE PLAN
ARTICLE I
DEFINITIONS
1.01. Administrator means the Committee and any delegate of the Committee that
is appointed in accordance with Article III.
1.02. Affiliate means any "subsidiary" or "parent" corporation (within the
meaning of Section 424 of the Code) of the Company.
1.03. Agreement means a written agreement (including any amendment or
supplement thereto) between the Company and a Participant specifying the terms
and conditions of a Stock Award, an Incentive Award or an Option or SAR granted
to such Participant.
1.04. Board means the Board of Directors of the Company.
1.05. Code means the Internal Revenue Code of 1986, and any amendments thereto.
1.06. Committee means the Executive Compensation Committee of the Board.
1.07. Common Stock means the common stock of the Company.
1.08. Company means Tredegar Industries, Inc.
1.09. Corresponding SAR means an SAR that is granted in relation to a particular
Option and that can be exercised only upon the surrender to the Company
unexercised, of that portion of the Option to which the SAR relates.
1.10. Exchange Act means the Securities Exchange Act of 1934, as amended and as
in effect on the date of this Agreement.
1.11. Fair Market Value means, on any given date, the closing price of a share
of Common Stock as reported on the New York Stock Exchange composite tape on
such date, or if the Common Stock was not traded on the New York Stock Exchange
on such day, then on the next preceding day that the Common Stock was traded on
such exchange, all as reported by such source as the Administrator may select.
1.12. Initial Value means, with respect to an SAR, the Fair Market Value of one
share of Common Stock on the date of grant.
1.13. Incentive Award means an award which, subject to such terms and conditions
as may be prescribed by the Administrator, entitles the Participant to receive a
cash payment from the Company or an Affiliate.
1.14. Option means a stock option that entitles the holder to purchase from the
Company a stated number of shares of Common Stock at the price set forth in an
Agreement.
1.15. Participant means an employee of the Company or an Affiliate, including an
employee who is a member of the Board, or an individual who provides services to
the Company or an Affiliate, who satisfies the requirements of Article IV and is
selected by the Administrator to receive a Stock Award, an Option, an SAR, an
Incentive Award or a combination thereof.
1.16. Plan means the Tredegar Industries, Inc. 1996 Incentive Plan.
1.17. SAR means a stock appreciation right that in accordance with the terms of
an Agreement entitles the holder to receive, with respect to each share of
Common Stock encompassed by the exercise of such SAR, the amount determined
-2-
by the Administrator and specified in an Agreement. In the absence of such a
determination, the holder shall be entitled to receive, with respect to each
share of Common Stock encompassed by the exercise of such SAR, the excess of the
Fair Market Value on the date of exercise over the Initial Value. References to
"SARs" include both Corresponding SARs and SARs granted independently of
Options, unless the context requires otherwise.
1.18. Stock Award means Common Stock awarded to a Participant under Article
VIII.
1.19. Ten Percent Shareholder means any individual owning more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of an Affiliate. An individual shall be considered to own any voting stock
owned (directly or indirectly) by or for his brothers, sisters, spouse,
ancestors or lineal descendants and shall be considered to own proportionately
any voting stock owned (directly or indirectly) by or for a corporation,
partnership, estate or trust of which such individual is a shareholder, partner
or beneficiary.
ARTICLE II
PURPOSES
The Plan is intended to assist the Company and its Affiliates in
recruiting and retaining individuals with ability and initiative by enabling
such persons to participate in the future success of the Company and its
Affiliates and to associate
-3-
their interests with those of the Company and its shareholders. The Plan is
intended to permit the grant of both Options qualifying under Section 422 of the
Code ("incentive stock options") and Options not so qualifying, and the grant of
SARs, Stock Awards and Incentive Awards. No Option that is intended to be an
incentive stock option shall be invalid for failure to qualify as an incentive
stock option. The proceeds received by the Company from the sale of Common Stock
pursuant to this Plan shall be used for general corporate purposes.
ARTICLE III
ADMINISTRATION
The Plan shall be administered by the Administrator. The
Administrator shall have authority to grant Stock Awards, Incentive Awards,
Options and SARs upon such terms (not inconsistent with the provisions of this
Plan) as the Administrator may consider appropriate. Such terms may include
conditions (in addition to those contained in this Plan) on the exercisability
of all or any part of an Option or SAR or on the transferability or
forfeitability of a Stock Award or Incentive Award. Notwithstanding any such
conditions, the Administrator may, in its discretion, accelerate the time at
which any Option or SAR may be exercised, or the time at which a Stock Award may
become transferable or nonforfeitable or the time at which an Incentive Award
may be settled. In addition, the Administrator shall have complete authority to
interpret all provisions of this Plan; to prescribe the form of Agreements; to
adopt, amend, and rescind rules and regulations pertaining
-4-
to the administration of the Plan; and to make all other determinations
necessary or advisable for the administration of this Plan. The express grant in
the Plan of any specific power to the Administrator shall not be construed as
limiting any power or authority of the Administrator. Any decision made, or
action taken, by the Administrator or in connection with the administration of
this Plan shall be final and conclusive. Neither the Administrator nor any
member of the Committee shall be liable for any act done in good faith with
respect to this Plan or any Agreement, Option, SAR, Stock Award or Incentive
Award. All expenses of administering this Plan shall be borne by the Company.
The Committee, in its discretion, may delegate to one or more
officers of the Company or the Executive Committee of the Board, all or part of
the Committee's authority and duties with respect to grants and awards to
individuals who are not subject to the reporting and other provisions of Section
16 of the Exchange Act. The Committee may revoke or amend the terms of a
delegation at any time but such action shall not invalidate any prior actions of
the Committee's delegate or delegates that were consistent with the terms of the
Plan.
ARTICLE IV
ELIGIBILITY
Any employee of the Company or an Affiliate (including a
corporation that becomes an Affiliate after the adoption of this Plan) or a
person who provides services to the Company or an Affiliate (including a
corporation that becomes an
-5-
Affiliate after the adoption of this Plan) is eligible to participate in this
Plan if the Administrator, in its sole discretion, determines that such person
has contributed significantly or can be expected to contribute significantly to
the profits or growth of the Company or an Affiliate. Directors of the Company
who are employees of the Company or an Affiliate may be selected to participate
in this Plan. A member of the Committee may not participate in this Plan during
the time that his participation would prevent the Committee from being
"disinterested" for purposes of Securities and Exchange Commission Rule 16b-3 as
in effect from time to time.
ARTICLE V
STOCK SUBJECT TO PLAN
5.01. Shares Issued. Upon the award of shares of Common Stock pursuant to a
Stock Award the Company may issue shares of Common Stock from its authorized but
unissued Common Stock. Upon the exercise of any Option or SAR the Company may
deliver to the Participant (or the Participant's broker if the Participant so
directs), shares of Common Stock from its authorized but unissued Common Stock.
5.02. Aggregate Limit. The maximum aggregate number of shares of Common Stock
that may be issued under this Plan pursuant to the exercise of SARs and Options
and the grant of Stock Awards is 450,000 shares. The maximum aggregate number of
shares that may be issued under this Plan as Stock Awards is 100,000 shares. The
maximum aggregate number of shares that may be issued under this
-6-
Plan and the maximum number of shares that may be issued as Stock Awards shall
be subject to adjustment as provided in Article X.
5.03. Reallocation of Shares. If an Option is terminated, in whole or in part,
for any reason other than its exercise or the exercise of a Corresponding SAR
that is settled with Common Stock, the number of shares of Common Stock
allocated to the Option or portion thereof may be reallocated to other Options,
SARs and Stock Awards to be granted under this Plan. If an SAR is terminated, in
whole or in part, for any reason other than its exercise or the exercise of a
related Option, the number of shares of Common Stock allocated to the SAR or
portion thereof may be reallocated to other Options, SARs and Stock Awards to be
granted under this Plan.
ARTICLE VI
OPTIONS
6.01. Award. In accordance with the provisions of Article IV, the Administrator
will designate each individual to whom an Option is to be granted and will
specify the number of shares of Common Stock covered by such awards; provided,
however, that no individual may be granted Options in any calendar year covering
more than 150,000 shares of Common Stock.
6.02. Option Price. The price per share for Common Stock purchased on the
exercise of an Option shall be determined by the Administrator on the date of
grant,
-7-
but shall not be less than the Fair Market Value on the date the Option is
granted. Notwithstanding the preceding sentence, the price per share for Common
Stock purchased on the exercise of any Option that is an incentive stock option
granted to an individual who is a Ten Percent Shareholder on the date such
option is granted, shall not be less than one hundred ten percent (110%) of the
Fair Market Value on the date the Option is granted.
6.03. Maximum Option Period. The maximum period in which an Option may be
exercised shall be determined by the Administrator on the date of grant, except
that no Option that is an incentive stock option shall be exercisable after the
expiration of ten years from the date such Option was granted. In the case of an
incentive stock option that is granted to a Participant who is a Ten Percent
Shareholder on the date of grant, such Option shall not be exercisable after the
expiration of five years from the date of grant. The terms of any Option that is
an incentive stock option may provide that it is exercisable for a period less
than such maximum period.
6.04. Nontransferability. Except as provided in Section 6.05, each Option
granted under this Plan shall be nontransferable except by will or by the laws
of descent and distribution. In the event of any such transfer, the Option and
any Corresponding SAR that relates to such Option must be transferred to the
same person or persons or entity or entities. During the lifetime of the
Participant to whom the Option is granted, the Option may be exercised only by
the Participant.
-8-
No right or interest of a Participant in any Option shall be liable for, or
subject to, any lien, obligation, or liability of such Participant.
6.05. Transferable Options. Section 6.04 to the contrary notwithstanding, if the
Agreement provides, an Option that is not an incentive stock option may be
transferred by a Participant to the Participant's children, grandchildren,
spouse, one or more trusts for the benefit of such family members or a
partnership in which such family members are the only partners; provided,
however, that Participant may not receive any consideration for the transfer. In
addition to transfers described in the preceding sentence, the Administrator may
grant Options that are not incentive stock options that are transferable on
other terms and conditions as may be permitted under Securities Exchange
Commission Rule 16b-3, as in effect from time to time. The holder of an Option
transferred pursuant to this section shall be bound by the same terms and
conditions that governed the Option during the period that it was held by the
Participant, and may not subsequently transfer the Option, except by will or the
laws of descent and distribution. In the event of a transfer pursuant to this
section, the Option and any Corresponding SAR that relates to such Option must
be transferred to the same person or persons or entity or entities.
6.06. Employee Status. For purposes of determining the applicability of Section
422 of the Code (relating to incentive stock options), or in the event that the
terms of any Option provide that it may be exercised only during employment or
within a specified period of time after termination of employment, the
Administrator may decide to what extent leaves of absence for governmental or
military service,
-9-
illness, temporary disability, or other reasons shall not be deemed
interruptions of continuous employment.
6.07. Exercise. Subject to the provisions of this Plan and the applicable
Agreement, an Option may be exercised in whole at any time or in part from time
to time at such times and in compliance with such requirements as the
Administrator shall determine; provided, however, that incentive stock options
(granted under the Plan and all plans of the Company and its Affiliates) may not
be first exercisable in a calendar year for stock having a Fair Market
(determined as of the date an Option is granted) exceeding $100,000. An Option
granted under this Plan may be exercised with respect to any number of whole
shares less than the full number for which the Option could be exercised. A
partial exercise of an Option shall not affect the right to exercise the Option
from time to time in accordance with this Plan and the applicable Agreement with
respect to the remaining shares subject to the Option. The exercise of an Option
shall result in the termination of any Corresponding SAR to the extent of the
number of shares with respect to which the Option is exercised.
6.08. Payment. Unless otherwise provided by the Agreement, payment of the Option
price shall be made in cash or a cash equivalent acceptable to the
Administrator. If the Agreement provides, payment of all or part of the Option
price may be made by surrendering shares of Common Stock to the Company. If
Common Stock is used to pay all or part of the Option price, the sum of the cash
and cash equivalent and the Fair Market Value (determined as of the day
preceding the date
-10-
of exercise) of the shares surrendered must not be less than the Option price of
the shares for which the Option is being exercised.
6.09. Installment Payment. If the Agreement provides, and if the Participant is
employed by the Company on the date the Option is exercised, payment of all or
part of the Option price may be made in installments. In that event the Company
shall lend the Participant an amount equal to not more than ninety percent (90%)
of the Option price of the shares acquired by the exercise of the Option. This
amount shall be evidenced by the Participant's promissory note and shall be
payable in not more than five equal annual installments, unless the amount of
the loan exceeds the maximum loan value for the shares purchased, which value
shall be established from time to time by regulations of the Board of Governors
of the Federal Reserve System. In that event, the note shall be payable in equal
quarterly installments over a period of time not to exceed five years. The
Administrator, however, may vary such terms and make such other provisions
concerning the unpaid balance of such purchase price in the case of hardship,
subsequent termination of employment, absence on military or government service,
or subsequent death of the Participant as in its discretion are necessary or
advisable in order to protect the Company, promote the purposes of the Plan and
comply with regulations of the Board of Governors of the Federal Reserve System
relating to securities credit transactions.
The Participant shall pay interest on the unpaid balance at the
minimum rate necessary to avoid imputed interest or original issue discount
under the Code. All shares acquired with cash borrowed from the Company shall be
pledged to the
-11-
Company as security for the repayment thereof. In the discretion of the
Administrator, shares of stock may be released from such pledge proportionately
as payments on the note (together with interest) are made, provided the release
of such shares complies with the regulations of the Federal Reserve System
relating to securities credit transactions then applicable. While shares are so
pledged, and so long as there has been no default in the installment payments,
such shares shall remain registered in the name of the Participant, and he shall
have the right to vote such shares and to receive all dividends thereon.
6.10. Shareholder Rights. No Participant shall have any rights as a shareholder
with respect to shares subject to his Option until the date of exercise of such
Option.
6.11. Disposition of Stock. A Participant shall notify the Company of any sale
or other disposition of Common Stock acquired pursuant to an Option that was an
incentive stock option if such sale or disposition occurs (i) within two years
of the grant of an Option or (ii) within one year of the issuance of the Common
Stock to the Participant. Such notice shall be in writing and directed to the
Secretary of the Company.
ARTICLE VII
SARS
7.01. Award. In accordance with the provisions of Article IV, the Administrator
will designate each individual to whom SARs are to be granted and will specify
the number of shares covered by such awards; provided, however, that no
individual may be granted SARs in any calendar year covering more than 25,000
shares. For
-12-
purposes of the preceding sentence, an Option and Corresponding SAR shall be
treated as a single award. In addition no Participant may be granted
Corresponding SARs (under all incentive stock option plans of the Company and
its Affiliates) that are related to incentive stock options which are first
exercisable in any calendar year for stock having an aggregate Fair Market Value
(determined as of the date the related Option is granted) that exceeds $100,000.
7.02. Maximum SAR Period. The maximum period in which an SAR may be exercised
shall be determined by the Administrator on the date of grant, except that no
Corresponding SAR that is related to an incentive stock option shall be
exercisable after the expiration of ten years from the date such related Option
was granted. In the case of a Corresponding SAR that is related to an incentive
stock option granted to a Participant who is a Ten Percent Shareholder, such
Corresponding SAR shall not be exercisable after the expiration of five years
from the date such related Option was granted. The terms of any Corresponding
SAR that is related to an incentive stock option may provide that it is
exercisable for a period less than such maximum period.
7.03. Nontransferability. Except as provided in Section 7.04, each SAR granted
under this Plan shall be nontransferable except by will or by the laws of
descent and distribution. In the event of any such transfer, Corresponding SAR
and the related Option must be transferred to the same person or persons or
entity or entities. During the lifetime of the Participant to whom the SAR is
granted, the SAR may be
-13-
exercised only by the Participant. No right or interest of a Participant in any
SAR shall be liable for, or subject to, any lien, obligation, or liability of
such Participant.
7.04. Transferable SARs. Section 7.03 to the contrary notwithstanding, the
Administrator may grant transferable SARs to the extent and on such terms as may
be permitted by Securities Exchange Commission Rule 16b-3, as in effect from
time to time. In the event of any such transfer, a Corresponding SAR and the
related Option must be transferred to the same person or person or entity or
entities. The holder of an SAR transferred pursuant this section shall be bound
by the same terms and conditions that governed the SAR during the period that it
was held by the Participant, and may not subsequently transfer the SAR, except
by will or the laws of descent and distribution.
7.05. Exercise. Subject to the provisions of this Plan and the applicable
Agreement, an SAR may be exercised in whole at any time or in part from time to
time at such times and in compliance with such requirements as the Administrator
shall determine; provided, however, that a Corresponding SAR that is related to
an incentive stock option may be exercised only to the extent that the related
Option is exercisable and only when the Fair Market Value exceeds the option
price of the related Option. An SAR granted under this Plan may be exercised
with respect to any number of whole shares less than the full number for which
the SAR could be exercised. A partial exercise of an SAR shall not affect the
right to exercise the SAR from time to time in accordance with this Plan and the
applicable Agreement with respect to the remaining shares subject to the SAR.
The exercise of a
-14-
Corresponding SAR shall result in the termination of the related Option to the
extent of the number of shares with respect to which the SAR is exercised.
7.06. Employee Status. If the terms of any SAR provide that it may be exercised
only during employment or within a specified period of time after termination of
employment, the Administrator may decide to what extent leaves of absence for
governmental or military service, illness, temporary disability or other reasons
shall not be deemed interruptions of continuous employment.
7.07. Settlement. At the Administrator's discretion, the amount payable as a
result of the exercise of an SAR may be settled in cash, Common Stock, or a
combination of cash and Common Stock. No fractional share will be deliverable
upon the exercise of an SAR but a cash payment will be made in lieu thereof.
7.08. Shareholder Rights. No Participant shall, as a result of receiving an SAR
award, have any rights as a shareholder of the Company or any Affiliate until
the date that the SAR is exercised and then only to the extent that the SAR is
settled by the issuance of Common Stock.
ARTICLE VIII
STOCK AWARDS
8.01. Award. In accordance with the provisions of Article IV, the Administrator
will designate each individual to whom a Stock Award is to be made and will
specify the number of shares of Common Stock covered by such awards; provided,
however, that no Participant may receive Stock Awards in any calendar year for
more than 25,000 shares of Common Stock.
-15-
8.02. Vesting. The Administrator, on the date of the award, may prescribe that a
Participant's rights in the Stock Award shall be forfeitable or otherwise
restricted for a period of time or subject to such conditions as may be set
forth in the Agreement. If a Stock Award is not nonforfeitable and transferable
upon its grant, the period of restriction shall be at least three years;
provided, however, that the minimum period of restriction shall be at least one
year in the case of a Stock Award that will become transferable and
nonforfeitable on account of the satisfaction of performance objectives
prescribed by the Administrator.
8.03. Performance Objectives. In accordance with Section 8.02, the Administrator
may prescribe that Stock Awards will become vested or transferable or both based
on objectives stated with respect to the Company's, an Affiliate's or an
operating unit's return on equity, earnings per share, total earnings, earnings
growth, return on capital, return on assets, or Fair Market Value. If the
Administrator, on the date of award, prescribes that a Stock Award shall become
nonforfeitable and transferable only upon the attainment of performance
objectives stated with respect to one or more of the foregoing criteria, the
shares subject to such Stock Award shall become nonforfeitable and transferable
only to the extent that the Administrator certifies that such objectives have
been achieved.
8.04. Employee Status. In the event that the terms of any Stock Award provide
that shares may become transferable and nonforfeitable thereunder only after
completion of a specified period of employment, the Administrator may decide in
each case to what extent leaves of absence for governmental or military service,
illness,
-16-
temporary disability, or other reasons shall not be deemed interruptions of
continuous employment.
8.05. Shareholder Rights. Prior to their forfeiture (in accordance with the
applicable Agreement and while the shares of Common Stock granted pursuant to
the Stock Award may be forfeited or are nontransferable), a Participant will
have all rights of a shareholder with respect to a Stock Award, including the
right to receive dividends and vote the shares; provided, however, that during
such period (i) a Participant may not sell, transfer, pledge, exchange,
hypothecate, or otherwise dispose of shares of Common Stock granted pursuant to
a Stock Award, (ii) the Company shall retain custody of the certificates
evidencing shares of Common Stock granted pursuant to a Stock Award, and (iii)
the Participant will deliver to the Company a stock power, endorsed in blank,
with respect to each Stock Award. The limitations set forth in the preceding
sentence shall not apply after the shares of Common Stock granted under the
Stock Award are transferable and are no longer forfeitable.
ARTICLE IX
INCENTIVE AWARDS
9.01. Award. The Administrator shall designate Participants to whom Incentive
Awards are made. All Incentive Awards shall be finally determined exclusively by
the Administrator under the procedures established by the Administrator;
provided, however, that no Participant may receive an Incentive Award payment in
any calendar year that exceeds the lesser of (i) 75% of the Participant's base
salary (prior
-17-
to any salary reduction or deferral elections) as of the date of grant of the
Incentive Award or (ii) $250,000.
9.02. Terms and Conditions. The Administrator, at the time an Incentive Award is
made, shall specify the terms and conditions which govern the award. Such terms
and conditions shall prescribe that the Incentive Award shall be earned only to
the extent that the Company, an Affiliate or an operating unit, during a
performance period of at least one year, achieves objectives based on return on
equity, earnings per share, total earnings, earnings growth, return on capital,
return on assets or Fair Market Value. Such terms and conditions also may
include other limitations on the payment of Incentive Awards including, by way
of example and not of limitation, requirements that the Participant complete a
specified period of employment with the Company or an Affiliate or that the
Company, an Affiliate, or the Participant attain stated objectives or goals (in
addition to those prescribed in accordance with the preceding sentence) as a
prerequisite to payment under an Incentive Award. The Administrator, at the time
an Incentive Award is made, shall also specify when amounts shall be payable
under the Incentive Award and whether amounts shall be payable in the event of
the Participant's death, disability, or retirement.
9.03. Nontransferability. Except as provided in Section 9.04, Incentive Awards
granted under this Plan shall be nontransferable except by will or by the laws
of descent and distribution. No right or interest of a Participant in an
Incentive Award shall be liable for, or subject to, any lien, obligation, or
liability of such Participant.
-18-
9.04. Transferable Incentive Awards. Section 9.03 to the contrary
notwithstanding, the Administrator may grant transferable Incentive Awards to
the extent and on such terms and conditions as may be permitted by Securities
Exchange Commission Rule 16b-3, as in effect from time to time. The holder of an
Incentive Award transferred pursuant to this section shall be bound by the same
terms and conditions that governed the Incentive Award during the period that it
was held by the Participant, and may not subsequently transfer the Incentive
Award, except by will or the laws of descent and distribution.
9.05. Employee Status. If the terms of an Incentive Award provide that a payment
will be made thereunder only if the Participant completes a stated period of
employment, the Administrator may decide to what extent leaves of absence for
governmental or military service, illness, temporary disability or other reasons
shall not be deemed interruptions of continuous employment.
9.06. Shareholder Rights. No Participant shall, as a result of receiving an
Incentive Award, have any rights as a shareholder of the Company or any
Affiliate on account of such award.
-19-
ARTICLE X
ADJUSTMENT UPON CHANGE IN COMMON STOCK
The maximum number of shares as to which Options, SARs and Stock
Awards may be granted under this Plan, the terms of outstanding Stock Awards,
Options, and SARs, and the per individual limitations on the number of shares or
Units for which Options, SARs, and Stock Awards may be granted, shall be
adjusted as the Committee shall determine to be equitably required in the event
that (a) the Company (i) effects one or more stock dividends, stock split-ups,
subdivisions or consolidations of shares or (ii) engages in a transaction to
which Section 424 of the Code applies or (b) there occurs any other event which,
in the judgment of the Committee necessitates such action. Any determination
made under this Article X by the Committee shall be final and conclusive.
The issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property,
or for labor or services, either upon direct sale or upon the exercise of rights
or warrants to subscribe therefor, or upon conversion of shares or obligations
of the Company convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
maximum number of shares as to which Options, SARs and Stock Awards may be
granted, the per individual limitations on the number of shares for which
Options, SARs and Stock Awards may be granted or the terms of outstanding Stock
Awards, Options or SARs.
-20-
The Committee may make Stock Awards and may grant Options and SARs
in substitution for performance shares, phantom shares, stock awards, stock
options, stock appreciation rights, or similar awards held by an individual who
becomes an employee of the Company or an Affiliate in connection with a
transaction described in the first paragraph of this Article X. Notwithstanding
any provision of the Plan (other than the limitation of Section 5.02), the terms
of such substituted Stock Awards or Option or SAR grants shall be as the
Committee, in its discretion, determines is appropriate.
ARTICLE XI
COMPLIANCE WITH LAW AND
APPROVAL OF REGULATORY BODIES
No Option or SAR shall be exercisable, no Common Stock shall be
issued, no certificates for shares of Common Stock shall be delivered, and no
payment shall be made under this Plan except in compliance with all applicable
federal and state laws and regulations (including, without limitation,
withholding tax requirements), any listing agreement to which the Company is a
party, and the rules of all domestic stock exchanges on which the Company's
shares may be listed. The Company shall have the right to rely on an opinion of
its counsel as to such compliance. Any share certificate issued to evidence
Common Stock when a Stock Award is granted or for which an Option or SAR is
exercised may bear such legends and statements as the Administrator may deem
advisable to assure compliance with federal and state laws and regulations. No
Option or SAR shall be exercisable, no Stock Award shall be
-21-
granted, no Common Stock shall be issued, no certificate for shares shall be
delivered, and no payment shall be made under this Plan until the Company has
obtained such consent or approval as the Administrator may deem advisable from
regulatory bodies having jurisdiction over such matters.
ARTICLE XII
GENERAL PROVISIONS
12.01. Effect on Employment and Service. Neither the adoption of this Plan, its
operation, nor any documents describing or referring to this Plan (or any part
thereof) shall confer upon any individual any right to continue in the employ or
service of the Company or an Affiliate or in any way affect any right and power
of the Company or an Affiliate to terminate the employment or service of any
individual at any time with or without assigning a reason therefor.
12.02. Unfunded Plan. The Plan, insofar as it provides for grants, shall be
unfunded, and the Company shall not be required to segregate any assets that may
at any time be represented by grants under this Plan. Any liability of the
Company to any person with respect to any grant under this Plan shall be based
solely upon any contractual obligations that may be created pursuant to this
Plan. No such obligation of the Company shall be deemed to be secured by any
pledge of, or other encumbrance on, any property of the Company.
12.03. Rules of Construction. Headings are given to the articles and sections of
this Plan solely as a convenience to facilitate reference. The reference to any
-22-
statute, regulation, or other provision of law shall be construed to refer to
any amendment to or successor of such provision of law.
ARTICLE XIII
AMENDMENT
The Board may amend or terminate this Plan from time to time;
provided, however, that no amendment may become effective until shareholder
approval is obtained if (i) the amendment increases the aggregate number of
shares of Common Stock that may be issued under the Plan, (ii) the amendment
changes the class of individuals eligible to become Participants or (iii) the
amendment materially increases the benefits that may be provided under the Plan.
No amendment shall, without a Participant's consent, adversely affect any rights
of such Participant under any outstanding Stock Award, Option, SAR or Incentive
Award outstanding at the time such amendment is made.
ARTICLE XIV
DURATION OF PLAN
No Stock Award, Option, SAR or Incentive Award may be granted under
this Plan after February 20, 2006. Stock Awards, Options, SARs and Incentive
Awards granted before that date shall remain valid in accordance with their
terms.
-23-
ARTICLE XV
EFFECTIVE DATE OF PLAN
Options, SARs and Incentive Awards may be granted under this Plan
upon its adoption by the Board, provided that no Option, SAR or Incentive Award
shall be effective or exercisable unless this Plan is approved by a majority of
the votes entitled to be cast by the Company's shareholders, voting either in
person or by proxy, at a duly held shareholders' meeting within twelve months of
such adoption. Stock Awards may be granted under this Plan upon the later of its
adoption by the Board or its approval by shareholders in accordance with the
preceding sentence.
-24-
EXHIBIT 11 - Computations of Earnings Per Share
Tredegar Industries, Inc. and Subsidiaries
(In thousands, except per-share amounts)
- -----------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------
Income from continuing operations $ 45,035 $ 24,053 $ 1,417
Income from discontinued Energy segment operations - - 37,218
====================================
Net income $ 45,035 $ 24,053 $ 38,635
====================================
Earnings per share common and dilutive common
equivalent share as reported (1):
Continuing operations $ 3.44 $ 1.80 $ 0.09
Discontinued Energy segment operations - - 2.40
====================================
Net income $ 3.44 $ 1.80 $ 2.49
====================================
PRIMARY EARNINGS PER SHARE:
Shares issuable upon the assumed exercise
of outstanding stock options (2) 897 454 90
Weighted average common shares outstanding
during period 12,208 12,916 15,524
------------------------------------
Weighted average common and dilutive common
equivalent shares 13,105 13,370 15,614
====================================
Primary earnings per share (1) $ 3.44 $ 1.80 $ 2.47
====================================
FULLY DILUTED EARNINGS PER SHARE:
Shares issuable upon the assumed exercise
of outstanding stock options (3) 988 618 135
Weighted average common shares outstanding
during period 12,208 12,916 15,524
------------------------------------
Weighted average common and dilutive common
equivalent shares 13,196 13,534 15,659
====================================
Fully diluted earnings per share (3) $ 3.41 $ 1.78 $ 2.47
====================================
Notes:
(1) Shares used to compute earnings per common and dilutive common equivalent
share include common stock equivalents for the years ended December 31,
1996 and 1995.
(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.
FINANCIAL SUMMARY
% Increase
Years Ended December 31 1996 1995 (Decrease)
- -----------------------------------------------------------------------------------------------
(In thousands, except per-share amounts)
- -----------------------------------------------------------------------------------------------
Net income:
- -----------------------------------------------------------------------------------------------
As reported $45,035 $24,053 87
Excluding unusual items (a) 36,556 24,094 52
Excluding unusual items and technology-related
investment gains/losses (a) (b) 35,187 24,538 43
- -----------------------------------------------------------------------------------------------
Earnings per common and dilutive common equivalent share:
- -----------------------------------------------------------------------------------------------
As reported 3.44 1.80 91
Excluding unusual items (a) 2.79 1.80 55
Excluding unusual items and technology-related
investment gains/losses (a) (b) 2.69 1.84 46
- -----------------------------------------------------------------------------------------------
Ongoing operations (b):
- -----------------------------------------------------------------------------------------------
Net sales 489,040 472,709 3
EBITDA (c) 71,914 56,283 28
Technology-related investment gains (losses) (a) 2,139 (694) -
Depreciation and amortization 18,507 17,579 5
Capital expenditures 22,698 17,778 28
Research and development expenses 11,066 8,763 26
- -----------------------------------------------------------------------------------------------
Financial position and other data:
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents 101,261 2,145 4,621
Debt outstanding 35,000 35,000 -
Shareholders' equity 212,545 170,521 25
Credit available under 5-year revolving
credit facility 275,000 275,000 -
Shares outstanding at end of period 12,238 12,176 1
Weighted average shares used to compute earnings per
common and dilutive common equivalent share 13,105 13,370 (2)
Dividends per share .26 .18 44
Equity per share 17.37 14.00 24
- -----------------------------------------------------------------------------------------------
Closing market price per share:
- ------------------------------------------------------------------------------
High 45.38 23.17
Low 20.50 11.58
End of year 40.13 21.50
- ------------------------------------------------------------------------------
Total return to shareholders 87.8% 87.2 %
- ------------------------------------------------------------------------------
(a) See page 24 for an explanation of unusual items. During 1996, Tredegar
realized a gain of $2,139 ($1,369 after income taxes) on the sale of its equity
investment in Indigo Medical, Inc., to Johnson & Johnson. During 1995, Tredegar
recognized a charge of $694 ($444 after income tax benefits) for the write-off
of another medical technology investment. See Note 7 on page 41 for information
on Tredegar's remaining technology-related investments.
(b) Ongoing operations exclude Molded Products and Brudi, which were divested in
1996. On a pro forma basis, excluding unusual items, investment gains/losses,
the operating results of Molded Products and Brudi and including pro forma
interest income on divestiture proceeds at a rate of approximately 3.5% after
income taxes, net income in 1996 and 1995 would have been $35,357 ($2.70 per
share) and $25,851 ($1.93 per share), respectively. See Note 19 on page 47 for
further information regarding divested operations.
(c) Ongoing EBITDA is earnings before interest, taxes, depreciation,
amortization, unusual items, technology-related investment gains/losses, and
divested and discontinued operations. See Note (o) on page 33 for further
explanation.
FINANCIAL REVIEW
TABLE OF CONTENTS
- --------------------------------------------------------------------------
Seven-Year Summary 18
Segment Tables 20
Shareholder Value 23
Results of Operations 24
Financial Condition 26
Business Segment Review 27
Selected Quarterly Financial Data 31
Notes to Financial Tables 32
Independent Accountants' & Management's Reports 34
Consolidated Statements of Income 35
Consolidated Balance Sheets 36
Consolidated Statements of Cash Flows 37
Consolidated Statement of Shareholders' Equity 38
Notes to Financial Statements 39
Shareholder Information 50
SEVEN-YEAR SUMMARY
Tredegar Industries, Inc. and Subsidiaries
Years Ended December 31 1996 1995 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per-share data)
Results of Operations (a)(b)(c):
Net sales $523,551 $589,454 $502,208 $449,208 $445,229 $439,186 $505,884
Other income (expense), net 4,248 (669) (296) (387) 226 745 861
-------- --------- --------- --------- -------- -------- -------
527,799 588,785 501,912 448,821 445,455 439,931 506,745
-------- --------- --------- --------- -------- -------- -------
Cost of goods sold 417,270 490,510 419,823 379,286 370,652 373,429 450,843
Selling, general and administrative expenses 39,719 48,229 47,978 47,973 48,130 49,764 54,457
Research and development expenses 11,066 8,763 8,275 9,141 5,026 4,541 4,850
Interest expense (d) 2,176 3,039 4,008 5,044 5,615 7,489 7,101
Unusual items (11,427)(e) (78)(f) 16,494(g) 452(h) 90(i) 721(j) 32,915(k)
-------- ------- -------- ------- ------- ------- -------
458,804 550,463 496,578 441,896 429,513 435,944 550,166
-------- ------- -------- ------- ------- ------- -------
Income (loss) from continuing operations before
income taxes 68,995 38,322 5,334 6,925 15,942 3,987 (43,421)
Income taxes 23,960 14,269 3,917 3,202 6,425 1,468 (14,734)
-------- ------- -------- ------- ------- ------- --------
Income (loss) from continuing operations(a)(b)(c) 45,035 24,053 1,417 3,723 9,517 2,519 (28,687)
Income from discontinued Energy segment opera-
tions(b) - - 37,218 6,784 5,795 3,104 4,001
-------- ------- -------- ------- ------- ------- --------
Net income (loss) before extraordinary item and
cumulative effect of accounting changes 45,035 24,053 38,635 10,507 15,312 5,623 (24,686)
Extraordinary item-prepayment premium on
extinguishment of debt (net of tax) - - - (1,115) - - -
Cumulative effect of accounting changes - - - 150 - - -
-------- ------- -------- ------- ------- ------- --------
Net income (loss) $ 45,035 $24,053 $38,635 $9,542 $15,312 $ 5,623 $(24,686)
- ---------------------------------------------------------------------------------------------------------------------------------
Share Data:
Earnings (loss) per common and dilutive common
equivalent share:
Continuing operations(a)(b)(c) $ 3.44 $ 1.80 $ .09 $ .23 $ .58 $ .15 $ (1.69)
Discontinued Energy segment operations(b) - - 2.40 .42 .36 .19 .24
-------- ------- -------- ------- ------- ------- --------
Before extraordinary item and cumulative 3.44 1.80 2.49 .65 .94 .34 (1.45)
effect of accounting changes
Net income (loss) 3.44 1.80 2.49 .59 .94 .34 (1.45)
Equity per share 17.37 14.00 12.74 10.35 9.94 9.19 9.01
Cash dividends declared per share .26 .18 .16 .16 .16 .16 .16
Weighted average shares used to compute earnings
per common and dilutive common
equivalent share 13,105 13,370 15,524 16,343 16,341 16,341 16,944
Shares outstanding at end of period 12,238 12,176 13,488 16,343 16,341 16,341 16,341
Closing market price per share:
High 45.38 23.17 12.42 12.00 12.42 7.17 10.50
Low 20.50 11.58 9.33 8.33 6.67 4.25 4.67
End of year 40.13 21.50 11.58 10.00 10.33 6.67 4.92
Total return to shareholders(l) 87.8% 87.2% 17.4% (1.7)% 57.4% 38.8% (52.0)%
Financial Position and Other Data:
Total assets 341,077 314,052 318,345 353,383 354,910 355,415 339,114
Working capital excluding cash and cash equivalents 31,860 54,504 53,087 62,064 56,365 60,341 70,890
Ending consolidated capital employed(m) 146,284 203,376 200,842 266,088 263,897 249,723 244,971
Current ratio 3.2:1 1.8:1 1.9:1 2.1:1 2.0:1 2.1:1 2.2:1
Cash and cash equivalents 101,261 2,145 9,036 - - 500 2,290
Capital employed of divested and discontinued
operations
(Molded Products, Brudi and the Energy
segment)(b)(m) - 60,144 59,267 98,903 96,830 92,365 82,502
Debt 35,000 35,000 38,000 97,000 101,500 100,000 100,000
Shareholders' equity (net book value) 212,545 170,521 171,878 169,088 162,397 150,223 147,261
Equity market capitalization(n) 491,050 261,784 156,236 163,430 168,857 108,940 80,398
Net debt (cash) (debt less cash and cash equivalents)
as a % of net capitalization (45.3)% 16.2% 14.4% 36.5% 38.5% 39.8% 39.9%
Other financial data excluding unusual items,
technology-related investment activities
and divested and discontinued operations(a)(b)(c):
Net sales 489,040 472,709 396,738 356,750 344,296 337,151 370,052
EBITDA(o) 71,914 56,283 45,684 31,734 36,334 36,203 24,171
Depreciation 18,451 17,553 17,089 17,550 16,373 16,566 15,361
Amortization of intangibles 56 26 463 1,712 3 3 3
Capital expenditures 22,698 17,778 11,985 12,729 17,431 18,072 25,701
Acquisitions - 3,637 - - 13,884 - -
Ending capital employed(m) 140,236 139,822 138,625 165,635 163,117 154,208 161,719
Average capital employed(m) 140,029 139,224 152,130 164,376 158,663 157,964 167,064
Unleveraged after-tax earnings(p) 33,913 24,498 17,603 7,544 12,558 12,397 5,740
Return on average capital employed(q) 24.2% 17.6% 11.6% 4.6% 7.9% 7.8% 3.4%
EBITDA as % of net sales 14.7% 11.9% 11.5% 8.9% 10.6% 10.7% 6.5%
Effective income tax rate 36.5% 36.6% 37.1% 39.5% 36.7% 36.3% -
- ---------------------------------------------------------------------------------------------------------------------------------
Refer to Notes to Financial Tables on page 32
SEGMENT TABLES
Tredegar Industries Inc. and Subsidiaries
Net Sales
- -----------------------------------------------------------------------------------------------------------------------------------
Segment 1996 1995 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Film Products and Fiberlux $267,870 $249,099 $200,151 $187,291 $193,772 $193,753 $176,705
Aluminum Extrusions 219,044 221,657 193,870 166,465 150,524 143,398 193,347
Technology 2,126 1,953 2,717 2,994 - - -
-------- -------- -------- -------- -------- -------- --------
Total ongoing operations (r)(t) 489,040 472,709 396,738 356,750 344,296 337,151 370,052
Divested operations (b):
Molded Products 21,131 84,911 76,579 68,233 80,834 87,860 107,995
Brudi and plant shut down and
business held for sale in 1990 13,380 31,834 28,891 24,225 20,099 14,175 27,837
-------- -------- -------- -------- -------- -------- --------
Total $523,551 $589,454 $502,208 $449,208 $445,229 $439,186 $505,884
===================================================================================================================================
Operating Profit
- -----------------------------------------------------------------------------------------------------------------------------------
Segment 1996 1995 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Film Products and Fiberlux (t):
Ongoing operations $44,378 $36,471 $35,676 $22,877 $26,573 $32,945 $20,311
Unusual items 680(e) 1,750(f) - (1,815)(h) - 2,797(j) -
------- ------ ------- ------- ------- ------- --------
45,058 38,221 35,676 21,062 26,573 35,742 20,311
Aluminum Extrusions:
Ongoing operations 23,371 16,777 11,311 7,964 4,180 (4,247) (1,713)
Unusual items - - - - - - (30,084)(k)
------- ------ ------- ------- ------- ------- --------
23,371 16,777 11,311 7,964 4,180 (4,247) (31,797)
Technology:
Molecumetics (6,564) (4,769) (3,534) (3,324) (1,031) - -
Investments and other (s) 2,021 (1,261) (5,354) (6,380) (834) - -
Unusual items - (1,672)(f) (9,521)(g) 2,263(h) 1,092(i) - -
------- ------ ------- ------- ------- ------- --------
(4,543) (7,702) (18,409) (7,441) (773) - -
Divested operations (b):
Molded Products 1,011 2,718 (2,484) (228) 1,176 (9,307) (8,908)
Brudi and plant shut down and
business held for sale in 1990 231 222 (356) 177 513 1,870 (3,304)
Unusual items 10,747(e) - (6,973)(g) - (1,182)(i) (3,518)(j) (2,831)(k)
------- ------ ------- ------- ------- ------- --------
11,989 2,940 (9,813) (51) 507 (10,955) (15,043)
------- ------ ------- ------- ------- ------- --------
Total operating profit (loss) 75,875 50,236 18,765 21,534 30,487 20,540 (26,529)
Interest income (u) 2,956 333 544 - - - -
Interest expense (d) 2,176 3,039 4,008 5,044 5,615 7,489 7,101
Corporate expenses, net 7,660 9,208 9,967 9,565(h) 8,930 9,064 9,791
------- ------ ------- ------- ------- ------- --------
Income (loss) from continuing
operations before income taxes 68,995 38,322 5,334 6,925 15,942 3,987 (43,421)
Income taxes 23,960 14,269 3,917 3,202 6,425 1,468 (14,734)
------- ------ ------- ------- ------- ------- --------
Income (loss) from continuing
operations (a) 45,035 24,053 1,417 3,723 9,517 2,519 (28,687)
Income from discontinued Energy
segment operations (b) - - 37,218 6,784 5,795 3,104 4,001
------- ------ ------- ------- ------- ------- --------
Net income (loss) before
extraordinary item and cumulative
effect of accounting changes $45,035 $24,053 $38,635 $10,507 $15,312 $5,623 $(24,686)
===================================================================================================================================
Refer to Notes to Financial Tables on page 32.
Identifiable Assets
- ------------------------------------------------------------------------------------------------------------------------------
Segment 1996 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Film Products and Fiberlux (t) $122,723 $124,426 $115,310 $116,583 $119,915 $110,630 $ 98,716
Aluminum Extrusions 83,814 80,955 89,406 89,498 93,365 95,000 116,391
Technology:
Molecumetics 2,911 2,018 1,536 1,926 1,415 - -
Investments and other (s) 7,760 5,442 5,780 13,321 15,441 3,334 750
-------- -------- --------- --------- -------- -------- --------
Identifiable assets for ongoing
operations 217,208 212,841 212,032 221,328 230,136 208,964 215,857
Nonoperating assets held for sale - 6,057 5,018 3,605 4,330 13,600 8,670
General corporate 22,608 20,326 12,789 12,031 11,745 9,447 6,647
Cash and cash equivalents 101,261 2,145 9,036 - - 500 2,290
Divested operations (b):
Molded Products - 44,173 48,932 54,487 50,151 52,132 77,566
Brudi and business
held for sale in 1990 - 28,510 30,538 30,956 28,744 26,416 5,238
Net assets of discontinued Energy
segment operations (b) - - - 30,976 29,804 24,356 22,846
-------- -------- --------- --------- -------- -------- --------
Total $341,077 $314,052 $318,345 $353,383 $354,910 $335,415 $339,114
==============================================================================================================================
Depreciation and Amortization
- ------------------------------------------------------------------------------------------------------------------------------
Segment 1996 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Film Products and Fiberlux $11,769 $10,343 $9,741 $10,026 $8,580 $7,847 $5,644
Aluminum Extrusions 5,407 5,966 5,948 6,240 7,093 8,033 9,153
Technology:
Molecumetics 780 592 573 443 - - -
Investments and other (s) 161 197 720 1,868 - - -
------- -------- ------- ------- ------- ------- -------
Subtotal 18,117 17,098 16,982 18,577 15,673 15,880 14,797
General corporate 390 481 570 685 703 689 567
------- ------- ------- ------- ------- ------- -------
Total ongoing operations 18,507 17,579 17,552 19,262 16,376 16,569 15,364
Divested operations (b):
Molded Products 1,261 5,055 5,956 5,289 5,416 7,835 7,958
Brudi and plant shut down and
business held for sale in 1990 550 1,201 1,337 1,272 1,085 798 1,083
------- ------- ------- ------- ------- ------- -------
Total $20,318 $23,835 $24,845 $25,823 $22,877 $25,202 $24,405
==============================================================================================================================
Refer to Notes to Financial Tables on page 32.
Capital Expenditures, Acquisitions and Investments
- --------------------------------------------------------------------------------------------------------------------------------
Segment 1996 1995 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Film Products and Fiberlux $12,349 $11,199 $ 7,126 $ 6,575 $13,214 $10,055 $15,254
Aluminum Extrusions 8,598 5,454 4,391 1,870 2,487 7,594 9,302
Technology:
Molecumetics 1,594 894 178 939 1,414 - -
Other (s) 14 - 99 905 - - -
------- ------- ------- ------- ------- ------- -------
Subtotal 22,555 17,547 11,794 10,289 17,115 17,649 24,556
General corporate 143 231 191 2,440 316 423 1,145
------- ------- ------- ------- ------- ------- -------
Capital expenditures for ongoing
operations 22,698 17,778 11,985 12,729 17,431 18,072 25,701
Divested operations (b):
Molded Products 1,158 6,553 2,988 3,235 2,441 2,897 8,891
Brudi and plant shut down and
business held for sale in 1990 104 807 606 516 833 391 207
------- ------- ------- ------- ------- ------- -------
Total capital expenditures 23,960 25,138 15,579 16,480 20,705 21,360 34,799
Acquisitions and other investments (s) 3,138 5,541 1,400 5,699 17,622 25,654 -
------- ------- ------- ------- ------- ------- -------
Total capital expenditures,
acquisitions and investments $27,098 $30,679 $16,979 $22,179 $38,327 $47,014 $34,799
================================================================================================================================
Refer to Notes to Financial Tables on page 32.
SHAREHOLDER VALUE
Tredegar's primary objective is to enhance shareholder value. The ultimate
measure of value creation is total return on common stock. The total return on
Tredegar's common stock was 87.8% in 1996 and 87.2% in 1995. This compares
favorably to the total return for the S&P SmallCap 600(R) Index in which
Tredegar is included.
Key operational value drivers affecting total return include sales growth
rate, operating profit margin, income tax rate and fixed and working capital
investment. Tredegar attributes its favorable total return in 1996 and 1995
primarily to higher profits and cash flow in Film Products and Aluminum
Extrusions, the divestiture of non-strategic businesses (Molded Products and
Brudi in 1996 and Tredegar's former energy businesses in 1994), accretion in
earnings per share due to stock repurchases and the elimination of operating
losses in APPX Software.
Tredegar's value creation efforts also link pay to performance, primarily
through the issuance of bonuses and stock options (see pages 6-7). The charts on
this page depict the relationship between CEO pay, incentives and selected
performance measures. Additional information on compensation paid to Mr.
Gottwald is included in Tredegar's 1997 proxy statement.
In addition to cash compensation, Mr. Gottwald was granted the following
stock options:
Number Per-Share
Year of Options Exercise Price
1989 47,850 $11.14
1992 45,000 8.09
1994 33,750 10.09
22,500 16.00
1995 22,500 12.50
1996 12,000 25.13
6,000 29.00
The per-share exercise price of the stock options was equal to or greater than
the market price of Tredegar common stock on the date of grant.
TOTAL CASH COMPENSATION
JOHN D. GOTTWALD
PRESIDENT AND CEO
$ THOUSANDS
[Bar Chart]
1990 1991 1992 1993 1994 1995 1996
SALARY 282,500 293,750 308,500 322,500 333,000 333,000 347,167
BONUS 0 30,000 75,000 42,500 90,000 125,000 140,000
RETURN ON AVERAGE CAPITAL EMPLOYED
Ongoing operations excluding unusual items
and technology-related investment activities
Percent
[Bar Chart]
'90 '91 '92 '93 '94 '95 '96
3.4 7.8 7.9 4.6 11.6 17.6 24.2
CUMULATIVE TOTAL RETURN
Based on investment of $100 beginning December 31, 1990
includes reinvestment of dividends
Dollars Source: Georgeson & Co.
[ ] Tredegar [ ] S&P Manufacturing (Diversified Ind.) Index
[ ] S&P 500(R) [ ] S&P SmallCap 600*
Tredegar is included in the S&P SmallCap 600
[Bar Graph]
'90 '91 '92 '93 '94 '95 '96
Tredegar Industries Inc. $100 $139 $219 $216 $254 $476 $895
S&P 500(R) $100 $130 $140 $155 $157 $215 $265
S&P(R) Manufacturing
(Diversified) Index $100 $123 $133 $161 $167 $235 $324
S&P 600(R) SmallCap Index $100 $148 $180 $213 $203 $264 $321
RESULTS OF OPERATIONS
1996 SUMMARY
Net income in 1996 was $45 million or $3.44 per share, compared with $24.1
million or $1.80 per share in 1995. Results for both years include unusual
income (net) and technology-related investment gains and losses that affect
comparability between periods. Excluding the after-tax effects of these items,
which are described in the next two sections of this report, net income was
$35.2 million or $2.69 per share, up significantly from $24.5 million or $1.84
per share in 1995. This increase was due primarily to higher profits in Film
Products and Aluminum Extrusions.
Unusual Items
Unusual income (net) affecting operations in 1996 totaled $11.4 million ($8.5
million after income taxes) and included:
o A third-quarter gain of $2 million ($1.2 million after taxes) on the sale of a
former plastic films manufacturing site in Fremont, California
o A third-quarter charge of $1.3 million ($795,000 after taxes) related to the
write-off of specialized machinery and equipment due to excess capacity in
certain industrial packaging films
o A first-quarter gain of $19.9 million ($13.7 million after taxes) on the sale
of Molded Products (see further discussion below)
o A first-quarter charge of $9.1 million ($5.7 million after taxes) related to
the loss on the divestiture of Brudi (see further discussion below)
Unusual income (net) affecting operations in 1995 totaled $78,000 (a
$41,000 charge after income taxes) and included:
o A third-quarter gain of $728,000 ($451,000 after taxes) on the sale of Regal
Cinema shares
o A first-quarter charge of $2.4 million ($1.6 million after taxes) related to
the restructuring of APPX Software
o A first-quarter recovery of $1.8 million ($1.1 million after taxes) in
connection with a Film Products product liability lawsuit
On March 29, 1996, Tredegar sold Molded Products to Precise Technology,
Inc., for cash consideration of $57.5 million ($54 million after transaction
costs). During the second quarter of 1996, Tredegar completed the sale of Brudi
for cash con-sideration of approximately $18.1 million ($17.6 million after
transaction costs). 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.
This gain was partially offset by a first-quarter charge of $9.1 million ($5.7
million after income tax benefits) related to the loss on the divestiture of
Brudi. See Note 19 on page 47 for further details on these divestitures.
The operating results for Molded Products were historically reported as
part of the Plastics segment on a combined basis with Film Products and
Fiberlux. Likewise, results for Brudi were combined with Aluminum Extrusions and
reported as part of the Metal Products segment. Accordingly, results for Molded
Products and Brudi have been included in continuing operations. Tredegar began
reporting Molded Products and Brudi separately in its segment disclosures in
1995 after announcing its intent to divest these businesses (see pages 20-22).
On a pro forma basis, excluding unusual income (net), technology-related
investment gains and losses, the operating results of Molded Products and Brudi
and including pro forma interest income on divestiture proceeds at a rate of
approximately 3.5% after income taxes, net income in 1996 and 1995 would have
been $35.4 million ($2.70 per share) and $25.9 million ($1.93 per share),
respectively.
Technology-Related Investment Gains and Losses
During 1996, Tredegar realized a gain of $2.1 million ($1.4 million after income
taxes) on the sale of its equity investment in Indigo Medical, Inc. ("Indigo")
to Johnson & Johnson. This gain is included in "Other income (expense), net" in
the consolidated statements of income on page 35 and "Investments and other" in
the operating profit table on page 20. Indigo is engaged in the development of
catheter-based laser thermotherapy systems to treat enlargement of the prostate.
During 1995, Tredegar recognized a charge of $694,000 ($444,000 after income tax
benefits) for the write-off of another medical technology investment. This
charge is included in "Selling, general and administrative" expenses in the
consolidated statements of income and "Investments and other" in the operating
profit table. Further information on Tredegar's technology-related investments
is provided in Note 7 on page 41.
1996 VERSUS 1995
Revenues
Net sales decreased by 11.2% due to the divestitures of Molded Products and
Brudi and lower selling prices (reflecting lower average raw material costs),
partially offset by higher volume in Film Products and Aluminum Extrusions. On a
pro forma basis, excluding Molded Products and Brudi, net sales in 1996
increased by 3.5% over 1995. For further discussion of ongoing operations, see
the business segment review on pages 27-30.
Operating Costs and Expenses
The gross profit margin increased to 20.3% in 1996 from 16.8% in 1995 due
primarily to higher volume in ongoing manufacturing businesses and lower raw
material costs per unit, partially offset by startup costs associated with
nonwoven film laminate backsheet production. Cost reductions and quality
improvements in Aluminum Extrusions also contributed to the increase but were
partially offset by the unfavorable impact of press shutdowns associated with a
modernization project currently underway at the Newnan, Georgia, plant.
Selling, general and administrative expenses decreased by $8.5 million or
17.6% due mainly to the divestitures of Molded Products and Brudi, cost
reductions at APPX Software, lower expenses for stock appreciation rights (down
almost $1 million due to their appreciation limitation) and the write-off in
1995 of a medical technology investment ($694,000), partially offset by selling,
general and administrative expenses from the films business acquired in
Argentina in March 1995. Selling, general and administrative expenses, as a
percentage of sales, declined to 7.6% in 1996 compared with 8.2% in 1995.
Research and development expenses increased by $2.3 million or 26.3% due to
higher spending at Molecumetics and higher product development spending at Film
Products.
Unusual income (net) totaling $11.4 million in 1996 is explained on page
24.
Interest Income and Expense
Interest income, which is included in "Other income (expense), net" in the
consolidated statements of income, increased to $3 million in 1996 from $333,000
in 1995 due to the investment of divestiture proceeds and cash generated from
operations. The average tax equivalent yield earned on cash equivalents was 5.5%
in 1996 and 5.9% in 1995. Tredegar's policy permits investment of excess cash in
marketable securities that have the highest credit ratings and maturities of
less than one year. The primary objectives of Tredegar's investment policy are
safety of principal and liquidity.
Interest expense declined due to higher capitalized interest from an
increase in capital expenditures for ongoing operations, lower revolving credit
facility fees and lower average debt outstanding. The average interest rate on
debt was 7.2% in 1996 and 1995 (primarily fixed-rate debt). Average consolidated
debt outstanding during 1996 declined to $35 million from $38.3 million in 1995.
Income Taxes
The effective tax rate excluding unusual items, the effects of tax-exempt
interest income, and investment gains and losses declined to 36.5% during 1996
from 37% in 1995 due primarily to a lower effective state income tax rate from
proportionally higher domestic income in states with lower tax rates and
proportionally higher foreign income that is exempt from state income taxes. See
Note 16 on page 46 for additional tax rate information.
1995 VERSUS 1994
Revenues
Net sales increased 17.4% in 1995 due primarily to higher selling prices in Film
Products and Aluminum Extrusions, reflecting higher raw material costs. Higher
sales volume in Molded Products, Film Products and Brudi also contributed to the
increase. Aluminum Extrusions volume declined 3.1% during 1995. For further
discussion of ongoing operations, see the business segment review on pages
27-30.
Operating Costs and Expenses
The gross profit margin increased to 16.8% in 1995 from 16.4% in 1994 due to
higher volume in Molded Products, ongoing cost and quality improvements in
Aluminum Extrusions and the restructuring of APPX Software, partially offset by
startup costs at a Molded Products facility in Graham, North Carolina, and lower
margins in Film Products. Lower margins in Film Products were due to higher
resin prices, startup costs associated with nonwoven film laminate backsheet
production and costs incurred (which were anticipated) to upgrade the Argentine
films business acquired in March 1995.
Selling, general and administrative expenses increased by less than 1% in
1995 due primarily to the acquisition in Argentina, charges associated with
stock appreciation rights (nearly $1 million in 1995 versus $53,000 in 1994) and
a charge of $694,000 for the write-off of a medical technology investment,
partially offset by cost reductions at APPX Software and Molded Products, lower
bad debt expenses and commissions at Aluminum Extrusions, lower corporate
services costs and lower pension expense for salaried employees. Selling,
general and administrative expenses, as a percentage of sales, declined to 8.2%
in 1995 compared with 9.6% in 1994.
Research and development expenses increased 5.9% compared with 1994 due to
higher spending at Film Products and Molecumetics, partially offset by a
reduction of product development costs at APPX Software.
Unusual income (net) totaling $78,000 in 1995 is explained on page 24.
Interest Income and Expense
Interest income declined in 1995 to $333,000 from $544,000 in 1994 due to lower
average cash and cash equivalent balances.
Interest expense for continuing operations decreased 24.2% due primarily to
lower average debt levels resulting from the paydown of variable-rate debt in
1994 with proceeds from the divestiture of the Energy segment. The average
interest rate on debt outstanding was 7.2% in 1995 (primarily fixed-rate debt)
and 6.2% in 1994 (a mix of fixed- and floating-rate debt). Average consolidated
debt outstanding during 1995 declined to $38.3 million from $61.6 million in
1994. Interest expense of $337,000 was allocated to discontinued energy
operations in 1994.
Income Taxes
The effective tax rate for continuing operations excluding unusual items and
investment gains and losses decreased to 37% in 1995, compared with 38.3% in
1994. The decrease was due mainly to a lower effective state income tax rate.
See Note 16 on page 46 for additional tax rate information.
FINANCIAL CONDITION
ASSETS
Tredegar's total assets increased to $341.1 million at December 31, 1996, from
$314.1 million at December 31, 1995, due to cash generated from operating
activities in excess of capital expenditures and dividends ($18.1 million);
capital expenditures in excess of depreciation ($3.9 million); proceeds from the
sale of Indigo in excess of its carrying value ($2.1 million); an increase in
prepaid pension expense (included in other assets) for the curtailment of
participation by Molded Products employees in one of Tredegar's defined benefit
plans ($1.8 million); and other items ($2.2 million); partially offset by the
divestitures of Molded Products and Brudi for combined cash consideration of
$71.6 million (net of transaction costs), which was $1.1 million less than the
book value of their assets at December 31, 1995.
Capital expenditures in 1996 were related to normal replacement of
machinery and equipment, new nonwoven film laminate capacity, expansion of
permeable film capacity in Europe, expansion of permeable and diaper backsheet
film capacity in Brazil, expansion of lab facilities at Molecumetics, and a
modernization program to upgrade certain areas of the aluminum extrusions
facility in Newnan, Georgia, partially offset by a reduction of capital
expenditures from the divestitures of Molded Products and Brudi. Approximately
$4.8 million is expected to be spent on the Newnan upgrade in 1996 and 1997,
most of which occurred during 1996. Capital expenditures in 1996 also reflect
the purchase of machinery and equipment for a disposable film production line
near Guangzhou, China, that is expected to be operational in late 1997 or early
1998.
At December 31, 1996, Tredegar had cash and cash equivalents of $101.3
million, which was $66.3 million in excess of debt, compared with net debt (debt
in excess of cash and cash equivalents) of $32.9 million at December 31, 1995.
LIABILITIES
Accounts payable decreased by $2.3 million from December 31, 1995, due
primarily to divestitures, partially offset by an improvement in trade terms
with certain vendors. Accrued expenses, deferred income taxes and other
noncurrent liabilities declined due mainly to divestitures.
Debt at December 31, 1996 and 1995, consisted of a $35 million, 7.2%
note maturing in June 2003. The first annual principal payment of $5 million is
due in June 1997 and has been classified as long-term debt in accordance with
Tredegar's ability to refinance such obligation on a long-term basis. Tredegar
also has a revolving credit facility that permits borrowings of up to $275
million (no amounts borrowed at December 31, 1996 and 1995). The facility
matures on September 7, 2001, with an annual extension of one year permitted
subject to the approval of part icipating banks. See Note 10 on page 42 for
further information on debt and credit agreements.
SHAREHOLDERS' EQUITY
During 1996 and 1995, Tredegar purchased 68,947 and 1,497,296 shares,
respectively, of its common stock for $2 million ($29.50 per share) and $25.5
million ($17.06 per share), respectively. Since becoming an independent company
in 1989, Tredegar has purchased a total of 6.1 million shares, or 34% of its
originally outstanding common stock, for $76.2 million ($12.41 per share). Under
a standing authorization from its board of directors, Tredegar may purchase an
additional 940,000 shares in the open market or in privately negotiated
transactions at prices management deems appropriate.
At December 31, 1996, Tredegar had 12,238,053 shares of common stock
outstanding and a total market capitalization of $491.1 million, compared with
12,176,295 shares outstanding at December 31, 1995, and a total market
capitalization of $261.8 million.
CASH FLOWS
Net cash provided by operating activities in excess of capital expenditures and
dividends decreased to $18.1 million in 1996 from $22.2 million in 1995 due
primarily to higher working capital for ongoing operations to support higher
sales volume and income taxes paid on net gains realized from divestitures,
property disposals and the sale of Indigo.
The significant increase in cash and cash equivalents to $101.3 million
at December 31, 1996, was due to the $18.1 million of excess cash generated
during 1996 combined with the $2.1 million cash and cash equivalents balance at
December 31, 1995; the proceeds from the divestitures of Molded Products and
Brudi ($71.6 million after transaction costs); the sale of an equity investment
in Indigo ($2.6 million); property disposals ($9.9 million) and other sources
($2.1 million); partially offset by uses of funds for technology-related
investments ($3.1 million) and the repurchase of Tredegar common stock ($2
million). Property disposals included the former plastic films site in Fremont,
California, a former aluminum extrusions and fabrication site in
Mechanicsburg, Pennsylvania, a former Brudi plant in Kelso, Washington, and a
former Molded Products plant in Alsip, Illinois.
Net cash provided by continuing operating activities in excess of capital
expenditures and dividends increased to $22.2 million in 1995 from $21 million
in 1994 due primarily to improved operating results, partially offset by higher
capital expenditures. This excess cash, combined with the $9 million cash and
cash equivalents balance at December 31, 1994, and cash from property disposals
and other sources ($4.9 million), was used to fund a films acquisition in
Argentina ($3.6 million), share repurchases ($25.5 million), technology-related
investments ($1.9 million) and the repayment borrowings ($3 million), leaving
$2.1 million of cash and cash equivalents at December 31, 1995.
Overall cash and cash equivalents increased $9 million in 1994 over 1993.
The major sources of cash during 1994 were the divestiture of Elk Horn ($67.5
million after minority interest and transaction costs); cash from continuing
operating activities in excess of capital expenditures and dividends ($21
million); cash from discontinued operating activities in excess of capital
expenditures ($3.5 million, including $8 million from the liquidation of coal
trading working capital and income taxes paid on divestiture gains); proceeds
from the sale of Tredegar's remaining oil and gas properties ($8 million); and
proceeds from other property disposals ($3.5 million) related primarily to
facilities previously shut down. Cash was used primarily to repay debt ($59
million), to repurchase shares of Tredegar common stock ($34.1 million) and for
technology-related investments ($1.4 million).
Normal operating cash requirements over the next 3 to 5 years are expected
to be met from ongoing operations. Excess cash will be invested on a short-term
basis, with the primary objectives of safety of principal and liquidity, until
other opportunities in existing businesses or elsewhere are identified.
ONGOING EBITDA* AND CAPITAL EXPENDITURES
$ MILLIONS
[Bar Graph]
'90 '91 '92 '93 '94 '95 '96
EBITDA* 24.2 36.2 36.3 31.7 45.7 56.3 71.9
CAPITAL EXPENDITURES 25.7 18.1 17.4 12.7 12 17.8 22.7
* Earnings before interest, taxes, depreciation, amortization, unusual items,
technology-related investment gains/losses, and divested and discontinued
operations.
BUSINESS SEGMENT REVIEW
FILM PRODUCTS AND FIBERLUX
Film Products manufactures plastic films for disposable personal products
(primarily diapers and feminine hygiene products) and packaging, medical,
industrial and agricultural products. Fiberlux produces vinyl extrusions for
windows and patio doors. Products are produced at various locations throughout
the United States and are sold both directly and through distributors. Tredegar
also has plants in the Netherlands, Brazil and Argentina, where it produces
films primarily for the European and Latin American markets. Tredegar expects to
begin operating a disposable film production line near Guangzhou, China, in late
1997 or early 1998.
Film Products is one of the largest U.S. suppliers of embossed and
permeable films for disposable personal products. In each of the last three
years, this class of products accounted for more than 30% of the consolidated
revenues of Tredegar.
Film Products supplies embossed films and nonwoven film laminates for use
as backsheet in such disposable products as baby diapers and adult incontinent
products, feminine hygiene products and hospital underpads. Film Products'
primary customer for embossed films and nonwoven film laminates for backsheet is
the Procter & Gamble Company ("P&G"), the leading global disposable diaper
manufacturer. Film Products also supplies permeable films to P&G for use as
liners in feminine hygiene products, adult incontinent products and hospital
underpads.
P&G and Tredegar have had a successful long-term relationship based on
cooperation, product innovation and continuous process improvement. The loss or
significant reduction of business associated with P&G would have a material
adverse effect on Tredegar's business.
Pages 2-3 and 8-11 provide further information on Film Products and
Fiberlux products and markets.
FILM PRODUCTS AND FIBERLUX SALES
$ Millions
[Bar Chart]
'90 '91 '92 '93 '94 '95 '96
176.7 193.8 193.8 187.3 200.2 249.1 267.9
FILM PRODUCTS AND FIBERLUX ONGOING OPERATING PROFIT
$ Millions
[Bar Chart]
'90 '91 '92 '93 '94 '95 '96
20.3 32.9 26.6 22.9 35.7 36.5 44.4
Sales
Film Products sales increased in 1996 due mainly to higher volume in North
America, including higher volume of diaper backsheet supplied to P&G, higher
volume of specialty films used for the protection of high-gloss surfaces and
electronic circuit boards, higher volume of VisPore(R) film used in seed bed and
ground cover applications, and higher volume of agricultural commodity films;
higher diaper backsheet and packaging film volume in South America, particularly
Argentina; and higher volume of permeable film supplied to P&G in Europe for
feminine pads. The positive impact on sales of higher volume was partially
offset by lower selling prices, which reflected lower plastic resin costs.
Film Products sales improved in 1995 due primarily to higher selling
prices, which were driven by higher raw material costs. Sales also increased
during 1995 as a result of the acquisition in March 1995 of a films business in
Argentina, higher permeable film volume supplied to P&G for feminine pads in
Europe, higher film volume in Brazil and higher domestic diaper backsheet film
volume supplied to P&G.
Fiberlux sales increased in 1996 over 1995 due to higher volume. Fiberlux
sales declined slightly in 1995 due to the divestiture in October 1995 of its
fabrication business and a delay in the introduction of a new patio door.
Operating Profit
Film Products ongoing operating profit increased in 1996 and 1995 due primarily
to higher volume in the areas noted above, partially offset by startup costs
associated with nonwoven film laminate backsheet production. Ongoing operating
profit in 1995 for Film Products was also adversely affected by costs incurred
(which were anticipated) to upgrade the Argentine films operation acquired in
March 1995. Operating profits in Fiberlux improved in 1996 due to higher volume.
Fiberlux profits declined in 1995 compared with 1994 due to lower volume and
margins.
Identifiable Assets
Identifiable assets in Film Products declined to $122.7 million in 1996 from
$124.4 million in 1995 due primarily to the $1.3 million write-off of
specialized machinery and equipment related to excess capacity in certain
industrial packaging films and the removal of deferred costs associated with the
disposal of the former plastic films site in Fremont, California, partially
offset by higher current assets supporting higher sales and capital expenditures
in excess of depreciation.
Identifiable assets in Film Products and Fiberlux increased to $124.4
million in 1995 from $115.3 million in 1994 due primarily to the acquisition of
the films business in Argentina, expansion of permeable film capacity in Europe
and Brazil and capital additions in the fourth quarter for new nonwoven film
laminate capacity.
Depreciation, Amortization,
Capital Expenditures and Acquisition
Depreciation and amortization for Film Products and Fiberlux increased to $11.8
million in 1996 from $10.3 million in 1995 due mainly to higher depreciation of
blown and laminating film machinery and equipment. Higher capital expenditures
in Film Products and Fiberlux in 1996 reflect new nonwoven film laminate
capacity, expansion of permeable film capacity in Europe and permeable and
diaper backsheet film capacity in Brazil, and the purchase of machinery and
equipment for a permeable film production line near Guangzhou, China, that is
expected to be operational in late 1997 or early 1998.
Depreciation and amortization for Film Products and Fiberlux increased to
$10.3 million in 1995 from $9.7 million in 1994 due to higher depreciation of
blown film machinery and equipment, the acquisition of the films business in
Argentina and expansion of permeable film capacity in Europe. Higher capital
expenditures in Film Products and Fiberlux in 1995 reflect the expansion of
permeable film capacity in Europe and Brazil and capital additions in the fourth
quarter of 1995 for new nonwoven film laminate capacity.
FILM PRODUCTS AND FIBERLUX IDENTIFIABLE ASSETS
$ Millions
[Bar Graph]
'90 '91 '92 '93 '94 '95 '96
98.7 110.6 119.9 116.6 115.3 124.4 122.7
FILM PRODUCTS AND FIBERLUX DEPRECIATION & AMORTIZATION AND CAPITAL EXPENDITURES
$ Millions
[Bar Graph]
'90 '91 '92 '93 '94 '95 '96
Depreciation & Amortization 5.6 7.8 8.6 10 9.7 10.3 11.8
Capital Expenditures 15.3 10.1 13.2 6.6 7.1 11.2 12.3
DISPOSABLE FILMS VOLUME
Domestic vs. International
PERCENTAGE OF TOTAL POUNDS SHIPPED
[ ] UNITED STATES & CANADA
[ ] INTERNATIONAL
[Bar Graph]
'90 '91 '92 '93 '94 '95 '96
United States & Canada 79.6 73.9 69.0 64.5 60.5 54.9 56.9
International 20.4 26.1 31.0 35.5 39.5 45.1 43.1
ALUMINUM EXTRUSIONS
Aluminum Extrusions, which is composed of The William L. Bonnell Company, Inc.,
and Capitol Products Corporation, produces soft alloy aluminum extrusions for
sale directly to fabricators and distributors that serve primarily the building
and construction industry, as well as transportation and consumer durables
markets.
Pages 2-3 and 12-15 provide further information on Aluminum Extrusions
products and markets.
Sales
Aluminum Extrusions sales in 1996 decreased 1.2% due to lower selling prices,
which reflected lower aluminum costs. Volume in 1996 increased by 5.2%, driven
primarily by continued strength in residential and commercial windows and
automotive markets.
Aluminum Extrusions sales increased 14.3% during 1995 due
primarily to higher average prices, reflecting higher average aluminum costs.
Volume declined 3.1% during 1995.
Operating Profit
Aluminum Extrusions operating profit increased 39.3% in 1996 due to higher
volume, cost reductions, quality improvements and lower bad debt expenses,
partially offset by the unfavorable impact of press shutdowns at the Newnan,
Georgia, plant due to a modernization program that was begun in late 1995. This
capital project is expected to cost approximately $4.8 million, most of which
was spent in 1996. Improvements in productivity, scrap rates and sales returns
are anticipated beginning in early 1997, when the project is expected to be
completed.
Aluminum Extrusions operating profit increased by 48.3% in 1995 due
primarily to ongoing cost and quality improvements.
Identifiable Assets
Identifiable assets in Aluminum Extrusions increased to $83.8 million in 1996
from $81 million in 1995 due mainly to capital expenditures in excess of
depreciation.
ALUMINUM EXTRUSIONS SALES
$ Millions
[Bar Graph]
'90 '91 '92 '93 '94 '95 '96
193.3 143.4 150.5 166.5 193.9 221.7 219
ALUMINUM EXTRUSIONS ONGOING OPERATING PROFIT
$ Millions
[Bar Graph]
'90 '91 '92 '93 '94 '95 '96
(1.7) (4.2) 4.2 8 11.3 16.8 23.4
ALUMINUM EXTRUSIONS DEPRECIATION & AMORTIZATION AND CAPITAL EXPENDITURES
$ Millions
[Bar Graph]
'90 '91 '92 '93 '94 '95 '96
Depreciation & Amortization 9.2 8 7.1 6.2 5.9 6 5.4
Capital Expenditures 9.3 7.6 2.5 1.9 4.4 5.5 8.6
ALUMINUM EXTRUSIONS IDENTIFIABLE ASSETS
$ Millions
[Bar Graph]
'90 '91 '92 '93 '94 '95 '96
116.4 95 93.4 89.5 89.4 81 83.8
COMMERCIAL CONSTRUCTION
$ Billions
Source: Cahners Building and Construction Market Forecast
[Bar Graph]
'90 '91 '92 '93 '94 '95 '96 '97F
71.7 54.1 44.5 46.9 52.7 74.7 80.4 84.4
HOUSING STARTS
Millions of Units
Source: Blue Chip Economic Indicators
[Bar Graph]
'90 '91 '92 '93 '94 '95 '96 '97F
1.19 1.01 1.2 1.288 1.46 1.35 1.46 1.4
AUTOMOBILE AND LIGHT TRUCK SALES
Millions of Units
Source: Bureau of Economic Analysis
[Bar Graph]
'90 '91 '92 '93 '94 '95 '96 '97F
14.2 12.7 13.1 14.2 15.5 15.1 15.2 15
Identifiable assets in Aluminum Extrusions declined to $81 million in 1995
from $89.4 million in 1994 due primarily to tightened credit policies resulting
in a significant reduction in average days sales outstanding.
Depreciation, Amortization
and Capital Expenditures
Depreciation and amortization in 1996 for Aluminum Extrusions declined due to
the full depreciation of certain assets in 1995. Depreciation and amortization
in 1997 is expected to approximate 1996 levels as higher depreciation resulting
from the modernization program at the Newnan, Georgia, facility should be offset
by the full depreciation of certain other assets in 1996. Depreciation and
amortization in 1995 remained consistent with 1994 levels. Higher capital
expenditures in 1996 and 1995 were related primarily to the modernization
program at the Newnan facility. Capital expenditures in 1995 were also affected
by the purchase of 13 trailers for product deliveries.
TECHNOLOGY
The Technology segment is comprised primarily of Molecumetics, which conducts
rational drug design research using synthetic chemistry techniques, certain
technology-related investments in which Tredegar's ownership is less than 20%
(see Note 7 on page 41) and APPX Software, a developer and producer of flexible
software tools and applications. Technology segment sales consist primarily of
revenues from APPX Software.
Excluding unusual items and investment gains and losses (see page 24),
ongoing technology segment losses increased by $1.4 million in 1996. This
increase was due mainly to higher research and development spending at
Molecumetics, partially offset by lower costs at APPX Software due to its
restructuring in the first quarter of 1995. Ongoing technology operating losses
declined by $3.6 million in 1995 due to the restructuring of APPX Software,
partially offset by higher spending on research and development at Molecumetics.
Technology segment identifiable assets increased by $3.2 million to $10.7
million in 1996 due to technology-related investments of $3.1 million and
capital expenditures in excess of depreciation at Molecumetics of $814,000,
partially offset by the sale of Indigo, which had a carrying value of $500,000.
Capital expenditures and depreciation expense increases at Molecumetics were
related to expansion of its research lab in Bellevue, Washington.
Technology segment identifiable assets increased to $7.5 million in 1995
from $7.3 million in 1994 due to the expansion of Molecumetics' research lab and
additional technology investments of $1.9 million, partially offset by the
disposal of Tredegar's investment in Regal Cinema (see unusual items on page
24), the $694,000 write-off of a medical technology investment and the
downsizing of APPX Software. Depreciation and amortization declined in 1995 to
$789,000 from $1.3 million in 1994 due to the write-off of goodwill and other
intangibles in APPX Software at the end of the first quarter of 1994.
SELECTED QUARTERLY FINANCIAL DATA
Tredegar Industries, Inc., and Subsidiaries
(In thousands, except per-share amounts) First Second Third Fourth
(Unaudited) Quarter Quarter Quarter Quarter Year
=======================================================================================================================
1996
Net sales $141,387 $126,331 $129,425 $126,408 $523,551
Gross profit 27,653 25,843 26,091 26,694 106,281
Operating profit before unusual items 16,010 15,250 17,627 15,561 64,448
Net income (v) 16,347 8,673 10,735 9,280 45,035
Earnings per common and dilutive common
equivalent share (v) 1.27 .66 .82 .70 3.44
Shares used to compute earnings per common
and dilutive common equivalent share 12,877 13,124 13,112 13,192 13,105
=======================================================================================================================
1995
Net sales $151,083 $149,682 $145,955 $142,734 $589,454
Gross profit 23,078 25,352 24,149 26,365 98,944
Operating profit before unusual items 10,965 13,506 12,700 12,987 50,158
Net income (v) 4,445 6,074 6,626 6,908 24,053
Earnings per common and dilutive common
equivalent share (v) .33 .45 .50 .53 1.80
Shares used to compute earnings per common
and dilutive common equivalent share 13,512 13,445 13,202 12,981 13,370
Refer to Notes to Financial Tables on page 32.
QUARTERLY EARNINGS PER SHARE
Continuing Operations (v)
Dollars
1995 1996
1 2 3 4 1 2 3 4
Excluding Unusual Items .36 .45 .47 .53 .64 .66 .79 .70
As Reported .33 .45 .50 .53 1.27 .66 .82 .70
NOTES TO FINANCIAL TABLES
(In thousands, except per-share amounts)
(a) Income (loss) and earnings (loss) per common and dilutive common equivalent
share from continuing operations, adjusted for unusual items and
technology-related investment gains/losses affecting the comparability of
operating results between years, are presented below:
=================================================================================================================================
1996 1995 1994 1993 1992 1991 1990
Income (loss) from continuing operations as reported (b) $45,035 $24,053 $ 1,417 $ 3,723 $ 9,517 $ 2,519 $(28,687)
After-tax effect of unusual items related
to continuing operations:
Unusual (income) charge, net (e-k) (8,479) 41 12,051 246 502 447 24,424
Impact on deferred taxes of 1% increase
in federal income tax rate - - - 348 - - -
------- ------- ------- ------- ------- ------- --------
Income (loss) from continuing operations as adjusted
for unusual items 36,556 24,094 13,468 4,317 10,019 2,966 (4,263)
After-tax effect of technology-related investment (gains)
losses (c) (1,369) 444 - - - - -
------- ------- ------- ------- ------- ------- --------
Income (loss) from continuing operations as adjusted
for unusual items and technology-related investment
gains/losses (b) $35,187 $24,538 $13,468 $ 4,317 $10,019 $ 2,966 $ (4,263)
================================================================================================================================
Earnings (loss) per common and dilutive common
equivalent share from continuing operations (b)(c):
As reported $ 3.44 $ 1.80 $ .09 $ .23 $ .58 $ .15 $ (1.69)
As adjusted for unusual items 2.79 1.80 .87 .26 .61 .18 (.25)
As adjusted for unusual items and technology-related
investment gains/losses 2.69 1.84 .87 .26 .61 .18 (.25)
================================================================================================================================
(b) On August 16, 1994, Tredegar completed the divestiture of its coal
subsidiary, The Elk Horn Coal Corporation. On February 4, 1994, Tredegar sold
its remaining oil and gas properties. As a result of these events, Tredegar
reports its Energy segment as discontinued operations. On March 29, 1996,
Tredegar sold Molded Products. During the second quarter of 1996, Tredegar
completed the sale of Brudi. The operating results for Molded Products were
historically reported as part of the Plastics segment on a combined basis with
Film Products and Fiberlux. Likewise, results for Brudi were combined with
Aluminum Extrusions and reported as part of the Metal Products segment.
Accordingly, results for Molded Products and Brudi have been included in
continuing operations. Tredegar began reporting Molded Products and Brudi
separately in its segment disclosures in 1995 after announcing its intent to
divest these businesses. On a pro forma basis, excluding unusual income (net),
investment gains/losses, the operating results of Molded Products and Brudi and
including pro forma interest income on divestiture proceeds at a rate of
approximately 3.5% after income taxes, net income in 1996 and 1995 would have
been $35,357 ($2.70 per share) and $25,851 ($1.93 per share), respectively. See
Note 19 on page 47 for further information regarding divested and discontinued
operations.
(c) During 1996, Tredegar realized a gain of $2,139 ($1,369 after income taxes)
on the sale of its equity investment in Indigo Medical, Inc. ("Indigo") to
Johnson & Johnson. Indigo is engaged in the development of catheter-based laser
thermotherapy systems to treat enlargement of the prostate. During 1995,
Tredegar recognized a charge of $694 ($444 after income tax benefits) for the
write-off of one of its other medical technology investments. These items are
included in "Investments and other" in the operating profit table on page 20.
See Note 7 on page 41 for information on Tredegar's remaining technology-related
investments.
(d) Interest expense has been allocated between continuing and discontinued
operations based on relative capital employed (see (b) and Note 19 on page 47).
(e) Unusual items for 1996 include a gain on the sale of Molded Products
($19,893, see Note 19 on page 47), a gain on the sale of a former plastic films
manufacturing site in Fremont, California ($1,968), a charge related to the loss
on the divestiture of Brudi ($9,146, see Note 19 on page 47) and a charge
related to the write-off of specialized machinery and equipment due to excess
capacity in certain industrial packaging films ($1,288).
(f) Unusual items in 1995 include a gain on the sale of Regal Cinema shares
($728), a charge related to the restructuring of APPX Software ($2,400) and a
recovery in connection with a Film Products product liability lawsuit ($1,750).
(g) Unusual items in 1994 include the write-off of certain goodwill and
intangibles in APPX Software ($9,521), the write-off of certain goodwill in
Molded Products ($4,873) and the estimated costs related to the closing of a
Molded Products plant in Alsip, Illinois ($2,100).
(h) Unusual items in 1993 include estimated costs related to the sale of a Film
Products plant in Flemington, New Jersey ($1,815), and the reorganization of
corporate functions ($900), partially offset by the gain on the sale of
Tredegar's remaining investment in Emisphere Technologies, Inc. ($2,263).
(i) Unusual items in 1992 include the write-off of certain goodwill in Molded
Products ($1,182), partially offset by the gain on the sale of a portion of an
investment in Emisphere Technologies, Inc. ($1,092).
(j) Unusual items in 1991 include costs related to plant closings in Molded
Products ($4,412) offset by a credit ($2,797) related to management's decision
to continue operating the vinyl extrusions business, and the gain on the sale of
Molded Products' beverage closure business ($894).
(k) Unusual items in 1990 include costs related to divestitures and
reorganization, including results of operations from August 1. Unusual items in
Aluminum Extrusions also include provisions for environmental review and
cleanup, and costs related to certain legal proceedings for ongoing operations.
(l) Total return to shareholders is computed as the sum of the change in stock
price during the year plus dividends per share, divided by the stock price at
the beginning of the year.
(m) Consolidated capital employed is debt plus shareholders' equity minus cash
and cash equivalents. Capital employed excluding technology-related investments
(see Note 7 on page 41) and divested and discontinued operations (see (b)) is
consolidated capital employed minus the carrying value of technology-related
investments minus the capital employed of Molded Products, Brudi and the Energy
segment.
(n) Equity market capitalization is the closing market price per share for the
period times the shares outstanding at the end of the period.
(o) EBITDA excluding unusual items (see (e)-(k)), technology-related
gains/losses (see (c)) and divested and discontinued operations (see (b)) is
income before income taxes from continuing operations plus depreciation and
amortization plus interest expense minus interest income minus/plus unusual
income/charges minus/plus technology-related investment gains/losses minus the
EBITDA (excluding unusual items) for Molded Products and Brudi. EBITDA is not
intended to represent cash flow from operations as defined by generally accepted
accounting principles and should not be considered as an alternative to net
income as an indicator of operating performance or to cash flow as a measure of
liquidity.
(p) Unleveraged after-tax earnings excluding unusual items (see (e)-(k)),
technology-related investment gains/losses (see (c)) and divested and
discontinued operations (see (b)) is net income (loss) from continuing
operations plus after-tax interest expense minus after-tax interest income
minus/plus after-tax unusual income/charges minus/plus after-tax
technology-related investment gains/losses minus the unleveraged after-tax
earnings (excluding unusual items) for Molded Products and Brudi. Unleveraged
after-tax earnings should not be considered as an alternative to net income as
defined by generally accepted accounting principles.
(q) Return on average capital employed is unleveraged after-tax earnings divided
by average capital employed.
(r) Net sales for ongoing operations include sales to P&G totaling $206,926,
$196,047 and $155,469 in 1996, 1995 and 1994, respectively.
(s) Included in the investments and other category of the Technology segment are
APPX Software and technology-related investments in which Tredegar's ownership
is less than 20% (see (c) and Note 7 on page 41) .
(t) Export sales for ongoing operations totaled $74,891, $76,551 and $59,271 in
1996, 1995 and 1994, respectively. Substantially all of these export sales were
made by Film Products. Net sales and operating profit in 1996 and identifiable
assets at December 31, 1996, for the foreign operations of Film Products were
$50,567, $5,113 and $25,924, respectively. The operating profit of foreign
operations includes a deduction for royalties paid to Tredegar for the use of
its technical information, know-how, manufacturing techniques, engineering data,
specifications and other information relating to the manufacture of film
products.
(u) Interest income was insignificant prior to 1994.
(v) Quarterly net income and earnings per common and dilutive common equivalent
share from continuing operations, adjusted for unusual items and
technology-related investment gains/losses affecting the comparability of
operating results between quarters, are presented below (see also (a), (b) and
(c)):
Continuing Operations Excluding Unusual Items and First Second Third Fourth
Technology-Related Investment Gains/Losses Quarter Quarter Quarter Quarter Year
=================================================================================================================
1996
Net income $ 8,288 $ 8,673 $ 8,946 $ 9,280 $ 35,187
Earnings per common and dilutive common equivalent share .64 .66 .69 .70 2.69
=================================================================================================================
1995
Net income 4,937 6,284 6,175 7,142 24,538
Earnings per common and dilutive common equivalent share .36 .47 .47 .55 1.84
=================================================================================================================
INDEPENDENT ACCOUNTANTS' AND MANAGEMENT'S REPORTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Tredegar Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Tredegar
Industries, Inc., and Subsidiaries ("Tredegar") as of December 31, 1996 and
1995, and the related consolidated statements of income, cash flows and
shareholders' equity for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of Tredegar's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Tredegar as of
December 31, 1996 and 1995, and the consolidated results of their operations and
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND, L.L.P.
Richmond, Virginia
January 14, 1997
MANAGEMENT'S REPORT ON THE
FINANCIAL STATEMENTS
Tredegar's management has prepared the financial statements and related notes
appearing on pages 35-49 in conformity with generally accepted accounting
principles. In so doing, management makes informed judgments and estimates of
the expected effects of events and transactions. Financial data appearing
elsewhere in this annual report are consistent with these financial statements.
Tredegar maintains a system of internal controls to provide reasonable, but
not absolute, assurance of the reliability of the financial records and the
protection of assets. The internal control system is supported by written
policies and procedures, careful selection and training of qualified personnel
and an extensive internal audit program.
These financial statements have been audited by Coopers & Lybrand L.L.P.,
independent certified public accountants. Their audit was made in accordance
with generally accepted auditing standards and included a review of Tredegar's
internal accounting controls to the extent considered necessary to determine
audit procedures.
The Audit Committee of the Board of Directors, composed of outside
directors only, meets with management, internal auditors and the independent
accountants to review accounting, auditing and financial reporting matters. The
independent accountants are appointed by the Board on recommendation of the
Audit Committee, subject to shareholder approval.
CONSOLIDATED STATEMENTS OF INCOME
Tredegar Industries, Inc., and Subsidiaries
Years Ended December 31 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
(In thousands, except per-share amounts)
Revenues:
Net sales $523,551 $589,454 $502,208
Other income (expense), net 4,248 (669) (296)
-------- -------- --------
Total 527,799 588,785 501,912
-------- -------- --------
Costs and expenses:
Cost of goods sold 417,270 490,510 419,823
Selling, general and administrative 39,719 48,229 47,978
Research and development 11,066 8,763 8,275
Interest 2,176 3,039 4,008
Unusual items (11,427) (78) 16,494
-------- -------- --------
Total 458,804 550,463 496,578
-------- -------- --------
Income from continuing operations before income taxes 68,995 38,322 5,334
Income taxes 23,960 14,269 3,917
-------- -------- --------
Income from continuing operations 45,035 24,053 1,417
Discontinued Energy segment operations:
Income from Energy segment operations - - 4,220
Gain on disposition of interest in The Elk Horn Coal
Corporation (net of income tax of $16,224) - - 25,740
Gain on sale of remaining oil & gas properties
(net of income tax of $2,121) - - 3,938
Deferred tax benefit on the difference between
financial reporting and income tax basis of
The Elk Horn Coal Corporation - - 3,320
-------- -------- --------
Net income $45,035 $24,053 $ 38,635
=========================================================================================================
Earnings per common and dilutive common equivalent share:
Continuing operations $ 3.44 $ 1.80 $ .09
Discontinued Energy segment operations - - 2.40
-------- -------- --------
Net income $ 3.44 $ 1.80 $ 2.49
=========================================================================================================
See accompanying Notes to Financial Statements.
CONSOLIDATED BALANCE SHEETS
Tredegar Industries, Inc., and Subsidiaries
December 31 1996 1995
- ------------------------------------------------------------------------------
(In thousands, except share amounts)
Assets
Current assets:
Cash and cash equivalents $101,261 $ 2,145
Accounts and notes receivable 61,076 71,673
Inventories 17,658 33,148
Income taxes recoverable 2,023 2,179
Deferred income taxes 9,484 14,882
Prepaid expenses and other 2,920 2,375
-------- -------
Total current assets 194,422 126,402
Property, plant and equipment, at cost:
Land and land improvements 4,807 6,713
Buildings 32,590 50,167
Machinery and equipment 222,803 269,646
-------- -------
Total property, plant and equipment 260,200 326,526
Less accumulated depreciation and amortization 169,771 204,074
-------- -------
Net property, plant and equipment 90,429 122,452
Other assets and deferred charges 36,094 35,186
Goodwill and other intangibles 20,132 30,012
-------- -------
Total assets $341,077 $314,052
==============================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 28,814 $ 31,105
Accrued expenses 32,487 38,648
-------- -------
Total current liabilities 61,301 69,753
Long-term debt 35,000 35,000
Deferred income taxes 16,994 22,218
Other noncurrent liabilities 15,237 16,560
-------- -------
Total liabilities 128,532 143,531
Commitments and contingencies (Notes 13 and 18)
Shareholders' equity:
Common stock (no par value):
Authorized 50,000,000 shares;
Issued and outstanding - 12,238,053 shares
in 1996 and 12,176,295 in 1995 113,019 112,908
Foreign currency translation adjustment 499 445
Retained earnings 99,027 57,168
-------- -------
Total shareholders' equity 212,545 170,521
-------- -------
Total liabilities and shareholders' equity $341,077 $314,052
==============================================================================
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Tredegar Industries, Inc., and Subsidiaries
Years Ended December 31 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Continuing operations:
Income from continuing operations $45,035 $24,053 $ 1,417
Adjustments for noncash items:
Depreciation 20,062 23,256 23,491
Amortization of intangibles 256 579 1,354
Write-off of intangibles - 189 14,394
Deferred income taxes 1,771 1,540 (6,907)
Accrued pension income and postretirement benefits, net (2,582) (2,396) (623)
(Gain) loss on divestitures and property disposals, net (12,715) - 2,100
Write-off of certain industrial packaging film machinery and equipment 1,288 - -
Gain on sale of investments (net of investment losses) (2,139) (34) -
Changes in assets and liabilities, net of effects from divestitures and
acquisitions:
Accounts and notes receivable (4,894) 4,912 (3,075)
Inventories 1,257 4,010 (1,158)
Income taxes recoverable and other prepaid expenses (763) (1,324) (2,349)
Accounts payable and accrued expenses (471) (6,228) 12,311
Other, net (840) 1,071 (1,873)
------- ------ ------
Net cash provided by continuing operating activities 45,265 49,628 39,082
Net cash provided by discontinued Energy segment operating activities - - 3,435
------- ------ ------
Net cash provided by operating activities 45,265 49,628 42,517
Cash flows from investing activities:
Continuing operations:
Capital expenditures (23,960) (25,138) (15,579)
Acquisitions (net of $358 cash acquired) - (3,637) -
Investments (3,138) (1,904) (1,400)
Proceeds from the sale of Molded Products and Brudi 71,598 - -
Proceeds from sale of investments 2,600 1,478 -
Proceeds from property disposals 9,880 1,238 3,519
Other, net (35) 85 186
------- ------- -------
Net cash provided by (used in) investing activities
of continuing operations 56,945 (27,878) (13,274)
Net cash provided by disposals of discontinued Energy segment operations - - 75,393
------- ------- -------
Net cash provided by (used in) investing activities 56,945 (27,878) 62,119
Cash flows from financing activities:
Dividends paid (3,176) (2,286) (2,465)
Net decrease in borrowings - (3,000) (59,000)
Repurchase of Tredegar common stock (2,034) (25,542) (34,105)
Other, net 2,116 2,187 (30)
------- ------- -------
Net cash used in financing activities (3,094) (28,641) (95,600)
Increase (decrease) in cash and cash equivalents 99,116 (6,891) 9,036
Cash and cash equivalents at beginning of period 2,145 9,036 -
------- ------- -------
Cash and cash equivalents at end of period $101,261 $ 2,145 $ 9,036
=============================================================================================================================
Supplemental cash flow information:
Interest payments (net of amount capitalized) $ 2,178 $ 3,041 $ 4,412
Income tax payments, net $ 19,399 $15,102 $26,388
=============================================================================================================================
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Tredegar Industries, Inc., and Subsidiaries
Common Stock Retained Foreign Total
-------------------------- Earnings Currency Shareholders'
Years Ended December 31, 1996, 1995 and 1994 Shares Amount (Deficit) Translation Equity
- -------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share and per-share data)
Balance December 31, 1993 10,894,904 $170,140 $ (769) $(283) $169,088
Net income - - 38,635 - 38,635
Cash dividends declared ($.24 per share) - - (2,465) - (2,465)
Repurchases of Tredegar common stock (1,910,239) (34,105) - - (34,105)
Issued upon exercise of stock options 6,000 87 - - 87
Issued upon exercise of SARs 1,593 28 - - 28
Foreign currency translation adjustment - - - 610 610
---------- -------- ------- ----- --------
Balance December 31, 1994 8,992,258 136,150 35,401 327 171,878
Net income - - 24,053 - 24,053
Cash dividends declared ($.24 per share) - - (2,286) - (2,286)
Repurchases of Tredegar common stock (998,197) (25,542) - - (25,542)
Issued upon exercise of stock options (including
related income tax benefits realized
by Tredegar of $341) 118,500 2,158 - - 2,158
Issued upon exercise of SARs 5,723 142 - - 142
Foreign currency translation adjustment - - - 118 118
Three-for-two stock split 4,058,011 - - - -
---------- -------- ------- ----- --------
Balance December 31, 1995 12,176,295 112,908 57,168 445 170,521
Net income - - 45,035 - 45,035
Cash dividends declared ($.26 per share) - - (3,176) - (3,176)
Repurchases of Tredegar common stock (68,947) (2,034) - - (2,034)
Issued upon exercise of stock options (including
related income tax benefits realized by
Tredegar of $800) 130,705 2,145 - - 2,145
Foreign currency translation adjustment - - - 54 54
---------- -------- ------- ----- --------
Balance December 31, 1996 12,238,053 $113,019 $99,027 $499 $212,545
===============================================================================================================================
See accompanying Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
Tredegar Industries, Inc., and Subsidiaries
(In thousands, except share and per-share amounts)
1 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization and Nature of Operations.
Tredegar Industries, Inc., and
subsidiaries ("Tredegar" or the "company") is a diversified manufacturer of
plastic films, aluminum extrusions and vinyl extrusions. Tredegar also has
interests in various technologies, including rational drug design research and
computer software. For further description of Tredegar's products, principal
markets and customers, see the products and market information matrix on pages
2-3, the segment tables on pages 20-22 and the business segment review on pages
27-30.
During the first quarter of 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"). During the second quarter of 1996, Tredegar completed the sale of
Brudi, Inc. and its subsidiaries (together "Brudi"). See Note 19 on page 47 for
further information regarding these divestitures.
During the first quarter of 1995, Tredegar acquired a plastic films
business in Argentina. This acquisition was accounted for using the purchase
method; accordingly, the assets and liabilities of the acquired entity have been
recorded at their estimated fair value at the date of acquisition. No goodwill
arose from the acquisition since the estimated fair value of the identifiable
net assets acquired was approximately equal to the purchase price. The operating
results of the entity acquired have been included in the consolidated statements
of income since the date of acquisition.
In August 1994, Tredegar completed the divestiture of its energy
businesses. See Note 19 on page 47 for further information regarding these
discontinued operations.
Basis of Presentation
The consolidated financial statements include the accounts and operations of
Tredegar and all of its subsidiaries. Intercompany accounts and transactions
within Tredegar have been eliminated. Certain previously reported amounts have
been reclassified to conform to the 1996 presentation.
On September 28, 1995, Tredegar's Board of Directors declared a
three-for-two stock split payable on January 1, 1996, to shareholders of record
on December 8, 1995. Accordingly, all historical references to the shares used
to compute earnings per share, per-share amounts, stock option data and market
prices of Tredegar's common stock have been restated to reflect the split.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues, expenses, assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from those estimates.
Revenue Recognition
Revenue from the sale of products is recognized when title and risk of loss have
transferred to the buyer, which is generally when product is shipped.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand in excess of daily operating
requirements and highly liquid investments with maturities of three months or
less when purchased. At December 31, 1996 and 1995, Tredegar had approximately
$101,000 and $2,000, respectively, invested in securities with maturities of one
month or less.
Tredegar's policy permits investment of excess cash in marketable
securities that have the highest credit ratings and maturities of less than one
year. The primary objectives of Tredegar's investment policy are safety of
principal and liquidity.
Inventories
Inventories are stated at the lower of cost or market, with cost principally
determined on the last-in, first-out ("LIFO") basis. Other inventories are
stated on either the weighted average cost or the first-in, first-out basis.
Cost elements included in work-in-process and finished goods inventories are raw
materials, direct labor and manufacturing overhead.
Aluminum Forward Sales, Purchase and
Futures Contracts
In the normal course of business, Tredegar enters into a combination of forward
purchase commitments and futures contracts to acquire aluminum. Gains and losses
on these contracts are designated and effective as hedges of aluminum price and
margin exposure on forward sales contracts and, accordingly, are recorded as
adjustments to the cost of inventory (see Note 5 on page 41).
Property, Plant and Equipment
Accounts include costs of assets constructed or purchased, related delivery and
installation costs and interest incurred on significant capital projects during
their construction periods. Expenditures for renewals and betterments also are
capitalized, but expenditures for repairs and maintenance are expensed as
incurred. The cost and accumulated depreciation
applicable to assets retired or sold are removed from the respective accounts,
and gains or losses thereon are included in income.
Property, plant and equipment includes capitalized interest of $730, $279
and $206 in 1996, 1995 and 1994, respectively. Maintenance and repairs of
property, plant and equipment were $19,018, $20,100 and $19,400 in 1996, 1995
and 1994, respectively.
Depreciation is computed primarily by the straight-line method based on the
estimated useful lives of the assets.
Goodwill and Other Intangibles
There was no goodwill subject to amortization at December 31, 1996. Goodwill
acquired prior to November 1, 1970 ($19,484, $19,484 and $19,629 at December 31,
1996, 1995 and 1994, respectively), is not being amortized and relates to
Tredegar's Aluminum Extrusions business. Goodwill subject to amortization at
December 31, 1995 and 1994 ($9,478 and $9,752, respectively, net of accumulated
amortization) related primarily to Brudi which was sold in the second quarter of
1996 (see Note 8 on page 42 and Note 19 on page 47). Other intangibles ($648,
$1,050, and $1,375 at December 31, 1996, 1995 and 1994, respectively, net of
accumulated amortization) consist primarily of patents and licenses acquired
which are being amortized on a straight-line basis over a period of not more
than 17 years.
Impairment of Long-Lived Assets
Beginning in 1995, the review for the possible impairment of long-lived tangible
and intangible assets is performed in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." For assets to be
held and used in operations, this standard requires that, whenever events
indicate that an asset may be impaired, the entity estimate the future unlevered
cash flows expected to result from the use of the asset and its eventual
disposition. Assets are grouped for this purpose at the lowest level for which
there are identifiable and independent cash flows. If the sum of these
undiscounted cash flows is less than the carrying amount of the asset, an
impairment loss is recognized. Measurement of the impairment loss is based on
the estimated fair value of the asset.
Pension Costs and Postretirement Benefit Costs
Other Than Pensions
Pension costs and postretirement benefit costs other than pensions are accrued
over the period employees provide service to the company in compliance with SFAS
No. 87, "Employers Accounting for Pensions," and SFAS No. 106, "Employers
Accounting for Postretirement Benefits Other Than Pensions" (see Note 14 on page
44). Tredegar's policy is to fund its pension plans at amounts not less than the
minimum requirements of the Employee Retirement Income Security Act of 1974 and
to fund postretirement benefits other than pensions when claims are incurred.
Postemployment Benefits
Tredegar periodically provides certain postemployment benefits purely on a
discretionary basis. Accordingly, under SFAS No. 112, "Employers Accounting for
Postemployment Benefits," related costs for these programs are accrued when it
is probable that such benefits will be paid. All other postemployment benefits
are either accrued under current benefit plans or are not material to Tredegar's
financial position or results of operations.
Income Taxes
Income taxes are recognized during the period in which transactions enter into
the determination of income for financial reporting purposes, with deferred
income taxes being provided at enacted statutory tax rates on the differences
between the financial reporting and tax bases of assets and liabilities (see
Note 16 on page 46). The company accrues U.S. federal income taxes on the
undistributed earnings of its foreign subsidiaries.
Earnings Per Share
Earnings per share is computed using the weighted average number of post-split
shares of common stock outstanding for each period presented.
Prior to 1995, Tredegar excluded common stock equivalents (stock options)
from its computation of earnings per common share due to their immaterial
dilutive effect. Immaterial is defined in this context by Accounting Principles
Board ("APB") Opinion No. 15, "Earnings per Share," as dilution of less than 3%.
As a result of share repurchases and the increase in Tredegar's stock price,
stock options currently outstanding are dilutive in excess of the threshold set
forth in APB Opinion No. 15. Accordingly, shares used to compute earnings per
common and dilutive common equivalent share for 1996 and 1995 include common
stock equivalents of 897,407 and 454,379 shares, respectively. Fully diluted
earnings per common share is not materially different from the earnings per
common and dilutive common equivalent share presented in the consolidated
statements of income. The number of shares used in computing earnings per share
were 13,105,023, 13,370,019 and 15,524,130 in 1996, 1995 and 1994, respectively.
Stock Options
Stock options, stock appreciation rights ("SARs") and restricted stock grants
are accounted for under APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations whereby (i) no compensation cost is
recognized for fixed stock option or restricted stock grants unless the quoted
market price of the stock at the measurement date (ordinarily the date of grant
or award) is in excess of the amount the employee is required to pay and (ii)
compensation cost for SARs is recognized and adjusted up through the date of
exercise or forfeiture based on the estimated number of SARs expected to be
exercised times the difference between the market price of Tredegar's stock and
the amount the employee is required to pay. The company provides additional pro
forma disclosures of the fair-value based method in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation" (see Note 12 on page 42).
2 BUSINESS SEGMENTS
See pages 20-22 and the related Notes to Financial Tables on page 32 for net
sales, operating profit, identifiable assets and other information about
Tredegar's businesses that are presented for the years 1990-1996. The discussion
of segment information is unaudited.
3 ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
- -------------------------------------------------------------------
December 31 1996 1995
Trade, less allowance for doubtful accounts
and sales returns of $3,487 and $5,330
in 1996 and 1995 $ 59,866 $69,618
Other 1,210 2,055
------- -------
Total $ 61,076 $71,673
- -------------------------------------------------------------------
The decline in accounts and notes receivable during the period is due
primarily to the sale of Molded Products and Brudi during 1996 (see Note 19 on
page 47).
4 INVENTORIES
Inventories consist of the following:
- -------------------------------------------------------------------
December 31 1996 1995
Finished goods $ 1,677 $ 4,619
Work-in-process 1,782 4,217
Raw materials 7,958 17,946
Stores, supplies and other 6,241 6,366
------- --------
Total $17,658 $33,148
- -------------------------------------------------------------------
Inventories stated on the LIFO basis amounted to $9,342 and $15,974 at
December 31, 1996 and 1995, respectively, which are below replacement costs by
approximately $13,748 and $14,212, respectively. The decline in inventories
during the period is due primarily to the sale of Molded Products and Brudi
during 1996 (see Note 19 on page 47).
5 ALUMINUM FORWARD SALES, PURCHASE AND
FUTURES CONTRACTS
In the normal course of business, Tredegar enters into fixed-price forward sales
contracts with certain customers for the sale of fixed quantities of aluminum
extrusions at scheduled intervals. In order to hedge its exposure to aluminum
price volatility under these fixed-price arrangements, which generally have a
duration of not more than 12 months, the company enters into a combination of
forward purchase commitments and futures contracts to acquire aluminum, based on
the scheduled deliveries. These contracts involve elements of credit and market
risk that are not reflected on the company's balance sheet, including the risk
of dealing with counterparties and their ability to meet the terms of the
contracts. At December 31, 1996, open fixed-price forward sales contracts,
representing commitments to sell 15.7 million pounds of aluminum in the form of
finished product, were matched with open forward purchase and futures contracts.
The weighted average cost per pound of aluminum on the commitment dates for open
fixed-price forward sales contracts was approximately 71 cents per pound
compared with 73 cents per pound at December 31, 1996. This unrealized loss of 2
cents per pound (approximately $300) was substantially hedged at December 31,
1996, by an unrealized gain of approximately the same amount on the matching
open forward purchase commitments and futures contracts to acquire aluminum.
6 NONOPERATING ASSETS HELD FOR SALE
Included in "Other assets and deferred charges" in the consolidated balance
sheet at December 31, 1995, were nonoperating assets held for sale, primarily
land and buildings related to closed facilities, totaling $6,057. Such assets
were sold in 1996 at amounts approximating their carrying value, except for the
former plastic films site in Fremont, California, which was sold in excess of
its recorded amount (see Note 17 on page 47).
7 INVESTMENTS
During 1996, Tredegar realized a gain of $2,139 ($1,369 after income taxes) on
the sale of its equity investment in Indigo Medical, Inc. ("Indigo") to Johnson
& Johnson. This gain is included in "Other income (expense), net" in the
consolidated statements of income. Indigo is engaged in the development of
catheter-based laser thermotherapy systems to treat enlargement of the prostate.
During 1995, Tredegar recognized a charge of $694 for the write-off of another
medical technology investment. This charge is included in "Selling, general and
administrative" expenses in the consolidated statements of income.
At December 31, 1996 and 1995, Tredegar had technology-related investments
with a cost basis of $6,048 and $3,410, respectively, which represented
ownership (either in the form of limited partnership shares, the stock of
privately held companies or the restricted or unrestricted stock of companies
that recently registered shares in initial public offerings) of less than 20% in
seven separate entities. These investments are included in "Other assets and
deferred charges" in the consolidated balance sheets and each security is
accounted for at the lower of cost or estimated fair value. Management estimates
the fair value of these investments to be in excess of $15,000. However, because
of the inherent uncertainty of the valuations of restricted securities or
securities for which there is no public market, these estimates may differ
significantly from the values that would have been used had a ready market for
the securities existed. Furthermore, the publicly traded stock of emerging,
technology-based companies usually has higher volatility and risk than the U.S.
stock market as a whole.
8 GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles, and the related accumulated amortization, are as
follows:
- ---------------------------------------------------------------
December 31 1996 1995
Goodwill and other intangibles $50,259 $50,424
Divestitures (see Note 19 on page 47) (9,980) -
Write-offs - (189)
Additions and reclassifications 356 24
------ -------
Subtotal 40,635 50,259
Accumulated amortization (20,503) (20,247)
------- --------
Net $20,132 $30,012
- ---------------------------------------------------------------
9 ACCRUED EXPENSES
Accrued expenses consist of the following:
- ---------------------------------------------------------------
December 31 1996 1995
Payrolls, related taxes and medical and
other benefits $13,347 $10,759
Workmen's compensation and disabilities 4,561 6,108
Vacation 4,201 5,397
Plant shutdowns and divestitures 2,061 2,773
Environmental 774 2,341
Other 7,543 11,270
------- ------
Total $32,487 $38,648
- ---------------------------------------------------------------
10 DEBT AND CREDIT AGREEMENTS
At December 31, 1996 and 1995, Tredegar's debt outstanding consisted of a
$35,000, 7.2% fixed-rate note that matures in June 2003. The first annual
principal payment of $5,000 is due in June 1997 and has been classified as
long-term debt in accordance with Tredegar's ability to refinance such
obligation on a long-term basis. At December 31, 1996, the prepayment value of
the note was $35,900 and Tredegar estimates that an equivalent rate on similar
debt would be 7.3%.
Tredegar also has a revolving credit facility that permits borrowings of up
to $275,000 (no amounts borrowed at December 31, 1996 and 1995). The facility
matures on September 7, 2001, with an annual extension of one year permitted
subject to the approval of participating banks. The facility provides for
interest to be charged at a base rate (generally the London Interbank Offered
Rate) plus a spread that is dependent on Tredegar's quarterly debt-to-total
capitalization ratio. A facility fee is also charged on the $275,000 commitment
amount. The spread and facility fee charged at various debt-to-total
capitalization levels are as follows:
- --------------------------------------------------------------------
Debt-to-Total (Basis Points)
Capitalization Ratio ------------------------------
Spread Facility Fee
Less than or equal to 35% 17.50 12.50
Greater than 35% and less than
or equal to 50% 25.00 15.00
Greater than 50% 31.25 18.75
- --------------------------------------------------------------------
In addition, a utilization fee of 10 basis points is charged on the
outstanding principal amount when more than $137,500 is borrowed under the
agreement. The weighted average interest rate on all variable-rate loans
outstanding during 1995 and 1994 was 6.7% and 4.9%, respectively (there were no
such loans outstanding during 1996).
Tredegar's loan agreements contain restrictions, among others, on the
payment of cash dividends and the maximum debt-to-total capitalization ratio
permitted (60%). At December 31, 1996, $82,655 was available for cash dividend
payments, and $275,000 was available to borrow under the 60% debt-to-total
capitalization ratio restriction.
11 SHAREHOLDER RIGHTS AGREEMENT
Pursuant to a Rights Agreement dated as of June 15, 1989 (as amended), between
Tredegar and American Stock Transfer and Trust Company as Rights Agent (the
"Rights Agreement"), two-thirds of one Right is attendant to each share of
Tredegar common stock. Each Right entitles the registered holder to purchase
from Tredegar one one-hundredth of a share of Participating Cumulative Preferred
Stock, Series A (the "Preferred Stock"), at an exercise price of $50 (the
"Purchase Price"). The Rights will become exercisable, if not earlier redeemed,
only if a person or group acquires 10% or more of the outstanding shares of
Tredegar common stock or announces a tender offer, the consummation of which
would result in ownership by a person or group of 10% or more of Tredegar common
stock. Any action by a person who, together with his associates and affiliates,
owned 10% or more of the outstanding shares of Tredegar common stock on July 10,
1989, cannot cause the Rights to become exercisable.
Each holder of a Right, upon the occurrence of certain events, will become
entitled to receive, upon exercise and payment of the Purchase Price, Preferred
Stock (or in certain circumstances, cash, property or other securities of
Tredegar or a potential acquirer) having a value equal to twice the amount of
the Purchase Price.
The Rights will expire on June 30, 1999.
12 STOCK OPTION PLANS
Tredegar has three stock option plans whereby stock options may be granted to
purchase a specified number of shares of Tredegar common stock at a price not
less than the fair market value on the date of grant and for a term not to
exceed 10 years. Options ordinarily vest one year from the date of grant. In
addition to stock options, recipients may also be granted SARs and restricted
stock. No SARs have been granted since 1992 and when granted have been in tandem
with stock options. Generally, the share appreciation that can be realized upon
the exercise of SARs is limited to the fair market value at the date of grant.
As a result, it is more likely that related stock
options will be exercised rather than SARs when the price of Tredegar's common
stock is in excess of $22.27 per share (Tredegar's closing stock price on
December 31, 1996, was $40.125 per share).
The compensation cost that has been charged against income for SARs was
zero, $984 and $53 in 1996, 1995 and 1994, respectively. Had compensation cost
for the company's stock-based compensation plans been determined based on the
fair value at the grant dates consistent with the method prescribed by SFAS No.
123, the company's income and earnings per common and dilutive common equivalent
share from continuing operations would have been reduced to the pro forma
amounts indicated below:
- -----------------------------------------------------------------
1996 1995
Income from continuing
operations:
As reported $45,035 $24,053
Pro forma 43,814 23,280
Earnings per common and
dilutive common
equivalent share from
continuing operations:
As reported 3.44 1.80
Pro forma 3.34 1.74
- -------------------------------------------------------------------
The fair value of each option was estimated as of the grant date using the
Black-Scholes option-pricing model. The assumptions used in this model for
valuing stock options granted during 1996 and 1995 are provided below:
- --------------------------------------------------------------------
1996 1995
Dividend yield 1.0% 1.3%
Volatility percentage 23.5% 23.8%
Weighted average risk-free
interest rate 5.7% 7.3%
Holding period (years):
Officers 9.4 10.0
Management 4.7 5.2
Others 3.2 3.2
Market price at date of grant:
Officers and management $25.13 $12.50
Others 22.13 11.59
Exercise price for options
granted where exercise
price exceeds market price
(applicable to officers and
management only) 29.00 n/a
- --------------------------------------------------------------------
Stock options granted during 1996 and 1995, and their estimated fair value at
the date of grant, are provided below:
- --------------------------------------------------------------------
1996 1995
Stock options granted
(number of shares):
Where exercise price
equals market price:
Officers 40,000 90,000
Management 86,300 117,600
Others 53,300 11,400
Where exercise price
exceeds market price:
Officers 20,000 -
Management 3,000 -
------- -------
Total 202,600 219,000
- ---------------------------------------------------------------------
Estimated fair value of options
per share at date of grant:
Where exercise price
equals market price:
Officers $10.68 $5.81
Management 7.07 4.05
Others 4.88 2.97
Where exercise price
exceeds market price:
Officers 9.41 n/a
Management 5.55 n/a
Total estimated fair value
of stock options granted 1,502 1,033
- ---------------------------------------------------------------------
A summary of the company's stock options outstanding at December 31, 1996, 1995
and 1994, and changes during the years then ended, is presented below:
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Shares Exercise Price Per Share
--------------------------- ------------------------
Options SARs Weighted
Range Average Aggregate
Outstanding at 12/31/93 734,400 694,650 $8.09 to $11.34 $ 9.85 $ 7,233
Granted in 1994 579,150 - 10.09 to 16.00 11.41 6,609
Lapsed in 1994 (56,250) (16,500) 8.59 to 11.34 10.10 (568)
Options exercised in 1994 (9,000) (9,000) 8.09 to 11.14 9.67 (87)
SARs exercised in 1994 (40,500) (40,500) 8.09 to 11.14 10.20 (413)
----------- ---------- ------------------------ ------- ---------
Outstanding at 12/31/94 1,207,800 628,650 8.09 to 16.00 10.58 12,774
Granted in 1995 219,000 - 11.59 to 12.50 12.45 2,727
Lapsed in 1995 (10,350) (2,250) 10.09 to 11.59 10.43 (108)
Options exercised in 1995 (177,750) (57,000) 8.09 to 16.00 10.22 (1,817)
SARs exercised in 1995 (49,125) (49,125) 8.09 to 11.14 10.34 (508)
---------- --------- ------------------------ ------- ---------
Outstanding at 12/31/95 1,189,575 520,275 8.09 to 16.00 10.99 13,068
Granted in 1996 202,600 - 22.13 to 29.00 24.78 5,020
Lapsed in 1996 (15,150) - 10.09 to 25.13 15.12 (229)
Options exercised in 1996 (130,705) (60,955) 8.09 to 12.50 10.29 (1,345)
---------- -------- ----------------------- ------- ---------
Outstanding at 12/31/96 1,246,320 459,320 $8.09 to $29.00 $13.25 $16,514
- ---------------------------------------------------------------------------------------------------------------------------------
The following table summarizes additional information about stock options
outstanding and exercisable at December 31, 1996:
- --------------------------------------------------------------------------------------------------------------------
Options Outstanding at | Options Exercisable at
December 31, 1996 | December 31, 1996
-------------------------------------------|----------------------------------
Weighted Average |
--------------------------- | Weighted
Remaining | Average
Range of Contractual Exercise | Exercise
Exercise Prices Shares Life (Years) Price | Shares Price
|
|
$11.14 236,525 2.5 $11.14 | 236,525 $11.14
$ 8.09 to 11.18 228,795 5.2 8.38 | 228,795 8.38
10.09 to 16.00 396,775 7.2 11.93 | 394,108 11.95
11.59 to 12.50 186,675 8.1 12.48 | 148,290 12.47
22.13 to 29.00 197,550 9.1 24.82 | - -
|
$ 8.09 to $29.00 1,246,320 6.4 $13.25 | 1,007,718 $11.02
|
|
- --------------------------------------------------------------------------------------------------------------------
Stock options exercisable at December 31, 1995 totaled 883,974 shares. Stock
options available for grant at December 31, 1996 and 1995 totaled 660,600 and
397,800 shares, respectively.
13 RENTAL EXPENSE AND
CONTRACTUAL COMMITMENTS
Rental expense was $2,760, $3,355 and $3,337 for 1996, 1995 and 1994,
respectively. Rental commitments under all noncancelable operating leases as of
December 31, 1996, are as follows.
1997 $1,582
1998 1,610
1999 1,286
2000 1,041
2001 481
Remainder 199
Total $6,199
- -----------------------------------------
Contractual obligations for plant construction and purchases of real
property and equipment amounted to approximately $3,247 and $4,679 at December
31, 1996 and 1995, respectively.
14 RETIREMENT PLANS AND
OTHER POSTRETIREMENT BENEFITS
Tredegar has noncontributory defined benefit plans covering most employees. The
plans for salaried and hourly employees currently in effect are based on a
formula using the participant's years of service and compensation or using the
participant's years of service and a dollar amount. Plan assets consist
principally of common stock and government and corporate obligations.
The components of net pension income for Tredegar's plans for 1996, 1995
and 1994 are as follows:
- ----------------------------------------------------------------
1996 1995 1994
Return on plan assets:
Actual return $22,864 $28,434 $ (572)
Expected return greater
(lower) than actual (10,540) (17,065) 11,494
------- ------- ------
Expected return 12,324 11,369 10,922
Amortization of
transition asset 1,251 1,231 1,231
Service cost (benefits earned
during the year) (2,116) (2,376) (3,016)
Interest cost on projected
benefit obligation (7,631) (7,192) (6,885)
Amortization of prior service
costs and gains or losses (782) (99) (942)
------- ------- ------
Net pension income $ 3,046 $ 2,933 $1,310
- ----------------------------------------------------------------
The following table presents a reconciliation of the funded status of
Tredegar's pension plans at December 31, 1996, 1995 and 1994, to prepaid pension
expense:
- ----------------------------------------------------------------------
December 31 1996 1995 1994
Plan assets at fair value $166,582 $147,600 $125,390
Actuarial present value of
benefit obligations:
Accumulated benefit
obligation (including
vested benefits of
$96,561, $90,895 and
$77,858, respectively) (99,219) (93,077) (80,422)
Projected compensation
increase (9,676) (11,097) (9,296)
--------- -------- ---------
Projected benefit obligation (108,895) (104,174) (89,718)
--------- -------- ---------
Plan assets in excess of
projected benefit
obligation 57,687 43,426 35,672
Unrecognized net gain being
amortized (31,486) (21,863) (16,862)
Unrecognized transition asset
being amortized (2,975) (4,226) (5,456)
Unrecognized prior service
costs being amortized 3,658 4,581 5,354
--------- ------- -------
Prepaid pension expense $ 26,884 $21,918 $18,708
- ----------------------------------------------------------------------
Prepaid pension expense of $26,884 and $21,918 is included in "Other assets
and deferred charges" in the consolidated balance sheets at December 31, 1996
and 1995, respectively.
Net pension income and plan obligations are calculated using assumptions of
discount rates on projected benefit obligations, estimated rates of projected
increases in compensation and expected rates of return on plan assets. The
discount rate on projected benefit obligations was assumed to be 7.5% at
December 31, 1996, 7.5% at December 31, 1995 and 8.25% at December 31, 1994. The
rate of projected compensation increase and the expected long-term rate of
return on plan assets was assumed to be 5% and 9%, respectively, each year. Net
pension income is determined using assumptions as of the beginning of each year.
Funded status is determined using assumptions as of the end of each year.
Tredegar also has a non-qualified supplemental pension plan covering
certain employees. The plan is designed to restore all or a part of the pension
benefits that would have been payable to designated participants from Tredegar's
principal pension plans if it were not for limitations imposed by income tax
regulations. The projected benefit obligation relating to this unfunded plan was
$894, $658 and $613 at December 31, 1996, 1995 and 1994, respectively, and
pension expense recognized was approximately $150 annually. This information has
been included in the above pension tables.
In addition to providing pension benefits, Tredegar provides postretirement
life insurance and health care benefits for certain groups of employees.
Tredegar and retirees share in the cost of postretirement health care benefits,
with employees retiring after July 1, 1993, receiving a fixed subsidy from
Tredegar to cover a portion of their health care premiums.
The components of net periodic postretirement benefit cost are as follows:
- ----------------------------------------------------------------------
1996 1995 1994
Service cost (benefits earned
during the year) $(117) $(118) $(177)
Interest cost on accumulated
postretirement benefit
obligation (448) (493) (492)
Recognition of gains (losses) 101 74 (18)
------- ----- ------
Net postretirement
benefit cost $(464) $(537) $(687)
- ----------------------------------------------------------------------
The following table presents a reconciliation of the funded status of
Tredegar's postretirement life insurance and health care benefit plans at
December 31, 1996, 1995 and 1994, to accrued postretirement benefit cost:
- -----------------------------------------------------------------------
December 31 1996 1995 1994
Plan assets at fair value $ - $ - $ -
Accumulated postretirement
benefit obligation (APBO):
Retirees (3,283) (3,438) (3,085)
Other fully eligible
participants (1,253) (1,396) (1,593)
Other active
participants (1,769) (1,957) (1,852)
------- ------- -------
Total APBO (6,305) (6,791) (6,530)
------- ------- -------
APBO in excess of plan assets (6,305) (6,791) (6,530)
Unrecognized gain (1,317) (1,219) (1,124)
------- ------- -------
Accrued postretirement
benefit cost $(7,622) $(8,010) $(7,654)
- -----------------------------------------------------------------------
Accrued postretirement benefit cost of $7,622 and $8,010 is included in
"Other noncurrent liabilities" in the consolidated balance sheets of December
31, 1996 and 1995, respectively.
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.5% at December 31, 1996, 7.5% at December 31, 1995 and
8.25% at December 31, 1994. The rate of annual pay increase for life insurance
benefits was assumed to be 5% each year. The rate of increase in the
per-capita cost of covered health care benefits for the indemnity plan was
assumed to be 11% at December 31, 1996, 12% at December 31, 1995 and 13% at
December 31, 1994. The rate of increase in the per-capita cost of covered health
care benefits for the managed care plans was assumed to be 8.9% at December 31,
1996, 9.7% at December 31, 1995 and 10.4% at December 31, 1994. The rates for
the per-capita cost of covered health care benefits were assumed to decrease
gradually for the indemnity and managed care plans to 6% and 5%, respectively,
in year 2002 and remain at that level thereafter. Net postretirement benefit
cost is determined using assumptions as of the beginning of each year. Funded
status is determined using assumptions as of the end of each year.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefit obligation as of December 31, 1996, would
increase by approximately $9. The effect of this increase on the sum of the
service cost and interest cost components of net periodic postretirement benefit
cost for 1996 would be immaterial.
15 SAVINGS PLAN
Tredegar has a savings plan that allows eligible employees to voluntarily
contribute a percentage of their compensation. Under the provisions of the plan,
Tredegar matches a portion of the employee's contribution to the plan with
shares of Tredegar common stock. Tredegar also has an unfunded non-qualified
plan that restores matching benefits for employees suspended from the savings
plan due to certain limitations imposed by income tax regulations. Charges
recognized by Tredegar for these plans in 1996, 1995 and 1994 amounted to
$2,348, $2,060 and $2,059, respectively. Tredegar's unfunded liability under the
restoration plan was $1,221 and $723 at December 31, 1996 and 1995,
respectively.
16 INCOME TAXES
Income from continuing operations before income taxes and income taxes are as
follows:
- --------------------------------------------------------------------
1996 1995 1994
Income from continuing
operations before
income taxes:
Domestic $63,612 $36,494 $2,346
Foreign 5,383 1,828 2,988
------- ------- ------
Total $68,995 $38,322 $5,334
- ---------------------------------------------------------------------
Current income taxes:
Federal $17,916 $10,050 $8,375
State 2,608 1,996 1,622
Foreign 1,665 683 827
------- ------ -------
Total 22,189 12,729 10,824
------- ------ -------
Deferred income taxes:
Federal 1,105 1,448 (6,741)
State 2 136 (424)
Foreign 664 (44) 258
------ ------ ------
Total 1,771 1,540 (6,907)
------- ------- -------
Total income taxes $23,960 $14,269 $3,917
- ---------------------------------------------------------------------
The significant differences between the U.S. federal statutory rate and the
effective income tax rate for continuing operations are as follows:
- ---------------------------------------------------------------------
Percent of Income
From Continuing Operations
Before Income Taxes
---------------------------------------
1996 1995 1994
Income tax expense at federal
statutory rate 35.0 35.0 35.0
State taxes, net of federal
income tax benefit 2.5 3.6 14.6
Foreign Sales Corporation (1.6) (1.3) (6.6)
Tax-exempt interest income (.9) - -
Research and development
tax credit (.3) (1.0) (7.5)
Goodwill amortization .1 .2 3.0
Write-off of certain goodwill - .1 31.1
Other items, net (.1) .6 3.8
---- ---- ----
Effective income tax rate 34.7 37.2 73.4
- ----------------------------------------------------------------------
Deferred income taxes result from temporary differences between financial
and income tax reporting of various items. The source of these differences and
the tax effects for continuing operations are as follows:
- ----------------------------------------------------------------------
1996 1995 1994
Depreciation $(2,179) $ (14) $(3,472)
Employee benefits 2,591 499 169
Plant shutdowns, divestitures
and environmental
accruals 409 743 778
Write-offs of certain goodwill
and other intangibles - - (3,643)
Other items, net 950 312 (739)
-------- ----- --------
Total $ 1,771 $1,540 $(6,907)
- -----------------------------------------------------------------------
Deferred tax liabilities and deferred tax assets as of December 31, 1996
and 1995, are as follows:
- -----------------------------------------------------------------------
December 31 1996 1995
Deferred tax liabilities:
Depreciation $8,220 $13,496
Pensions 9,699 8,274
Other 1,368 2,130
------ -------
Total deferred tax liabilities 19,287 23,900
------ -------
Deferred tax assets:
Employee benefits 7,697 8,863
Allowance for doubtful
accounts and sales
returns 1,306 2,005
Inventory 1,170 1,493
Plant shutdowns and
divestitures 752 834
Environmental accruals 294 621
Other 558 2,748
------ ------
Total deferred tax assets 11,777 16,564
------ ------
Net deferred tax liability $7,510 $7,336
- -----------------------------------------------------------------------
Included in the balance sheet:
Noncurrent deferred tax
liabilities in excess
of assets $16,994 $22,218
Current deferred tax assets
in excess of liabilities 9,484 14,882
------ -------
Net deferred tax liability $ 7,510 $ 7,336
- -----------------------------------------------------------------------
17 UNUSUAL ITEMS
In 1996, unusual items totaling $11,427 (income, net) include a gain on the sale
of Molded Products ($19,893, see Note 19), a gain on the sale of a former
plastic films manufacturing site in Fremont, California ($1,968), a charge
related to the loss on the divestiture of Brudi ($9,146, see Note 19) and a
charge related to the write-off of specialized machinery and equipment due to
excess capacity in certain industrial packaging films ($1,288).
In 1995, unusual items totaling $78 (income, net) include a gain on the
sale of Regal Cinema shares ($728), a charge related to the restructuring of
APPX Software ($2,400) and a recovery in connection with a Film Products product
liability lawsuit ($1,750). The APPX Software restructuring charge includes
estimated losses on the disposal of assets, severance costs and cost for the
termination of leases and certain contracts. The restructuring, which occurred
in the first quarter of 1995, was aimed at eliminating operating losses. Such
losses were $478 in the first quarter of 1995 and $4,700 in 1994. While new
product development costs have been reduced, APPX Software continues to sell,
maintain and support existing products. During 1996 and for the period April 1
to December 31, 1995 (the post-restructuring periods), APPX Software had an
operating profit of $511 and $382, respectively.
In 1994, unusual items totaling $16,494 include the write-off of certain
Molded Products goodwill ($4,873), costs related to the closing of a Molded
Products plant in Alsip, Illinois ($2,100) and the write-off of goodwill and
other intangibles in APPX Software ($9,521). The goodwill write-off in Molded
Products resulted from continued disappointing results in certain lines of its
business (see Note 19). The write-off in APPX Software in 1994 is the result of
management's determination that income generated by the acquired products would
not be sufficient to recover the unamortized costs associated with the
intangible software assets purchased by Tredegar in December 1992.
18 CONTINGENCIES
Tredegar is involved in various stages of investigation and cleanup relating to
environmental matters at certain of its plant locations. Where management has
determined the nature and scope of any required environmental cleanup activity,
estimates of cleanup costs have been obtained and accrued. As management
continues its efforts to ensure compliance with environmental laws and
regulations, additional contingencies may be identified. If additional
contingencies are identified, it is management's practice to determine the
nature and scope of such contingencies, obtain and accrue estimates of the cost
of remediation, and perform remediation. While it is not possible to predict the
course of ongoing environmental compliance activities, management does not
currently believe that additional costs that could arise from such activities
will have a material adverse effect on its financial position; however, such
costs could have a material adverse effect on quarterly or annual operating
results in a future period.
Tredegar is involved in various other legal actions arising in the normal
course of business. After taking into consideration legal counsels' evaluation
of such actions, management believes that Tredegar has sufficiently accrued for
possible losses and that these actions will not have a material adverse effect
on Tredegar's financial position; however, the resolution of such actions in a
future period could have a material adverse effect on quarterly or annual
operating results at that time.
19 DIVESTED AND DISCONTINUED OPERATIONS
On March 29, 1996, Tredegar sold Molded Products to Precise Technology, Inc.
("Precise") for cash consideration of $57,500 ($53,973 after transaction costs).
In addition, Tredegar received unregistered cumulative redeemable preferred
stock of Precise with a face amount of $2,500, 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 is not recognized by Tredegar until received.
During the second quarter of 1996, Tredegar completed the sale of Brudi for
cash consideration of approximately $18,066 ($17,625 after transaction costs).
Tredegar recognized a gain of $19,893 ($13,725 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 $9,146 ($5,666 after income tax benefits)
related to the loss on the divestiture of Brudi. The Molded Products gain
includes a gain of $2,039 ($1,243 after income taxes) on the curtailment of
participation by Molded Products employees in Tredegar's benefit plans. The
Brudi charge includes a loss accrued of $1,000 ($640 after income tax benefits)
for remaining payments under a noncompetition and secrecy agreement entered into
when Tredegar acquired Brudi on April 1, 1991.
The operating results for Molded Products were historically reported as
part of the Plastics segment on a combined basis with Film Products and
Fiberlux. Likewise, results for Brudi were combined with Aluminum Extrusions and
reported as part of the Metal Products segment. Accordingly, results for Molded
Products and Brudi have been included in continuing operations. Tredegar began
reporting Molded Products and Brudi separately in its segment disclosures in
1995 after announcing its intent to divest these businesses (see pages 20-22).
Additional information on the combined results of operations and net assets of
these businesses is provided below:
Condensed Statements of Income
Molded Products and Brudi Combined
- --------------------------------------------------------------------------
1996
Through the
(Unaudited) Date Divested 1995 1994
- ---------------------------------------------------------------------------
Net sales $34,511 $116,745 $105,470
Costs and expenses:
Operating costs
and expenses 33,269 113,805 108,310
Interest allocated 283 899 1,170
Unusual items - - 6,973
------- ------- -------
Total 33,552 114,704 116,453
------- ------- -------
Income (loss) from Molded
Products and Brudi
before income taxes 959 2,041 (10,983)
Income tax (benefit) 423 913 (3,802)
------- ------ --------
Income (loss) from Molded
Products and Brudi $ 536 $ 1,128 $(7,181)
- ---------------------------------------------------------------------------
Condensed Statements of Net Assets
Molded Products and Brudi Combined
- ---------------------------------------------------------------------------
As of
Date Divested December 31,
(Unaudited) in 1996 1995
- ---------------------------------------------------------------------------
Current assets:
Accounts and notes receivable $15,495 $13,964
Inventories 14,233 13,858
Deferred income taxes 1,612 1,476
Prepaid expenses and other 374 82
------ ------
Total current assets 31,714 29,380
------ ------
Net property, plant and equipment 32,832 33,129
Goodwill and other intangibles 9,980 10,174
------ ------
Total assets 74,526 72,683
------ ------
Total current liabilities 9,053 9,108
Deferred income taxes 3,238 2,971
Other noncurrent liabilities 345 460
------ ------
Total liabilities 12,636 12,539
------ ------
Net assets of Molded Products
and Brudi $61,890 $60,144
- ---------------------------------------------------------------------------
Transactions between Tredegar and Molded Products and Brudi were reflected
as though they were settled immediately and there were no amounts due to or from
Tredegar at the end of any period. All of Molded Products' full-time employees
participated in Tredegar's noncontributory defined benefit plan for salaried
employees. Most of these employees also participated in Tredegar's welfare
(medical, life and disability) and savings plans. Related costs for
participation in these plans were allocated to Molded Products and were included
in the above condensed statements of income. Interest expense was allocated to
Molded Products and Brudi based upon the ratio of their capital employed (net
assets) to Tredegar's consolidated capital employed.
For federal income tax purposes, operating results of Molded Products and
Brudi through the date of disposal were included in Tredegar's consolidated tax
return. Their related provision for income taxes represents their allocated
share of Tredegar's income tax expense. The allocated share approximates income
tax expense that would have been incurred had Molded Products and Brudi
separately filed a consolidated tax return and computed income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes."
On August 16, 1994, the Elk Horn Coal Corporation ("Elk Horn"), Tredegar's
97% owned coal subsidiary, was acquired by Pen Holdings, Inc., for an aggregate
consideration of approximately $71,000 ($67,485 after minority interest and
transaction costs). Tredegar realized an after-tax gain on the transaction of
$25,740. In the first quarter of 1994, Tredegar recognized an income tax benefit
of $3,320 on the difference between the financial reporting and income tax basis
of Elk Horn. On February 4, 1994, Tredegar sold its remaining oil and gas
properties for approximately $8,000 and recognized an after-tax gain of $3,938.
The divestiture of Elk Horn completed Tredegar's exit from the Energy segment.
Accordingly, information about the revenues, expenses, income, financial
condition and cash flows of this segment have been presented as discontinued
operations.
In accordance with applicable accounting pronouncements, a $6,194 charge
($3,964 after income tax benefits) was recognized as a reduction to the gain on
the disposal of Elk Horn for the estimated present value of the portion of the
unfunded obligation under the Coal Industry Retiree Health Benefit Act of 1992
(the "Act") assumed by Tredegar in the divestiture transaction. Under the Act,
assigned operators (former employers) are responsible for a portion of the
funding of medical and death benefits of certain retired miners and dependents
of the United Mine Workers of America. The obligation under the Act is reflected
in Tredegar's consolidated balance sheet in "Other noncurrent liabilities." The
net periodic cost of the obligation (interest and the amortization of gains of
$158 in 1996) since the Elk Horn divestiture is reflected in Tredegar's
consolidated statements of income in "Other income (expense), net."
At December 31, 1996 and 1995, the accrued costs for Tredegar's obligation
under the Act were $5,793 and $6,000, respectively, including an unfunded
obligation of $2,943 and $4,703, respectively, and an unrecognized gain of
$2,850 and $1,297, respectively. The discount rate used in determining the
unfunded obligation was 7.5%, 7.5% and 8.25% at December 31, 1996, 1995 and
1994, respectively. The medical premium trend rate was assumed to be 11%, 12%
and 13% at December 31, 1996, 1995 and 1994, respectively, with a gradual
decrease to 6% in year 2004, 6% in year 2004 and 6.75% in year 2003,
respectively, and remaining at that level thereafter. The accrued cost was
determined using assumptions at the end of each period, and the net periodic
cost was determined using assumptions as of the beginning of each period. If the
medical premium trend rate were increased by 1%, the obligation at December 31,
1996, would increase by approximately $167. The effect of this increase on the
annual interest cost component of the net periodic cost would be immaterial.
The condensed statement of income of the discontinued Energy segment is
presented below through August 16, 1994, the date Elk Horn was acquired by Pen
Holdings, Inc.:
Condensed Statement of Income
Discontinued Energy Segment
- -----------------------------------------------------------------------------
January 1, 1994 to
(Unaudited) August 16, 1994
- ------------------------------------------------------------------------------
Net sales $19,868
Costs and expenses:
Operating costs and expenses 13,229
Interest allocated 337
--------
Total 13,566
--------
Income from Energy segment
operations before income taxes 6,302
Income taxes 2,082
-------
Income from Energy segment
operations $4,220
- ------------------------------------------------------------------------------
All of the Energy segment's full-time employees participated in Tredegar's
noncontributory defined benefit plan for salaried employees. These employees
also participated in Tredegar's welfare (medical, life and disability) and
savings plans. Accordingly, related costs were allocated to discontinued
operations. Interest expense was allocated to discontinued operations based upon
the ratio of the Energy segment's capital employed (net assets) to Tredegar's
consolidated capital employed.
For federal income tax purposes, results of the Energy segment's operations
through the date of disposal were included in Tredegar's consolidated tax
return. The Energy segment's provision for income taxes represents its allocated
share of Tredegar's income tax expense. The allocated share approximates income
tax expense that would have been incurred had the Energy segment separately
filed a consolidated tax return and computed income taxes in accordance with
SFAS No. 109.
SHAREHOLDER INFORMATION
Annual Meeting
The annual meeting of shareholders of Tredegar Industries, Inc., will be held on
May 22, 1997, beginning at 9:30 a.m. E.D.T. at the Jefferson Hotel in Richmond,
Virginia. Formal notices of the annual meeting, proxies and proxy statements
will be mailed to shareholders on or before March 31.
Corporate Headquarters
1100 Boulders Parkway
Richmond, Virginia 23225
PHONE 804-330-1000
E-MAIL invest@tredegar.com
WEB SITE http://www.tredegar.com
Number of Employees
Approximately 2,200
Counsel
Hunton & Williams
Richmond, Virginia
Independent Accountants
Coopers & Lybrand, L.L.P.
Richmond, Virginia
Stock Listing
New York Stock Exchange
Ticker Symbol: TG
Transfer Agent and Registrar
American Stock Transfer & Trust Company
New York, New York
Inquiries
Inquiries concerning stock transfers, dividend reimbursements, consolidating
accounts, changes of address, or lost or stolen stock certificates should be
directed to:
American Stock Transfer & Trust Company
Shareholder Services Department
40 Wall Street - 46th Floor
New York, New York 10005
PHONE 800-937-5449
All other inquiries should be directed to:
Tredegar Industries, Inc.
Corporate Communications Department
1100 Boulders Parkway
Richmond, Virginia 23225
PHONE 804-330-1044
Interim Report Distribution
Tredegar does not distribute quarterly reports through brokerages or banks. If
your shares of Tredegar common stock are held through a third party, such as a
bank or brokerage, and you would like to receive quarterly reports, please write
or call Corporate Communications at the above address.
Dividend Information
During 1995 and 1996, Tredegar paid quarterly dividends of $.06 per share, or
$.24 per share on an annual basis. Beginning with the dividend payment on
January 1, 1997, the quarterly dividend was increased to $.08 per share, or $.32
per share on an annual basis. All decisions with respect to payment of dividends
will be made by the Board of Directors based upon Tredegar's earnings, financial
condition, anticipated cash needs and such other considerations as the Board
deems relevant. See Note 10 of Notes to Financial Statements on page 42 for
details of restrictions on dividends.
Market Prices of Common Stock and Shareholder Data
The following table shows the reported high and low closing prices of Tredegar's
common stock by quarter for the past two years.
- -----------------------------------------------------------------
1996 1995
----------- -----------
High Low High Low
First Quarter $25.88 $20.50 $13.92 $11.58
Second Quarter 35.00 24.25 16.58 13.42
Third Quarter 34.38 29.00 21.25 17.25
Fourth Quarter 45.38 34.25 23.17 18.33
- -----------------------------------------------------------------
Tredegar has no preferred stock outstanding.
There were 12,258,028 shares of common stock held by 6,906 shareholders of
record on January 31, 1997.
Plants, Facilities and Offices
Corporate Headquarters:
Richmond, Virginia
Tredegar Film Products:
Carbondale, Pennsylvania
Cincinnati, Ohio
LaGrange, Georgia
Manchester, Iowa
New Bern, North Carolina
Tacoma, Washington
Terre Haute, Indiana (2)
(plant and technical center)
Kerkrade, the Netherlands
Kobe, Japan
Buenos Aires, Argentina
San Juan, Argentina
Sao Paulo, Brazil
Fiberlux:
Pawling, New York
Purchase, New York
Aluminum Extrusions:
Carthage, Tennessee
Kentland, Indiana
Newnan, Georgia
Tredegar Investments:
Seattle, Washington
APPX Software:
Richmond, Virginia
Molecumetics:
Bellevue, Washington
Exhibit 21
TREDEGAR INDUSTRIES, INC.
Virginia
Jurisdiction
Name of Subsidiary of Incorporation
APPX Software, Inc. Virginia
The William L. Bonnell Company, Inc. Georgia
Capitol Products Corporation Pennsylvania
Fiberlux, Inc. Virginia
Idlewood Properties, Inc. Virginia
Molecumetics Institute, Ltd. Virginia
Molecumetics, Ltd. Virginia
Tredegar Brazil Industria Brazil
De Plasticos Ltda.
Tredegar Development Corporation Virginia
Tredegar Exploration, Inc. Virginia
Tredegar Film Products Argentina S.A. Argentina
Tredegar Film Products, B.V. Netherlands
Tredegar Foreign Sales Corporation U.S. Virgin Islands
Tredegar Investments, Inc. Virginia
Tredegar Reserves, Inc. Virginia
Virginia Techport, Inc. Virginia
EXHIBIT 23.1
CONSENT OF COOPERS & LYBRAND L.L.P.
We consent to the incorporation by reference in the registration statements of
Tredegar Industries, Inc. on Form S-3 (File No. 33-57268) and on Forms S-8 (File
No. 33-31047, File No. 33-50276, File No. 33-64647 and File No. 33-12985) of our
report dated January 14, 1997 on our audits of the consolidated financial
statements of Tredegar Industries, Inc., and subsidiaries as of December 31,
1996 and 1995, and for each of the three years in the period ended December 31,
1996, which report appears on page 34 of the 1996 Annual Report to Shareholders
of Tredegar Industries, Inc.
/s/ Coopers & Lybrand L.L.P.
Richmond, Virginia
March 3, 1997
5
1,000
12-MOS
DEC-31-1996
DEC-31-1996
101,261
0
64,563
3,487
17,658
194,422
260,200
169,771
341,077
61,301
35,000
0
0
113,019
99,526
341,077
523,551
527,799
417,270
417,270
38,877
481
2,176
68,995
23,960
45,035
0
0
0
45,035
3.44
0.00
