SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
(Mark One)
___ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
/ X / OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
/ / OF THE SECURITIES EXCHANGE ACT OF 1934
- ----
For the transition period from to
------------------- ------------------------
Commission file number 1-10258
Tredegar Industries, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Virginia 54-1497771
- ------------------------------- --------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1100 Boulders Parkway
Richmond, Virginia 23225
- --------------------------------------- --------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (804) 330-1000
Indicate by check whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of Common Stock, no par value, outstanding as of April
30, 1997: 12,261,423.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Tredegar Industries, Inc.
Consolidated Balance Sheets
(In Thousands)
(Unaudited)
March 31, Dec. 31,
1997 1996
--------- --------
Assets
Current assets:
Cash and cash equivalents $115,475 $101,261
Accounts and notes receivable 64,360 61,076
Inventories 16,256 17,658
Income taxes recoverable -- 2,023
Deferred income taxes 9,462 9,484
Prepaid expenses and other 3,676 2,920
-------- --------
Total current assets 209,229 194,422
-------- --------
Property, plant and equipment, at cost 262,957 260,200
Less accumulated depreciation and amortization 173,689 169,771
-------- --------
Net property, plant and equipment 89,268 90,429
-------- --------
Other assets and deferred charges 39,374 36,094
Goodwill and other intangibles 20,119 20,132
======== ========
Total assets $357,990 $341,077
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 36,890 $ 28,814
Accrued expenses 29,639 32,487
Income taxes payable 3,585 --
-------- --------
Total current liabilities 70,114 61,301
Long-term debt 35,000 35,000
Deferred income taxes 16,826 16,994
Other noncurrent liabilities 14,573 15,237
-------- --------
Total liabilities 136,513 128,532
-------- --------
Shareholders' equity:
Common stock, no par value 112,246 113,019
Foreign currency translation adjustment 205 499
Retained earnings 109,026 99,027
-------- --------
Total shareholders' equity 221,477 212,545
-------- --------
Total liabilities and shareholders' equity $357,990 $341,077
======== ========
See accompanying notes to financial statements.
Tredegar Industries, Inc.
Consolidated Statements of Income
(In Thousands)
(Unaudited)
Three Months
Ended March 31
-------------------------
1997 1996
---------- ----------
Revenues:
Net sales $ 133,345 $ 141,387
Other income (expense), net 2,845 (383)
--------- ---------
Total 136,190 141,004
--------- ---------
Costs and expenses:
Cost of goods sold 106,960 113,734
Selling, general and administrative 8,561 11,220
Research and development 3,266 2,429
Interest 521 650
Unusual items -- (10,747)
--------- ---------
Total 119,308 117,286
--------- ---------
Income before income taxes 16,882 23,718
Income taxes 5,928 7,371
--------- ---------
Net income $ 10,954 $ 16,347
========= =========
Earnings per common and dilutive common
equivalent share $ .83 $ 1.27
========= =========
Shares used to compute earnings per
common and dilutive common equivalent
share 13,178 12,877
========= =========
See accompanying notes to financial statements.
Tredegar Industries, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months
Ended March 31
-----------------------
1997 1996
----------- ----------
Cash flows from operating activities:
Net income $ 10,954 $ 16,347
Adjustments for noncash items:
Depreciation 4,542 6,047
Amortization of intangibles 13 143
Deferred income taxes 12 (2,623)
Accrued pension income and postretirement
benefits (778) (401)
Gain on divestitures, net -- (10,747)
Gain on sale of technology-related investments (1,885) --
Changes in assets and liabilities, net of effects from divestitures:
Accounts and notes receivable (3,284) (5,875)
Inventories 1,402 1,638
Income taxes recoverable 2,023 2,179
Prepaid expenses and other (756) (617)
Accounts payable 8,076 2,911
Accrued expenses and income taxes payable 737 6,805
Other, net (447) 141
--------- ---------
Net cash provided by operating activities 20,609 15,948
--------- ---------
Cash flows from investing activities:
Capital expenditures (3,729) (7,817)
Investments (2,877) (50)
Proceeds from the sale of investments 2,060 --
Property disposals 66 43
Proceeds from the sale of Molded Products
(net of transaction costs of $3,527) -- 53,973
Other, net (187) 28
--------- ---------
Net cash (used in) provided by investing
activities (4,667) 46,177
--------- ---------
Cash flows from financing activities:
Dividends paid (955) (731)
Net increase (decrease) in borrowings -- --
Repurchases of Tredegar common stock (1,479) --
Other, net 706 182
--------- ---------
Net cash used in financing activities (1,728) (549)
--------- ---------
Increase (decrease) in cash and cash equivalents 14,214 61,576
Cash and cash equivalents at beginning of period 101,261 2,145
========= =========
Cash and cash equivalents at end of period $ 115,475 $ 63,721
========= =========
See accompanying notes to financial statements.
TREDEGAR INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying consolidated financial
statements of Tredegar Industries, Inc. and Subsidiaries ("Tredegar")
contain all adjustments necessary to present fairly, in all material
respects, Tredegar's consolidated financial position as of March 31, 1997,
and the consolidated results of their operations and their cash flows for
the three months ended March 31, 1997 and 1996. All such adjustments are
deemed to be of a normal recurring nature. These financial statements
should be read in conjunction with the consolidated financial statements
and notes thereto included in Tredegar's Annual Report on Form 10-K for the
year ended December 31, 1996. The results of operations for the three
months ended March 31, 1997, are not necessarily indicative of the results
to be expected for the full year.
2. Historical and pro forma net income and earnings per common and dilutive
common equivalent share, adjusted for unusual items and technology-related
investment gains/losses affecting the comparability of operating results
and the pro forma effects of the Molded Products and Brudi divestitures,
are presented below:
(In Thousands Except Per-Share
Amounts)
Three Months Year Ended
Ended March 31 Dec. 31,
----------------------------
1997 1996 1996
-------- -------- --------
Historical net income as reported $ 10,954 $ 16,347 $ 45,035
After-tax effects of unusual items:
Gain on sale of property in Fremont, CA -- -- (1,215)
Write-off of specialized machinery and
equipment due to excess capacity in
certain industrial packaging films -- -- 795
Combined net gain on the Molded Products
and Brudi divestitures -- (8,059) (8,059)
-------- -------- --------
Historical net income as adjusted for unusual items 10,954 8,288 36,556
After-tax effect of technology-related investment
(gains) losses (1,206) -- (1,369)
-------- -------- --------
Net income as adjusted for unusual items and
technology-related investment gains/losses 9,748 8,288 35,187
Pro forma adjustments:
Combined after-tax operating profit of Molded
Products and Brudi -- (737) (715)
Reduction of Tredegar's after-tax cost for
certain benefit plans due to the curtailment
of participation by Molded Products
employees -- 161 161
After-tax interest income on assumed
investment in cash equivalents of expected
after-tax divestiture proceeds at an annual
rate of approximately 5.4% -- 571 724
-------- -------- --------
Pro forma net income as adjusted for unusual items,
technology-related investment gains/losses and the
pro forma effects of the Molded Products and Brudi
divestitures $ 9,748 $ 8,283 $ 35,357
======== ======== ========
Earnings per common and dilutive common equivalent share:
As reported $ .83 $ 1.27 $ 3.44
As adjusted for unusual items .83 .64 2.79
As adjusted for unusual items and technology-
related investment gains/losses .74 .64 2.69
Pro forma as adjusted for unusual items,
technology-related investment gains/losses
and the pro forma effects of the Molded
Products and Brudi divestitures .74 .64 2.70
The pro forma operating results presented above assume that Tredegar
sold Molded Products and Brudi at the beginning of 1996 (Molded Products
was sold on March 29, 1996, and the Brudi divestiture was completed in the
second quarter of 1996) and invested related after-tax proceeds of
approximately $48 million and $21 million, respectively, in cash
equivalents. The pro forma financial information is unaudited and does not
purport to be indicative of the future results or financial position of
Tredegar or the net income and financial position that would actually have
been attained had the divestitures occurred on the dates or for the period
indicated.
At March 31, 1997 and December 31, 1996, Tredegar had
technology-related investments with a cost basis of $8.8 million and $6
million, 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 eight 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 approximately $20 million at March
31, 1997. 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.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share."
The standard must be adopted by Tredegar in the fourth quarter of 1997,
with all prior periods restated to conform to the new method. Early
application is not permitted. The new standard requires the presentation in
the income statement of basic and diluted earnings per share. In contrast
to primary earnings per share under existing standards, basic earnings per
share excludes common stock equivalents (for example, stock options).
Accordingly, for the periods shown below, under the new requirements basic
earnings per share for Tredegar will be higher than amounts previously
reported, while diluted earnings per share will be the same as amounts
previously reported:
Three Months Years Ended
Ended March 31 December 31
------------------------ ----------------------
1997 1996 1996 1995
------------ ----------- ----------- ----------
Percentage basic earnings per share
higher (lower) than earnings per share
as reported 7.6% 5.7% 7.3% 3.5%
Percentage diluted earnings per share
higher (lower) than earnings per share
as reported - - - -
3. On March 7, 1997, Tredegar announced that its William L. Bonnell
subsidiary had agreed in principle to acquire an aluminum extrusions
and fabrication plant in El Campo, Texas, owned by Reynolds Metals
Company. Details of the agreement were not disclosed. The proposed
acquisition, which is subject to various conditions, is expected to be
completed in the second quarter. The facility extrudes and fabricates
products used primarily in transportation, electrical and consumer
durables markets.
4. The components of inventories are as follows:
(In Thousands)
March 31 Dec. 31
1997 1996
-------------- --------------
Finished goods $ 2,054 $ 1,677
Work-in-process 1,128 1,782
Raw materials 7,018 7,958
Stores, supplies and other 6,056 6,241
============== ==============
Total $16,256 $17,658
============== ==============
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
First Quarter 1997 Compared with First Quarter 1996
Net income for the first quarter of 1997 was $11 million or 83 cents
per share, down from $16.3 million or $1.27 per share in the first quarter of
1996. Unusual items recognized in the first quarter of 1996 affecting the
comparability of operating results include a gain of $19.9 million ($13.7
million after income taxes) on the sale of Molded Products on March 29, 1996,
partially offset by a charge of $9.1 million ($5.7 million after income tax
benefits) related to a loss accrued on the divestiture of Brudi (the Brudi
divestiture was completed in the second quarter of 1996). Results for 1997
include technology-related investment gains of $1.9 million ($1.2 million after
income taxes). See Note 2 on page 5 for further information on
technology-related investments as of March 31, 1997.
Net income excluding unusual items and technology-related investment
gains for the first quarter of 1997 was $9.7 million or 74 cents per share, up
from $8.3 million or 64 cents per share in the first quarter of 1996. The
improved results were driven primarily by strong performance in aluminum
extrusions and slightly higher profits in plastic films. Higher interest income
(see further discussion below) and pension income resulted primarily from the
Molded Products and Brudi divestitures and offset the adverse impact of their
disposal on operating profit (see Note 2 on page 5).
Excluding the effects of the Molded Products and Brudi divestitures,
first-quarter net sales increased 18% in 1997 due to higher sales in Film
Products and Aluminum Extrusions. The increase in sales in Film Products was
driven by higher volume of lower margin nonwoven film laminates, higher volume
for foreign operations (especially permeable film in Europe) and higher selling
prices (reflecting higher average plastic resin costs), partially offset by
lower volume of diaper backsheet in North America. Higher sales in Aluminum
Extrusions reflected continued strength in residential and commercial windows
and higher volume to distributors.
The gross profit margin during the first quarter of 1997 increased to
19.8% from 19.6% in 1996 due to higher volume in Aluminum Extrusions, partially
offset by lower margins in Film Products.
Selling, general and administrative expenses decreased by $2.7 million
or 23.7% due to the Molded Products and Brudi divestitures and lower corporate
overhead, partially offset by higher selling, general and administrative costs
in Film Products. Selling, general and administrative expenses, as a percentage
of sales, declined to 6.4% in 1996 compared with 7.9% in 1996.
Research and development expenses increased by $837,000 or 34.5% due
to higher product development spending at Film Products and higher spending at
Molecumetics.
Interest income, which is included in "Other income (expense), net" in
the consolidated statements of income, increased to $1.2 million in 1997 from
$92,000 in 1996 due to the investment of divestiture proceeds and cash generated
from operations. The average tax equivalent yield earned on cash equivalents was
5.6% in 1997 and 5.4% in 1996. 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 by $129,000 due primarily to higher capitalized interest.
The effective tax rate excluding unusual items, the effects of
tax-exempt interest income and investment gains declined slightly to 36% in 1997
from 36.1% in 1996.
Segment Results
The following tables present Tredegar's net sales and operating profit
by segment for the three months ended March 31, 1997 and 1996.
Net Sales by Segment
(In Thousands)
(Unaudited)
Three Months Favorable
Ended March 31 (Unfav.)
-----------------------
1997 1996 % Change
------------ ---------- ----------
Film Products and Fiberlux $ 75,437 $ 59,457 27
Aluminum Extrusions 57,495 52,916 9
Technology 413 371 11
------------ ---------- ----------
Total ongoing operations 133,345 112,744 18
Divested operations:
Molded Products - 21,131 -
Brudi - 7,512 -
============ =========== =========
Total net sales $ 133,345 $141,387 (6)
============ =========== =========
Operating Profit by Segment
(In Thousands)
(Unaudited)
Three Months Favorable
Ended March 31 (Unfav.)
-----------------------
1997 1996 % Change
------------ ---------- ----------
Film Products and Fiberlux $ 10,968 $ 11,045 (1)
Aluminum Extrusions 6,702 4,976 35
Technology:
Molecumetics (1,665) (1,226) (36)
Investments and other 1,843 (19) -
------------ ---------- ---------
178 (1,245) -
------------ ---------- ---------
Divested operations:
Molded Products - 1,011 -
Brudi - 223 -
Unusual items - 10,747 -
------------ ---------- ----------
- 11,981 -
------------ ---------- ----------
Total operating profit 17,848 26,757 (33)
Interest income 1,151 92 1,151
Interest expense 521 650 20
Corporate expenses, net 1,596 2,481 36
------------ ---------- ----------
Income before income taxes 16,882 23,718 (29)
Income taxes 5,928 7,371 20
============ ========== ==========
Net income $ 10,954 $ 16,347 (33)
============ ========== ==========
Unusual items include a pretax gain recognized in the first quarter of
1996 on the sale of Molded Products ($19.9 million), partially offset by a
pretax loss accrued on the divestiture of Brudi ($9.1 million; the Brudi
divestiture was completed in the second quarter of 1996). "Investments and
other" includes pretax gains on technology-related investments of $1.9 million.
See Note 2 on page 5 for further information on items affecting the
comparability of operating results.
Sales in Film Products increased due to higher volume of lower margin
nonwoven film laminates, higher volume for foreign operations (especially
permeable film in Europe) and higher selling prices (reflecting higher average
plastic resin costs), partially offset by lower volume of diaper backsheet in
North America. Operating profit improved slightly in Film Products due to
improved production efficiencies for nonwoven film laminates and higher volume
of permeable film in Europe for feminine pads, partially offset by lower diaper
backsheet volume and margins in North America and higher new product development
expenses. Operating profit declined in Fiberlux due to lower volume and higher
selling, general and administrative costs.
Sales in Aluminum Extrusions increased due primarily to higher volume
(up 15%), reflecting continued strength in residential and commercial windows
and higher volume to distributors. Operating profit increased by $1.7 million or
35% due to higher volume and related lower unit conversion costs. Conversion
costs also improved as a result of the Newnan press improvement project
completed late last year. On March 7, 1997, Tredegar announced that its William
L. Bonnell subsidiary had agreed in principle to acquire an aluminum extrusions
and fabrication plant in El Campo, Texas, owned by Reynolds Metals Company.
Details of the agreement were not disclosed. The proposed acquisition, which is
subject to various conditions, is expected to be completed in the second
quarter. The facility extrudes and fabricates products used primarily in
transportation, electrical and consumer durables markets.
Excluding investment gains, technology segment losses increased by
$462,000 due to higher research and development spending at Molecumetics.
Liquidity and Capital Resources
Tredegar's total assets increased to $358 million at March 31, 1997,
from $341.1 million at December 31, 1996, due mainly to an increase in cash and
cash equivalents of $14.2 million (see further discussion below). Total
liabilities increased to $136.5 million at March 31, 1997, from $128.5 million
at December 31, 1996, due primarily to higher accounts payable in Aluminum
Extrusions resulting from more favorable trade terms with aluminum ingot
suppliers. Income taxes payable of $3.6 million relates to timing differences
between income tax accruals and payments during the year.
Debt at March 31, 1997 and December 31, 1996, consisted of a $35
million, 7.2% note maturing in June 2003 (annual principal payments of $5
million will begin in June 1997). Tredegar had cash and cash equivalents in
excess of debt of $80.5 million at March 31, 1997, compared to $66.3 million at
December 31, 1996.
Net cash provided by operating activities in excess of capital
expenditures and dividends increased to $15.9 million in the first quarter of
1997 from $7.4 million in 1996 due primarily to improved operating results,
improved trade terms with aluminum ingot suppliers, lower capital expenditures
in Film Products and the effect on capital expenditures of the Molded Products
and Brudi divestitures (Molded Products and Brudi had combined capital
expenditures of $1.2 million in the first quarter of 1996). Capital expenditures
for Film Products in 1997 were related to normal replacement of machinery and
equipment, expansion into China and permeable film additions, while 1996
included normal replacement as well as nonwoven film laminate capacity
additions, expansion of permeable film capacity in Europe and expansion of
permeable and diaper backsheet film capacity in Brazil.
The increase in cash and cash equivalents to $115.5 million at March
31, 1997, was due to the $15.9 million of excess cash generated during the first
quarter of 1997 combined with other sources ($585,000) and the $101.3 million
cash and cash equivalents balance at December 31, 1996, partially offset by uses
of funds for technology-related investments ($817,000, net of proceeds from the
sale of investments) and the repurchase of Tredegar common stock ($1.5 million).
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit No.
11 Statement re computation of earnings per share
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
for the quarter ended March 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Tredegar Industries, Inc.
(Registrant)
Date: May 7, 1997 /s/ N. A. Scher
-------------------- -----------------------------------------
Norman A. Scher
Executive Vice President,
Treasurer and Chief Financial
Officer (Principal Financial
Officer)
Date: May 7, 1997 /s/ D. Andrew Edwards
-------------------- -----------------------------------------
D. Andrew Edwards
Corporate Controller
(Principal Accounting Officer)
EXHIBIT INDEX
Exhibit No. Description
11 Statement re computation of earnings per share
27 Financial Data Schedule
Exhibit 11 - Computations of Earnings Per Share
Tredegar Industries, Inc. and Subsidiaries
(In Thousands, Except Per-Share Amounts)
(Unaudited)
Three Months
Ended March 31
---------------------
1997 1996
Net income $10,954 $16,347
========= =========
Earnings per common and dilutive common
equivalent share as reported (1) $ .83 $ 1.27
========= =========
PRIMARY EARNINGS PER SHARE:
Shares issuable upon the assumed exercise
of outstanding stock options (2) 935 690
Weighted average common shares outstanding
during period 12,243 12,187
--------- ---------
Weighted average common and dilutive common
equivalent shares 13,178 12,877
========= =========
Primary earnings per share (1) $ .83 $ 1.27
========= =========
FULLY DILUTED EARNINGS PER SHARE:
Shares issuable upon the assumed exercise
of outstanding stock options (3) 935 690
Weighted average common shares outstanding
during period 12,243 12,187
--------- ---------
Weighted average common and dilutive common
equivalent shares 13,178 12,877
========= =========
Fully diluted earnings per share (3) $ .83 $ 1.27
========= =========
Notes to Exhibit 11:
(1) Shares used to compute earnings per common and dilutive common
equivalent share in the consolidated statements of income include
common stock equivalents.
(2) Computed using the average market price during the related period.
(3) Computed using the higher of the average market price during the rela-
ted period and the market price at the end of the related period. Fully
diluted earnings per common and dilutive common equivalent share is not
materially different (dilutive by 3% or more) from earnings per common
and dilutive common equivalent share reported in the consolidated
statements of income.
5
3-MOS
DEC-31-1997
MAR-31-1997
115,475
0
67,648
3,288
16,256
209,229
262,957
173,689
357,990
70,114
35,000
0
0
112,246
109,231
357,990
133,345
136,190
106,960
106,960
11,807
20
521
16,882
5,928
10,954
0
0
0
10,954
.83
.00
