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, 1998
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, 1998: 11,945,896.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Tredegar Industries, Inc.
Consolidated Balance Sheets
(In Thousands)
(Unaudited)
March 31, Dec. 31,
1998 1997
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 65,075 $ 120,065
Accounts and notes receivable 84,534 69,672
Inventories 27,977 20,008
Income taxes recoverable - 294
Deferred income taxes 8,697 8,722
Prepaid expenses and other 3,608 4,369
----------- -----------
Total current assets 189,891 223,130
----------- -----------
Property, plant and equipment, at cost 307,363 283,995
Less accumulated depreciation and amortization 187,274 183,397
----------- -----------
Net property, plant and equipment 120,089 100,598
----------- -----------
Other assets and deferred charges 74,563 67,134
Goodwill and other intangibles 20,036 20,075
----------- -----------
Total assets $ 404,579 $ 410,937
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 43,466 $ 33,168
Accrued expenses 35,990 39,618
Income taxes payable 3,995 -
----------- -----------
Total current liabilities 83,451 72,786
Long-term debt 30,000 30,000
Deferred income taxes 22,322 22,108
Other noncurrent liabilities 13,422 13,497
----------- -----------
Total liabilities 149,195 138,391
----------- -----------
Shareholders' equity:
Common stock, no par value 83,183 115,291
Common stock held in trust for savings
restoration plan (1,020) (1,020)
Unrealized gain on available-for-sale securities 3,390 5,020
Foreign currency translation adjustment 317 (37)
Retained earnings 169,514 153,292
----------- -----------
Total shareholders' equity 255,384 272,546
----------- -----------
Total liabilities and shareholders' equity $ 404,579 $ 410,937
=========== ===========
See accompanying notes to financial statements.
Tredegar Industries, Inc.
Consolidated Statements of Income
(In Thousands)
(Unaudited)
Three Months
Ended March 31
-----------------------
1998 1997
----------- -----------
Revenues:
Net sales $ 156,660 $ 133,345
Other income (expense), net 1,390 2,845
----------- -----------
Total 158,050 136,190
----------- -----------
Costs and expenses:
Cost of goods sold 123,096 106,960
Selling, general and administrative 8,840 8,561
Research and development 3,347 3,266
Interest 394 521
Unusual items (765) -
----------- -----------
Total 134,912 119,308
----------- -----------
Income before income taxes 23,138 16,882
Income taxes 5,842 5,928
----------- -----------
Net income $ 17,296 $ 10,954
=========== ===========
Earnings per share:
Basic $ 1.43 $ .89
Diluted 1.33 .83
Shares used to compute earnings per share:
Basic 12,132 12,243
Diluted 13,000 13,178
See accompanying notes to financial statements.
Tredegar Industries, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months
Ended March 31
-----------------------
1998 1997
----------- -----------
Cash flows from operating activities:
Net income $ 17,296 $ 10,954
Adjustments for noncash items:
Depreciation 4,856 4,542
Amortization of intangibles 8 13
Deferred income taxes (84) 12
Accrued pension income and postretirement
benefits (887) (778)
Gain on sale of technology-related investments (676) (1,885)
Gain on divestitures (765) -
Changes in assets and liabilities, net of effects
from acquisitions and divestitures:
Accounts and notes receivable (7,945) (3,284)
Inventories (2,239) 1,402
Income taxes recoverable 294 2,023
Prepaid expenses and other 905 (756)
Accounts payable 6,357 8,076
Accrued expenses and income taxes payable (19) 737
Other, net 215 (447)
----------- -----------
Net cash provided by operating activities 17,316 20,609
----------- -----------
Cash flows from investing activities:
Capital expenditures (5,704) (3,729)
Acquisition (29,093) -
Investments (6,351) (2,877)
Proceeds from the sale of investments 972 2,060
Proceeds from property disposals and divestitures 690 66
Other, net 362 (187)
----------- -----------
Net cash used in investing activities (39,124) (4,667)
----------- -----------
Cash flows from financing activities:
Dividends paid (1,074) (955)
Net increase (decrease) in borrowings - -
Repurchases of Tredegar common stock (32,977) (1,479)
Proceeds from exercise of stock options 869 706
----------- -----------
Net cash used in financing activities (33,182) (1,728)
----------- -----------
(Decrease) increase in cash and cash equivalents (54,990) 14,214
Cash and cash equivalents at beginning of period 120,065 101,261
----------- -----------
Cash and cash equivalents at end of period $ 65,075 $ 115,475
=========== ===========
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,
1998, and the consolidated results of their operations and their cash
flows for the three months ended March 31, 1998 and 1997. 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,
1997. The results of operations for the three months ended March 31,
1998, are not necessarily indicative of the results to be expected for
the full year.
2. Unusual items in the first quarter of 1998 include a pretax gain of
$765,000 on the sale of APPX Software. Income taxes include a tax
benefit of $2 million related to the sale, including a tax benefit for
the excess of APPX Software's income tax basis over its financial
reporting basis. Historical net income and diluted earnings per share,
adjusted for unusual items and technology-related investment gains and
losses affecting the comparability of operating results, are presented
below:
(In Thousands Except
Per-Share Amounts)
Three Months
Ended March 31
-----------------------
1998 1997
----------- -----------
Net income as reported $ 17,296 $ 10,954
After-tax effects of unusual items:
Gain on sale of APPX Software (2,766) -
----------- -----------
Net income as adjusted for unusual items 14,530 10,954
After-tax effect of technology-related investment
(gains) losses (432) (1,206)
----------- -----------
Net income as adjusted for unusual items and
technology- related investment gains and losses $ 14,098 $ 9,748
=========== ===========
Diluted earnings per share:
As reported $ 1.33 $ .83
As adjusted for unusual items $ 1.12 $ .83
As adjusted for unusual items and technology-
related investment gains and losses $ 1.08 $ .74
3. The carrying value of technology-related investments (included in
"Other assets" in the consolidated balance sheet) at March 31, 1998 and
December 31, 1997, was $37 million ($32.1 million cost basis) and $33.5
million ($25.8 million cost basis), respectively. The excess of the
carrying value over the cost basis is related to available-for-sale
securities stated at their closing market price, with unrealized
holding gains excluded from earnings and reported net of deferred
income taxes in shareholders' equity until realized. The estimated fair
value of technology-related investments was $45.4 million and $40.8
million at March 31, 1998 and December 31, 1997, respectively.
4. Comprehensive income, defined as net income and other comprehensive
income, for the three months ended March 31, 1998 and 1997, was $16
million and $10.7 million, respectively. Other comprehensive income
includes changes in unrealized gains and losses on available-for-sale
securities and foreign currency translation adjustments recorded net of
deferred income taxes directly in shareholders' equity.
5. The components of inventories are as follows:
(In Thousands)
March 31 Dec. 31
1998 1997
-------------- --------------
Finished goods $ 3,913 $ 1,865
Work-in-process 3,333 2,340
Raw materials 13,446 9,297
Stores, supplies and other 7,285 6,506
-------------- --------------
Total $27,977 $20,008
============== ==============
6. Basic earnings per share is computed by dividing net income by the
weighted average number of shares of common stock outstanding. Diluted
earnings per share is computed by dividing net income by the weighted
average common and potentially dilutive common equivalent shares
outstanding, determined as follows:
(In Thousands)
Three Months
Ended March 31
------------------------
1998 1997
---------- ----------
Weighted average shares outstanding used
to compute basic earnings per share 12,132 12,243
Incremental shares issuable upon the
assumed exercise of stock options 868 935
--------- ----------
Shares used to compute diluted earnings
per share 13,000 13,178
========= ==========
Incremental shares issuable upon the assumed exercise of outstanding
stock options is computed using the average market price during the
related period.
7. On February 13, 1998, Tredegar completed a "Dutch auction" tender offer
in which it repurchased 502,924 shares of its common stock for $32.7
million or $65.00 per share (excluding transaction costs). Since
becoming an independent company in 1989, Tredegar has repurchased a
total of 6.7 million shares, or 36% of its issued and outstanding
common stock, for $111.7 million ($16.68 per share). As of March 31,
1998, under a standing authorization from its board of directors,
Tredegar may purchase an additional 1.4 million shares in the open
market or in privately negotiated transactions at prices management
deems appropriate.
8. On February 6, 1998, Tredegar acquired two Canada-based aluminum
extrusion and fabrication plants from Reynolds Metals Company. The
plants are located in Ste-Therese, Quebec, and Richmond Hill, Ontario.
The two plants collectively generated sales of approximately $53
million in 1997 and $7.6 million for the period from February 6, 1998
through March 31, 1998. Both facilities manufacture products used
primarily in building and construction, transportation, electrical,
machinery and equipment, and consumer durables markets. On May 30,
1997, Tredegar acquired an aluminum extrusion and fabrication plant in
El Campo, Texas, from Reynolds Metals Company. The El Campo facility,
which had sales of $10.4 million for the first quarter of 1998,
extrudes and fabricates products used primarily in transportation,
electrical and consumer durables markets. Both acquisitions were
accounted for using the purchase method. No goodwill arose from either
acquisition since the estimated fair value of the identifiable net
assets acquired equaled the purchase price. The operating results for
the three plants have been included in the consolidated statements of
income since the date acquired.
9. The Financial Accounting Standards Board has issued new standards
affecting disclosures of information about business segments, pensions
and other postretirement benefits. These standards are not expected to
significantly change Tredegar's current disclosures when adopted in
the fourth quarter of 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
First Quarter 1998 Compared with First Quarter 1997
Net income for the first quarter of 1998 was $17.3 million or $1.33 per
share, up from $10.9 million or 83 cents per share in the first quarter of 1997
(all per share amounts in this analysis are expressed on a diluted basis).
Results for 1998 include an unusual gain of $765,000 ($2.8 million after income
taxes or 21 cents per share) on the sale of APPX Software on January 16, 1998
(see Note 2 on page 5). Results for 1998 and 1997 also include
technology-related net investment gains of $676,000 ($432,000 after income taxes
or 4 cents per share) and $1.9 million ($1.2 million after income taxes or 9
cents per share), respectively.
Net income excluding unusual items and technology-related net
investment gains for the first quarter of 1998 was $14.1 million or $1.08 per
share, up from $9.7 million or 74 cents per share in the first quarter of 1997.
The improved operating earnings were due primarily to higher profits in the
company's plastics film and aluminum extrusions businesses and lower losses at
Molecumetics, Tredegar's drug development subsidiary. See Notes 2, 3, 7 and 8 on
pages 5 through 7 for further information on items affecting the comparability
of operating results and technology-related investments.
First-quarter net sales increased 17% in 1998 due to higher sales in
Film Products and Aluminum Extrusions and higher contract research revenues at
Molecumetics. The increase in sales in Film Products was driven by higher volume
of nonwoven film laminates and Vispore(R) film, higher export volume to Latin
America and higher volume for foreign operations. Higher sales in Aluminum
Extrusions reflects acquisition-related volume (see Note 8 on page 7) as well as
strength in all building and construction markets and sales to distributors.
The gross profit margin during the first quarter of 1998 increased to
21.4% from 19.8% in 1997 due primarily to higher volume in Film Products and
Aluminum Extrusions and higher contract research revenues, which help to support
research and development programs at Molecumetics.
Selling, general and administrative expenses in the first quarter of
1998 increased to $8.8 million from $8.6 million in 1997, but as a percentage of
sales declined to 5.6% in 1998 compared with 6.4% in 1997.
Research and development expenses increased by $81,000 or 2.5% due to
higher spending at Molecumetics, partially offset by slightly lower spending at
Film Products.
Interest income, which is included in "Other income (expense), net" in
the consolidated statements of income, decreased in the first quarter of 1998 by
$36,000 or 3.1% due to a lower average cash equivalents balance. The average
tax-equivalent yield earned on cash equivalents was 5.6% in 1998 and 1997.
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 decreased by $127,000 during the period due
primarily to lower average debt outstanding.
The effective tax rate excluding unusual items and technology-related
investment net gains was 35% in the first quarter of 1998 and 1997, as the
impact of lower average tax-exempt investments was offset by a lower effective
state income tax rate.
Segment Results
The following tables present Tredegar's net sales and operating profit
by segment for the first quarters ended March 31, 1998 and 1997.
Net Sales by Segment
(In Thousands)
(Unaudited)
Three Months Favorable
Ended March 31 (Unfav.)
-----------------------
1998 1997 % Change
----------- ----------- -----------
Film Products and Fiberlux $ 77,409 $ 75,437 3
Aluminum Extrusions 77,722 57,495 35
Technology 1,529 413 270
----------- ----------- -----------
Total net sales $ 156,660 $ 133,345 17
=========== =========== ===========
Operating Profit by Segment
(In Thousands)
(Unaudited)
Three Months Favorable
Ended March 31 (Unfav.)
-----------------------
1998 1997 % Change
----------- ----------- -----------
Film Products and Fiberlux $ 15,117 $ 10,968 38
Aluminum Extrusions 8,785 6,702 31
Technology:
Molecumetics (494) (1,665) 70
Investments and other 248 1,843 (87)
Unusual items 765 - -
----------- ----------- -----------
519 178 192
----------- ----------- -----------
Total operating profit 24,421 17,848 37
Interest income 1,115 1,151 (3)
Interest expense 394 521 24
Corporate expenses, net 2,004 1,596 (26)
----------- ----------- -----------
Income before income taxes 23,138 16,882 37
Income taxes 5,842 5,928 1
----------- ----------- -----------
Net income $ 17,296 $ 10,954 58
=========== =========== ==========
Results for 1998 includes an unusual gain of $765,000 ($2.8 million
after income taxes) on the sale of APPX Software on January 16, 1998 (see Note 2
on page 5). The "Investments and other" category for 1998 and 1997 include
technology-related net investment gains of $676,000 ($432,000 after income
taxes) and $1.9 million ($1.2 million after income taxes), respectively. See
Notes 2, 3, 7 and 8 on pages 5 through 7 for further information on items
affecting the comparability of operating results and technology-related
investments.
Sales in Film Products during the first quarter of 1998 increased due
to higher volume of nonwoven film laminates supplied to The Procter & Gamble
Company ("P&G") for diapers, higher volume of Vispore(R) film, higher export
volume to Latin America and higher volume for foreign operations. Operating
profit improved in Film Products due to higher volume in the areas noted above,
partially offset by start-up costs for a new production site in China and the
adverse impact of the strong U.S. dollar on profit generated by European
operations. Operating profit increased at Fiberlux due to higher sales.
Sales in Aluminum Extrusions increased during the first quarter of 1998
due to acquisition-related volume (see Note 8 on page 7) as well as strength in
all building and construction markets and sales to distributors. Excluding
acquisitions, volume was up 4%. Operating profit increased due to higher volume,
related lower unit conversion costs and acquisitions.
Excluding net investment gains and unusual items, technology segment
losses decreased by $785,000 during the first quarter of 1998 due to revenues
generated from drug development partnerships.
Liquidity and Capital Resources
Tredegar's total assets decreased to $404.6 million at March 31, 1998,
from $410.9 million at December 31, 1997, due mainly to a decrease in cash and
cash equivalents (see further discussion below), partially offset by the impact
of the two Canada-based aluminum extrusion and fabrication plants acquired,
higher accounts receivable and inventories supporting higher sales and an
increase in technology-related investments (see Note 3 on page 6). Total
liabilities increased to $149.2 million at March 31, 1998, from $138.4 million
at December 31, 1997, due primarily to the acquisition in Canada and higher
accounts payable supporting higher sales.
Debt was $30 million at March 31, 1998, with interest payable
semi-annually at 7.2% per year. Annual principal payments of $5 million are due
each June through 2003. Tredegar had cash and cash equivalents in excess of debt
of $35.1 million at March 31, 1998, compared to $90.1 million at December 31,
1997.
Net cash provided by operating activities in excess of capital
expenditures and dividends decreased to $10.5 million in the first quarter of
1998 from $15.9 million in 1997 due primarily to higher capital expenditures at
Film Products and higher working capital supporting higher sales, partially
offset by improved operating results.
The decrease in cash and cash equivalents to $65.1 million at March 31,
1998, from $120.1 million at December 31, 1997, was due to the repurchase of
Tredegar common stock ($33 million), funds used to acquired the two Canada-based
aluminum extrusion and fabrication plants ($29.1 million) and funds used for
technology-related investments ($5.4 million, net of proceeds from the sale of
investments), partially offset by the $10.5 million of excess cash generated
during the first quarter of 1998, proceeds from the exercise of stock options
($869,000) and proceeds from property disposals, divestitures and other sources
($1.1 million).
Other
The Financial Accounting Standards Board has issued new standards
affecting disclosures of information about business segments, pensions and other
postretirement benefits. These standards are not expected to significantly
change Tredegar's current disclosures when adopted in the fourth quarter of
1998.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit No. Description
Financial Data Schedules for the Periods Ended:
27(a) March 31, 1998
27(b) December 31, 1997
27(c) September 30, 1997
27(d) June 30, 1997
27(e) March 31, 1997
27(f) December 31, 1996
27(g) September 30, 1996
27(h) June 30, 1996
27(i) March 31, 1996
27(j) December 31, 1995
(b) Reports on Form 8-K. No reports on Form 8-K have been filed for
the quarter ended March 31, 1998.
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 12, 1998 /s/ N. A. Scher
----------------------------- -------------------------------------
Norman A. Scher
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: May 12, 1998 /s/ D. Andrew Edwards
------------------------------ -------------------------------------
D. Andrew Edwards
Corporate Controller and Treasurer
(Principal Accounting Officer)
EXHIBIT INDEX
Exhibit No. Description
Financial Data Schedules for the Periods Ended
27(a) March 31, 1998
27(b) December 31, 1997
27(c) September 30, 1997
27(d) June 30, 1997
27(e) March 31, 1997
27(f) December 31, 1996
27(g) September 30, 1996
27(h) June 30, 1996
27(i) March 31, 1996
27(j) December 31, 1995
5
1,000
3-MOS
DEC-31-1998
MAR-31-1998
65,075
0
87,700
3,166
27,977
189,891
307,363
187,274
404,579
83,451
30,000
0
0
83,183
172,201
404,579
156,660
158,050
123,096
123,096
11,422
0
394
23,138
5,842
17,296
0
0
0
17,296
1.43
1.33
5
1,000
DEC-31-1997
DEC-31-1997
12-MOS
120,065
0
73,035
3,363
20,008
223,130
283,995
183,397
410,937
72,786
30,000
0
0
115,291
157,255
410,937
581,004
598,019
457,946
457,946
47,621
334
1,952
90,166
31,720
58,446
0
0
0
58,446
4.76
4.43
5
1,000
DEC-31-1997
SEP-30-1997
9-MOS
114,001
0
82,220
3,764
18,073
224,417
277,848
180,419
397,740
80,862
30,000
0
0
113,051
141,261
397,740
433,372
445,073
343,658
343,658
34,014
331
1,598
65,472
23,034
42,438
0
0
0
42,438
3.46
3.23
5
1,000
DEC-31-1997
JUN-30-1997
6-MOS
109,151
0
79,281
3,409
20,413
218,162
273,479
177,322
379,657
81,861
30,000
0
0
112,412
124,425
379,657
278,314
286,217
221,255
221,255
21,530
157
1,142
42,133
14,832
27,301
0
0
0
27,301
2.23
2.08
5
1,000
DEC-31-1997
MAR-31-1997
3-MOS
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
0.89
0.83
5
1,000
DEC-31-1996
DEC-31-1996
12-MOS
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
3.69
3.44
5
1,000
DEC-31-1996
SEP-30-1996
9-MOS
99,026
0
68,743
3,589
17,034
200,948
255,591
165,693
345,689
73,463
35,000
0
0
111,836
91,027
345,689
397,143
400,467
317,556
317,556
26,702
219
1,608
54,382
18,627
35,755
0
0
0
35,755
2.93
2.74
5
1,000
DEC-31-1996
JUN-30-1996
6-MOS
85,027
0
64,857
3,905
17,196
181,262
260,138
167,022
332,351
68,105
35,000
0
0
113,100
81,033
332,351
267,718
268,133
214,222
214,222
15,232
156
1,149
37,374
12,354
25,020
0
0
0
25,020
2.05
1.92
5
1,000
DEC-31-1996
MAR-31-1996
3-MOS
63,721
0
65,699
3,905
17,516
180,474
256,392
164,155
328,148
71,361
35,000
0
0
113,119
73,197
328,148
141,387
141,004
113,734
113,734
2,816
86
650
23,718
7,371
16,347
0
0
0
16,347
1.34
1.27
5
1,000
DEC-31-1995
DEC-31-1995
12-MOS
2,145
0
77,003
5,330
33,148
126,402
326,526
204,074
314,052
69,753
35,000
0
0
112,908
57,613
314,052
589,454
588,785
490,510
490,510
55,501
1,413
3,039
38,322
14,269
24,053
0
0
0
24,053
1.86
1.80
