SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10258
Tredegar Industries, Inc.
(Exact name of registrant as specified in its charter)
Virginia 54-1497771
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1100 Boulders Parkway
Richmond, Virginia 23225
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (804) 330-1000
Indicate by check whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
The number of shares of Common Stock, no par value,
outstanding as of April 30, 1994: 10,894,233
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TREDEGAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
March 31 December 31
ASSETS 1994 1993
Cash and cash equivalents $ 1,881 $ -
Accounts and notes receivable 76,512 70,173
Inventories 31,104 34,211
Deferred income taxes 11,337 11,555
Prepaid expenses and other 1,413 881
Total current assets 122,247 116,820
Property, plant and equipment, at cost 327,354 323,933
Less accumulated depreciation
and amortization 194,144 188,531
Net property, plant and equipment 133,210 135,402
Other assets and deferred charges 25,213 24,456
Goodwill and other intangibles 36,176 45,729
Net assets of discontinued operations 25,554 30,976
Total assets $ 342,400 $ 353,383
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 21,586 $ 19,376
Accrued expenses 37,050 35,380
Income taxes payable 3,590 -
Total current liabilities 62,226 54,756
Long-term debt 78,000 97,000
Deferred income taxes 20,280 23,108
Other noncurrent liabilities 9,695 9,431
Total liabilities 170,201 184,295
Shareholders' equity:
Common stock, no par value 170,170 170,140
Foreign currency translation
adjustment (148) (283)
Retained earnings (deficit) 2,177 (769)
Total shareholders' equity 172,199 169,088
Total liabilities and
shareholders' equity $ 342,400 $ 353,383
See accompanying notes to financial statements.
TREDEGAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per-share amounts)
(Unaudited)
Three Months
Ended March 31
1994 1993
Net sales $ 120,994 $ 111,198
Other expense, net (231) (270)
120,763 110,928
Cost of goods sold 102,250 94,014
Selling, general and
administrative expenses 11,295 12,428
Research and development expenses 1,839 1,929
Interest expense 1,177 1,323
Unusual items 9,521 (1,527)
126,082 108,167
Income (loss) from continuing
operations before income taxes (5,319) 2,761
Income taxes (226) 1,051
Income (loss) from continuing operations (5,093) 1,710
Discontinued operations:
Income from Energy segment operations
(net of income tax of $787 in
1994 and $918 in 1993) 1,435 1,841
Gain on sale of oil and gas properties
(net of income tax of $2,121) 3,938 -
Deferred tax benefit on the difference
between the financial reporting
and income tax basis of The Elk
Horn Coal Corporation 3,320 -
Net income before cumulative effect of
changes in accounting principles 3,600 3,551
Cumulative effect of changes in
accounting for postretirement
benefits other than pensions
(net of tax) and income taxes - 150
Net income $ 3,600 $ 3,701
Earnings (loss) per share:
Continuing operations $ (.47) $ .16
Discontinued operations .80 .17
Before cumulative effect of changes
in accounting principles .33 .33
Cumulative effect of changes in
accounting principles - .01
Net income $ .33 $ .34
Shares used to compute earnings per share 10,896 10,895
See accompanying notes to financial statements.
TREDEGAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months
Ended March 31
1994 1993
Cash flows from operating activities:
Continuing operations:
Income (loss) from continuing operations $(5,093) $ 1,710
Adjustments for noncash items:
Depreciation 5,840 5,704
Amortization of intangibles 719 636
Write-off of intangibles 9,521 -
Deferred income taxes (2,682) (320)
Accrued pension income and postretirement benefits 298 210
Gain on sale of investments - (1,527)
Changes in assets and liabilities:
Accounts and notes receivable (6,339) (4,386)
Inventories 3,107 (980)
Prepaid expenses and other (539) 198
Accounts payable 2,210 4,137
Accrued expenses and income taxes payable 5,115 (3,588)
Other,net (1,055) (1,447)
Net cash provided by continuing operating activities 11,102 347
Net cash provided by discontinued operating activities 6,198 6,154
Net cash provided by operating activities 17,300 6,501
Cash flows from investing activities:
Continuing operations:
Capital expenditures (3,824) (2,569)
Investments - (200)
Proceeds from sales of investments - 3,627
Property disposals 280 1,753
Other, net (124) 398
Net cash (used in) provided by investing
activities of continuing operations (3,668) 3,009
Discontinued operations:
Capital expenditures (10) (285)
Property disposals 7,927 527
Net cash provided by investing activities of
discontinued operations 7,917 242
Net cash provided by investing activities 4,249 3,251
Cash flows from financing activities:
Dividends paid (654) (654)
Net decrease in borrowings (19,000) (9,000)
Other, net (14) (98)
Net cash used in financing activities (19,668) (9,752)
Increase in cash and cash equivalents 1,881 -
Cash and cash equivalents at beginning of period - -
Cash and cash equivalents at end of period $ 1,881 $ -
Supplemental cash flow information:
Interest payments (net of amount capitalized) $ 676 $ 2,277
Income tax payments, net $ 1,662 $ 2,216
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, 1994, and the
consolidated results of their operations and their cash flows
for the three months ended March 31, 1994 and 1993. 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 the 1993 Annual Report. The results of operations
for the three months ended March 31, 1994 are not necessarily
indicative of the results to be expected for the full year.
2. Certain prior-period amounts have been reclassified to conform
to the current presentation.
3. The components of inventories are as follows:
(In Thousands)
March 31 December 31
1994 1993
Finished goods $ 5,265 $ 5,735
Work-in-process 3,744 5,298
Raw materials 14,136 15,497
Stores, supplies and other 7,959 7,681
Total $ 31,104 $ 34,211
4. Unusual items in 1994 include the write-off of goodwill and
other intangibles in APPX Software, Inc. ($7.6 million after
income taxes or 70 cents per share). The write-off is the
result of management's determination that income generated by
the acquired products, which historically had been marketed to
small and medium-sized companies, will not be sufficient to
recover the unamortized costs associated with the intangible
software assets purchased by Tredegar in December 1992. The
goodwill and other intangibles in APPX Software were being
amortized over 5 to 7 years at an annual rate of approximately
$1.5 million after income taxes, or 14 cents per share.
Unusual items in 1993 include a gain on the sale of Emisphere
Technologies, Inc. common stock ($1 million after income taxes
or 9 cents per share).
5. In February 1994, Tredegar sold its remaining oil and gas
properties. Tredegar is currently pursuing the sale of The
Elk Horn Coal Corporation ("Elk Horn"), its coal subsidiary.
Therefore, Tredegar is reporting its Energy segment as
discontinued operations.
Discontinued operations in 1994 include a gain of $6.1 million
($3.9 million after income taxes or 36 cents per share)
related to the sale of Tredegar's remaining oil and gas
properties, and a deferred tax benefit of $3.3 million (31
cents per share) recognized on the difference between the
financial reporting and income tax basis of Elk Horn in
connection with its anticipated sale. Income from
discontinued operations in 1993 includes a gain of $414,000
($275,000 after income taxes or 3 cents per share) related to
the sale of certain oil and gas properties.
6. In the first quarter of 1994, Tredegar granted stock options
to purchase 381,000 shares of Tredegar common stock at prices
not less than the fair market value on the date of grant
($15.125) and for a term not to exceed 10 years.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
First Quarter 1994 Compared with First Quarter 1993
Tredegar's net income for the first quarter of 1994 decreased
3% to $3.6 million, or 33 cents per share, from $3.7 million, or 34
cents per share, in 1993. Results for 1994 include a net after-tax
charge of $384,000, or 3 cents per share, related to special items.
Results for 1993 include a net after-tax gain of $1.4 million, or
13 cents per share, related to special items. Tredegar's net
income for the first quarter of 1994 excluding special items
increased 71% to $4 million, or 36 cents per share, from $2.3
million, or 21 cents per share, in 1993.
The net charge of $384,000 for special items in 1994 includes:
(i) a $3.9 million after-tax gain (36 cents per share) on the sale
of Tredegar's remaining oil and gas properties, (ii) a $3.3 million
deferred tax benefit (31 cents per share) recognized on the
difference between the financial reporting and income tax basis of
The Elk Horn Coal Corporation ("Elk Horn") (Tredegar's coal
subsidiary) in connection with its anticipated sale, and (iii) a
$7.6 million after-tax charge (70 cents per share) related to the
write-off of goodwill and other intangibles in APPX Software, Inc.
If Elk Horn is not sold, the $3.3 million deferred tax benefit will
be reversed and charged to net income.
The write-off in APPX Software is the result of management's
determination that income generated by the acquired products, which
historically had been marketed to small and medium-sized companies,
will not be sufficient to recover the unamortized costs associated
with the intangible software assets purchased by Tredegar in
December 1992. APPX Software is actively engaged in efforts to
enhance current products and develop next-generation products aimed
at medium and large-sized companies. The goodwill and other
intangibles in APPX Software were being amortized over 5 to 7 years
at an annual rate of approximately $1.5 million after income taxes,
or 14 cents per share.
The net gain of $1.4 million for special items in 1993
includes: (i) a $1 million after-tax gain (9 cents per share) on
the sale of Emisphere Technologies, Inc. common stock, (ii) a
$275,000 after-tax gain (3 cents per share) on the sale of oil and
gas properties, and (iii) a $150,000 net gain (1 cent per share)
related to the adoption of new accounting standards for
postretirement health benefits and deferred income taxes.
In February 1994, Tredegar sold its remaining oil and gas
properties. Tredegar is currently pursuing the sale of Elk Horn.
First-quarter results from Tredegar's Energy segment are reported
as discontinued operations.
First-quarter net income from continuing operations (excluding
Energy results and special items) was $2.5 million, or 23 cents per
share, in 1994, up from $760,000, or 7 cents per share, in 1993.
Results from continuing operations are not indicative of future
performance because they exclude income that would be generated
from the reinvestment of divestiture proceeds.
First-quarter net sales from continuing operations increased
9% compared with 1993 due primarily to higher volume in Aluminum
Extrusions. Plastics sales also increased due to higher volume in
Film Products and the inclusion of Polestar Plastics, Inc.
("Polestar") in 1994. Tredegar acquired the assets of Polestar in
the third quarter of 1993.
The gross profit margin from continuing operations increased
to 15.5% in 1994 from 15.4% in 1993. The improvement in gross
profit margin was due to higher volume and lower raw material costs
in Film Products and Aluminum Extrusions.
Selling, general and administrative costs decreased 9% due
primarily to restructuring and cost-reduction efforts.
Research and development expenses decreased 5% due to lower
spending in Film Products and Molecumetics, partially offset by
higher software development costs at APPX Software.
Interest expense for continuing operations decreased 11% as a
result of lower average debt levels and interest rates. Interest
expense of $136,000 and $173,000 in the first quarter of 1994 and
1993, respectively, was allocated to discontinued operations based
on relative capital employed. The average interest rate on debt
outstanding during the first quarter was 5.5% and 5.9% in 1994 and
1993, respectively.
The effective tax rate for continuing operations, excluding
special items, increased to 39.3% in the first quarter of 1994 from
38.4% in the first quarter of 1993 due to a 1% higher federal
income tax rate.
Segment Results
The following tables present Tredegar's net sales and
operating profit by industry segment for the quarters ended March
31, 1994 and 1993.
Net Sales by Industry Segment
(In thousands)
(Unaudited)
Three Months
Ended March 31
1994 1993
Plastics $ 68,838 $ 65,942
Metal Products 51,777 44,674
Other 379 582
Total continuing operations 120,994 111,198
Discontinued operations 7,711 7,998
Total net sales $ 128,705 $ 119,196
Operating Profit by Industry Segment
(In thousands)
(Unaudited)
Three Months
Ended March 31
1994 1993
Plastics $ 8,995 $ 5,392
Metal Products 1,664 1,442
Other (a):
Ongoing operations (2,377) (2,135)
Unusual items (b) (9,521) 1,527
Total Other (11,898) (608)
Total continuing operations (1,239) 6,226
Discontinued operations (c) 8,417 2,932
Total operating profit $ 7,178 $ 9,158
Notes:
(a) Amounts previously reported for 1993 have been reclassified to
conform to the 1994 presentation.
(b) Unusual items in 1994 include the write-off of goodwill and
other intangibles in APPX Software, Inc. ($7.6 million after
income taxes or 70 cents per share). Unusual items in 1993
include a gain on the sale of Emisphere Technologies, Inc.
common stock ($1 million after income taxes or 9 cents per
share).
(c) Discontinued operations include gains of $6.1 million ($3.9
million after income taxes or 36 cents per share) and $414,000
($275,000 after income taxes or 3 cents per share) in 1994 and
1993, respectively, related to the sale of oil and gas
properties.
Tredegar Film Products sales for the quarter improved over the
prior year due to higher volume. Operating profit also improved
due to lower raw material costs and restructuring and cost
reduction efforts, partially offset by lower average prices.
Tredegar Molded Products sales improved for the quarter due to
the inclusion of Polestar. Operating results were unfavorable
compared with 1993 due to lower volume and margins in packaging and
industrial segments, partially offset by favorable results from
Polestar.
Metal Products sales increased for the quarter due to higher
Aluminum Extrusions volume. Volume improved as a result of sales
efforts with new and existing customers and improved economic
conditions in the housing, commercial construction and automotive
markets. Operating profit increased due to higher volume and lower
metal costs, partially offset by higher conversion costs.
Tredegar's Other segment generated an operating loss of $2.4
million in the first quarter of 1994. This figure excludes the
pretax charge of $9.5 million related to the write-off of goodwill
and other intangibles in APPX Software. In the first quarter of
1993, these activities generated an operating loss of $2.1 million,
excluding the pretax gain of $1.5 million on the sale of Emisphere
common stock.
Revenue for discontinued operations declined due to the sale
of Tredegar's remaining oil and gas properties on February 4, 1994.
Coal revenues and operating profit increased due to higher volume
and prices. Operating profit from discontinued operations for 1994
and 1993 includes pretax gains of $6.1 million and $414,000,
respectively, related to the sale of oil and gas properties.
Liquidity and Capital Resources
Tredegar's total assets at March 31, 1994, were $342.4
million, a decrease of $11 million from December 31, 1993. The
decrease is primarily attributable to the write-off of goodwill and
other intangibles in APPX Software, the sale of the remaining oil
and gas properties and the reduction of working capital supporting
the coal trading operation. In addition, depreciation for
continuing operations exceeded capital expenditures by
approximately $2 million. The ratio of current assets to current
liabilities was 2 to 1 at March 31, 1994. The increase in current
liabilities was primarily due to an increase in accounts payable
and accrued expenses supporting higher sales volume. Income taxes
payable also increased due to the timing of estimated tax payments.
As of March 31, 1994, long-term debt was $78 million, a
decrease of $19 million since December 31, 1993. In the first
quarter of 1994, cash used to repay debt was generated from
operations and the sale of Tredegar's remaining oil and gas
properties. Cash provided by continuing operations in the first
quarter of 1994 exceeded related capital expenditures and dividends
by $6.6 million. Debt as a percentage of total capitalization was
31% at March 31, 1994, compared with 36% at December 31, 1993. The
average interest rate on debt was 5.9% at March 31, 1994, compared
with 5.3% at the end of 1993.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit No.
11 Statement re computation of earnings per share.
(b) Reports on Form 8-K. No reports on Form 8-K have been
filed for the quarter ended March 31, 1994.
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 11, 1994 /s/ N. A. Scher
Norman A. Scher
Executive Vice President,
Treasurer and Chief Financial
Officer (Principal Financial
Officer)
Date: May 11, 1994 /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.
EXHIBIT 11 - Computations of Earnings Per Share
Tredegar Industries, Inc. and Subsidiaries
(In thousands, except per-share amounts)
For quarters ended March 31 1994 1993
Income (loss) from continuing operations $ (5,093) $ 1,710
Income from discontinued operations 8,693 1,841
Net income before cumulative effect of
changes in accounting principles 3,600 3,551
Cumulative effect of changes in accounting
for postretirement benefits other than
pensions (net of tax) and income taxes - 150
Net income $ 3,600 $ 3,701
Earnings per share as reported:
Income (loss) from continuing operations $ (.47) $ .16
Income from discontinued operations .80 .17
Net income before cumulative effect
of changes in accounting principles .33 .33
Changes in accounting principles - .01
Net income $ .33 $ .34
PRIMARY EARNINGS PER SHARE:
Shares issuable upon the assumed exercise
of outstanding stock options (1) 37 59
Weighted average common shares outstanding
during period 10,896 10,895
Weighted average common shares and common
stock equivalents 10,933 10,954
Primary earnings per share (2) $ .33 $ .34
FULLY DILUTED EARNINGS PER SHARE
Shares issuable upon the assumed exercise
of outstanding stock options (3) 37 71
Weighted average common shares outstanding
during period 10,896 10,895
Weighted average common shares and common
stock equivalents 10,933 10,966
Fully diluted earnings per share (2) $ .33 $ .34
(1) Computed using the average market price during the related period.
(2) Common stock equivalents had an immaterial dilutive effect.
(3) Computed using the higher of the average market price during the related
period and the market price at the end of the related period.
