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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, 2000
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 CORPORATION
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(Exact name of registrant as specified in its charter)
Virginia 54-1497771
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1100 Boulders Parkway, Richmond, Virginia 23225
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(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
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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 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 February 15, 2001: * $465,908,824
Number of shares of Common Stock outstanding as of February 15, 2001: 38,108,027
* In determining this figure, an aggregate of 12,367,208 shares of Common Stock
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 February 15, 2001, as reported by The Wall
Street Journal.
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Documents Incorporated By Reference
Portions of the Tredegar Corporation ("Tredegar") Proxy Statement for
the 2001 Annual Meeting of Shareholders (the "Proxy Statement") are incorporated
by reference into Part III of this Form 10-K. We expect to file our Proxy
Statement with the Securities and Exchange Commission and mail it to
shareholders around March 27, 2001.
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Index to Annual Report on Form 10-K
Year Ended December 31, 2000
Part I Page
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Item 1. Business 1-7
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Item 2. Properties 7-8
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Item 3. Legal Proceedings None
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Item 4. Submission of Matters to a Vote of Security Holders None
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Part II
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Item 5. Market for Tredegar's Common Equity and Related 9-10
Stockholder Matters
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Item 6. Selected Financial Data 11-17
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Item 7. Management's Discussion and Analysis of Financial Condition 18-33
and Results of Operations
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk 33
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Item 8. Financial Statements and Supplementary Data 36-68
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Item 9. Changes In and Disagreements With Accountants on Accounting None
and Financial Disclosures
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Part III
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Item 10. Directors and Executive Officers of Tredegar * 34-35
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Item 11. Executive Compensation *
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Item 12. Security Ownership of Certain Beneficial Owners and Management *
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Item 13. Certain Relationships and Related Transactions None
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Part IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on 36
Form 8-K
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* Items 11 and 12 and portions of Item 10 are incorporated by reference from the
Proxy Statement.
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 Corporation ("Tredegar") is engaged directly or through
subsidiaries in the manufacture of plastic films and aluminum extrusions. We
also have two operating subsidiaries focused on healthcare-related technologies
and an investment subsidiary.
Film Products
Tredegar Film Products Corporation ("Film Products") manufactures
plastic films for disposable personal hygiene products (primarily feminine
hygiene and diaper products) and packaging, medical, industrial and agricultural
products. These products are produced at various locations throughout the United
States and are sold both directly and through distributors. Film Products also
has plants in The Netherlands, Hungary, Brazil, Argentina, China and Italy where
it produces films for European, Latin American and Asian markets. On October 13,
2000, Film Products acquired ADMA s.r.l. and Promea Engineering s.r.l. for
consideration of approximately $3.1 million (including transaction costs and
debt assumed and net of cash acquired ). ADMA manufactures films used primarily
in personal hygiene markets while Promea manufactures equipment to produce
hygienic films and laminates. Both companies are located in Italy. On May 17,
1999, Film Products acquired Exxon Chemical Company's plastic film business
("Exxon Films") for approximately $205 million (including transaction costs).
The acquisition included 350 employees and two plants. The plants are located in
Lake Zurich, Illinois, and Pottsville, Pennsylvania, and manufacture films used
primarily in packaging, personal hygiene and medical markets. Film Products
competes in all of its markets on the basis of product quality, price and
service.
Film Products produces film for several major market categories:
hygiene, packaging and industrial.
Hygiene. Film Products is one of the largest U.S. suppliers of permeable,
breathable, elastomeric and embossed films for disposable personal hygiene
products. In each of the last three years, this class of products accounted for
more than 30% of Tredegar's consolidated net sales.
Film Products supplies permeable films for use as liners in feminine
hygiene products and adult incontinent products. Film Products also supplies
breathable, embossed and elastomeric films and nonwoven film laminates for use
as backsheet and other components for hygienic products such as baby diapers,
adult incontinent products and feminine hygiene products. Film Products' primary
customer for permeable, breathable and elastomeric films and nonwoven film
laminates is The Procter & Gamble Company ("P&G"), a leading global personal
hygiene product manufacturer. Net sales to P&G totaled $242.4 million in 2000,
$250 million in 1999 and $233.5 million in 1998 (these amounts include plastic
film sold to others that converted the film into materials used in products
manufactured by P&G).
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 sales associated with P&G would have a material
adverse effect on our business.
Packaging & Industrial. Film Products produces a broad line of packaging films
with an emphasis on paper and industrial packaging, as well as laminating films.
These include both coextruded and monolayer films produced by either the blown
or cast processes. These products give our customers a competitive advantage by
providing a thin gauge film that is readily printable and convertible on
conventional processing equipment. Packaging and industrial films sold directly
or indirectly to P&G constitute over 40% of overall packaging and industrial
films sales volume and somewhat less of related revenue.
Coextruded and monolayer permeable films under the VisPore(R) name
are also sold by Film Products. These films are used to regulate fluid and vapor
transmission in many industrial, medical, agricultural and packaging markets.
Specific examples include filter plies for surgical masks and other medical
applications, permeable ground cover, natural cheese mold release cloths and
rubber bale wrap.
Film Products also produces differentially embossed monolayer and
coextruded films. 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 ULTRAMASK(R) name are
used as masking films to protect polycarbonate, acrylics and glass from damage
during fabrication, shipping and handling.
Raw Materials. The primary raw materials used by Film Products are low-density
and linear low-density polyethylene resins, which are obtained from domestic and
foreign suppliers at competitive prices. We believe there will be an adequate
supply of polyethylene resins in the immediate future.
Research and Development. Film Products has technical centers in Terre Haute,
Indiana, and Lake Zurich, Illinois, and holds 51 U.S. patents and 11 U.S.
trademarks. Expenditures for research and development have averaged $6.6 million
per year during the past three years.
Aluminum Extrusions
Aluminum Extrusions is composed of The William L. Bonnell Company,
Inc., Bon L Manufacturing Company, Bon L Campo Limited Partnership and Bon L
Canada Inc. (together, "Aluminum Extrusions"), which produce soft alloy aluminum
extrusions primarily for the building and construction, distribution,
transportation, electrical and consumer durables markets. The operations
associated with Bon L Canada Inc. were acquired in 1998 (see Note 2 on page 48).
Aluminum Extrusions manufactures mill (unfinished), anodized and
painted aluminum extrusions for sale directly to fabricators and distributors
that use aluminum extrusions to produce curtain walls, architectural shapes, tub
and shower doors, window components, ladders, running boards, boat windshields,
bus bars, tractor-trailer shapes, snowmobiles and furniture, among other
products. Sales are made primarily in the United States and Canada, principally
east of the Rocky Mountains. Aluminum Extrusions competes primarily on the basis
of product, quality, price and service.
2
A breakdown of Aluminum Extrusion sales volume by market segment over
the last three years is shown below:
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% of Aluminum Extrusions Sales Volume
by Market Segment
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2000 1999 1998
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Building and construction 51 48 51
Distribution 16 18 9
Transportation 12 14 15
Electrical 8 7 7
Consumer durables 5 5 7
Other 8 8 11
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Total 100 100 100
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Raw Materials. The primary raw materials used by Aluminum Extrusions consist of
aluminum ingot, aluminum scrap and various alloys, which are purchased from
domestic and foreign producers in open-market purchases and under short-term
contracts. We do not expect critical shortages of aluminum or other required raw
materials and supplies.
Intellectual Property. Aluminum Extrusions holds nine U.S. trademarks.
Technology
Our technology interests include Molecumetics, Ltd., Therics, Inc.
and Tredegar Investments, Inc. On October 23, 2000, we announced a series
of strategic initiatives aimed at accelerating the growth of Molecumetics and
Therics. See pages 18 to 19 for more information.
Molecumetics. Molecumetics operates a drug discovery research laboratory in
Bellevue, Washington, where it uses patented chemistry to develop new drug
candidates for licensing to pharmaceutical and biotechnology companies.
Molecumetics has entered into a number of research collaboration and license
agreements, which are described below. Each of these agreements, except for the
agreement with ChoongWae Pharma Corporation ("ChoongWae"; see below) and
initially, the agreement with Athersys, Inc. ("Athersys"; see below), provides
for research and development ("R&D") support funding. Each of these agreements,
again except for the ChoongWae and Atherysys agreements, also provide for
additional payments if Molecumetics achieves certain milestones based on the
clinical progression of program compounds, as well as future royalties if sales
of products from the programs occur. Revenues recognized to date relate entirely
to payments received for R&D support, including revenues of $6.9 million in
2000, $7.6 million in 1999 and $5.7 million in 1998. See Note 1 on page 42 for
more information on revenue recognition.
To date, Molecumetics has not achieved any contractually defined
milestones nor does it have licensed products for which royalties are received.
Any discussion of the possibility of achieving milestones or realizing future
royalties would be speculative at this time. Molecumetics' operating losses were
$5.6 million in 2000, $3.4 million in 1999 and $3.5 million in 1998.
3
In 2000, Molecumetics entered into a collaboration agreement with
Athersys for the development of small-molecule drug candidates. Under the
agreement, Athersys will use its novel RAGE-VTTM (Random Activation of Gene
Expression for Validated Targets) technology to provide Molecumetics with twelve
cell lines expressing validated targets of interest. Molecumetics will use its
chemistry-based "screen-to-IND" technology platform to develop novel
small-molecule drug candidates against the validated targets. Under the terms of
the agreement, Molecumetics can access the targets by paying a licensing fee or
through a co-development option. The co-development option allows both companies
to co-invest in particular projects and share in the downstream value that is
created.
In 1999, Molecumetics entered into a research collaboration agreement
with Pharmacia Corporation ("Pharmacia") to identify and develop orally active
modulators of Cysteinyl aspartate-specific proteinases ("Caspases"). Caspases
play a central role in apoptosis, the inappropriate control of which contributes
to the underlying pathology in many human diseases. Under the agreement,
Molecumetics uses its SMART Library(R) technology to optimize lead compounds,
and Pharmacia is responsible for in-vivo testing and all pre-clinical and
clinical development activities. Pharmacia also has worldwide exclusive rights
to develop and commercialize the resulting compounds.
In 1999, Molecumetics expanded its existing relationship with Asahi
Chemical Industry Co., Ltd. ("Asahi") by signing a multi-year research
collaboration agreement for the discovery and development of new drugs for
treatment of central nervous system, cardiovascular, inflammatory and metabolic
therapeutic areas. The new agreement replaces a 1997 collaboration agreement
between the two companies that focused solely on cardiovascular disorders. Under
the terms of the current agreement, the companies mutually select multiple
molecular targets to pursue in the agreed-upon therapeutic areas. Molecumetics
is responsible for providing libraries of compounds for identifying lead
compounds. The two companies share the screening responsibilities and the
optimization of lead compounds. Asahi is responsible for the pre-clinical
development of the compounds in Japan and other Asian countries. Molecumetics
retains all rights to the compounds in North America and Europe.
In 1998, Molecumetics and Bristol-Myers Squibb Company ("BMS")
entered into a three-year research alliance aimed at developing new drugs for
the treatment of inflammatory and immunological diseases. The collaborative
research is focused on the identification of small-molecule transcription factor
inhibitors. Molecumetics also is supplying BMS with 150,000 of its proprietary
compounds for broad-based screening against a wide variety of disease targets.
In 1998, Molecumetics signed a two-year license and supply agreement
with ChoongWae, a Korean pharmaceutical company (which agreement, in early 2001,
was extended for an additional six months). Under terms of the agreement,
ChoongWae synthesizes and delivers certain key chemical intermediates to
Molecumetics in exchange for licensing rights to the jointly developed tryptase
inhibitors in certain Asian countries. Molecumetics retains the rights to these
compounds in all other countries. Tryptase inhibitors could be used to treat
asthma, inflammatory bowel disease and psoriasis. The intermediates supplied by
ChoongWae are not commercially available, and Molecumetics uses them in its
tryptase inhibitors and other programs, and for synthesis of proprietary
compounds using its SMART Library(R) technology. Under the agreement, no cash
payment is involved. No revenue has been recognized, and Molecumetics expenses
the costs associated with the jointly developed tryptase inhibitors program as
incurred.
4
In September 1997, Molecumetics signed a research and licensing
collaboration agreement with Teijin Limited ("Teijin") for the optimization and
development of Molecumetics' orally active inhibitors of thrombin, a key
protease in the blood coagulation cascade. The resulting therapeutic drugs would
be useful for treating a variety of blood-clotting disorders. Under the terms of
the agreement, Molecumetics is responsible for the optimization of its lead
compounds using its SMART Library(R) technology. The two companies collaborate
on preclinical studies. Teijin is responsible for the clinical development,
approval and marketing of the compounds in Japan and other Asian countries.
Molecumetics retains all rights to the compounds in North America and Europe.
Molecumetics holds 16 U.S. patents and 2 U.S. trademarks, and has
filed a number of other patent applications with respect to its technology.
Molecumetics spent approximately $12.3 million in 2000, $10.8 million in 1999
and $8.5 million in 1998 on research and development activities. Through
December 31, 2000, we have invested $40.7 million in Molecumetics.
Therics. On April 8, 1999, Tredegar acquired the assets of Therics for cash
consideration of approximately $13.6 million (including transaction costs).
Before the acquisition, Tredegar owned approximately 19% of Therics. Upon the
final liquidation of the former Therics, Tredegar paid approximately $10.2
million to effectively acquire the remaining 81% ownership interest.
Based in Princeton, New Jersey, Therics is developing new
microfabrication technology that has potential applications in bone replacement
and reconstructive products as well as drug delivery and tissue engineering. Its
primary focus is on commercializing the TheriForm(TM) process, a new and unique
process for manufacturing bioimplantable reconstructive body parts and oral and
implantable drugs. With respect to bone replacement and reconstructive products,
this technology can take very sensitive, biologically compatible materials and
fabricate them into anatomically accurate bone replacement products with precise
internal microarchitectures. This technology can also be used in drug delivery
as it enables drug companies to build precise amounts of active drugs and
excipients in specific locations within each tablet. As a result, the internal
architecture of each tablet can be designed to provide unique release profiles
that are tailored to meet medical needs.
In connection with the acquisition, Tredegar recognized a charge of
$3.5 million (classified as an unusual item in the consolidated statement of
income) in the second quarter of 1999 related to the write-off of acquired
in-process research and development (primarily the TheriForm process). The
amount of the charge was determined through an independent third-party analysis
using the income approach. At the date of acquisition, the TheriForm(TM) process
was 90% complete and will be considered technologically feasible upon the
successful manufacture of an FDA-validated product. The uncertainties involved
include the ability to:
- - Meet machine performance objectives in a sustainable manufacturing
environment;
- - Produce machines for large-scale commercial production;
- - Meet customer requirements with regard to price and performance objectives;
and
- - Achieve technological and commercial feasibility within the anticipated cost
structure and timetable.
5
The technology has no alternative future use for which technological
feasibility has been achieved. Therics had revenues of $403,000 and an operating
loss of $8 million in 2000 and revenues of $161,000 and an operating loss of
$5.2 million for the period from the acquisition date (April 8, 1999) through
December 31, 1999.
In 1999, Therics signed a five-year collaboration agreement with
Warner-Lambert Company, which merged with Pfizer, Inc. in 2000, aimed at
developing formulations of several model compounds to be chosen by the parties,
which formulations could then be used as templates for the development of the
same or different compounds. Therics will receive R&D support funding for its
work under this agreement.
Revenues recognized by Therics to date relate entirely to payments
received for R&D support. See Note 1 on page 42 for more information on revenue
recognition.
Therics is exclusively licensed in the healthcare field under 15 U.S.
patents, owns 1 U.S. patent, has applied for 9 U.S. trademarks, and has filed a
number of other patent applications with respect to its technology. Therics
spent approximately $8.2 million on research and development activities in 2000.
For the period from the acquisition date to the end of 1999, Therics spent
approximately $4.5 million on research and development activities. Through
December 31, 2000, we have invested $26.4 million in Therics.
Tredegar Investments. Tredegar Investments is our investment subsidiary. Its
investments represent high-risk stakes in technology start-up companies,
primarily in the areas of communications, life sciences and information
technology. Its primary objective is to generate high after-tax internal rates
of return commensurate with the level of risk involved. More information,
including a schedule of investments, is provided in the business segment review
on pages 27-33, and in Note 7 on page 53.
On October 23, 2000, we announced strategic initiatives for our
Technology segment, including our intent to harvest our existing investment
portfolio (see pages 18 to 19 for further information). We intend to fund
existing commitments and support existing portfolio companies.
As a result of our decision to reduce future venture activities, the
former management group of Tredegar Investments, which consisted of five venture
capital professionals, formed an independent venture capital partnership
(Perennial Ventures) that will raise and deploy cash from outside investors. We
have entered into a three-year agreement whereby Perennial Ventures will also
manage Tredegar Investments' existing portfolio of direct investments.
General
Patents, Licenses and Trademarks. Tredegar considers patents, licenses and
trademarks to be of significance for Film Products, Molecumetics and Therics. We
routinely apply for patents on significant developments with respect to all of
those businesses. Our patents have remaining terms ranging from 1 to 17 years.
We also have licenses under patents owned by third parties.
Research and Development. Tredegar spent approximately $27.6 million in 2000,
$22.3 million in 1999 and $14.5 million in 1998 on research and development
activities.
6
Backlog. Backlogs are not material to our operations.
Government Regulation. Laws concerning the environment that affect or could
affect our 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"), as amended, regulations promulgated under these acts,
and any other federal, state or local laws or regulations governing
environmental matters. We are in substantial compliance with all applicable
laws, regulations and permits. In order to maintain substantial compliance with
such standards, we 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.
Employees. Tredegar employed approximately 3,500 people at December 31, 2000.
Item 2. PROPERTIES
General
Most of the improved real property and the other assets used in our
operations are owned, and none of the owned property is subject to an
encumbrance that is material to our consolidated operations. We consider the
condition of the plants, warehouses and other properties and assets owned or
leased by us to be generally good. We also consider the geographical
distribution of our plants to be well-suited to satisfying the needs of our
customers.
We believe that the capacity of our plants is adequate to meet our
immediate needs. Our plants generally have operated at 65-95 percent of
capacity. Our corporate headquarters offices are located at 1100 Boulders
Parkway, Richmond, Virginia 23225.
7
Our principal plants and facilities are listed below:
Film Products Principal Operations
Locations in the United States Locations in Foreign Countries
Carbondale, Pennsylvania Retsag, Hungary Production of plastic films
LaGrange, Georgia Guangzhou, China (leased)
Lake Zurich, Illinois Kerkrade, The Netherlands
New Bern, North Carolina Roccamontepiano, Italy
Pottsville, Pennsylvania San Juan, Argentina
Tacoma, Washington (leased) Sao Paulo, Brazil
Terre Haute, Indiana (2) Shanghai, China
(technical center and
production facility)
Aluminum Extrusions Principal Operations
Locations in the United States Locations in Canada
Carthage, Tennessee Aurora, Ontario Production of aluminum
El Campo, Texas Pickering, Ontario extrusions, fabrication and
Kentland, Indiana Richmond Hill, Ontario finishing
Newnan, Georgia Ste. Therese, Quebec
Technology
Molecumetics leases its laboratory space in Bellevue, Washington.
Therics leases space in Princeton, New Jersey. Through December 31, 2000,
Tredegar Investments leased office space in Seattle, Washington, and Palo Alto,
California. Subsequent to December 31, 2000, Tredegar Investments was relocated
to Richmond, Virginia.
Item 3. LEGAL PROCEEDINGS
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
8
PART II
Item 5. MARKET FOR TREDEGAR'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Market Prices of Common Stock and Shareholder Data
Our common stock is traded on the New York Stock Exchange under the
ticker symbol TG. We have no preferred stock outstanding. There were 38,084,407
shares of common stock held by 5,217 shareholders of record on December 31,
2000.
The following table shows the reported high and low closing prices of
our common stock by quarter for the past two years.
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2000 1999
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High Low High Low
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First quarter $ 32.00 $ 18.13 $32.38 $22.50
Second quarter 27.94 19.00 32.94 20.50
Third quarter 23.19 17.31 23.69 20.38
Fourth quarter 19.06 15.00 23.19 16.06
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Dividend Information
On May 20, 1998, we declared a three-for-one stock split payable on
July 1, 1998, to shareholders of record on June 15, 1998. Accordingly, all
historical references to per-share amounts, shares repurchased and the shares
used to compute earnings per share have been restated to reflect the split.
The quarterly dividend rate was increased to:
- - 2.67 cents per share effective January 1, 1997;
- - 3 cents per share effective October 1, 1997; and
- - 4 cents per share effective July 1, 1998.
All decisions with respect to payment of dividends will be made by
the Board of Directors based upon earnings, financial condition, anticipated
cash needs and such other considerations as the Board deems relevant. See Note 9
on page 56 for minimum shareholders' equity required.
Annual Meeting
Our annual meeting of shareholders will be held on May 24, 2001,
beginning at 9:30 a.m. EDT at The Jefferson Hotel in Richmond, Virginia. Formal
notice of the annual meeting, proxies and proxy statements will be mailed to
shareholders around March 27.
9
Inquiries
Inquiries concerning stock transfers, dividends, dividend
reinvestment, consolidating accounts, changes of address, or lost or stolen
stock certificates should be directed to:
American Stock Transfer & Trust Company
Shareholder Services Department
59 Maiden Lane
New York, New York 10038
Phone: 800-937-5449
Web site: http://www.amstock.com
All other inquiries should be directed to:
Tredegar Corporation
Corporate Communications Department
1100 Boulders Parkway
Richmond, Virginia 23225
Phone: 800-411-7411
E-mail: invest@tredegar.com
Web site: http://www.tredegar.com
Quarterly Information
We do not generate or distribute quarterly reports to shareholders.
Information on quarterly results can be obtained from our Web site and from
quarterly Form 10-Qs filed with the Securities and Exchange Commission.
Counsel Independent Accountants
Hunton & Williams PricewaterhouseCoopers LLP
Richmond, Virginia Richmond, Virginia
Item 6. SELECTED FINANCIAL DATA
The tables that follow on pages 11-17 present certain selected
financial and segment information for the eight years ended December 31, 2000.
10
EIGHT-YEAR SUMMARY
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Tredegar Corporation and Subsidiaries
Years Ended December 31 2000 1999 1998 1997 1996 1995 1994 1993
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(In thousands, except per-share data)
Results of Operations (a):
Gross sales 886,379 $835,632 $710,742 $589,049 $530,099 $595,610 $508,550 $455,531
Freight (17,125) (15,221) (10,946) (8,045) (6,548) (6,156) (6,342) (6,323)
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Net sales 869,254 820,411 699,796 581,004 523,551 589,454 502,208 449,208
Other income (expense), net 138,204 (4,362) 4,015 17,015 4,248 (669) (296) (387)
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1,007,458 816,049 703,811 598,019 527,799 588,785 501,912 448,821
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of goods sold 706,817 648,254 553,184 457,896 417,014 489,931 418,469 376,580
Selling, general & administrative
expenses 52,937 47,357 39,493 37,035 39,719 48,229 47,978 47,973
Research and development expenses 27,593 22,313 14,502 13,170 11,066 8,763 8,275 9,141
Amortization of intangibles 5,025 3,430 205 50 256 579 1,354 2,706
Interest expense (b) 17,319 9,088 1,318 1,952 2,176 3,039 4,008 5,044
Unusual items 23,220 (c) 4,065 (d) (101)(e) (2,250)(f) (11,427)(g) (78) (h) 16,494 (i) 452 (j)
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832,911 734,507 608,601 507,853 458,804 550,463 496,578 441,896
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Income from continuing operations
before income taxes 174,547 81,542 95,210 90,166 68,995 38,322 5,334 6,925
Income taxes 63,171 28,894 31,054 (e) 31,720 23,960 14,269 3,917 3,202 (j)
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Income from continuing
operations (a) 111,376 52,648 64,156 58,446 45,035 24,053 1,417 3,723
Income from discontinued Energy
segment operations (a) - - 4,713 - - - 37,218 6,784
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Net income before extraordinary
item and cumulative effect of
accounting changes 111,376 52,648 68,869 58,446 45,035 24,053 38,635 10,507
Extraordinary item - prepayment
premium on extinguishment of
debt (net of tax) - - - - - - - (1,115)
Cumulative effect of accounting
changes - - - - - - - 150
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $111,376 $52,648 $68,869 $58,446 $45,035 $24,053 $38,635 $ 9,542
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Continuing operations (a) 2.86 1.36 1.66 1.48 1.15 .60 .03 .08
Discontinued Energy segment
operations(a) - - .12 - - - .79 .14
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Before extraordinary item and
cumulative effect of accounting
changes 2.86 1.36 1.78 1.48 1.15 .60 .82 .22
Net income 2.86 1.36 1.78 1.48 1.15 .60 .82 .19
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Refer to notes to financial tables on page 17.
11
EIGHT-YEAR SUMMARY
- ------------------------------------------------------------------------------------------------------------------------------------
Tredegar Corporation and Subsidiaries
Years Ended December 31 2000 1999 1998 1997 1996 1995 1994 1993
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(In thousands, except per-share data)
Share Data:
Equity per share $ 13.07 $ 9.88 $ 8.46 $ 7.34 $ 5.79 $ 4.67 $ 4.25 $ 3.45
Cash dividends declared per
share .16 .16 .15 .11 .09 .06 .05 .05
Weighted average common shares
outstanding during the
period 37,885 36,992 36,286 36,861 36,624 38,748 46,572 49,029
Shares used to compute diluted
earnings per share during the
period 38,908 38,739 38,670 39,534 39,315 40,110 46,842 49,182
Shares outstanding at end of
period 38,084 37,661 36,661 37,113 36,714 36,528 40,464 49,029
Closing market price per share:
High 32.00 32.94 30.67 24.65 15.13 7.72 4.14 4.00
Low 15.00 16.06 16.13 12.54 6.83 3.86 3.11 2.78
End of year 17.44 20.69 22.50 21.96 13.38 7.17 3.86 3.33
Total return to shareholders (k) (14.9)% (7.3) % 3.1 % 65.0 % 87.8 % 87.2 % 17.4 % (1.7)%
Financial Position:
Total assets 903,768 792,487 457,178 410,937 341,077 314,052 318,345 353,383
Working capital excluding cash,
cash equivalents and broker
receivables 75,529 80,594 52,050 30,279 31,860 54,504 53,087 62,064
Current ratio 2.4:1 2.0:1 1.9:1 3.1:1 3.2:1 1.8:1 1.9:1 2.1:1
Cash and cash equivalents 44,530 25,752 25,409 120,065 101,261 2,145 9,036 -
Receivable from securities brokers 292 - - - - - - -
Venture capital investments:
Cost basis 213,096 135,469 60,617 25,826 6,048 3,410 2,200 800
Carrying value 232,259 140,698 60,024 33,513 6,048 3,410 2,200 800
Estimated fair value 403,531 205,363 70,841 40,757 15,000 5,700 2,300 800
Net asset value 334,974 180,201 67,160 35,382 11,777 4,876 2,264 800
Ending consolidated capital
employed(l) 721,008 616,476 309,886 182,481 146,284 203,376 200,842 266,088
Capital employed of divested
and discontinued operations
(Molded Products, Brudi and
the Energy segment) (a) - - - - - 60,144 59,267 98,903
Debt 268,102 270,000 25,000 30,000 35,000 35,000 38,000 97,000
Shareholders' equity (net book
value) 497,728 372,228 310,295 272,546 212,545 170,521 171,878 169,088
Equity market capitalization (m) 664,090 779,112 824,873 814,940 491,050 261,784 156,236 163,430
Net debt (cash) (debt less cash,
cash equivalents and broker
receivables) as a % of net
capitalization 31.0 % 39.6 % (0.1) % (49.4)% (45.3)% 16.2 % 14.4 % 36.5 %
- ------------------------------------------------------------------------------------------------------------------------------------
Refer to notes to financial tables on page 17.
12
SEGMENT TABLES
Tredegar Corporation and Subsidiaries
Net Sales (n)
- ------------------------------------------------------------------------------------------------------------------------------------
Segment 2000 1999 1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Film Products $ 380,202 $ 342,300 $ 286,965 $ 298,862 $ 257,306 $ 237,770 $ 188,672 $ 177,052
Fiberlux (o) 1,856 9,092 11,629 10,596 10,564 11,329 11,479 10,239
Aluminum Extrusions 479,889 461,241 395,455 266,585 219,044 221,657 193,870 166,465
Technology:
Molecumetics 6,904 7,617 5,718 2,583 36 - 200 -
Therics 403 161 - - - - - -
Other - - 29 2,378 2,090 1,953 2,517 2,994
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Total ongoing
operations(p) 869,254 820,411 699,796 581,004 489,040 472,709 396,738 356,750
Divested operations (a):
Molded Products - - - - 21,131 84,911 76,579 68,233
Brudi - - - - 13,380 31,834 28,891 24,225
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 869,254 $ 820,411 $ 699,796 $ 581,004 $ 523,551 $ 589,454 $ 502,208 $ 449,208
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Refer to notes to financial tables on page 17.
13
SEGMENT TABLES
Tredegar Corporation and Subsidiaries
Operating Profit
- ------------------------------------------------------------------------------------------------------------------------------------
Segment 2000 1999 1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Film Products:
Ongoing operations $ 47,112 $ 59,554 $ 53,786 $ 50,463 $ 43,158 $ 36,019 $ 34,726 $ 22,320
Unusual items (22,163)(c) (1,170)(d) - - 680 (g) 1,750 (h) - (1,815)(j)
- ------------------------------------------------------------------------------------------------------------------------------------
24,949 58,384 53,786 50,463 43,838 37,769 34,726 20,505
- ------------------------------------------------------------------------------------------------------------------------------------
Fiberlux:
Ongoing operations (264) 57 1,433 845 1,220 452 950 557
Unusual items 762 (c) - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
498 57 1,433 845 1,220 452 950 557
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Aluminum Extrusions:
Ongoing operations 52,953 56,501 47,091 32,057 23,371 16,777 11,311 7,964
Unusual items (1,628)(c) - (664)(e) - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
51,325 56,501 46,427 32,057 23,371 16,777 11,311 7,964
- ------------------------------------------------------------------------------------------------------------------------------------
Technology:
Molecumetics (5,589) (3,421) (3,504) (4,488) (6,564) (4,769) (3,534) (3,324)
Therics (8,024) (5,235) - - - - - -
Venture capital
investments 130,879 (7,079) 615 13,880 2,139 (695) - -
Other - - (428) (267) (118) (566) (5,354) (6,380)
Unusual items (191)(c) (3,607)(d) 765 (e) - - (1,672)(h) (9,521)(i) 2,263 (j)
- ------------------------------------------------------------------------------------------------------------------------------------
117,075 (19,342) (2,552) 9,125 (4,543) (7,702) (18,409) (7,441)
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Divested operations (a):
Molded Products - - - - 1,011 2,718 (2,484) (228)
Brudi - - - - 231 222 (356) 177
Unusual items - - - 2,250 (f) 10,747 (g) - (6,973)(i) -
- ------------------------------------------------------------------------------------------------------------------------------------
- - - 2,250 11,989 2,940 (9,813) (51)
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating profit 193,847 95,600 99,094 94,740 75,875 50,236 18,765 21,534
Interest income (q) 2,578 1,419 2,279 4,959 2,956 333 544 -
Interest expense (b) 17,319 9,088 1,318 1,952 2,176 3,039 4,008 5,044
Corporate expenses, net 4,559 6,389 4,845 7,581 7,660 9,208 9,967 9,565 (j)
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing
operations before
income taxes 174,547 81,542 95,210 90,166 68,995 38,322 5,334 6,925
Income taxes 63,171 28,894 31,054 (e) 31,720 23,960 14,269 3,917 3,202
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing
operations 111,376 52,648 64,156 58,446 45,035 24,053 1,417 3,723
Income from discontinued
Energy segment
operations (a) - - 4,713 - - - 37,218 6,784
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
extraordinary item and
cumulative effect of
accounting changes $ 111,376 $ 52,648 $ 68,869 $ 58,446 $ 45,035 $ 24,053 $ 38,635 $ 10,507
- ------------------------------------------------------------------------------------------------------------------------------------
Refer to notes to financial tables on page 17.
14
SEGMENT TABLES
Tredegar Corporation and Subsidiaries
Identifiable Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Segment 2000 1999 1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Film Products $ 367,526 $ 360,517 $ 132,241 $ 123,613 $ 116,520 $ 118,096 $ 108,862 $ 109,916
Fiberlux - 7,859 7,811 6,886 6,203 6,330 6,448 6,667
Aluminum Extrusions 210,434 216,258 201,518 101,855 83,814 80,955 89,406 89,498
Technology:
Molecumetics 4,757 4,749 5,196 2,550 2,911 2,018 1,536 1,926
Therics 9,609 9,905 - - - - - -
Investments and
other(r) 236,698 145,028 61,098 34,611 7,760 5,442 5,780 13,321
- ------------------------------------------------------------------------------------------------------------------------------------
Identifiable assets for
ongoing operations 829,024 744,316 407,864 269,515 217,208 212,841 212,032 221,328
Nonoperating assets held
for sale - - - - - 6,057 5,018 3,605
General corporate 30,214 22,419 23,905 21,357 22,608 20,326 12,789 12,031
Cash and cash equivalents 44,530 25,752 25,409 120,065 101,261 2,145 9,036 -
Divested operations (a):
Molded Products - - - - - 44,173 48,932 54,487
Brudi - - - - - 28,510 30,538 30,956
Net assets of discontinued
Energy segment
operations (a) - - - - - - - 30,976
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 903,768 $ 792,487 $ 457,178 $ 410,937 $ 341,077 $ 314,052 $ 318,345 $ 353,383
- ------------------------------------------------------------------------------------------------------------------------------------
Refer to notes to financial tables on page 17.
15
SEGMENT TABLES
Tredegar Corporation and Subsidiaries
Depreciation and Amortization
- ------------------------------------------------------------------------------------------------------------------------------------
Segment 2000 1999 1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Film Products $23,122 $ 18,751 $ 11,993 $ 10,947 $ 11,262 $ 9,766 $ 9,097 $ 9,200
Fiberlux 151 498 544 515 507 577 644 826
Aluminum Extrusions 9,862 9,484 8,393 5,508 5,407 5,966 5,948 6,240
Technology:
Molecumetics 1,734 1,490 1,260 996 780 592 573 443
Therics 1,782 1,195 - - - - - -
Investments and other 18 22 21 135 161 197 720 1,868
- ------------------------------------------------------------------------------------------------------------------------------------
Subtotal 36,669 31,440 22,211 18,101 18,117 17,098 16,982 18,577
General corporate 315 253 254 313 390 481 570 685
- ------------------------------------------------------------------------------------------------------------------------------------
Total ongoing operations 36,984 31,693 22,465 18,414 18,507 17,579 17,552 19,262
Divested operations (a):
Molded Products - - - - 1,261 5,055 5,956 5,289
Brudi - - - - 550 1,201 1,337 1,272
- ------------------------------------------------------------------------------------------------------------------------------------
Total $36,984 $ 31,693 $ 22,465 $ 18,414 $ 20,318 $ 23,835 $ 24,845 $ 25,823
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Expenditures, Acquisitions and Investments
- ------------------------------------------------------------------------------------------------------------------------------------
Segment 2000 1999 1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Film Products $53,161 $ 25,296 $ 18,456 $ 15,354 $ 11,932 $ 10,734 $ 6,710 $ 6,561
Fiberlux 425 812 1,477 530 417 465 416 14
Aluminum Extrusions 21,911 16,388 10,407 6,372 8,598 5,454 4,391 1,870
Technology:
Molecumetics 2,133 1,362 3,561 366 1,594 894 178 939
Therics 1,730 757 - - - - - -
Investments and other 86 - 54 5 14 - 99 905
- ------------------------------------------------------------------------------------------------------------------------------------
Subtotal 79,446 44,615 33,955 22,627 22,555 17,547 11,794 10,289
General corporate 384 606 115 28 143 231 191 2,440
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures for ongoing
operations 79,830 45,221 34,070 22,655 22,698 17,778 11,985 12,729
Divested operations (a):
Molded Products - - - - 1,158 6,553 2,988 3,235
Brudi - - - - 104 807 606 516
- ------------------------------------------------------------------------------------------------------------------------------------
Total capital expenditures 79,830 45,221 34,070 22,655 23,960 25,138 15,579 16,480
Acquisitions and other 6,316 215,227 72,102 13,469 - 3,637 - 5,099
Venture capital investments 93,058 81,747 35,399 20,801 3,138 1,904 1,400 600
- ------------------------------------------------------------------------------------------------------------------------------------
Total $179,204 $ 342,195 $ 141,571 $ 56,925 $ 27,098 $ 30,679 $ 16,979 $ 22,179
- ------------------------------------------------------------------------------------------------------------------------------------
Refer to notes to financial tables on page 17.
16
NOTES TO FINANCIAL TABLES
- --------------------------------------------------------------------------------
(In thousands, except per-share amounts)
(a) On August 16, 1994, Tredegar completed the divestiture of its coal
subsidiary, The Elk Horn Coal Corporation. On February 4, 1994, we sold our
remaining oil and gas properties. As a result of these events, we report
the Energy segment as discontinued operations. In 1998, discontinued
operations includes gains for the reimbursement of payments made by us to
the United Mine Workers of America Combined Benefit Fund (the "Fund") and
the reversal of a related accrued liability established to cover future
payments to the Fund (see Note 18 on page 67). On March 29, 1996, we sold
Molded Products. During the second quarter of 1996, we 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. We began reporting Molded Products and Brudi
separately in our segment disclosures in 1995 after announcing our intent
to divest these businesses.
(b) Interest expense has been allocated between continuing and discontinued
operations based on relative capital employed (see (a)).
(c) Unusual items for 2000 include a charge of $17,870 related to excess
capacity in the plastic films business, a charge of $1,628 related to
restructuring at our aluminum plant in El Campo, Texas, a charge of $4,293
for the shutdown of the plastic films manufacturing facility in Manchester,
Iowa, a gain of $762 for the sale of Fiberlux, and a charge of $191 for
costs associated with the evaluation of financing and structural options
for the Technology Group.
(d) Unusual items for 1999 include a charge for costs associated with the
evaluation of financing and structural options for the Technology Group
($149), a gain on the sale of corporate real estate ($712), a charge
related to a write-off of in-process research and development expenses
associated with the Therics acquisition ($3,458, see Note 2 on page 51) and
a charge for the write-off of excess packaging film capacity ($1,170).
(e) Unusual items for 1998 include a charge related to the shutdown of the
powder-coat paint line in the production facility in Newnan, Georgia ($664)
and a gain on the sale of APPX Software ($765). Income taxes include a tax
benefit of $2,001 related to the sale, including a tax benefit for the
excess of APPX Software's income tax basis over its financial reporting
basis.
(f) Unusual items for 1997 include a gain of $2,250 related to the redemption
of preferred stock received in connection with the 1996 divestiture of
Molded Products.
(g) Unusual items for 1996 include a gain on the sale of Molded Products
($19,893), 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) and a charge related to the write-off of
specialized machinery and equipment due to excess capacity in certain
industrial packaging films ($1,288).
(h) 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).
(i) 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).
(j) 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
our remaining investment in Emisphere Technologies, Inc. ($2,263). Income
taxes includes a tax charge of $348 for the impact on deferred taxes of a
one percent increase in the federal income tax rate.
(k) 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.
(l) Consolidated capital employed is debt plus shareholders' equity minus cash,
cash equivalents and broker receivables.
(m) Equity market capitalization is the closing market price per share for the
period times the shares outstanding at the end of the period.
(n) Net sales represents gross sales less freight.
(o) Fiberlux was sold on April 10, 2000.
(p) Net sales include sales to P&G totaling $242,359 in 2000, $250,020 in 1999
and $233,493 in 1998. These amounts include plastic film sold to others
that converted the film into materials used in products manufactured by
P&G.
(q) Interest income was insignificant prior to 1994.
(r) Included in the investments and other category of the Technology segment
are APPX Software (sold in 1998 - see (e)) and venture capital investments
in which our ownership is less than 20% (see Note 7 on page 53).
17
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Tredegar is a manufacturer of plastic film and aluminum extrusions.
We also have two operating subsidiaries focused on healthcare-related
technologies and an investment subsidiary. Descriptions of our businesses and
interests are provided on pages 1-7.
Our manufacturing businesses are quite different from our technology
interests. Our manufacturing businesses can be analyzed and valued by
traditional measures of earnings and cash flow, and because they generate
positive ongoing cash flow, they can be leveraged with borrowed funds.
Our technology operating companies, Molecumetics and Therics, are
start-up companies active in drug research, drug delivery and tissue
engineering. Each generates operating losses and negative cash flow in the form
of net R&D expenditures. Neither has licensed products to date, and revenues
consist entirely of collaboration revenues (R&D support payments). They may
never generate profits or positive cash flow. If they were stand-alone,
independent operations, they would typically be financed by private venture
capital.
Our investment subsidiary represents high-risk stakes in technology
start-up companies, primarily in the areas of communications, life sciences and
information technology. Our primary objective in the investment area is to
generate high after-tax internal rates of return commensurate with the level of
risk involved.
In summary, we have a variety of business interests with dramatically
different risk profiles, which makes the communication of operating results more
difficult, especially since we have only one class of stock. As a result, the
segment information presented on pages 13-17, and the business segment review on
pages 27-33, are critical to the understanding of our operating results and
business risks.
On October 23, 2000, we announced a series of strategic inititatives
aimed at accelerating the growth of Therics and Molecumetics. We will
significantly increase Therics' product development spending and are exploring
external financing and other strategic alternatives to fund the growth of
Molecumetics.
We will use cash generated by our existing venture capital
investments to support more aggressive spending at Therics. As part of the plan,
we will reduce future investments in our venture portfolio, which is expected to
yield positive cash flows over the next few years. This cash is expected to be
more than adequate to fund the increased spending at Therics.
We plan to invest approximately $60 million ($40 million net of
expected tax benefits) in Therics over the next three years, with the goal of
achieving substantial revenue and profit growth by 2004. We believe Therics is
making encouraging progress in its development of bone replacement and
reconstructive products as well as implantable and oral drugs. Therics'
operating losses could reach $25 million per year in 2001 and 2002. Our goal is
for Therics to begin generating revenue and reducing losses in 2003, with rapid
growth in sales and profits thereafter.
18
Our plan is to pursue the quickest route to profitability by focusing
on commercializing our bone replacement products while continuing to develop our
drug delivery and tissue engineering technologies. We expect the first of our
bone replacement products to clear FDA regulatory hurdles in early 2002.
Full-scale marketing efforts are planned to begin in 2002.
We also announced the exploration of external financing and other
strategic alternatives for Molecumetics. Molecumetics uses proprietary chemistry
and an integrated set of drug discovery capabilities to accelerate the
identification of novel drug candidates. External financing would fund higher
spending levels and reduce new cash outlays from Tredegar. However, due to
accounting principles, our earnings may reflect up to $10 million per year in
operating losses from Molecumetics in 2001 and 2002.
In order to accelerate efforts to build our technology operations, we
have decided to harvest our existing venture portfolio. We intend to fund
existing commitments and support existing portfolio companies.
Results of Operations
2000 versus 1999
Revenues. Net sales in 2000 increased by 6% over 1999 due primarily to the
acquisition of Exxon Films and overall higher selling prices driven by higher
raw material costs. Assuming the acquisition of Exxon Films occurred at the
beginning of 1999, pro forma net sales for 1999 were relatively flat with 2000.
Higher sales in Aluminum Extrusions (up 4%), due primarily to raw material
driven price increases, were partially offset by lower pro forma sales in Film
Products (down 1%). Net gains from investment activities totaled $130.9 million
($83.8 million after income taxes) in 2000. Net losses from investment
activities totaled $7.1 million ($4.5 million after income taxes) in 1999.
Pretax realized gains and losses from investment activities are
included in "Other income (expense), net" in the consolidated statements of
income on page 38 and in "Venture capital investments" in the operating profit
table on page 14. Beginning April 1, 1998, we began classifying the stand-alone
operating expenses (primarily employee compensation and benefits and leased
office space and equipment) for our investment activities with gains and losses
in "Venture capital investments" in the operating profit table. Prior to that
time they were classified in the "Other" category of the technology segment.
These expenses, which continue to be reported in selling, general and
administrative expenses in the consolidated statements of income, totaled $5.1
million in 2000, $2.5 million in 1999, $2.1 million in 1998 and $1.7 million for
the nine months ended December 31, 1998.
For more information on net sales and investment activities, see the
business segment review on pages 27-33.
Operating Costs and Expenses. The gross profit margin during 2000 declined to
19% from 21% during 1999. Lower gross profit margins in Film Products were due
mainly to overall lower volume and higher production costs for new products.
Lower margins in Aluminum Extrusions were due primarily to lower volume, higher
per-unit conversion costs and competitive pricing pressures.
19
Selling, general and administrative expenses ("SG&A") in 2000 were
$52.9 million, up from $47.4 million in 1999 primarily due to:
- - The acquisition of Exxon Films (impact of approximately $2 million);
- - A $3.5 million charge for doubtful accounts related to two diaper film
customers; and
- - Increased operating expenses relative to our investment portfolio (increase
of approximately $2.6 million).
As a percentage of net sales, SG&A expenses increased to 6.1% in 2000 compared
with 5.8% in 1999.
R&D expenses increased to $27.6 million in 2000 from $22.3 million in
1999 primarily due to:
- - Higher spending at Therics in support of its development of bone replacement
and reconstructive products combined with a full year of spending at Therics
in 2000 versus nine months in 1999 (combined impact of $3.7 million);
- - Higher spending at Molecumetics in support of collaboration programs (up
$1.5 million); and
- - Higher product development spending at Film Products (up $130,000).
Unusual charges (net) in 2000 totaled $23.2 million ($14.9 million
after income taxes) and included:
- - A fourth-quarter charge of $1.6 million ($1 million after taxes) related to
restructuring at our aluminum plant in El Campo, Texas;
- - A fourth-quarter gain of $237,000 ($152,000 after taxes) related to the
second-quarter sale of the assets of Fiberlux, Inc.; o A third-quarter charge
of $17.9 million ($11.4 million after taxes) for the write-off of excess
production capacity at our plastic film plants in Lake Zurich, Illinois, and
Terre Haute, Indiana, including an impairment loss for equipment of $7.9
million and write-off of the related goodwill of $10 million;
- - A third-quarter reversal of $1 million ($640,000 after taxes) related to the
first quarter charge for the shutdown of the Manchester, Iowa, production
facility due to revised estimates;
- - A second-quarter gain of $525,000 ($336,000 after taxes) for the sale of the
assets of Fiberlux, Inc.;
- - A first-quarter charge of $5.3 million ($3.4 million after taxes) for the
shutdown of our plastic films manufacturing facility in Manchester, Iowa,
including an impairment loss for building and equipment ($4.1 million),
severance costs ($700,000), and excess inventory and other items ($450,000);
and
- - A first-quarter charge of $191,000 ($122,000 after taxes) for costs
associated with the evaluation of financing and structural options for the
Technology Group.
For more information on costs and expenses, see the business segment
review on pages 27-33.
20
Interest Income and Expense. Interest income, which is included in "Other income
(expense), net" in the consolidated statements of income, increased to $2.6
million in 2000 from $1.4 million in 1999 due to higher average cash equivalents
balance (see "Cash Flows" on page 24 for more information) and higher yields.
The average tax-equivalent yield earned on cash equivalents was approximately
6.2% in 2000 and 5.1% in 1999. Our 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 our policy are safety of principal
and liquidity.
Interest expense increased to $17.3 million in 2000 from $9.1 million
in 1999 due to higher average debt outstanding and higher average interest cost.
Average debt outstanding was approximately $269.7 million (average of $252.5
million variable-rate debt and average of $17.2 million fixed-rate debt) in 2000
compared to $165.3 million (average of $143 million variable-rate debt and
average of $22.3 million fixed-rate debt) in 1999. Average interest cost was
7.2% in 2000 (7.2% average for both variable-rate debt and fixed-rate debt)
compared to 6.2% in 1999 (6.1% average on variable-rate debt and 7.2% on
fixed-rate debt). The impact on interest expense of higher average debt (see
"Cash Flows" on page 24 for more information) and higher average interest was
partially offset by higher capitalized interest ($2.7 million in 2000 versus
$1.6 million in 1999) from higher capital expenditures.
Income Taxes. The effective tax rate, excluding unusual items and venture
capital investment activities, was approximately 36.5% in 2000 compared to 35.5%
in 1999. The increase during 2000 was mainly due to higher taxes accrued on
unremitted earnings from foreign operations. The overall effective tax rate was
36.2% in 2000 compared to 35.4% in 1999. The increase in the overall rate during
2000 is due to higher taxes accrued on unremitted earnings from foreign
operations, lower benefit from foreign sales corporation ("FSC") and lower
benefit from R&D credits offset by lower state income tax rates. While the
dollar amount of benefit from R&D and FSC is higher, the relative percentage is
lower due to the increase in income attributable to venture capital gains. See
Note 15 on page 64 for additional tax rate information.
1999 versus 1998
Revenues. Net sales in 1999 increased by 17% over 1998 due primarily to
acquisitions. Pro forma net sales were up 1.4% for the year ($863.7 million in
1999 versus $851.6 million in 1998) as higher pro forma sales in Aluminum
Extrusions (up 4.5%) and higher R&D support revenues at Molecumetics were offset
by lower pro forma sales in Film Products (down 1.9%). Pro forma sales assume
that acquisitions occurred at the beginning of 1998. Net losses from investment
activities totaled $7.1 million ($4.5 million after income taxes) in 1999. Net
gains from investment activities totaled $615,000 ($394,000 after income taxes)
in 1998.
For more information on net sales and investment activities, see the
business segment review on pages 27-33.
Operating Costs and Expenses. The gross profit margin during 1999 remained
unchanged at 21%, as a decline in the gross profit margin at Film Products was
offset by an increase in margins at Aluminum Extrusions. Lower gross profit
margins in Film Products were due mainly to lower volume and weakness in
international markets. Higher margins in Aluminum Extrusions were primarily due
to strong demand and higher volume.
21
SG&A expenses in 1999 were $47.4 million, up from $39.5 million in
1998 due primarily to:
- - The acquisition of Exxon Films (impact of approximately $4 million);
- - A full year of SG&A for the aluminum extrusion plants in Canada acquired in
1998 (impact of approximately $1.5 million); and
- - Increases in SG&A salaries and wages (up approximately 4%).
As a percentage of net sales, SG&A expenses increased to 5.8% in 1999 compared
with 5.6% in 1998.
R&D expenses increased to $22.3 million in 1999 from $14.5 million in
1998 due to the acquisition of Therics (impact of $4.5 million), higher spending
at Molecumetics in support of collaboration programs (up $2.3 million) and
higher product development spending at Film Products (up $1 million).
Unusual charges (net) in 1999 totaled $4.1 million ($2.6 million
after income taxes) and included:
- - A fourth-quarter charge of $149,000 ($95,000 after taxes) for costs
associated with the evaluation of financing and structural options for the
Technology Group;
- - A third-quarter gain of $712,000 ($456,000 after taxes) on the sale of
corporate real estate (included in "Corporate expenses, net" in the
operating profit table on page 14);
- - A second-quarter charge of $3.5 million ($2.2 million after taxes) related to
the write-off of in-process R&D expenses associated with the Therics
acquisition (see page 5 for more information); and
- - A second-quarter charge of $1.2 million ($749,000 after taxes) for the write-
off of excess packaging film capacity.
For more information on costs and expenses, see the business segment
review on pages 27-33.
Interest Income and Expense. Interest income decreased to $1.4 million in 1999
from $2.3 million in 1998 due to lower average cash equivalents balance (see
"Cash Flows" on page 24 for more information) and yields. The average
tax-equivalent yield earned on cash equivalents was approximately 5.1% in 1999
and 5.6% in 1998.
Interest expense increased to $9.1 million in 1999 from $1.3 million
in 1998 due to higher average debt outstanding of $165.3 million (average of
$143 million variable-rate debt and average of $22.3 million fixed-rate debt) in
1999 compared to $27.3 million in 1998 (all fixed-rate debt). The impact on
interest expense of higher average debt (see "Cash Flows" on page 24 for more
information) was partially offset by:
- - Lower average interest cost of 6.2% in 1999 (6.1% average on variable-rate
debt and 7.2% on fixed-rate debt) versus 7.2% in 1998 (all fixed-rate debt);
and
- - Higher capitalized interest from higher capital expenditures ($1.6 million in
1999 versus $915,000 in 1998).
22
Income Taxes. The effective tax rate, excluding unusual items and investment
activities, was approximately 35.5% in 1999 compared to 35% in 1998. The
increase during 1999 was due to a higher effective state income tax rate and
lower tax-exempt interest income, partially offset by a higher R&D tax credit
from higher R&D expenses. See Note 15 on page 64 for additional tax rate
information.
Financial Condition
Assets
Total assets increased to $903.8 million at December 31, 2000, from
$792.5 million at December 31, 1999, mainly due to:
- - An increase in the carrying value of venture capital investments from net new
investments and appreciation in available-for-sale securities (combined
impact of $91.6 million);
- - Net cash generated during the year ($18.7 million - see page 24);
- - Capital expenditures in excess of depreciation, amortization and asset
write-offs ($19.8 million); and
- - Higher prepaid pension assets due to pension income recognized during the
year (up $7.7 million).
The above increase in total assets was partially offset by decreases in accounts
receivable and inventories (down $31.5 million) due primarily to lower sales in
the fourth quarter of 2000 versus the fourth quarter of 1999.
Liabilities and Available Credit
Total liabilities were $406 million at December 31, 2000, down from
$420.3 million at December 31, 1999, primarily due to the impact of the
following:
- - Lower accounts payable consistent with lower levels of inventory and sales
(down $9.7 million); and
- - Lower accrued expenses due to lower accrued interest and lower accrued
employee related costs (down $8.4 million).
The above decreases in liabilities were partially offset by an increase in the
deferred income tax liability of $7.4 million, including an increase due to
higher unrealized appreciation from available-for-sale securities (up $11.8
million).
Debt outstanding of $268.1 million at December 31, 2000, consisted of
a $250 million term loan maturing in 2005, a note payable with a remaining
balance of $15 million and other debt assumed in acquisitions of $3.1 million.
We also have a revolving credit facility that permits borrowings of up to $275
million (no amounts borrowed at December 31, 2000). The facility matures on July
9, 2002. See Note 9 on page 56 for more information on debt and credit
agreements.
23
Shareholders' Equity
At December 31, 2000, Tredegar had 38,084,407 shares of common stock
outstanding and a total market capitalization of $664.1 million, compared with
37,661,140 shares outstanding and a total market capitalization of $779.1
million at December 31, 1999.
We purchased 35,000 shares of our common stock for $629,000 ($17.97 per
share) during 2000. During 1999, we did not purchase any shares of our common
stock. During 1998, we purchased 1,667,054 shares of our common stock for $36.8
million ($22.06 per share). Since becoming an independent company in 1989, we
have purchased a total of 20.2 million shares, or 35% of our issued and
outstanding common stock, for $116.1 million ($5.75 per share). Under a standing
authorization from our board of directors, we may purchase an additional four
million shares in the open market or in privately negotiated transactions at
prices management deems appropriate.
Cash Flows
The reasons for the changes in cash and cash equivalents during 2000,
1999 and 1998, are summarized below:
- ----------------------------------------------------------------------------------------------
(In Millions)
2000 1999 1998
- ----------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of year $ 25.8 $ 25.4 $120.1
- ----------------------------------------------------------------------------------------------
Cash provided by (used in) continuing operating
activities, net of capital expenditures and dividends
(including income taxes associated with venture
capital net gains or losses) (64.3) 40.8 33.2
Cash used by discontinued operations - - (1.9)
Proceeds from the exercise of stock options (including
related income tax benefits realized by Tredegar) 3.9 7.4 6.2
Acquisitions (see Note 2 on page 48) (3.1) (215.2) (60.9)
Repurchases of Tredegar common stock (.6) - (36.8)
New venture capital investments, net of pretax
proceeds from disposals (see Note 7 on page 53) 76.9 (77.8) (29.9)
Proceeds from the sale of Fiberlux 8.0 - -
Other, net 3.0 .2 .4
Net increase (decrease) in borrowings (5.1) 245.0 (5.0)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 18.7 .4 (94.7)
- ----------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 44.5 $ 25.8 $ 25.4
- ----------------------------------------------------------------------------------------------
In 2000, cash used in continuing operating activities, net of capital
expenditures and dividends, was $64.3 million compared to cash provided by
operating activities, net of capital expenditures and dividends, of $40.8
million in 1999. This change is due primarily to income taxes paid on net gains
from investments (up $55 million), and higher capital expenditures (up $34.6
million), lower cash generated by manufacturing operations and higher spending
at Molecumetics and Therics.
24
Capital expenditures in 2000 reflect the normal replacement of
machinery and equipment and:
- - A new feminine pad topsheet film production line at the plant in Terre Haute,
Indiana;
- - Machinery and equipment purchased for the manufacture of breathable and
elastomeric films (these films are replacing traditional diaper backsheet and
other components in order to improve comfort and fit);
- - Expansion of capacity in Brazil for disposable films for hygiene products,
such as feminine pads and diapers;
- - Continued expansion of capacity at the Hungary facility, which produces
disposable films for hygiene products marketed in Europe;
- - A new plastic film manufacturing facility in Shanghai, China (this plant will
make film for primarily hygiene products and should begin production in the
second quarter of 2001);
- - Press modernization at the aluminum extrusion plant in Kentland, Indiana; and
- - The second phase of a modernization program at the aluminum extrusion plant
in Newnan, Georgia (the first phase was completed in 1996).
Cash provided by continuing operating activities, net of capital
expenditures and dividends, increased $7.6 million in 1999 due primarily to
higher cash flow from operating activities, partially offset by higher capital
expenditures (up $11.2 million).
Capital expenditures in 1999 reflect the normal replacement of
machinery and equipment and:
- - Machinery and equipment purchased for the Hungary facility;
- - Machinery and equipment purchased for the manufacture of breathable and
elastomeric films;
- - Further expansion of diaper backsheet film capacity in Brazil;
- - Commercial production capacity for new film products; and
- - Second phase of a modernization program at the aluminum extrusion plant in
Newnan, Georgia.
Cash provided by continuing operating activities, net of capital
expenditures and dividends was $33.2 million in 1998, down from $39.5 million in
1997 due primarily to higher capital expenditures for manufacturing and research
operations and higher dividends, partially offset by improved operating results.
Cash used by discontinued operations of $1.9 million was due to the recapture of
tax deductions previously taken on the UMWA Fund liability, partially offset by
reimbursements received from the UMWA Fund.
Capital expenditures increased $11.4 million in 1998. Capital
expenditures in 1998 reflect the normal replacement of machinery and equipment
and:
- - The new facility in Hungary;
- - Machinery and equipment purchased for the manufacture of breathable and
elastomeric films;
- - Expansion of diaper backsheet film capacity in Brazil;
- - The second phase of a modernization program at the aluminum extrusion plant
in Newnan, Georgia; and
- - Expansion of Molecumetics' research lab in Bellevue, Washington.
25
Quantitative and Qualitative Disclosures about Market Risk
Tredegar has exposure to the volatility of interest rates,
polyethylene and polypropylene resin prices, aluminum ingot and scrap prices,
foreign currencies, emerging markets and technology stocks. See Note 9 on page
56 regarding credit agreements and interest rate exposures.
Changes in resin prices, and the timing of those changes, could have
a significant impact on profit margins in Film Products; however, those changes
are generally followed by a corresponding change in selling prices. Profit
margins in Aluminum Extrusions are sensitive to fluctuations in aluminum ingot
and scrap prices but are also generally followed by a corresponding change in
selling prices; however, there is no assurance that higher ingot costs can be
passed along to customers.
In the normal course of business, we enter 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 our exposure to
aluminum price volatility under these fixed-price arrangements, which generally
have a duration of not more than twelve months, we enter into a combination of
forward purchase commitments and futures contracts to acquire or hedge aluminum,
based on the scheduled deliveries. See Note 6 on page 52 for more information.
We sell to customers in foreign markets through our foreign
operations and through exports from U.S. plants. The percentage of sales, pretax
income and total assets for manufacturing operations related to foreign markets
for 2000 and 1999 are presented below:
- -------------------------------------------------------------------------------------------------------------------
Tredegar Corporation - Manufacturing Operations
Percentage of Net Sales, Pretax Income and Total Assets Related to Foreign Markets
- -------------------------------------------------------------------------------------------------------------------
2000 1999
--------------------------------------------------- -----------------------------------------------
% of Total % of Total % of Total % of Total
Net Sales* Pretax Income* % Total Net Sales* Pretax Income* % Total
------------------- -------------------- Assets ------------------ ------------------ Assets -
Exports Foreign Exports Foreign Foreign Exports Foreign Exports Foreign Foreign
From Oper- From Oper- Oper- From Oper- From Oper- Oper-
U.S. ations U.S. ations ations* U.S. ations U.S. ations ations*
------------------- -------------------- ---------- ------------------ ----------------- ----------
Canada 3 18 9 12 14 3 19 5 11 15
Europe 1 4 2 9 6 1 4 3 6 4
Latin America 3 2 9 4 3 3 2 7 2 2
Asia 4 1 6 3 2 4 1 5 2 1
- -------------------------------------------------------------------------------------------------------------------
Total % exposure
to foreign
markets 11 25 26 28 25 11 26 20 21 22
- -------------------------------------------------------------------------------------------------------------------
* The percentages for foreign markets are relative to Tredegar's total net
sales, pretax income and total assets from manufacturing operations
(consolidated net sales, pretax income and total assets from continuing
operations excluding Therics, Molecumetics and venture capital investment
activities and unusual items).
We attempt to match the pricing and cost of our products in the same
currency and generally view the volatility of foreign currencies and emerging
markets, and the corresponding impact on earnings and cash flow, as part of the
overall risk of operating in a global environment. Exports from the U.S. are
generally denominated in U.S. Dollars. Our foreign operations in emerging
markets have agreements with certain customers that index the pricing of our
products to the U.S. Dollar, the German Mark or the Euro. Our foreign currency
exposure on income from foreign operations in Europe primarily relates to the
German Mark and the Euro. We believe that our exposure to the Canadian Dollar
26
has been substantially neutralized by the U.S. Dollar-based spread (the
difference between selling prices and aluminum costs) generated from Canadian
casting operations and exports from Canada to the U.S. The acquisition of Exxon
Films on May 17, 1999, has increased the proportion of assets located in the
U.S. It has also increased the amount of operating profit earned in the U.S.,
but this has been more than offset by higher U.S. Dollar interest expense on
debt related to the acquisition.
We have investments in private venture capital fund limited
partnerships and early-stage technology companies, including the stock of
privately-held companies and the restricted and unrestricted stock of companies
that have recently registered shares in initial public offerings. The portfolio
is subject to risks typically associated with investments in technology start-up
companies, which include business failure, illiquidity and stock market
volatility. Furthermore, publicly traded stocks of emerging, technology-based
companies have higher volatility and risk than the U.S. stock market as a whole.
See the business segment review which begins below and Note 7 on page 53 for
more information.
New Accounting Standards
The Financial Accounting Standards Board has issued a new standard
affecting the accounting for derivative instruments and hedging activities. It
requires us to recognize all derivatives as either assets or liabilities on the
balance sheet and measure those instruments at fair value. Changes in the fair
value of the derivative instruments are either recognized periodically in income
or other comprehensive income. The accounting for our futures contracts to hedge
aluminum price risk will be affected by this new standard. We have adopted this
standard effective January 1, 2001. The adoption did not have a material effect
on our results of operations or financial position.
Business Segment Review
Film Products
Sales. Film Products sales increased by 11% in 2000 due to the acquisition of
Exxon Films on May 17, 1999 (see Note 2 on page 48) and raw material driven
price increases. Total volume for the year was up 2% due to the acquisition of
Exxon Films. On a pro forma basis (assuming the acquisition of Exxon Films
occurred at the beginning of 1998), annual sales for Film Products declined by
1% and volume declined by 11%. The decline in volume was due to:
- - Lower volumes in traditional diaper backsheet due to the transition to
cloth-like breathable materials;
- - Lower volume due to the continuing decline in market share of a major
customer; and
- - Lower volume due to the loss of some traditional diaper backsheet business in
foreign markets to local competition in those markets.
27
Film Products sales increased by 19% in 1999 due to the acquisition
of Exxon Films, partially offset by lower volume in existing operations. Lower
volume from existing operations (down 4.6%) was due to:
- - The transition to breathable and elastomeric films;
- - Lower volume due to decline in the market share of a major customer; and
- - Weakness in international markets (volume was down 3.7% for European
operations and down 13.3% for Latin American operations).
On a pro forma basis (assuming the acquisition of Exxon Films occurred at the
beginning of 1998), Film Products sales declined by almost 2% to $386 million in
1999 from $393 million in 1998.
Operating Profit. Film Products operating profit (excluding unusual items) was
$47.1 million in 2000, down from $59.6 million in 1999. The decline in operating
profit was due to:
- - Manufacturing inefficiencies associated with the rollout of cloth-like
breathable film backsheet for diapers;
- - Lower volume from the transition to new products and lower customer market
share as noted above;
- - Higher costs related to new product development and commercialization
efforts; and
- - A third-quarter charge of $3.5 million for doubtful accounts related to two
diaper film customers.
Film Products operating profit (excluding unusual items) was $59.6
million in 1999, up from $53.8 million in 1998 due to the acquisition of Exxon
Films, partially offset by lower profit from existing operations. Lower profit
from existing operations (down $6.9 million or 12.8%) was due to:
- - Lower volume from the transition to new products and lower customer market
share as noted above;
- - Weakness in international markets (profits down $2.3 million for foreign
operations), including a decline in profits in Brazil (down $2 million due
primarily to the economic impact of the devaluation of the Real) and lower
profits from European operations (down $2.8 million due mainly to lower
volume and higher losses of $900,000 from start-up of the new plant in
Hungary), partially offset by higher profits in China (up $2.6 million); and
- - Higher product development spending (up $1 million).
Identifiable Assets. Identifiable assets in Film Products were $367.5 million
in 2000, up from $360.5 million in 1999 due primarily to the impact of the
following:
- - Capital expenditures in excess of depreciation and amortization ($30
million);
- - A decrease in accounts receivable and inventory reflecting lower sales volume
(down $11.9 million); and
- - The write-off of goodwill in connection with the write-off of excess
production capacity ($10 million).
28
Identifiable assets in Film Products were $360.5 million in 1999, up
from $132.2 million in 1998 due primarily to:
- - The acquisition of Exxon Films (assets acquired totaled $210 million,
including goodwill of $115 million);
- - Higher receivables and inventories (up $9 million) reflecting primarily
higher raw material costs from higher plastic resin prices at the end of the
year; and
- - Capital expenditures in excess of depreciation and amortization ($6.5
million).
Depreciation, Amortization and Capital Expenditures. Depreciation and
amortization for Film Products was $23.1 million in 2000, up from $18.8 million
in 1999 due to the acquisition of Exxon Films and capital expenditures (up $27.9
million over 1999). Depreciation and amortization for Film Products was $18.8
million in 1999, up from $12 million in 1998 due to the acquisition of Exxon
Films. The acquisition of Exxon Films generated goodwill of $115.2 million, $10
million of which was written off in 2000 due to excess production capacity. The
remainder is being amortized over thirty years.
Capital expenditures in Film Products in 2000 reflect the normal
replacement of machinery and equipment and:
- - A new feminine pad topsheet film production line at our plant in Terre Haute,
Indiana;
- - Machinery and equipment purchased for the manufacture of breathable and
and elastomeric films;
- - Expansion of capacity in Brazil for disposable films for hygiene products;
- - A new plastic film manufacturing facility in Shanghai, China; and
- - Continued expansion of capacity at the Hungary facility.
Capital expenditures in Film Products in 1999 reflect the normal
replacement of machinery and equipment and:
- - Machinery and equipment purchased for the Hungary facility;
- - Machinery and equipment purchased for the manufacture of breathable and
elastomeric films;
- - Further expansion of diaper backsheet film capacity in Brazil; and
- - Commercial production capacity for new products.
Fiberlux
Fiberlux was sold during the second quarter of 2000 for a gain of
$762,000 ($487,680 after income taxes). Fiberlux was not material to the
consolidated results of operations.
Aluminum Extrusions
Sales. Sales in Aluminum Extrusions increased by 4% in 2000 primarily due to
higher average selling prices reflecting higher raw material costs. Volume
declined by 4% due to weakening demand from transportation, distribution and
construction markets during the second half of the year (see our market segments
in the table on page 3).
29
Sales in Aluminum Extrusions increased by 17% in 1999 due to
acquisitions in 1998 (see Note 2 on page 48) and higher volume from strong
demand, partially offset by lower average selling prices. Volume was up 10.6% on
a comparable basis excluding acquisitions. Lower average selling prices (down
about 6 cents per pound or 4%) were due primarily to lower average raw material
(aluminum) costs. On a pro forma basis, assuming acquisitions in Aluminum
Extrusions in 1997 and 1998 occurred at the beginning of 1997, sales increased
by 4.5% in 1999.
Operating Profit. Operating profit (excluding unusual items) decreased by 6% in
2000 primarily due to lower volumes resulting from weakening demand in our major
markets during the latter half of the year, higher per-unit conversion costs and
competitive pricing pressures.
Operating profit increased by 20% in 1999 due to higher volume and
acquisitions as noted above. Operating results were adversely affected by press
and furnace repairs and resulting downtime at the El Campo, Texas, facility, and
expenses and disruptions associated with the second phase of the press
modernization project at the Newnan, Georgia plant (the first phase was
completed in 1996).
Identifiable Assets. Identifiable assets in Aluminum Extrusions were $210.4
million in 2000, down from $216.3 million in 1999 due primarily to a decrease in
accounts receivable of $15.2 million reflecting lower sales in the fourth
quarter of 2000 compared to the fourth quarter of 1999, partially offset by
capital expenditures in excess of depreciation and amortization of $12 million.
Identifiable assets in Aluminum Extrusions were $216.3 million in
1999, up from $201.5 million in 1998, due primarily to:
- - Capital expenditures in excess of depreciation and amortization ($6.9
million); and
- - Higher accounts receivable (up $7 million) from higher sales in the fourth
quarter of 1999 compared to the fourth quarter of 1998.
Depreciation, Amortization and Capital Expenditures. Depreciation and
amortization for Aluminum Extrusions was $9.9 million in 2000, up slightly from
$9.5 million in 1999 due primarily to capital expenditures. Depreciation and
amortization was $9.5 million in 1999, up from $8.4 million in 1998 due to
acquisitions.
Capital expenditures in 2000 and 1999 reflect the normal replacement
of machinery and equipment and:
- - The second phase of a press modernization program at the plant in Newnan,
Georgia (total capital outlays for this project were approximately $11
million with $3.5 million spent in 2000, $6.2 million spent in 1999 and
$1.3 million spent in 1998); and
- - The modernization of one of the presses at our plant in Kentland, Indiana in
2000.
Technology
Revenues recognized to date for technology operating companies,
Molecumetics and Therics (Therics was acquired on April 8, 1999), relate
entirely to payments received for R&D support, including revenues of $7.3
million in 2000, $7.8 million in 1999 and $5.7 million in 1998. Operating losses
30
(excluding unusual items) from technology operating companies increased by $5
million in 2000 due to increased spending for R&D efforts at both Molecumetics
and Therics. R&D support revenues from collaboration arrangements decreased at
Molecumetics in 2000 ($6.9 million in 2000 compared to $7.6 million in 1999).
This decrease was slightly offset by higher revenue at Therics (up $242,000).
Operating losses at Molecumetics decreased to $3.4 million in 1999
from $3.5 million in 1998. R&D support revenues from collaboration agreements at
Molecumetics were $7.6 million in 1999, up from $5.7 million in 1998. See pages
3-6 for more information on Molecumetics and Therics.
Changes in Technology segment identifiable assets over the last three
years are summarized below:
- ---------------------------------------------------------------------------------------
(In Millions)
2000 1999 1998
- ---------------------------------------------------------------------------------------
Technology segment identifiable assets,
beginning of year $ 159.6 $ 66.3 $ 37.2
- --------------------------------------------------------------------------------------
Molecumetics:
Capital expenditures, primarily expansion of its
research lab in Bellevue, Washington 2.1 1.4 3.6
Depreciation (1.7) (1.5) (1.3)
Therics:
Assets acquired (see Note 2 on page 48) - 13.6 -
Write-off of in-process R&D (unusual item, see
pages 5-6) - (3.5) -
Capital expenditures 1.7 .8 -
Depreciation (.9) (.5) -
Amortization of intangibles (.9) (.7) -
Tredegar Investments (see Note 7 on page 53)
New investments 93.1 81.7 35.4
Proceeds from the sale of investments, including
broker receivables at end of period (170.3) (3.9) (5.5)
Realized gains 154.9 3.1 4.6
Realized losses, write-offs and write-downs (19.0) (7.7) (2.3)
Transfer of carrying value of Therics out of
portfolio (acquired by Tredegar) - (3.4) -
Increase (decrease) in unrealized gain on
available-for-sale securities 32.8 10.9 (5.7)
Other (primarily increase in deferred income tax
asset in 1999) (.3) 3.0 .3
- --------------------------------------------------------------------------------------
Net increase in Technology segment identifiable
assets 91.5 93.3 29.1
- --------------------------------------------------------------------------------------
Technology segment identifiable assets,
end of year $ 251.1 $ 159.6 $ 66.3
- --------------------------------------------------------------------------------------
Tredegar Investments is our investment subsidiary. A schedule of
investments is provided in Note 7 on page 53. Information on how we account for
and value our investments is provided in Note 1 on page 42.
31
The appreciation (depreciation) in net asset value related to
investment performance for the last three years is summarized below:
- --------------------------------------------------------------------------------
(In Millions)
2000 1999 1998
- --------------------------------------------------------------------------------
Net realized gains, losses, writedowns and related
operating expenses for investments
reflected in consolidated statements
of income (net of tax) $ 83.8 $ (4.5) $ .4
Change in unrealized appreciation of investments
(net of tax) 89.2 41.4 (1.4)
- --------------------------------------------------------------------------------
Appreciation (depreciation) in net asset value
related to investment performance $ 173.0 $ 36.9 $ (1.0)
- --------------------------------------------------------------------------------
The appreciation was driven by a combination of events including
acquisitions, initial public offerings and private investment asset write-ups.
The following companies held directly in the portfolio, or held indirectly
through our interests in other venture capital funds, accounted for the
appreciation in net asset value in 2000:
- ------------------------------------------------------------------------------------------------------------
(In Millions)
Investment Reason for Change 2000
- ------------------------------------------------------------------------------------------------------------
Public companies:
Openwave Systems, Inc. Acquisition of Software.com, a direct holding* $ 36.4
Lucent Technologies, Inc. Acquisition of Chromatis Networks, a direct holding* 14.1
Superconductor Tech., Inc. Change in stock price* 10.1
Illumina, Inc. Initial public offering, a direct holding 9.9
Copper Mountain Networks Acquisition of OnPrem Networks, Inc., a direct holding* 8.4
Adolor Corporation Initial public offering, a direct holding 6.2
Nortel Networks Corporation Acquisition of EPiCON, a direct holding* 4.9
Rosetta Inpharmatics, Inc. Initial public offering, a direct holding 4.7
Cisco Systems, Inc. Change in stock price* 3.7
Sonus Networks Initial public offering, an indirect holding 3.2
Cosine Communications Initial public offering, an indirect holding 2.3
Eclipse Surgical Technologies Change in stock price (2.1)
Digital Island, Inc. Change in stock price* (3.1)
Private companies:
eWireless, inc. New round of financing at higher valuation 28.8
NovaLux, Inc. New round of financing at higher valuation 24.2
Venture capital funds Various 16.3
IRSI New round of financing at higher valuation 7.1
BroadRiver Communications New round of financing at higher valuation 2.7
GreaterGood.com Lower valuation (2.4)
Cooking.com Lower valuation (3.5)
Other public and private companies Various 2.9
- ------------------------------------------------------------------------------------------------------------
Appreciation in net asset value before operating expenses 174.8
After-tax operating and other expenses (1.8)
- ------------------------------------------------------------------------------------------------------------
Appreciation in net asset value related to investment performance $ 173.0
- ------------------------------------------------------------------------------------------------------------
* Significant portion of position liquidated in 2000.
32
The cost basis, carrying value and net asset value of our investment
portfolio is reconciled below:
- -----------------------------------------------------------------------------------------
(In Millions)
December 31
-------------------------------
2000 1999 1998
- ------------------------------------------------------------------------------------------
Cost basis of investments $ 213.1 $ 135.5 $ 60.6
Writedowns taken on securities held (charged to
earnings) (26.6) (7.8) (2.7)
Unrealized appreciation on public securities held
by Tredegar (reflected directly in equity net of
deferred income taxes) 45.8 13.0 2.1
- ------------------------------------------------------------------------------------------
Carrying value of investments reflected in the
balance sheet 232.3 140.7 60.0
Unrealized appreciation in private securities held by
Tredegar and in its indirect interest in all securities
held by venture capital funds 171.3 64.7 10.8
- ------------------------------------------------------------------------------------------
Estimated fair value of investments 403.6 205.4 70.8
Estimated income taxes on assumed disposal at
fair value (68.6) (25.2) (3.7)
- ------------------------------------------------------------------------------------------
Estimated net asset value of investments $ 335.0 $ 180.2 $ 67.1
- ------------------------------------------------------------------------------------------
Changes in net asset value are summarized below:
- ------------------------------------------------------------------------------------------
(In Millions)
2000 1999 1998
- ------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 180.2 $ 67.1 $ 35.4
- ------------------------------------------------------------------------------------------
After-tax appreciation (depreciation) in net asset
value related to investment performance (net of
operating expenses) 173.0 36.9 (1.0)
After-tax operating expenses funded by Tredegar 4.2 1.6 1.0
New investments 93.1 81.7 35.4
Transfer of the net asset value of Therics out of
portfolio (acquired by Tredegar) - (4.3) -
Reduction in net asset value due to the sale of
investments (115.5) (2.8) (3.7)
- ------------------------------------------------------------------------------------------
Increase (decrease) in net asset value 154.8 113.1 31.7
- ------------------------------------------------------------------------------------------
Net asset value at end of the period $ 335.0 $ 180.2 $ 67.1
- ------------------------------------------------------------------------------------------
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
See discussion of quantitative and qualitative disclosures about
market risk on page 26 of Management's Discussion and Analysis.
33
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the index on page 36 for references to the report of independent
accountants, management's report on the financial statements, the consolidated
financial statements and selected quarterly financial data.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF TREDEGAR
The information concerning directors and persons nominated to become
directors of Tredegar included in the Proxy Statement under the heading
"Election of Directors" is incorporated herein by reference.
The information included in the Proxy Statement under the heading
"Stock Ownership" is incorporated herein by reference.
Set forth below are the names, ages and titles of our executive
officers:
Name Age Title
John D. Gottwald 46 President and Chief Executive Officer
Douglas R. Monk 55 Executive Vice President and Chief Operating Officer
Norman A. Scher 63 Executive Vice President and Chief Financial Officer
Edward A. Cunningham 43 Vice President Corporate Communications and Investor
Relations
D. Andrew Edwards 42 Vice President, Finance and Treasurer
Larry J. Scott 50 Vice President, Audit
Nancy M. Taylor 40 Vice President, Law and Corporate Secretary
William J. Wetmore 47 Vice President, The William L. Bonnell Company, Inc.
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.
Douglas R. Monk. Mr. Monk was elected Executive Vice President and Chief
Operating Officer on November 18, 1998, and is responsible for our manufacturing
operations. Mr. Monk has served as a Vice President since August 29, 1994, and
34
served as President of The William L. Bonnell Company, Inc. and Capitol Products
Corporation from February 23, 1993 to December 1, 1998.
Edward A. Cunningham. Mr. Cunningham was elected Vice President, Corporate
Communications and Investor Relations on May 24, 2000. Mr. Cunningham served as
Director of Corporate Communications and Investor Relations from March 1, 1994
until May 24, 2000. From July 10, 1989, until March 1, 1994, he served as
Manager of Corporate Communications.
D. Andrew Edwards. Mr. Edwards was elected Vice President, Finance and Treasurer
on November 18, 1998. Mr. Edwards has served as Treasurer since May 22, 1997.
From October 19, 1992 until July 10, 2000, Mr. Edwards served as Controller.
Larry J. Scott. Mr. Scott was elected Vice President, Audit on May 24, 2000. Mr.
Scott served as Director of Internal Audit since February 25, 1994.
Nancy M. Taylor. Ms. Taylor was elected Vice President, Law on November 18,
1998. Ms. Taylor has served as Secretary since February 25, 1994. From May 22,
1997 until July 25, 2000, she served as General Counsel. From February 25, 1994
until May 22, 1997, Ms. Taylor served as Corporate Counsel. She served as
Assistant General Counsel from September 1, 1991 until February 25, 1994.
William J. Wetmore. Mr. Wetmore was elected Vice President on May 24, 2000. He
has also served as President of The William L. Bonnell Company, Inc. and Capitol
Products Corporation since December 1, 1998. Mr. Wetmore served as Director of
Operations for our Aluminum Extrusions Division since October 1, 1996. He was
the plant manager of The William L. Bonnell Company, Inc.'s plant in Carthage,
Tennessee prior to that time.
Item 11. EXECUTIVE COMPENSATION
The information included in the Proxy Statement under the heading
"Compensation of Executive Officers and Directors" is incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information included in the Proxy Statement under the heading
"Stock Ownership" is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
35
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) List of documents filed as a part of the report:
(1) Financial statements:
Tredegar Corporation
Index to Financial Statements and Supplementary Data
Page
- -----------------------------------------------------------------------------
Report of Independent Accountants 37
-----------------------------------------------------------------------------
Management's Report on the Financial Statements 37
- -----------------------------------------------------------------------------
Financial Statements (Audited):
- -----------------------------------------------------------------------------
Consolidated Statements of Income for the Years Ended 38
December 31, 2000, 1999 and 1998
- -----------------------------------------------------------------------------
Consolidated Balance Sheets as of December 31, 2000 39
and 1999
- -----------------------------------------------------------------------------
Consolidated Statements of Cash Flows for the Years Ended 40
December 31, 2000, 1999 and 1998
- -----------------------------------------------------------------------------
Consolidated Statements of Shareholder's Equity for the Years 41
Ended December 31, 2000, 1999 and 1998
- -----------------------------------------------------------------------------
Notes to Financial Statements 42-67
- -----------------------------------------------------------------------------
Selected Quarterly Financial Data (Unaudited) 68
- -----------------------------------------------------------------------------
(2) Financial statement schedules:
None
(3) Exhibits:
See Exhibit Index on page 71.
(b) Reports on Form 8-K
We did not file or amend any reports on Form 8-K during the
last quarter of the year ended December 31, 2000.
36
INDEPENDENT ACCOUNTANTS' AND MANAGEMENT'S REPORTS
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders
of Tredegar Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, cash flows and shareholders' equity
present fairly, in all material respects, the financial position of Tredegar
Corporation and Subsidiaries ("Tredegar") at December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Richmond, Virginia
January 18, 2001
MANAGEMENT'S REPORT ON THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Tredegar's management has prepared the financial statements and related
notes appearing on pages 38-67 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 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 PricewaterhouseCoopers
LLP, independent 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.
37
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
Tredegar Corporation and Subsidiaries
Years Ended December 31 2000 1999 1998
- -------------------------------------------------------------------------------
(In thousands, except per-share amounts)
Revenues:
Gross sales $886,379 $ 835,632 $ 710,742
Freight (17,125) (15,221) (10,946)
- -------------------------------------------------------------------------------
Net sales 869,254 820,411 699,796
Other income (expense), net 138,204 (4,362) 4,015
- --------------------------------------------------------------------------------
Total 1,007,458 816,049 703,811
- -------------------------------------------------------------------------------
Costs and expenses:
Cost of goods sold 706,817 648,254 553,184
Selling, general and administrative 52,937 47,357 39,493
Research and development 27,593 22,313 14,502
Amortization of intangibles 5,025 3,430 205
Interest 17,319 9,088 1,318
Unusual items 23,220 4,065 (101)
- -------------------------------------------------------------------------------
Total 832,911 734,507 608,601
- -------------------------------------------------------------------------------
Income from continuing operations
before income taxes 174,547 81,542 95,210
Income taxes 63,171 28,894 31,054
- -------------------------------------------------------------------------------
Income from continuing operations 111,376 52,648 64,156
Income from discontinued operations - - 4,713
- -------------------------------------------------------------------------------
Net income $111,376 $ 52,648 $ 68,869
- -------------------------------------------------------------------------------
Earnings per share:
Basic:
Continuing operations $ 2.94 $ 1.42 $ 1.77
Discontinued operations - - .13
- -------------------------------------------------------------------------------
Net income $ 2.94 $ 1.42 $ 1.90
- -------------------------------------------------------------------------------
Diluted:
Continuing operations $ 2.86 $ 1.36 $ 1.66
Discontinued operations - - .12
- -------------------------------------------------------------------------------
Net income $ 2.86 $ 1.36 $ 1.78
- -------------------------------------------------------------------------------
See accompanying notes to financial statements.
38
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
Tredegar Corporation and Subsidiaries
December 31 2000 1999
- -------------------------------------------------------------------------------
(In thousands, except share amounts)
Assets
Current assets:
Cash and cash equivalents $ 44,530 $ 25,752
Receivable from securities brokers 292 -
Accounts and notes receivable 96,652 121,820
Income taxes recoverable 3,857 -
Inventories 46,825 53,129
Deferred income taxes 13,788 11,230
Prepaid expenses and other 2,818 2,657
- -------------------------------------------------------------------------------
Total current assets 208,762 214,588
- -------------------------------------------------------------------------------
Property, plant and equipment, at cost:
Land and land improvements 12,125 12,328
Buildings 62,631 62,466
Machinery and equipment 443,418 392,771
- -------------------------------------------------------------------------------
Total property, plant and equipment 518,174 467,565
Less accumulated depreciation 244,667 224,158
- -------------------------------------------------------------------------------
Net property, plant and equipment 273,507 243,407
Venture capital investments 232,259 140,698
Other assets and deferred charges 49,661 41,250
Goodwill and other intangibles 139,579 152,544
- -------------------------------------------------------------------------------
Total assets $903,768 $ 792,487
- -------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 51,818 $ 61,476
Accrued expenses 36,593 45,030
Income taxes payable - 1,736
- -------------------------------------------------------------------------------
Total current liabilities 88,411 108,242
Long-term debt 268,102 270,000
Deferred income taxes 40,650 33,205
Other noncurrent liabilities 8,877 8,812
- -------------------------------------------------------------------------------
Total liabilities 406,040 420,259
- -------------------------------------------------------------------------------
Commitments and contingencies (Notes 7, 12 and 17) Shareholders' equity:
Common stock (no par value):
Authorized 150,000,000 shares;
Issued and outstanding - 38,084,407 shares
in 2000 and 37,661,140 in 1999 106,587 103,327
Common stock held in trust for savings restoration
plan (53,871 shares in 2000 and 1999) (1,212) (1,212)
Accumulated other comprehensive income (loss):
Unrealized gain on available-for-sale securities 29,331 8,330
Foreign currency translation adjustment (5,732) (1,672)
Retained earnings 368,754 263,455
- -------------------------------------------------------------------------------
Total shareholders' equity 497,728 372,228
- -------------------------------------------------------------------------------
Total liabilities and shareholders' equity $903,768 $ 792,487
- -------------------------------------------------------------------------------
See accompanying notes to financial statements.
39
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------
Tredegar Corporation and Subsidiaries
Years Ended December 31 2000 1999 1998
- -------------------------------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Net income from continuing operations $ 111,376 $ 52,648 $64,156
Adjustments for noncash items:
Depreciation 31,959 28,263 22,260
Amortization of intangibles 5,025 3,430 205
Write-off of intangibles 9,950 3,725 -
Deferred income taxes (4,673) 1,456 431
Accrued pension income and postretirement benefits (6,648) (2,904) (3,931)
Loss (gain) on sale of venture capital investments (135,969) 4,622 (2,267)
Loss (gain) on equipment writedowns and divestitures 13,080 458 (101)
Allowance for doubtful accounts 5,630 1,854 660
Net cash used by discontinued operating activities - - (1,910)
Changes in assets and liabilities, net of
effects from acquisitions and divestitures:
Accounts and notes receivable 17,994 (15,147) (4,931)
Inventories 4,176 (2,120) (4,035)
Income taxes recoverable and other prepaid expenses (3,691) 1,059 1,263
Accounts payable and accrued expenses (23,990) 15,547 665
Other, net (2,642) (871) (1,691)
- -------------------------------------------------------------------------------------------------
Net cash provided by operating activities 21,577 92,020 70,774
- -------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (79,830) (45,221) (34,070)
Acquisitions (net of cash acquired of $2,393 in
2000 and $1,097 in 1998; excludes debt assumed
of $3,234 in 2000 and equity issued of $11,219
in 1998) (3,082) (215,227) (60,883)
Venture capital investments (93,058) (81,747) (35,399)
Proceeds from the sale of venture capital investments 169,988 3,936 5,462
Proceeds from property disposals and divestitures 9,497 1,424 747
Other, net 1,635 (1,326) (74)
- -------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 5,150 (338,161) (124,217)
- -------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Dividends paid (6,077) (5,950) (5,404)
Net increase (decrease) in borrowings (5,132) 245,000 (5,000)
Repurchases of Tredegar common stock (629) - (36,774)
Tredegar common stock purchased by trust for
savings restoration plan - - (192)
Proceeds from exercise of stock options (including
related income tax benefits realized) 3,889 7,434 6,157
- -------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (7,949) 246,484 (41,213)
- -------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 18,778 343 (94,656)
Cash and cash equivalents at beginning of period 25,752 25,409 120,065
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 44,530 $ 25,752 $25,409
- -------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest payments (net of amount capitalized) $ 20,648 $ 5,554 $ 1,333
Income tax payments, net $ 72,181 $ 24,367 $34,464
- -------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
40
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Tredegar Corporation and Subsidiaries Accumulated
Other Comprehensive
Income (Loss)
-----------------------
Unrealized
Trust for Gain on Foreign Total
Savings Available- Currency Share-
Common Stock Retained Restora- for-Sale Trans- holders'
Shares Amount Earnings tion Plan Securities lation Equity
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share and per-share data)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1997 37,113,735 $ 115,291 $ 153,292 $ (1,020) $ 5,020 $ (37) $ 272,546
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 68,869 - - - 68,869
Other comprehensive loss:
Available-for-sale securities adjustment,
net of reclassification adjustment
(net of tax benefit of $2,049) - - - - (3,644) - (3,644)
Foreign currency translation adjustment
(net of tax benefit of $1,336) - - - - - (2,482) (2,482)
----------
Comprehensive income 62,743
Cash dividends declared ($.15 per share) - - (5,404) - - - (5,404)
Shares issued for acquisition 380,172 11,219 - - - - 11,219
Repurchases of Tredegar common stock (1,667,054) (36,774) - - - - (36,774)
Issued upon exercise of stock options
(including related income tax benefits
of $2,521) 833,898 6,157 - - - - 6,157
Tredegar common stock purchased by
trust for savings restoration plan - - - (192) - - (192)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1998 36,660,751 95,893 216,757 (1,212) 1,376 (2,519) 310,295
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 52,648 - - - 52,648
Other comprehensive income:
Available-for-sale securities adjustment,
net of reclassification adjustment
(net of tax of $3,911) - - - - 6,954 - 6,954
Foreign currency translation adjustment
(net of tax of $466) - - - - - 847 847
----------
Comprehensive income 60,449
Cash dividends declared ($.16 per share) - - (5,950) - - - (5,950)
Issued upon exercise of stock options
(including related income tax benefits
of $3,007) 1,000,389 7,434 - - - - 7,434
- ------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1999 37,661,140 103,327 263,455 (1,212) 8,330 (1,672) 372,228
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 111,376 - - - 111,376
Other comprehensive income (loss):
Available-for-sale securities adjustment,
net of reclassification adjustment
(net of tax of $11,813) - - - - 21,001 - 21,001
Foreign currency translation adjustment
(net of tax benefit of $2,186) - - - - - (4,060) (4,060)
----------
Comprehensive income 128,317
Cash dividends declared ($.16 per share) - - (6,077) - - - (6,077)
Repurchases of Tredegar common stock (35,000) (629) (629)
Issued upon exercise of stock options
(including related income tax benefits
of $633) 458,267 3,889 - - - - 3,889
- ------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2000 38,084,407 $ 106,587 $ 368,754 $ (1,212) $ 29,331 $ (5,732) $ 497,728
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
41
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Tredegar Corporation and Subsidiaries
(In thousands, except Tredegar share and per-share amounts and unless otherwise
stated)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Organization and Nature of Operations. Tredegar Corporation and subsidiaries
("Tredegar") is engaged in the manufacture of plastic films and aluminum
extrusions. We also have two operating subsidiaries focused on
healthcare-related technologies and an investment subsidiary. For more
information on our products, principal markets and customers, see the
"Description of Business" on pages 1-7 and the segment tables on pages 13-17.
During the years 1998 through 2000, we made several acquisitions (see Note 2).
Basis of Presentation. The consolidated financial statements include the
accounts and operations of Tredegar and all of its majority-owned subsidiaries.
Intercompany accounts and transactions have been eliminated. Certain previously
reported amounts have been reclassified to conform to the 2000 presentation.
On May 20, 1998, we declared a three-for-one stock split payable on
July 1, 1998, to shareholders of record on June 15, 1998. All historical
references to shares, per-share amounts, stock option data and market prices of
our common stock have been restated to reflect the split.
The preparation of financial statements in conformity with generally
accepted accounting principles requires us 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
delivery of product to the customer has occurred, the price of the product is
fixed and determinable, and collectibility is reasonably assured. Amounts billed
to customers related to freight have been classified as gross sales in the
accompanying consolidated statements of income. The cost of freight has been
classified as a separate line in the accompanying consolidated statements of
income.
Contract research revenue from collaboration agreements with our
technology operating companies (Molecumetics and Therics) is accounted for under
the percentage-of-completion method. Under the percentage-of-completion method,
contract research support payments received in advance are recorded as deferred
revenue and recognized as revenue only after the services to which they relate
have been performed. The application of this revenue recognition method is
dependent on the contractual arrangement of each agreement. Accordingly, revenue
is recognized on the proportional achievement of deliveries against a compound
delivery schedule or as development labor is expended against a total research
and development labor plan, as appropriate. A contract is considered
substantially complete when the remaining costs and potential risks associated
with that contract are insignificant in amount. There is little or no profit
generated from contract research support programs. At December 31, 2000, no
contractually defined milestones had been achieved and there were no licensed
products. Accordingly, no milestone-driven revenue or royalties have been
recognized.
42
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, 2000 and
1999, Tredegar had approximately $40,000 and $25,000, respectively, invested in
securities with maturities of two months or less.
Our 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 the 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, we enter into a combination of forward purchase commitments and
futures contracts to acquire or hedge 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 6).
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 $2,744
in 2000, $1,550 in 1999 and $915 in 1998.
Depreciation is computed primarily by the straight-line method based on
the estimated useful lives of the assets, which range from 15 to 40 years for
buildings and land improvements and generally 2 to 20 years for machinery and
equipment.
Investments. We have investments in private venture capital fund limited
partnerships and early-stage technology companies, including the stock of
privately held companies and the restricted and unrestricted stock of companies
that have recently registered shares in initial public offerings. These
investments individually represent ownership interests of less than 20%.
The securities of public companies held by us (common stock listed on
Nasdaq) are classified as available-for-sale and stated at fair value, with
unrealized holding gains or losses excluded from earnings and reported net of
deferred income taxes in a separate component of shareholders' equity until
realized. The securities of private companies held by us (primarily convertible
preferred stock) are accounted for at the lower of cost or estimated fair value.
Ownership interests of less than or equal to 5% in private venture capital funds
are accounted for at the lower of cost or estimated fair value, while ownership
interests in excess of 5% in such funds are accounted for under the equity
method.
43
We write-down or write-off an investment and recognize a loss when
events indicate the investment is permanently impaired. For private securities
and ownership interests in private venture capital funds, permanent impairment
is deemed to exist whenever the estimated fair value at quarterly valuation
dates is below carrying value. For available-for-sale securities, permanent
impairment is deemed to exist if analyst reports or other information on the
company indicates that recovery of value above cost basis is unlikely within
several quarters.
The fair value of securities of public companies is determined based on
closing price quotations, subject to estimated restricted stock discounts.
Restricted securities are securities for which an agreement exists not to sell
shares for a specified period of time, usually 180 days. Also included within
the category of restricted securities are unregistered securities, the sale of
which must comply with an exemption to the Securities Act of 1933 (usually SEC
Rule 144). These unregistered securities are either the same class of stock that
is registered and publicly traded or are convertible into a class of stock that
is registered and publicly traded. Restricted issues of the same class of stock
that is publicly traded are classified as available-for-sale securities if the
securities can be reasonably expected to qualify for sale within one year. We
estimate discounts to apply to restricted stock based on the circumstances
surrounding each security, including the restriction period, the average trading
volume of the security relative to our holdings and the discount applied by
other venture capital funds with similar restrictions, if known.
We estimate the fair value of securities of private companies using
purchase cost, prices of recent significant private placements of securities of
the same issuer, changes in financial condition and prospects of the issuer, and
estimates of liquidation value. The fair value of ownership interests in private
venture capital funds is based on our estimate of our distributable share of
fund net assets using, among other information:
- - The general partners' estimate of the fair value of nonmarketable
securities held by the funds (which is usually the indicative value from
the latest round of financing or a reduced amount if events subsequent to
the financing imply a lower valuation);
- - Closing bid prices of publicly traded securities held by the funds, subject
to estimated restricted stock discounts; and
- - Fund formulas for allocating profits, losses and distributions.
The limited partnership agreements for each venture capital fund that
we participate in are similar. Generally, 80% of the capital transaction gain or
loss and net income or loss is allocated to all partners in proportion to their
respective total capital contributions. The remaining 20% is allocated to the
general partner. Should the allocation of losses lead to a negative balance in
the capital account of the general partner, the amount of loss necessary to
bring the general partner's capital account to zero is reallocated to limited
partners. If the capital accounts of the limited partners include reallocated
loss from the general partner, the 20% share of capital transaction gains
allocable to the general partner is first applied to the limited partners until
the loss is restored in the ratio of 99:1 in favor of the limited partners. The
remaining reallocated capital transaction gains or net income or loss, if any,
are allocated to the general partner and limited partners according to their
normal allocation percentages.
Because of the inherent uncertainty associated with the valuations of
restricted securities or securities for which there is no public market,
estimates of fair value may differ significantly from the values that would have
44
been used had a ready market for the securities existed. The portfolio is
subject to risks typically associated with investments in technology start-up
companies, which include business failure, illiquidity and stock market
volatility. Furthermore, publicly traded stocks of emerging, technology-based
companies usually have higher volatility and risk than the U.S. stock market as
a whole.
Gains and losses recognized are included in "Other income (expense),
net" in the consolidated statements of income on page 38 and "Venture capital
investments" in the operating profit table on page 50. Beginning April 1, 1998,
we began classifying the stand-alone operating expenses (primarily employee
compensation and benefits and leased office space and equipment) for our venture
capital investment activities with gains and losses in "Venture capital
investments" in the operating profit table. Prior to that time they were
classified in the "Other" category of the technology segment. These expenses,
which continue to be reported in selling, general and administrative expenses in
the consolidated statements of income, totaled $5,096 in 2000, $2,457 in 1999,
$2,073 in 1998 and $1,651 for the nine months ended December 31, 1998.
Goodwill and Other Intangibles. The components of goodwill and other intangibles
at December 31, 2000 and 1999, and related amortization periods are as follows:
- ---------------------------------------------------------------------------------------------------------------------
December 31 2000 1999 Amortization Periods
- ---------------------------------------------------------------------------------------------------------------------
Goodwill at acquisition date related to:
The acquisition of the assets of the plastic films business
of Exxon Chemical Company (May 17, 1999) $115,243 $ 115,243 30 years
Acquisitions prior to November 1, 1970, and
relating to Aluminum Extrusions 19,484 19,484 Not amortized
The acquisition of Exal Aluminum Inc. (June 11, 1998) 13,074 13,074 40 years
The acquisition of the assets of Therics, Inc.
(April 8, 1999) 4,908 4,908 10 years
The acquisiton of the stock of ADMA and Promea
(October 13, 2000) 3,537 - 30 years
Other Therics intangibles at acquisition date:
In-process R&D 3,458 3,458 Immediate write-off
Tradename 2,236 2,236 10 years
Workforce 881 881 5 years
Other (primarily patent rights and licenses acquired) 603 603 No more than 17 yrs.
- ---------------------------------------------------------------------------------------------------------------------
Total at cost 163,424 159,887
Accumulated amortization (8,910) (3,885)
Accumulated write-off of goodwill and in-process R&D acquired (13,408) (3,458)
Accumulated impact of foreign currency translation and other (1,527) -
- ---------------------------------------------------------------------------------------------------------------------
Net $139,579 $ 152,544
- ---------------------------------------------------------------------------------------------------------------------
We evaluate the periods of amortization continually to determine
whether events and circumstances warrant revised estimates of useful lives.
Impairment of Long-Lived Assets. We review long-lived tangible and intangible
assets for possible impairment on a quarterly basis. For assets to be held and
used in operations, if events indicate that an asset may be impaired, we
estimate the future unlevered cash flows expected to result from the use of the
asset and its eventual disposition. Assets (including intangibles) 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
45
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.
Assets to be disposed of are reported at the lower of their carrying
amount or estimated fair value less cost to sell, with an impairment loss
recognized for any write-downs required.
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. Our policy is to fund our
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. We periodically provide certain postemployment benefits
purely on a discretionary basis. Related costs for these programs are accrued
when it is probable that benefits will be paid. All other postemployment
benefits are either accrued under current benefit plans or are not material to
our 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 15). We accrue U.S. federal income taxes on unremitted
earnings of our foreign subsidiaries.
Foreign Currency Translation. The financial statements of foreign subsidiaries,
where the local currency is the functional currency, are translated into U.S.
Dollars using exchange rates in effect at the period end for assets and
liabilities and average exchange rates during each reporting period for results
of operations. Adjustments resulting from the translation of these financial
statements are reflected as a separate component of shareholders' equity.
The financial statements of foreign subsidiaries where the U.S. Dollar
is the functional currency, and which have certain transactions in a local
currency, are remeasured as if the functional currency were the U.S. Dollar.
The remeasurement of local currencies into U.S. Dollars creates translation
adjustments which are included in income. Transaction and remeasurement gains or
losses included in income were not material in 2000, 1999 and 1998.
Earnings Per Share. Basic earnings per share is computed using the weighted
average number of shares of common stock outstanding. Diluted earnings per share
is computed using the weighted average common and potentially dilutive common
equivalent shares outstanding, determined as follows:
- -------------------------------------------------------------------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------------------
Weighted average shares outstanding used
to compute basic earnings per share 37,884,656 36,991,974 36,286,476
Incremental shares issuable upon the
assumed exercise of stock options 1,023,160 1,747,504 2,383,147
- -------------------------------------------------------------------------------------------
Shares used to compute diluted
earnings per share 38,907,816 38,739,478 38,669,623
- -------------------------------------------------------------------------------------------
46
Incremental shares issuable upon the assumed exercise of outstanding
stock options are computed using the average market price during the related
period.
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:
- - 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
- - 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 multiplied by the difference between the market price of our
stock and the amount the employee is required to pay.
The company provides additional pro forma disclosures of the fair value
based method (see Note 11).
Comprehensive Income. Comprehensive income, which is included in the
consolidated statement of shareholders' equity, is defined as net income and
other comprehensive income. 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.
The available-for-sale securities adjustment included in the
consolidated statement of shareholders' equity is comprised of the following
components:
- -------------------------------------------------------------------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------------------
Available-for-sale securities adjustment:
Unrealized net holding gains (losses)
arising during the period $ 185,584 $ 12,295 $ (3,426)
Income taxes (66,810) (4,426) 1,233
Reclassification adjustment for net
losses (gains) realized in income (152,770) (1,429) (2,267)
Income taxes 54,997 514 816
- -------------------------------------------------------------------------------------------
Available-for-sale securities adjustment $ 21,001 $ 6,954 $ (3,644)
- -------------------------------------------------------------------------------------------
47
2 ACQUISITIONS
- --------------------------------------------------------------------------------
On October 13, 2000, Tredegar acquired the stock of ADMA s.r.l.
("ADMA") and Promea Engineering s.r.l. ("Promea") for cash consideration of
$3,082 (including transaction costs and debt assumed of $3,234 and net of cash
acquired of $2,393). ADMA manufactures films used primarily in personal hygiene
markets while Promea manufactures equipment to produce hygienic films and
laminates. Both companies are headquartered in Chieti, Italy, and share a
manufacturing site in Roccamontepiano, Italy.
On May 17, 1999, Tredegar acquired the assets of Exxon Chemical
Company's plastic films business ("Exxon Films") for cash consideration of
approximately $205,007 (including transaction costs). The acquisition was funded
with borrowings under our revolving credit facility, and has since been
refinanced by a term loan (see Note 9). The asset-purchase structure, unlike a
stock-purchase transaction, allows Tredegar to deduct for tax purposes over time
the full value of depreciable fixed assets and intangibles (goodwill).
In addition to the above mentioned acquisitions, Tredegar acquired:
- - The assets of Therics, Inc. ("Therics") on April 8, 1999;
- - The stock of Canadian-based Exal Aluminum Inc. ("Exal") on June 11, 1998;
and
- - Two Canadian-based aluminum extrusion and fabrication plants from Reynolds
Metals Company ("Reynolds") on February 6, 1998.
The assets of Therics were acquired for cash consideration of $13,600
(including transaction costs). Before the acquisition, Tredegar owned
approximately 19% of Therics. Upon the final liquidation of the former Therics,
Tredegar paid approximately $10,220 to effectively acquire the remaining 81%
ownership interest. Tredegar recognized a nonrecurring charge of $3,458
(classified in unusual items in the consolidated statements of income) in the
second quarter of 1999 related to the write-off of acquired in-process R&D (see
more information on pages 5-6).
Exal was acquired for $44,106 (including transaction costs), which was
comprised of cash consideration of $32,887 ($31,790 net of cash acquired) and
380,172 shares of Class I non-voting preferred shares of Tredegar's Bon L Canada
subsidiary (the "Class I Shares").
The Class I Shares were exchangeable into shares of Tredegar common
stock on a one-for-one basis. Each Class I Share was economically equivalent to
one share of Tredegar common stock and accordingly accounted for in the same
manner. All Class I Shares were exchanged during 2000.
48
The aluminum extrusion plants acquired in the Exal transaction are
located in Pickering, Ontario and Aurora, Ontario. Both facilities manufacture
extrusions for distribution, transportation, electrical, machinery and
equipment, and building and construction markets. The Pickering facility also
produces aluminum logs and billet for internal use and for sale to customers.
The two Canadian-based aluminum extrusion and fabrication plants were
acquired from Reynolds for cash consideration of $29,093 (including transaction
costs). The plants are located in Ste-Therese, Quebec, and Richmond Hill,
Ontario. Both facilities manufacture products used primarily in building and
construction, transportation, electrical, machinery and equipment, and consumer
durables markets.
Selected 1999 and 1998 historical and pro forma financial information
for Tredegar is as follows (assumes the acquisitions occurred at the beginning
of 1998):
- ------------------------------------------------------------------------------------------------
Selected Historical and Pro Forma Financial Information
- ------------------------------------------------------------------------------------------------
Historical Pro Forma (Unaudited)
------------------------- -------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------
Net sales $820,411 $699,796 $863,706 $851,631
Income from continuing operations 52,648 64,156 51,323 56,332
Diluted earnings per share from continuing
operations 1.36 1.66 1.32 1.45
- ------------------------------------------------------------------------------------------------
These acquisitions were accounted for using the purchase method. No
goodwill arose from the acquisitions of the former Reynolds plants since the
estimated fair value of the identifiable net assets acquired equaled the
purchase price. Goodwill (the excess of the purchase price over the estimated
fair value of identifiable net assets acquired) and identifiable intangibles
arising from the acquisitions of ADMA, Promea, Exxon Films, Therics and Exal are
summarized in Note 1. The operating results for the acquired business have been
included in the consolidated statements of income since the dates acquired.
49
3 BUSINESS SEGMENTS
- --------------------------------------------------------------------------------
Information by business segment and geographic area for the last three
years is provided in the tables below. There are no accounting transactions
between segments and no allocations to segments. Film Products' primary customer
for permeable, breathable and elastomeric films and nonwoven film laminates is
The Procter & Gamble Company ("P&G"). Net sales to P&G totaled $242,359 in 2000,
$250,020 in 1999 and $233,493 in 1998. These amounts include plastic film sold
to others that converted the film into materials used in products manufactured
by P&G.
- ----------------------------------------------------------------------------------------------------------
Net Sales Operating Profit
2000 1999 1998 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Film Products:
Ongoing operations $ 380,202 $ 342,300 $ 286,965 $ 47,112 $ 59,554 $ 53,786
Unusual items (a) - - - (22,163) (1,170) -
- ----------------------------------------------------------------------------------------------------------
380,202 342,300 286,965 24,949 58,384 53,786
- ----------------------------------------------------------------------------------------------------------
Fiberlux:
Ongoing operations 1,856 9,092 11,629 (264) 57 1,433
Unusual items (a) - - - 762 - -
- ----------------------------------------------------------------------------------------------------------
1,856 9,092 11,629 498 57 1,433
- ----------------------------------------------------------------------------------------------------------
Aluminum Extrusions:
Ongoing operations 479,889 461,241 395,455 52,953 56,501 47,091
Unusual items (a) - - - (1,628) - (664)
- ----------------------------------------------------------------------------------------------------------
479,889 461,241 395,455 51,325 56,501 46,427
- ----------------------------------------------------------------------------------------------------------
Technology:
Molecumetics 6,904 7,617 5,718 (5,589) (3,421) (3,504)
Therics 403 161 - (8,024) (5,235) -
Venture capital investments - - - 130,879 (7,079) 615
Other - - 29 - - (428)
Unusual items (a) - - - (191) (3,607) 765
- ----------------------------------------------------------------------------------------------------------
7,307 7,778 5,747 117,075 (19,342) (2,552)
- ----------------------------------------------------------------------------------------------------------
Total (b) $ 869,254 $ 820,411 $ 699,796 193,847 95,600 99,094
----------------------------------------
Interest income 2,578 1,419 2,279
Interest expense 17,319 9,088 1,318
Corporate expenses, net (a) 4,559 6,389 4,845
- ---------------------------------------- ----------------------------------------
Income from continuing operations
before income taxes 174,547 81,542 95,210
Income taxes (a) 63,171 28,894 31,054
- ---------------------------------------- ----------------------------------------
Income from continuing operations 111,376 52,648 64,156
Income from discontinued Energy
segment operations (a) - - 4,713
- ---------------------------------------- ----------------------------------------
Net income $ 111,376 $ 52,648 $ 68,869
- ---------------------------------------- ----------------------------------------
(a) See Note 16 for more information on unusual items, and Note 18 for more
information on divested and discontinued operations.
(b) The difference between consolidated gross sales as reported in the
consolidated statements of income on page 41 and segment net sales reported
above is freight of $17,125 in 2000, $15,221 in 1999 and $10,946 in 1998.
50
- ------------------------------------------------------------------
Identifiable Assets
December 31 2000 1999 1998
- ------------------------------------------------------------------
Film Products $ 367,526 $ 360,517 $ 132,241
Fiberlux - 7,859 7,811
Aluminum Extrusions 210,434 216,258 201,518
Technology:
Molecumetics 4,757 4,749 5,196
Therics 9,609 9,905 -
Investments and other 236,698 145,028 61,098
- ------------------------------------------------------------------
Subtotal 829,024 744,316 407,864
General corporate 30,214 22,419 23,905
Cash and cash equivalents 44,530 25,752 25,409
- ------------------------------------------------------------------
Total $ 903,768 $ 792,487 $ 457,178
- ------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Depreciation and Amortization Capital Expenditures
2000 1999 1998 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Film Products $ 23,122 $ 18,751 $ 11,993 $ 53,161 $ 25,296 $ 18,456
Fiberlux 151 498 544 425 812 1,477
Aluminum Extrusions 9,862 9,484 8,393 21,911 16,388 10,407
Technology:
Molecumetics 1,734 1,490 1,260 2,133 1,362 3,561
Therics 1,782 1,195 - 1,730 757 -
Investments and other 18 22 21 86 - 54
- ----------------------------------------------------------------------------------------------------------
Subtotal 36,669 31,440 22,211 79,446 44,615 33,955
General corporate 315 253 254 384 606 115
- ----------------------------------------------------------------------------------------------------------
Total $ 36,984 $ 31,693 $ 22,465 $ 79,830 $ 45,221 $ 34,070
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------
Net Sales by Geographic Area
2000 1999 1998
- ----------------------------------------------------------------
United States $ 558,387 $ 528,243 $460,330
Exports from the United
States to:
Canada 26,802 25,365 23,393
Latin America 26,224 23,453 19,764
Europe 9,685 8,815 4,116
Asia 31,437 30,156 30,548
Foreign operations:
Canada 153,713 152,379 104,189
Europe 35,579 29,588 31,150
Latin America 21,713 18,054 24,785
Asia 5,714 4,358 1,521
- ----------------------------------------------------------------
Total (b) $ 869,254 $ 820,411 $699,796
- ----------------------------------------------------------------
- ------------------------------------------------------------------
Identifiable Assets by
Geographic Area
December 31 2000 1999 1998
- ------------------------------------------------------------------
United States $ 673,687 $ 605,659 $ 282,332
Canada 89,663 96,786 92,829
Europe 36,337 22,349 12,781
Latin America 18,308 14,421 15,084
Asia 11,029 5,101 4,838
General corporate 30,214 22,419 23,905
Cash and cash equivalents 44,530 25,752 25,409
- ------------------------------------------------------------------
Total $ 903,768 $ 792,487 $ 457,178
- ------------------------------------------------------------------
51
4 ACCOUNTS AND NOTES RECEIVABLE
- --------------------------------------------------------------------------------
Accounts and notes receivable consist of the following:
- -------------------------------------------------------------------------
December 31 2000 1999
- -------------------------------------------------------------------------
Trade, less allowance for doubtful
accounts and sales returns of $6,375
in 2000 and $4,046 in 1999 $ 94,561 $ 118,643
Other 2,091 3,177
- -------------------------------------------------------------------------
Total $ 96,652 $ 121,820
- -------------------------------------------------------------------------
5 INVENTORIES
- --------------------------------------------------------------------------------
Inventories consist of the following:
- -------------------------------------------------------------------------
December 31 2000 1999
- -------------------------------------------------------------------------
Finished goods $ 7,997 $ 9,928
Work-in-process 4,314 4,322
Raw materials 23,889 29,174
Stores, supplies and other 10,625 9,705
- -------------------------------------------------------------------------
Total $ 46,825 $ 53,129
- -------------------------------------------------------------------------
Inventories stated on the LIFO basis amounted to $18,400 at December
31, 2000 and $28,826 at December 31, 1999, which are below replacement costs by
approximately $13,719 at December 31, 2000 and $14,857 at December 31, 1999.
6 ALUMINUM FORWARD SALES, PURCHASE AND FUTURES CONTRACTS
- --------------------------------------------------------------------------------
In the normal course of business, we enter 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 our exposure to
aluminum price volatility under these fixed-price arrangements, which generally
have a duration of not more than 12 months, we enter into a combination of
forward purchase commitments and futures contracts to acquire or hedge aluminum,
based on the scheduled deliveries. These contracts involve elements of credit
and market risk that are not reflected on our balance sheet, including the risk
of dealing with counterparties and their ability to meet the terms of the
contracts. The counterparties to the company's forward purchase commitments are
major aluminum brokers and suppliers, and the counterparties to the company's
futures contracts are major financial institutions. Fixed-price forward sales
contracts are only made available to our best and most credit-worthy customers.
52
The off-balance sheet asset or liability at December 31, 2000 and 1999,
relating to the forward purchase commitments and futures contracts (which was
substantially offset by an unrealized loss or gain on the related fixed-price
forward sales contracts), consists of the following:
- ------------------------------------------------------------------------------
December 31 2000 1999
- ------------------------------------------------------------------------------
Millions of pounds of aluminum under forward
purchase commitments and futures contracts 46.7 34.6
Weighted average market price of aluminum
(cents per pound):
At date of contracts 71.0 72.3
At end of year 74.5 78.7
Off-balance sheet asset on forward purchase
commitments and futures contracts (in thousands) $ 1,635 $ 2,214
- ------------------------------------------------------------------------------
7 INVESTMENTS
- --------------------------------------------------------------------------------
A summary of our investment activities is provided below:
- ---------------------------------------------------------------------------------------------
2000 1999 1998
- ---------------------------------------------------------------------------------------------
Carrying value of venture capital investments,
beginning of period $ 140,698 $ 60,024 $ 33,513
Venture capital investment activity for period
(pre-tax amounts):
New investments 93,058 81,747 35,399
Proceeds from the sale of investments, including
broker receivables at end of period (170,280) (3,936) (5,462)
Realized gains 154,928 3,112 4,582
Realized losses, write-offs and write-downs (18,959) (7,734) (2,315)
Transfer of carrying value of Therics out of
portfolio (acquired by Tredegar) - (3,380) -
Increase (decrease) in net unrealized gain on
available-for-sale securities 32,814 10,865 (5,693)
- ---------------------------------------------------------------------------------------------
Carrying value of venture capital investments,
end of period $ 232,259 $ 140,698 $ 60,024
- ---------------------------------------------------------------------------------------------
Our remaining unfunded commitments to private venture capital funds
totaled approximately $50,860 at December 31, 2000, which we expect to fund over
the next two years. We have entered into a three-year agreement whereby
Perennial Ventures will manage our existing portfolio of direct investments. The
agreement calls for management fee payments of $6 million in 2001, $5 million in
2002 and $4 million in 2003.
A schedule of investments is provided on the next two pages.
53
- ------------------------------------------------------------------------------------------------------------------------------------
Tredegar Corporation
Schedule of Investments at December 31, 2000 and 1999
(In Thousands, Except Per-Share Amounts)
Yrs. Web Site
Investment Symbol Held (a) Description (www.)
- ------------------------------------------------------------------------------------------------------------------------------------
Securities of Public Companies Held:
Illumina, Inc. (e) ILMN 2.1 Fiber optic sensor technology for drug screening illumina.com
Rosetta Inpharmatics, Inc. (e) RSTA 3.6 Gene function/drug screening on a chip rii.com
Adolor Corporation (e) ADLR 2.1 Develops pain-management therapeutic drugs adolor.com
SignalSoft Corporation (e) SGSF 2.8 Wireless caller location detection software signalsoftcorp.com
Vascular Solutions (e) VASC 3.0 Vascular access site closure system vascularsolutions.
Openwave Systems, Inc. (f) OPWV 1.1 Infrastructure applications for the Internet openwave.com
Eprise Corporation (e) EPRS 3.0 Web site maintenance & development tool eprise.com
Cisco Systems, Inc. (f) CSCO 1.5 Worldwide leader in networking for the Internet cisco.com
Nortel Networks Corporation (f) NT 2.8 Networking solutions and services nortelnetworks.com
Superconductor Tech., Inc. SCON 1.5 Manufactures filters for wireless networks suptech.com
Eclipse Surgical Technologies ESTI 6.6 Coronary revascularization eclipsesurg.com
Caliper Technologies Corp. CALP 2.9 Lab on a chip calipertech.com
Copper Mountain Networks CMTN .4 Digital subscriber line communication products coppermountain.com
Akamai Technologies, Inc. AKAM 1.1 Global delivery service of Internet content eclipsesurg.com
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities of public companies held
- ------------------------------------------------------------------------------------------------------------------------------------
Securities of Private Companies Held:
CryoGen 5.3 Micro-cryogenic catheters for medical applications cryogen-inc.com
Sensitech Inc. 3.8 Perishable product mgmt. solutions sensitech.com
Bell Geospace 3.5 Presentation of 3D data to the oil & gas industry bellgeo.com
Songbird Medical, Inc. 3.4 Disposable hearing aids
RedCreek Communications 3.4 Internet and intranet security redcreek.com
Appliant, Inc. 3.2 Software tools for managing executable software appliant.com
Ellipsys Technologies, Inc. 3.2 Telephone system error detection ellipsystech.com
HemoSense 3.1 Point of care blood coagulation time test device hemosense.com
Moai Technologies, Inc. 3.0 System for holding auctions on the Internet moai.com
Babycare, Ltd. 2.9 Direct retailing of baby care products in China
NovaLux, Inc. 2.6 Blue-green light lasers novalux.com
IRSI 2.6 Optical inspection systems irsinc.com
Xcyte Therapies, Inc. 2.4 Develops drugs to treat cancer & other disorders xcytetherapies.com
Advanced Diagnostics, Inc. 2.1 3-D medical imaging equipment
Praxon, Inc. 2.0 Integrated business communications equipment praxon.com
AdiCom Wireless, Inc. 2.0 Wireless local loop technology adicomwireless.com
EndoVasix, Inc. 1.9 Device for treatment of ischemic strokes endovasix.com
eWireless, inc. 1.9 Technology linking cell phone users & advertising ewireless.com
Cooking.com, Inc. 1.8 Sales of cooking-related items over the Internet cooking.com
MediaFlex.com 1.7 Internet-based printing & publishing mediaflex.com
eBabyCare Ltd. 1.6 Sales of babycare products over the Internet in China
Kodiak Technologies, Inc. 1.5 Cooling products for organ & pharma transport kodiaktech.com
Artemis Medical, Inc. 1.5 Medical devices for breast cancer surgery
CEPTYR, Inc. 1.4 Develops small molecule drugs ceptyr.com
GreaterGood.com 1.4 Internet marketing targeted at donors to charities greatergood.com
Etera Corporation 1.3 Sales of branded perennial plants over the Internet etera.com
ThinkFree.com 1.2 Java-based software complementary to Microsoft Office thinkfree.com
BroadRiver Communications 1.1 Local DSL provider purepacket.com
Quarry Technologies, Inc. 1.1 Technology for delivery of differentiated service levels quarrytech.com
Norborn Medical, Inc. 1.0 Device for treatment of cardiovascular disease
FastTrack Systems, Inc. .9 Clinical trial data management information systems
Riveon, Inc. .9 Web-based data mining software for business managers
MedManage Systems Inc. .7 Management of prescription drug sampling programs
Linx Communications, Inc. .5 Unified communications and messaging systems
Infinicon, Inc. .5 Manufacturer of infiniband input/output products
Cbyon, Inc. .5 Provider of software image data to assist surgeons
Extreme Devices .3 Manufacturer of integrated, solid-state electron source
- ------------------------------------------------------------------------------------------------------------------------------------
Subtotal securities of private companies held
- ------------------------------------------------------------------------------------------------------------------------------------
See notes on page 55.
- ------------------------------------------------------------------------------------------------------------------------------------
Tredegar Corporation Public Common Stock or
Schedule of Investments at December 31, 2000 Equivalents at 12/31/00 12/31/00 (g) 12/31/99 (g)
and 1999 ----------------------------- ----------------------------- -------------------------
(In Thousands, Except Per-Share Amounts) Estimated
Restricted Estimated Estimated
Shares Closing Stock Dis- Fair Carrying Cost Fair Carrying Cost
Investment Held Price count(c) Value(b) Value(b) Basis Value(b) Value(b) Basis
- ------------------------------------------------------------------------------------------------------------------------------------
Securities of Public Companies Held:
Illumina, Inc. (e) 1,665 $ 16.06 20% $ 21,395 $ 21,395 $ 3,925 $ 6,853 $ 3,925 $ 3,925
Rosetta Inpharmatics, Inc. (e) 1,062 16.00 20% 13,599 13,599 4,745 4,558 3,000 3,000
Adolor Corporation (e) 698 22.00 20% 12,291 12,291 3,000 2,613 2,000 2,000
SignalSoft Corporation (e) 925 9.81 20% 7,261 7,261 3,006 5,624 2,996 2,996
Vascular Solutions (e) 857 7.38 20% 5,060 5,060 2,450 4,409 2,450 2,450
Openwave Systems, Inc. (f) 70 47.94 20% 2,689 2,689 348 2,000 2,000 2,000
Eprise Corporation (e) 1,480 1.81 2% 2,633 2,633 2,382 7,309 2,900 2,900
Cisco Systems, Inc. (f) 13 38.25 20% 405 405 200 6,276 6,276 2,000
Nortel Networks Corporation (f) 24 32.06 20% 617 617 117 2,945 750 750
Superconductor Tech., Inc. 191 3.62 13% 603 603 552 4,613 3,000 3,000
Eclipse Surgical Technologies 453 0.84 n/a 381 381 2,464 3,342 3,342 2,464
Caliper Technologies Corp. - - 20% - - - 8,386 8,386 1,000
Copper Mountain Networks - - 20% - - - 1,460 1,460 1,460
Akamai Technologies, Inc. - - 20% - - - 536 536 57
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities of public companies held 66,934 66,934 23,189 60,924 43,021 30,002
- ------------------------------------------------------------------------------------------------------------------------------------
Securities of Private Companies Held:
CryoGen 4,265 3,054 3,054 3,759 2,553 2,553
Sensitech Inc. 3,154 2,333 2,333 2,000 2,000 2,000
Bell Geospace - - 3,500 - - 3,500
Songbird Medical, Inc. 8,013 4,210 4,210 5,922 3,960 3,960
RedCreek Communications 706 549 2,256 2,071 2,071 2,256
Appliant, Inc. 6,352 3,899 3,899 5,036 2,599 2,599
Ellipsys Technologies, Inc. - - 2,275 1,987 1,987 2,737
HemoSense 2,733 2,485 2,485 1,735 1,485 1,485
Moai Technologies, Inc. 6,263 2,021 2,021 7,389 2,021 2,021
Babycare, Ltd. - - 1,009 1,009 1,009 1,009
NovaLux, Inc. 50,801 10,149 10,149 5,193 3,183 3,183
IRSI 14,993 3,825 4,700 2,848 2,825 3,700
Xcyte Therapies, Inc. 5,598 3,795 3,795 3,000 3,000 3,000
Advanced Diagnostics, Inc. 1,321 1,371 1,371 705 705 705
Praxon, Inc. - - 2,309 2,661 2,309 2,309
AdiCom Wireless, Inc. 2,648 2,648 4,062 3,000 3,000 3,000
EndoVasix, Inc. 4,270 4,000 4,000 2,500 2,500 2,500
eWireless, inc. 47,728 2,250 2,250 2,250 2,250 2,250
Cooking.com, Inc. 1,500 1,500 4,500 7,021 4,500 4,500
MediaFlex.com 4,085 3,500 3,500 1,500 1,500 1,500
eBabyCare Ltd. - - 314 120 120 120
Kodiak Technologies, Inc. 1,694 1,694 1,694 1,194 1,194 1,194
Artemis Medical, Inc. 3,201 2,467 2,467 800 800 800
CEPTYR, Inc. 1,750 1,750 1,750 1,750 1,750 1,750
GreaterGood.com - - 3,781 3,200 3,200 3,200
Etera Corporation 5,269 5,000 5,000 3,000 3,000 3,000
ThinkFree.com 3,696 1,491 1,491 1,001 1,001 1,001
BroadRiver Communications 9,136 4,779 4,779 1,797 1,797 1,797
Quarry Technologies, Inc. 3,425 3,425 3,425 3,000 3,000 3,000
Norborn Medical, Inc. - - 188 188 188 188
FastTrack Systems, Inc. 7,962 5,134 5,134 - - -
Riveon, Inc. 1,700 1,700 1,700 - - -
MedManage Systems Inc. 4,000 4,000 4,000 - - -
Linx Communications, Inc. 3,000 3,000 3,000 - - -
Infinicon, Inc. 3,485 3,485 3,485 - - -
Cbyon, Inc. 3,500 3,500 3,500 - - -
Extreme Devices 5,000 5,000 5,000 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Subtotal securities of private companies held 221,248 98,014 118,386 77,636 61,507 66,817
- ------------------------------------------------------------------------------------------------------------------------------------
See notes on page 55.
54
- ------------------------------------------------------------------------------------------------------------------------------------
Tredegar Corporation
Schedule of Investments at December 31, 2000 and 1999 12/31/00(g) 12/31/99 (g)
(In Thousands, Except Per-Share Amounts) ---------------------------------------------------------
Estimated Estimated
Yrs. Web Site Fair Carrying Cost Fair Carrying Cost
Investment Held (a) Description (www.) Value(b) Value (b) Basis Value (b) Value (b) Basis
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities of public companies held (from page 54) 66,934 66,934 23,189 60,924 43,021 30,002
- ------------------------------------------------------------------------------------------------------------------------------------
Subtotal securities of private companies held (from page 54) 221,248 98,014 118,386 77,636 61,507 66,817
Locus Discovery .1 Computational chemogenomics technology 3,000 3,000 3,000 - - -
eTunnels .0 VPNs across all ISPs and companies 3,000 3,000 3,000 - - -
Elixir .0 Evaluation technology for anti-aging compounds 250 250 250 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities of private companies held 227,498 104,264 124,636 77,636 61,507 66,817
- ------------------------------------------------------------------------------------------------------------------------------------
Limited partnership interests in private venture capital 109,099 61,061 65,271 66,803 36,170 38,650
funds (period held of .1 - 7.5 years) (d)
- ------------------------------------------------------------------------------------------------------------------------------------
Total investments 403,531 $ 232,259 $213,096 205,363 $ 140,698 $135,469
------------------- ------------------
Estimated taxes on assumed disposal at fair value 68,557 25,162
- ------------------------------------------------------------------------------------- ----------
Estimated net asset value ("NAV") $ 334,974 $ 180,201
- ------------------------------------------------------------------------------------- ----------
Notes:
(a) The period held for an investment in a company or a venture capital fund is
computed using the initial investment date and the current valuation date. If a
company has merged with another company, then the initial investment date is the
date of the investment in the predecessor company.
(b) Amounts are shown net of carried interest estimated using realized and
unrealized net gains to date. Amounts may change due to changes in estimated
carried interest, and such changes are not expected to be material. Carried
interest is the portion of value payable to portfolio managers based on realized
net gains and is a customary incentive in the venture capital industry.
(c) Restricted securities are securities for which an agreement exists not to
sell shares for a specified period of time, usually 180 days. Also included
within the category of restricted securities are unregistered securities, the
sale of which must comply with an exemption to the Securities Act of 1933
(usually SEC Rule 144). These unregistered securities are either the same class
of stock that is registered and publicly traded or are convertible into a class
of stock that is registered and publicly traded.
(d) At December 31, 2000, Tredegar had ownership interests in 27 venture capital
funds, including an indirect interest in the following public companies, among
others (disposition of shares held by venture funds, including distributions to
limited partners, is at the sole discretion of the general partner of the fund):
Indirect Investment Symbol Description
-----------------------------------------------------------------------------------------------------------------
Cosine Communications COSN Communications platforms for network service providers (cosinecom.com)
Universal Access, Inc. UAXS Wholesale provider of high bandwidth services (universalaccessinc.com)
Illumina, Inc. ILMN Fiber optic sensor technology for drug screening (illumina.com)
Adolor Corporation ADLR Develops pain-management therapeutic drugs (adolor.com)
Lucent Technologies, Inc. LU Developer and manufacturer of communications systems (lucent.com)
Paradigm Genetics, Inc. PDGM Industrialization of the process of determining gene function (paragen.com)
Rosetta Inpharmatics, Inc. RSTA Gene function/drug screening on a chip (rii.com)
ASAT Holdings ASTT Provider of semiconductor assemply and testing services (asat.com)
Genomica Corporation GNOM Software for accelerating drug discovery and development (genomica.com)
SignalSoft Corporation SGSF Wireless caller location detection software (signalsoftcorp.com)
------------------------------------------------------------------------------------------------------------------
Indirect Average Indirect
Interest in Restricted Estimated
Common Closing Stock Dis- Fair Cost
Indirect Investment Shares Price count Value Basis
- ---------------------------------------------------------------------------------------------
Cosine Communications 403 $ 13.88 20% $ 4,476 $ 562
Universal Access, Inc. 605 8.00 20% 3,872 521
Illumina, Inc. 196 16.06 20% 2,512 333
Adolor Corporation 82 22.00 20% 1,451 411
Lucent Technologies, Inc. 70 13.50 n/a 939 62
Paradigm Genetics, Inc. 92 10.00 0% 924 163
Rosetta Inpharmatics, Inc. 57 16.00 20% 733 256
ASAT Holdings 173 5.00 20% 691 448
Genomica Corporation 102 6.75 20% 550 296
SignalSoft Corporation 49 9.81 20% 386 163
- ---------------------------------------------------------------------------------------------
(e) The company was privately held at 12/31/99 and has subsequently gone public.
(f) Public company stock received from the acquisition of a private company in
the portfolio.
(g) Our portfolio is subject to risks typically associated with investments in
technology start-up companies, which include business failure, illiquidity
and stock market volatility.
55
8 ACCRUED EXPENSES
- --------------------------------------------------------------------------------
Accrued expenses consist of the following:
- -------------------------------------------------------------------------
December 31 2000 1999
- -------------------------------------------------------------------------
Payrolls, related taxes and medical and
other benefits $ 14,698 $ 15,547
Workmen's compensation and disabilities 4,790 5,480
Vacation 4,550 7,353
Contract research revenues received
in advance 497 501
Environmental, plant shutdowns
and divestitures 391 205
Other 11,667 15,944
- -------------------------------------------------------------------------
Total $ 36,593 $ 45,030
- -------------------------------------------------------------------------
9 DEBT AND CREDIT AGREEMENTS
- --------------------------------------------------------------------------------
On October 20, 1999, Tredegar borrowed $250,000 under a term loan
agreement dated October 13, 1999. A portion of the term loan proceeds ($230,000)
was used to repay all of the outstanding borrowings at that time under our
revolving credit facility. The balance ($20,000) was invested in cash
equivalents and is being used to fund capital expenditures and venture capital
commitments. The revolving credit facility permits borrowings of up to $275,000
(no amounts borrowed at December 31, 2000 and 1999) and matures on July 9, 2002,
with an annual extension of one year permitted subject to the approval of
participating banks. Tredegar also has a note payable with a remaining balance
of $15,000. Total debt due and outstanding at December 31, 2000, is summarized
below:
- -------------------------------------------------------------
Debt Due and Outstanding at 12/31/00
- -------------------------------------------------------------
Total
Year Note Term Debt
Due Payable Loan Other Due
- -------------------------------------------------------------
2001 $ 5,000 $ - $ 857 $ 5,857
2002 5,000 - 902 5,902
2003 5,000 50,000 765 55,765
2004 - 75,000 461 75,461
2005 - 125,000 117 125,117
- -------------------------------------------------------------
Total $ 15,000 $ 250,000 $ 3,102 $ 268,102
- -------------------------------------------------------------
56
The term loan and revolving credit agreements provide for interest to
be charged at a base rate (generally the London Interbank Offered Rate
("LIBOR")) plus a spread that is dependent on our quarterly debt-to-total
capitalization ratio. The fully-borrowed spread over LIBOR charged at the
various debt-to-total capitalization levels are as follows:
- -------------------------------------------------------------
Fully-Borrowed Spread Over LIBOR
Under Credit Agreements (Basis Points)
- -------------------------------------------------------------
Debt-to-Total Term
Capitalization Ratio Revolver Loan
- -------------------------------------------------------------
> 55% and <= 60% 50.0 100.0
> 50% and <= 55% 50.0 87.5
> 40% and <= 50% 37.5 75.0
> 35% and <= 40% 37.5 62.5
> 30% and <= 35% 30.0 62.5
<= 30% 30.0 50.0
- -------------------------------------------------------------
Interest is payable on the note semi-annually at 7.2% per year. The
$5,000 principal payment due on the note in June 2001 has been classified as
long-term in accordance with our ability to refinance such obligation on a
long-term basis. At December 31, 2000, the prepayment value of the note was
$15,305.
Our loan agreements contain restrictions, among others, on the minimum
shareholders' equity required and the maximum debt-to-total capitalization ratio
permitted (60%). At December 31, 2000, shareholders' equity was in excess of the
minimum required by $290,296, and $275,000 was available to borrow under the 60%
debt-to-total capitalization ratio restriction.
10 SHAREHOLDER RIGHTS AGREEMENT
- --------------------------------------------------------------------------------
Pursuant to a Rights Agreement dated as of June 30, 1999, between
Tredegar and American Stock Transfer and Trust Company as Rights Agent (the
"Rights Agreement"), one Right is attendant to each share of our 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 $150 (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 our common stock or
announces a tender offer which would result in ownership by a person or group of
10% or more of our common stock. Any action by a person or group whose
beneficial ownership is reported on Amendment No. 4 to the Schedule 13D filed
with respect to Tredegar on May 20, 1997, 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, 2009.
57
11 STOCK OPTION PLANS
- --------------------------------------------------------------------------------
We have two stock option plans under which stock options may be granted
to purchase a specified number of shares of common stock at a price no lower
than the fair market value on the date of grant and for a term not to exceed 10
years. One of those option plans is a directors' stock plan. In addition, we
have two other stock option plans under which there are options that remain
outstanding, but no future grants can be made. Employee options ordinarily vest
one to two years from the date of grant. The outstanding options granted to
directors vest over three years. The option plans also permit the grant of
restricted stock. The current option plans do not provide for SARs and no SARs
have been granted since 1992. The SARs that remain outstanding were granted in
tandem with stock options and the share appreciation that can be realized upon
their exercise is limited to the fair market value on the date of grant. As
such, it is more likely that related stock options will be exercised rather than
SARs when the price of our common stock is in excess of $7.42 per share (our
closing price on December 31, 2000 was $17.44).
Had compensation cost for our stock-based compensation plans been
determined in 2000, 1999 and 1998 based on the fair value at the grant dates,
our income and diluted earnings per share from continuing operations would have
been reduced to the pro forma amounts indicated below:
- ----------------------------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------
Income from continuing operations:
As reported $ 111,376 $ 52,648 $ 64,156
Pro forma 106,268 49,199 62,696
Diluted earnings per share
from continuing operations:
As reported 2.86 1.36 1.66
Pro forma 2.73 1.27 1.62
- ----------------------------------------------------------------------------
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 2000, 1999 and 1998 are provided below:
- --------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------
Dividend yield .8% .7% .6%
Volatility percentage 40.0% 40.0% 28.0%
Weighted average risk-free interest rate 6.7% 4.8% 5.5%
Holding period (years):
Officers 7.0 7.0 n/a
Management 5.0 5.0 5.0
Other employees (and directors in 1998) 3.0 3.0 3.6
Weighted average market price at date of grant
Officers and management
(management only in 1998) $19.92 $23.36 $29.94
Other employees (and directors in 1998) 19.75 23.53 29.82
Weighted average exercise price for options
granted where exercise price exceeds market price
Officers 21.24 37.89 n/a
Management 20.70 34.90 n/a
- --------------------------------------------------------------------------------
58
Stock options granted during 2000, 1999 and 1998, and their estimated
fair value at the date of grant, are provided below:
- ---------------------------------------------------------------------------------------
2000 1999 1998
- ---------------------------------------------------------------------------------------
Stock options granted (number of shares):
Where exercise price equals market price:
Officers 98,200 n/a n/a
Management 272,310 33,200 59,985
Other employees (and directors in 1998) 105,500 92,400 28,590
Where exercise price exceeds market price:
Officers 98,200 416,000 n/a
Management 80,100 444,700 n/a
- ---------------------------------------------------------------------------------------
Total 654,310 986,300 88,575
- ---------------------------------------------------------------------------------------
Estimated weighted average fair value of
options per share at date of grant:
Where exercise price equals market price:
Officers $ 9.89 n/a n/a
Management 8.55 $ 10.25 $ 10.06
Other employees (and directors in 1998) 6.47 7.33 8.16
Where exercise price exceeds market price:
Officers 9.11 7.79 n/a
Management 7.50 6.58 n/a
- ---------------------------------------------------------------------------------------
Total estimated fair value of stock
options granted $ 5,477 $ 7,186 $ 837
- ---------------------------------------------------------------------------------------
A summary of our stock options outstanding at December 31, 2000, 1999
and 1998, and changes during those years, is presented below:
- -----------------------------------------------------------------------------------------------------------
Exercise Price Per Share
--------------------------------------
Number of Shares Wgted. Aggre-
Options SARs Range Ave. gate
- -----------------------------------------------------------------------------------------------------------
Outstanding at 12/31/97 3,778,095 1,090,035 2.70 to 21.00 6.48 24,500
Granted in 1998 88,575 - 28.61 to 29.94 29.82 2,641
Lapsed in 1998 - - - to - - -
Options exercised in 1998 (833,898) (494,550) 2.70 to 21.00 4.36 (3,636)
- -----------------------------------------------------------------------------------------------------------
Outstanding at 12/31/98 3,032,772 595,485 2.70 to 29.94 7.75 23,505
Granted in 1999 986,300 - 23.31 to 46.63 34.75 34,274
Lapsed in 1999 (33,960) - 3.37 to 46.63 28.06 (953)
Options exercised in 1999 (1,000,389) (430,650) 2.70 to 18.37 4.43 (4,427)
- -----------------------------------------------------------------------------------------------------------
Outstanding at 12/31/99 2,984,723 164,835 $ 2.70 to $ 46.63 $17.56 $ 52,399
Granted in 2000 654,310 - 17.88 to 25.44 20.70 13,544
Lapsed in 2000 (208,300) - 19.75 to 46.63 32.97 (6,868)
Options exercised in 2000 (479,243) (47,000) 2.70 to 21.00 7.72 (3,700)
- -----------------------------------------------------------------------------------------------------------
Outstanding at 12/31/00 2,951,490 117,835 $ 2.70 to $ 46.63 $18.76 $ 55,375
- -----------------------------------------------------------------------------------------------------------
59
The following table summarizes additional information about stock
options outstanding and exercisable at December 31, 2000:
- --------------------------------------------------------------------------------------
Options Outstanding at Options Exercisable at
December 31, 2000 December 31, 2000
-------------------------------------------------------------
Weighted Average
------------------
Remaining Wgted.
Contract- Exer- Ave.
Range of ual Life cise Exercise
Exercise Prices Shares (Years) Price Shares Price
- --------------------------------------------------------------------------------------
$ 2.70 to $ 3.73 123,835 1.2 $ 2.78 123,835 $2.78
3.37 to 5.34 419,200 3.2 4.13 419,200 4.13
3.87 to 4.17 241,550 4.2 4.16 241,550 4.16
7.38 to 9.67 250,970 5.1 8.52 250,970 8.52
16.55 to 19.75 740,000 6.2 18.39 325,550 16.66
20.44 to 25.65 495,360 5.7 23.17 99,200 21.00
28.61 to 34.97 384,575 5.6 31.54 5,400 28.61
40.80 to 46.63 296,000 5.0 43.72 - -
- --------------------------------------------------------------------------------------
$ 2.70 to $ 46.63 2,951,490 5.0 $ 18.76 1,465,705 $8.79
- --------------------------------------------------------------------------------------
Stock options exercisable totaled 1,941,348 shares at December 31, 1999
and 2,944,197 shares at December 31, 1998. Stock options available for grant
totaled 1,193,375 shares at December 31, 2000, 1,800,825 shares at December 31,
1999 and 1,338,825 shares at December 31, 1998.
12 RENTAL EXPENSE AND CONTRACTUAL COMMITMENTS
- --------------------------------------------------------------------------------
Rental expense was $4,457 in 2000, $4,408 in 1999 and $3,517 in 1998.
Rental commitments under all noncancelable operating leases as of December 31,
2000, are as follows:
-----------------------------------------
Year Amount
-----------------------------------------
2001 $ 3,063
2002 2,358
2003 1,439
2004 1,047
2005 614
Remainder 668
-----------------------------------------
Total $ 9,189
-----------------------------------------
Contractual obligations for plant construction and purchases of real
property and equipment amounted to $10,665 at December 31, 2000 and $13,975 at
December 31, 1999.
60
13 RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS
- --------------------------------------------------------------------------------
We have noncontributory and contributory defined benefit (pension)
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. Pension plan assets consist principally of domestic and
international common stocks and domestic and international government and
corporate obligations. In addition to providing pension benefits, we provide
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
to cover a portion of their health care premiums.
Assumptions used for financial reporting purposes to compute net
benefit income or cost and benefit obligations, and the components of net
periodic benefit income or cost, are as follows:
- ------------------------------------------------------------------------------------------------------
Other Post-
Pension Benefits Retirement Benefits
------------------------------------------------------------
2000 1999 1998 2000 1999 1998
- ------------------------------------------------------------------------------------------------------
Weighted-average assumptions:
Discount rate, end of year 7.50% 7.50% 6.75% 7.50% 7.50% 6.75%
Rate of compensation increases,
end of year 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Expected long-term return on
plan assets, during the year 9.00% 9.00% 9.00% n/a n/a n/a
Rate of increase in per-capita cost
of covered health care benefits:
Indemnity plans, end of year n/a n/a n/a 8.00% 8.00% 9.00%
Managed care plans, end of year n/a n/a n/a 6.60% 6.60% 7.40%
Components of net periodic benefit income
(cost):
Service cost $ (4,152) $(4,462) $(2,725) $ (149) $ (169) $ (137)
Interest cost (10,521) (9,868) (8,960) (567) (544) (494)
Employee contributions 263 225 - - - -
Other (90) (118) - 93 - -
Expected return on plan assets 19,832 17,513 15,684 - - -
Amortization of:
Net transition asset 221 898 899 - - -
Prior service costs and gains
or losses 1,643 (642) (393) 75 71 57
- ------------------------------------------------------------------------------------------------------
Net periodic benefit income (cost) $ 7,196 $3,546 $4,505 $ (548) $ (642) $ (574)
- ------------------------------------------------------------------------------------------------------
61
The following tables reconcile the changes in benefit obligations and
plan assets in 2000 and 1999, and reconcile the funded status to prepaid or
accrued cost at December 31, 2000 and 1999:
- --------------------------------------------------------------------------------------------------------------
Other Post-
Pension Benefits Retirement Benefits
---------------------- ---------------------
2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation, beginning of year $ 142,593 $ 142,296 $ 7,769 $ 7,642
Acquisitions - 6,216 - -
Service cost 3,889 4,462 149 169
Interest cost 10,521 9,868 567 544
Plan amendments 129 621 (93) (37)
Effect of discount rate change - (13,993) - (712)
Employee contributions 263 (293) - -
Other 204 566 342 612
Benefits paid (7,682) (7,150) (615) (449)
- --------------------------------------------------------------------------------------------------------------
Benefit obligation, end of year $ 149,917 $ 142,593 $ 8,119 $ 7,769
- --------------------------------------------------------------------------------------------------------------
Change in plan assets:
Plan assets at fair value,
beginning of year $ 274,176 $ 221,818 $ - $ -
Acquisition - - - -
Actual return on plan assets (988) 58,617 - -
Employee contributions 263 225 - -
Employer contributions 628 784 614 449
Other (90) (118) - -
Benefits paid (7,682) (7,150) (614) (449)
- --------------------------------------------------------------------------------------------------------------
Plan assets at fair value, end of year $ 266,307 $ 274,176 $ - $ -
- --------------------------------------------------------------------------------------------------------------
Reconciliation of prepaid (accrued) cost:
Funded status of the plans $ 116,390 $ 131,583 $ (8,119) $ (7,769)
Unrecognized net transition
(asset) obligation (58) (280) - -
Unrecognized prior service cost 2,317 3,235 - -
Unrecognized net (gain) loss (73,896) (97,436) (899) (1,364)
- --------------------------------------------------------------------------------------------------------------
Prepaid (accrued) cost, end of year $ 44,753 $ 37,102 $ (9,018) $ (9,133)
- --------------------------------------------------------------------------------------------------------------
Net benefit income or cost is determined using assumptions at the
beginning of each year. Funded status is determined using assumptions at the end
of each year.
The rates for the per-capita cost of covered health care benefits were
assumed to decrease gradually to 6% for the indemnity plan and 5% for the
managed care plan in 2002, and remain at that level thereafter. At December 31,
2000, the effect of a 1% change in the health care cost trend rate assumptions
would be immaterial.
Prepaid pension cost of $44,753 at December 31, 2000, and $37,102 at
December 31, 1999, is included in "Other assets and deferred charges" in the
consolidated balance sheets. Accrued postretirement benefit cost of $9,018 at
December 31, 2000, and $9,133 at December 31, 1999, is included in "Other
noncurrent liabilities" in the consolidated balance sheets.
62
We also have 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 our principal
pension plans if it were not for limitations imposed by income tax regulations.
The projected benefit obligation relating to this unfunded plan was $1,172 at
December 31, 2000, and $2,044 at December 31, 1999. Pension expense recognized
was $448 in 2000, $478 in 1999 and $152 in 1998. This information has been
included in the preceding pension benefit tables.
14 SAVINGS PLAN
- --------------------------------------------------------------------------------
We have a savings plan that allows eligible employees to voluntarily
contribute a percentage (generally 10%) of their compensation. Under the
provisions of the plan, we match a portion (generally 50%) of the employee's
contribution to the plan with shares of our common stock. We also have a
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 for these plans were $2,738 in 2000, $2,514 in 1999 and
$2,255 in 1998. Our liability under the restoration plan was $1,276 at December
31, 2000 (consisting of 73,177 phantom shares of our common stock) and $1,670 at
December 31, 1999 (consisting of 80,720 phantom shares of our common stock)
valued at the closing market price on that date.
The Tredegar Corporation Benefits Plan Trust (the "Trust") purchased
7,200 shares of our common stock in 1998 for $192 and 46,671 shares of our
common stock in 1997 for $1,020, as a partial hedge against the phantom shares
held in the restoration plan. There were no shares purchased in 2000 or 1999.
The cost of the shares held by the Trust is shown as a reduction to
shareholders' equity in the consolidated balance sheets.
63
15 INCOME TAXES
- --------------------------------------------------------------------------------
Income from continuing operations before income taxes and income taxes
are as follows:
- ----------------------------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------
Income from continuing operations
before income taxes:
Domestic $159,558 $ 68,865 $ 83,882
Foreign 14,989 12,677 11,328
- ----------------------------------------------------------------------------
Total $174,547 $ 81,542 $ 95,210
- ----------------------------------------------------------------------------
Current income taxes:
Federal $ 58,944 $ 19,612 $ 23,824
State 3,694 1,694 1,803
Foreign 5,206 6,132 4,996
- ----------------------------------------------------------------------------
Total 67,844 27,438 30,623
- ----------------------------------------------------------------------------
Deferred income taxes:
Federal (6,900) 944 692
State (310) 497 147
Foreign 2,537 15 (408)
- ----------------------------------------------------------------------------
Total (4,673) 1,456 431
- ----------------------------------------------------------------------------
Total income taxes $ 63,171 $ 28,894 $ 31,054
- ----------------------------------------------------------------------------
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
Before Income Taxes
----------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------------------
Income tax expense at federal statutory rate 35.0 35.0 35.0
State taxes, net of federal income tax benefit 1.3 1.8 1.3
Excess of income tax basis over financial
reporting basis for APPX Software
(see Note 16) - - (2.4)
Foreign Sales Corporation (.6) (1.1) (1.1)
Research and development tax credit (.4) (.7) (.3)
Tax-exempt interest income - - (.2)
Goodwill amortization .1 .1 .1
Other items, net .8 .3 .2
- -----------------------------------------------------------------------------------------
Effective income tax rate 36.2 35.4 32.6
- -----------------------------------------------------------------------------------------
64
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:
- -----------------------------------------------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------
Depreciation $ 4,290 $ 2,583 $ 72
Employee benefits 3,864 2,195 1,617
Asset write-offs, divestitures and
environmental accruals (9,062) 119 497
Write-downs of venture capital
investments (6,385) (1,731) (478)
Allowance for doubtful accounts
and sales returns (1,036) (247) (130)
Tax benefit on NOL carryforwards of
certain foreign subsidiaries 915 (246) (755)
Other items, net 2,741 (1,217) (392)
- -----------------------------------------------------------------------------
Total $ (4,673) $ 1,456 $ 431
- -----------------------------------------------------------------------------
Deferred tax liabilities and deferred tax assets at December 31, 2000
and 1999, are as follows:
- ------------------------------------------------------------------------------------------
December 31 2000 1999
- ------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation $ 24,421 $ 20,131
Pensions 16,694 13,893
Unrealized gain on available-for-sale securities 16,499 4,686
Other 3,816 918
- ------------------------------------------------------------------------------------------
Total deferred tax liabilities 61,430 39,628
- ------------------------------------------------------------------------------------------
Deferred tax assets:
Employee benefits 7,664 8,727
Write-downs of venture capital investments 8,594 2,209
Inventory 1,375 1,317
Tax benefit on NOL carryforwards of certain
foreign subsidiaries 396 1,311
Foreign currency translation adjustment 3,086 900
Deductible tax goodwill in excess of book goodwill 858 892
Allowance for doubtful accounts and sales returns 1,851 815
Asset write-offs, divestitures and environmental
accruals 9,137 75
Other 1,607 1,407
- ------------------------------------------------------------------------------------------
Total deferred tax assets 34,568 17,653
- ------------------------------------------------------------------------------------------
Net deferred tax liability $ 26,862 $ 21,975
- ------------------------------------------------------------------------------------------
Included in the balance sheet:
Noncurrent deferred tax liabilities in excess of assets $ 40,650 $ 33,205
Current deferred tax assets in excess of liabilities 13,788 11,230
- ------------------------------------------------------------------------------------------
Net deferred tax liability $ 26,862 $ 21,975
- ------------------------------------------------------------------------------------------
65
16 UNUSUAL ITEMS
- --------------------------------------------------------------------------------
In 2000, unusual charges (net) totaling $23,220 ($14,861 after income
taxes) included:
- - A fourth-quarter charge of $1,628 ($1,042 after taxes) related to
restructuring at our aluminum plant in El Campo, Texas, including an
impairment loss for equipment of $1,492 and severance of $136;
- - A fourth-quarter gain of $237 ($152 after taxes) related to the
second-quarter sale of the assets of Fiberlux, Inc.;
- - A third-quarter charge of $17,870 ($11,437 after taxes) for the write-off
of excess production capacity at our plastic film plants in Lake Zurich,
Illinois, and Terre Haute, Indiana, including an impairment loss for
equipment of $7,920 and write-off of the related goodwill of $9,950;
- - A third-quarter reversal of $1,000 ($640 after taxes) related to the first
quarter charge for the shutdown of the Manchester, Iowa, production
facility due to revised estimates;
- - A second-quarter gain of $525 ($336 after taxes) for the sale of the assets
of Fiberlux, Inc.;
- - A first-quarter charge of $5,293 ($3,388 after taxes) for the shutdown of
our plastic films manufacturing facility in Manchester, Iowa, including an
impairment loss for building and equipment ($4,143), severance costs
($700), and excess inventory and other items ($450); and
- - A first-quarter charge of $191 ($122 after taxes) for costs associated with
the evaluation of financing and structural options for the Technology
Group.
As noted above, we recorded impairment losses on long-lived assets due to excess
production capacity and operating inefficiencies. The losses recognized
represent the differences between the carrying value of the assets and related
goodwill and the estimated fair values of the assets.
In 1999, unusual charges (net) totaling $4,065 ($2,602 after income
taxes) included:
- - A fourth-quarter charge of $149 ($95 after taxes) for costs associated with
the evaluation of financing and structural options for the Technology
Group;
- - A third-quarter gain of $712 ($456 after taxes) on the sale of corporate
real estate (included in "Corporate expenses, net" in the operating profit
table on page 50);
- - A second-quarter charge of $3,458 ($2,213 after taxes) related to the
write-off of in-process R&D expenses associated with the Therics
acquisition (see page 5 for more information); and
- - A second-quarter charge of $1,170 ($749 after taxes) for the write-off of
excess packaging film capacity.
In 1998, unusual income (net) totaling $101 ($2,341 after income tax
benefits) included:
- - A fourth-quarter charge of $664 ($425 after taxes) related to the shutdown
of the powder-coat paint line at the aluminum extrusion facility in Newnan,
Georgia; and
- - A first-quarter gain of $765 ($2,766 after tax benefits) on the sale of
APPX Software on January 16, 1998.
Income taxes for continuing operations in 1998 include a tax benefit of
$2,001 related to the sale of APPX Software, reflecting a tax benefit for the
excess of its income tax basis over its financial reporting basis.
66
17 CONTINGENCIES
- --------------------------------------------------------------------------------
We are involved in various stages of investigation and cleanup relating
to environmental matters at certain plant locations. Where we have determined
the nature and scope of any required environmental cleanup activity, estimates
of cleanup costs have been obtained and accrued. As we continue efforts to
assure compliance with environmental laws and regulations, additional
contingencies may be identified. If additional contingencies are identified, our
practice is to determine the nature and scope of those contingencies, obtain and
accrue estimates of the cost of remediation, and perform remediation. We do not
believe that additional costs that could arise from those activities will have a
material adverse effect on our financial position. However, those costs could
have a material adverse effect on quarterly or annual operating results at that
time.
We are involved in various other legal actions arising in the normal
course of business. After taking into consideration legal counsels' evaluation
of these actions, we believe that we have sufficiently accrued for possible
losses and that the actions will not have a material adverse effect on our
financial position. However, the resolution of the actions in a future period
could have a material adverse effect on quarterly or annual operating results at
that time.
18 DIVESTED AND DISCONTINUED OPERATIONS
- --------------------------------------------------------------------------------
On August 16, 1994, the Elk Horn Coal Corporation ("Elk Horn"), our
former 97% owned coal subsidiary, was acquired by Pen Holdings, Inc. 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 us in the divestiture transaction. Under the Act, former
employers were 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 ("UMWA").
We were relieved of any liability under the Act as the result of a 1998
Supreme Court ruling. Accordingly, in 1998 we recognized:
- - A third-quarter gain of $5,300 ($3,421 after taxes) for the reversal of the
remaining accrued obligation established to cover future payments to the
UMWA Combined Benefit Fund (the "UMWA Fund"); and
- - A fourth-quarter gain of $2,019 ($1,292 after taxes) for the reimbursement
of payments made by us to the UMWA Fund.
These gains were reported net of income taxes in discontinued
operations consistent with the treatment of Elk Horn when sold.
During the first quarter of 1998, we sold all of the outstanding
capital stock of APPX Software (see Note 16).
67
SELECTED QUARTERLY FINANCIAL DATA
- --------------------------------------------------------------------------------
Tredegar Corporation and Subsidiaries
(In thousands, except per-share amounts)
(Unaudited)
- -----------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
- -----------------------------------------------------------------------------------------------------
2000
- -----------------------------------------------------------------------------------------------------
Net sales $232,228 $223,503 $215,627 $197,896 $869,254
Gross profit 45,834 44,895 38,457 33,251 162,437
Net income 18,463 26,368 47,038 19,507 111,376
Earnings per share:
Basic .49 .70 1.24 .51 2.94
Diluted .47 .68 1.21 .50 2.86
Shares used to compute earnings per share:
Basic 37,718 37,911 37,944 37,962 37,885
Diluted 38,970 39,067 38,847 38,781 38,908
- -----------------------------------------------------------------------------------------------------
1999
- -----------------------------------------------------------------------------------------------------
Net sales $179,541 $194,840 $215,911 $230,119 $820,411
Gross profit 39,302 40,854 44,522 47,479 172,157
Net income 15,298 10,190 12,315 14,845 52,648
Earnings per share:
Basic .42 .28 .33 .40 1.42
Diluted .39 .26 .32 .38 1.36
Shares used to compute earnings per share:
Basic 36,724 36,852 37,098 37,286 36,992
Diluted 38,800 38,798 38,718 38,699 38,739
- -----------------------------------------------------------------------------------------------------
68
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 CORPORATION
(Registrant)
Dated: February 27, 2001 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 27, 2001.
Signature Title
/s/ John D. Gottwald President and Director
- ----------------------------------- (Principal Executive Officer)
(John D. Gottwald)
/s/ N. A. Scher Executive Vice President and Director
- ----------------------------------- (Principal Financial Officer)
(Norman A. Scher)
/s/ Michelle O. Mosier Corporate Controller
- ----------------------------------- (Principal Accounting Officer)
(Michelle O. Mosier)
/s/ Austin Brockenbrough, III Director
- -----------------------------------
(Austin Brockenbrough, III)
/s/ Phyllis Cothran Director
- -----------------------------------
(Phyllis Cothran)
/s/ R. W. Goodrum Director
- -----------------------------------
(Richard W. Goodrum)
/s/ Floyd D. Gottwald, Jr. Director
- -----------------------------------
(Floyd D. Gottwald, Jr.)
69
/s/ William M. Gottwald Director
- -----------------------------------
(William M. Gottwald)
/s/ Richard L. Morrill Director
- -----------------------------------
(Richard L. Morrill)
/s/ Emmett J. Rice Director
- -----------------------------------
(Emmett J. Rice)
/s/ Thomas G. Slater, Jr. Director
- -----------------------------------
(Thomas G. Slater, Jr.)
70
EXHIBIT INDEX
3.1 Amended and Restated Articles of Incorporation of Tredegar (filed as
Exhibit 3.1 to Tredegar's Quarterly Report on Form 10-Q for the
quarter ended June 30, 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 March 31, 2000,
and incorporated herein by reference)
3.3 Articles of Amendment (filed as Exhibit 3.3 to Tredegar's Annual
Report on Form 10-K for the year ended December 31, 1999, 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 30, 1999, by and between Tredegar
and American Stock Transfer & Trust Company, as Rights Agent (filed
as Exhibit 99.1 to the Registration Statement on Form 8-A, filed
June 16, 1999, as amended, 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 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)
4.3.2 First Amendment to Loan Agreement dated as of October 31, 1997
between Tredegar and Metropolitan Life Insurance Company (filed as
Exhibit 4.3.2 to Tredegar's Annual Report on Form 10-K for the year
ended December 31, 1998, and incorporated herein by reference)
4.4 Revolving Credit Facility Agreement dated as of July 9, 1997 among
Tredegar Industries, Inc., the banks named therein, The Chase
Manhattan Bank as Administrative Agent, NationsBank, N.A. as
Documentation Agent and Long-Term Credit Bank of Japan, Limited as
Co-Agent (filed as Exhibit 4.1 to Tredegar's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, and incorporated
herein by reference)
4.4.1 First Amendment to Revolving Credit Facility Agreement dated as of
October 31, 1997 among Tredegar Industries, Inc., the banks named
therein, The Chase Manhattan Bank as Administrative Agent,
NationsBank, N.A. as Documentation Agent and Long-Term Credit Bank
of Japan, Limited as Co-Agent (filed as Exhibit 4.4.1 to Tredegar's
Annual Report on Form 10-K for the year ended December 31, 1997, and
incorporated herein by reference)
4.5 Credit Agreement, dated October 13, 1999, among Tredegar, the banks
named therein, Bank of America, N.A. as Administrative Agent, the
Bank of New York and Crestar Bank as Co-Document Agents (filed as
Exhibit 4 to Tredegar's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, 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)
71
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)
10.4 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)
*10.5 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)
*10.5.1 Amendment to the Tredegar 1989 Incentive Stock Option Plan (filed as
Exhibit 10.5.1 to Tredegar's Annual Report on Form 10-K for the year
ended December 31, 1998, and incorporated herein by reference)
*10.6 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)
*10.7 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)
*10.7.1 Amendment to the Tredegar 1992 Omnibus Incentive Plan (filed as
Exhibit 10.7.1 to Tredegar's Annual Report on Form 10-K for the year
ended December 31, 1998, and incorporated herein by reference)
*10.8 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)
*10.8.1 Amendment to the Tredegar Retirement Benefit Restoration Plan (filed
as Exhibit 10.8.1 to Tredegar's Annual Report on Form 10-K for the
year ended December 31, 1998, and incorporated herein by reference)
*10.9 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)
10.10 Tredegar Industries, Inc. Amended and Restated Incentive Plan
(included as Exhibit 99.2 to the Form S-8 Registration Statement No.
333-88177, and incorporated herein by reference)
*10.11 Consulting Agreement made as of April 1, 2000 between Tredegar and
Richard W. Goodrum (filed as Exhibit 10 to Tredegar's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000, and
incorporated herein by reference)
*10.12 Tredegar Industries, Inc. Directors' Stock Plan (filed as Exhibit
10.12 to Tredegar's Annual Report on Form 10-K for the year ended
December 31, 1998, and incorporated herein by reference)
21 Subsidiaries of Tredegar
23.1 Consent of Independent Accountants
* The marked items are management contracts or compensatory plans, contracts or
arrangements required to be filed as exhibits to this Form 10-K.
72