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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*