SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
TREDEGAR CORPORATION
| VIRGINIA | 54-1497771 |
| (State or other jurisdiction | (I.R.S. Employer |
| of incorporation or organization) | Identification No.) |
| 1100 Boulders Parkway, Richmond, Virginia | 23225 |
| (Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: 804-330-1000
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Name of Each Exchange on Which Registered |
| 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 January 28, 2002: * $475,114,625
Number of shares of Common Stock outstanding as of January 28, 2002: 38,151,154
* In determining this figure, an aggregate of 12,329,707 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 January 28, 2002, as reported by The Wall Street Journal.
Portions of the Tredegar Corporation ("Tredegar") Proxy Statement for the 2002 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 12, 2002.
| Part I | Page |
| Item 1. | Business | 1-7 |
| Item 2. | Properties | 7-8 |
| Item 3. | Legal Proceedings | None |
| Item 4. | Submission of Matters to a Vote of Security Holders | None |
| Part II |
| Item 5. | Market for Tredegar's Common Equity and Related | 9-10 |
| Stockholder Matters |
| Item 6. | Selected Financial Data | 10-17 |
| Item 7. | Management's Discussion and Analysis of Financial Condition | 18-36 |
| and Results of Operations |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 36 |
| Item 8. | Financial Statements and Supplementary Data | 37-72 |
| Item 9. | Changes In and Disagreements With Accountants on Accounting | None |
| and Financial Disclosures |
| Part III |
| Item 10. | Directors and Executive Officers of Tredegar * | 37-38 |
| Item 11. | Executive Compensation | * |
| Item 12. | Security Ownership of Certain Beneficial Owners and | * |
| Management |
| Item 13. | Certain Relationships and Transactions | None |
| Part IV |
| Item 14. | Exhibits, Financial Statement Schedules and Reports on | 40 |
| Form 8-K |
* 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.
Tredegar Corporation ("Tredegar") is engaged directly or through its subsidiaries in the manufacture of plastic films and aluminum extrusions. We also operate a biotech division that is developing a variety of healthcare-related technologies and we have a number of direct and indirect interests in venture capital investments.
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 at plants in The Netherlands, Hungary, Italy, China, Brazil and Argentina. On October 13, 2000, Film Products acquired ADMA s.r.l. and Promea Engineering s.r.l. ADMA manufactures films used primarily in personal hygiene markets while Promea manufactures equipment to produce hygienic films and laminates. Both companies are 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 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 films for hygiene, packaging and industrial markets.
Hygiene. Film Products is one of the largest global 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 apertured films for use as the topsheet 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.
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.
Coextruded and monolayer apertured films are also sold by Film Products under the VisPore®name. These films are used to regulate fluid transmission in many industrial, medical, agricultural and packaging markets. Specific examples include filter plies for surgical masks and other medical applications, permeable ground cover and natural cheese mold release cloths.
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®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 and polypropylene resins, which are obtained from domestic and foreign suppliers at competitive prices. We believe there will be an adequate supply of polyethylene and polypropylene resins in the immediate future.
Customers. Film Products sells to many branded product producers throughout the world. The largest is The Procter & Gamble Company (“P&G”). Net sales to P&G totaled $235 million in 2001, $242 million in 2000 and $250 million in 1999 (these amounts include 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.
Research and Development and Intellectual Property. Film Products has technical centers in Terre Haute, Indiana; Lake Zurich, Illinois; and Chieti, Italy; and holds 55 U.S. patents and 12 U.S. trademarks. Expenditures for research and development ("R&D") have averaged $7 million per year during the past three years.
Aluminum Extrusions is comprised of The William L Bonnell Company, Inc., Bon L Manufacturing Company 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.
Aluminum Extrusions manufactures mill (unfinished), anodizedand 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, service and price.
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A breakdown of Aluminum Extrusion sales volume by market segment over the last three years is shown below:
| % of Aluminum Extrusions Sales Volume |
| by Market Segment |
| 2001 |
2000 |
1999 | |
| Building and construction | 58 | 51 | 48 |
| Distribution | 17 | 16 | 18 |
| Transportation | 10 | 12 | 14 |
| Electrical | 7 | 8 | 7 |
| Machinery and equipment | 5 | 8 | 8 |
| Consumer durables | 3 | 5 | 5 |
| Total | 100 | 100 | 100 |
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.
Tredegar Biotech includes Therics, Inc. and Molecumetics, Ltd.
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. As of December 31, 2001, Tredegar had invested $39.3 million in Therics ($30.2 million after tax benefits received from the deduction of Therics’ operating losses in Tredegar’s consolidated tax return). The book value of Therics net assets included in Tredegar’s consolidated balance sheet was $9.4 million at December 31, 2001. Therics also has future rental commitments under noncancelable operating leases through 2011 (most of which contain sublease options) totaling $13.8 million.
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™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.
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In connection with the acquisition, Tredegar recognized a charge of $3.5 million (classified as an unusual item in the consolidated statements 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™process was estimated at 90% complete and will be considered technologically feasible upon the successful manufacture of an FDA-validated product. The uncertainties involved include the ability to:
The technology has no alternative future use for which technological feasibility has been achieved. Therics had revenues of $450,000 and an operating loss of $12.9 million in 2001, 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 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 beginning on page 46 for more information on revenue recognition.
Therics is exclusively licensed in the healthcare field under 15 U.S. patents, owns four U.S. patents, and has applied for 20 U.S. trademarks and filed a number of other patent applications with respect to its technology. Therics spent approximately $13 million in 2001 and $8.2 million in 2000 on R&D ativities. For the period from the acquisition date to the end of 1999, Therics spent approximately $4.5 million on R&D activities.
Molecumetics. Molecumetics operates a drug discovery research laboratory in Bellevue, Washington, where it uses patented chemical technology to develop new drug candidates for licensing to pharmaceutical and biotechnology companies. Molecumetics has entered into a number of research collaboration and license agreements that are described below. Each of these agreements, except for the agreements with ChoongWae Pharma Corporation (“ChoongWae”; see below) and Athersys, Inc. (“Athersys”; see below), provide for R&D support funding. Each of these agreements, again except for the Choong Wae and Athersys 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 $4 million in 2001, $6.9 million in 2000 and $7.6 million in 1999. See Note 1 beginning on page 46 for more information on revenue recognition.
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To date, no Molecumetics compounds have advanced to the clinical phase nor does it have licensed products for which royalties are received. Any discussion of the possibility of realizing future royalties is speculative. Molecumetics' operating losses were $8.9 million in 2001, $5.6 million in 2000 and $3.4 million in 1999. As of December 31, 2001, Tredegar had invested $50.4 million in Molecumetics ($34.6 million after tax benefits received from the deduction of Molecumetics' operating losses in Tredegar's consolidated tax return). The book value of Molecumetics' net assets included in Tredegar's consolidated balance sheet was $5.1 million at December 31, 2001. Molecumetics also has future rental commitments under noncancelable operating leases through 2004 (most of which contain sublease options) totaling $1.4 million.
In 2001, Molecumetics entered into a compound supply agreement with Tularik, Inc. Tularik will screen Molecumetics' proprietary compounds in its small-molecule drug discovery efforts against a variety of biological targets. Tularik has paid Molecumetics for access to these compounds and will pay milestones and license fees should any compounds be optimized by Tularik and/or advanced to clinical trials.
In 2000, Molecumetics entered into a two-year 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 12 cell lines expressing validated targets of interest. Molecumetics will use its chemistry-based technology platform to identify and 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 any downstream value that is created.
In 1999, Molecumetics entered into a one-year research collaboration agreement with Pharmacia Corporation ("Pharmacia") to identify and develop inhibitors of Cysteinyl aspartate-specific proteinases ("Caspases"). Caspases play a central role in apoptosis, the inappropriate expression of which contributes to the underlying pathology in many human diseases. Under the agreement, Molecumetics identifies and optimizes 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 three-year research collaboration agreement, that expires in March 2002, 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.
5
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 focused initially on the identification of small-molecule transcription factor inhibitors and has since changed to small molecular inhibitors of the neurokinin-1 receptor. Molecumetics also has supplied BMS with 120,000 of its proprietary compounds for broad-based screening against a wide variety of disease targets. This contract expired in 2001.
In 1998, Molecumetics signed a two-year license and supply agreement with ChoongWae, a Korean pharmaceutical company (in early 2001, this agreement 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®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.
Molecumetics holds 15 U.S. patents and two U.S. trademarks, and has filed a number of other patent applications with respect to its technology. Molecumetics spent approximately $12.6 million in 2001, $12.3 million in 2000 and $10.8 million in 1999 on R&D activities.
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. More information, including a schedule of investments, is provided in the business segment review on pages 34-36, and in Note 7 beginning on page 57.
On October 23, 2000, we announced our intention to reduce future investments and to harvest our existing venture capital investments. We intend to fund existing commitments and support existing portfolio companies.
As a result of this decision, the former management group of Tredegar Investments, which consisted of five venture capital professionals, formed an independent venture capital partnership (Perennial Ventures) that raises and deploys cash from outside investors. We have entered into a three-year agreement effective January 1, 2001, whereby Perennial Ventures will also manage Tredegar Investments' existing portfolio of direct investments.
6
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 each of these 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 $32.9 million in 2001, $27.6 million in 2000 and $22.3 million in 1999 on R&D activities.
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 3,200 people at December 31, 2001.
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 50-95 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 | Guangzhou China (leased) | Production of plastic films and |
| (expected to be closed by | Kerkrade, The Netherlands | nonwoven laminate materials |
| September 2002) | Retstag, Hungary | |
| LaGrange, Georgia | Roccamontepiano, Italy | |
| Lake Zurich, Illinois | San Juan, Argentina | |
| New Bern, North Carolina | Sao Paulo, Brazil | |
| Pottsville, Pennsylvania | Shanghai, China | |
| Tacoma, Washington (leased; | ||
| expected to be closed by April | ||
| 2002) | ||
| Terre Haute, Indiana (2) | ||
| (technical center and | ||
| production facility) |
| Aluminum Extrusions | Principal Operations | |
| Locations in the United States | Locations in Canada | |
| Carthage, Tennessee | Aurora, Ontario | Production of aluminum extrusions, |
| Kentland, Indiana | Pickering, Ontario | fabrication and finishing |
| Newnan, Georgia | Richmond Hill, Ontario | |
| Ste. Thérèse, Québec |
Tredegar Biotech
Molecumetics leases its laboratory space in Bellevue, Washington. Therics leases space in Princeton, New Jersey.
Tredegar Investments
Tredegar Investments is located in Richmond, Virginia.
None
None
8
Our common stock is traded on the New York Stock Exchange under the ticker symbol TG. We have no preferred stock outstanding. There were 38,142,404 shares of common stock held by 5,009 shareholders of record on December 31, 2001.
The following table shows the reported high and low closing prices of our common stock by quarter for the past two years.
- ---------------------------------------------------------------
2001 2000
------------------- ----------------
High Low High Low
------- ------- ------ -------
First quarter $ 19.50 $ 15.30 $32.00 $18.13
Second quarter 20.90 16.20 27.94 19.00
Third quarter 21.70 16.05 23.19 17.31
Fourth quarter 19.52 15.55 19.06 15.00
- ---------------------------------------------------------------
Effective July 1, 1998, the quarterly dividend rate was increased to 4 cents per share.
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 beginning on page 60 for minimum shareholders' equity required.
Our annual meeting of shareholders will be held on April 25, 2002, beginning at 9:30 a.m. EDT at the University of Richmond's Jepson Alumni Center in Richmond, Virginia. Formal notice of the annual meeting, proxies and proxy statements will be mailed to shareholders on or about March 12, 2002.
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: www.amstock.com
9
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
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 |
The tables that follow on pages 11-17 present certain selected financial and segment information for the eight years ended December 31, 2001.
10
EIGHT-YEAR SUMMARY
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Tredegar Corporation and Subsidiaries
Years Ended December 31 2001 2000 1999 1998 1997 1996 1995 1994
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(In thousands, except per-share data)
Results of Operations (a):
Gross sales $783,148 $886,379 $835,632 $710,742 $589,049 $530,099 $595,610 $508,550
Freight (15,580) (17,125) (15,221) (10,946) (8,045) (6,548) (6,156) (6,342)
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------
Net sales 767,568 869,254 820,411 699,796 581,004 523,551 589,454 502,208
Other income (expense), net (18,400) 138,204 (4,362) 4,015 17,015 4,248 (669) (296)
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749,168 1,007,458 816,049 703,811 598,019 527,799 588,785 501,912
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------
Cost of goods sold 620,779 706,817 648,254 553,184 457,896 417,014 489,931 418,469
Selling, general & administrative expenses 52,107 52,937 47,357 39,493 37,035 39,719 48,229 47,978
Research and development expenses 32,887 27,593 22,313 14,502 13,170 11,066 8,763 8,275
Amortization of intangibles 4,914 5,025 3,430 205 50 256 579 1,354
Interest expense (b) 12,671 17,319 9,088 1,318 1,952 2,176 3,039 4,008
Unusual items 15,964 (c) 23,220 (d) 4,065 (e) (101) (f) (2,250) (g)(11,427) (h) (78) (i) 16,494 (j)
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739,322 832,911 734,507 608,601 507,853 458,804 550,463 496,578
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Income from continuing operations
before income taxes 9,846 174,547 81,542 95,210 90,166 68,995 38,322 5,334
Income taxes 1,490 (c) 63,171 28,894 31,054 (f) 31,720 23,960 14,269 3,917
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Income from continuing operations (a) 8,356 111,376 52,648 64,156 58,446 45,035 24,053 1,417
Income from discontinued operations (a) 1,396 - - 4,713 - - - 37,218
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Net income $ 9,752 $111,376 $52,648 $68,869 $58,446 $45,035 $24,053 $38,635
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Diluted earnings per share:
Continuing operations (a) .21 2.86 1.36 1.66 1.48 1.15 .60 .03
Discontinued operations (a) .04 - - .12 - - - .79
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Net income .25 2.86 1.36 1.78 1.48 1.15 .60 .82
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Refer to notes to financial tables on page 17.
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EIGHT-YEAR SUMMARY
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Tredegar Corporation and Subsidiaries
Years Ended December 31 2001 2000 1999 1998 1997 1996 1995 1994
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(In thousands, except per-share data)
Share Data:
Equity per share $ 12.53 $ 13.07 $ 9.88 $ 8.46 $ 7.34 $ 5.79 $ 4.67 $ 4.25
Cash dividends declared per share 0.16 .16 .16 .15 .11 .09 .06 .05
Weighted average common shares outstanding
during the period 38,061 37,885 36,992 36,286 36,861 36,624 38,748 46,572
Shares used to compute diluted earnings
per share during the period 38,824 38,908 38,739 38,670 39,534 39,315 40,110 46,842
Shares outstanding at end of period 38,142 38,084 37,661 36,661 37,113 36,714 36,528 40,464
Closing market price per share:
High 21.70 32.00 32.94 30.67 24.65 15.13 7.72 4.14
Low 15.30 15.00 16.06 16.13 12.54 6.83 3.86 3.11
End of year 19.00 17.44 20.69 22.50 21.96 13.38 7.17 3.86
Total return to shareholders (k) 9.9 % (14.9) % (7.3) % 3.1 % 65.0 % 87.8 % 87.2 % 17.4 %
Financial Position:
Total assets 865,031 903,768 792,487 457,178 410,937 341,077 314,052 318,345
Working capital excluding cash, cash
equivalents, broker receivables and
current debt 54,758 75,529 80,594 52,050 30,279 31,860 54,504 53,087
Current ratio 2.5:1 2.4:1 2.0:1 1.9:1 3.1:1 3.2:1 1.8:1 1.9:1
Cash and cash equivalents 96,810 44,530 25,752 25,409 120,065 101,261 2,145 9,036
Receivable from securities brokers - 292 - - - - - -
Venture capital investments:
Cost basis 189,973 213,096 135,469 60,617 25,826 6,048 3,410 2,200
Carrying value 155,084 232,259 140,698 60,024 33,513 6,048 3,410 2,200
Estimated fair value 171,720 403,531 205,363 70,841 40,757 15,000 5,700 2,300
Net asset value 178,291 334,974 180,201 67,160 35,382 11,777 4,876 2,264
Ending consolidated capital employed (l) 645,587 721,008 616,476 309,886 182,481 146,284 203,376 200,842
Capital employed of divested and discontinued
operations (Molded Products, Brudi and
the Energy segment) (a) - - - - - 60,144 59,267
Debt 264,498 268,102 270,000 25,000 30,000 35,000 35,000 38,000
Shareholders' equity (net book value) 477,899 497,728 372,228 310,295 272,546 212,545 170,521 171,878
Equity market capitalization (m) 724,706 664,090 779,112 824,873 814,940 491,050 261,784 156,236
Net debt (debt less cash, cash
equivalents and broker receivables)
as a % of net capitalization 26.0 % 31.0 % 39.6 % (0.1) % (49.4) % (45.3) % 16.2 % 14.4 %
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Refer to notes to financial tables on page 17.
12
SEGMENT TABLES Tredegar Corporation and Subsidiaries Net Sales (n) - ------------------------------------------------------------------------------------------------------------------------------------------------------- Segment 2001 2000 1999 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------------------------- (In thousands) Film Products $382,740 $380,202 $ 342,300 $ 286,965 $ 298,862 $ 257,306 $ 237,770 $ 188,672 Aluminum Extrusions 380,387 479,889 461,241 395,455 266,585 219,044 221,657 193,870 Fiberlux (o) - 1,856 9,092 11,629 10,596 10,564 11,329 11,479 Tredegar Biotech: Molecumetics 3,991 6,904 7,617 5,718 2,583 36 - 200 Therics 450 403 161 - - - - - Tredegar Investments and Other (p) - - - 29 2,378 2,090 1,953 2,517 - ------------------------------------------------------------------------------------------------------------------------------------------------------- Total ongoing operations (q) 767,568 869,254 820,411 699,796 581,004 489,040 472,709 396,738 Divested operations (a): Molded Products - - - - - 21,131 84,911 76,579 Brudi - - - - - 13,380 31,834 28,891 - ------------------------------------------------------------------------------------------------------------------------------------------------------- Total $767,568 $869,254 $ 820,411 $ 699,796 $ 581,004 $ 523,551 $ 589,454 $ 502,208 - ------------------------------------------------------------------------------------------------------------------------------------------------------- Refer to notes to financial tables on page 17.
13
SEGMENT TABLES
Tredegar Corporation and Subsidiaries
Operating Profit
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Segment 2001 2000 1999 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Film Products:
Ongoing operations $61,787 $47,112 $ 59,554 $ 53,786 $ 50,463 $ 43,158 $ 36,019 $ 34,726
Unusual items (9,136)(c) (22,163)(d) (1,170)(e) - - 680 (h) 1,750 (i) -
- -------------------------------------------------------------------------------------------------------------------------------------------------------
52,651 24,949 58,384 53,786 50,463 43,838 37,769 34,726
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Aluminum Extrusions:
Ongoing operations 25,407 52,953 56,501 47,091 32,057 23,371 16,777 11,311
Unusual items (7,799)(c) (1,628)(d) - (664) (f) - - - -
- -------------------------------------------------------------------------------------------------------------------------------------------------------
17,608 51,325 56,501 46,427 32,057 23,371 16,777 11,311
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Fiberlux (o):
Ongoing operations - (264) 57 1,433 845 1,220 452 950
Unusual items - 762 (d) - - - - - -
- -------------------------------------------------------------------------------------------------------------------------------------------------------
- 498 57 1,433 845 1,220 452 950
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Tredegar Biotech:
Molecumetics (8,876) (5,589) (3,421) (3,504) (4,488) (6,564) (4,769) (3,534)
Therics (12,861) (8,024) (5,235) - - - - -
Unusual items - - (3,458)(e) - - - - -
- -------------------------------------------------------------------------------------------------------------------------------------------------------
(21,737) (13,613) (12,114) (3,504) (4,488) (6,564) (4,769) (3,534)
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Tredegar Investments and Other (p):
Venture capital investments (25,979) 130,879 (7,079) 615 13,880 2,139 (695) -
Other - - - (428) (267) (118) (566) (5,354)
Unusual items - (191)(d) (149)(e) 765 (f) - - (1,672) (i) (9,521) (j)
- -------------------------------------------------------------------------------------------------------------------------------------------------------
(25,979) 130,688 (7,228) 952 13,613 2,021 (2,933) (14,875)
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Divested operations (a):
Molded Products - - - - - 1,011 2,718 (2,484)
Brudi - - - - - 231 222 (356)
Unusual items - - - - 2,250 (g) 10,747 (h) - (6,973) (j)
- -------------------------------------------------------------------------------------------------------------------------------------------------------
- - - - 2,250 11,989 2,940 (9,813)
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Total operating profit 22,543 193,847 95,600 99,094 94,740 75,875 50,236 18,765
Interest income 2,720 2,578 1,419 2,279 4,959 2,956 333 544
Interest expense (b) 12,671 17,319 9,088 1,318 1,952 2,176 3,039 4,008
Corporate expenses, net 2,746 (c) 4,559 6,389 (e) 4,845 7,581 7,660 9,208 9,967
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 9,846 174,547 81,542 95,210 90,166 68,995 38,322 5,334
Income taxes 1,490 (c) 63,171 28,894 31,054 (f) 31,720 23,960 14,269 3,917
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 8,356 111,376 52,648 64,156 58,446 45,035 24,053 1,417
Income from discontinued operations (a) 1,396 - - 4,713 - - - 37,218
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Net income $ 9,752 $111,376 $ 52,648 $ 68,869 $ 58,446 $ 45,035 $ 24,053 $ 38,635
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Refer to notes to financial tables on page 17.
14
SEGMENT TABLES Tredegar Corporation and Subsidiaries Identifiable Assets - ------------------------------------------------------------------------------------------------------------------------------------------------------- Segment 2001 2000 1999 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------------------------- (In thousands) Film Products $367,291 $367,526 $ 360,517 $ 132,241 $ 123,613 $ 116,520 $ 118,096 $ 108,862 Aluminum Extrusions 185,927 210,434 216,258 201,518 101,855 83,814 80,955 89,406 Fiberlux (o) - - 7,859 7,811 6,886 6,203 6,330 6,448 Tredegar Biotech: Molecumetics 5,608 4,757 4,749 5,196 2,550 2,911 2,018 1,536 Therics 9,931 9,609 9,905 - - - - - Tredegar Investments and Other (p) 158,887 236,698 145,028 61,098 34,611 7,760 5,442 5,780 - ------------------------------------------------------------------------------------------------------------------------------------------------------- Identifiable assets for ongoing operations 727,644 829,024 744,316 407,864 269,515 217,208 212,841 212,032 Nonoperating assets held for sale - - - - - - 6,057 5,018 General corporate 40,577 30,214 22,419 23,905 21,357 22,608 20,326 12,789 Cash and cash equivalents 96,810 44,530 25,752 25,409 120,065 101,261 2,145 9,036 Divested operations (a): Molded Products - - - - - - 44,173 48,932 Brudi - - - - - - 28,510 30,538 - ------------------------------------------------------------------------------------------------------------------------------------------------------- Total $865,031 $903,768 $ 792,487 $ 457,178 $ 410,937 $ 341,077 $ 314,052 $ 318,345 - ------------------------------------------------------------------------------------------------------------------------------------------------------- Refer to notes to financial tables on page 17.
15
SEGMENT TABLES
Tredegar Corporation and Subsidiaries
Depreciation and Amortization
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Segment 2001 2000 1999 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Film Products $22,047 $23,122 $ 18,751 $ 11,993 $ 10,947 $ 11,262 $ 9,766 $ 9,097
Aluminum Extrusions 11,216 9,862 9,484 8,393 5,508 5,407 5,966 5,948
Fiberlux (o) - 151 498 544 515 507 577 644
Tredegar Biotech:
Molecumetics 2,055 1,734 1,490 1,260 996 780 592 573
Therics 2,262 1,782 1,195 - - - - -
Tredegar Investments and Other (p) - 18 22 21 135 161 197 720
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Subtotal 37,580 36,669 31,440 22,211 18,101 18,117 17,098 16,982
General corporate 329 315 253 254 313 390 481 570
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Total ongoing operations 37,909 36,984 31,693 22,465 18,414 18,507 17,579 17,552
Divested operations (a):
Molded Products - - - - - 1,261 5,055 5,956
Brudi - - - - - 550 1,201 1,337
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Total $37,909 $36,984 $ 31,693 $ 22,465 $ 18,414 $ 20,318 $ 23,835 $ 24,845
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Capital Expenditures, Acquisitions and Investments
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Segment 2001 2000 1999 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Film Products $24,775 $53,161 $ 25,296 $ 18,456 $ 15,354 $ 11,932 $ 10,734 $ 6,710
Aluminum Extrusions 8,506 21,911 16,388 10,407 6,372 8,598 5,454 4,391
Fiberlux (o) - 425 812 1,477 530 417 465 416
Tredegar Biotech:
Molecumetics 2,850 2,133 1,362 3,561 366 1,594 894 178
Therics 2,340 1,730 757 - - - - -
Tredegar Investments and Other (p) - 86 - 54 5 14 - 99
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Subtotal 38,471 79,446 44,615 33,955 22,627 22,555 17,547 11,794
General corporate 519 384 606 115 28 143 231 191
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures for ongoing
operations 38,990 79,830 45,221 34,070 22,655 22,698 17,778 11,985
Divested operations (a):
Molded Products - - - - - 1,158 6,553 2,988
Brudi - - - - - 104 807 606
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Total capital expenditures 38,990 79,830 45,221 34,070 22,655 23,960 25,138 15,579
Acquisitions and other 1,918 6,316 215,227 72,102 13,469 - 3,637 -
Venture capital investments 24,504 93,058 81,747 35,399 20,801 3,138 1,904 1,400
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Total $65,412 $179,204 $ 342,195 $ 141,571 $ 56,925 $ 27,098 $ 30,679 $ 16,979
- -------------------------------------------------------------------------------------------------------------------------------------------------------
Refer to notes to financial tables on page 17.
16
(In thousands, except per-share amounts)
| (a) | On August 16, 1994, we 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. In 2001, discontinued operations includes a gain of $1,396 for the reversal of an income tax continegency accrual upon favorable conclusion of IRS examinations through 1997. The accrual was originally recorded in conjunction with the sale of The Elk Horn Coal Corporation. 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 2001 include a charge of $7,799 for the shutdown of the aluminum extrusions plant in El Campo, Texas, a charge of $3,386 for the shutdown of the films manufacturing facility in Tacoma, Washington, a charge of $2,877 for the shutdown of the films manufacturing facility in Carbondale, Pennsylvania, a charge of $1,505 for severance costs related to further rationalization in the films business, a charge of $1,368 for impairment of our films business in Argentina and a gain of $971 for interest received on tax overpayments. Income taxes in 2001 include a tax benefit of $1,904 related to the reversal of income tax contingency accruals upon favorable conclusion of IRS examinations through 1997. |
| (d) | 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 Tredegar Investments. |
| (e) | Unusual items for 1999 include a charge for costs associated with the evaluation of financing and structural options for Tredegar Investments of $149, a gain on the sale of corporate real estate of $712, a charge related to a write-off of in-process research and development expenses associated with the Therics acquisition of $3,458 (see Note 2 on page 53) and a charge for the write-off of excess packaging film capacity of $1,170. |
| (f) | Unusual items for 1998 include a charge related to the shutdown of the powder-coat paint line in the production facility in Newnan, Georgia of $664 and a gain on the sale of APPX Software of $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. |
| (g) | 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. |
| (h) | Unusual items for 1996 include a gain on the sale of Molded Products of $19,893, a gain on the sale of a former plastic films manufacturing site in Fremont, California of $1,968, a charge related to the loss on the divestiture of Brudi of $9,146 and a charge related to the write-off of specialized machinery and equipment due to excess capacity in certain industrial packaging films of $1,288. |
| (i) | Unusual items for 1995 include a gain on the sale of Regal Cinema shares of $728, a charge related to the restructuring of APPX Software of $2,400 and a recovery in connection with a Film Products product liability lawsuit of $1,750. |
| (j) | Unusual items for 1994 include the write-off of certain goodwill and intangibles in APPX Software of $9,521, the write-off of certain goodwill in Molded Products of $4,873 and the estimated costs related to the closing of a Molded Products plant in Alsip, Illinois of $2,100. |
| (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 represent gross sales less freight. |
| (o) | Fiberlux was sold on April 10, 2000. |
| (p) | Tredegar Investments and Other includes APPX Software (sold in 1998 - see (f)) and venture capital investments. |
| (q) | Net sales include sales to P&G totaling $235,236 in 2001, $242,359 in 2000 and $250,020 in 1999. These amounts include plastic film sold to others who converted the film into materials used in products manufactured by P&G. |
17
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 other 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 healthcare-related 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 is comprised of high-risk stakes in technology start-up companies, primarily in the areas of communications, life sciences and information technology. Our primary objective in making these investments 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 31-36 are critical to understanding our operating results and business risks.
2001 versus 2000
Revenues. Net sales in 2001 decreased by 12% to $767.6 million compared with $869.3 million in 2000. The lower net sales are due primarily to a decline in volume in Aluminum Extrusions of 20% in 2001 due to adverse economic conditions and cyclical downturn in the end-use markets we serve. Volume in Film Products was down slightly; however, the impact on net sales of lower overall volume in Film Products was offset by higher sales from operations in Europe and China and higher sales of new higher-value products. Net losses for Tredegar Investments totaled $26 million ($16.6 million after income taxes) in 2001 while in 2000 there were net gains of $130.9 million ($83.8 million after income taxes).
Pretax realized gains and losses from investment activities are included in "Other income (expense), net" in the consolidated statements of income on page 42 and in "Venture capital investments" in the operating profit by segment table on page 14. The stand-alone operating expenses (primarily management fee expenses in 2001 and primarily employee compensation and benefits and leased office space and equipment in 2000 and 1999) for our venture capital investment activities are classified in "Selling, general and administrative expenses" ("SG&A") in the consolidated statements of income and in "Venture capital investments" in the operating profit by segment table. These expenses totaled $6.3 million in 2001, $5.1 million in 2000 and $2.5 million in 1999.
18
For more information on net sales and investment activities, see the business segment review on pages 31-36.
Operating Costs and Expenses. The gross profit margin during 2001 remained flat at 19%, with higher margins realized in Film Products offset by lower margins in Aluminum Extrusions. The margin improvement in Film Products was driven by higher sales of new higher-margin products. The gross profit margin in Film Products in 2000 was negatively impacted by higher production costs associated with the commercialization of new products. The gross profit margin erosion in Aluminum Extrusions was due primarily to lower volumes causing a decline in total variable contribution available to cover fixed manufacturing costs. Competitive pricing pressures also had an adverse impact.
SG&A expenses in 2001 were $52.1 million, down slightly from $52.9 million in 2001. The decrease was primarily due to:
The benefits of the above were offset, in part, by:
As a percentage of net sales, SG&A expenses increased to 6.8% in 2001 from 6.1% in 2000.
R&D expenses increased to $32.9 million in 2001 from $27.6 million in 2000 primarily due to higher spending at Therics and Molecumetics in support of increased R&D efforts.
Unusual items (net) in 2001 totaled $16 million ($8.3 million after income taxes) and included:
19
For more information on costs and expenses, see the business segment review on pages 31-36.
Interest Income and Expense. Interest income, which is included in “Other income (expense), net” in the consolidated statements of income, was relatively flat at $2.7 million in 2001 compared with $2.6 million in 2000. A higher average cash and cash equivalents balance (see “Cash Flows” on page 24 for more information) was offset by lower interest yields. The average tax-equivalent yield earned on cash equivalents was approximately 3.8% in 2001 and 6.2% in 2000. Our policy permits investment of excess cash in marketable securities that have the highest credit ratings and maturities of less than one year with the primary objectives being safety of principal and liquidity.
Interest expense decreased to $12.7 million in 2001 from $17.3 million in 2000 due to lower average interest rates and slightly lower average debt. Average debt outstanding and interest rates in 2001 and 2000 were as follows:
- --------------------------------------------------------------------------------
(In Millions) 2001 2000
- --------------------------------------------------------------------------------
Floating-rate debt with interest charged on a
rollover basis at one-month LIBOR:
Average outstanding debt balance $ 203.0 $ 252.5
Average interest rate 5.0% 7.2%
Floating-rate debt fixed via interest rate swaps in the
second quarter of 2001 and maturing in the second
quarter of 2003:
Average outstanding debt balance $ 47.0 -
Average interest rate 4.8% -
Fixed-rate and other debt:
Average outstanding debt balance $ 16.7 $ 17.2
Average interest rate 7.2% 7.2%
- --------------------------------------------------------------------------------
Total debt:
Average outstanding debt balance $ 266.7 $ 267.2
Average interest rate 5.1% 7.2%
- --------------------------------------------------------------------------------
20
The impact on interest expense of lower average interest rates and lower average debt was partially offset by lower capitalized interest ($1.8 million in 2001 versus $2.7 million in 2000) from lower capital expenditures.
Income Taxes. The effective tax rate, excluding unusual items and venture capital investment activities, was approximately 35.5% in 2001 compared with 36.5% in 2000. The decrease during 2001 was mainly due to lower taxes accrued on unremitted earnings from foreign operations. The effective tax rate for venture capital gains, losses and write-downs was 36% in both years. The overall effective tax rate was 15.1% in 2001 compared with 36.2% in 2000. The decline in the overall rate is due primarily to a second-quarter income tax benefit of $1.9 million for the reversal of income tax contingency accruals upon favorable conclusion of IRS examinations through 1997. See Note 15 on page 68 for additional tax rate information.
Results for 2001 also include an after-tax gain from discontinued operations of $1.4 million related to the reversal of an income tax contingency accrual upon favorable conclusion of IRS examinations through 1997. The accrual was originally recorded in conjunction with the sale of The Elk Horn Coal Corporation in 1994.
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.
For more information on net sales and investment activities, see the business segment review on pages 31-36.
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.
SG&A expenses in 2000 were $52.9 million, up from $47.4 million in 1999 primarily due to:
21
As a percentage of net sales, SG&A expenses increased to 6.1% in 2000 from 5.8% in 1999.
R&D expenses increased to $27.6 million in 2000 from $22.3 million in 1999 primarily due to:
Unusual items (net) in 2000 totaled $23.2 million ($14.9 million after income taxes) and included:
For more information on costs and expenses, see the business segment review on pages 31-36.
Interest Income and Expense. Interest income increased to $2.6 million in 2000 from $1.4 million in 1999 due to a 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.
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.
22
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 effective tax rate for venture capital gains, losses and write-downs was 36% in both years. 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 68 for additional tax rate information.
Assets
Total assets decreased to $865 million at December 31, 2001, from $903.8 million at December 31, 2000, mainly due to:
These decreases were partially offset by the following:
Liabilities and Available Credit
Total liabilities were $387.1 million at December 31, 2001, down from $406 million at December 31, 2000, primarily due to the impact of the following:
23
The decreases in the above were partially offset by an increase in accrued liabilities (up $11 million) due primarily to accruals for plant shutdowns and divestitures (up $4.5 million) and the accrual for derivative financial instruments (up $4.2 million, see Note 8 on page 60).
Debt outstanding of $264.5 million at December 31, 2001, consisted of a $250 million term loan maturing in 2005, a note payable with a remaining balance of $10 million and other debt assumed in acquisiti