SECURITIES AND
EXCHANGE COMMISSION
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| |X| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 30, 2002 OR |
| | | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from _____________________ to _____________________ Commission file number 1-10258 Tredegar Corporation |
| Virginia (State or Other Jurisdiction of Incorporation or Organization) |
54-1497771 (I.R.S. Employer Identification No.) |
| 1100 Boulders Parkway Richmond, Virginia (Address of Principal Executive Offices) |
23225 (Zip Code) |
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Registrant’s telephone number, including area code: (804) 330-1000 Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No | | Indicate by check whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |X| No | | The number of shares of Common Stock, no par value, outstanding as of October 29, 2002: 38,419,925. |
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PART I — FINANCIAL INFORMATION Item 1. Financial Statements. Tredegar Corporation |
| Sept. 30, 2002 |
Dec. 31, 2001 |
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|---|---|---|---|---|---|
| Assets | |||||
| Current assets: | |||||
| Cash and cash equivalents | $ 103,615 | $ 96,810 | |||
| Accounts and notes receivable | 95,316 | 79,274 | |||
| Income taxes recoverable | 4,178 | 5,410 | |||
| Inventories | 39,472 | 45,316 | |||
| Deferred income taxes | 18,632 | 16,022 | |||
| Prepaid expenses and other | 5,780 | 2,880 | |||
| Total current assets | 266,993 | 245,712 | |||
| Property, plant and equipment, at cost | 518,598 | 534,491 | |||
| Less accumulated depreciation and amortization | 264,948 | 267,148 | |||
| Net property, plant and equipment | 253,650 | 267,343 | |||
| Net non-current assets of Therics held for sale | 10,144 | — | |||
| Venture capital investments | 104,865 | 155,084 | |||
| Other assets and deferred charges | 68,542 | 60,404 | |||
| Goodwill and other intangibles | 131,964 | 136,488 | |||
| Total assets | $ 836,158 | $ 865,031 | |||
| Liabilities and Shareholders’ Equity | |||||
| Current liabilities: | |||||
| Accounts payable | $ 42,126 | $ 46,507 | |||
| Accrued expenses | 45,482 | 47,637 | |||
| Current portion of long-term debt | 42,500 | 5,000 | |||
| Total current liabilities | 130,108 | 99,144 | |||
| Long-term debt | 216,665 | 259,498 | |||
| Deferred income taxes | 17,747 | 18,985 | |||
| Other noncurrent liabilities | 9,767 | 9,505 | |||
| Total liabilities | 374,287 | 387,132 | |||
| Shareholders’ equity: | |||||
| Common stock, no par value | 109,055 | 107,104 | |||
| Common stock held in trust for savings | |||||
| restoration plan | (1,212 | ) | (1,212 | ) | |
| Unrealized gain on available-for-sale securities | 562 | 8,314 | |||
| Foreign currency translation adjustment | (7,995 | ) | (6,007 | ) | |
| Loss on derivative financial instruments | (1,834 | ) | (2,708 | ) | |
| Retained earnings | 363,295 | 372,408 | |||
| Total shareholders’ equity | 461,871 | 477,899 | |||
| Total liabilities and shareholders’ equity | $ 836,158 | $ 865,031 | |||
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See accompanying notes to financial statements. 2 |
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Tredegar Corporation |
| Third Quarter Ended September 30 |
Nine Months Ended September 30 |
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|---|---|---|---|---|---|---|---|---|---|
| 2002 |
2001 |
2002 |
2001 |
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| Revenues: | |||||||||
| Gross sales | $ 194,621 | $ 201,799 | $ 572,627 | $ 595,826 | |||||
| Freight | 4,315 | 3,968 | 12,109 | 11,653 | |||||
| Net sales | 190,306 | 197,831 | 560,518 | 584,173 | |||||
| Other income (expense), net | (18,406 | ) | (4,151 | ) | (45,368 | ) | (7,839 | ) | |
| Total | 171,900 | 193,680 | 515,150 | 576,334 | |||||
| Costs and expenses: | |||||||||
| Cost of goods sold | 152,328 | 160,473 | 443,696 | 475,854 | |||||
| Selling, general and administrative | 13,298 | 12,454 | 41,102 | 38,134 | |||||
| Research and development | 5,034 | 5,397 | 15,708 | 14,701 | |||||
| Amortization of intangibles | 11 | 1,226 | 89 | 3,682 | |||||
| Interest | 2,401 | 2,954 | 6,899 | 10,227 | |||||
| Unusual items | 178 | 9,848 | 1,442 | 10,477 | |||||
| Total | 173,250 | 192,352 | 508,936 | 553,075 | |||||
| Income (loss) from continuing operations before | |||||||||
| income taxes | (1,350 | ) | 1,328 | 6,214 | 23,259 | ||||
| Income taxes | (564 | ) | 413 | 1,999 | 6,279 | ||||
| Income (loss) from continuing operations | (786 | ) | 915 | 4,215 | 16,980 | ||||
| Discontinued operations: | |||||||||
| Loss from operations of Molecumetics (including | |||||||||
| expected loss on disposal of $4,875 in 2002) | (975 | ) | (2,029 | ) | (8,728 | ) | (4,080 | ) | |
| Income from discontinued energy segment | — | — | — | 1,396 | |||||
| Loss from discontinued operations | (975 | ) | (2,029 | ) | (8,728 | ) | (2,684 | ) | |
| Net income (loss) | $ (1,761 | ) | $ (1,114 | ) | $ (4,513 | ) | $ 14,296 | ||
| Earnings (loss) per share: | |||||||||
| Basic: | |||||||||
| Continuing operations | $ (.02 | ) | $ .02 | $ .11 | $ .45 | ||||
| Discontinued operations | (.03 | ) | (.05 | ) | (.23 | ) | (.07 | ) | |
| Net income (loss) | $ (.05 | ) | $ (.03 | ) | $ (.12 | ) | $ .38 | ||
| Diluted: | |||||||||
| Continuing operations | $ (.02 | ) | $ .02 | $ .11 | $ .44 | ||||
| Discontinued operations | (.03 | ) | (.05 | ) | (.23 | ) | (.07 | ) | |
| Net income (loss) | $ (.05 | ) | $ (.03 | ) | $ (.12 | ) | $ .37 | ||
| Shares used to compute earnings (loss) per share: | |||||||||
| Basic | 38,334 | 38,059 | 38,258 | 38,055 | |||||
| Diluted | 38,334 | 38,838 | 38,935 | 38,824 | |||||
| Dividends per share | $ .04 | $ .04 | $ .12 | $ .12 | |||||
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See accompanying notes to financial statements. 3 |
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Tredegar Corporation |
| Nine Months Ended September 30 | |||||
|---|---|---|---|---|---|
| 2002 |
2001 | ||||
| Cash flows from operating activities: | |||||
| Net income (loss) | $ (4,513 | ) | $ 14,296 | ||
| Adjustments for noncash items: | |||||
| Loss (gain) from discontinued operations | 7,500 | (1,396 | ) | ||
| Depreciation | 23,937 | 24,149 | |||
| Amortization of intangibles | 89 | 3,682 | |||
| Deferred income taxes | 1,092 | 521 | |||
| Accrued pension income and postretirement benefits | (7,179 | ) | (7,740 | ) | |
| Loss on venture capital investments | 45,998 | 8,976 | |||
| Loss on equipment writedowns and divestitures | — | 5,721 | |||
| Allowance for doubtful accounts | — | 298 | |||
| Changes in assets and liabilities: | |||||
| Accounts and notes receivable | (16,847 | ) | (6,613 | ) | |
| Inventories | 5,617 | 2,883 | |||
| Income taxes recoverable | 1,232 | (4,491 | ) | ||
| Prepaid expenses and other | (679 | ) | (309 | ) | |
| Accounts payable | (3,645 | ) | (392 | ) | |
| Accrued expenses and income taxes payable | (5,764 | ) | 4,555 | ||
| Other, net | (1,044 | ) | 1,465 | ||
| Net cash provided by operating activities | 45,794 | 45,605 | |||
| Cash flows from investing activities: | |||||
| Capital expenditures | (21,564 | ) | (30,010 | ) | |
| Venture capital investments | (14,579 | ) | (16,560 | ) | |
| Proceeds from the sale of venture capital investments | 6,689 | 37,794 | |||
| Proceeds from property disposals and divestitures | 143 | 2,224 | |||
| Other, net | (1,696 | ) | (1,775 | ) | |
| Net cash used in investing activities | (31,007 | ) | (8,327 | ) | |
| Cash flows from financing activities: | |||||
| Dividends paid | (4,600 | ) | (4,569 | ) | |
| Net (decrease) increase in borrowings | (5,333 | ) | (3,335 | ) | |
| Proceeds from exercise of stock options (including | |||||
| related income tax benefits realized) | 1,951 | 177 | |||
| Net cash used in financing activities | (7,982 | ) | (7,727 | ) | |
| Increase (decrease) in cash and cash equivalents | 6,805 | 29,551 | |||
| Cash and cash equivalents at beginning of period | 96,810 | 44,530 | |||
| Cash and cash equivalents at end of period | $ 103,615 | $ 74,081 | |||
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See accompanying notes to financial statements. 4 |
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TREDEGAR
CORPORATION |
| 1. | In the opinion of management, the accompanying consolidated financial statements of Tredegar Corporation and Subsidiaries (“Tredegar”) contain all adjustments necessary to present fairly, in all material respects, Tredegar’s consolidated financial position as of September 30, 2002, and the consolidated results of operations and cash flows for the nine months ended September 30, 2002 and 2001. All such adjustments are deemed to be of a normal recurring nature. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in Tredegar’s Annual Report on Form 10-K for the year ended December 31, 2001. The results of operations for the nine months ended September 30, 2002 are not necessarily indicative of the results to be expected for the full year. |
| Certain previously reported amounts have been reclassified to conform to the current presentation. |
| 2. | The Financial Accounting Standards Board issued two new standards that primarily affect the accounting for acquisitions initiated after June 30, 2001, and the accounting for goodwill. We adopted these standards effective January 1, 2002. These standards prohibit amortization of goodwill but require annual impairment reviews that may result in the recognition of losses. We have reclassified from intangible assets to goodwill approximately $396,000 related to Therics’ workforce, which no longer qualifies as a separately identifiable intangible asset. We have made determinations as to what our reporting units are and what amounts of goodwill, intangible assets, other assets and liabilities should be allocated to those reporting units. We completed the transitional impairment test, which did not result in impairment of recorded goodwill. In accordance with this statement, amortization of goodwill was discontinued as of January 1, 2002. A reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion of goodwill amortization, net of related income taxes, is as follows: |
| (In Thousands, except per share data) |
Quarter Ended Sept. 30, 2001 |
Nine Months Ended Sept. 30, 2001 |
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|---|---|---|---|---|---|
| Reported net income (loss) | $ (1,114 | ) | $ 14,296 | ||
| Goodwill amortization, net of tax | 750 | 2,248 | |||
| Adjusted net income (loss) | $ (364 | ) | $ 16,544 | ||
| Basic earnings (loss) per share as reported | $ (.03 | ) | $ .38 | ||
| Adjustment to basic earnings (loss) per share | .02 | .06 | |||
| Adjusted basic earnings (loss) per share | $ (.01 | ) | $ .44 | ||
| Diluted earnings (loss) per share as reported | $ (.03 | ) | $ .37 | ||
| Adjustment to diluted earnings (loss) per share | .02 | .06 | |||
| Adjusted diluted earnings (loss) per share | $ (.01 | ) | $ .43 | ||
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5 |
| The carrying value of goodwill at January 1, 2002, of $134.7 million was comprised of $100.7 million related to Film Products, $30.5 million related to Aluminum Extrusions and $3.5 million related to Therics. The goodwill related to Therics has been included in “Net non-current assets of Therics held for sale” in the consolidated balance sheet at September 30, 2002. |
| 3. | See pages 16 through 18 for information on unusual items recognized during the quarter and nine months ended September 30, 2002 and 2001. |
| On March 22, 2002, we announced our intent to divest our two biotechnology units, Molecumetics and Therics. The long-lived assets for Therics (approximately $10.1 million) have been separately classified in the accompanying balance sheet at September 30, 2002, as “Net non-current assets of Therics held for sale” and are no longer being depreciated. |
| Operations at Molecumetics ceased on July 2, 2002, while efforts to sell its technology and tangible assets continue. The operating results of Molecumetics have been reported as discontinued operations and results for prior periods have been restated. Cash flows for Molecumetics have not been separately disclosed in the accompanying statement of cash flows. For the nine months ended September 30, 2002 and 2001, the operating losses for Molecumetics were $13.4 million and $6.3 million, respectively, while revenue was $515,000 and $3.5 million, respectively. Discontinued operations for the nine months ended September 30, 2002 include a third quarter charge of $1.5 million ($975,000 after taxes) and a second quarter charge of $6 million ($3.9 million after taxes) for the expected loss on the disposal of Molecumetics. The assets of Molecumetics (approximately $1.7 million), have been included in “Prepaid expenses and other” in the consolidated balance sheet at September 30, 2002 and are no longer being depreciated. |
| Discontinued operations for the nine months ended September 30, 2001 also include an after-tax gain 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. |
| 4. | The components of inventories are as follows: |
| (In Thousands) | |||||
|---|---|---|---|---|---|
| Sept. 30, 2002 |
Dec. 31, 2001 |
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| Finished goods | $ 7,166 | $ 8,407 | |||
| Work-in-process | 3,848 | 4,560 | |||
| Raw materials | 17,096 | 21,800 | |||
| Stores, supplies and other | 11,362 | 10,549 | |||
| Total | $39,472 | $45,316 | |||
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6 |
| 5. | On October 15, 2002, we announced the retention of San Francisco-based Probitas Partners to explore alternatives aimed at maximizing the after-tax value of our venture capital investments. Several alternatives are being considered, including the sale of substantially all of the portfolio in a secondary market transaction. |
| Recent transactions in the secondary market have been completed with significant discounts to reported fair value. The ultimate after-tax value of the portfolio under a hold strategy is uncertain. If Tredegar does not dispose of a substantial portion of its venture capital portfolio by the end of 2003, it will forego significant tax benefits that would be available on the carry-back of possible capital losses. After considering the reported capital gains and tax deductions taken on our final 2001 tax return filed on September 16, 2002, the net capital gains for tax purposes available for the carry-back of potential capital losses total $163 million, $158 million relating to 2000 and $5 million relating to 2001. The taxable capital gains generated in 2000 and 2001 are available for the carry-back of tax-related capital losses through 2003 and 2004, respectively. |
| A summary of our venture capital activities for the quarter and nine months ended September 30, 2002 and 2001, is provided below: |
| (In Thousands) | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Third Quarter Ended September 30 |
Nine Months Ended September 30 |
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| 2002 |
2001 |
2002 |
2001 |
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| Carrying value, beginning of period | $ 123,123 | $ 198,476 | $ 155,084 | $ 232,259 | |||||
| Activity for period (pre-tax): | |||||||||
| New investments | 3,442 | 7,452 | 14,579 | 16,560 | |||||
| Proceeds from the sale of investments | (281 | ) | (9,740 | ) | (6,689 | ) | (37,982 | ) | |
| Realized gains | 71 | 5,926 | 4,014 | 24,788 | |||||
| Realized losses, write-offs and write-downs | (18,682 | ) | (10,041 | ) | (50,012 | ) | (33,764 | ) | |
| Decrease in net unrealized gain | |||||||||
| on available-for-sale securities | (2,808 | ) | (22,567 | ) | (12,111 | ) | (32,355 | ) | |
| Carrying value, end of period | $ 104,865 | $ 169,506 | $ 104,865 | $ 169,506 | |||||
| Our remaining unfunded commitments to private venture capital funds totaled approximately $30.6 million at September 30, 2002, and $36.7 million at December 31, 2001. |
| A schedule of investments is provided on the following two pages. |
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7 |
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| Tredegar Corporation Schedule of Investments at September 30, 2002 and December 31, 2001 (In Thousands, Except Per-Share Amounts) |
Public Common Stock or Equivalents at 9/30/02 |
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| Investment
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Symbol
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Yrs. Held (a) |
Description
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Web Site (www.) |
Shares Held |
Closing Price |
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| Securities of Public Companies Held: | |||||||||||||
| Illumina, Inc. | ILMN | 3.9 | Fiber optic sensor technology for drug screening | illumina.com | 813 | $ 3.44 | |||||||
| Adolor Corporation | ADLR | 3.8 | Develops pain-management therapeutic drugs | adolor.com | — | — | |||||||
| Vascular Solutions | VASC | 4.8 | Vascular access site closure system | vascularsolutions.com | 861 | 0.90 | |||||||
| SignalSoft Corporation | SGSF | 4.6 | Wireless caller location detection software | signalsoftcorp.com | — | — | |||||||
| Photon Dynamics, Inc. (e) | PHTN | 4.3 | Test and repair systems for flat panel display industry | photondynamics.com | 3 | 18.63 | |||||||
| Cisco Systems, Inc. (e) | CSCO | 3.2 | Worldwide leader in networking for the Internet | cisco.com | — | — | |||||||
| Nortel Networks Corporation (e) | NT | 4.5 | Networking solutions and services | nortelnetworks.com | — | — | |||||||
| CardioGenesis Corporation | CGCP | 8.3 | Coronary revascularization | eclipsesurg.com | — | — | |||||||
| Openwave Systems, Inc. (e) | OPWV | ||||||||||||