ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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UNITED STATES FORM 10-KFOR ANNUAL AND TRANSACTION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
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| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended December 31, 2004 OR |
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from _________ to __________ |
Commission File Number 1-10258 |
| TREDEGAR CORPORATION |
| (Exact name of registrant as specified in its charter) |
| Virginia | 54-1497771 | |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
| 1100 Boulders Parkway, Richmond, Virginia | 23225 | |
| (Address of principal executive offices) | |
(Zip Code) |
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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 Preferred Stock Purchase Rights |
New York Stock Exchange New York Stock Exchange |
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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 |
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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 Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule
12b-2). |
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Aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2004: $492,409,575* Number of shares of Common Stock outstanding as of January 31, 2005: 38,607,611 (38,420,200 as of June 30, 2004) * In determining this figure, an aggregate of 7,892,638 shares of Common Stock beneficially owned by Floyd D. Gottwald, Jr., 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 June 30, 2004, as reported by The Wall Street Journal. |
Documents Incorporated By Reference Portions of the Tredegar Corporation (“Tredegar”) Proxy Statement for the 2005 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 on or about March 25, 2005. |
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Index to Annual Report on Form 10-K |
| Part I | Page | |||
| Item 1. | Business | 1-4 | ||
| Item 2. | Properties | 4-5 | ||
| Item 3. | Legal Proceedings | 5 | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | None | ||
| Part II | ||||
| Item 5. | 6-7 | |||
| Item 6. | Selected Financial Data | 7-14 | ||
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15-39 | ||
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 39 | ||
| Item 8. | Financial Statements and Supplementary Data | 43-74 | ||
| Item 9. | Changes In and Disagreements With Accountants on Accounting and Financial Disclosures | None | ||
| Item 9A. | Controls and Procedures | 39-40 | ||
| Item 9B. | Other Information | None | ||
| Part III | ||||
| Item 10 | Directors and Executive Officers of Tredegar* | 40-41 | ||
| Item 11 | Executive Compensation | * | ||
| Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
* | ||
| Item 13 | Certain Relationships and Related Transactions | 42 | ||
| Item 14 | Principal Accounting Fees and Services | * | ||
| Part IV | ||||
| Item 15 | Exhibits and Financial Statement Schedules | 43 | ||
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* Items 11, 12 and 14 and portions of Item 10 are incorporated by reference from the Proxy Statement. The Securities and Exchange Commission (the “SEC”) has not approved or disapproved of this report or passed upon its accuracy or adequacy. |
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PART I Description of Business Tredegar Corporation (“Tredegar”) is engaged, through its subsidiaries, in the manufacture of plastic films and aluminum extrusions. We also operate Therics Inc. (“Therics”), which has developed and in 2004 launched an initial family of products used in bone grafting procedures. We sold our venture capital investment portfolio in the first half of 2003 and received tax refunds of about $55 million in the first quarter of 2004 related to the sale (see pages 37-39 for more information). Film Products Tredegar Film Products Corporation and its subsidiaries (together, “Film Products”) manufacture plastic films, elastics, nonwovens and laminate materials primarily for personal and household care products and packaging and surface protection applications. These products are produced at various locations throughout the United States and at plants in The Netherlands, Hungary, Italy, China and Brazil. Film Products competes in all of its markets on the basis of product innovation, quality, price and service. Personal and Household Care Films. Film Products is one of the largest global suppliers of apertured, breathable, elastic and embossed films, and nonwovens and laminate materials for personal care markets, including: |
| • | Apertured film and nonwoven materials for use as topsheet in feminine hygiene products, baby diapers and adult incontinent products (including materials sold under the ComfortQuilt® name); |
| • | Breathable, embossed and elastic materials for use as components for baby diapers, adult incontinent products and feminine hygiene products (including elastic components sold under the FabriflexTM, StretchTabTM and FlexaireTM names); and |
| • | Absorbent transfer layers for baby diapers and adult incontinent products sold under the AquiDryTM and AquiSoftTM names. |
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In each of the last three years, personal care products accounted for more than 30% of Tredegar’s consolidated net sales. Film Products also makes apertured films, breathable barrier films and laminates that regulate vapor or fluid transmission. These products are typically used in industrial, medical, agricultural and household markets, including disposable mops, facial wipes, filter layers for personal protective suits, facial masks and landscaping fabric. Packaging and Protective Films. Film Products produces a broad line of packaging films with an emphasis on paper, as well as laminating films for food packaging applications. These products give our customers a competitive advantage by providing cost savings with thin-gauge films that are readily printable and convertible on conventional processing equipment. Major end uses include overwrap for bathroom tissue and paper towels, and retort pouches. Film Products also produces films that are disposable, protective coversheets for photopolymers used in the manufacture of circuit boards. Other films sold under the UltraMask® and ForceFieldTM names are used as protective films to protect flat panel display components such as glass during fabrication, shipping and handling. Raw Materials. The primary raw materials used by Film Products are low density, linear low density and high density polyethylene 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. Film Products also buys nonwoven fabrics based on these same resins, and we believe there will be an adequate supply of these materials in the immediate future. |
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Customers. Film Products sells to many branded product producers throughout the world. Its largest customer is The Procter & Gamble Company (“P&G”). Net sales to P&G totaled $226 million in 2004, $207 million in 2003 and $243 million in 2002 (these amounts include film sold to third parties 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 in 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; Chieti, Italy; and Shanghai, China; and holds 220 issued patents (75 of which are issued in the U.S.) and 103 trademarks (5 of which are issued in the U.S.). Expenditures for research and development (“R&D”) have averaged $7.6 million per year over the past three years. On September 13, 2004, we announced that our technical centers in Terre Haute, Indiana and Lake Zurich, Illinois would be moved to Richmond, Virginia, where a substantial portion of Film Products’ marketing, sales and senior management are located. We expect the move to be completed by the end of 2005. The technical facility in Terre Haute will continue to operate at reduced staffing levels. Technical operations at the plant in Lake Zurich will be discontinued. The centralized location of R&D, marketing, sales and senior management should help improve product development time and reduce expenses. Pretax cash expenditures associated with the restructuring are expected of approximately $8 million (consisting primarily of severance, relocation and hiring expenses, leasehold improvements and equipment costs). Once complete, the restructuring is expected to reduce annual operating expenses by approximately $2 million and result in a net reduction of approximately 20 positions. Aluminum Extrusions The William L. Bonnell Company, Inc. and its subsidiaries (together, “Aluminum Extrusions”) produce soft-alloy aluminum extrusions primarily for building and construction, distribution, transportation, machinery and equipment, electrical and consumer durables markets. Aluminum Extrusions manufactures mill (unfinished), anodized (coated) and painted aluminum extrusions for sale directly to fabricators and distributors that use our extrusions to produce window components, curtain walls and storefronts, tub and shower doors, industrial and agricultural machinery and equipment, ladders, bus bars, automotive parts, snowmobiles and tractor-trailer shapes, 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. Aluminum Extrusions sales volume by market segment over the last two years is shown below: |
| % of Aluminum Extrusions Sales Volume by Market Segment |
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| 2004 | 2003 | ||||||
| Building and construction: | |||||||
| Commercial | 41 | 39 | |||||
| Residential | 21 | 23 | |||||
| Distribution | 13 | 14 | |||||
| Transportation | 10 | 10 | |||||
| Machinery and equipment | 7 | 6 | |||||
| Electrical | 5 | 5 | |||||
| Consumer durables | 3 | 3 | |||||
| Total | 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 believe there will be an adequate supply of aluminum and other required raw materials and supplies in the immediate future. Intellectual Property. Aluminum Extrusions holds two U.S. patents and three U.S. trademarks. Therics Located in Princeton, New Jersey, Therics currently employs 32 people. Therics began developing tissue-engineered products in 1996. Its primary focus is on commercializing products made from the TheriForm® process, a unique microfabrication technology used to create scaffolds in a variety of shapes and forms with precise internal architecture that permits tissue in-growth. Therics’ initial synthetic bone graft implants, which have received clearance from the U.S. Food and Drug Administration (the “FDA”), are made from beta-tricalcium phosphate (“b -TCP”). b -TCP has proven effective as a reliable bone substitute in a variety of orthopaedic and neurosurgical applications. We believe there will be adequate supply of b -TCP in the immediate future. Therics introduced its initial line of implants used in bone grafting procedures in 2004. The initial feedback from orthopaedic surgeons, neurosurgeons and others in the marketplace has generally been positive. Therics is working with selected surgeons and using patient-based case studies to improve existing products and develop more advanced product line extensions. Therics currently distributes through a network of independent distributors and is presently considering potential research and marketing collaborations with a variety of orthopaedic companies in an effort to broaden its scope and reach. According to Knowledge Enterprises, Inc. (The Worldwide Orthopaedic Market, 2003-2004), global sales for the orthobiologics market, which includes bone graft substitutes, allograft distribution/processing, autogenous bone and soft tissue replacement products, growth factors and viscoelastics, were $1.37 billion in 2003 (a 29% increase over 2002) and one of the fastest growing segments in the orthopaedics industry. Therics relies on a combination of patent, trademark, copyright and trade secret laws to protect the company’s proprietary technologies and products. Therics owns or holds exclusive rights to 36 issued patents (34 of which are issued in the U.S.) and has two U.S. trademarks. Therics has more than 34 U.S. and foreign patent applications pending and nine trademark applications pending. Therics spent approximately $7.8 million in 2004, $11.2 million in 2003 and $12.5 million in 2002 on R&D activities. Therics had revenues of $380,000 and an operating loss of $9.8 million in 2004, no revenues and an operating loss of $11.7 million in 2003 and revenues of $208,000 and an operating loss of $13.1 million in 2002. Revenues in 2004 relate to the sale of Therics’ initial line of implants used in bone grafting procedures. Revenues recognized by Therics prior to 2004 relate entirely to payments received for R&D support. As of December 31, 2004, Tredegar had invested approximately $74 million in Therics compared with $65 million as of December 31, 2003. Therics’ identifiable assets included in Tredegar’s consolidated balance sheet were $8.6 million at December 31, 2004, including goodwill and intangible assets of $4.4 million. Therics also has future rental commitments under noncancelable operating leases through 2011 totaling $9.7 million at December 31, 2004, with partially offsetting sublease rental commitments relating to excess space totaling about $1 million. |
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General Patents, Licenses and Trademarks. Tredegar considers patents, licenses and trademarks to be of significance for Film Products and Therics. We routinely apply for patents on significant developments in 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 $15.3 million in 2004, $18.8 million in 2003 and $20.3 million in 2002 on R&D activities related to continuing operations. 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 believe that 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 3,100 people at December 31, 2004. Available Information and Corporate Governance Documents. Our Internet address is www.tredegar.com. We make available, free of charge through our web site, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the SEC. In addition, our Corporate Governance Guidelines, Code of Conduct and the charters of our Audit, Executive Compensation and Nominating and Governance Committees are available on our web site and are available in print, without charge, to any shareholder upon request by contacting Tredegar’s Corporate Secretary at 1100 Boulders Parkway, Richmond, Virginia 23225. The information on our website is not, and shall not be deemed to be, a part of this report or incorporated into other filings we make with the SEC. 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 plants, warehouses and other properties and assets owned or leased by us to be in generally good condition. We believe that the capacity of our plants is adequate to meet our immediate needs. Our plants generally have operated at 50-95% of capacity. Our corporate headquarters, which is leased, is located at 1100 Boulders Parkway, Richmond, Virginia 23225. |
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Our principal plants and facilities are listed below: |
| Film Products | Principal Operations | |
| Locations in the United States | Locations in Foreign Countries | |
| LaGrange, Georgia (1) Lake Zurich, Illinois (technical center & production facility) (2) Pottsville, Pennsylvania Terre Haute, Indiana (technical center & production facility) (2) |
Chieti, Italy (technical center) Guangzhou, China Kerkrade, The Netherlands Rétság, Hungary Roccamontepiano, Italy São Paulo, Brazil Shanghai, China |
Production of plastic films, nonwovens and laminate materials |
| Aluminum Extrusions | Principal Operations | |
| Locations in the United States | Locations in Canada | |
| Carthage, Tennessee Kentland, Indiana Newnan, Georgia |
Aurora, Ontario (3) Pickering, Ontario Richmond Hill, Ontario Ste Thérèse, Québec Woodbridge, Ontario |
Production of aluminum extrusions, fabrication and finishing |
| ———————————————— | |
| (1) | On January 10, 2005, we announced that we are exploring the sale of the Film Products’ plant in LaGrange, Georgia. This plant produces blown films used for adult incontinent and baby diaper backsheet, feminine hygiene pad pouch packaging, and other packaging and industrial applications. Annual revenues for the products that would be included in a sale are about $25 million. The proposed transaction is not expected to have a material impact on our financial results. |
| (2) | On September 13, 2004, we announced that our technical centers in Terre Haute, Indiana and Lake Zurich, Illinois would be moved to Richmond, Virginia, where a substantial portion of Film Products’ marketing, sales and senior management are located. More information on this restructuring is provided on page 2. |
| (3) | On April 13, 2004, we announced that the aluminum extrusions plant in Aurora, Ontario would be closed and that its business would be transferred to other extrusion facilities in Ontario. We expect the plant to close in the first quarter of 2005. The shutdown plan includes moving the Aurora plant’s largest press to the plant in Pickering, Ontario, and investing $8 million to upgrade the press and enlarge the facility. This consolidation is expected to reduce annual operating costs by approximately $2 million. |
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PART II |
| Item 5. | MARKET FOR TREDEGAR’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
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Market Prices of Common Stock and Shareholder Data Our common stock is traded on the New York Stock Exchange (“NYSE”) under the ticker symbol TG. We have no preferred stock outstanding. There were 38,597,522 shares of common stock held by 4,146 shareholders of record on December 31, 2004. The following table shows the reported high and low closing prices of our common stock by quarter for the past two years. |
| 2004 | 2003 | |||||||||||
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| High | Low | High | Low | |||||||||
| First quarter | $ | 17.80 | $ | 13.20 | $ | 15.08 | $ | 10.60 | ||||
| Second quarter | 16.13 | 13.00 | 15.67 | 11.96 | ||||||||
| Third quarter | 18.38 | 14.75 | 16.76 | 14.03 | ||||||||
| Fourth quarter | 20.25 | 16.68 | 16.52 | 14.62 | ||||||||
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Dividend Information |
| We have paid a dividend every quarter since becoming a public company in July 1989. During 2002, 2003 and 2004, our quarterly dividend was 4 cents per share. |
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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 8 beginning on page 60 for minimum shareholders’ equity required and aggregate dividends permitted. Issuer Purchases of Equity Securities During 2004, we did not purchase any shares of our common stock in the open market. During 2003, we purchased 406,400 shares of our common stock in the open market for $5.2 million (an average price of $12.72 per share). During 2002, we purchased 110,700 shares of our common stock in the open market for $1.4 million (an average price of $12.91 per share). Under a standing authorization from our board of directors, we may purchase an additional 3.4 million shares in the open market or in privately negotiated transactions at prices management deems appropriate. Annual Meeting Our annual meeting of shareholders will be held on April 28, 2005, beginning at 9:30 a.m. EDT at the University of Richmond’s Jepson Alumni Center in Richmond, Virginia. We expect to mail formal notice of the annual meeting, proxies and proxy statements to shareholders on or about March 25, 2005. |
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Inquiries Inquiries concerning stock transfers, dividends, dividend reinvestment, consolidating accounts, changes of address, or lost or stolen stock certificates should be directed to: National City Bank All other inquiries should be directed to: Tredegar Corporation 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 reports on Form 10-Q filed with the SEC. |
| Legal Counsel Hunton & Williams LLP Richmond, Virginia |
Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP Richmond, Virginia |
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Item 6. SELECTED FINANCIAL DATA The tables that follow on pages 8-14 present certain selected financial and segment information for the eight years ended December 31, 2004. |
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| EIGHT-YEAR SUMMARY | ||||||||||||||||||||||||||||||||
| Tredegar Corporation and Subsidiaries | ||||||||||||||||||||||||||||||||
| Years Ended December 31 | 2004 | 2003 | 2002 | 2001 | 2000 | 1999 | 1998 | 1997 | ||||||||||||||||||||||||
| (In thousands, except per-share data) | ||||||||||||||||||||||||||||||||
| Results of Operations (a): | ||||||||||||||||||||||||||||||||
| Sales | $ | 861,165 | $ | 738,651 | $ | 753,724 | $ | 779,157 | $ | 879,475 | $ | 828,015 | $ | 705,024 | $ | 586,466 | ||||||||||||||||
| Other income (expense), net | 15,604 | (b) | 7,853 | 546 | 1,255 | 1,914 | 972 | 1,749 | 3,135 | |||||||||||||||||||||||
| 876,769 | 746,504 | 754,270 | 780,412 | 881,389 | 828,987 | 706,773 | 589,601 | |||||||||||||||||||||||||
| Cost of goods sold | 717,120 | (b) | 606,242 | 582,658 | 618,323 | 706,817 | 648,254 | 553,184 | 457,896 | |||||||||||||||||||||||
| Freight | 22,398 | 18,557 | 16,319 | 15,580 | 17,125 | 15,221 | 10,946 | 8,045 | ||||||||||||||||||||||||
| Selling, general & administrative expenses |
60,030 | (b) | 53,341 | 52,252 | 47,954 | 47,321 | 44,675 | 37,127 | 36,659 | |||||||||||||||||||||||
| Research and development expenses | 15,265 | 18,774 | 20,346 | 20,305 | 15,305 | 11,500 | 5,995 | 6,475 | ||||||||||||||||||||||||
| Amortization of intangibles | 330 | 268 | 100 | 4,914 | 5,025 | 3,430 | 205 | 50 | ||||||||||||||||||||||||
| Interest expense | 3,171 | 6,785 | 9,352 | 12,671 | 17,319 | 9,088 | 1,318 | 1,952 | ||||||||||||||||||||||||
| Asset impairments and costs associated with exit and disposal activities |
22,973 | (b) | 11,426 | (c) | 3,884 | (d) | 16,935 | (e) | 23,791 | (f) | 4,628 | (g) | 664 | (h) | — | |||||||||||||||||
| Unusual items | — | 1,067 | (c) | (6,147 | ) | (d) | (971 | ) | (e) | (762 | ) | (f) | — | (765 | ) | (h) | (2,250 | ) | (i) | |||||||||||||
| 841,287 | 716,460 | 678,764 | 735,711 | 831,941 | 736,796 | 608,674 | 508,827 | |||||||||||||||||||||||||
| Income from continuing operations before income taxes |
35,482 | 30,044 | 75,506 | 44,701 | 49,448 | 92,191 | 98,099 | 80,774 | ||||||||||||||||||||||||
| Income taxes | 9,222 | (b) | 10,717 | 26,881 | 13,950 | (e) | 18,135 | 32,728 | 32,094 | (h) | 28,339 | |||||||||||||||||||||
| Income from continuing operations (a) | 26,260 | 19,327 | 48,625 | |||||||||||||||||||||||||||||