SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
(Mark One)
___ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
/ X / OF THE SECURITIES EXCHANGE ACT OF 1934
- ---
For the quarterly period ended September 30, 1997
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 Industries, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Virginia 54-1497771
- ------------------------------------ ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
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
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
----- -----
The number of shares of Common Stock, no par value, outstanding as of
October 31, 1997: 12,347,578.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
Tredegar Industries, Inc.
Consolidated Balance Sheets
(In Thousands)
(Unaudited)
<CAPTION>
Sept. 30, Dec. 31,
1997 1996
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 114,001 $ 101,261
Accounts and notes receivable 78,456 61,076
Inventories 18,073 17,658
Income taxes recoverable 381 2,023
Deferred income taxes 9,417 9,484
Prepaid expenses and other 4,089 2,920
--------- ---------
Total current assets 224,417 194,422
--------- ---------
Property, plant and equipment, at cost 277,848 260,200
Less accumulated depreciation and amortization 180,419 169,771
--------- ---------
Net property, plant and equipment 97,429 90,429
--------- ---------
Other assets and deferred charges 55,808 36,094
Goodwill and other intangibles 20,086 20,132
========= =========
Total assets $ 397,740 $ 341,077
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 42,392 $ 28,814
Accrued expenses 38,470 32,487
--------- ---------
Total current liabilities 80,862 61,301
Long-term debt 30,000 35,000
Deferred income taxes 18,728 16,994
Other noncurrent liabilities 13,838 15,237
--------- ---------
Total liabilities 143,428 128,532
--------- ---------
Shareholders' equity:
Common stock, no par value 113,051 113,019
Common stock held in trust for savings
restoration plan (744) -
Unrealized gain on available-for-sale securities 3,573 -
Foreign currency translation adjustment 36 499
Retained earnings 138,396 99,027
--------- ---------
Total shareholders' equity 254,312 212,545
--------- ---------
Total liabilities and shareholders' equity $ 397,740 $ 341,077
========= =========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Tredegar Industries, Inc.
Consolidated Statements of Income
(In Thousands)
(Unaudited)
<CAPTION>
Third Quarter Nine Months
Ended Sept. 30 Ended Sept. 30
------------------- -------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Net sales $155,058 $129,425 $433,372 $397,143
Other income (expense), net 3,798 2,909 11,701 3,324
--------- --------- --------- ---------
Total 158,856 132,334 445,073 400,467
--------- --------- --------- ---------
Costs and expenses:
Cost of goods sold 122,403 103,334 343,658 317,556
Selling, general and administrative 9,438 9,713 26,928 30,828
Research and development 3,220 2,500 9,667 7,520
Interest 456 459 1,598 1,608
Unusual items - (680) (2,250) (11,427)
--------- --------- --------- ---------
Total 135,517 115,326 379,601 346,085
--------- --------- --------- ---------
Income before income taxes 23,339 17,008 65,472 54,382
Income taxes 8,202 6,273 23,034 18,627
--------- --------- --------- ---------
Net income $ 15,137 $ 10,735 $ 42,438 $ 35,755
========= ========= ========= =========
Earnings per common and dilutive common
equivalent share $ 1.14 $ .82 $ 3.23 $ 2.74
========= ========= ========= =========
Shares used to compute earnings per
common and dilutive common equivalent
share 13,254 13,112 13,158 13,047
========= ========= ========= =========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Tredegar Industries, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Nine Months
Ended Sept. 30
-------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 42,438 $ 35,755
Adjustments for noncash items:
Depreciation 13,773 15,231
Amortization of intangibles 39 242
Deferred income taxes 40 (3,530)
Accrued pension income and postretirement
benefits (3,129) (1,752)
Gain on divestitures and property disposal (2,250) (12,715)
Write-off of certain industrial packaging
film machinery and equipment - 1,288
Gain on sale of technology-related investments (9,668) (2,139)
Changes in assets and liabilities, net of effects from divestitures and
acquisitions:
Accounts and notes receivable (10,721) (8,972)
Inventories 2,929 1,881
Income taxes recoverable 1,642 2,179
Prepaid expenses and other (1,169) (1,433)
Accounts payable 10,517 8,477
Accrued expenses and income taxes payable 5,569 3,233
Other, net (227) (31)
--------- ---------
Net cash provided by operating activities 49,783 37,714
--------- ---------
Cash flows from investing activities:
Capital expenditures (14,640) (18,726)
Acquisition (13,469) -
Investments (12,987) (1,432)
Proceeds from the sale of investments 10,511 2,600
Property disposals 387 8,801
Proceeds from the sale of Molded Products
and Brudi 2,250 71,598
Other, net (314) (378)
--------- ---------
Net cash (used in) provided by investing
activities (28,262) 62,463
--------- ---------
Cash flows from financing activities:
Dividends paid (3,069) (2,195)
Net decrease in borrowings (5,000) -
Repurchases of Tredegar common stock (1,932) (2,034)
Other, net 1,220 933
--------- ---------
Net cash used in financing activities (8,781) (3,296)
--------- ---------
Increase in cash and cash equivalents 12,740 96,881
Cash and cash equivalents at beginning of period 101,261 2,145
========= =========
Cash and cash equivalents at end of period $ 114,001 $ 99,026
========= =========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
TREDEGAR INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying consolidated financial
statements of Tredegar Industries, Inc. and Subsidiaries ("Tredegar")
contain all adjustments necessary to present fairly, in all material
respects, Tredegar's consolidated financial position as of September 30,
1997, and the consolidated results of their operations and their cash flows
for the nine months ended September 30, 1997 and 1996. 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 notes thereto included in Tredegar's Annual Report on Form 10-K for the
year ended December 31, 1996. The results of operations for the nine months
ended September 30, 1997, are not necessarily indicative of the results to
be expected for the full year.
2. Historical net income and earnings per common and dilutive common
equivalent share, adjusted for unusual items and technology-related
investment gains/losses affecting the comparability of operating results,
are presented below: (In Thousands Except Per-Share Amounts)
<TABLE>
<CAPTION>
Third Quarter Nine Months
Ended Sept. 30 Ended Sept. 30
------------------- -------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Historical net income as reported $ 15,137 $ 10,735 $ 42,438 $ 35,755
After-tax effects of unusual items:
Redemption of preferred stock received in connection
with the divestiture of Molded Products - - (1,440) -
Gain on sale of property in Fremont, CA - (1,215) - (1,215)
Write-off of specialized machinery and equipment due to
excess capacity in certain industrial packaging films - 795 - 795
Combined net gain on the Molded Products and Brudi
divestitures - - - (8,059)
--------- --------- --------- ---------
Historical net income as adjusted for unusual items 15,137 10,315 40,998 27,276
After-tax effect of technology-related investment (gains) losses (2,117) (1,369) (6,187) (1,369)
--------- --------- --------- ---------
Net income as adjusted for unusual items and technology-
related investment gains/losses $ 13,020 $ 8,946 $ 34,811 $ 25,907
========= ========= ========= =========
Earnings per common and dilutive common equivalent share:
As reported $ 1.14 $ .82 $ 3.23 $ 2.74
As adjusted for unusual items 1.14 .79 3.12 2.09
As adjusted for unusual items and technology- related
investment gains/losses .98 .69 2.65 1.99
</TABLE>
<PAGE>
3. At September 30, 1997 and December 31, 1996, Tredegar had
technology-related investments with a cost basis of $18.2 million and $6
million, respectively, which represented ownership (either in the form of
limited partnership interests in private venture capital funds, the stock
of privately held companies or the restricted or unrestricted stock of
companies that recently registered shares in initial public offerings) of
less than 20% in 18 and 7 separate entities, respectively. These
investments are included in "Other assets and deferred charges" in the
consolidated balance sheets. Each security directly held in public
companies (common stock listed on NASDAQ) is classified as
available-for-sale and stated at fair value, with unrealized holding gains
or losses excluded from earnings and reported as a net amount in a separate
component of shareholders' equity until realized. Each security held in
private companies (primarily convertible preferred stock) is accounted for
at the lower of cost or estimated fair value. Ownership interests of less
than or equal to 5% in private venture capital funds are accounted for at
the lower of cost or estimated fair value, while ownership interests in
excess of 5% in such funds are accounted for under the equity method.
Management estimates the fair value of technology-related investments to be
approximately $34 million at September 30, 1997. The fair value of
securities directly held in public companies is determined based on closing
price quotations. The fair value of securities directly held in private
companies is estimated by Tredegar management. The fair value of ownership
interests in private venture capital funds is based on management's
estimate of Tredegar's distributable share of fund net assets utilizing,
among others, the general partners' estimate of the fair value of
nonmarketable securities held, closing bid prices of publicly traded
securities held and the formulas for allocating profits, losses and
distributions. Because of the inherent uncertainty of the valuations of
restricted securities or securities for which there is no public market,
estimates of fair value may differ significantly from the values that would
have been used had a ready market for the securities existed. Furthermore,
the publicly-traded stock of emerging, technology-based companies usually
has higher volatility and risk than the U.S. stock market as a whole.
4. In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings per
Share." The standard must be adopted by Tredegar in the fourth quarter of
1997, with all prior periods restated to conform to the new method. Early
application is not permitted. The new standard requires the presentation in
the income statement of basic and diluted earnings per share. In contrast
to primary earnings per share under existing standards, basic earnings per
share excludes common stock equivalents (for example, stock options).
Accordingly, for the periods shown below, under the new requirements basic
earnings per share for Tredegar will be higher than amounts previously
reported, while diluted earnings per share will be the same as amounts
previously reported:
<TABLE>
<CAPTION>
Nine Months Years Ended
Ended Sept. 30 December 31
------------------- -------------------
1997 1996 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Percentage basic earnings per share
higher than earnings per share
as reported 7.2% 6.9% 7.3% 3.5%
Percentage diluted earnings per share
higher (lower) than earnings per share
as reported - - - -
</TABLE>
<PAGE>
During the first nine months of 1997, the FASB also issued new
standards affecting disclosures of information about capital structure,
comprehensive income and business segments, none of which should have a
significant impact on Tredegar.
5. On September 30, 1997, Tredegar announced that its William L. Bonnell
subsidiary had agreed in principle to acquire two Canada-based aluminum
extrusion and fabrication plants owned by Reynolds Metals Company. The
plants are located in Ste. Therese, Quebec, and Richmond Hill, Ontario.
Details of the agreement were not disclosed. The proposed acquisition,
which is subject to various conditions, is expected to be completed in
January 1998. The two plants generated sales of about $50 million in 1996.
Both facilities manufacture products used primarily in building and
construction, transportation, electrical, machinery and equipment, and
consumer durables markets.
On May 30, 1997, Tredegar announced that its William L. Bonnell subsidiary
had acquired an aluminum extrusion and fabrication plant in El Campo,
Texas, from Reynolds Metals Company. The El Campo facility, which had sales
of about $45 million in 1996, extrudes and fabricates products used
primarily in transportation, electrical and consumer durables markets. The
acquisition was accounted for using the purchase method; accordingly,
assets acquired and liabilities assumed were recorded at their estimated
fair values at the date of acquisition. No goodwill arose from the
transaction. The operating results for the El Campo facility have been
included in the consolidated statements of income since the date acquired.
6. On July 9, 1997, Tredegar replaced its revolving credit facility dated
September 7, 1995, with a new five-year facility that permits borrowings up
to $275 million. The new facility provides for interest to be charged at a
base rate (which is generally expected to be the London Interbank Offered
Rate ("LIBOR")) plus a spread that is dependent on Tredegar's quarterly
debt-to-total capitalization ratio. A facility fee is also charged on the
$275 million commitment amount. The spread and facility fee charged at
various debt-to-total capitalization levels are as follows:
(Basis Points)
LIBOR Facility
Debt-to-Total Capitalization Ratio Spread Fee
Less than or equal to 35% 16.50 8.50
Greater than 35% and less than or equal
to 50% 22.50 10.00
Greater than 50% 30.00 15.00
In addition, a utilization fee of five basis points is charged on the
outstanding principal amount when more than $137.5 million is borrowed
under the agreement. The new facility contains restrictions similar to the
prior facility including, among others, restrictions on the payments of
cash dividends and the maximum debt-to-total capitalization ratio permitted
(60%). At September 30, 1997, $113.8 million was available for cash
dividend payments and $275 million was available to borrow under the 60%
debt-to-total capitalization ratio restriction.
<PAGE>
7. The components of inventories are as follows:
(In Thousands)
Sept. 30 Dec. 31
1997 1996
-------------- --------------
Finished goods $1,765 $ 1,677
Work-in-process 1,580 1,782
Raw materials 7,967 7,958
Stores, supplies and other 6,761 6,241
============== ==============
Total $18,073 $17,658
============== ==============
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Third Quarter 1997 Compared with Third Quarter 1996
Net income for the third quarter of 1997 was $15.1 million or $1.14 per
share, up from $10.7 million or 82 cents per share in the third quarter of 1996.
Results for 1996 include unusual items related to a gain of $2 million ($1.2
million after income taxes or 9 cents per share) on the sale of a former plastic
films manufacturing site in Fremont, California, partially offset by a charge of
$1.3 million ($795,000 after income tax benefits or 6 cents per share) related
to the write-off of specialized machinery and equipment due to excess capacity
in certain industrial packaging films.
Results for 1997 and 1996 also include technology-related investment gains
of $3.3 million ($2.1 million after income taxes or 16 cents per share) and $2.1
million ($1.4 million after income taxes or 10 cents per share), respectively.
Net income excluding unusual items and technology-related gains for the third
quarter of 1997 was $13 million or 98 cents per share, up from $8.9 million or
69 cents per share in the third quarter of 1996. The improved results were
driven primarily by strong performance in aluminum extrusions and plastic films,
and higher contract research revenues at Molecumetics, Tredegar's drug
development subsidiary. See Notes 2 and 3 on pages 5 and 6 for further
information on items affecting the comparability of operating results and
technology-related investments as of September 30, 1997.
Third-quarter net sales increased 20% in 1997 due to higher sales in Film
Products and Aluminum Extrusions and higher contract research revenues at
Molecumetics. The increase in sales in Film Products was driven by higher volume
of nonwoven film laminates, higher volume for foreign operations and higher
selling prices (reflecting higher average plastic resin costs). Higher sales in
Aluminum Extrusions reflected strength in commercial windows and curtain walls
and higher volume to distributors, as well as the acquisition of an aluminum
extrusions and fabrication facility in El Campo, Texas (see Note 5 on page 7).
The gross profit margin during the third quarter of 1997 increased to 21.1%
from 20.2% in 1996 due primarily to higher volume in Aluminum Extrusions and
contract research revenues, which help to support research and development
programs at Molecumetics.
Selling, general and administrative expenses, as a percentage of sales,
declined to 6.1% in 1997 compared with 7.5% in 1996.
Research and development expenses increased by $720,000 or 29% due to
higher product development spending at Film Products and higher spending at
Molecumetics.
Interest income, which is included in "Other income (expense), net" in the
consolidated statements of income, increased to $1.3 million in 1997 from $1
million in 1996 due to the investment of cash generated from operations. The
average tax-equivalent yield earned on cash equivalents was 5.7% in 1997 and
5.5% in 1996. Tredegar's policy permits investment of excess cash in marketable
securities that have the highest credit ratings and maturities of less than one
year. The primary objectives of Tredegar's investment policy are safety of
principal and liquidity. Interest expense decreased slightly during the period.
<PAGE>
The effective tax rate excluding unusual items, the effects of tax-exempt
interest income and investment gains declined to 36.2% in 1997 from 37% in 1996,
due partially to a lower effective state income tax rate.
Nine Months 1997 Compared with Nine Months 1996
Net income for the first nine months of 1997 was $42.4 million or $3.23 per
share, up from $35.8 million or $2.74 per share in the first nine months of
1996. The 1997 results include a gain of $2.3 million ($1.4 million after income
taxes or 11 cents per share) related to the redemption of preferred stock
received in connection with the 1996 divestiture of Molded Products. This gain
has been classified as an unusual item in the consolidated statements of income.
Unusual items recognized during the first nine months of 1996 totaling 65 cents
per share include a gain of $19.9 million ($13.7 million after income taxes) on
the sale of Molded Products and a gain of $2 million ($1.2 million after income
taxes) on the sale of a former plastic films manufacturing site in Fremont,
California, partially offset by a charge of $9.1 million ($5.7 million after
income tax benefits) related to a loss on the divestiture of Brudi and a charge
of $1.3 million ($795,000 after income tax benefits) related to the write-off of
specialized machinery and equipment due to excess capacity in certain industrial
packaging films.
Results for 1997 and 1996 also include technology-related investment gains
of $9.7 million ($6.2 million after income taxes or 47 cents per share) and $2.1
million ($1.4 million after income taxes or 10 cents per share), respectively.
Net income excluding unusual items and technology-related investment gains for
the first nine months of 1997 was $34.8 million or $2.65 per share, up from
$25.9 million or $1.99 per share in the first nine months of 1996. The improved
results were driven primarily by strong performance in aluminum extrusions and
plastic films, and higher contract research revenues at Molecumetics. See Notes
2 and 3 on pages 5 and 6 for further information on items affecting the
comparability of operating results and technology-related investments as of
September 30, 1997.
Excluding the effects of the Molded Products and Brudi divestitures, net
sales during the first nine months of 1997 increased 20% due to higher sales in
Film Products and Aluminum Extrusions. Revenues also increased at Molecumetics
due to contract research revenues. The increase in sales in Film Products was
driven by higher volume of nonwoven film laminates, higher volume for foreign
operations and higher selling prices (reflecting higher average plastic resin
costs). Higher sales in Aluminum Extrusions reflected strength in residential
and commercial windows and curtain walls and higher volume to distributors, as
well as the acquisition of an aluminum extrusions and fabrication facility in El
Campo, Texas (see Note 5 on page 7).
The gross profit margin during the first nine months of 1997 increased to
20.7% from 20% in 1996 due primarily to higher volume in Aluminum Extrusions and
Film Products and contract research revenues, which help to support research and
development programs at Molecumetics.
Selling, general and administrative expenses decreased by $3.9 million or
13% due primarily to the Molded Products and Brudi divestitures. Selling,
general and administrative expenses, as a percentage of sales, declined to 6.2%
in the first nine months of 1997 compared with 7.8% in 1996.
<PAGE>
Research and development expenses increased by $2.1 million or 29% due to
higher product development spending at Film Products and higher spending at
Molecumetics.
Interest income, which is included in "Other income (expense), net" in the
consolidated statements of income, increased to $3.6 million in the first nine
months of 1997 from $1.9 million in 1996 due to the investment of Molded
Products and Brudi divestiture proceeds and cash generated from operations. The
average tax-equivalent yield earned on cash equivalents was 5.7% during the
first nine months of 1997 and 5.50% in 1996. Interest expense decreased slightly
due to lower average debt outstanding, partially offset by the second-quarter
write-off of deferred financing costs related to the refinancing of Tredegar's
revolving credit facility (see Note 6 on page 8).
The effective tax rate excluding unusual items, the effects of tax-exempt
interest income and investment gains declined to 36.2% during the first nine
months of 1997 from 36.5% in 1996.
<PAGE>
Segment Results
The following tables present Tredegar's net sales and operating profit by
segment for the third quarter and nine months ended September 30, 1997 and 1996.
<TABLE>
Net Sales by Segment
(In Thousands)
(Unaudited)
<CAPTION>
Third Quarter Nine Months
Ended Sept 30 Ended Sept. 30
------------------- -------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Film Products and Fiberlux $ 78,046 $ 70,311 $ 231,703 $ 193,492
Aluminum Extrusions 75,401 58,772 198,938 167,986
Technology 1,611 342 2,731 1,154
--------- --------- --------- ---------
Total ongoing operations 155,058 129,425 433,372 362,632
Divested operations:
Molded Products - - - 21,131
Brudi - - - 13,380
========= ========= ========= =========
Total net sales $ 155,058 $ 129,425 $ 433,372 $ 397,143
========= ========= ========= =========
</TABLE>
<TABLE>
Operating Profit by Segment
(In Thousands)
(Unaudited)
<CAPTION>
Third Quarter Nine Months
Ended Sept. 30 Ended Sept. 30
------------------- -------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Film Products and Fiberlux:
Ongoing operations $ 12,985 $ 10,136 $ 36,499 $ 31,693
Unusual items - 680 - 680
--------- --------- --------- ---------
12,985 10,816 36,499 32,373
--------- --------- --------- ---------
Aluminum Extrusions 9,690 7,216 25,461 18,462
Technology:
Molecumetics (609) (1,690) (3,768) (4,470)
Investments and other 3,108 1,965 9,401 1,960
--------- --------- --------- ---------
2,499 275 5,633 (2,510)
--------- --------- --------- ---------
Divested operations:
Molded Products - - - 1,011
Brudi - - - 231
Unusual items - - 2,250 10,747
--------- --------- --------- ---------
- - 2,250 11,989
--------- --------- --------- ---------
Total operating profit 25,174 18,307 69,843 60,314
Interest income 1,276 1,019 3,636 1,851
Interest expense 456 459 1,598 1,608
Corporate expenses, net 2,655 1,859 6,409 6,175
--------- --------- --------- ---------
Income before income taxes 23,339 17,008 65,472 54,382
Income taxes 8,202 6,273 23,034 18,627
========= ========= ========= =========
Net income $ 15,137 $ 10,735 $ 42,438 $ 35,755
========= ========= ========= =========
</TABLE>
<PAGE>
The results for the first nine months of 1997 for divested operations
include a gain of $2.3 million related to the redemption of preferred stock
received in connection with the 1996 divestiture of Molded Products. Unusual
items recognized during 1996 include a gain of $19.9 million on the sale of
Molded Products on March 29, 1996, and a third-quarter gain of $2 million on the
sale of a former plastic films manufacturing site in Fremont, California,
partially offset by a first-quarter charge of $9.1 million related to a loss on
the divestiture of Brudi (completed in the second quarter of 1996) and a
third-quarter charge of $1.3 million related to the write-off of specialized
machinery and equipment due to excess capacity in certain industrial packaging
films. The "Investments and other" category includes pretax gains on
technology-related investments of $3.3 million in the third quarter of 1997,
$9.7 million in the first nine months of 1997 and $2.1 million in the third
quarter and first nine months of 1996. See Notes 2 and 3 on pages 5 and 6 for
further information on items affecting the comparability of operating results
and technology-related investments as of September 30, 1997.
Sales in Film Products during the third quarter and year-to-date period
increased due to higher volume of nonwoven film laminates, higher volume for
foreign operations and higher selling prices (reflecting higher average plastic
resin costs). Operating profit improved in Film Products during each period due
to improved production efficiencies for nonwoven film laminates supplied to The
Procter & Gamble Company ("P&G") for diapers and higher volume of permeable film
supplied to P&G for feminine pads, partially offset by higher new product
development expenses and start-up costs for a new production site in China.
Operating profit increased slightly at Fiberlux during the third quarter, but
declined during the first nine months of the year.
Sales in Aluminum Extrusions increased during the third quarter and
year-to-date period due primarily to higher volume, reflecting continued
strength in residential and commercial windows and curtain walls and higher
volume to distributors, as well as the acquisition of an aluminum extrusion and
fabrication facility in El Campo, Texas (see Note 5 on page 7). Excluding this
recent acquisition, volume was up 9% for the quarter and 13% for the year.
Operating profit increased significantly during each period due to higher
volume, related lower unit conversion costs and the acquisition. Conversion
costs also improved as a result of the Newnan press improvement project
completed late last year.
Excluding net investment gains, technology segment losses decreased by $1.1
million during the third quarter of 1997 due to revenues generated from drug
development partnerships. For the first nine months of 1997, excluding
investment gains, technology segment losses are down $614,000 due primarily to
higher research and development spending at Molecumetics, partially offset by
drug development partnership revenues.
Liquidity and Capital Resources
Tredegar's total assets increased to $397.7 million at September 30, 1997,
from $341.1 million at December 31, 1996, due mainly to an increase in cash and
cash equivalents (see further discussion below), the El Campo, Texas aluminum
extrusion and fabrication plant acquisition (see Note 5 on page 7), higher
accounts receivable supporting higher sales and an increase in
technology-related investments (see Note 3 on page 6). Total liabilities
increased to $143.4 million at September 30, 1997, from $128.5 million at
December 31, 1996, due primarily to higher accounts payable in Aluminum
Extrusions resulting from more favorable trade terms with suppliers and the El
Campo, Texas acquisition.
<PAGE>
Debt was $30 million at September 30, 1997, with interest payable
semi-annually at 7.2% per year. Annual principal payments of $5 million are due
each June through 2003. Tredegar had cash and cash equivalents in excess of debt
of $84 million at September 30, 1997, compared to $66.3 million at December 31,
1996.
Net cash provided by operating activities in excess of capital expenditures
and dividends increased to $32.1 million in the first nine months of 1997 from
$16.8 million in 1996 due primarily to improved operating results, improved
trade terms with suppliers, lower capital expenditures in Aluminum Extrusions
due to the completion of the Newnan press improvement in late 1996, and the
effect on capital expenditures of the Molded Products and Brudi divestitures
(Molded Products and Brudi had combined capital expenditures of $1.3 million in
1996). Capital expenditures for Film Products in 1997 were related to normal
replacement of machinery and equipment, expansion into China and permeable film
additions, while 1996 included normal replacement, nonwoven film laminate
capacity additions, expansion of permeable film capacity in Europe and expansion
of permeable and diaper backsheet film capacity in Brazil.
The increase in cash and cash equivalents to $114 million at September 30,
1997, from $101.3 million at December 31, 1996, was due to the $32.1 million of
excess cash generated during the first nine months of 1997 combined with
additional proceeds related to the Molded Products divestiture ($2.3 million)
and other sources ($1.2 million, primarily proceeds from the exercise of stock
options), partially offset by funds used to acquire the El Campo, Texas aluminum
extrusion and fabrication plant ($13.5 million), an annual debt principal
payment in June 1997 ($5 million), uses of funds for technology-related
investments ($2.5 million, net of proceeds from the sale of investments) and the
repurchase of Tredegar common stock ($1.9 million).
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit No.
11 Statement re computation of earnings per share
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
for the quarter ended September 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Tredegar Industries, Inc.
(Registrant)
Date: November 11, 1997 /s/ N. A. Scher
-------------------- -----------------------------------------
Norman A. Scher
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: November 11, 1997 /s/ D. Andrew Edwards
-------------------- -----------------------------------------
D. Andrew Edwards
Corporate Controller and Treasurer
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
11 Statement re computation of earnings per share
27 Financial Data Schedule
<PAGE>
<TABLE>
Exhibit 11 - Computations of Earnings Per Share
Tredegar Industries, Inc. and Subsidiaries
(In Thousands, Except Per-Share Amounts)
(Unaudited)
<CAPTION>
Third Quarter Nine Months
Ended Sept. 30 Ended Sept. 30
------------------------ ------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net income $ 15,137 $ 10,735 $ 42,438 $ 35,755
============ =========== =========== ============
Earnings per common and dilutive common
equivalent share as reported (1) $ 1.14 $ .82 $ 3.23 $ 2.74
============ =========== =========== ============
PRIMARY EARNINGS PER SHARE:
Shares issuable upon the assumed exercise
of outstanding stock options (2) 948 909 887 846
Weighted average common shares outstanding
during period 12,306 12,203 12,271 12,201
------------ ----------- ----------- ------------
Weighted average common and dilutive common
equivalent shares 13,254 13,112 13,158 13,047
============ =========== =========== ============
Primary earnings per share (1) $ 1.14 $ .82 $ 3.23 $ 2.74
============ =========== =========== ============
FULLY DILUTED EARNINGS PER SHARE:
Shares issuable upon the assumed exercise
of outstanding stock options (3) 979 938 986 937
Weighted average common shares outstanding
during period 12,306 12,203 12,271 12,201
------------ ----------- ----------- ------------
Weighted average common and dilutive common
equivalent shares 13,285 13,141 13,257 13,138
============ =========== =========== ============
Fully diluted earnings per share (3) $ 1.14 $ .82 $ 3.20 $ 2.72
============ =========== =========== ============
</TABLE>
Notes to Exhibit 11:
(1) Shares used to compute earnings per common and dilutive common equivalent
share in the consolidated statements of income include common stock
equivalents.
(2) Computed using the average market price during the related period.
(3) Computed using the higher of the average market price during the related
period and the market price at the end of the related period. Fully
diluted earnings per common and dilutive common equivalent share is not
materially different (dilutive by 3% or more) from earnings per common
and dilutive common equivalent share reported in the consolidated
statements of income.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS UNAUDITED SUMMARY FINANCIAL INFORMATION FOR TREDEGAR
INDUSTRIES, INC. AND SUBSIDIARIES EXTRACTED FROM THE BALANCE SHEET FOR THE
PERIOD ENDED SEPTEMBER 30, 1997 AND THE STATEMENT OF INCOME FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 114,001
<SECURITIES> 0
<RECEIVABLES> 82,220
<ALLOWANCES> 3,764
<INVENTORY> 18,073
<CURRENT-ASSETS> 224,417
<PP&E> 277,848
<DEPRECIATION> 180,419
<TOTAL-ASSETS> 397,740
<CURRENT-LIABILITIES> 80,862
<BONDS> 30,000
0
0
<COMMON> 113,051
<OTHER-SE> 141,261
<TOTAL-LIABILITY-AND-EQUITY> 397,740
<SALES> 433,372
<TOTAL-REVENUES> 445,073
<CGS> 343,658
<TOTAL-COSTS> 343,658
<OTHER-EXPENSES> 34,014
<LOSS-PROVISION> 331
<INTEREST-EXPENSE> 1,598
<INCOME-PRETAX> 65,472
<INCOME-TAX> 23,034
<INCOME-CONTINUING> 42,438
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,438
<EPS-PRIMARY> 3.23
<EPS-DILUTED> 0.00
</TABLE>
