SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _________ to __________
COMMISSION FILE NUMBER 1-10258
TREDEGAR INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
VIRGINIA 54-1497771
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1100 BOULDERS PARKWAY, RICHMOND, VIRGINIA 23225
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 804-330-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange On Which Registered
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COMMON STOCK NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act 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 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 March 5, 1998:* $559,833,225.80
Number of shares of Common Stock outstanding as of March 5, 1998: 11,917,471
*In determining this figure, an aggregate of 3,970,197 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 March 5, 1998, as reported by the Wall Street
Journal.
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DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Tredegar Industries, Inc.'s Annual Report to Shareholders for the
year ended December 31, 1997 (the "Annual Report"), are incorporated by
reference into Parts I, II, and IV of this Form 10-K.
2. Portions of Tredegar Industries, Inc.'s definitive Proxy Statement for its
1998 Annual Meeting of Shareholders filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934
(the "Proxy Statement") are incorporated by reference into Part III of this Form
10-K.
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<CAPTION>
FORM 10-K TABLE OF CONTENTS/CROSS-REFERENCE
<S> <C> <C> <C>
Proxy
Form 10-K Annual Report Statement
Part I page page page
1. Business ....................................................................... 1-5 20-22, 27-30, 32-33
2. Properties...................................................................... 6
3. Legal proceedings............................................................... None
4. Submission of matters to a vote of security holders............................. None
Part II
5. Market for registrant's common equity and related stockholder matters........... 51
6. Selected financial data......................................................... 18-19
7. Management's discussion and analysis of financial condition and
results of operations........................................................... 20-22, 24-30, 32-33
7A. Quantitative and qualitative disclosures about market risk...................... 9, 10
8. Financial statements and supplementary data..................................... 10, 11 31-50
9. Changes in and disagreements with accountants on accounting and
financial disclosure............................................................ None
Part III
10. Directors and executive officers of the registrant*............................. 12 16 2-4
11. Executive compensation*......................................................... 7-15
12. Security ownership of certain beneficial owners and management*................. 5-7
13. Certain relationships and related transactions*................................. None
Part IV
14. Exhibits, financial statement schedules and reports on Form 8-K
(a) Documents:
(1) Financial statements.......................................... 34-50
(2) Financial statement schedules................................. None
(3) Exhibits
(b) Reports on Form 8-K.................................................... None
(c) Exhibits
(d) Financial statement schedules
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*Items 11, 12 and 13 and portions of Item 10 are incorporated by reference from
the Proxy Statement pursuant to instructions G(1) and G(3) of the General
Instructions to Form 10-K.
Only those portions of the Annual Report to Shareholders referred to in the
foregoing table of contents are to be deemed "filed" as part of this Form 10-K
report.
The Securities and Exchange Commission has not approved or disapproved of this
report or passed upon its accuracy or adequacy.
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PART I
Item 1. BUSINESS
Description of Business
Tredegar Industries, Inc. ("Tredegar") is engaged directly or through
subsidiaries in the manufacture of plastic films, vinyl extrusions and aluminum
extrusions. Tredegar also has interests in a variety of technology-based
businesses.
On January 14, 1998, Tredegar's Board of Directors authorized a "Dutch
Auction" tender offer to purchase up to 1,250,000 shares of the company's common
stock at a price ranging from $58 to $65 per share. The offer expired on
February 13, 1998, and 502,924 shares were tendered and purchased by Tredegar
for approximately $32.7 million or $65 per share. The purchase was funded by
available cash.
The following discussion of Tredegar's business segments should be read
in conjunction with the information contained on pages 20-22, 24-30 and 32-33 of
the Annual Report referred to in Item 7 below.
Plastic Films and Vinyl Extrusions
Tredegar's plastics business is composed of the Film Products division
("Film Products") and Fiberlux, Inc. ("Fiberlux"). Film Products manufactures
plastic films for disposable personal products (primarily feminine hygiene and
diaper products) and packaging, medical, industrial and agricultural products.
Fiberlux produces vinyl extrusions for windows and patio doors. These products
are produced at various locations throughout the United States and are sold both
directly and through distributors. Tredegar also has films plants located in the
Netherlands, Brazil and Argentina, where it produces films primarily for the
European and Latin American markets. During 1998, Film Products expects to begin
operating a production facility currently under construction near Guangzhou,
China, and expects to begin construction of a production site in Eastern Europe.
The Eastern European facility should be operational in 1999. Both sites will
produce disposable permeable films for feminine hygiene products marketed in
China and Eastern Europe, respectively. Film Products and Fiberlux compete in
all of their markets on the basis of product quality, price and service.
Film Products
Film Products produces films for two major market categories:
disposables and industrial.
Disposables. Film Products is one of the largest U.S. suppliers of embossed and
permeable films for disposable personal products. In each of the last three
years, this class of products accounted for more than 35% of Tredegar's
consolidated revenues.
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Film Products supplies permeable films for use as liners in feminine
hygiene products, adult incontinent products and hospital underpads. Film
Products also supplies embossed films and nonwoven film laminates for use as
backsheet in such disposable products as baby diapers, adult incontinent
products, feminine hygiene products and hospital underpads. Film Products'
primary customer for permeable films, embossed films and nonwoven film laminates
is The Procter & Gamble Company ("P&G"), the leading global disposable diaper
manufacturer.
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 business associated with P&G would have a material
adverse effect on Tredegar's business.
Industrial. Film Products produces coextruded and monolayer permeable films
under the VisPore(R) name. These films are used to regulate fluid and vapor
transmission in many industrial, medical, agricultural and packaging markets.
Specific examples include filter plies for surgical masks and other medical
applications, permeable ground cover, natural cheese mold release cloths and
rubber bale wrap.
Film Products also produces differentially embossed monolayer and
coextruded films. Some of these films are extruded in a Class 10,000 clean room
and act as a disposable, protective coversheet for photopolymers used in the
manufacture of circuit boards. Other films sold under the ULTRAMASK(R) name are
used as masking films to protect polycarbonate, acrylics and glass from damage
during fabrication, shipping and handling.
Film Products produces a line of oriented films for food packaging,
in-mold labels and other applications under the name Monax(R) Plus. These are
high-strength, high moisture barrier films that provide cost and source
reduction benefits over competing packaging materials.
Raw Materials. The primary raw materials for films produced by Film Products are
low-density and linear low-density polyethylene resins, which are obtained from
domestic and foreign suppliers at competitive prices.
Tredegar's management believes there will be an adequate supply of
polyethylene resins in the immediate future.
Research and Development. Film Products has a technical center in Terre Haute,
Indiana, and holds 35 U.S. patents and 14 U.S. trademarks. Expenditures for
research and development have averaged $4.7 million per year during the past
three years.
Fiberlux
Fiberlux is a leading U.S. producer of rigid vinyl extrusions for
windows and patio doors. Fiberlux products are sold to fabricators and directly
to end users. The subsidiary's primary raw material, polyvinyl chloride resin,
is purchased from producers in open market purchases and under contract. No
critical shortages of polyvinyl chloride resins are expected.
Fiberlux holds one U.S. patent and three U.S. trademarks.
2
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Aluminum Extrusions
Aluminum Extrusions is composed of The William L. Bonnell Company,
Inc., Capitol Products Corporation, Bon L Campo Limited Partnership and Bon L
Canada Inc. (together, "Aluminum Extrusions"), which produce soft alloy aluminum
extrusions primarily for the building and construction, transportation,
electrical and consumer durables markets. The net assets associated with Bon L
Campo Limited Partnership and Bon L Canada Inc. were acquired in 1997 and 1998,
respectively (see page 29 of the Annual Report for additional information).
Aluminum Extrusions manufactures plain, anodized and painted aluminum
extrusions for sale directly to fabricators and distributors that use aluminum
extrusions in the production of curtain walls, moldings, architectural shapes,
running boards, tub and shower doors, boat windshields, window components,
tractor-trailer shapes, ladders and furniture, among other products. Sales are
made primarily in the United States, principally east of the Rocky Mountains.
Sales are substantially affected by the strength of the building and
construction industry, which accounts for the majority of product sales.
Raw materials for Aluminum Extrusions, consisting of aluminum ingot,
aluminum scrap and various alloys, are purchased from domestic and foreign
producers in open-market purchases and under short-term contracts. Tredegar does
not expect critical shortages of aluminum or other required raw materials and
supplies.
Aluminum Extrusions competes primarily on the basis of product quality,
price and service.
Aluminum Extrusions holds two U.S. patents and nine U.S. trademarks.
Technology
Tredegar's technology interests include Molecumetics, Ltd.
("Molecumetics") and Tredegar Investments, Inc. See Note 6 on page 42 of the
Annual Report for more information on Tredegar Investments, Inc. Also, see page
30 of the Annual Report regarding the sale of APPX Software, Inc. in early 1998.
Molecumetics, a subsidiary of Tredegar, operates its drug design
research laboratory in Seattle, Washington, where it uses its patented chemistry
to develop new drug candidates for licensing to pharmaceutical and biotech
companies in exchange for up-front fees, research and development support
payments, milestone-driven success payments and future royalties.
In 1997, Molecumetics signed research and marketing partnerships with
two large Japanese pharmaceutical companies, Asahi Chemical Industry Co., Ltd.
("Asahi"), and Teijin Limited ("Teijin"). Both collaborations are aimed at
developing therapeutics for treatment of blood-clotting disorders. Molecumetics
is separately developing and optimizing drug lead compounds for each partner. In
turn, Asahi and Teijin are responsible for preclinical and clinical development
in Japan and other Asian countries. In each case, Molecumetics retains U.S.
and European rights to any compounds developed under the agreement.
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Molecumetics holds nine U.S. patents and three U.S. trademarks and
Molecumetics has filed a number of other patent applications with respect to its
technology. Businesses included in the Technology segment spent $7.2 million in
1997, $6.8 million in 1996 and $5.0 million in 1995 for research and
development.
Miscellaneous
Patents, Licenses and Trademarks. Tredegar considers patents, licenses and
trademarks to be of significance for Film Products and Molecumetics. Tredegar
routinely applies for patents on significant developments with respect to all of
its businesses. Patents owned by Tredegar and its subsidiaries have remaining
terms ranging from 1 to 16 years. In addition, Tredegar has licenses under
patents owned by third parties.
Research and Development. During 1997, 1996 and 1995, approximately $13.2
million, $11.1 million and $8.8 million, respectively, was spent on
company-sponsored research and development activities in connection with the
businesses of Tredegar and its subsidiaries.
Backlog. Backlogs are not material to Tredegar.
Government Regulation. Laws concerning the environment that affect or could
affect Tredegar's 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"), regulations promulgated under these acts, and any
other federal, state or local laws or regulations governing environmental
matters. The operations of Tredegar and its subsidiaries are in substantial
compliance with all applicable laws, regulations and permits. In order to
maintain substantial compliance with such standards, Tredegar 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.
From time to time the Environmental Protection Agency may identify
Tredegar or one of its subsidiaries as a potentially responsible party with
respect to a Superfund site under CERCLA. To date, Tredegar, indirectly, is
potentially responsible with respect to three Superfund sites. As a result,
Tredegar may be required to expend amounts on remedial investigations and
actions at such Superfund sites. Responsible parties under CERCLA may be jointly
and severally liable for costs at a site, although typically costs are allocated
among the responsible parties.
In addition, Tredegar, indirectly, is potentially responsible for one
New Jersey Spill Site Act location. Another New Jersey site is being
investigated pursuant to the New Jersey Environmental Cleanup Responsibility
Act.
4
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Employees. Tredegar and its subsidiaries employed approximately 2,500 people at
December 31, 1997 (approximately 2,900 people including the recent Aluminum
Extrusions acquisition in Canada).
5
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Item 2. PROPERTIES
General
Most of the improved real property and the other assets of Tredegar and
its subsidiaries are owned, and none of the owned property is subject to an
encumbrance that is material to the consolidated operations of Tredegar and its
subsidiaries. Tredegar considers the condition of the plants, warehouses and
other properties and assets owned or leased by Tredegar and its subsidiaries to
be generally good. Tredegar also considers the geographical distribution of its
plants to be well-suited to satisfying the needs of its customers.
Tredegar believes that the capacity of its plants are adequate for
immediate needs of its businesses. Tredegar's plants generally have operated at
70-85 percent of capacity. Tredegar's corporate headquarters offices are located
at 1100 Boulders Parkway, Richmond, Virginia 23225.
Tredegar has the following principal plants and facilities:
Film Products Locations Principal Operations
Carbondale, Pennsylvania Production of plastic films
LaGrange, Georgia
Manchester, Iowa
New Bern, North Carolina
Tacoma, Washington (leased)
Terre Haute, Indiana (2)
(technical center and
production facility)
Guangzhou, China (leased)
Kerkrade, the Netherlands
San Juan, Argentina
Sao Paulo, Brazil
Fiberlux Locations Principal Operations
Pawling, New York Production of vinyl extrusions for
Purchase, New York (headquarters) (leased) windows and patio doors
Aluminum Extrusions Locations Principal Operations
Carthage, Tennessee Production of aluminum
El Campo, Texas extrusions, fabrication and finishing
Kentland, Indiana
Newnan, Georgia
Richmond Hill, Ontario
Ste. Therese, Quebec
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Technology
Molecumetics leases its laboratory space in Bellevue, Washington.
Tredegar Investments, Inc. leases office space in Seattle, Washington.
Item 3. LEGAL PROCEEDINGS
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF TREDEGAR
Set forth below are the names, ages and titles of the
executive officers of Tredegar:
Name Age Title
John D. Gottwald 43 President and
Chief Executive Officer
Norman A. Scher 60 Executive Vice President
and Chief Financial Officer
Michael W. Giancaspro 43 Vice President, Corporate
Development
Douglas R. Monk 52 Vice President and President,
Aluminum Extrusions
Anthony J. Rinaldi 60 Vice President and President,
Film Products
Frederick P. Woods 53 Vice President, Personnel
Except as described below, each of these officers has served
in such capacity since July 10, 1989. Each will hold office until his successor
is elected or until his earlier removal or resignation.
Michael W. Giancaspro. Mr. Giancaspro served as Director of Corporate Planning
from March 31, 1989, until February 27, 1992, when he was elected Vice
President, Corporate Planning. On January 1, 1998, his position was changed to
Vice President, Corporate Development.
7
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Douglas R. Monk. Mr. Monk was elected Vice President on August 29, 1994. Mr.
Monk has served as President of The William L. Bonnell Company, Inc. and Capitol
Products Corporation since February 23, 1993. He also served as Director of
Operations of Tredegar's Aluminum Division.
Anthony J. Rinaldi. Mr. Rinaldi was elected Vice President on February 27, 1992.
Mr. Rinaldi has served as General Manager of Tredegar Film Products since July
1, 1991 and as President of Film Products since April 23, 1993. During 1991, he
also served as Managing Director of European operations. Mr. Rinaldi served as
Director of Sales and Marketing for Tredegar Film Products from July 10, 1989 to
June, 1991.
Frederick P. Woods. Mr. Woods served as Vice President, Employee Relations from
July 10, 1989 until December, 1993, when his position was changed to Vice
President, Personnel.
8
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The information contained on page 51 of the Annual Report
under the captions "Dividend Information," "Stock Listing" and
"Market Prices of Common Stock and Shareholder Data" is
incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
The information for the eight years ended December 31, 1997,
contained in the "Eight-Year Summary" on pages 18 and 19 of
the Annual Report is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The textual and tabular information concerning the years 1997,
1996 and 1995 contained on pages 20-22, 24-30, 32 and 33
of the Annual Report is incorporated herein by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Tredegar has exposure, among others, to the volatility of
polyethylene resin prices, aluminum ingot and scrap prices,
foreign currencies, emerging markets, interest rates and
technology stocks. Changes in resin prices, and the timing
thereof, could have a significant impact on profit margins in
Film Products; however, such changes are generally followed by
a corresponding change in selling prices. Profit margins in
Aluminum Extrusions are sensitive to fluctuations in aluminum
ingot and scrap prices but are also generally followed by a
corresponding change in selling prices; however, there is no
assurance that higher ingot costs can be passed along to
customers.
In the normal course of business, Tredegar enters into
fixed-price forward sales contracts with certain customers for
the sale of fixed quantities of aluminum extrusions at
scheduled intervals. In order to hedge its exposure to
aluminum price volatility under these fixed-price
arrangements, which generally have a duration of not more than
12 months, the company enters into a combination of forward
purchase commitments and futures contracts to acquire
aluminum, based on the scheduled deliveries. For further
information, see Note 5 on page 41 of the Annual Report.
9
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Tredegar sells to customers in foreign markets through its
foreign operations and through export sales from its plants in
the U.S. Tredegar estimates that approximately $28.5 million
or 38.5% of its 1997 consolidated pretax income (excluding
unusual items and technology-related net investment gains)
relates to such sales, of which (i) $16.6 million relates to
income generated from sales and costs denominated in, or
indexed to, U.S. Dollars (primarily export sales out of the
U.S. to the Far East and Latin America), (ii) $7.9 million
relates to income generated from sales and costs primarily
denominated in German Marks and Dutch Guilders, and (iii) $4
million relates to income generated from sales and costs
denominated in the currencies of Brazil and Argentina.
Generally, Tredegar views the volatility of foreign currencies
and emerging markets as part of the overall risk of operating
in such environments and, accordingly, adjusts the required
rate of return on such investments.
At December 31, 1997, Tredegar was underleveraged with cash
and cash equivalents of $120.1 million (approximately $58
million on a pro forma basis including the recent "Dutch
Auction" tender offer and the recent acquisition of two
aluminum extrusion and fabrication plants in Canada) and debt
of only $30 million. Debt outstanding consisted of a note with
interest payable semi-annually at 7.2% per year. Annual
principal payments of $5 million are due each June through
2003. Tredegar also has a revolving credit facility that
permits borrowings of up to $275 million (no amounts borrowed
at December 31, 1997). The facility matures on July 9, 2002,
with an annual extension of one year permitted subject to the
approval of participating banks. See Note 9 on page 43 of the
Annual Report for further information on debt and credit
agreements. Tredegar expects that with future acquisitions,
capital expenditures, investments, stock repurchases and
dividends, its net debt-to-net capitalization ratio would
generally range from 30% to 50%. In such situation, Tredegar
anticipates that its floating-rate debt would comprise about
50% of its total debt.
Tredegar has investments in private venture capital fund
limited partnerships and early-stage technology companies,
including the stock of privately held companies and the
restricted and unrestricted stock of companies that have
recently registered shares in initial public offerings.
Investments in non-public companies are illiquid and the
investments in public companies are subject to the volatility
of equity markets and technology stocks. For further
information, see Note 6 on page 42 of the Annual Report.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements contained on pages 35-
38, the notes to financial statements contained on pages 39-
50, the report of independent accountants on page 34, and the
information under the caption "Selected Quarterly Financial
Data (Unaudited)" on page 31 and related notes on page 32-33
of the Annual Report are incorporated herein by reference.
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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
11
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PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained on pages 2-4 of the Proxy Statement
under the caption "Election of Directors" concerning directors
and persons nominated to become directors of Tredegar is
incorporated herein by reference. See "Executive Officers of
Tredegar" at the end of Part I above for information about
the executive officers of Tredegar.
The information contained on pages 4-7 of the Proxy Statement
under the caption "Stock Ownership" is incorporated herein by
reference.
Item 11. EXECUTIVE COMPENSATION
The information contained on pages 7-15 of the Proxy Statement
under the caption "Compensation of Executive Officers and
Directors" concerning executive compensation is incorporated
herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information contained on pages 4-7 of the Proxy Statement
under the caption "Stock Ownership" is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
12
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PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) Documents:
(1) Financial statements - the following consolidated
financial statements of the registrant are included
on pages 34 - 50 in the Annual Report and are
incorporated herein by reference in Item 8.
Report of independent accountants.
Consolidated balance sheets as of December 31, 1997
and 1996.
Consolidated statements of income, cash flows and
shareholders' equity for the years ended December 31,
1997, 1996 and 1995.
Notes to financial statements.
(2) None.
(3) Exhibits
3.1 Amended and Restated Articles of
Incorporation of Tredegar (filed as
Exhibit 3.1 to Tredegar's Annual Report
on Form 10-K for the year ended December
31, 1989, and incorporated herein by
reference)
3.2 Amended By-laws of Tredegar (filed as
Exhibit 3 to Tredegar's Quarterly Report
on Form 10-Q for the quarter ended June
30, 1997, and incorporated herein by
reference)
4.1 Form of Common Stock Certificate (filed
as Exhibit 4.3 to Tredegar's Annual
Report on Form 10-K for the year ended
December 31, 1989, and incorporated
herein by reference)
4.2 Rights Agreement dated as of June 15,
1989, between Tredegar and NationsBank of
Virginia, N.A. (formerly Sovran Bank,
N.A.), as Rights Agent (filed as Exhibit
4.4 to Tredegar's Annual Report on Form
10-K for the year ended December 31,
1989, and incorporated herein by
reference)
4.2.1 Amendment and Substitution Agreement
(Rights Agreement) dated as of July 1,
1992, by and among Tredegar, NationsBank
of Virginia, N.A. (formerly Sovran Bank,
N.A.) and American Stock Transfer & Trust
Company (filed as Exhibit 4.2.1 to
Tredegar's Annual Report on Form 10-K for
the year ended December 31, 1992, and
incorporated herein by reference)
4.3 Loan Agreement dated June 16, 1993
between Tredegar and Metropolitan Life
Insurance Company (filed as Exhibit 4 to
Tredegar's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993, and
incorporated herein by reference)
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4.3.1 Consent and Agreement dated September 26,
1995, between Tredegar Industries, Inc.
and Metropolitan Life Insurance Company
(filed as Exhibit 4.2 to Tredegar's
Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995, and
incorporated herein by reference)
4.3.2 First Amendment to Loan Agreement dated
as of October 31, 1997 between Tredegar
and Metropolitan Life Insurance Company
(filed herewith)
4.4 Revolving Credit Facility Agreement dated
as of July 9, 1997 among Tredegar
Industries, Inc., the banks named
therein, The Chase Manhattan Bank as
Administrative Agent, NationsBank, N.A.
as Documentation Agent and Long-Term
Credit Bank of Japan, Limited as Co-Agent
(filed as Exhibit 4.1 to Tredegar's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, and
incorporated herein by reference)
4.4.1 First Amendment to Revolving Credit
Facility Agreement dated as of October
31, 1997 among Tredegar Industries, Inc.,
the banks named therein, The Chase
Manhattan Bank as Administrative Agent,
NationsBank, N.A. as Documentation Agent
and Long-Term Credit Bank of Japan,
Limited as Co-Agent (filed herewith)
10.1 Reorganization and Distribution Agreement
dated as of June 1, 1989, between
Tredegar and Ethyl Corporation ("Ethyl")
(filed as Exhibit 10.1 to Tredegar's
Annual Report on Form 10-K for the year
ended December 31, 1989, and incorporated
herein by reference)
*10.2 Employee Benefits Agreement dated as of
June 1, 1989, between Tredegar and Ethyl
(filed as Exhibit 10.2 to Tredegar's
Annual Report on Form 10-K for the year
ended December 31, 1989, and incorporated
herein by reference)
10.3 Tax Sharing Agreement dated as of June 1,
1989, between Tredegar and Ethyl (filed
as Exhibit 10.3 to Tredegar's Annual
Report on Form 10-K for the year ended
December 31, 1989, and incorporated
herein by reference)
10.5 Indemnification Agreement dated as of
June 1, 1989, between Tredegar and Ethyl
(filed as Exhibit 10.5 to Tredegar's
Annual Report on Form 10-K for the year
ended December 31, 1989, and incorporated
herein by reference)
*10.6 Tredegar 1989 Incentive tock Option Plan
(included as Exhibit A to the Prospectus
contained in the Form S-8 Registration
Statement No. 33-31047, and incorporated
herein by reference)
*10.7 Tredegar Bonus Plan (filed as Exhibit
10.7 to Tredegar's Annual Report on Form
10-K for the year ended December 31,
1989, and incorporated herein by
reference)
*10.8 Savings Plan for the Employees of
Tredegar (filed as Exhibit 4 to the Form
S-8 Registration Statement No. 33-64647,
and incorporated herein by reference)
*10.9 Tredegar Retirement Income Plan (filed as
Exhibit 10.9 to Tredegar's Annual Report
on Form 10-K for the year ended December
31, 1990, and incorporated herein by
reference)
*10.10 Tredegar 1992 Omnibus Stock Incentive
Plan (filed as Exhibit 10.12 to
Tredegar's Annual Report on Form 10-K for
the year ended December 31, 1991, and
incorporated herein by reference)
14
<PAGE>
*10.11 Tredegar Industries, Inc. Retirement
Benefit Restoration Plan (filed as
Exhibit 10.13 to Tredegar's Annual Report
on Form 10-K for the year ended December
31, 1993, and incorporated herein by
reference)
*10.12 Tredegar Industries, Inc. Savings Plan
Benefit Restoration Plan(filed as Exhibit
10.14 to Tredegar's Annual Report on Form
10-K for the year ended December 31,
1993, and incorporated herein by
reference)
*10.13 Tredegar Industries, Inc. 1996 Incentive
Plan (filed as Exhibit 10.14 to
Tredegar's Annual Report on Form 10-K for
the year ended December 31, 1996, and
incorporated herein by reference)
*10.14 Consulting Agreement made as of March 31,
1996 between Tredegar and Richard W.
Goodrum (filed herewith)
*10.14.1 First Amendment to Consulting Agreement
made as of July 1, 1997 between Tredegar
and Richard W. Goodrum (filed herewith)
13 Tredegar Annual Report to Shareholders
for the year ended December 31, 1997 (See
Note 1)
21 Subsidiaries of Tredegar
23.1 Consent of Independent Accountants
27 Financial Data Schedule
*The marked items are management contracts or compensatory
plans, contracts or arrangements required to be filed as
exhibits to this Form 10-K.
(b) Reports on Form 8-K
None
(c) Exhibits
The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Statement Schedules
None
Note 1. With the exception of the information incorporated in this Form
10-K by reference thereto, the Annual Report shall not be deemed
"filed" as a part of Form 10-K.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
Dated: February 25, 1998 By /s/ John D. Gottwald
-------------------------
John D. Gottwald
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on February 25, 1998.
Signature Title
/s/ John D. Gottwald President
(John D. Gottwald) (Principal Executive Officer
and Director)
/s/ N. A. Scher Executive Vice President
(Norman A. Scher) and Director
(Principal Financial Officer)
/s/ D. Andrew Edwards Treasurer and Corporate Controller
(D. Andrew Edwards) (Principal Accounting Officer)
/s/ Austin Brockenbrough, III Director
(Austin Brockenbrough, III)
/s/ Phyllis Cothran Director
(Phyllis Cothran)
/s/ R. W. Goodrum Director
(Richard W. Goodrum)
16
<PAGE>
/s/ Floyd D. Gottwald, Jr. Director
(Floyd D. Gottwald, Jr.)
/s/ William M. Gottwald Director
(William M. Gottwald)
/s/ Andre B. Lacy Director
(Andre B. Lacy)
/s/ Richard L. Morrill Director
(Richard L. Morrill)
/s/ Emmett J. Rice Director
(Emmett J. Rice)
17
<PAGE>
EXHIBIT INDEX
3.1 Amended and Restated Articles of Incorporation of Tredegar (filed as
Exhibit 3.1 to Tredegar's Annual Report on Form 10-K for the year
ended December 31, 1989, and incorporated herein by reference)
3.2 Amended By-laws of Tredegar (filed as Exhibit 3 to Tredegar's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997,
and incorporated herein by reference)
4.1 Form of Common Stock Certificate (filed as Exhibit 4.3 to Tredegar's
Annual Report on Form 10-K for the year ended December 31, 1989, and
incorporated herein by reference)
4.2 Rights Agreement dated as of June 15, 1989, between Tredegar and
NationsBank of Virginia, N.A. (formerly Sovran Bank, N.A.), as
Rights Agent (filed as Exhibit 4.4 to Tredegar's Annual Report on
Form 10-K for the year ended December 31, 1989, and incorporated
herein by reference)
4.2.1 Amendment and Substitution Agreement (Rights Agreement) dated as of
July 1, 1992, by and among Tredegar, NationsBank of Virginia, N.A.
(formerly Sovran Bank, N.A.) and American Stock Transfer & Trust
Company (filed as Exhibit 4.2.1 to Tredegar's Annual Report on Form
10-K for the year ended December 31, 1992, and incorporated herein
by reference)
4.3 Loan Agreement dated June 16, 1993 between Tredegar and Metropolitan
Life Insurance Company (filed as Exhibit 4 to Tredegar's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993, and
incorporated herein by reference)
4.3.1 Consent and Agreement dated September 26, 1995, between Tredegar
Industries, Inc. and Metropolitan Life Insurance Company (filed as
Exhibit 4.2 to Tredegar's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995, and incorporated herein by
reference)
4.3.2 First Amendment to Loan Agreement dated as of October 31, 1997
between Tredegar and Metropolitan Life Insurance Company (filed
herewith)
4.4 Revolving Credit Facility Agreement dated as of July 9, 1997 among
Tredegar Industries, Inc., the banks named therein, The Chase
Manhattan Bank as Administrative Agent, NationsBank, N.A. as
Documentation Agent and Long-Term Credit Bank of Japan, Limited as
Co-Agent (filed as Exhibit 4.1 to Tredegar's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, and incorporated
herein by reference)
4.4.1 First Amendment to Revolving Credit Facility Agreement dated as of
October 31, 1997 among Tredegar Industries, Inc., the banks named
therein, The Chase Manhattan Bank as Administrative Agent,
NationsBank, N.A. as Documentation Agent and Long-Term Credit Bank
of Japan, Limited as Co-Agent (filed herewith)
10.1 Reorganization and Distribution Agreement dated as of June 1, 1989,
between Tredegar and Ethyl (filed as Exhibit 10.1 to Tredegar's
Annual Report on Form 10-K for the year ended December 31, 1989, and
incorporated herein by reference)
*10.2 Employee Benefits Agreement dated as of June 1, 1989, between
Tredegar and Ethyl (filed as Exhibit 10.2 to Tredegar's Annual
Report on Form 10-K for the year ended December 31, 1989, and
incorporated herein by reference)
10.3 Tax Sharing Agreement dated as of June 1, 1989, between Tredegar and
Ethyl (filed as Exhibit 10.3 to Tredegar's Annual Report on Form
10-K for the year ended December 31, 1989, and incorporated herein
by reference)
10.5 Indemnification Agreement dated as of June 1, 1989, between Tredegar
and Ethyl (filed as Exhibit 10.5 to Tredegar's Annual Report on Form
10-K for the year ended December 31, 1989, and incorporated herein
by reference)
*10.6 Tredegar 1989 Incentive Stock Option Plan (included as Exhibit
A to the Prospectus contained in the Form S-8 Registration Statement
No. 33-31047, and incorporated herein by reference)
*10.7 Tredegar Bonus Plan (filed as Exhibit 10.7 to Tredegar's Annual
Report on Form 10-K for the year ended December 31, 1989, and
incorporated herein by reference)
*10.8 Savings Plan for the Employees of Tredegar (filed as Exhibit
4 to the Form S-8 Registration Statement No. 33-64647, and
incorporated herein by reference)
*10.9 Tredegar Retirement Income Plan (filed as Exhibit 10.9 to Tredegar's
Annual Report on Form 10-K for the year ended December 31, 1990, and
incorporated herein by reference)
*10.10 Tredegar 1992 Omnibus Stock Incentive Plan (filed as Exhibit 10.12
to Tredegar's Annual Report on Form 10-K for the year ended December
31, 1991, and incorporated herein by reference)
*10.11 Tredegar Industries, Inc. Retirement Benefit Restoration Plan (filed
as Exhibit 10.13 to Tredegar's Annual Report on Form 10-K for the
year ended December 31, 1993, and incorporated herein by reference)
*10.12 Tredegar Industries, Inc. Savings Plan Benefit Restoration Plan
(filed as Exhibit 10.14 to Tredegar's Annual Report on Form 10-K
for the year ended December 31, 1993, and incorporated herein by
reference)
*10.13 Tredegar Industries, Inc. 1996 Incentive Plan (filed as Exhibit
10.14 to Tredegar's Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by reference)
*10.14 Consulting Agreement made as of March 31, 1996 between Tredegar and
Richard W. Goodrum (filed herewith)
*10.14.1 First Amendment to Consulting Agreement made as of July 1, 1997
between Tredegar and Richard W. Goodrum (filed herewith)
13 Tredegar Annual Report to Shareholders for the year ended December
31, 1997 (See Note 1)
21 Subsidiaries of Tredegar
23.1 Consent of Independent Accountants
27 Financial Data Schedule
*The marked items are management contracts or compensatory plans, contracts or
arrangements required to be filed as exhibits to this Form 10-K.
Note 1. With the exception of the information incorporated in this Form 10-K by
reference thereto, the Annual Report shall not be deemed "filed" as a part of
Form 10-K.
Exhibit 4.3.2
FIRST AMENDMENT, dated as of October 31, 1997, to the Loan Agreement
dated June 16, 1993 (the "Agreement"), between TREDEGAR INDUSTRIES, INC., a
Virginia corporation (the "Company"); and METROPOLITAN LIFE INSURANCE COMPANY
("MetLife").
A. The parties hereto have agreed, subject to the terms and conditions
hereof, to amend the 7.20% Senior Promissory Notes due June 16, 2003 (the
"Notes") issued pursuant to the Agreement as provided herein.
B. Capitalized terms used and not otherwise defined herein shall have
the meanings assigned to such terms in the Notes.
Accordingly, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Section 6 of the Notes is hereby amended to add the
following in appropriate alphabetical order:
"Internal Financing Subsidiary" shall mean any Subsidiary (i)
of which securities or other ownership interests representing 100% of
the equity or 100% of the ordinary voting power are, at the time any
determination is made, owned, controlled or held, directly or
indirectly, by the Company, and (ii) that has no outstanding
Indebtedness to any person other than the Company or any Wholly-owned
Subsidiary.
"Internal Financing Transaction" shall mean any incurrence of
Indebtedness or other obligations by any Wholly-owned Subsidiary in
favor of an Internal Financing Subsidiary, any transfer of assets or
liabilities or other transactions between an Internal Financing
Subsidiary and the Company or any Wholly-owned Subsidiary, or any other
transaction reasonably related to the foregoing; provided, however,
that in connection therewith neither the Company nor any Wholly-owned
Subsidiary shall incur any Indebtedness or transfer any assets to any
person other than the Company or another Wholly-owned Subsidiary.
SECTION 2. Clause (ii) of Section 4.03 of the Notes is hereby amended
to read in its entirety as follows:
"(ii) create, assume, incur, Guarantee or suffer to exist any
Indebtedness, except:
(a) all Indebtedness secured by the Liens permitted pursuant
to Section 4.01;
(b) additional Indebtedness constituting not more than 10%
of Consolidated Stockholders' Equity at any time;
(c) Indebtedness to the Company incurred by the Subsidiaries
in the ordinary course of business;
<PAGE>
(d) Indebtedness incurred in connection with Internal
Financing Transactions; and
(e) extensions, renewals or replacements of any Indebtedness
permitted by the foregoing clause (a) and (b) of this subparagraph,
provided however, that there is no increase in the principal amount of
the Indebtedness then secured or evidenced thereby. "
SECTION 3. Section 4.06 of the Notes is hereby amended to add "(i) "
immediately before "(a) " and to add immediately prior to the period at the end
of such Section the following:
", or (ii) such sale, transfer or disposition is an Internal
Financing Transaction"
SECTION 4. Clause (a) of the proviso in Section 4.07 of the Notes
is hereby amended to read in its entirety as follows:
"(a) any Subsidiary may declare and pay dividends or make other
distributions to the Company, and any Internal Financing Subsidiary may
declare and pay dividends or make other distributions to the Company or
other Wholly-owned Subsidiaries, "
SECTION 5. Except as amended hereby, the Agreement and the Notes shall
continue in full force and effect in accordance with their respective terms.
SECTION 6. Notwithstanding anything to the contrary contained herein,
this First Amendment shall not become effective unless and until (i) all other
lenders to the Company shall have executed amendments to the applicable loan
agreements that have effects substantially similar hereto, and (ii) the Company
shall have paid or otherwise provided to MetLife, on a proportionate basis, any
consideration, whether consisting of additional interest, fee, collateral
security or otherwise, which it has paid or provided to any other lender as
consideration for or as an inducement to the entering into of an amendment
similar hereto.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed by their duly authorized officers, all as of the date first
above written.
TREDEGAR INDUSTRIES, INC.
By: /s/ N. A. Scher
---------------------------------
METROPOLITAN LIFE INSURANCE COMPANY
By: /s/ James R. Dingler
---------------------------------
Exhibit 4.4.1
[EXECUTION COPY]
FIRST AMENDMENT dated as of October 31, 1997 (this "Amendment"), to the
Revolving Credit Facility Agreement dated as of July 9, 1997, among TREDEGAR
INDUSTRIES, INC., a Virginia corporation (the "Company"), the banks listed in
Schedule 2.01 thereof or subsequently becoming parties thereto as provided
therein (the "Banks"); THE CHASE MANHATTAN BANK, a New York banking corporation,
as Administrative Agent (the "Administrative Agent"), NATIONSBANK, N.A., a
national banking association, as Documentation Agent (the "Documentation Agent")
and LONG-TERM CREDIT BANK OF JAPAN, LIMITED, as Co-Agent (the "Co-Agent" and
together with the Administrative Agent and the Documentation Agent, the
"Agents").
W I T N E S S E T H:
WHEREAS, the Company, the Banks and the Agents are parties to a
Revolving Credit Facility Agreement, dated as of July 9, 1997 (the "Existing
Credit Agreement");
WHEREAS, the Company has requested that the Banks amend the Existing
Credit Agreement in certain respects; and
WHEREAS, the Banks have agreed, subject to the terms and conditions
hereinafter set forth, to amend the Existing Credit Agreement in certain
respects as provided below (the Existing Credit Agreement, as so amended by this
Amendment, being referred to as the "Agreement";
NOW, THEREFORE, in consideration of the agreements herein contained,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Definitions. The following terms (whether or not
underscored) when used in this Amendment shall have the following meanings (such
meanings to be equally applicable to the singular and plural form thereof):
"Administrative Agent" is defined in the preamble.
"Agreement" is defined in the third recital.
"Amendment" is defined in the preamble.
<PAGE>
"Amendment Effective Date" is defined in Section 3.1.
"Banks" is defined in the preamble.
"Co-Agent" is defined in the preamble.
"Company" is defined in the preamble.
"Documentation Agent" is defined in the preamble.
"Existing Credit Agreement" is defined in the first recital.
SECTION I.2. Use of Defined Terms. Unless otherwise defined herein or
the context otherwise requires, terms for which meanings are provided in the
Existing Credit Agreement shall have such meanings when used in this Amendment.
ARTICLE II
AMENDMENTS, WAIVERS AND MODIFICATIONS OF
EXISTING CREDIT AGREEMENT AS OF THE AMENDMENT
EFFECTIVE DATE
Effective on (and subject to the occurrence of) the Amendment Effective
Date, the provisions of the Existing Credit Agreement referred to below are
hereby amended, waived and/or modified in accordance with this Article II.
Except as expressly so amended, waived and/or modified, the Agreement shall
continue in full force and effect in accordance with its terms.
SECTION 2.1. Section 1.01 of the Agreement is hereby amended to add the
following definitions:
""Internal Financing Subsidiary" shall mean any Subsidiary (i)
of which securities or other ownership interests representing 100% of
the equity or 100% of the ordinary voting power are, at the time any
determination is made, owned, controlled or held, directly or
indirectly, by the Company, and (ii) which has no outstanding
Indebtedness to any Person other than the Company or another
wholly-owned Subsidiary.
"Internal Financing Transaction" shall mean any incurrence of
Indebtedness or other obligations by any wholly-owned Subsidiary in
favor of an Internal Financing Subsidiary, any transfer of assets or
liabilities or other transactions between an Internal Financing
Subsidiary and the Company or any wholly-owned Subsidiary, or any other
transaction reasonably related to the foregoing; provided, however,
that in connection therewith neither the Company nor any wholly-owned
Subsidiary shall incur any Indebtedness or transfer any assets to any
Person other than the Company or another wholly-owned Subsidiary."
2
<PAGE>
SECTION 2.2. Section 6.03 of the Agreement is hereby amended to read in
its entirety as follows:
"Obligations of Subsidiaries. Permit the Subsidiaries to incur
Indebtedness, except for:
(a) Indebtedness to the Company incurred by the Subsidiaries
in the ordinary course of business;
(b) Indebtedness incurred in connection with Internal
Financing Transactions; and
(c) Indebtedness which in the aggregate for all the
Subsidiaries, exclusive of Indebtedness incurred in connection with
Internal Financing Transactions to the Company or other wholly-owned
Subsidiaries, constitutes not more than 10% of Consolidated
Stockholders' Equity at any time. "
SECTION 2.3. Section 6.04 of the Agreement is hereby amended to delete
the period at the end of subsection (c), substituting therefor the phrase ";and"
and to add clause (d) as follows:
"(d) any Internal Financing Transaction"
SECTION 2.4. Clause (a) of Section 6.05 of the Agreement is hereby
amended to read in its entirety as follows:
"(a) any Subsidiary may declare and pay dividends or make
other distributions to the Company, and any Internal Financing
Subsidiary may declare and pay dividends or make other distributions to
the Company or other wholly-owned Subsidiaries and"
SECTION 2.5. Section 6.06 of the Agreement is hereby amended to read in
its entirety as follows:
"Transactions with Affiliates. Sell or transfer any property
or assets to, or purchase or acquire any property or assets from, or
otherwise engage in any other transactions with, any of its
Affiliates, except that as long as no Default or Event of Default
shall have occurred and be continuing, the Company or any Subsidiary
may engage in any of the foregoing transactions (a) in the ordinary
course of business at prices and on terms and conditions not less
favorable to the Company or such Subsidiary than could be obtained on
an arm's length basis from unrelated third parties, or (b) in
connection with Internal Financing Transactions."
3
<PAGE>
ARTICLE III
CONDITIONS TO EFFECTIVENESS
SECTION 3.1. Amendment Effective Date. This Amendment shall become
effective as of the date first above written when the Administrative Agent shall
have received counterparts of this Amendment duly executed by the Company, the
Administrative Agent and the Required Banks (the "Amendment Effective Date").
ARTICLE IV
MISCELLANEOUS
SECTION 4.1. Cross References. References in this Amendment to any
article or section are, unless otherwise specified, to such article or section
of this Amendment.
SECTION 4.2. Loan Document Pursuant to Agreement. This Amendment is a
Loan Document executed pursuant to the Agreement and shall be construed,
administered and applied in accordance with all of the terms and provisions of
the Agreement.
SECTION 4.3. Successors and Assigns. This Amendment shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
SECTION 4.4. Counterparts. This Amendment may be executed by the
parties hereto in several counterparts each of which when executed and delivered
shall be deemed to be an original and which shall constitute together but one
and the same agreement.
SECTION 4.5. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their duly authorized officers, all as of the date first
written above.
TREDEGAR INDUSTRIES, INC.
By: /s/ N. A. Scher
Name: Norman Scher
Title: Executive Vice President and CFO
THE CHASE MANHATTAN BANK,
individually and as Administrative Agent
By /s/ Stephanie Parker
Name: Stephanie Parker
Title: Assistant Vice President
NATIONSBANK, N.A., individually and
as Documentation Agent
By: /s/ E. Turner Coggin
Name: E. Turner Coggin
Title: Senior Vice President
LONG-TERM CREDIT BANK OF JAPAN, LIMITED,
individually and as Co-Agent
By: /s/ Philip A. Marsden
Name: Philip A. Marsden
Title: Senior Vice President
5
<PAGE>
BANKS
THE BANK OF NOVA SCOTIA
By: /s/ James R. Trimble
Name: James R. Trimble
Title: Senior Relationship Manager
THE BANK OF NEW YORK
By: /s/ John V. Yancey
Name: John V. Yancey
Title: VP - Division Head
CENTRAL FIDELITY NATIONAL BANK
By: /s/ Harry A. Turton, Jr.
Name: Harry A. Turton, Jr.
Title: Vice President
CRESTAR BANK
By: /s/ Christopher B. Werner
Name: Christopher B. Werner
Title: Vice President
FIRST UNION NATIONAL BANK
By: /s/ Carrie H. McAllister
Name: Carrie H. McAllister
Title: Assistant Vice President
6
<PAGE>
MELLON BANK
By: /s/ Dwayne R. Finney
Name: Dwayne R. Finney
Title: Assistant Vice President
SIGNET BANK
By: /s/ J. Charles Link
Name: J. Charles Link
Title: Senior Vice President
SOCIETE GENERALE
By: /s/ Ralph Saheb
Name: Ralph Saheb
Title: Vice President
THE SUMITOMO BANK, LIMITED
NEW YORK BRANCH
By: /s/ John C. Kissinger
Name: John C. Kissinger
Title: Joint General Manager
WACHOVIA BANK, N.A.
By: /s/ Michael H. Trainor
Name: Michael H. Trainor
Title: Assistant Vice President
7
Exhibit 10.14
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT is made and entered into as of the 31st day
of March, 1996, by and between Tredegar Industries, Inc., a Virginia
corporation, 1100 Boulders Parkway, Richmond, Virginia (hereinafter called
"Tredegar"), and Richard W. Goodrum, an individual residing at 12830 River Hills
Drive, Midlothian, Virginia (hereinafter called "Goodrum").
W I T N E S S E T H:
WHEREAS, Goodrum intends to retire as an employee of Tredegar effective
on March 31, 1996;
WHEREAS, Goodrum has had significant experience with Tredegar's
businesses and operations, including serving as a member of its Executive
Committee and Management Committee.
WHEREAS, Tredegar desires to obtain the benefit of such experience by
retaining the consulting services of Goodrum; and
WHEREAS, Goodrum has agreed to continue as a member of Tredegar's Board
of Directors, Executive Committee and Management Committee.
NOW THEREFORE, the parties hereto mutually agree as follows:
1. Tredegar hereby retains Goodrum as a consultant, to remain generally
familiar with the affairs of Tredegar and its subsidiaries and to make himself
available for advice, meetings and consultation (by telephone or in person) from
time to time as reasonably requested.
2. During the term of this Agreement, Goodrum agrees to serve as a
member of Tredegar's Executive Committee and Management Committee for such
period as may be requested by Tredegar.
3. Goodrum agrees to make a quarterly visit to Tredegar Film Products'
Terre Haute technical facility. Upon the request of Tredegar, Goodrum agrees to
visit other locations of Tredegar or its subsidiaries to provide special advice
on operational and other matters.
4. Goodrum agrees to perform such other special projects for Tredegar
and its subsidiaries as may be reasonably requested by Tredegar.
5. Throughout the term of this Agreement, Goodrum will devote his best
efforts in the interest of Tredegar in the performance of such services as he
may be reasonably requested to provide hereunder.
<PAGE>
6. Goodrum agrees to keep himself generally informed regarding
Tredegar's affairs, particularly such operational matters as may be designated
from time to time by Tredegar.
7. Tredegar agrees to provide Goodrum with office space, limited
secretarial assistance and access to business publications and internal
documents so as to enable Goodrum to be effective.
8. For the services rendered hereunder by Goodrum (including his
service as a member of Tredegar's Executive Committee and Management Committee),
Tredegar shall pay Goodrum and Goodrum hereby accepts as full compensation
therefor the annual amount of $25,000, which payments will be made in quarterly
installments in advance and prorated for any partial year.
9. Tredegar will reimburse Goodrum for his reasonable traveling and
miscellaneous expenses incurred in the performance of his services hereunder,
provided that such expenses shall be approved by another member of Tredegar's
Executive Committee.
10. During the term of this Agreement, Goodrum shall be deemed for all
purposes an independent contractor and not an "employee" of Tredegar.
11. Any and all inventions, discoveries, improvements, ideas,
processes, methods, formulae and modifications (collectively, "Inventions") made
or conceived by Goodrum during the term of this Agreement as the direct or
indirect result of the services rendered hereunder that relate to the actual or
anticipated business of the Company shall become the absolute property of
Tredegar, and Goodrum will promptly disclose to Tredegar and upon its request
assign to it such Inventions without further compensation or remuneration.
Goodrum agrees to execute from time to time, during or after the term hereof,
such documents as Tredegar may consider necessary to evidence Tredegar's
ownership of such Inventions.
12. Goodrum agrees that he will not during or after the term of this
Agreement disclose to anyone other than the officers and duly authorized
employees and representatives of Tredegar, except with the written permission of
Tredegar, any unpublished knowledge or information that may be obtained by him
from Tredegar or from others in the course of his duties hereunder with respect
to the conduct and details of the business or the processes, formulae,
compounds, equipment, machinery, appliances, "know-how" and arts used or usable
by Tredegar in its business, in its research and development activities, or any
business contemplated by Tredegar, or any other unpublished knowledge or
information so obtained of whatever character.
2
<PAGE>
13. During the term of this Agreement, Goodrum agrees that he will not
act on behalf of any other party on matters involving use of information
obtained from Tredegar or involving any conflict with work performed for
Tredegar.
14. The initial term of this Agreement shall be the one-year period
commencing on April 1, 1996 (the "Initial Term"), and this Agreement shall
automatically renew for additional successive one-year terms unless one of the
parties hereto provides the other party with notice of its intent to terminate
this Agreement at least thirty (30) days prior to expiration of the then current
term of the Agreement. Notwithstanding the foregoing, this Agreement shall
terminate upon Goodrum's death, and, at the option of Tredegar, this Agreement
may be terminated upon sixty (60) days prior written notice to Goodrum in the
event of Goodrum's disability, if Tredegar determines in good faith that such
disability renders Goodrum substantially unable to perform services requested
hereunder. Goodrum's obligations set forth in paragraphs 11 and 12 above shall
survive the termination of this Agreement.
15. Due to the personal nature of this Agreement as it pertains to
Goodrum, his duties and interests shall not be assignable or transferable
without the prior written consent of Tredegar.
16. There are no other agreements or understandings, verbal or in
writing, between the parties hereto regarding the subject matter of this
Agreement or any part thereof.
17. This Agreement shall be construed and interpreted under the laws of
Virginia.
IN WITNESS WHEREOF, Tredegar Industries, Inc. has caused this
instrument to be signed in its name by its duly authorized officer and Richard
W. Goodrum has hereunto set his hand, all as of the day and year first above
written.
TREDEGAR INDUSTRIES, INC.
By /s/ John D. Gottwald
John D. Gottwald
President
/s/ Richard W. Goodrum
Richard W. Goodrum
Exhibit 10.14.1
FIRST AMENDMENT TO CONSULTING AGREEMENT
THIS FIRST AMENDMENT TO CONSULTING AGREEMENT is made and entered into
as of the 1st day of July, 1997, by and between Tredegar Industries, Inc., a
Virginia corporation, 1100 Boulders Parkway, Richmond, Virginia (hereinafter
called "Tredegar"), and Richard W. Goodrum, an individual residing at 12830
River Hills Drive, Midlothian, Virginia (hereinafter called "Goodrum").
W I T N E S S E T H:
WHEREAS, Tredegar and Goodrum have previously entered into that certain
Consulting Agreement dated as of March 31, 1996 (the "Consulting Agreement");
WHEREAS, Tredegar and Goodrum desire to amend the Consulting Agreement;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and other good and valuable consideration, the receipt of which is
acknowledged, Tredegar and Goodrum agree as follows:
1. Capitalized terms not defined herein shall have the same meanings as
set forth in the Consulting Agreement.
2. Section 8 of the Agreement is hereby amended by deleting it in its
entirety and substituting therefor the following language:
For the services rendered hereunder by Goodrum (including his service
as a member of Tredegar's Executive Committee and Management
Committee), Tredegar shall pay Goodrum and Goodrum hereby accepts as
full compensation therefor the annual amount of $30,000, which payments
will be made in quarterly installments in advance and prorated for any
partial year.
IN WITNESS WHEREOF, Tredegar Industries, Inc. has caused this
instrument to be signed in its name by its duly authorized officer and Richard
W. Goodrum has hereunto set his hand, all as of the day and year first above
written.
TREDEGAR INDUSTRIES, INC.
By /s/ John D. Gottwald
John D. Gottwald
President
/s/ Richard W. Goodrum
Richard W. Goodrum
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
% Increase
Years Ended December 31 1997 1996 (Decrease)
- ----------------------- ---- ---- ----------
(In thousands, except per-share amounts)
<S> <C> <C> <C>
Net income:
Manufacturing and research operations $ 48,124 $35,187 37
Technology-related net investment gains (a) 8,882 1,369 549
Unusual items (a) 1,440 8,479 (83)
Net income 58,446 45,035 30
Diluted earnings per share:
Manufacturing and research operations 3.65 2.69 36
Technology-related net investment gains (a) .67 .10 570
Unusual items (a) .11 .65 (83)
Net income 4.43 3.44 29
Ongoing operations (b):
Net sales 581,004 489,040 19
EBITDA (c) 89,443 71,914 24
Technology-related net investment gains (pre-tax) (a) 13,880 2,139 549
Depreciation and amortization 18,414 18,507 (1)
Capital expenditures 22,655 22,698 -
Research and development expenses 13,170 11,066 19
Financial position and other data (d):
Cash and cash equivalents 120,065 101,261 19
Debt outstanding 30,000 35,000 (14)
Shareholders' equity 272,546 212,545 28
Credit available under revolving credit facility 275,000 275,000 -
Shares outstanding at end of period 12,371 12,238 1
Shares used to compute diluted earnings per share 13,178 13,105 1
Dividends per share .34 .26 31
Equity per share 22.03 17.37 27
Closing market price per share:
High 73.94 45.38
Low 37.63 20.50
End of year 65.88 40.13
Total return to shareholders 65.0% 87.8%
</TABLE>
(a) See Note 6 on page 42 for information on Tredegar's technology-related
investment activities. See page 24 for an explanation of unusual items.
(b) Ongoing operations exclude Molded Products and Brudi, which were divested in
1996. See Note 18 on page 49 for further information regarding divested
operations.
(c) EBITDA is earnings before interest, taxes, depreciation, amortization,
unusual items, technology-related investment gains and losses, and divested
operations. See Note (p) on page 32 for further explanation.
(d) See Note 19 on page 50 for recent events affecting financial position.
1
<PAGE>
FINANCIAL REVIEW
TABLE OF CONTENTS
Eight-Year Summary 18
Segment Tables 20
Shareholder Value 23
Results of Operations 24
Financial Condition 26
Business Segment Review 27
Selected Quarterly
Financial Data 31
Notes to Financial Tables 32
Independent Accountants'
& Management's Reports 34
Consolidated
Statements of Income 35
Consolidated
Balance Sheets 36
Consolidated
Statements of Cash Flows 37
Consolidated Statement
of Shareholders' Equity 38
Notes to
Financial Statements 39
Shareholder Information 51
17
<PAGE>
EIGHT-YEAR SUMMARY
Tredegar Industries, Inc., and Subsidiaries
<TABLE>
<CAPTION>
Years Ended December 31 1997 1996
--------- -------
(In thousands, except per-share data)
<S> <C> <C>
Results of Operations (a)(b)(c):
Net sales $581,004 $523,551
Other income (expense), net 17,015 4,248
--------- -------
598,019 527,799
--------- -------
Cost of goods sold 457,946 417,270
Selling, general and administrative expenses 37,035 39,719
Research and development expenses 13,170 11,066
Interest expense (d) 1,952 2,176
Unusual items (2,250)(e) (11,427)(f)
--------- -------
507,853 458,804
--------- -------
Income (loss) from continuing operations before income taxes 90,166 68,995
Income taxes 31,720 23,960
--------- -------
Income (loss) from continuing operations (a)(b)(c) 58,446 45,035
Income from discontinued Energy segment operations (b) - -
--------- -------
Net income (loss) before extraordinary item and cumulative effect of accounting changes 58,446 45,035
Extraordinary item - prepayment premium on extinguishment of debt (net of tax) - -
Cumulative effect of accounting changes - -
--------- -------
Net income (loss) $ 58,446 $ 45,035
Share Data:
Diluted earnings (loss) per share:
Continuing operations (a)(b)(c) $ 4.43 $ 3.44
Discontinued Energy segment operations (b) - -
--------- -------
Before extraordinary item and cumulative effect of accounting changes 4.43 3.44
Net income (loss) 4.43 3.44
Equity per share 22.03 17.37
Cash dividends declared per share .34 .26
Weighted average common shares outstanding during the period 12,287 12,208
Shares used to compute diluted earnings (loss) per share
during the period 13,178 13,105
Shares outstanding at end of period 12,371 12,238
Closing market price per share:
High 73.94 45.38
Low 37.63 20.50
End of year 65.88 40.13
Total return to shareholders (m) 65.0% 87.8%
Financial Position and Other Data:
Total assets 410,937 341,077
Working capital excluding cash and cash equivalents 30,279 31,860
Ending consolidated capital employed (n) 182,481 146,284
Current ratio 3.1:1 3.2:1
Cash and cash equivalents 120,065 101,261
Capital employed of divested and discontinued operations
(Molded Products, Brudi and the Energy segment) (b)(n) - -
Debt 30,000 35,000
Shareholders' equity (net book value) 272,546 212,545
Equity market capitalization (o) 814,940 491,050
Net debt (cash) (debt less cash and cash equivalents) as a % of net capitalization (49.4)% (45.3)%
Other financial data excluding unusual items, technology-related investment
activities and divested and discontinued operations (a)(b)(c):
Net sales 581,004 489,040
EBITDA (p) 89,443 71,914
Depreciation 18,364 18,451
Amortization of intangibles 50 56
Capital expenditures 22,655 22,698
Acquisitions 13,469 -
Ending capital employed (n) 151,734 140,236
Average capital employed (n) 145,985 140,029
Unleveraged after-tax earnings (q) 45,105 33,913
Return on average capital employed (r) 30.9% 24.2%
EBITDA as % of net sales 15.4% 14.7%
Effective income tax rate (excluding the effects of tax-exempt interest income) 36.4% 36.5%
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994
---------- -------
(In thousands, except per-share data)
<S> <C> <C>
Results of Operations (a)(b)(c):
Net sales $589,454 $502,208
Other income (expense), net (669) (296)
-------- -------
588,785 501,912
-------- -------
Cost of goods sold 490,510 419,823
Selling, general and administrative expenses 48,229 47,978
Research and development expenses 8,763 8,275
Interest expense (d) 3,039 4,008
Unusual items (78)(g) 16,494(h)
-------- -------
550,463 496,578
-------- -------
Income (loss) from continuing operations before income taxes 38,322 5,334
Income taxes 14,269 3,917
-------- -------
Income (loss) from continuing operations (a)(b)(c) 24,053 1,417
Income from discontinued Energy segment operations (b) - 37,218
-------- -------
Net income (loss) before extraordinary item and cumulative effect of accounting changes 24,053 38,635
Extraordinary item - prepayment premium on extinguishment of debt (net of tax) - -
Cumulative effect of accounting changes - -
-------- -------
Net income (loss) $ 24,053 $38,635
Share Data:
Diluted earnings (loss) per share:
Continuing operations (a)(b)(c) $ 1.80 $ .09
Discontinued Energy segment operations (b) - 2.38
-------- -------
Before extraordinary item and cumulative effect of accounting changes 1.80 2.47
Net income (loss) 1.80 2.47
Equity per share 14.00 12.74
Cash dividends declared per share .18 .16
Weighted average common shares outstanding during the period 12,916 15,524
Shares used to compute diluted earnings (loss) per share
during the period 13,370 15,614
Shares outstanding at end of period 12,176 13,488
Closing market price per share:
High 23.17 12.42
Low 11.58 9.33
End of year 21.50 11.58
Total return to shareholders (m) 87.2% 17.4%
Financial Position and Other Data:
Total assets 314,052 318,345
Working capital excluding cash and cash equivalents 54,504 53,087
Ending consolidated capital employed (n) 203,376 200,842
Current ratio 1.8:1 1.9:1
Cash and cash equivalents 2,145 9,036
Capital employed of divested and discontinued operations
(Molded Products, Brudi and the Energy segment) (b)(n) 60,144 59,267
Debt 35,000 38,000
Shareholders' equity (net book value) 170,521 171,878
Equity market capitalization (o) 261,784 156,236
Net debt (cash) (debt less cash and cash equivalents)
as a % of net capitalization 16.2% 14.4%
Other financial data excluding unusual items,
technology-related investment activities
and divested and discontinued operations (a)(b)(c):
Net sales 472,709 396,738
EBITDA (p) 56,283 45,684
Depreciation 17,553 17,089
Amortization of intangibles 26 463
Capital expenditures 17,778 11,985
Acquisitions 3,637 -
Ending capital employed (n) 139,822 138,625
Average capital employed (n) 139,224 152,130
Unleveraged after-tax earnings (q) 24,498 17,603
Return on average capital employed (r) 17.6% 11.6%
EBITDA as % of net sales 11.9% 11.5%
Effective income tax rate (excluding the effects
of tax-exempt interest income) 36.6% 37.1%
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31 1993 1992 1991 1990
-------- -------- -------- ---------
(In thousands, except per-share data)
<S> <C> <C> <C> <C>
Results of Operations (a)(b)(c):
Net sales $449,208 $445,229 $439,186 $505,884
Other income (expense), net (387) 226 745 861
-------- -------- -------- ---------
448,821 445,455 439,931 506,745
-------- -------- -------- ---------
Cost of goods sold 379,286 370,652 373,429 450,843
Selling, general and administrative expenses 47,973 48,130 49,764 54,457
Research and development expenses 9,141 5,026 4,541 4,850
Interest expense (d) 5,044 5,615 7,489 7,101
Unusual items 452(i) 90(j) 721(k) 32,915(l)
-------- -------- -------- ---------
441,896 429,513 435,944 550,166
-------- -------- -------- ---------
Income (loss) from continuing operations before income taxes 6,925 15,942 3,987 (43,421)
Income taxes 3,202 6,425 1,468 (14,734)
-------- -------- -------- ---------
Income (loss) from continuing operations (a)(b)(c) 3,723 9,517 2,519 (28,687)
Income from discontinued Energy segment operations (b) 6,784 5,795 3,104 4,001
-------- -------- -------- ---------
Net income (loss) before extraordinary item and
cumulative effect of accounting changes 10,507 15,312 5,623 (24,686)
Extraordinary item - prepayment premium on
extinguishment of debt (net of tax) (1,115) - - -
Cumulative effect of accounting changes 150 - - -
-------- -------- -------- ---------
Net income (loss) $ 9,542 $ 15,312 $ 5,623 $(24,686)
Share Data:
Diluted earnings (loss) per share:
Continuing operations (a)(b)(c) $ .23 $ .58 $ .15 $ (1.69)
Discontinued Energy segment operations (b) .41 .35 .19 .24
-------- -------- -------- ---------
Before extraordinary item and cumulative
effect of accounting changes .64 .93 .34 (1.45)
Net income (loss) .58 .93 .34 (1.45)
Equity per share 10.35 9.94 9.19 9.01
Cash dividends declared per share .16 .16 .16 .16
Weighted average common shares outstanding during the period 16,343 16,341 16,341 16,944
Shares used to compute diluted earnings (loss) per share
during the period 16,394 16,392 16,341 16,944
Shares outstanding at end of period 16,343 16,341 16,341 16,341
Closing market price per share:
High 12.00 12.42 7.17 10.50
Low 8.33 6.67 4.25 4.67
End of year 10.00 10.33 6.67 4.92
Total return to shareholders (m) (1.7)% 57.4% 38.8% (52.0)%
Financial Position and Other Data:
Total assets 353,383 354,910 335,415 339,114
Working capital excluding cash and cash equivalents 62,064 56,365 60,341 70,890
Ending consolidated capital employed (n) 266,088 263,897 249,723 244,971
Current ratio 2.1:1 2.0:1 2.1:1 2.2:1
Cash and cash equivalents - - 500 2,290
Capital employed of divested and discontinued operations
(Molded Products, Brudi and the Energy segment) (b)(n) 98,903 96,830 92,365 82,502
Debt 97,000 101,500 100,000 100,000
Shareholders' equity (net book value) 169,088 162,397 150,223 147,261
Equity market capitalization (o) 163,430 168,857 108,940 80,398
Net debt (cash) (debt less cash and cash equivalents)
as a % of net capitalization 36.5% 38.5% 39.8% 39.9%
Other financial data excluding unusual items,
technology-related investment activities and
divested and discontinued operations (a)(b)(c):
Net sales 356,750 344,296 337,151 370,052
EBITDA (p) 31,734 36,334 36,203 24,171
Depreciation 17,550 16,373 16,566 15,361
Amortization of intangibles 1,712 3 3 3
Capital expenditures 12,729 17,431 18,072 25,701
Acquisitions - 13,884 - -
Ending capital employed (n) 165,635 163,117 154,208 161,719
Average capital employed (n) 164,376 158,663 157,964 167,064
Unleveraged after-tax earnings (q) 7,544 12,558 12,397 5,740
Return on average capital employed (r) 4.6% 7.9% 7.8% 3.4%
EBITDA as % of net sales 8.9% 10.6% 10.7% 6.5%
Effective income tax rate (excluding the
effects of tax-exempt interest income) 39.5% 36.7% 36.3% -
</TABLE>
Refer to Notes to Financial Tables on page 32.
19
<PAGE>
SEGMENT TABLES
Tredegar Industries, Inc., and Subsidiaries
Net Sales
<TABLE>
<CAPTION>
Segment 1997 1996 1995 1994 1993 1992 1991 1990
-------- -------- --------- ---------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Film Products and Fiberlux $309,458 $267,870 $249,099 $200,151 $187,291 $193,772 $193,753 $176,705
Aluminum Extrusions 266,585 219,044 221,657 193,870 166,465 150,524 143,398 193,347
Technology:
Molecumetics 2,583 36 - 200 - - - -
Other 2,378 2,090 1,953 2,517 2,994 - - -
-------- -------- --------- ---------- -------- -------- -------- --------
Total ongoing operations (s)(u) 581,004 489,040 472,709 396,738 356,750 344,296 337,151 370,052
Divested operations (b):
Molded Products - 21,131 84,911 76,579 68,233 80,834 87,860 107,995
Brudi and plant shut down and
business held for sale in 1990 - 13,380 31,834 28,891 24,225 20,099 14,175 27,837
-------- -------- --------- ---------- -------- -------- -------- --------
Total $581,004 $523,551 $589,454 $502,208 $449,208 $445,229 $439,186 $505,884
<CAPTION>
Operating Profit
Segment 1997 1996 1995 1994 1993 1992 1991 1990
-------- -------- --------- ---------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Film Products and Fiberlux (u):
Ongoing operations $51,308 $44,378 $36,471 $35,676 $22,877 $26,573 $32,945 $20,311
Unusual items - 680(f) 1,750(g) - (1,815)(i) - 2,797(k) -
-------- -------- --------- ---------- -------- -------- -------- --------
51,308 45,058 38,221 35,676 21,062 26,573 35,742 20,311
Aluminum Extrusions:
Ongoing operations 32,057 23,371 16,777 11,311 7,964 4,180 (4,247) (1,713)
Unusual items - - - - - - - (30,084)(l)
-------- -------- --------- ---------- -------- -------- -------- --------
32,057 23,371 16,777 11,311 7,964 4,180 (4,247) (31,797)
Technology:
Molecumetics (4,488) (6,564) (4,769) (3,534) (3,324) (1,031) - -
Investments and other (t) 13,613 2,021 (1,261) (5,354) (6,380) (834) - -
Unusual items - - (1,672)(g) (9,521)(h) 2,263(i) 1,092(j) - -
-------- -------- --------- ---------- -------- -------- -------- --------
9,125 (4,543) (7,702) (18,409) (7,441) (773) - -
Divested operations (b):
Molded Products - 1,011 2,718 (2,484) (228) 1,176 (9,307) (8,908)
Brudi and plant shut down and
business held for sale in 1990 - 231 222 (356) 177 513 1,870 (3,304)
Unusual items 2,250(e) 10,747(f) - (6,973)(h) - (1,182)(j) (3,518)(k) (2,831)(l)
-------- -------- ------- -------- -------- -------- -------- --------
2,250 11,989 2,940 (9,813) (51) 507 (10,955) (15,043)
-------- -------- --------- ---------- -------- -------- -------- --------
Total operating profit (loss) 94,740 75,875 50,236 18,765 21,534 30,487 20,540 (26,529)
Interest income (v) 4,959 2,956 333 544 - - - -
Interest expense (d) 1,952 2,176 3,039 4,008 5,044 5,615 7,489 7,101
Corporate expenses, net 7,581 7,660 9,208 9,967 9,565(i) 8,930 9,064 9,791
-------- -------- --------- --------- - -------- ------- ------- --------
Income (loss) from continuing
operations before income taxes 90,166 68,995 38,322 5,334 6,925 15,942 3,987 (43,421)
Income taxes 31,720 23,960 14,269 3,917 3,202 6,425 1,468 (14,734)
-------- -------- --------- ---------- -------- -------- -------- --------
Income (loss) from continuing
operations (a) 58,446 45,035 24,053 1,417 3,723 9,517 2,519 (28,687)
Income from discontinued Energy
segment operations (b) - - - 37,218 6,784 5,795 3,104 4,001
-------- -------- --------- ---------- -------- -------- -------- ---------
Net income (loss) before
extraordinary item and cumulative
effect of accounting changes $58,446 $45,035 $24,053 $38,635 $10,507 $15,312 $5,623 $(24,686)
</TABLE>
Refer to Notes to Financial Tables on page 32.
20
<PAGE>
Identifiable Assets
<TABLE>
<CAPTION>
Segment 1997 1996 1995 1994 1993 1992 1991 1990
--------- -------- -------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Film Products and Fiberlux (u) $130,499 $122,723 $124,426 $115,310 $116,583 $119,915 $110,630 $ 98,716
Aluminum Extrusions 101,855 83,814 80,955 89,406 89,498 93,365 95,000 116,391
Technology:
Molecumetics 2,550 2,911 2,018 1,536 1,926 1,415 - -
Investments and other (t) 34,611 7,760 5,442 5,780 13,321 15,441 3,334 750
--------- -------- -------- -------- -------- -------- -------- --------
Identifiable assets for ongoing
operations 269,515 217,208 212,841 212,032 221,328 230,136 208,964 215,857
Non-operating assets held for sale - - 6,057 5,018 3,605 4,330 13,600 8,670
General corporate 21,357 22,608 20,326 12,789 12,031 11,745 9,447 6,647
Cash and cash equivalents 120,065 101,261 2,145 9,036 - - 500 2,290
Divested operations (b):
Molded Products - - 44,173 48,932 54,487 50,151 52,132 77,566
Brudi and business
held for sale in 1990 - - 28,510 30,538 30,956 28,744 26,416 5,238
Net assets of discontinued Energy
segment operations (b) - - - - 30,976 29,804 24,356 22,846
--------- -------- -------- -------- -------- -------- -------- --------
Total $410,937 $341,077 $314,052 $318,345 $353,383 $354,910 $335,415 $339,114
<CAPTION>
Depreciation and Amortization
Segment 1997 1996 1995 1994 1993 1992 1991 1990
-------- -------- ------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Film Products and Fiberlux $11,462 $11,769 $10,343 $9,741 $10,026 $ 8,580 $ 7,847 $ 5,644
Aluminum Extrusions 5,508 5,407 5,966 5,948 6,240 7,093 8,033 9,153
Technology:
Molecumetics 996 780 592 573 443 - - -
Investments and other (t) 135 161 197 720 1,868 - - -
--------- -------- -------- -------- -------- -------- -------- --------
Subtotal 18,101 18,117 17,098 16,982 18,577 15,673 15,880 14,797
General corporate 313 390 481 570 685 703 689 567
--------- -------- -------- -------- -------- -------- -------- --------
Total ongoing operations 18,414 18,507 17,579 17,552 19,262 16,376 16,569 15,364
Divested operations (b):
Molded Products - 1,261 5,055 5,956 5,289 5,416 7,835 7,958
Brudi and plant shut down and
business held for sale in 1990 - 550 1,201 1,337 1,272 1,085 798 1,083
--------- -------- -------- -------- -------- -------- -------- --------
Total $18,414 $20,318 $23,835 $24,845 $25,823 $22,877 $25,202 $24,405
</TABLE>
Refer to Notes to Financial Tables on page 32.
21
<PAGE>
Capital Expenditures, Acquisitions and Investments
<TABLE>
<CAPTION>
Segment 1997 1996 1995 1994 1993 1992 1991 1990
--------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
Film Products and Fiberlux $15,884 $12,349 $11,199 $ 7,126 $ 6,575 $13,214 $10,055 $15,254
Aluminum Extrusions 6,372 8,598 5,454 4,391 1,870 2,487 7,594 9,302
Technology:
Molecumetics 366 1,594 894 178 939 1,414 - -
Other (t) 5 14 - 99 905 - - -
--------- -------- -------- -------- -------- -------- -------- --------
Subtotal 22,627 22,555 17,547 11,794 10,289 17,115 17,649 24,556
General corporate 28 143 231 191 2,440 316 423 1,145
--------- --------- -------- -------- -------- -------- -------- --------
Capital expenditures for ongoing
operations 22,655 22,698 17,778 11,985 12,729 17,431 18,072 25,701
Divested operations (b):
Molded Products - 1,158 6,553 2,988 3,235 2,441 2,897 8,891
Brudi and plant shut down and
business held for sale in 1990 - 104 807 606 516 833 391 207
--------- --------- -------- -------- -------- -------- -------- --------
Total capital expenditures 22,655 23,960 25,138 15,579 16,480 20,705 21,360 34,799
Acquisitions and other investments (t) 34,270 3,138 5,541 1,400 5,699 17,622 25,654 -
--------- --------- -------- -------- -------- -------- -------- --------
Total capital expenditures,
acquisitions and investments $56,925 $27,098 $30,679 $16,979 $22,179 $38,327 $47,014 $34,799
</TABLE>
Refer to Notes to Financial Tables on page 32.
Net Sales by Segment
$ Millions
[GRAPH]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 1991 1992 1993 1994 1995 1996 1997
FILM PRODUCTS AND FIBERLUX 176.7 193.8 193.8 187.3 200.2 249.1 267.9 309.5
ALUMINUM EXTRUSIONS 193.3 143.4 150.5 166.5 193.9 221.7 219.0 266.6
TECHNOLOGY - - - 3.0 2.7 2.0 2.1 5.0
----- ----- ----- ----- ----- ----- ----- -----
370.1 337.2 344.3 356.8 396.7 472.7 489.0 581.0
</TABLE>
Operating Profit by Segment
$ Millions
[GRAPH]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 1991 1992 1993 1994 1995 1996 1997
FILM PRODUCTS AND FIBERLUX 20.3 35.7 26.6 21.1 35.7 38.2 45.1 51.3
ALUMINUM EXTRUSIONS (31.8) (4.2) 4.2 8.0 11.3 16.8 23.4 32.1
TECHNOLOGY - - (0.8) (7.4) (18.4) (7.7) (4.5) 9.1
----- ----- ----- ----- ----- ----- ----- -----
(11.5) 31.5 30.0 21.6 28.6 47.3 63.9 92.5
</TABLE>
Identifiable Assets by Segment
$ Millions
[GRAPH]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 1991 1992 1993 1994 1995 1996 1997
FILM PRODUCTS AND FIBERLUX 98.7 110.6 119.9 116.6 115.3 124.4 122.7 130.5
ALUMINUM EXTRUSIONS 116.4 95.0 93.4 89.5 89.4 81.0 83.8 101.9
TECHNOLOGY 0.8 3.3 16.9 15.2 7.3 7.5 10.7 37.2
----- ----- ----- ----- ----- ----- ----- -----
215.9 209.0 230.1 221.3 212.0 212.8 217.2 269.5
</TABLE>
Depreciation and Amortization by Segment
$ Millions
[GRAPH]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 1991 1992 1993 1994 1995 1996 1997
FILM PRODUCTS AND FIBERLUX 5.6 7.8 8.6 10.0 9.7 10.3 11.8 11.5
ALUMINUM EXTRUSIONS 9.2 8.0 7.1 6.2 5.9 6.0 5.4 5.5
TECHNOLOGY - - - 2.3 1.3 0.8 0.9 1.1
----- ----- ----- ----- ----- ----- ----- -----
14.8 15.9 15.7 18.6 17.0 17.1 18.1 18.1
</TABLE>
Capital Expenditures by Segment
$ Millions
[GRAPH]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 1991 1992 1993 1994 1995 1996 1997
FILM PRODUCTS AND FIBERLUX 15.3 10.1 13.2 6.6 7.1 11.2 12.3 15.9
ALUMINUM EXTRUSIONS 9.3 7.6 2.5 1.9 4.4 5.5 8.6 6.4
TECHNOLOGY - - 1.4 1.8 0.3 0.9 1.6 0.4
----- ----- ----- ----- ----- ----- ----- -----
24.6 17.6 17.1 10.3 11.8 17.5 22.6 22.6
</TABLE>
22
<PAGE>
SHAREHOLDER VALUE
Tredegar's primary objective is to enhance shareholder value. The ultimate
measure of value creation is total return on common stock. During 1997, 1996 and
1995, the total return on Tredegar's common stock was 65.0%, 87.8% and 87.2%,
respectively. This compares favorably to the total return for the S&P SmallCap
600(R) Index, which includes Tredegar.
Key operational value drivers affecting total return include sales growth
rate, operating profit margin, income tax rate and fixed and working capital
investment. Tredegar attributes its favorable total return in 1997, 1996 and
1995 primarily to an increase in profits and cash flow in Film Products and
Aluminum Extrusions, research partnerships at Molecumetics, realized net gains
from technology-related investments, the divestiture of non-strategic businesses
(Molded Products and Brudi in 1996 and Tredegar's former energy businesses in
1994), accretion in earnings per share due to stock repurchases, and the
elimination of operating losses in APPX Software (see Note 19 on page 50
regarding the divestiture of APPX Software in early 1998).
Tredegar's value creation efforts also link pay to performance, primarily
through the issuance of bonuses and stock options. The charts on this page
depict the relationship between CEO pay, incentives and selected performance
measures. Additional information on compensation paid to Mr. Gottwald is
included in Tredegar's 1998 proxy statement.
In addition to cash compensation, Mr. Gottwald was granted the following
stock options:
Number Per-Share
Year of Options Exercise Price
1989 47,850 $11.14
1992 45,000 8.09
1994 33,750 10.09
22,500 16.00
1995 22,500 12.50
1996 12,000 25.13
6,000 29.00
1997 11,000 49.63
11,000 63.00
The per-share exercise price of the stock options was equal to or greater than
the market price of Tredegar common stock on the date of grant.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
BASED ON INVESTMENT OF $100 DOLLARS BEGINNING DECEMBER 31, 1990
INCLUDES REINVESTMENT OF DIVIDENDS
DOLLARS
SOURCE: MEDIA GENERAL FINANCIAL SERVICES
FISCAL YEAR ENDING
- -----------------------------------------------------------------------------------------------------------------
COMPANY 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TREDEGAR INDUSTRIES 100.00 139.21 219.24 215.68 253.58 475.55 894.58 1,477.55
PEER GROUP (S&P Industry
Group 355 - Manufac-
turing Diversified) 100.00 122.58 132.87 161.30 166.96 235.10 323.99 385.82
S&P 500 INDEX 100.00 130.48 140.46 154.62 156.66 215.54 265.03 353.45
S&P SMALLCAP 600 100.00 148.49 179.74 213.50 203.31 264.23 320.56 402.57
Tredegar is included in the SmallCap 600.
</TABLE>
Total Cash Compensation
John D. Gottwald
President and CEO
($ Thousands)
Salary Bonus Total
1990 $282,500 $0 $282,500
1991 $293,750 $30,000 $323,750
1992 $308,500 $75,000 $383,500
1993 $322,500 $42,500 $365,000
1994 $333,000 $90,000 $423,000
1995 $333,000 $125,000 $458,000
1996 $347,167 $140,000 $487,167
1997 $350,000 $140,000 $490,000
RETURN ON CAPITAL EMPLOYED
ONGOING OPERATIONS EXCLUDING
UNUSUAL ITEMS AND TECHNOLOGY-RELATED
INVESTMENT ACTIVITIES
PERCENT
'90 '91 '92 '93 '94 '95 '96 '97
3.4 7.8 7.9 4.6 11.6 17.6 24.2 30.9
23
<PAGE>
RESULTS OF OPERATIONS
1997 SUMMARY
Net income in 1997 was $58.4 million or $4.43 per share, compared with $45
million or $3.44 per share in 1996. Results for both years include unusual
income (net) and technology-related investment gains (net) that affect
comparability between periods. Excluding the after-tax effects of these items,
which are described in the next two sections of this report, net income in 1997
was $48.1 million or $3.65 per share, up significantly from $35.2 million or
$2.69 per share in 1996. This increase was due primarily to higher volume and
efficiencies in Film Products and Aluminum Extrusions and higher contract
research revenues supporting research and development projects at Molecumetics.
On May 30, 1997, an affiliate of Tredegar's William L. Bonnell subsidiary
acquired an aluminum extrusion and fabrication plant in El Campo, Texas, from
Reynolds Metals Company. For further information on this acquisition, see the
Aluminum Extrusions business segment review on page 29. See also Note 19 on page
50 for recent events occurring in early 1998, including the announcement of a
"Dutch auction" self-tender offer for up to 1,250,000 shares of Tredegar's
common stock at prices ranging from $58.00 to $65.00 per share, the divestiture
of APPX Software and the acquisition of two former Reynolds Metals plants in
Canada.
Unusual Items
Unusual income affecting operations in 1997 included a second-quarter gain
of $2.3 million ($1.4 million after income taxes) related to the redemption of
preferred stock received in connection with the 1996 divestiture of Molded
Products. Unusual income (net) affecting operations in 1996 totaled $11.4
million ($8.5 million after income taxes) and included:
o A third-quarter gain of $2 million ($1.2 million after taxes) on the sale of
a former plastic films manufacturing site in Fremont, California
o A third-quarter charge of $1.3 million ($795,000 after taxes) related to the
write-off of specialized machinery and equipment due to excess capacity in
certain industrial packaging films
o A first-quarter gain of $19.9 million ($13.7 million after taxes) on the sale
of Molded Products for cash consideration of $57.5 million ($54 million after
transaction costs)
o A first-quarter charge of $9.1 million ($5.7 million after taxes) related to
the loss on the divestiture of Brudi for cash consideration of approximately
$18.1 million ($17.6 million after transaction costs)
Technology-Related Investment Gains and Losses
Net gains realized from technology-related investment activities totaled
$13.9 million ($8.9 million after income taxes) in 1997 and $2.1 million ($1.4
million after income taxes) in 1996. These gains are included in "Other income
(expense), net" in the consolidated statements of income on page 35 and
"Investments and other" in the operating profit table on page 20. Further
information on Tredegar's technology-related investments is provided in Note 6
on page 42.
1997 VERSUS 1996
Revenues
Excluding the effects of the Molded Products and Brudi divestitures, net
sales increased 18.8% in 1997 due primarily to higher sales in Film Products and
Aluminum Extrusions. The increase 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
the aluminum extrusion and fabrication facility in El Campo, Texas. Contract
research revenues at Molecumetics also increased. For further discussion, see
the business segment review on pages 27-30.
Operating Costs and Expenses
The gross profit margin increased to 21.2% in 1997 from 20.3% in 1996 due
primarily to higher volume and efficiencies in Film Products (particularly
nonwoven film laminates) and Aluminum Extrusions, and contract research revenues
supporting research and development projects at Molecumetics.
Selling, general and administrative expenses decreased by $2.7 million or
6.8% due primarily to the Molded Products and Brudi divestitures and lower
corporate overhead, partially offset by higher selling, general and
administrative expenses supporting higher sales at Film Products and Aluminum
Extrusions (including the acquisition of the El Campo facility). Selling,
general and administrative expenses, as a percentage of sales, declined to 6.4%
in 1997 compared with 7.6% in 1996.
Research and development expenses increased by $2.1 million or 19% due to
higher product development spending at Film Products and higher spending at
Molecumetics.
Unusual income of $2.3 million in 1997 is explained above.
24
<PAGE>
Interest Income and Expense
Interest income, which is included in "Other income (expense), net" in the
consolidated statements of income, increased to $5 million in 1997 from $3
million in 1996 due to the investment of divestiture proceeds for a full year
and 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 policy are safety of principal and liquidity.
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 9
on page 43). The average interest rate on debt was 7.2% in 1997 and 1996 (all
fixed-rate debt). Average consolidated debt outstanding during 1997 declined to
$32.3 million from $35 million in 1996.
Income Taxes
The effective tax rate increased to 35.2% from 34.7% due primarily to
slightly lower income on export sales in the tax-advantaged Foreign Sales
Corporation relative to significantly higher consolidated pre-tax income, and a
higher effective state income tax rate due to an increase in income in states
with higher tax rates. See Note 15 on page 48 for additional tax rate
information.
1996 VERSUS 1995
Revenues
Net sales decreased by 11.2% due to the divestitures of Molded Products and
Brudi and lower selling prices (reflecting lower average raw material costs),
partially offset by higher volume in Film Products and Aluminum Extrusions.
Excluding Molded Products and Brudi, net sales in 1996 increased by 3.5% over
1995. For further discussion, see the business segment review on pages 27-30.
Operating Costs and Expenses
The gross profit margin increased to 20.3% in 1996 from 16.8% in 1995 due
primarily to higher volume in ongoing manufacturing businesses and lower raw
material costs per unit, partially offset by start-up costs associated with
nonwoven film laminate production. Cost reductions and quality improvements in
Aluminum Extrusions also contributed to the increase but were partially offset
by the unfavorable impact of press shutdowns associated with a modernization
project at the Newnan, Georgia, plant.
Selling, general and administrative expenses decreased by $8.5 million or
17.6% due mainly to the divestitures of Molded Products and Brudi, cost
reductions at APPX Software, lower expenses for stock appreciation rights (down
almost $1 million due to appreciation limitations) and the write-off in 1995 of
a medical technology investment ($694,000), partially offset by selling, general
and administrative expenses from the films business acquired in Argentina in
March 1995. Selling, general and administrative expenses, as a percentage of
sales, declined to 7.6% in 1996 compared with 8.2% in 1995.
Research and development expenses increased by $2.3 million or 26.3% due to
higher spending at Molecumetics and higher product development spending at Film
Products.
Unusual income (net) totaling $11.4 million in 1996 is explained on page
24.
Interest Income and Expense
Interest income increased to $3 million in 1996 from $333,000 in 1995 due
to the investment of divestiture proceeds and cash generated from operations.
The average tax-equivalent yield earned on cash equivalents was 5.5% in 1996 and
5.9% in 1995.
Interest expense declined due to higher capitalized interest from an
increase in capital expenditures for ongoing operations, lower revolving credit
facility fees and lower average debt outstanding. The average interest rate on
debt was 7.2% in 1996 and 1995 (primarily fixed-rate debt). Average consolidated
debt outstanding during 1996 declined to $35 million from $38.3 million in 1995.
Income Taxes
The effective tax rate declined to 34.7% during 1996 from 37.2% in 1995 due
primarily to a lower effective state income tax rate from proportionally higher
domestic income in states with lower tax rates and proportionally higher foreign
income that is exempt from state income taxes, tax-exempt interest income and
higher income on export sales in the tax-advantaged Foreign Sales Corporation,
partially offset by lower research and development tax credits. See Note 15 on
page 48 for additional tax rate information.
25
<PAGE>
FINANCIAL CONDITION
ASSETS
Total assets increased to $410.9 million at December 31, 1997, from $341.1
million at December 31, 1996, due mainly to an increase in technology-related
investments and unrealized appreciation on available-for-sale securities (see
Note 6 on page 42); an increase in cash and cash equivalents (see further
discussion under cash flows below); the acquisition of the aluminum extrusion
and fabrication plant in El Campo, Texas; capital expenditures in excess of
depreciation; and higher accounts receivable supporting higher sales. At
December 31, 1997 and 1996, Tredegar had cash and cash equivalents of $120.1
million and $101.3 million, respectively, which exceeded debt by $90.1 million
and $66.3 million, respectively. See the business segment review on pages 27-30
for further discussion of capital expenditures, acquisitions and investments.
Also, see Note 19 on page 50 for recent events occurring in early 1998,
including the announcement of a "Dutch auction" self-tender offer for up to
1,250,000 shares of Tredegar's common stock at prices ranging from $58.00 to
$65.00 per share, the divestiture of APPX Software and the acquisition of two
aluminum extrusion and fabrication plants in Canada.
LIABILITIES
Total liabilities increased to $138.4 million at December 31, 1997, from
$128.5 million at December 31, 1996, due primarily to the plant acquisition in
El Campo, Texas, and higher accounts payable and accrued expenses (including
deferred contract research revenues) supporting higher sales.
Debt outstanding consisted of a note payable with a remaining balance at
December 31, 1997 and 1996, of $30 million and $35 million, respectively.
Interest is payable on the note semi-annually at 7.2% per year. Annual principal
payments of $5 million are due each June through 2003 (the $5 million due in
June 1998 has been classified as long-term in accordance with Tredegar's ability
to refinance such obligation on a long-term basis). Tredegar also has a
revolving credit facility that permits borrowings of up to $275 million (no
amounts borrowed at December 31, 1997 and 1996). The facility matures on July 9,
2002, with an annual extension of one year permitted subject to the approval of
participating banks. See Note 9 on page 43 for further information on debt and
credit agreements.
SHAREHOLDERS' EQUITY
At December 31, 1997, Tredegar had 12,371,245 shares of common stock
outstanding and a total market capitalization of $814.9 million, compared with
12,238,053 shares outstanding at December 31, 1996, and a total market capitali-
zation of $491.1 million.
During 1997 and 1996, Tredegar purchased 55,663 and 68,947 shares,
respectively, of its common stock for $2.5 million ($45.46 per share) and $2
million ($29.50 per share), respectively. Since becoming an independent company
in 1989, Tredegar has purchased a total of 6.2 million shares, or 33% of its
issued and outstanding common stock, for $78.7 million ($12.71 per share). See
Note 19 on page 50 for information on the "Dutch auction" self-tender offer
announced on January 14, 1998. Under a standing authorization from its board of
directors, Tredegar may purchase (after expiration of the "Dutch auction") an
additional 885,000 shares in the open market or in privately negotiated
transactions at prices management deems appropriate.
CASH FLOWS
Net cash provided by operating activities in excess of capital expenditures
and dividends increased to $39.5 million in 1997 from $18.1 million in 1996 due
primarily to improved operating results, lower capital expenditures in Aluminum
Extrusions due to the completion of the modernization project at the Newnan
plant 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), partially offset by income taxes paid on
technology-related net investment gains and higher capital expenditures in Film
Products reflecting normal replacement of machinery and equipment and permeable
film additions, including expansion into China and Poland.
The increase in cash and cash equivalents to $120.1 million at December 31,
1997, from $101.3 million at December 31, 1996, was due to the $39.5 million of
excess cash generated during 1997 combined with additional proceeds related to
the Molded Products divestiture ($2.3 million) and other sources ($3.7 million,
primarily proceeds and income tax benefits from the exercise of stock options);
partially offset by funds used to acquire the aluminum extrusion and fabrication
plant in El Campo, Texas ($13.5 million); an annual debt principal payment in
June 1997 ($5 million); uses of funds for technology-related investments ($5.7
million, net of proceeds from the sale of investments) and the repurchase of
Tredegar common stock ($2.5 million).
<TABLE>
<CAPTION>
ONGOING EBITDA* AND CAPITAL EXPENDITURES
$ MILLIONS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
'90 '91 '92 '93 '94 '95 '96 '97
EBITDA* 24.2 36.2 36.3 31.7 45.7 56.3 71.9 89.4
CAPITAL EXPENDITURES 25.7 18.1 17.4 12.7 12 17.8 22.7 22.7
</TABLE>
*Earnings before interest, taxes, depreciation, amortization, unusual items,
technology-related investment gains/losses, and divested and discontinued
operations.
26
<PAGE>
Net cash provided by operating activities in excess of capital expenditures
and dividends decreased to $18.1 million in 1996 from $22.2 million in 1995 due
primarily to higher working capital for ongoing operations to support higher
sales volume and income taxes paid on net gains realized from divestitures,
property disposals and the sale of a technology-related investment.
The significant increase in cash and cash equivalents to $101.3 million at
December 31, 1996, from $2.1 million at December 31, 1995, was due to the $18.1
million of excess cash generated during 1996 combined with the proceeds from the
divestitures of Molded Products and Brudi ($71.6 million after transaction
costs); property disposals ($9.9 million) and other sources ($2.1 million);
partially offset by uses of funds for technology-related investments ($500,000,
net of proceeds from the sale of an investment) and the repurchase of Tredegar
common stock ($2 million). Property disposals included the former plastic films
site in Fremont, California; a former aluminum extrusion and fabrication site in
Mechanicsburg, Pennsylvania; a former Brudi plant in Kelso, Washington; and a
former Molded Products plant in Alsip, Illinois.
Net cash provided by continuing operating activities in excess of capital
expenditures and dividends increased to $22.2 million in 1995 from $21 million
in 1994 due primarily to improved operating results, partially offset by higher
capital expenditures. This excess cash, combined with the $9 million cash and
cash equivalents balance at December 31, 1994, and cash from property disposals
and other sources ($4.9 million), was used to fund a films acquisition in
Argentina ($3.6 million); share repurchases ($25.5 million); technology-related
investments ($1.9 million); and the repayment of borrowings ($3 million),
leaving $2.1 million of cash and cash equivalents at December 31, 1995.
Normal operating cash requirements over the next 3 to 5 years are
expected to be met from ongoing operations. Excess cash will be invested on a
short-term basis, with the primary objectives of safety of principal and
liquidity, until other opportunities in existing businesses or elsewhere are
identified. See Note 19 on page 50 for recent events occurring in early 1998
affecting the balance of cash and cash equivalents.
OTHER
The Financial Accounting Standards Board has issued new standards affecting
disclosures of information about comprehensive income and business segments.
These standards are not expected to significantly change Tredegar's current
disclosures when adopted in 1998.
BUSINESS SEGMENT REVIEW
FILM PRODUCTS AND FIBERLUX
Film Products manufactures plastic films for disposable personal products
(primarily feminine hygiene and diaper products) and packaging, medical,
industrial and agricultural products. Fiberlux produces vinyl extrusions for
windows and patio doors. Products are produced at various locations throughout
the United States and are sold both directly and through distributors. Film
Products also has plants in the Netherlands, Brazil and Argentina, where it
produces films primarily for the European and Latin American markets. During
1998, Film Products expects to begin operating a production facility currently
under construction near Guangzhou, China, and expects to begin construction of a
production site in or near Warsaw, Poland. The Poland facility should be
operational in 1999. Both sites will produce disposable permeable films for
feminine hygiene products marketed in China and Eastern Europe, respectively.
Film Products is one of the largest U.S. suppliers of permeable and
embossed films for disposable personal products. In each of the last three
years, this class of products accounted for more than 35% of the consolidated
revenues of Tredegar.
Film Products supplies permeable films for use as liners in feminine
hygiene products, adult incontinent products and hospital underpads. Film
Products also supplies embossed films and nonwoven film laminates for use as
backsheet in such disposable products as baby diapers and adult incontinent
products, feminine hygiene products and hospital underpads. Film Products'
primary customer for permeable films, embossed films and nonwoven film laminates
is The Procter & Gamble Company ("P&G"), the leading global disposable diaper
manufacturer.
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 business associated with P&G would have a material
adverse effect on Tredegar's business.
Pages 2-3 and 6-9 provide further information on Film Products and Fiberlux
products and markets.
FILM PRODUCTS AND FIBERLUX SALES
$ MILLIONS
'90 '91 '92 '93 '94 '95 '96 '97
176.7 193.8 193.8 187.3 200.2 249.1 267.9 309.5
FILM PRODUCTS AND FIBERLUX OPERATING PROFIT
EXCLUDING UNUSUAL ITEMS
$ MILLIONS
'90 '91 '92 '93 '94 '95 '96 '97
20.3 32.9 26.6 22.9 35.7 36.5 44.4 51.3
27
<PAGE>
Sales
Film Products sales increased in 1997 due to higher volume of nonwoven film
laminates supplied to P&G for diapers, higher volume of permeable film supplied
to P&G in Europe for feminine pads, higher diaper backsheet and packaging film
volume in South America, and higher selling prices, which reflected higher
average plastic resin costs.
Film Products sales increased in 1996 due mainly to higher volume in North
America, including higher volume of diaper backsheet supplied to P&G; higher
volume of specialty films used for the protection of high-gloss surfaces and
electronic circuit boards; higher volume of Vispore(R) film used in ground cover
applications; higher volume of agricultural commodity films; higher diaper
backsheet and packaging film volume in South America, particularly Argentina;
and higher volume of permeable film supplied to P&G in Europe for feminine pads.
The positive impact on sales of higher volume was partially offset by lower
selling prices, which reflected lower average plastic resin costs.
Fiberlux sales increased slightly in 1997 after declining in 1996 due to
the divestiture in October 1995 of its fabrication business.
Operating Profit
Film Products operating profit increased in 1997 due mainly to improved
production efficiencies for nonwoven film laminates and higher volume in the
areas noted in the sales discussion above, partially offset by higher new
product development expenses and start-up costs for the new permeable film
production site in China. Film Products operating profit increased in 1996 due
primarily to higher volume in the areas noted in the sales discussion above,
partially offset by start-up costs associated with nonwoven film laminate
production. Fiberlux operating profit declined in 1997 and improved in 1996.
Identifiable Assets
Identifiable assets in Film Products and Fiberlux increased to $130.5
million in 1997 from $122.7 million in 1996 due mainly to Film Products from
higher accounts receivable supporting higher sales, capital expenditures in
excess of depreciation and an increase in prepaid pension expense.
Identifiable assets in Film Products and Fiberlux declined to $122.7
million in 1996 from $124.4 million in 1995 due primarily to the $1.3 million
write-off of specialized machinery and equipment related to excess capacity in
certain industrial packaging films and the removal of deferred costs associated
with the disposal of the former plastic films site in Fremont, California,
partially offset by higher current assets supporting higher sales and capital
expenditures in excess of depreciation.
Depreciation, Amortization
and Capital Expenditures
Depreciation and amortization for Film Products and Fiberlux decreased
slightly to $11.5 million in 1997 from $11.8 million in 1996. Capital expendi-
tures in Film Products and Fiberlux in 1997 reflect the normal replacement of
machinery and equipment and permeable film additions, including the expansion
into China and machinery and equipment purchased for the Poland facility.
Depreciation and amortization for Film Products and Fiberlux increased to
$11.8 million in 1996 from $10.3 million in 1995 due mainly to higher
depreciation of blown and laminating film machinery and equipment. Capital
expenditures in Film Products and Fiberlux in 1996 reflect the normal
replacement of machinery and equipment, new nonwoven film laminate capacity,
expansion of permeable film capacity in Europe and permeable and diaper
backsheet film capacity in Brazil, and the purchase of machinery and equipment
for expansion into China.
FILM PRODUCTS AND FIBERLUX IDENTIFIABLE ASSETS
$ MILLIONS
'90 '91 '92 '93 '94 '95 '96 '97
98.7 110.6 119.9 116.6 115.3 124.4 122.7 130.5
<TABLE>
<CAPTION>
FILM PRODUCTS AND FIBERLUX DEPRECIATION & AMORTIZATION AND CAPITAL EXPENDITURES
$ MILLIONS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
'90 '91 '92 '93 '94 '95 '96 '97
DEPRECIATION & AMORTIZATION 5.6 7.8 8.6 10 9.7 10.3 11.8 11.5
CAPITAL EXPENDITURES 15.3 10.1 13.2 6.6 7.1 11.2 12.3 15.9
</TABLE>
DOMESTIC FILMS VOLUME
DOMESTIC VS. INTERNATIONAL
PERCENTAGE OF TOTAL POUNDS SHIPPED
'90 '91 '92 '93 '94 '95 '96 '97
UNITED STATES & CANADA 79.6 73.9 69 64.5 60.5 54.9 56.9 56.4
INTERNATIONAL 20.4 26.1 31 35.5 39.5 45.1 43.1 43.6
28
<PAGE>
ALUMINUM EXTRUSIONS
Aluminum Extrusions, which is composed of The William L. Bonnell Company,
Inc. ("Bonnell"), Capitol Products Corporation and related entities, produces
soft alloy aluminum extrusions for sale directly to fabricators and distributors
that serve primarily the building and construction industry, as well as
transportation, electrical and consumer durables markets. On May 30, 1997, an
affiliate of Tredegar's Bonnell subsidiary acquired an aluminum extrusion and
fabrication plant in El Campo, Texas, from Reynolds Metals Company. The El Campo
facility, which had sales of $25.7 million for the period May 31 through
December 31, 1997, extrudes and fabricates products used primarily in
transportation, electrical and consumer durables markets. The operating results
for the El Campo facility have been included in Tredegar's consolidated results
since the date acquired.
See Note 19 on page 50 regarding the acquisition in early 1998 of two
aluminum extrusion and fabrication plants in Canada. Pages 2-3 and 10-13 provide
further information on Aluminum Extrusions products and markets.
Sales
Aluminum Extrusions sales in 1997 increased 21.7% due primarily to higher
volume, reflecting continued strength in residential and commercial windows and
curtain walls and higher volume to distributors. The acquisition of the El Campo
facility also had a positive impact on volume. Excluding the acquisition, sales
and volume were up 10% and 12%, respectively, for the year.
Aluminum Extrusions sales in 1996 decreased 1.2% due to lower selling
prices, which reflected lower aluminum costs. Volume in 1996 increased by 5.2%,
driven primarily by strength in residential and commercial windows and
automotive markets.
Operating Profit
Aluminum Extrusions operating profit increased 37.2% in 1997 due to higher
volume, related lower unit conversion costs and the acquisition, partially
offset by expenses associated with repairs to the casting furnaces at the
Newnan, Georgia, plant. Conversion costs also improved due to a modernization
ALUMINUM EXTRUSIONS SALES
$ MILLIONS
'90 '91 '92 '93 '94 '95 '96 '97
193.3 143.4 150.5 166.5 193.9 221.7 219 266.6
ALUMINUM EXTRUSIONS OPERATING PROFIT
EXCLUDING UNUSUAL ITEMS
$ MILLIONS
'90 '91 '92 '93 '94 '95 '96 '97
(1.17) (4.2) 4.2 8 11.3 16.8 23.4 32.1
ALUMINUM EXTRUSIONS DEPRECIATION & AMORTIZATION AND CAPITAL EXPENDITURES
$ MILLIONS
'90 '91 '92 '93 '94 '95 '96 '97
DEPRECIATION & AMORTIZATION 9.2 8 7.1 6.2 5.9 6 5.4 5.5
CAPITAL EXPENDITURES 9.3 7.6 2.5 1.9 4.4 5.5 8.6 6.4
ALUMINUM EXTRUSIONS IDENTIFIABLE ASSETS
$ MILLIONS
'90 '91 '92 '93 '94 '95 '96 '97
116.4 95 93.4 89.5 89.4 81 83.8 101.9
COMMERCIAL CONSTRUCTION
$ BILLIONS
SOURCE: CAHNERS BUILDING AND CONSTRUCTION MARKET FORECAST
'90 '91 '92 '93 '94 '95 '96 '97 '98F
71.7 54.1 44.5 46.9 52.7 74.7 86.7 93.5 92.8
HOUSING STARTS
MILLIONS OF UNITS
SOURCE: BLUE CHIP ECONOMIC INDICATORS
'90 '91 '92 '93 '94 '95 '96 '97 '98F
1.19 1.01 1.2 1.29 1.46 1.35 1.48 1.46 1.42
AUTOMOBILE AND LIGHT TRUCK SALES
MILLIONS OF UNITS
SOURCE: BLUE CHIP ECONOMIC INDICATORS
'90 '91 '92 '93 '94 '95 '96 '97 '98F
14.2 12.7 13.1 14.2 15.5 15.1 15.4 15.1 15
29
<PAGE>
program completed late last year at the Newnan facility. This capital project
cost $4.8 million, most of which was spent in 1996. Improvements in
productivity, scrap rates and sales returns are currently being realized as a
result of this project.
Aluminum Extrusions operating profit increased 39.3% in 1996 due to higher
volume, cost reductions, quality improvements and lower bad debt expenses,
partially offset by the unfavorable impact of press shutdowns at the Newnan
plant for the modernization program.
Identifiable Assets
Identifiable assets in Aluminum Extrusions increased to $101.9 million in
1997 from $83.8 million in 1996 due primarily to the acquisition of the El Campo
facility, higher accounts receivable supporting higher sales and capital
expenditures in excess of depreciation.
Identifiable assets in Aluminum Extrusions increased to $83.8 million in
1996 from $81 million in 1995 due mainly to capital expenditures in excess of
depreciation.
Depreciation, Amortization
and Capital Expenditures
Depreciation and amortization for Aluminum Extrusions increased in 1997 due
to the acquisition of the El Campo facility and the modernization program
completed late last year at the Newnan plant, partially offset by the full
depreciation of certain assets in 1996. Capital expenditures in 1997 reflect the
normal replacement of machinery and equipment and costs capitalized for
rebuilding the casting furnaces at the Newnan plant.
Depreciation and amortization for Aluminum Extrusions declined in 1996 due
to the full depreciation of certain assets in 1995. Capital expenditures in 1996
reflect the normal replacement of machinery and equipment and the modernization
program at the Newnan plant.
TECHNOLOGY
The Technology segment is comprised primarily of Molecumetics, Tredegar
Investments, Inc., and APPX Software. Molecumetics conducts drug discovery and
development research using proprietary chemistry. Tredegar Investments invests
in venture capital funds and early-stage technology companies (see Note 6 on
page 42). APPX Software is a supplier of flexible software development
environments and business applications software. Technology segment sales
consist primarily of contract research revenues at Molecumetics and revenues at
APPX Software. See Note 19 on page 50 regarding the divestiture of APPX Software
in early 1998.
Excluding net investment gains (see Note 6 on page 42), technology segment
losses decreased by $1.9 million in 1997 due to revenues generated at
Molecumetics from drug development partnerships, partially offset by higher
research and development spending. Excluding unusual items and net investment
gains, technology segment losses increased by $1.4 million in 1996. This
increase was due mainly to higher research and development spending at
Molecumetics, partially offset by lower costs at APPX Software due to its
restructuring in the first quarter of 1995.
Technology segment identifiable assets increased $26.5 million to $37.2
million in 1997 due to technology-related investments of $20.8 million and
unrealized appreciation on available-for-sale securities of $7.8 million,
partially offset by the sale of investments, which had a carrying value of $1.2
million, and depreciation in excess of capital expenditures at Molecumetics of
$630,000. Capital expenditures declined and depreciation increased in 1997 at
Molecumetics due to the 1996 expansion of its research lab in Bellevue,
Washington.
Technology segment identifiable assets increased $3.2 million to $10.7
million in 1996 due to technology-related investments of $3.1 million and
capital expenditures in excess of depreciation at Molecumetics of $814,000,
partially offset by the sale of an investment, which had a carrying value of
$500,000. Capital expenditures and depreciation expense increases at
Molecumetics were related to the expansion of its research lab.
30
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
Tredegar Industries, Inc., and Subsidiaries
<TABLE>
<CAPTION>
(In thousands, except per-share amounts) First Second Third Fourth
(Unaudited) Quarter Quarter Quarter Quarter Year
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1997
Net sales $133,345 $144,969 $155,058 $147,632 $581,004
Gross profit 26,385 30,674 32,655 33,344 123,058
Operating profit before unusual items 17,848 24,571 25,174 24,897 92,490
Net income (w) 10,954 16,347 15,137 16,008 58,446
Earnings per share (w):
Basic .89 1.33 1.23 1.30 4.76
Diluted .83 1.25 1.14 1.20 4.43
Shares used to compute earnings per share:
Basic 12,243 12,263 12,306 12,338 12,287
Diluted 13,178 13,129 13,254 13,260 13,178
1996
Net sales $141,387 $126,331 $129,425 $126,408 $523,551
Gross profit 27,653 25,843 26,091 26,694 106,281
Operating profit before unusual items 16,010 15,250 17,627 15,561 64,448
Net income (w) 16,347 8,673 10,735 9,280 45,035
Earnings per share (w):
Basic 1.34 .71 .88 .76 3.69
Diluted 1.27 .66 .82 .70 3.44
Shares used to compute earnings per share:
Basic 12,187 12,216 12,203 12,227 12,208
Diluted 12,877 13,124 13,112 13,192 13,105
</TABLE>
Refer to Notes to Financial Tables on page 32.
<TABLE>
<CAPTION>
QUARTERLY DILUTED EARNINGS PER SHARE
DOLLARS
1996 1997
------------------------- ------------------------------
1 2 3 4 1 2 3 4
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EXCLUDING UNUSUAL ITEMS AND
TECHNOLOGY-RELATED
NET INVESTMENT GAINS .64 .66 .69 .70 .74 .92 .98 1.00
AS REPORTED 1.27 .66 .82 .70 .83 1.25 1.14 1.20
</TABLE>
31
<PAGE>
NOTES TO FINANCIAL TABLES
(In thousands, except per-share amounts)
(a) Income (loss) and diluted earnings (loss) per share from continuing
operations, adjusted for unusual items and technology-related investment gains
and losses affecting the comparability of operating results between years, are
presented below:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990
------- -------- ------- -------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing operations
as reported (b) $58,446 $45,035 $24,053 $1,417 $3,723 $9,517 $2,519 $(28,687)
After-tax effect of unusual items related to
continuing operations:
Unusual (income) charge, net (e-l) (1,440) (8,479) 41 12,051 246 502 447 24,424
Impact on deferred taxes of 1% increase
in federal income tax rate - - - - 348 - - -
------- -------- ------- -------- ------- ------ ------- ------
Income (loss) from continuing operations
as adjusted for unusual items 57,006 36,556 24,094 13,468 4,317 10,019 2,966 (4,263)
After-tax effect of technology-related
investment (gains) losses (c) (8,882) (1,369) 444 - - - - -
------- -------- ------- ------- ------- ------ ------- -------
Income (loss) from continuing operations
as adjusted for unusual items and
technology-related investment gains/losses $48,124 $35,187 $24,538 $13,468 $4,317 $10,019 $2,966 $(4,263)
Diluted earnings (loss) per share from
continuing operations (b)(c):
As reported $ 4.43 $ 3.44 $ 1.80 $ .09 $ .23 $ .58 $ .15 $ (1.69)
As adjusted for unusual items 4.32 2.79 1.80 .86 .26 .61 .18 (.25)
As adjusted for unusual items and technology-
related investment gains/losses 3.65 2.69 1.84 .86 .26 .61 .18 (.25)
</TABLE>
(b) On August 16, 1994, Tredegar completed the divestiture of its coal
subsidiary, The Elk Horn Coal Corporation. On February 4, 1994, Tredegar sold
its remaining oil and gas properties. As a result of these events, Tredegar
reports its Energy segment as discontinued operations. On March 29, 1996,
Tredegar sold Molded Products. During the second quarter of 1996, Tredegar
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. Tredegar began reporting Molded Products and Brudi
separately in its segment disclosures in 1995 after announcing its intent to
divest these businesses.
(c) During 1997 and 1996, Tredegar realized net gains of $13,880 ($8,882 after
income taxes) and $2,139 ($1,369 after income taxes), respectively, on the sale
of technology-related investments. During 1995, Tredegar recognized a charge of
$694 ($444 after income tax benefits) for the write-off of a technology-related
investment. These items are included in "Investments and other" in the operating
profit table on page 20. See Note 6 on page 42 for additional information on
Tredegar's investment activities.
(d) Interest expense has been allocated between continuing and discontinued
operations based on relative capital employed (see (b)).
(e) Unusual items for 1997 includes a gain of $2,250 related to the redemption
of preferred stock received in connection with the 1996 divestiture of Molded
Products (see Note 18 on page 49).
(f) Unusual items for 1996 include a gain on the sale of Molded Products
($19,893, see Note 18 on page 49), a gain on the sale of a former plastic films
manufacturing site in Fremont, California ($1,968), a charge related to the loss
on the divestiture of Brudi ($9,146, see Note 18 on page 49) and a charge
related to the write-off of specialized machinery and equipment due to excess
capacity in certain industrial packaging films ($1,288).
(g) Unusual items in 1995 include a gain on the sale of Regal Cinema shares
($728), a charge related to the restructuring of APPX Software ($2,400) and a
recovery in connection with a Film Products product liability lawsuit ($1,750).
(h) Unusual items in 1994 include the write-off of certain goodwill and
intangibles in APPX Software ($9,521), the write-off of certain goodwill in
Molded Products ($4,873) and the estimated costs related to the closing of a
Molded Products plant in Alsip, Illinois ($2,100).
(i) Unusual items in 1993 include estimated costs related to the sale of a Film
Products plant in Flemington, New Jersey ($1,815), and the reorganization of
corporate functions ($900), partially offset by the gain on the sale of
Tredegar's remaining investment in Emisphere Technologies, Inc. ($2,263).
(j) Unusual items in 1992 include the write-off of certain goodwill in Molded
Products ($1,182), partially offset by the gain on the sale of a portion of an
investment in Emisphere Technologies, Inc. ($1,092).
(k) Unusual items in 1991 include costs related to plant closings in
Molded Products ($4,412) offset by a credit ($2,797) related to management's
decision to continue operating the vinyl extrusions business, and the gain on
the sale of Molded Products' beverage closure business ($894).
(l) Unusual items in 1990 include costs related to divestitures and
reorganization, including results of operations from August 1. Unusual items in
Aluminum Extrusions also includes provisions for environmental review and
cleanup, and costs related to certain legal proceedings for ongoing operations.
(m) 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.
(n) Consolidated capital employed is debt plus shareholders' equity minus cash
and cash equivalents. Capital employed excluding technology-related investments
(see Note 6 on page 42) and divested and discontinued operations (see (b)) is
consolidated capital employed minus the carrying value of technology-related
investments (net of related deferred income taxes) minus the capital employed of
Molded Products, Brudi and the Energy segment.
(o) Equity market capitalization is the closing market price per share for the
period times the shares outstanding at the end of the period.
(p) EBITDA excluding unusual items (see (e)-(l)), technology-related investment
gains/losses (see (c)) and divested and discontinued operations (see (b)) is
income before income taxes from continuing operations plus depreciation and
amortization plus interest expense minus interest income minus/plus unusual
income/charges minus/plus technology-related investment gains/losses minus the
EBITDA (excluding unusual items) for Molded Products and Brudi. EBITDA is not
intended to represent cash flow from operations as defined by generally accepted
accounting principles and should not be considered as an alternative to net
income as an indicator of operating performance or to cash flow as a measure of
liquidity.
32
<PAGE>
(q) Unleveraged after-tax earnings excluding unusual items (see (e)-(l)),
technology-related investment gains/losses (see (c)) and divested and
discontinued operations (see (b)) is net income (loss) from continuing
operations plus after-tax interest expense minus after-tax interest income
minus/plus after-tax unusual income/charges minus/plus after-tax
technology-related investment gains/losses minus the unleveraged after-tax
earnings (excluding unusual items) for Molded Products and Brudi. Unleveraged
after-tax earnings should not be considered as an alternative to net income as
defined by generally accepted accounting principles.
(r) Return on average capital employed is unleveraged after-tax earnings divided
by average capital employed.
(s) Net sales for ongoing operations include sales to P&G totaling $242,229,
$206,926 and $196,047 in 1997, 1996 and 1995, respectively.
(t) Included in the investments and other category of the Technology segment are
APPX Software and technology-related investments in which Tredegar's ownership
is less than 20% (see (c) and Note 6 on page 42).
(u) Export sales for ongoing operations totaled $85,114, $74,891 and $76,551 in
1997, 1996 and 1995, respectively. Substantially all of these export sales were
made by Film Products. Net sales and operating profit in 1997 and identifiable
assets at December 31, 1997, for the foreign operations of Film Products were
$58,257, $5,747 and $29,588, respectively. Net sales and operating profit in
1996 and identifiable assets at December 31, 1996, for the foreign operations of
Film Products were $50,567, $5,113 and $25,924, respectively. The operating
profit of foreign operations includes a deduction for royalties paid to Tredegar
for the use of its technical information, know-how, manufacturing techniques,
engineering data, specifications and other information relating to the
manufacture of film products.
(v) Interest income was insignificant prior to 1994.
(w) Quarterly net income and diluted earnings per share, adjusted for unusual
items and technology-related net investment gains affecting the comparability of
operating results between quarters, are presented below (see also (a), (b) and
(c)):
<TABLE>
<CAPTION>
Excluding Unusual Items and First Second Third Fourth
Technology-Related Net Investment Gains Quarter Quarter Quarter Quarter Year
------- ------- -------- ------- ---------
1997
<S> <C> <C> <C> <C> <C>
Net income $9,748 $12,044 $13,020 $13,313 $48,125
Diluted earnings per share .74 .92 .98 1.00 3.65
1996
Net income $8,288 $ 8,673 $ 8,946 $ 9,280 $35,187
Diluted earnings per share .64 .66 .69 .70 2.69
</TABLE>
33
<PAGE>
INDEPENDENT ACCOUNTANTS' AND MANAGEMENT'S REPORT'S
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Tredegar Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Tredegar
Industries, Inc., and Subsidiaries ("Tredegar") as of December 31, 1997 and
1996, and the related consolidated statements of income, cash flows and
shareholders' equity for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of Tredegar's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Tredegar as of December 31, 1997 and 1996, and the consolidated
results of their operations and cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND L.L.P.
- -----------------------------
Richmond, Virginia
January 14, 1998, except for the information presented in
Note 19, for which the date is February 6, 1998
MANAGEMENT'S REPORT ON THE
FINANCIAL STATEMENTS
Tredegar's management has prepared the financial statements and related
notes appearing on pages 35-50 in conformity with generally accepted accounting
principles. In so doing, management makes informed judgments and estimates of
the expected effects of events and transactions. Financial data appearing
elsewhere in this annual report are consistent with these financial statements.
Tredegar maintains a system of internal controls to provide reasonable, but
not absolute, assurance of the reliability of the financial records and the
protection of assets. The internal control system is supported by written
policies and procedures, careful selection and training of qualified personnel
and an extensive internal audit program.
These financial statements have been audited by Coopers & Lybrand L.L.P.,
independent certified public accountants. Their audit was made in accordance
with generally accepted auditing standards and included a review of Tredegar's
internal accounting controls to the extent considered necessary to determine
audit procedures.
The Audit Committee of the Board of Directors, composed of outside
directors only, meets with management, internal auditors and the independent
accountants to review accounting, auditing and financial reporting matters. The
independent accountants are appointed by the Board on recommendation of the
Audit Committee, subject to shareholder approval.
34
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Tredegar Industries, Inc., and Subsidiaries
<TABLE>
<CAPTION>
Years Ended December 31 1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
(In thousands, except per-share amounts)
Revenues:
Net sales $581,004 $523,551 $589,454
Other income (expense), net 17,015 4,248 (669)
-------- --------- --------
Total 598,019 527,799 588,785
-------- --------- --------
Costs and expenses:
Cost of goods sold 457,946 417,270 490,510
Selling, general and administrative 37,035 39,719 48,229
Research and development 13,170 11,066 8,763
Interest 1,952 2,176 3,039
Unusual items (2,250) (11,427) (78)
-------- --------- --------
Total 507,853 458,804 550,463
-------- --------- --------
Income before income taxes 90,166 68,995 38,322
Income taxes 31,720 23,960 14,269
-------- --------- --------
Net income $ 58,446 $ 45,035 $ 24,053
-------- --------- --------
Earnings per share:
Basic $ 4.76 $ 3.69 $ 1.86
Diluted 4.43 3.44 1.80
</TABLE>
See accompanying Notes to Financial Statements.
35
<PAGE>
CONSOLIDATED BALANCE SHEETS
Tredegar Industries, Inc., and Subsidiaries
<TABLE>
<CAPTION>
December 31 1997 1996
--------- --------
<S> <C> <C>
(In thousands, except share amounts)
Assets
Current assets:
Cash and cash equivalents $120,065 $101,261
Accounts and notes receivable 69,672 61,076
Inventories 20,008 17,658
Income taxes recoverable 294 2,023
Deferred income taxes 8,722 9,484
Prepaid expenses and other 4,369 2,920
--------- --------
Total current assets 223,130 194,422
Property, plant and equipment, at cost:
Land and land improvements 5,001 4,807
Buildings 35,366 32,590
Machinery and equipment 243,628 222,803
--------- --------
Total property, plant and equipment 283,995 260,200
Less accumulated depreciation 183,397 169,771
--------- --------
Net property, plant and equipment 100,598 90,429
Other assets and deferred charges 67,134 36,094
Goodwill and other intangibles 20,075 20,132
--------- --------
Total assets $410,937 $341,077
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 33,168 $ 28,814
Accrued expenses 39,618 32,487
--------- --------
Total current liabilities 72,786 61,301
Long-term debt 30,000 35,000
Deferred income taxes 22,108 16,994
Other noncurrent liabilities 13,497 15,237
--------- --------
Total liabilities 138,391 128,532
Commitments and contingencies (Notes 6, 12, and 17)
Shareholders' equity:
Common stock (no par value):
Authorized 50,000,000 shares;
Issued and outstanding - 12,371,245 shares
in 1997 and 12,238,053 in 1996 115,291 113,019
Common stock held in trust for savings restoration
plan (15,557 shares in 1997) (1,020) -
Unrealized gain on available-for-sale securities 5,020 -
Foreign currency translation adjustment (37) 499
Retained earnings 153,292 99,027
--------- --------
Total shareholders' equity 272,546 212,545
--------- --------
Total liabilities and shareholders' equity $410,937 $341,077
</TABLE>
See accompanying Notes to Financial Statements.
36
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Tredegar Industries, Inc., and Subsidiaries
<TABLE>
<CAPTION>
Years Ended December 31 1997 1996 1995
-------- -------- -------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 58,446 $ 45,035 $24,053
Adjustments for noncash items:
Depreciation 18,364 20,062 23,256
Amortization of intangibles 50 256 579
Write-off of intangibles 7 - 189
Deferred income taxes 3,341 1,771 1,540
Accrued pension income and postretirement benefits, net (2,975) (2,582) (2,396)
Gain on divestitures and property disposals, net (2,250) (12,715) -
Write-off of certain industrial packaging film machinery and equipment - 1,288 -
Gain on sale of investments (net of investment losses) (13,880) (2,139) (34)
Changes in assets and liabilities, net of effects from divestitures and
acquisitions:
Accounts and notes receivable (1,937) (4,894) 4,912
Inventories 994 1,257 4,010
Income taxes recoverable and other prepaid expenses 280 (763) (1,324)
Accounts payable and accrued expenses 8,010 (471) (6,228)
Other, net (2,130) (840) 1,071
-------- -------- -------
Net cash provided by operating activities 66,320 45,265 49,628
Cash flows from investing activities:
Capital expenditures (22,655) (23,960) (25,138)
Acquisitions (net of $358 cash acquired in 1995) (13,469) - (3,637)
Investments (20,801) (3,138) (1,904)
Proceeds from sale of investments 15,060 2,639 1,478
Proceeds from property disposals 387 9,880 1,238
Proceeds from the sale of Molded Products and Brudi 2,250 71,598 -
Other, net (359) (74) 85
-------- -------- -------
Net cash (used in) provided by investing activities (39,587) 56,945 (27,878)
Cash flows from financing activities:
Dividends paid (4,181) (3,176) (2,286)
Net decrease in borrowings (5,000) - (3,000)
Repurchase of Tredegar common stock (2,531) (2,034) (25,542)
Tredegar common stock purchased by trust for savings
restoration plan (1,020) - -
Proceeds from exercise of stock options (including related
income tax benefits realized) 4,803 2,145 2,158
Other, net - (29) 29
-------- -------- -------
Net cash used in financing activities (7,929) (3,094) (28,641)
Increase (decrease) in cash and cash equivalents 18,804 99,116 (6,891)
Cash and cash equivalents at beginning of period 101,261 2,145 9,036
-------- -------- -------
Cash and cash equivalents at end of period $120,065 $101,261 $ 2,145
Supplemental cash flow information:
Interest payments (net of amount capitalized) $ 1,968 $ 2,178 $ 3,041
Income tax payments, net 24,485 19,399 15,102
</TABLE>
See accompanying Notes to Financial Statements.
37
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Tredegar Industries, Inc., and Subsidiaries
<TABLE>
<CAPTION>
Unrealized
Years Ended December 31, Gain on Trust for
1997, 1996 and 1995 Common Stock Available- Savings Foreign Total
(In thousands, except ----------------- Retained for-Sale Restoration Currency Shareholders'
share and per-share data) Shares Amount Earnings Securities Plan Translation Equity
--------- -------- --------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>0
Balance December 31, 1994 8,992,258 $136,150 $ 35,401 $ - $ - $ 327 $171,878
Net income - - 24,053 - - - 24,053
Cash dividends declared
($.24 per share) - - (2,286) - - - (2,286)
Repurchases of Tredegar
common stock (998,197) (25,542) - - - - (25,542)
Issued upon exercise of stock options
(including related income tax
benefits realized by Tredegar
of $341) 118,500 2,158 - - - - 2,158
Issued upon exercise of SARs 5,723 142 - - - - 142
Foreign currency translation
adjustment - - - - - 118 118
Three-for-two stock split 4,058,011 - - - - - -
--------- -------- --------- ----------- ----------- ----------- ----------
Balance December 31, 1995 12,176,295 112,908 57,168 - - 445 170,521
Net income - - 45,035 - - - 45,035
Cash dividends declared
($.26 per share) - - (3,176) - - - (3,176)
Repurchases of Tredegar
common stock (68,947) (2,034) - - - - (2,034)
Issued upon exercise of stock options
(including related income tax
benefits realized by Tredegar
of $800) 130,705 2,145 - - - - 2,145
Foreign currency translation
adjustment - - - - - 54 54
--------- -------- --------- ---------- ----------- ----------- ----------
Balance December 31, 1996 12,238,053 113,019 99,027 - - 499 212,545
Net income - - 58,446 - - - 58,446
Cash dividends declared
($.34 per share) - - (4,181) - - - (4,181)
Repurchases of Tredegar
common stock (55,663) (2,531) - - - - (2,531)
Issued upon exercise of stock options
(including related income tax
benefits realized by Tredegar
of $2,042) 188,855 4,803 - - - - 4,803
Tredegar common stock purchased
by trust for savings
restoration plan - - - - (1,020) - (1,020)
Available-for-sale securities
adjustment - - - 5,020 - - 5,020
Foreign currency translation
adjustment - - - - - (536) (536)
--------- -------- --------- ----------- ----------- ----------- ---------
Balance December 31, 1997 12,371,245 $115,291 $153,292 $5,020 $(1,020) $ (37) $272,546
</TABLE>
See accompanying Notes to Financial Statements.
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Tredegar Industries, Inc., and Subsidiaries
(In thousands, except share and per-share amounts)
1 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization and Nature of Operations
Tredegar Industries, Inc., and subsidiaries ("Tredegar" or the "company")
is a diversified manufacturer of plastic film, aluminum extrusion and vinyl
products. Tredegar also has interests in various venture capital funds and
early-stage technology companies. For further description of Tredegar's
products, principal markets and customers, see the products and market informa-
tion matrix on pages 2-3, the segment tables on pages 20-22 and the business
segment review on pages 27-30.
On May 30, 1997, an affiliate of Tredegar's William L. Bonnell subsidiary
acquired an aluminum extrusion and fabrication plant in El Campo, Texas, from
Reynolds Metals Company. The El Campo facility, which had sales of $25,700 for
the period May 31 through December 31, 1997, extrudes and fabricates products
used primarily in transportation, electrical and consumer durables markets.
During the first quarter of 1995, Tredegar acquired a plastic films business in
Argentina. Both acquisitions were 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 either
acquisition since the estimated fair value of the identifiable net assets
acquired equaled the purchase price. The operating results of the entities
acquired have been included in the consolidated statements of income since the
date of acquisition.
During the first quarter of 1996, Tredegar sold all of the outstanding
capital stock of its injection molding subsidiary, Tredegar Molded Products
Company, including Polestar Plastics Manufacturing Company (together "Molded
Products"). During the second quarter of 1996, Tredegar completed the sale of
Brudi, Inc., and its subsidiaries (together "Brudi"). See Note 18 for further
information regarding these divestitures.
See also Note 19 for recent events occurring in early 1998, including the
announcement of a "Dutch auction" self-tender offer for up to 1,250,000 shares
of Tredegar's common stock at prices ranging from $58.00 to $65.00 per share,
the divestiture of APPX Software and the acquisition of two aluminum extrusion
and fabrication plants in Canada.
Basis of Presentation
The consolidated financial statements include the accounts and operations
of Tredegar and all of its subsidiaries. Intercompany accounts and transactions
within Tredegar have been eliminated. Certain previously reported amounts have
been reclassified to conform to the 1997 presentation.
On September 28, 1995, Tredegar's Board of Directors declared a
three-for-two stock split payable on January 1, 1996, to shareholders of record
on December 8, 1995. Accordingly, all historical references to the shares used
to compute earnings per share, per-share amounts, stock option data and market
prices of Tredegar's common stock have been restated to reflect the split.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues, expenses, assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from those estimates.
The Financial Accounting Standards Board has issued new standards affecting
disclosures of information about comprehensive income and business segments.
These standards are not expected to significantly change Tredegar's current
disclosures when adopted in 1998.
Revenue Recognition
Revenue from the sale of products is recognized when title and risk of loss
have transferred to the buyer, which is generally when product is shipped. Cash
received for contract research at Molecumetics (generally nonrefundable and
received at the beginning of a project) is deferred and amortized as revenue on
a straight-line basis over the life of the contract, which is usually when
related expenses are incurred.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand in excess of daily
operating requirements and highly liquid investments with maturities of three
months or less when purchased. At December 31, 1997 and 1996, Tredegar had
approximately $120,000 and $101,000, respectively, invested in securities with
maturities of two months or less.
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 policy are safety of principal and
liquidity.
Inventories
Inventories are stated at the lower of cost or market, with cost
principally determined on the last-in, first-out ("LIFO") basis. Other
inventories are stated on either the weighted average cost or the first-in,
first-out basis. Cost elements included in work-in-process and finished goods
inventories are raw materials, direct labor and manufacturing overhead.
Aluminum Forward Sales, Purchase
and Futures Contracts
In the normal course of business, Tredegar enters into a combination of
forward purchase commitments and futures contracts to acquire aluminum. Gains
and losses on these contracts are designated and effective as hedges of aluminum
price and margin exposure on forward sales contracts and, accordingly, are
recorded as adjustments to the cost of inventory (see Note 5).
39
<PAGE>
Property, Plant and Equipment
Accounts include costs of assets constructed or purchased, related delivery
and installation costs and interest incurred on significant capital projects
during their construction periods. Expenditures for renewals and betterments
also are capitalized, but expenditures for repairs and maintenance are expensed
as incurred. The cost and accumulated depreciation applicable to assets retired
or sold are removed from the respective accounts, and gains or losses thereon
are included in income.
Property, plant and equipment includes capitalized interest of $751, $730
and $279 in 1997, 1996 and 1995, respectively. Maintenance and repairs of
property, plant and equipment were $22,065, $19,018 and $20,100 in 1997, 1996
and 1995, respectively.
Depreciation is computed primarily by the straight-line method based on the
estimated useful lives of the assets.
Goodwill and Other Intangibles
There was no goodwill subject to amortization at December 31, 1997 and
1996. Goodwill acquired prior to November 1, 1970 ($19,484 at December 31,
1997 and 1996), is not being amortized and relates to Tredegar's Aluminum
Extrusions business. Other intangibles ($591 and $648 at December 31, 1997 and
1996, respectively, net of accumulated amortization) consist primarily of patent
rights and licenses acquired which are being amortized on a straight-line basis
over a period of not more than 17 years.
Impairment of Long-Lived Assets
The review for the possible impairment of long-lived tangible and
intangible assets is performed in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of." For assets to be held
and used in operations, this standard requires that, whenever events indicate
that an asset may be impaired, the entity estimate the future unlevered cash
flows expected to result from the use of the asset and its eventual disposition.
Assets are grouped for this purpose at the lowest level for which there are
identifiable and independent cash flows. If the sum of these undiscounted cash
flows is less than the carrying amount of the asset, an impairment loss is
recognized. Measurement of the impairment loss is based on the estimated fair
value of the asset.
Pension Costs and Postretirement Benefit Costs
Other Than Pensions
Pension costs and postretirement benefit costs other than pensions are
accrued over the period employees provide service to the company in compliance
with SFAS No. 87, "Employers Accounting for Pensions," and SFAS No. 106,
"Employers Accounting for Postretirement Benefits Other Than Pensions" (see Note
13). Tredegar's policy is to fund its pension plans at amounts not less than the
minimum requirements of the Employee Retirement Income Security Act of 1974, as
amended, and to fund postretirement benefits other than pensions when claims are
incurred.
Postemployment Benefits
Tredegar periodically provides certain postemployment benefits purely on a
discretionary basis. Accordingly, under SFAS No. 112, "Employers Accounting for
Postemployment Benefits," related costs for these programs are accrued when it
is probable that such benefits will be paid. All other postemployment benefits
are either accrued under current benefit plans or are not material to Tredegar's
financial position or results of operations.
Income Taxes
Income taxes are recognized during the period in which transactions enter
into the determination of income for financial reporting purposes, with deferred
income taxes being provided at enacted statutory tax rates on the differences
between the financial reporting and tax bases of assets and liabilities (see
Note 15). The company accrues U.S. federal income taxes on undistributed
earnings of its foreign subsidiaries.
Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding. Diluted earnings per share
is computed by dividing net income by the weighted average common and
potentially dilutive common equivalent shares outstanding, determined as
follows:
1997 1996 1995
---------- --------- ----------
Weighted average shares
outstanding used to
compute basic earnings
per share 12,287,639 12,207,616 12,915,640
Incremental shares issuable
upon the assumed
exercise of stock options 890,823 897,407 454,379
---------- --------- ----------
Shares used to compute
diluted earnings per
share 13,178,462 13,105,023 13,370,019
Incremental shares issuable upon the assumed exercise of outstanding stock
options is computed using the average market price during the related period.
40
<PAGE>
Stock Options
Stock options, stock appreciation rights ("SARs") and restricted stock
grants are accounted for under APB Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations whereby (i) no compensation cost is
recognized for fixed stock option or restricted stock grants unless the quoted
market price of the stock at the measurement date (ordinarily the date of grant
or award) is in excess of the amount the employee is required to pay and (ii)
compensation cost for SARs is recognized and adjusted up through the date of
exercise or forfeiture based on the estimated number of SARs expected to be
exercised times the difference between the market price of Tredegar's stock and
the amount the employee is required to pay. The company provides pro forma
disclosures of the fair value based method in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation" (see Note 11).
2 BUSINESS SEGMENTS
See pages 20-22 and the related Notes to Financial Tables
on page 32 for net sales, operating profit, identifiable assets and other
information about Tredegar's businesses that are presented for the years
1990-1997. The discussion of segment information is unaudited.
3 ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
December 31 1997 1996
- ---------------------------------------------------------------
Trade, less allowance for doubtful
accounts and sales returns of
$3,363 and $3,487 in 1997 and 1996 $66,249 $59,866
Other 3,423 1,210
-------- -------
Total $69,672 $61,076
===============================================================
4 INVENTORIES
Inventories consist of the following:
December 31 1997 1996
- ---------------------------------------------------------------
Finished goods $ 1,865 $1,677
Work-in-process 2,340 1,782
Raw materials 9,297 7,958
Stores, supplies and other 6,506 6,241
-------- -------
Total $20,008 $17,658
===============================================================
Inventories stated on the LIFO basis amounted to $11,990 and $9,342 at
December 31, 1997 and 1996, respectively, which are below replacement costs by
approximately $13,141 and $13,748, respectively.
5 ALUMINUM FORWARD SALES, PURCHASE AND
FUTURES CONTRACTS
In the normal course of business, Tredegar enters into fixed-price forward
sales contracts with certain customers for the sale of fixed quantities of
aluminum extrusions at scheduled intervals. In order to hedge its exposure to
aluminum price volatility under these fixed-price arrangements, which generally
have a duration of not more than 12 months, the company enters into a
combination of forward purchase commitments and futures contracts to acquire
aluminum, based on the scheduled deliveries. These contracts involve elements of
credit and market risk that are not reflected on the company's balance sheet,
including the risk of dealing with counterparties and their ability to meet the
terms of the contracts. At December 31, 1997 and 1996, open fixed-price forward
sales contracts, representing commitments to sell 40.8 and 15.7 million pounds
of aluminum, respectively, in the form of finished product, were matched with
open aluminum forward purchase and futures contracts. The weighted average cost
per pound of aluminum on the commitment dates for open fixed-price forward sales
contracts was approximately 75.1 and 71 cents per pound in 1997 and 1996,
respectively, compared with a market cost of 75.2 and 73 cents per pound at
December 31, 1997 and 1996, respectively. This unrealized loss of less than one
cent per pound and two cents per pound at December 31, 1997 and 1996,
respectively, was substantially hedged on those dates by unrealized gains of
approximately the same amounts on the matching open forward purchase commitments
and futures contracts to acquire aluminum.
41
<PAGE>
6 INVESTMENTS
Tredegar has investments in private venture capital fund
limited partnerships and early-stage technology companies, including the stock
of privately held companies and the restricted and unrestricted stock of
companies that have recently registered shares in initial public offerings.
These investments, which individually represent ownership interests of less than
20%, are included in "Other assets and deferred charges." A summary of
Tredegar's technology-related investment activities and values for each of the
three years in the period ended December 31, 1997, is summarized to the right
and below:
1997 1996 1995
- ---------------------------------------------------------------
Carrying value of technology-
related investments,
beginning of period $ 6,048 $3,410 $2,200
Technology-related investment
activity for period
(pre-tax amounts):
Investments 20,801 3,138 1,904
Proceeds from the sale
of investments (15,060) (2,639) -
Realized gains 14,309 2,139 -
Realized losses, write-offs and
write-downs (429) - (694)
Increase in unrealized gain on
available-for-sale
securities 7,844 - -
- ---------------------------------------------------------------
Carrying value of technology-
related investments,
end of period $33,513 $6,048 $3,410
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
December 31 1997 1996 1995
Estimated Estimated Estimated
Cost Carrying Fair Cost Carrying Fair Cost Carrying Fair
Basis Value Value Basis Value Value Basis Value Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Limited partnership interests in
private venture capital funds $ 5,678 $ 5,521 $12,496 $2,475 $2,475 $ 7,524 $1,800 $1,800 $3,902
Equity interests in private companies 18,265 18,265 18,534 2,571 2,571 2,571 733 733 733
Common stock of public companies
(available-for-sale securities):
Ciena Corporation (CIEN) 457 6,530 6,530 - - - - - -
CardioGenesis Corporation
(CGCP) 1,366 2,290 2,290 877 877 3,319 877 877 1,065
Advance Fibre Communications,
Inc. (AFCI) 60 907 907 - - - - - -
Network Appliance, Inc. (NTAP) - - - 125 125 1,586 - - -
- ------------------------------------------------------------------------------------------------------------------------------
Total $25,826 $33,513 $40,757 $6,048 $6,048 $15,000 $3,410 $3,410 $5,700
</TABLE>
Tredegar's remaining unfunded commitments to private venture capital funds
totaled approximately $22,000 at December 31, 1997, and are expected to be
invested over the next two years.
Beginning in 1997, the securities of public companies held by Tredegar
(common stock listed on NASDAQ) are classified as available-for-sale and stated
at fair value, with unrealized holding gains or losses excluded from earnings
and reported net of deferred income taxes in a separate component of
shareholders' equity until realized. Prior to 1997, such securities were stated
at the lower of cost or fair value, and the differences were immaterial. The
securities of private companies held by Tredegar (primarily convertible
preferred stock) are 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.
The fair value of securities of public companies is determined based on
closing price quotations. The fair value of securities of 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 other information, the
general partners' estimate of the fair value of nonmarketable securities held by
the funds, closing bid prices of publicly traded securities held by the funds
and fund formulas for allocating profits, losses and distributions. Because of
the inherent uncertainty associated with 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, publicly traded stocks of
emerging, technology-based companies usually have higher volatility and risk
than the U.S. stock market as a whole.
Gains and losses recognized in 1997 and 1996 are
included in "Other income (expense), net" whereas the loss recognized in 1995 is
included in "Selling, general and administrative" expenses.
42
<PAGE>
7 GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles, and the related accumulated amortizations, are
as follows:
December 31 1997 1996
- --------------------------------------------------------------
Goodwill and other intangibles $20,332 $29,956
Divestitures (see Note 18) - (9,980)
Write-offs (7) -
Additions and reclassifications - 356
- -------------------------------------------------- --------
Subtotal 20,325 20,332
Accumulated amortization (250) (200)
- -------------------------------------------------- --------
Net $20,075 $20,132
8 ACCRUED EXPENSES
Accrued expenses consist of the following:
- --------------------------------------------------------------
December 31 1997 1996
- --------------------------------------------------------------
Payrolls, related taxes and medical and
other benefits $14,014 $13,347
Workmen's compensation and disabilities 5,021 4,561
Vacation 4,813 4,201
Contract research revenues received
in advance 2,917 -
Plant shutdowns and divestitures 1,097 2,061
Environmental 448 774
Other 11,308 7,543
------- --------
Total $39,618 $32,487
9 DEBT AND CREDIT AGREEMENTS
At December 31, 1997 and 1996, debt outstanding consisted of a note payable
with a remaining balance of $30,000 and $35,000, respectively. Interest is
payable on the note semi-annually at 7.2% per year. Annual principal payments of
$5,000 are due each June through 2003 (the $5,000 due in June 1998 has been
classified as long-term in accordance with Tredegar's ability to refinance such
obligation on a long-term basis). At December 31, 1997, the prepayment value of
the note was $30,900 and Tredegar estimates that an equivalent rate on similar
debt would be 6.7%.
Tredegar also has a revolving credit facility that permits borrowings of up
to $275,000 (no amounts borrowed at December 31, 1997 and 1996). The facility
matures on July 9, 2002, with an annual extension of one year permitted subject
to the approval of participating banks. The facility provides for interest to be
charged at a base rate (generally 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 $275,000 commitment
amount. The spread and facility fee charged at various debt-to-total
capitalization levels are as follows:
- --------------------------------------------------------------
(Basis Points)
---------------------------
Debt-to-Total LIBOR Facility
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 $137,500 is borrowed under the
agreement. The weighted average interest rate on all variable-rate loans
outstanding during 1995 was 6.7% (there were no such loans outstanding during
1997 and 1996).
Tredegar's loan agreements contain restrictions, among others, on the
minimum shareholders' equity required and the maximum debt-to-total
capitalization ratio permitted (60%). At December 31, 1997, shareholders' equity
was in excess of the minimum required by $128,045, and $275,000 was available to
borrow under the 60% debt-to-total capitalization ratio restriction.
10 SHAREHOLDER RIGHTS AGREEMENT
Pursuant to a Rights Agreement dated as of June 15, 1989 (as amended),
between Tredegar and American Stock Transfer and Trust Company as Rights Agent
(the "Rights Agreement"), two-thirds of one Right is attendant to each share of
Tredegar common stock. Each Right entitles the registered holder to purchase
from Tredegar one one-hundredth of a share of Participating Cumulative Preferred
Stock, Series A (the "Preferred Stock"), at an exercise price of $50 (the
"Purchase Price"). The Rights will become exercisable, if not earlier redeemed,
only if a person or group acquires 10% or more of the outstanding shares of
Tredegar common stock or announces a tender offer, the consummation of which
would result in ownership by a person or group of 10% or more of Tredegar common
stock. Any action by a person who, together with his associates and affiliates,
owned 10% or more of the outstanding shares of Tredegar common stock on July 10,
1989, cannot cause the Rights to become exercisable.
Each holder of a Right, upon the occurrence of certain events, will become
entitled to receive, upon exercise and payment of the Purchase Price, Preferred
Stock (or in certain circumstances, cash, property or other securities of
Tredegar or a potential acquirer) having a value equal to twice the amount of
the Purchase Price.
The Rights will expire on June 30, 1999.
43
<PAGE>
11 STOCK OPTION PLANS
Tredegar has three stock option plans whereby stock options may be granted
to purchase a specified number of shares of Tredegar common stock at a price not
less than the fair market value on the date of grant and for a term not to
exceed 10 years. Options ordinarily vest one year from the date of grant. In
addition to stock options, recipients may also be granted SARs and restricted
stock. SARs, when granted, have been in tandem with stock options; however, no
SARs have been granted since 1992. Generally, the share appreciation that can be
realized upon the exercise of SARs is limited to the fair market value at the
date of grant. As a result, it is more likely that related stock options will be
exercised rather than SARs when the price of Tredegar's common stock is in
excess of $22.27 per share (Tredegar's closing stock price on December 31, 1997,
was $65.875 per share).
The compensation cost that was charged against income for SARs was $984 in
1995 (there was no such charge in 1997 and 1996). Had compensation cost for the
company's stock-based compensation plans been determined based on the fair value
at the grant dates consistent with the method prescribed by SFAS No. 123, the
company's income and diluted earnings per share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net income:
As reported $58,446 $45,035 $24,053
Pro forma 56,412 43,814 23,280
Diluted earnings per share:
As reported 4.43 3.44 1.80
Pro forma 4.28 3.34 1.74
- --------------------------------------------------------------
</TABLE>
The fair value of each option was estimated as of the grant date using the
Black-Scholes option-pricing model.
The assumptions used in this model for valuing stock options granted during
1997, 1996 and 1995 are provided below:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Dividend yield .6% 1.0% 1.3%
Volatility percentage 30.0% 23.5% 23.8%
Weighted average risk-free
interest rate 6.7% 5.7% 7.3%
Holding period (years):
Officers 8.3 9.4 10.0
Management 4.6 4.7 5.2
Others 2.4 3.2 3.2
Market price at date of grant:
Officers and management $49.63 $25.13 $12.50
Others 51.92 22.13 11.59
Exercise price for options
granted where exercise price
exceeds market price
(applicable to officers
in 1997 and officers and
management in 1996) 63.00 29.00 n/a
- --------------------------------------------------------------
</TABLE>
Stock options granted during 1997, 1996 and 1995, and their estimated fair
value at the date of grant, are provided below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
1997 1996 1995
-------- ------ ----------
<S> <C> <C> <C>
Stock options granted
(number of shares):
Where exercise price
equals market price:
Officers 48,000 40,000 90,000
Management 87,250 86,300 117,600
Others 21,450 53,300 11,400
Where exercise price
exceeds market price:
Officers 47,000 20,000 -
Management - 3,000 -
- -------------------------------------------------------------
Total 203,700 202,600 219,000
- --------------------------------------------------------------
Estimated fair value of options
per share at date of grant:
Where exercise price
equals market price:
Officers $24.05 $10.68 $5.81
Management 17.40 7.07 4.05
Others 12.43 4.88 2.97
Where exercise price
exceeds market price:
Officers 20.21 9.41 n/a
Management n/a 5.55 n/a
Total estimated fair value
of stock options granted 3,889 1,502 1,033
- -------------------------------------------------------------
</TABLE>
44
<PAGE>
A summary of the company's stock options outstanding at December 31, 1997,
1996 and 1995, and changes during the years then ended, is presented below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Exercise Price Per Share
-------------------------------------
Number of Shares Weighted
Options SARs Range Average Aggregate
-------- -------- ---------------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Outstanding at 12/31/94 1,207,800 628,650 $ 8.09 to $16.00 $10.58 $12,774
Granted in 1995 219,000 - 11.59 to 12.50 12.45 2,727
Lapsed in 1995 (10,350) (2,250) 10.09 to 11.59 10.43 (108)
Options exercised in 1995 (177,750) (57,000) 8.09 to 16.00 10.22 (1,817)
SARs exercised in 1995 (49,125) (49,125) 8.09 to 11.14 10.34 (508)
-------- -------- ---------------------- ---------- ---------
Outstanding at 12/31/95 1,189,575 520,275 8.09 to 16.00 10.99 13,068
Granted in 1996 202,600 - 22.13 to 29.00 24.78 5,020
Lapsed in 1996 (15,150) - 10.09 to 25.13 15.12 (229)
Options exercised in 1996 (130,705) (60,955) 8.09 to 12.50 10.29 (1,345)
-------- -------- ---------------------- ---------- ---------
Outstanding at 12/31/96 1,246,320 459,320 8.09 to 29.00 13.25 16,514
Granted in 1997 203,700 - 49.63 to 63.00 53.01 10,798
Lapsed in 1997 (1,800) - 10.09 to 56.25 28.33 (51)
Options exercised in 1997 (188,855) (95,975) 8.09 to 29.00 14.62 (2,761)
-------- -------- ---------------------- ---------- ---------
Outstanding at 12/31/97 1,259,365 363,345 $ 8.09 to $63.00 $19.45 $24,500
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes additional information about stock options
outstanding and exercisable at December 31, 1997:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Options Outstanding at Options Exercisable at
December 31, 1997 December 31, 1997
-----------------------------------------------------------------------------------------
Weighted Average
---------------------------- Weighted
Remaining Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life (Years) Price Shares Price
---------------- --------- -------------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
$11.14 182,600 1.5 $11.14 182,600 $11.14
$ 8.09 to 11.18 189,595 4.2 8.14 189,595 8.14
10.09 to 16.00 370,300 6.2 12.07 370,300 12.07
11.59 to 12.50 175,754 7.2 12.48 175,754 12.48
22.13 to 29.00 138,166 8.1 25.37 138,166 25.37
49.63 to 63.00 202,950 9.4 53.01 - -
- -------------------------------------------------------------------------------------------------------------------------------
$ 8.09 to $63.00 1,259,365 6.1 $19.45 1,056,415 $13.01
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stock options exercisable at December 31, 1996 and 1995, totaled 1,007,718
and 883,974 shares, respectively. Stock options available for grant at December
31, 1997, 1996 and 1995 totaled 458,550; 660,600; and 397,800 shares,
respectively.
12 RENTAL EXPENSE AND
CONTRACTUAL COMMITMENTS
Rental expense was $2,746, $2,760 and $3,355 for 1997, 1996 and 1995,
respectively. Rental commitments under all non-cancelable operating leases as of
December 31, 1997, are as follows:
1998 $1,675
1999 1,288
2000 1,041
2001 481
2002 199
Remainder -
Total $4,684
- --------------------------------------------------------------
45
<PAGE>
Contractual obligations for plant construction and purchases of real
property and equipment amounted to approximately $4,452 and $3,247 at December
31, 1997 and 1996, respectively.
13 RETIREMENT PLANS AND
OTHER POSTRETIREMENT BENEFITS
Tredegar has noncontributory defined benefit plans covering most employees.
The plans for salaried and hourly employees currently in effect are based on a
formula using the participant's years of service and compensation or using the
participant's years of service and a dollar amount. Plan assets consist
principally of common stock and government and corporate obligations.
The components of net pension income for Tredegar's plans for 1997, 1996
and 1995 are as follows:
1997 1996 1995
-------- --------- --------
Return on plan assets:
Actual return $30,338 $22,864 $28,434
Expected return
lower than actual (16,943) (10,540) (17,065)
- ---------------------------------------------------------------
Expected return 13,395 12,324 11,369
Amortization of
transition asset 899 1,251 1,231
Service cost (benefits earned
during the year) (2,235) (2,116) (2,376)
Interest cost on projected
benefit obligation (8,002) (7,631) (7,192)
Amortization of prior service
costs and gains or losses (578) (782) (99)
- ---------------------------------------------------------------
Net pension income $ 3,479 $ 3,046 $ 2,933
- ---------------------------------------------------------------
The following table presents a reconciliation of the funded status of
Tredegar's pension plans at December 31, 1997, 1996 and 1995, to prepaid pension
expense:
December 31 1997 1996 1995
-------- --------- --------
Plan assets at fair value $191,922 $166,582 $147,600
Actuarial present value of
benefit obligations:
Accumulated benefit
obligation (including
vested benefits of
$105,761, $96,561 and
$90,895, respectively) (107,811) (99,219) (93,077)
Projected compensation
increase (10,053) (9,676) (11,097)
- ---------------------------------------------------------------
Projected benefit
obligation (117,864) (108,895) (104,174)
- ---------------------------------------------------------------
Plan assets in excess of
projected benefit
obligation 74,058 57,687 43,426
Unrecognized net gain being
amortized (44,253) (31,486) (21,863)
Unrecognized transition asset
being amortized (2,077) (2,975) (4,226)
Unrecognized prior service
costs being amortized 3,084 3,658 4,581
-------- -------- --------
Prepaid pension expense $ 30,812 $ 26,884 $ 21,918
- ----------------------------------------------------------------
Prepaid pension expense of $30,812 and $26,884 is included in "Other assets
and deferred charges" at December 31, 1997 and 1996, respectively.
Net pension income and plan obligations are calculated using assumptions of
discount rates on projected benefit obligations, estimated rates of projected
increases in compensation and expected rates of return on plan assets. The
discount rate on projected benefit obligations was assumed to be 7.25% at
December 31, 1997, 7.5% at December 31, 1996 and 7.5% at December 31, 1995. The
rate of projected compensation increase and the expected long-term rate of
return on plan assets was assumed to be 5% and 9%, respectively, each year. Net
pension income is determined using assumptions as of the beginning of each year.
Funded status is determined using assumptions as of the end of each year.
Tredegar also has a non-qualified supplemental pension plan covering
certain employees. The plan is designed to restore all or a part of the pension
benefits that would have been payable to designated participants from Tredegar's
principal pension plans if it were not for limitations imposed by income tax
regulations. The projected benefit obligation relating to this unfunded plan was
$889, $894 and $658 at December 31, 1997, 1996 and 1995, respectively, and
pension expense recognized was approximately $150 annually. This information has
been included in the pension tables above.
In addition to providing pension benefits, Tredegar provides postretirement
life insurance and health care benefits for certain groups of employees.
Tredegar and retirees share in the cost of postretirement health care benefits,
with employees retiring after July 1, 1993, receiving a fixed subsidy from
Tredegar to cover a portion of their health care premiums.
The components of net periodic postretirement benefit cost are as follows:
- --------------------------------------------------------------
1997 1996 1995
-------- --------- --------
Service cost (benefits earned
during the year) $(113) $(117) $(118)
Interest cost on accumulated
postretirement benefit
obligation (467) (448) (493)
Recognition of gains 76 101 74
- -----------------------------------------------------------------
Net postretirement
benefit cost $(504) $(464) $(537)
- -----------------------------------------------------------------
The following table presents a reconciliation of the funded status of
Tredegar's postretirement life insurance and health care benefit plans at
December 31, 1997, 1996, and 1995, to accrued postretirement benefit cost:
December 31 1997 1996 1995
- ----------------------------------------------------------------
Plan assets at fair value $ - $ - $ -
Accumulated postretirement
benefit obligation (APBO):
Retirees (3,429) (3,283) (3,438)
Other fully eligible
participants (1,121) (1,253) (1,396)
Other active
participants (1,993) (1,769) (1,957)
------- ------- -------
Total APBO (6,543) (6,305) (6,791)
- ----------------------------------------------------------------
APBO in excess of plan assets (6,543) (6,305) (6,791)
Unrecognized gain (1,029) (1,317) (1,219)
- ----------------------------------------------------------------
Accrued postretirement
benefit cost $(7,572) $(7,622) $(8,010)
- ----------------------------------------------------------------
46
<PAGE>
Accrued postretirement benefit cost of $7,572 and $7,622 is included in
"Other noncurrent liabilities" at December 31, 1997 and 1996, respectively.
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.25% at December 31, 1997, 7.5% at December 31, 1996 and
7.5% at December 31, 1995. The rate of annual pay increase for life insurance
benefits was assumed to be 5% each year. The rate of increase in the per-capita
cost of covered health care benefits for the indemnity plan was assumed to be
10% at December 31, 1997, 11% at December 31, 1996 and 12% at December 31, 1995.
The rate of increase in the per-capita cost of covered health care benefits for
the managed care plans was assumed to be 8.1% at December 31, 1997, 8.9% at
December 31, 1996 and 9.7% at December 31, 1995. The rates for the per-capita
cost of covered health care benefits were assumed to decrease gradually for the
indemnity and managed care plans to 6% and 5%, respectively, in year 2002 and
remain at that level thereafter. Net postretirement benefit cost is determined
using assumptions as of the beginning of each year. Funded status is determined
using assumptions as of the end of each year.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefit obligation as of December 31, 1997, would
increase by approximately $4. The effect of this increase on the sum of the
service cost and interest cost components of net periodic postretirement benefit
cost for 1997 would be immaterial.
On August 16, 1994, the Elk Horn Coal Corporation
("Elk Horn"), Tredegar's 97% owned coal subsidiary, was acquired by Pen
Holdings, Inc. In accordance with applicable accounting pronouncements, a $6,194
charge ($3,964 after income tax benefits) was recognized as a reduction to the
gain on the disposal of Elk Horn for the estimated present value of the portion
of the unfunded obligation under the Coal Industry Retiree Health Benefit Act of
1992 (the "Act") assumed by Tredegar in the divestiture transaction. Under the
Act, former employers are responsible for a portion of the funding of medical
and death benefits of certain retired miners and dependents of the United Mine
Workers of America. The obligation under the Act is reflected in Tredegar's
consolidated balance sheet in "Other noncurrent liabilities." The net periodic
income of $98 in 1997 and cost of $158 in 1996 related to the obligation
(interest and the amortization of gains (net)) is reflected in "Other income
(expense), net."
At December 31, 1997, 1996 and 1995, the accrued cost for Tredegar's
obligation under the Act was $5,300, $5,793 and $6,000, respectively, including
an unfunded obligation of $2,701, $2,943 and $4,703, respectively, and an
unrecognized gain of $2,599, $2,850 and $1,297, respectively. The discount rate
used in determining the unfunded obligation was 7.25%, 7.5% and 7.5% at December
31, 1997, 1996 and 1995, respectively. The medical premium trend rate was
assumed to be 10%, 11% and 12% at December 31, 1997, 1996 and 1995,
respectively, with a gradual decrease to 5.75% in year 2004, 6% in year 2004 and
6% in year 2004, respectively, and remaining at that level thereafter. The
accrued cost was determined using assumptions at the end of each period, and the
net periodic income or cost was determined using assumptions as of the beginning
of each period. If the medical premium trend rate were increased by 1%, the
obligation at December 31, 1997, would increase by approximately $171. The
effect of this increase on the annual interest cost component of the net
periodic cost would be immaterial.
14 SAVINGS PLAN
Tredegar has a savings plan that allows eligible employees to voluntarily
contribute a percentage of their compensation. Under the provisions of the plan,
Tredegar matches a portion of the employee's contribution to the plan with
shares of Tredegar common stock. Tredegar also has a non-qualified plan that
restores matching benefits for employees suspended from the savings plan due to
certain limitations imposed by income tax regulations. Charges recognized by
Tredegar for these plans in 1997, 1996 and 1995 amounted to $2,564, $2,348, and
$2,060, respectively. Tredegar's liability under the restoration plan was $1,974
and $1,221 at December 31, 1997 and 1996, respectively, consisting of 29,966 and
30,422 phantom shares of Tredegar common stock, respectively, valued at the
closing market price on that date. During 1997, the Tredegar Industries, Inc.
Benefits Plan Trust (the "Trust") purchased 15,557 shares of Tredegar common
stock for $1,020 as a partial hedge against the phantom shares held in the
restoration plan. The cost of the shares held by the Trust is shown as a
reduction to shareholders' equity in the consolidated balance sheets.
47
<PAGE>
15 INCOME TAXES
Income before income taxes and income taxes are as follows:
1997 1996 1995
- --------------------------------------------------------------
Income before income taxes:
Domestic $84,356 $63,612 $36,494
Foreign 5,810 5,383 1,828
- --------------------------------------------------------------
Total $90,166 $68,995 $38,322
- --------------------------------------------------------------
Current income taxes:
Federal $22,769 $17,916 $10,050
State 3,700 2,608 1,996
Foreign 1,910 1,665 683
- ---------------------------------------------------------------
Total 28,379 22,189 12,729
- ---------------------------------------------------------------
Deferred income taxes:
Federal 2,576 1,105 1,448
State 310 2 136
Foreign 455 664 (44)
- ---------------------------------------------------------------
Total 3,341 1,771 1,540
- ---------------------------------------------------------------
Total income taxes $31,720 $23,960 $14,269
- ---------------------------------------------------------------
The significant differences between the U.S. federal statutory rate and the
effective income tax rate are as follows:
Percent of Income
Before Income Taxes
----------------------------
1997 1996 1995
----- ------ -------
Income tax expense at federal
statutory rate 35.0 35.0 35.0
State taxes, net of federal
income tax benefit 2.9 2.5 3.6
Foreign Sales Corporation (1.1) (1.6) (1.3)
Tax-exempt interest income (1.1) (.9) -
Research and development
tax credit (.3) (.3) (1.0)
Goodwill amortization - .1 .2
Write-off of certain goodwill - - .1
Other items, net (.2) (.1) .6
----- ------ -------
Effective income tax rate 35.2 34.7 37.2
- ----------------------------------------------------------------
Deferred income taxes result from temporary differences between financial
and income tax reporting of various items. The source of these differences and
the tax effects were as follows:
- ---------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------
Employee benefits $1,912 $2,591 $ 499
Allowance for doubtful
accounts and sales returns 868 699 (48)
Depreciation 553 (2,179) (14)
Plant shutdowns, divestitures
and environmental
accruals (459) 409 743
Other items, net 467 251 360
- ---------------------------------------------------------------
Total $3,341 $1,771 $1,540
- ---------------------------------------------------------------
Deferred tax liabilities and deferred tax assets as of December 31, 1997
and 1996, are as follows:
- --------------------------------------------------------------
December 31 1997 1996
- --------------------------------------------------------------
Deferred tax liabilities:
Pensions $11,824 $ 9,699
Depreciation 8,773 8,220
Unrealized gain on available-
for-sale securities 2,824 -
Other 1,403 1,368
- --------------------------------------------------------------
Total deferred tax liabilities 24,824 19,287
- --------------------------------------------------------------
Deferred tax assets:
Employee benefits 7,910 7,697
Inventory 1,281 1,170
Allowance for doubtful
accounts and sales returns 438 1,306
Plant shutdowns and
divestitures 417 752
Environmental accruals 170 294
Other 1,222 558
- --------------------------------------------------------------
Total deferred tax assets 11,438 11,777
------ --------
Net deferred tax liability $13,386 $ 7,510
- --------------------------------------------------------------
Included in the balance sheet:
Noncurrent deferred tax
liabilities in excess
of assets $22,108 $16,994
Current deferred tax assets
in excess of liabilities 8,722 9,484
- --------------------------------------------------------------
Net deferred tax liability $13,386 $ 7,510
- ---------------------------------------------------------------
16 UNUSUAL ITEMS
In 1997, unusual income included a gain of $2,250 (net of transaction costs
of $250) related to the redemption of preferred stock received in connection
with the 1996 divestiture of Molded Products (see Note 18).
In 1996, unusual items totaling $11,427 (income, net) include a gain on the
sale of Molded Products ($19,893, see Note 18), a gain on the sale of a former
plastic films manufacturing site in Fremont, California ($1,968), a charge
related to the loss on the divestiture of Brudi ($9,146, see Note 18) and a
charge related to the write-off of specialized machinery and equipment due to
excess capacity in certain industrial packaging films ($1,288).
In 1995, unusual items totaling $78 (income, net) include a gain on the
sale of Regal Cinema shares ($728), a charge related to the restructuring of
APPX Software ($2,400) and a recovery in connection with a Film Products product
liability lawsuit ($1,750). The APPX Software restructuring charge included
estimated losses on the disposal of assets, severance costs and costs for the
termination of leases and certain contracts. The restructuring, which occurred
in the first quarter of 1995, was aimed at eliminating operating losses. Such
losses were $478 in the first quarter of 1995 and $4,700 in 1994. While new
product development activities were curtailed, APPX Software continued to sell,
maintain and support existing products. During 1997 and 1996 and for the period
April 1 to December 31, 1995 (the post-restructuring periods), APPX Software had
an operating profit of $587, $511 and $382, respectively (see Note 19 regarding
the divestiture of APPX Software in early 1998).
48
<PAGE>
17 CONTINGENCIES
Tredegar is involved in various stages of investigation and cleanup
relating to environmental matters at certain plant locations. Where management
has determined the nature and scope of any required environmental cleanup
activity, estimates of cleanup costs have been obtained and accrued. As
management continues its efforts to ensure compliance with environmental laws
and regulations, additional contingencies may be identified. If additional
contingencies are identified, it is management's practice to determine the
nature and scope of such contingencies, obtain and accrue estimates of the cost
of remediation, and perform remediation. While it is not possible to predict the
course of ongoing environmental compliance activities, management does not
currently believe that additional costs that could arise from such activities
will have a material adverse effect on its financial position; however, such
costs could have a material adverse effect on quarterly or annual operating
results in a future period.
Tredegar is involved in various other legal actions arising in the normal
course of business. After taking into consideration legal counsels' evaluation
of such actions, management believes that Tredegar has sufficiently accrued for
possible losses and that these actions will not have a material adverse effect
on Tredegar's financial position; however, the resolution of such actions in a
future period could have a material adverse effect on quarterly or annual
operating results at that time.
18 DIVESTED OPERATIONS
On March 29, 1996, Tredegar sold Molded Products to
Precise Technology, Inc. ("Precise") for cash consideration of $57,500 ($53,973
after transaction costs). In addition, Tredegar received unregistered cumulative
preferred stock of Precise with a face amount of $2,500, which was fully
redeemed in 1997 (see Note 16). No value was assigned by Tredegar to the
preferred stock in 1996 due to the uncertainty of redemption at that time.
During the second quarter of 1996, Tredegar completed the sale of Brudi for
cash consideration of approximately $18,066 ($17,625 after transaction costs).
Tredegar recognized a gain of $19,893 ($13,725 after income taxes) on the
sale of Molded Products in the first quarter of 1996. The gain was partially
offset by a first-quarter charge of $9,146 ($5,666 after income tax benefits)
related to the loss on the divestiture of Brudi. The Molded Products gain
included a gain of $2,039 ($1,243 after income taxes) on the curtailment of
participation by Molded Products employees in Tredegar's benefit plans. The
Brudi charge included a loss accrued of $1,000 ($640 after income tax benefits)
for remaining payments under a noncompetition and secrecy agreement entered into
when Tredegar acquired Brudi on April 1, 1991.
The operating results for Molded Products were historically reported as a
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. Tredegar began
reporting Molded Products and Brudi separately in its segment disclosures in
1995 after announcing its intent to divest these businesses (see pages 20-22).
Additional information on the combined results of operations of these businesses
is provided below:
Condensed Statements of Income
Molded Products and Brudi Combined
- -------------------------------------------------------------
1996
Through the
(Unaudited) Date Divested 1995
- -------------------------------------------------------------
Net sales $34,511 $116,745
- --------------------------------------------------------------
Costs and expenses:
Operating costs and expenses 33,269 113,805
Interest allocated 283 899
- --------------------------------------------------------------
Total 33,552 114,704
- --------------------------------------------------------------
Income from Molded Products
and Brudi before income taxes 959 2,041
Income taxes 423 913
------------- -------
Income from Molded Products
and Brudi $ 536 $ 1,128
- --------------------------------------------------------------
All of Molded Products' full-time employees participated in Tredegar's
noncontributory defined benefit plan for salaried employees. Most of these
employees also participated in Tredegar's welfare (medical, life and disability)
and savings plans. Related costs for participation in these plans were allocated
to Molded Products and were included in the above condensed statements of
income. Interest expense was allocated to Molded Products and Brudi based upon
the ratio of their capital employed (net assets) to Tredegar's consolidated
capital employed.
For federal income tax purposes, operating results of Molded Products and
Brudi through the date of disposal were included in Tredegar's consolidated tax
return. Their related provision for income taxes represents their allocated
share of Tredegar's income tax expense. The allocated share approximates income
tax expense that would have been incurred had Molded Products and Brudi
separately filed a consolidated tax return and computed income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes."
49
<PAGE>
19 RECENT EVENTS
On January 14, 1998, Tredegar announced a "Dutch auction" self-tender offer
for up to 1,250,000 shares of its common stock at prices ranging from $58.00 to
$65.00 per share. The offer expires on February 13, 1998, unless extended, and
is subject to the terms and conditions described in the offering materials.
Tredegar intends to use available cash and cash equivalents to fund the offer.
If necessary, the company will use available borrowings under its revolving
credit facility to provide additional funds. Assuming that the company purchases
1,250,000 shares pursuant to the offer at a price of $65.00 per share, the total
amount required by the company to purchase such shares will be $81,250,
exclusive of estimated fees and other expenses of $225.
On January 16, 1998, Tredegar sold APPX Software and expects to recognize a
gain on the transaction during the first quarter of 1998.
On February 6, 1998, Tredegar acquired two Canada-based aluminum extrusion
and fabrication plants from Reynolds Metals Company. The plants are located in
Ste-Therese, Quebec, and Richmond Hill, Ontario. The two plants collectively
generated sales of approximately $55,000 in 1997. Both facilities manufacture
products used primarily in building construction, transportation, electrical,
machinery and equipment, and consumer durables markets. The acquisition will be
accounted for using the purchase method.
50
<PAGE>
SHAREHOLDER INFORMATION
Annual Meeting
The annual meeting of shareholders of Tredegar Industries, Inc., will be
held on May 20, 1998, beginning at 9:30 a.m. E.D.T. at the Jefferson Hotel in
Richmond, Virginia. Formal notices of the annual meeting, proxies and proxy
statements will be mailed to shareholders on or before March 31.
Corporate Headquarters
1100 Boulders Parkway
Richmond, Virginia 23225
PHONE 804-330-1000
E-MAIL [email protected]
WEB SITE http://www.tredegar.com
Number of Employees
Approximately 2,500
Counsel
Hunton & Williams
Richmond, Virginia
Independent Accountants
Coopers & Lybrand, L.L.P.
Richmond, Virginia
Stock Listing
New York Stock Exchange
Ticker Symbol: TG
Transfer Agent and Registrar
American Stock Transfer & Trust Company
New York, New York
Inquiries
Inquiries concerning stock transfers, dividend reimbursements, consolidating
accounts, changes of address, or lost or stolen stock certificates should be
directed to:
American Stock Transfer & Trust Company
Shareholder Services Department
40 Wall Street - 46th Floor
New York, New York 10005
PHONE 800-937-5449
All other inquiries should be directed to:
Tredegar Industries, Inc.
Corporate Communications Department
1100 Boulders Parkway
Richmond, Virginia 23225
PHONE 804-330-1044
Quarterly Report Distribution
Tredegar does not distribute quarterly reports through
brokerages or banks. If your shares of Tredegar common stock are held through a
third party, such as a bank or brokerage, and you would like to receive
quarterly reports, please write or call Corporate Communications at the above
address.
Dividend Information
During 1995 and 1996, Tredegar paid quarterly dividends of $.06 per share, or
$.24 per share on an annual basis. Effective January 1, 1997, the quarterly
dividend was increased to $.08 per share, or $.32 per share on an annual basis.
Effective October 1, 1997, the quarterly dividend was increased to $.09 per
share, or $.36 per share on an annual basis. All decisions with respect to
payment of dividends will be made by the Board of Directors based upon
Tredegar's earnings, financial condition, anticipated cash needs and such other
considerations as the Board deems relevant. See Note 9 of Notes to Financial
Statements on page 43 for restriction on the minimum shareholders' equity
required.
Market Prices of Common Stock and Shareholder Data
The following table shows the reported high and low closing prices of Tredegar's
common stock by quarter for the past two years.
1997 1996
---- ----
High Low High Low
---- --- ---- ---
First Quarter $42.50 $37.63 $25.88 $20.50
Second Quarter 56.38 40.25 35.00 24.25
Third Quarter 72.25 52.63 34.38 29.00
Fourth Quarter 73.94 63.19 45.38 34.25
Tredegar has no preferred stock outstanding.
There were 12,371,245 shares of common stock held by 6,402 shareholders of
record on December 31, 1997.
Plants, Facilities and Offices
Corporate Headquarters:
Richmond, Virginia
Tredegar Film Products:
Carbondale, Pennsylvania
Cincinnati, Ohio
LaGrange, Georgia
Manchester, Iowa
New Bern, North Carolina
Tacoma, Washington
Terre Haute, Indiana (2)
(plant and technical center)
Guangzhou, China
Kerkrade, the Netherlands
Kobe, Japan
Buenos Aires, Argentina
San Juan, Argentina
Sao Paulo, Brazil
Fiberlux:
Pawling, New York
Purchase, New York
Aluminum Extrusions:
Carthage, Tennessee
El Campo, Texas
Kentland, Indiana
Newnan, Georgia
Ste-Therese, Quebec
Richmond Hill, Ontario
Tredegar Investments:
Seattle, Washington
Molecumetics:
Bellevue, Washington
51
Exhibit 21
TREDEGAR INDUSTRIES, INC.
Virginia
Jurisdiction
Name of Subsidiary of Incorporation
BLC G. P., Inc. Virginia
Bon L Campo Limited Partnership Texas
Bon L Canada Inc. Canada
The William L. Bonnell Company, Inc. Georgia
Capitol Products Corporation Pennsylvania
Fiberlux, Inc. Virginia
Guangzhou Tredegar Films Company Limited China
Idlewood Properties, Inc. Virginia
Molecumetics Institute, Ltd. Virginia
Molecumetics, Ltd. Virginia
TGI Fund I Virginia
TGI Fund II Virginia
Tredegar Brazil Industria Brazil
De Plasticos Ltda.
Tredegar Development Corporation Virginia
Tredegar Exploration, Inc. Virginia
Tredegar Film Products Argentina S.A. Argentina
Tredegar Film Products, B.V. Netherlands
Tredegar Film Products (Japan) Ltd. Virginia
Tredegar Film Products Polska Sp. z o.o. Poland
Tredegar Films Development, Inc. Virginia
Tredegar Foreign Sales Corporation U.S. Virgin Islands
Tredegar Holdings Corporation Virginia
Tredegar Reserves, Inc. Virginia
Tredegar Investments, Inc. Virginia
Virginia Techport, Inc. Virginia
WLB L.P., Inc. Virginia
Exhibit 23.1
Consent Of Coopers & Lybrand L.L.P.
We consent to the incorporation by reference in the registration statements of
Tredegar Industries, Inc. on Form S-3 (File No. 33-57268) and on Forms S-8 (File
No. 33-31047, File No. 33-50276, File No. 33-64647 and File No. 33-12985) of our
report dated January 14, 1998, except for the information presented in Note 19,
for which the date is February 6, 1998, on our audits of the consolidated
financial statements of Tredegar Industries, Inc. and subsidiaries as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997, which report appears on page 34 of the 1997 Annual Report to
Shareholders of Tredegar Industries, Inc.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Richmond, Virginia
March 10, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS UNAUDITED SUMMARY FINANCIAL INFORMATION FOR TREDEGAR
INDUSTRIES, INC. AND SUBSIDIARIES EXTRACTED FROM THE BALANCE SHEET AS OF
DECEMBER 31, 1997 AND THE STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 120,065
<SECURITIES> 0
<RECEIVABLES> 73,035
<ALLOWANCES> 3,363
<INVENTORY> 20,008
<CURRENT-ASSETS> 223,130
<PP&E> 283,995
<DEPRECIATION> 183,397
<TOTAL-ASSETS> 410,937
<CURRENT-LIABILITIES> 72,786
<BONDS> 30,000
0
0
<COMMON> 115,291
<OTHER-SE> 157,255
<TOTAL-LIABILITY-AND-EQUITY> 410,937
<SALES> 581,004
<TOTAL-REVENUES> 598,019
<CGS> 457,946
<TOTAL-COSTS> 457,946
<OTHER-EXPENSES> 47,621
<LOSS-PROVISION> 334
<INTEREST-EXPENSE> 1,952
<INCOME-PRETAX> 90,166
<INCOME-TAX> 31,720
<INCOME-CONTINUING> 58,446
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,446
<EPS-PRIMARY> 4.76
<EPS-DILUTED> 4.43
</TABLE>
