SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
(Mark One)
___ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
/ X / OF THE SECURITIES EXCHANGE ACT OF 1934
- ----
For the quarterly period ended March 31, 1999
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
/ / OF THE SECURITIES EXCHANGE ACT OF 1934
- ----
For the transition period from to
--------------------- --------------------
Commission file number 1-10258
Tredegar Industries, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Virginia 54-1497771
- --------------------------------------------- -----------------------------
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
1100 Boulders Parkway
Richmond, Virginia 23225
- ------------------------------------------------- ----------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (804) 330-1000
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares of Common Stock, no par value, outstanding as of
April 30, 1999: 36,858,980.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
Tredegar Industries, Inc.
Consolidated Balance Sheets
(In Thousands)
(Unaudited)
<CAPTION>
March 31, Dec. 31,
1999 1998
-------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 27,991 $ 25,409
Accounts and notes receivable 95,509 94,341
Inventories 33,670 34,276
Deferred income taxes 8,800 8,762
Prepaid expenses and other 2,914 3,536
-------------- -------------
Total current assets 168,884 166,324
-------------- -------------
Property, plant and equipment, at cost 366,655 356,411
Less accumulated depreciation and amortization 205,633 200,380
-------------- -------------
Net property, plant and equipment 161,022 156,031
-------------- -------------
Venture capital investments 73,311 60,024
Other assets and deferred charges 43,689 41,886
Goodwill and other intangibles 32,828 32,913
-------------- -------------
Total assets $ 479,734 $ 457,178
============== =============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 48,673 $ 47,551
Accrued expenses 39,786 41,071
Income taxes payable 7,100 243
-------------- -------------
Total current liabilities 95,559 88,865
Long-term debt 25,000 25,000
Deferred income taxes 26,016 24,914
Other noncurrent liabilities 8,121 8,104
-------------- -------------
Total liabilities 154,696 146,883
-------------- -------------
Shareholders' equity:
Common stock, no par value 96,763 95,893
Common stock held in trust for savings
restoration plan (1,212) (1,212)
Unrealized gain on available-for-sale securities 1,311 1,376
Foreign currency translation adjustment (2,423) (2,519)
Retained earnings 230,599 216,757
-------------- -------------
Total shareholders' equity 325,038 310,295
-------------- -------------
Total liabilities and shareholders' equity $ 479,734 $ 457,178
============== =============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
<TABLE>
Tredegar Industries, Inc.
Consolidated Statements of Income
(In Thousands)
(Unaudited)
<CAPTION>
First Quarter
Ended March 31
----------------------------
1999 1998
-------------- -------------
<S> <C> <C>
Revenues:
Net sales $ 179,541 $ 156,660
Other income (expense), net 259 1,390
-------------- -------------
Total 179,800 158,050
-------------- -------------
Costs and expenses:
Cost of goods sold 140,326 123,096
Selling, general and administrative 11,373 8,840
Research and development 4,097 3,347
Interest 289 394
Unusual items - (765)
-------------- -------------
Total 156,085 134,912
-------------- -------------
Income before income taxes 23,715 23,138
Income taxes 8,417 5,842
-------------- -------------
Net income $ 15,298 $ 17,296
============== =============
Earnings per share:
Basic $ .42 $ .48
Diluted .39 .44
Shares used to compute earnings per share:
Basic 36,724 36,396
Diluted 38,800 39,000
Dividends per share $ .04 $ .03
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
<TABLE>
Tredegar Industries, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
First Quarter
Ended March 31
----------------------------
1999 1998
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 15,298 $ 17,296
Adjustments for noncash items:
Depreciation 5,754 4,856
Amortization of intangibles 87 8
Deferred income taxes (156) (84)
Accrued pension income and postretirement
benefits (919) (887)
Gain on sale of venture capital investments (168) (676)
Gain on divestitures - (765)
Changes in assets and liabilities, net of effects from acquisitions and
divestitures:
Accounts and notes receivable (639) (7,945)
Inventories 980 (2,239)
Income taxes recoverable - 294
Prepaid expenses and other 650 905
Accounts payable 677 6,357
Accrued expenses and income taxes payable 5,716 (19)
Other, net (766) 215
-------------- -------------
Net cash provided by operating activities 26,514 17,316
-------------- -------------
Cash flows from investing activities:
Capital expenditures (10,075) (5,704)
Acquisitions - (29,093)
Investments (15,410) (6,351)
Proceeds from the sale of investments 2,189 972
Proceeds from property disposals and divestitures 52 690
Other, net (102) 362
-------------- -------------
Net cash used in investing activities (23,346) (39,124)
-------------- -------------
Cash flows from financing activities:
Dividends paid (1,456) (1,074)
Repurchases of Tredegar common stock - (32,977)
Proceeds from exercise of stock options 870 869
-------------- -------------
Net cash used in financing activities (586) (33,182)
-------------- -------------
Increase (decrease) in cash and cash equivalents 2,582 (54,990)
Cash and cash equivalents at beginning of period 25,409 120,065
-------------- -------------
Cash and cash equivalents at end of period $ 27,991 $ 65,075
=============== =============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
TREDEGAR INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying consolidated financial
statements of Tredegar Industries, Inc. and Subsidiaries ("Tredegar")
contain all adjustments necessary to present fairly, in all material
respects, Tredegar's consolidated financial position as of March 31,
1999, and the consolidated results of operations and cash flows for the
three months ended March 31, 1999 and 1998. All such adjustments are
deemed to be of a normal recurring nature. These financial statements
should be read in conjunction with the consolidated financial
statements and related notes included in Tredegar's Annual Report on
Form 10-K for the year ended December 31, 1998. The results of
operations for the three months ended March 31, 1999, are not
necessarily indicative of the results to be expected for the full year.
2. On April 23, 1999, we signed an agreement with Exxon Chemical Company,
a division of Exxon Corporation, to acquire the assets of Exxon's
plastic film business. The proposed acquisition, which is subject to
various conditions, is expected to close by the end of May. The pending
acquisition includes plants in Lake Zurich, Illinois and Pottsville,
Pennsylvania, that manufacture films used primarily in packaging,
personal hygiene and medical markets. Tredegar's film division is a
major global producer of plastic films used in diapers and feminine
hygiene products as well as a variety of other packaging, medical,
industrial and agricultural markets. We expect to file a Current Report
on Form 8-K on the acquisition within 15 days after completion of the
transaction.
On April 8, 1999, we acquired the assets of Therics, Inc., for
$13.4 million. Therics is developing a new microfabrication technology
that has potential applications in drug delivery and a variety of other
medical markets. The company's primary focus is on commercializing its
TheriForm(TM) technology, a novel process for manufacturing tablets,
capsules and implantables with drug release profiles that are expected
to provide therapeutic advantages over currently available products.
Before the acquisition, Tredegar owned approximately 19 percent of
Therics. Therics employs 43 people and will become part of our
Technology Group, which already includes Molecumetics, our drug
discovery subsidiary, and Tredegar Investments, our venture capital
subsidiary. We plan to recognize a nonrecurring charge in the second
quarter related to the write-off of in-process research and development
acquired. The amount of the charge is being determined through an
independent, third-party analysis. In 1998, Therics had an operating
loss of $8.1 million. Over the next 12 months, we expect Therics to
generate an operating loss before depreciation and amortization of
about $5.5 million (nine cents per share after taxes). Depreciation and
amortization over the next 12 months is not expected to exceed $2.3
million (four cents per share after taxes), but cannot be determined
until the amount of the nonrecurring charge for in-process research and
development is known.
3. The carrying value of venture capital investments was $73.3 million
($75.8 million cost basis) at March 31, 1999, and $60 million ($60.6
million cost basis) at December 31, 1998. The excess of the cost basis
over the carrying value is related to the writedown of certain
investments, partially offset by available-for-sale securities stated
at their closing market price, with unrealized holding gains excluded
5
<PAGE>
from earnings and reported net of deferred income taxes in shareholders
equity until realized. The estimated fair value of venture capital
investments was $85.8 million at March 31, 1999, and $70.8 million at
December 31, 1998. The venture capital portfolio is comprised of
investments in private venture capital fund limited partnerships and
early-stage technology companies with an overall weighted average age
of 1.6 years. Most liquidation opportunities are not expected for
several years and will depend on many factors, including market
conditions.
4. Comprehensive income, defined as net income and other comprehensive
income, was $15.3 million for the first quarter of 1999 and $16 million
for the first quarter of 1998. Other comprehensive income includes
changes in unrealized gains and losses on available-for-sale securities
and foreign currency translation adjustments recorded net of deferred
income taxes directly in shareholders' equity.
5. The components of inventories are as follows:
(In Thousands)
March 31 Dec. 31
1999 1998
-------------- --------------
Finished goods $5,121 $4,805
Work-in-process 3,398 3,751
Raw materials 17,219 17,690
Stores, supplies and other 7,932 8,030
-------------- --------------
Total $33,670 $34,276
-------------- --------------
6. 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:
(In Thousands)
First Quarter
Ended March 31
-------------------------------
1999 1998
-------------- --------------
Weighted average shares outstanding used
to compute basic earnings per share 36,724 36,396
Incremental shares issuable upon the
assumed exercise of stock options 2,076 2,604
-------------- --------------
Shares used to compute diluted earnings
per share 38,800 39,000
-------------- --------------
6
<PAGE>
Incremental shares issuable upon the assumed exercise of
outstanding stock options are computed using the average market price
during the related period.
7. The Financial Accounting Standards Board has issued a new standard
affecting the accounting for derivative instruments and hedging
activities. This standard is not expected to significantly change our
operating results, financial condition or disclosures. The new standard
will be adopted in the first quarter of 2000.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
First Quarter 1999 Compared with First Quarter 1998
Net income for the first quarter of 1999 was $15.3 million or 39 cents
per share, versus year-ago earnings of $17.3 million or 44 cents per share (all
per share amounts in this analysis are expressed on a diluted basis). Results
for the first quarter of last year include a nonrecurring after-tax gain of $2.8
million (seven cents per share) related to the divestiture of APPX Software.
Earnings from manufacturing operations were $16.1 million or 41 cents per share,
up from $14.7 million or 38 cents per share in 1998. Results are summarized
below:
<TABLE>
<CAPTION>
(In Thousands Except Per-Share Amounts)
First Quarter Last 12
Ended March 31 Months
-------------------------
1999 1998 3/31/99
---------- ------------ -----------
<S> <C> <C> <C>
Net sales $ 179,541 $ 156,660 $ 722,677
Net income:
Manufacturing operations $ 16,095 $ 14,688 $ 65,344
Technology:
Operating companies (547) (590) (2,473)
Venture capital investments (250) 432 (288)
Unusual items - 2,766 (425)
Discontinued operations - - 4,713
----------- -------------- -------------
Total $ 15,298 $ 17,296 $ 66,871
=========== ============== =============
Diluted earnings per share:
Manufacturing operations $ .41 $ .38 $ 1.69
Technology:
Operating companies (.01) (.02) (.06)
Venture capital investments (.01) .01 (.01)
Unusual items - .07 (.01)
Discontinued operations - - .12
----------- -------------- -------------
Total $ .39 $ .44 $ 1.73
=========== ============== =============
EBITDA $ 29,905 $ 25,840 $ 120,042
As a % of net sales 16.7% 16.5% 16.6%
Consolidated pro forma information for 1998 acquisitions in Aluminum Extrusions
as if they had occurred at the beginning of 1998:
Net sales 179,541 185,333 739,803
EBITDA 29,905 27,033 121,610
As a % of pro forma net sales 16.7% 14.6% 16.4%
Manufacturing operations:
Net income 16,095 14,539 65,783
Diluted earnings per share .41 .37 1.70
</TABLE>
The improved earnings from manufacturing operations were driven by
continued volume growth and acquisitions in our aluminum extrusions business,
where profits were up 58%. Four of our eight aluminum plants have been acquired
since January 1998. The profit growth in aluminum more than offset lower results
in plastic films, where profits were down 12%. On April 23, 1999, we signed an
agreement with Exxon Chemical Company, a division of Exxon Corporation, to
acquire the assets of Exxon's plastic film business (see Note 2 on page 5).
8
<PAGE>
This year's first-quarter results from technology operating companies
(an after-tax loss of $547,000 or one cent per share) include losses at our
Molecumetics drug discovery subsidiary. Beginning in the second quarter, results
from our Therics drug delivery subsidiary will also be included this segment.
Tredegar acquired Therics on April 8 of this year (see Note 2 on page 5).
First-quarter results for 1999 also include a net after-tax loss of
$250,000 (one cent per share) related to venture capital investment activities.
Last year's earnings include a net after-tax gain of $432,000 (one cent per
share) related to venture capital investments. For more information on venture
capital investments, see Note 3 on page 5.
First-quarter 1999 net sales decreased by 3.1% versus first-quarter
1998 pro forma net sales (net sales assuming the aluminum extrusion acquisitions
in 1998 occurred at the beginning of that year) due to lower selling prices,
partially offset by higher volume in Aluminum Extrusions. Lower selling prices
reflect a decline in plastic resin and aluminum ingot costs. In addition,
favorable economic conditions and minimal seasonal slowdown drove higher
aluminum volume. Overall volume in Film Products was flat.
The consolidated gross profit margin during the first quarter of 1999
increased to 21.8% from 21.4% in 1998 due primarily to higher margins in
Aluminum Extrusions.
Selling, general and administrative (SG&A) expenses in the first
quarter of 1999 were $11.4 million, up from $8.8 million in 1998 due primarily
to acquisitions and higher spending on new products in Film Products. As a
percentage of sales, SG&A expenses increased to 6.3% in 1999 compared with 5.6%
in 1998.
Research and development expenses increased by $750,000 or 22% due to
higher spending at Molecumetics.
Interest income, which is included in "Other income (expense), net" in
the consolidated statements of income, decreased in the first quarter of 1999 by
$790,000 to $325,000 due to a lower average cash equivalents balance (see
Liquidity and Capital Resources on page 12). The average tax-equivalent yield
earned on cash equivalents was approximately 4.9% in 1999 and 5.6% in 1998.
Interest expense decreased by $105,000 during the period due primarily to lower
average debt outstanding.
The effective tax rate excluding unusual items increased to 35.5% in
the first quarter of 1999 from 35.1% in the first quarter of 1998 due to lower
tax exempt income.
9
<PAGE>
Segment Results
The following tables present Tredegar's net sales and operating profit
by segment for the first quarter ended March 31, 1999 and 1998.
<TABLE>
Net Sales by Segment
(In Thousands)
(Unaudited)
<CAPTION>
First Quarter
Ended March 31
-------------------------------
1999 1998
---------------- --------------
<S> <C> <C>
Film Products $ 67,752 $ 74,796
Fiberlux 2,260 2,613
Aluminum Extrusions 107,684 77,722
Technology:
Molecumetics 1,845 1,500
Other - 29
--------------- --------------
Total net sales $ 179,541 $ 156,660
=============== ==============
</TABLE>
<TABLE>
Operating Profit by Segment
(In Thousands)
(Unaudited)
<CAPTION>
First Quarter
Ended March 31
-----------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Film Products $ 13,204 $ 14,934
Fiberlux (88) 183
Aluminum Extrusions 13,846 8,785
Technology:
Molecumetics (854) (494)
Venture capital investments (391) 676
Other - (428)
Unusual items - 765
-------------- --------------
Total technology (1,245) 519
-------------- --------------
Total operating profit 25,717 24,421
Interest income 325 1,115
Interest expense 289 394
Corporate expenses, net 2,038 2,004
-------------- --------------
Income before income taxes 23,715 23,138
Income taxes 8,417 5,842
-------------- --------------
Net income $ 15,298 $ 17,296
============== ==============
</TABLE>
10
<PAGE>
See Note 2 on page 5 regarding our pending acquisition of Exxon's
plastic film business.
Sales in Film Products declined during the first quarter of 1999 due
primarily to lower selling prices reflecting lower plastic resin costs.
Operating profit declined 12% due to:
- Customer product changeovers
- Higher spending on new products
- Start-up costs related to a new plant in Hungary ($607,000)
- Weakness in Latin American markets (profits down almost $250,000)
These unfavorable items were partially offset by higher profits from
the sale of new breathable films for diapers and higher profits related to Asia
(up $457,000).
Selected historical and pro forma results for Aluminum Extrusions are
summarized below (pro forma results assume that the 1998 acquisitions in this
segment occurred at the beginning of that year):
Aluminum Extrusions
Selected Historical and Pro Forma Financial Information
First Quarter Ended March 31
(In Thousands)
- --------------------------------------------------------------------------------
Historical Pro Forma
------------------------------ ---------------------------
1999 1998 1999 1998
---------- -------- --------- ---------
Net sales $ 107,684 $ 77,722 $ 107,684 $ 106,395
Operating profit 13,846 8,785 13,846 9,219
Sales in Aluminum Extrusions increased in the first quarter of 1999 due
to acquisitions and higher volume from favorable economic conditions and minimal
seasonal slowdown. Operating profit increased during the quarter due to higher
volume, related lower unit conversion costs and acquisitions.
Molecumetics operating losses increased by $360,000 during the quarter
due to higher expenses relating to new contract research programs. See Note 2 on
page 5 regarding our recent acquisition of the assets of Therics. Results in the
Technology segment for 1998 include an unusual gain of $765,000 on the sale of
APPX Software on January 16, 1998 ($2.8 million after income taxes, reflecting a
tax benefit of $2 million related to the excess of its income tax basis over its
financial reporting basis).
Losses in the first quarter of 1999 from venture capital investment
activities of $391,000 were comprised of operating expenses of $559,000,
partially offset by realized net gains (gains net of losses and writedowns) of
$168,000. The venture capital portfolio is comprised of investments in private
venture capital fund limited partnerships and early-stage technology companies
with an overall weighted average age of 1.6 years. Most liquidation
opportunities are not expected for several years and will depend on many
factors, including market conditions.
11
<PAGE>
Liquidity and Capital Resources
Tredegar's total assets increased to $479.7 million at March 31, 1999,
from $457.2 million at December 31, 1998, due to higher venture capital
investments and higher fixed assets from capital expenditures in excess of
depreciation. Total liabilities increased to $154.7 million at March 31, 1999,
from $146.9 million at December 31, 1998, due to higher income taxes payable.
Net cash provided by operating activities in excess of capital
expenditures and dividends increased to $15 million in the first quarter of 1999
from $10.5 million in 1998 due to favorable changes in working capital and
improved operating results, partially offset by higher capital expenditures and
higher dividends. Higher capital expenditures in Film Products are related to
the new facility near Budapest, Hungary, and machinery and equipment purchased
for the manufacture of new products (breathable and elastomeric films that are
replacing conventional diaper backsheet and other diaper components in order to
improve comfort and fit). The Hungary facility, which should be operational in
mid-1999, will produce disposable films for hygiene products marketed in Eastern
Europe. Higher capital expenditures in Aluminum Extrusions relate to the second
phase of a modernization program at the plant in Newnan, Georgia (the first
phase was completed in 1996).
The reasons for the increase in cash and cash equivalents to $28
million at March 31, 1999, from $25.4 million at December 31, 1998, are
summarized below:
<TABLE>
<CAPTION>
(In Thousands)
First Quarter
Ended March 31
----------------------------
1999 1998
-------------- -------------
<S> <C> <C>
Cash and cash equivalents, beginning of period $ 25,409 $ 120,065
-------------- -------------
Cash provided by operating activities in excess of
capital expenditures and dividends 14,983 10,538
Proceeds from the exercise of stock options 870 869
Acquisitions - (29,093)
Repurchases of Tredegar common stock - (32,977)
New venture capital investments, net of proceeds
from disposals (13,221) (5,379)
Other, net (50) 1,052
-------------- -------------
Net increase (decrease) in cash and cash equivalents 2,582 (54,990)
-------------- -------------
Cash and cash equivalents, end of period $ 27,991 $ 65,075
============== =============
</TABLE>
We expect to fund the acquisition of Exxon's film business with
borrowings under our $275 million revolving credit facility (no amounts borrowed
as of March 31, 1999). We are reviewing other long-term financing options that
would maintain our available credit at around $275 million.
12
<PAGE>
Quantitative and Qualitative Disclosures About Market Risk
Tredegar has exposure to the volatility of interest rates, polyethylene
resin prices, aluminum ingot and scrap prices, foreign currencies, emerging
markets and technology stocks.
The expected acquisition of Exxon's film business will put Tredegar in
a net debt position (debt in excess of cash and cash equivalents) for the first
time in several years. We expect to use interest-rate swaps or other derivative
instruments to fix the interest rate for several years on a portion of our new
borrowings.
Changes in resin prices, and the timing of those changes, could have a
significant impact on profit margins in Film Products; however, those 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, we enter 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 our exposure to
aluminum price volatility under these fixed-price arrangements, which generally
have a duration of not more than 12 months, we enter into a combination of
forward purchase commitments and futures contracts to acquire aluminum, based on
the scheduled deliveries.
We sell to customers in foreign markets through our foreign operations
and through exports from U.S. plants. The percentage of consolidated pretax
income earned by geographic area for the first quarter of 1999 and 1998 are
presented below:
Estimated % of Consolidated Pretax
Income Earned by Geographic Area*
----------------------------------------------
First Quarter
Ended March 31
---------------------------
1999 1998
------------ ------------
United States 63 % 66 %
Europe 10 13
Latin America 7 9
Canada 14 7
Asia 6 5
------------ ------------
Total 100 % 100 %
============ -===========
* Based on consolidated pretax income from continuing operations excluding
venture capital activities and unusual items.
We attempt to match the pricing and cost of our products in the same
currency and generally view the volatility of foreign currencies and emerging
markets, and the corresponding impact on earnings and cash flow, as part of the
overall risk of operating in a global environment. Exports from the U.S. are
denominated in U.S. dollars. Our foreign operations in emerging markets have
agreements with certain customers that index the pricing of our products to the
U.S. dollar or the German mark and the euro. Our foreign currency exposure on
income from foreign operations in Europe primarily relates to the German mark
and the euro. We believe that our exposure to the Canadian dollar has been
substantially neutralized by U.S. dollar-based spread (the difference between
selling prices and aluminum costs) generated from Canadian casting operations
and exports from Canada to the U.S.
13
<PAGE>
We have 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. See Note 3 on
page 5 for more information.
Year 2000 Information Technology Issues
The century date compliance problem, which is commonly referred to as
the "Year 2000" problem, will affect many computers and other electronic devices
that are not programmed to properly recognize dates starting with January 1,
2000. This could result in system failures or miscalculations. The potential
impact of such failures include, among others, an inability to secure raw
materials, manufacture products, ship products and be paid for products on a
timely basis.
Since 1996, we have been actively planning and responding to the Year
2000 problem. Year 2000 reviews have been and will continue to be made to our
Executive Committee and senior management. Periodic reviews with the Board of
Directors began in August 1998.
Our Year 2000 compliance efforts are focused on internal computer-based
information systems, external electronic interfaces and communication equipment,
shop floor machines and other manufacturing and research process control
devices. Remediation of systems requiring changes was completed at the end of
1998, except for revisions to a small portion of certain software programs and
the replacement of certain software for the four aluminum extrusion plants
recently acquired in Canada. Remediation efforts for the exceptions have
extended into 1999. Testing of systems began in mid-1998 and will continue
through 1999. We do not believe contingency plans are necessary for internal
systems at this time. We are also actively evaluating the Year 2000 capabilities
of parties with whom we have key business relationships (suppliers, customers
and banks, for example). Contingency plans will be developed for these
relationships as needed. Work to fix the Year 2000 problem is being performed
largely by internal personnel and we do not track those costs. The incremental
costs associated with correcting the problem are not expected to have a material
adverse effect on our operating results, financial condition or cash flows.
The computer systems for Exxon's plastic film business are not Year
2000 compliant and the status will be disclosed at a later date.
While we believe that we are taking the necessary steps to resolve our
Year 2000 issues in a timely manner, there can be no assurance that there will
be no Year 2000 problems. If any such problems occur, we will work to solve them
as quickly as possible. At present, we do not expect that any such problems will
have a material adverse effect on our businesses. The failure, however, of a
major customer or supplier to be Year 2000-compliant could have a material
adverse effect on our businesses.
14
<PAGE>
New Accounting Standards
The Financial Accounting Standards Board has issued a new standard
affecting the accounting for derivative instruments and hedging activities. This
standard is not expected to significantly change our operating results,
financial condition or disclosures. The new standard will be adopted in the
first quarter of 2000.
15
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit No.
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
for the quarter ended March 31, 1999.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Tredegar Industries, Inc.
(Registrant)
Date: May 13, 1999 /s/ N. A. Scher
----------------- -------------------------------------------
Norman A. Scher
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: May 13, 1999 /s/ D. Andrew Edwards
------------------ -------------------------------------------
D. Andrew Edwards
Vice President
Treasurer and Controller
(Principal Accounting Officer)
17
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS UNAUDITED SUMMARY FINANCIAL INFORMATION FOR TREDEGAR
INDUSTRIES, INC. AND SUBSIDIARIES EXTRACTED FROM THE BALANCE SHEET FOR THE
PERIOD ENDED MARCH 31, 1999 AND THE STATEMENT OF INCOME FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 27,991
<SECURITIES> 0
<RECEIVABLES> 99,101
<ALLOWANCES> 3,592
<INVENTORY> 33,670
<CURRENT-ASSETS> 168,884
<PP&E> 366,655
<DEPRECIATION> 205,633
<TOTAL-ASSETS> 479,734
<CURRENT-LIABILITIES> 95,559
<BONDS> 25,000
0
0
<COMMON> 96,763
<OTHER-SE> 228,275
<TOTAL-LIABILITY-AND-EQUITY> 479,734
<SALES> 179,541
<TOTAL-REVENUES> 179,800
<CGS> 140,326
<TOTAL-COSTS> 140,326
<OTHER-EXPENSES> 15,217
<LOSS-PROVISION> 253
<INTEREST-EXPENSE> 289
<INCOME-PRETAX> 23,715
<INCOME-TAX> 8,417
<INCOME-CONTINUING> 15,298
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,298
<EPS-PRIMARY> .42
<EPS-DILUTED> .39
</TABLE>
