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, 1999
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 CORPORATION
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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 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 10, 2000: *
$768,435,366
Number of shares of Common Stock outstanding as of March 10, 2000: 37,814,461
* In determining this figure, an aggregate of 12,411,639 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 10, 2000, as reported by The Wall
Street Journal.
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Documents Incorporated By Reference
Portions of the Tredegar Corporation ("Tredegar") Proxy Statement for
the 2000 Annual Meeting of Shareholders (the "Proxy Statement") are incorporated
by reference into Part III of this Form 10-K. We expect to file our Proxy
Statement with the Securities and Exchange Commission and mail it to
shareholders around March 31.
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<TABLE>
<CAPTION>
Index to Annual Report on Form 10-K
Year Ended December 31, 1999
Part I Page
<S> <C> <C>
Item 1. Business 1-7
Item 2. Properties 7-8
Item 3. Legal Proceedings None
Item 4. Submission of Matters to a Vote of Security Holders None
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Part II
Item 5. Market for Tredegar's Common Equity and Related 9-10
Stockholder Matters
Item 6. Selected Financial Data 10-17
Item 7. Management's Discussion and Analysis of Financial Condition 18-31
and Results of Operations
Item 8. Financial Statements and Supplementary Data 34-66
Item 9. Changes In and Disagreements With Accountants on Accounting None
and Financial Disclosures
Part III
Item 10. Directors and Executive Officers of Tredegar * 32-33
Item 11. Executive Compensation *
Item 12. Security Ownership of Certain Beneficial Owners and Management *
Item 13. Certain Relationships and Related Transactions None
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on 34
Form 8-K
</TABLE>
* Items 11 and 12 and portions of Item 10 are incorporated by reference from the
Proxy Statement.
The Securities and Exchange Commission has not approved or disapproved of this
report or passed upon its accuracy or adequacy.
<PAGE>
PART I
Item 1. BUSINESS
Description of Business
Tredegar is engaged directly or through subsidiaries in the
manufacture of plastic films, vinyl extrusions and aluminum extrusions. We also
have interests in a variety of technology-based businesses.
Film Products
Film Products manufactures plastic films for disposable personal
hygiene products (primarily feminine hygiene and diaper products) and packaging,
medical, industrial and agricultural products. These 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, Hungary,
Brazil, Argentina and China where it produces films for European, Latin American
and Asian markets. On May 17, 1999, Film Products acquired Exxon Chemical
Company's plastic film business ("Exxon Films") for $205 million (including
transaction costs). The acquisition included 350 employees and two plants. The
plants are located in Lake Zurich, Illinois and in Pottsville, Pennsylvania, and
manufacture films used primarily in packaging, personal hygiene and medical
markets. Film Products competes in all of its markets on the basis of product
quality, price and service.
Film Products produces film for several major market categories:
hygiene, packaging and industrial.
Hygiene. Film Products is one of the largest U.S. suppliers of permeable,
breathable, elastomeric and embossed films for disposable personal hygiene
products. In each of the last three years, this class of products accounted for
more than 30% of Tredegar's consolidated revenues.
Film Products supplies permeable films for use as liners in feminine
hygiene products and adult incontinent products. Film Products also supplies
breathable, embossed and elastomeric films and nonwoven film laminates for use
as backsheet and other components for hygienic products such as baby diapers,
adult incontinent products and feminine hygiene products. Film Products' primary
customer for permeable, breathable and elastomeric films and nonwoven film
laminates is The Procter & Gamble Company ("P&G"), the leading global personal
hygiene product manufacturer. Net sales to P&G totaled $250 million in 1999,
$233.5 million in 1998 and $242.2 million in 1997 (these amounts include plastic
film sold to others that converted the film into materials used in products
manufactured by P&G).
P&G and Tredegar have had a successful long-term relationship based
on cooperation, product innovation and continuous process improvement. The loss
or significant reduction of sales associated with P&G would have a material
adverse effect on our business.
Packaging & Industrial. Film Products produces a broad line of packaging films
with an emphasis on paper and industrial packaging, as well as laminating films.
These are both coextruded and monolayer films produced by either the blown or
<PAGE>
cast processes. They give our customers a competitive advantage by providing a
thin gauge film that is readily printable and convertible on conventional
processing equipment. Packaging and industrial films sold directly or indirectly
to P&G constitutes about 35% of overall packaging and industrial films sales
volume and somewhat less of related revenue.
Coextruded and monolayer permeable films under the VisPore(R) name
are also sold by Film Products. 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 used by Film Products are low-density
and linear low-density polyethylene resins, which are obtained from domestic and
foreign suppliers at competitive prices. We believe there will be an adequate
supply of polyethylene resins in the immediate future.
Research and Development. Film Products has technical centers in Terre Haute,
Indiana, and Lake Zurich, Illinois, and holds 42 U.S. patents and 14 U.S.
trademarks. Expenditures for research and development have averaged $6.3 million
per year during the past three years.
Fiberlux
Fiberlux is a U.S. producer of rigid vinyl extrusions for windows and
patio doors. Fiberlux products are sold to fabricators and directly to end-
users. The primary raw material, polyvinyl chloride resin, is purchased in the
open market and under contract. No critical shortages of polyvinyl chloride
resins are expected. Fiberlux competes in all of its markets on the basis of
product quality, price and service. Fiberlux holds one U.S. patent and three
U.S. trademarks. Fiberlux is currently not material to Tredegar's consolidated
results of operations.
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, distribution,
transportation, electrical and consumer durables markets. The operations
associated with Bon L Campo Limited Partnership were acquired in 1997 and the
operations associated with Bon L Canada Inc. were acquired in 1998 (see Note 2
on page 46).
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Aluminum Extrusions manufactures mill (unfinished), anodized and
painted aluminum extrusions for sale directly to fabricators and distributors
that use aluminum extrusions to produce curtain walls, architectural shapes, tub
and shower doors, window components, ladders, running boards, boat windshields,
bus bars, tractor-trailer shapes, snowmobiles and furniture, among other
products. Sales are made primarily in the United States and Canada, principally
east of the Rocky Mountains.
The percentage concentration of aluminum extrusions shipped to the
building and construction market has declined over the past several years due
primarily to acquisitions (48% in 1999 compared to 71% in 1995). A breakdown of
1999 and 1998 aluminum extrusion sales volume by market segment is shown below:
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% of Aluminum
Extrusion Sales Volume
by Market Segment
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1999 1998
Building and construction 48 51
Distribution 18 9
Transportation 14 15
Electrical 7 7
Consumer durables 5 7
Other 8 11
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Total 100 100
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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. We do not
expect critical shortages of aluminum or other required raw materials and
supplies.
Aluminum Extrusions competes primarily on the basis of product
quality, service and price.
Aluminum Extrusions holds two U.S. patents and nine U.S. trademarks.
Technology
Our technology interests include Tredegar Investments, Inc.,
Molecumetics, Ltd., and Therics, Inc.
Tredegar Investments. Tredegar Investments is our venture capital subsidiary.
Its investments represent high-risk stakes in technology start-up companies,
primarily in the areas of Internet and information technologies, communications
and life sciences. Its primary objective is to generate high after-tax internal
rates of return commensurate with the level of risk involved. More information,
including a schedule of investments, is provided in the business segment review
on pages 29-31, and in Note 7 on page 51.
Molecumetics. Molecumetics operates a drug discovery research laboratory in
Bellevue, Washington, where it uses patented chemistry to develop new drug
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candidates for licensing to pharmaceutical and biotechnology companies.
Molecumetics has entered into a number of research collaboration and license
agreements, which are described below. Each of these agreements, except for the
agreement with ChoongWae Pharma Corporation ("ChoongWae"; see below), provides
for research and development ("R&D") support funding. Each of these agreements,
again except for the ChoongWae agreement, also provides for additional payments
if Molecumetics achieves certain milestones based on the clinical progression of
program compounds, as well as future royalties if sales of products from the
programs occur. Revenues recognized to date relate entirely to payments received
for R&D support, including revenues of $7.6 million in 1999, $5.7 million in
1998 and $2.6 million in 1997. See Note 1 on page 40 for more information on
revenue recognition.
To date, Molecumetics has not achieved any defined milestones nor
does it have licensed products for which royalties are received. Any discussion
of the possibility of achieving milestones or realizing future royalties would
be speculative at this time. Molecumetics' operating losses were $3.4 million in
1999, $3.5 million in 1998 and $4.5 million in 1997.
In 1999, Molecumetics entered into a research collaboration agreement
with Pharmacia & Upjohn Company ("Pharmacia") to identify and develop orally
active modulators of Cysteinyl aspartate-specific proteinases ("Caspases").
Caspases play a central role in apoptosis, the inappropriate control of which
contributes to the underlying pathology in many human diseases. Under the
agreement, Molecumetics uses its SMART Library(R) technology to optimize lead
compounds, and Pharmacia is responsible for in-vivo testing and all pre-clinical
and clinical development activities. Pharmacia also has worldwide exclusive
rights to develop and commercialize the resulting compounds.
In 1999, Molecumetics expanded its existing relationship with Asahi
Chemical Industry Co., Ltd. (Asahi) by signing a multi-year research
collaboration agreement for the discovery and development of new drugs for
treatment of central nervous system, cardiovascular, inflammation and metabolism
therapeutic areas. The new agreement replaces a 1997 collaboration agreement
between the two companies that focused solely on cardiovascular disorders. Under
the terms of the current agreement, the companies mutually select multiple
molecular targets to pursue in the agreed-upon therapeutic areas. Molecumetics
is responsible for providing libraries of compounds for identifying lead
compounds. The two companies share the screening responsibilities and the
optimization of lead compounds. Asahi is responsible for the pre-clinical
development of the compounds in Japan and other Asian countries. Molecumetics
retains all rights to the compounds in North America and Europe.
In 1998, Molecumetics and Bristol-Myers Squibb Company ("BMS")
entered into a three-year research alliance aimed at developing new drugs for
the treatment of inflammatory and immunological diseases. The collaborative
research is focused on the identification of small-molecule transcription factor
inhibitors. Molecumetics also is supplying BMS with 150,000 of its proprietary
MolecuSet(R) compounds for broad-based screening against a wide variety of
disease targets.
In 1998, Molecumetics signed a two-year license and supply agreement
with ChoongWae, a Korean pharmaceutical company. Under terms of the agreement,
ChoongWae synthesizes and delivers certain key chemical intermediates to
Molecumetics in exchange for licensing rights to the jointly developed tryptase
inhibitors in certain Asian countries. Molecumetics retains the rights to these
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compounds in all other countries. Tryptase inhibitors could be used to treat
asthma, inflammatory bowel disease and psoriasis. The intermediates supplied by
ChoongWae are not commercially available, and Molecumetics uses them in the
tryptase inhibitors and other programs, and for synthesis of proprietary
compounds using its SMART Library technology. Under the agreement, no cash
settlement is involved. No revenue has been recognized, and Molecumetics
expenses the costs associated with the jointly developed tryptase inhibitors
program as incurred.
In September 1997, Molecumetics signed a research and licensing
collaboration agreement with Teijin Limited ("Teijin") for the optimization and
development of Molecumetics' orally active inhibitors of thrombin, a key
protease in the blood coagulation cascade. The resulting therapeutic drugs would
be useful for treating a variety of blood-clotting disorders. Under the terms of
the agreement, Molecumetics is responsible for the optimization of its lead
compounds using its SMART Library technology. The two companies collaborate on
preclinical studies. Teijin is responsible for the clinical development,
approval and marketing of the compounds in Japan and other Asian countries.
Molecumetics retains all rights to the compounds in North America and Europe.
Molecumetics holds 14 U.S. patents and three U.S. trademarks, and has
filed a number of other patent applications with respect to its technology.
Molecumetics spent approximately $10.8 million in 1999, $8.5 million in 1998 and
$6.7 million in 1997 on research and development activities.
Therics. On April 8, 1999, Tredegar acquired the assets of Therics for cash
consideration of $13.6 million (including transaction costs). Before the
acquisition, Tredegar owned approximately 19% of Therics. Upon the final
liquidation of the former Therics, Tredegar paid approximately $10.2 million to
effectively acquire the remaining 81% ownership interest. Based in Princeton,
New Jersey, Therics is developing new microfabrication technology that has
potential applications in drug delivery and a variety of other medical markets.
Its primary focus is on commercializing the TheriForm(TM) process, a new and
unique process for manufacturing oral and implantable drugs and bioimplantable
reconstructive body parts. Among other things, this technology enables drug
companies to build precise amounts of active drugs and excipients in specific
locations within each tablet. As a result, the internal architecture of each
tablet can be designed to provide unique release profiles that are tailored to
meet medical needs.
In connection with the acquisition, Tredegar recognized a charge of
$3.5 million (classified as an unusual item in the consolidated statement of
income) in the second quarter of 1999 related to the write-off of acquired
in-process research and development (primarily the TheriForm process). The
amount of the charge was determined through an independent third-party analysis
using the income approach. At the date of acquisition, the TheriForm process was
90% complete and will be considered technologically feasible upon the successful
manufacture of an FDA-validated product. The uncertainties involved include the
ability to:
- - Meet machine performance objectives in a sustainable manufacturing environment
- - Produce machines for large-scale commercial production
- - Meet customer requirements with regard to price and performance objectives
- - Achieve technological and commercial feasibility within the anticipated cost
structure and timetable
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The technology has no alternative future use for which technological
feasibility has been achieved. The estimated cost to complete the development at
the acquisition date was $4.6 million, over 70% of which was projected for 1999
and 2000. Therics had revenues of $161,000 and an operating loss of $5.2 million
for the period from the acquisition date (April 8, 1999) through December 31,
1999.
In 1999, Therics signed a five-year collaboration agreement with
Warner-Lambert Company aimed at developing formulations of several model
compounds to be chosen by the parties, which formulations could then be used as
templates for the development of the same or different compounds. Therics will
receive R&D support funding for its work under this agreement.
Revenues recognized by Therics in 1999 relate entirely to payments
received for R&D support. See Note 1 on page 40 for more information on revenue
recognition.
The immediate challenges at Therics are to enter into additional
collaborations and to advance internal product development efforts.
Therics is exclusively licensed in the healthcare field under 10 U.S.
patents, owns 1 U.S. patent, has applied for 7 U.S. trademarks, and has filed a
number of other patent applications with respect to its technology. For the
period from the acquisition date to the end of 1999, Therics spent approximately
$4.5 million on research and development activities.
Miscellaneous
Patents, Licenses and Trademarks. Tredegar considers patents, licenses and
trademarks to be of significance for Film Products, Molecumetics and Therics. We
routinely apply for patents on significant developments with respect to all of
our businesses. Our patents have remaining terms ranging from 1 to 17 years. We
also have licenses under patents owned by third parties.
Research and Development. Tredegar spent approximately $22.3 million in 1999,
$14.5 million in 1998 and $13.2 million in 1997 on research and development
activities.
Backlog. Backlogs are not material to our operations.
6
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Government Regulation. Laws concerning the environment that affect or could
affect our domestic operations include, among others, the Clean Water Act, the
Clean Air Act, the Resource Conservation Recovery Act, the Occupational Safety
and Health Act, the National Environmental Policy Act, the Toxic Substances
Control Act, the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), regulations promulgated under these acts, and any
other federal, state or local laws or regulations governing environmental
matters. We are in substantial compliance with all applicable laws, regulations
and permits. In order to maintain substantial compliance with such standards, we
may be required to incur expenditures, the amounts and timing of which are not
presently determinable but which could be significant, in constructing new
facilities or in modifying existing facilities.
From time to time the Environmental Protection Agency may identify us
as a potentially responsible party with respect to a Superfund site under
CERCLA. To date, we are indirectly potentially responsible with respect to three
Superfund sites. As a result, we 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, we are indirectly potentially responsible for one New
Jersey Spill Site Act location. Another New Jersey site is being investigated
pursuant to the New Jersey Industrial Site Recovery Act.
Employees. Tredegar employed approximately 3,700 people at December 31, 1999.
Item 2. PROPERTIES
General
Most of the improved real property and the other assets used in our
operations are owned, and none of the owned property is subject to an
encumbrance that is material to our consolidated operations. We consider the
condition of the plants, warehouses and other properties and assets owned or
leased by us to be generally good. We also consider the geographical
distribution of our plants to be well-suited to satisfying the needs of our
customers.
We believe that the capacity of our plants is adequate to meet our
immediate needs. Our plants generally have operated at 65-95 percent of
capacity. Our corporate headquarters offices are located at 1100 Boulders
Parkway, Richmond, Virginia 23225.
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<TABLE>
<CAPTION>
Our principal plants and facilities are listed below:
<S> <C> <C>
Film Products Principal Operations
Locations in the United States Locations in Foreign Countries
Carbondale, Pennsylvania Budapest, Hungary Production of plastic films
LaGrange, Georgia Guangzhou, China (leased)
Lake Zurich, Illinois Kerkrade, the Netherlands
Manchester, Iowa San Juan, Argentina
New Bern, North Carolina Sao Paulo, Brazil
Pottsville, Pennsylvania
Tacoma, Washington (leased)
Terre Haute, Indiana (2)
(technical center and
production facility)
Fiberlux Locations Principal Operations
Pawling, New York Production of vinyl extrusions
for windows and patio doors
Aluminum Extrusions Principal Operations
Locations in the United States Locations in Canada
Carthage, Tennessee Aurora, Ontario Production of aluminum
El Campo, Texas Pickering, Ontario extrusions, fabrication and
Kentland, Indiana Richmond Hill, Ontario finishing
Newnan, Georgia Ste. Therese, Quebec
</TABLE>
Technology
Tredegar Investments leases office space in Seattle, Washington, and
Palo Alto, California. Molecumetics leases its laboratory space in Bellevue,
Washington. Therics leases space in Princeton, New Jersey.
Item 3. LEGAL PROCEEDINGS
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
8
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PART II
Item 5. MARKET FOR TREDEGAR'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Market Prices of Common Stock and Shareholder Data
Our common stock is traded on the New York Stock Exchange under the
ticker symbol TG. We have no preferred stock outstanding. There were 37,661,140
shares of common stock held by 6,057 shareholders of record on December 31,
1999.
The following table shows the reported high and low closing prices of
our common stock by quarter for the past two years.
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1999 1998
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High Low High Low
First quarter $ 32.38 $22.50 $24.70 $19.00
Second quarter 32.94 20.50 30.67 23.81
Third quarter 23.69 20.38 29.94 16.13
Fourth quarter 23.19 16.06 26.25 19.00
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Dividend Information
On May 20, 1998, we declared a three-for-one stock split payable on
July 1, 1998, to shareholders of record on June 15, 1998. Accordingly, all
historical references to per-share amounts, shares repurchased and the shares
used to compute earnings per share have been restated to reflect the split.
The quarterly dividend rate was increased to:
- - 2.67 cents per share effective January 1, 1997
- - 3 cents per share effective October 1, 1997
- - 4 cents per share effective July 1, 1998
All decisions with respect to payment of dividends will be made by
the Board of Directors based upon earnings, financial condition, anticipated
cash needs and such other considerations as the Board deems relevant. See Note 9
on page 54 for restriction on minimum shareholders' equity required.
Annual Meeting
Our annual meeting of shareholders will be held on May 24, 2000,
beginning at 9:30 a.m. EDT at The Jefferson Hotel in Richmond, Virginia. Formal
notices of the annual meeting, proxies and proxy statements will be mailed to
shareholders around March 31.
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Inquiries
Inquiries concerning stock transfers, dividends, dividend
reinvestment, consolidating accounts, changes of address, or lost or stolen
stock certificates should be directed to:
American Stock Transfer & Trust Company
Shareholder Services Department
40 Wall Street - 46th Floor
New York, New York 10005
Phone: 800-937-5449
Web site: http://www.amstock.com
All other inquiries should be directed to:
Tredegar Corporation
Corporate Communications Department
1100 Boulders Parkway
Richmond, Virginia 23225
Phone: 804-330-1044
E-mail: [email protected]
Web site: http://www.tredegar.com
Quarterly Information
We do not generate or distribute quarterly reports to shareholders.
Information on quarterly results can be obtained from our Web site and from
quarterly Form 10-Qs filed with the Securities and Exchange Commission.
Counsel Independent Accountants
Hunton & Williams PricewaterhouseCoopers LLP
Richmond, Virginia Richmond, Virginia
Item 6. SELECTED FINANCIAL DATA
The tables that follow on pages 11-17 present certain selected
financial and segment information for the eight years ended December 31, 1999.
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<TABLE>
EIGHT-YEAR SUMMARY
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Tredegar Corporation and Subsidiaries
<CAPTION>
Years Ended December 31 1999 1998 1997 1996 1995 1994 1993 1992
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(In thousands, except per-share data)
Results of Operations (a):
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $820,411 $699,796 $581,004 $523,551 $589,454 $502,208 $449,208 $445,229
Other income (expense), net (4,362) 4,015 17,015 4,248 (669) (296) (387) 226
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816,049 703,811 598,019 527,799 588,785 501,912 448,821 445,455
- ---------------------------------------------------------------------------------------------------------------------------------
Cost of goods sold 648,254 553,184 457,896 417,014 489,931 418,469 376,580 369,738
Selling, general & administrative
expenses 47,357 39,493 37,035 39,719 48,229 47,978 47,973 48,130
Research and development expenses 22,313 14,502 13,170 11,066 8,763 8,275 9,141 5,026
Amortization of intangibles 3,430 205 50 256 579 1,354 2,706 914
Interest expense (b) 9,088 1,318 1,952 2,176 3,039 4,008 5,044 5,615
Unusual items 4,065 (c) (101)(d) (2,250)(e) (11,427)(f) (78)(g) 16,494 (h) 452 (i) 90(j)
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734,507 608,601 507,853 458,804 550,463 496,578 441,896 429,513
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Income from continuing operations
before income taxes 81,542 95,210 90,166 68,995 38,322 5,334 6,925 15,942
Income taxes 28,894 31,054 (d) 31,720 23,960 14,269 3,917 3,202 (i) 6,425
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Income from continuing operations (a) 52,648 64,156 58,446 45,035 24,053 1,417 3,723 9,517
Income from discontinued Energy
segment operations (a) - 4,713 - - - 37,218 6,784 5,795
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Net income before extraordinary item
and cumulative effect of
accounting changes 52,648 68,869 58,446 45,035 24,053 38,635 10,507 15,312
Extraordinary item - prepayment
premium on extinguishment
of debt (net of tax) - - - - - - (1,115) -
Cumulative effect of accounting
changes - - - - - - 150 -
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Net income $52,648 $68,869 $58,446 $45,035 $24,053 $38,635 $ 9,542 $15,312
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Diluted earnings per share:
Continuing operations (a) 1.36 1.66 1.48 1.15 .60 .03 .08 .19
Discontinued Energy segment
operations (a) - .12 - - - .79 .14 .12
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Before extraordinary item and
cumulative effect of accounting
changes 1.36 1.78 1.48 1.15 .60 .82 .22 .31
Net income 1.36 1.78 1.48 1.15 .60 .82 .19 .31
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Refer to notes to financial tables on page 17.
</TABLE>
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<TABLE>
EIGHT-YEAR SUMMARY
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Tredegar Corporation and Subsidiaries
<CAPTION>
Years Ended December 31 1999 1998 1997 1996 1995 1994 1993 1992
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(In thousands, except per-share data)
Share Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity per share $ 9.88 $ 8.46 $ 7.34 $ 5.79 $ 4.67 $ 4.25 $ 3.45 $ 3.31
Cash dividends declared per share .16 .15 .11 .09 .06 .05 .05 .05
Weighted average common shares outstanding
during the period 36,992 36,286 36,861 36,624 38,748 46,572 49,029 49,023
Shares used to compute diluted earnings
per share during the period 38,739 38,670 39,534 39,315 40,110 46,842 49,182 49,176
Shares outstanding at end of period 37,661 36,661 37,113 36,714 36,528 40,464 49,029 49,023
Closing market price per share:
High 32.94 30.67 24.65 15.13 7.72 4.14 4.00 4.14
Low 16.06 16.13 12.54 6.83 3.86 3.11 2.78 2.22
End of year 20.69 22.50 21.96 13.38 7.17 3.86 3.33 3.44
Total return to shareholders (k) (7.3)% 3.1% 65.0% 87.8% 87.2% 17.4% (1.7)% 57.4%
Financial Position:
Total assets 792,487 457,178 410,937 341,077 314,052 318,345 353,383 354,910
Working capital excluding cash and
cash equivalents 80,594 52,050 30,279 31,860 54,504 53,087 62,064 56,365
Current ratio 2.0:1 1.9:1 3.1:1 3.2:1 1.8:1 1.9:1 2.1:1 2.0:1
Cash and cash equivalents 25,752 25,409 120,065 101,261 2,145 9,036 - -
Venture capital investments:
Cost basis 135,469 60,617 25,826 6,048 3,410 2,200 800 200
Carrying value 140,698 60,024 33,513 6,048 3,410 2,200 800 200
Estimated fair value 205,363 70,841 40,757 15,000 5,700 2,300 800 200
Net asset value 180,201 67,160 35,382 11,777 4,876 2,264 800 200
Ending consolidated capital employed(l) 616,476 309,886 182,481 146,284 203,376 200,842 266,088 263,897
Capital employed of divested and
discontinued operations (Molded
Products, Brudi and the Energy
segment) (a) - - - - 60,144 59,267 98,903 96,830
Debt 270,000 25,000 30,000 35,000 35,000 38,000 97,000 101,500
Shareholders' equity (net book value) 372,228 310,295 272,546 212,545 170,521 171,878 169,088 162,397
Equity market capitalization (m) 779,112 824,873 814,940 491,050 261,784 156,236 163,430 168,857
Net debt (cash) (debt less cash and cash
equivalents) as a % of net capitalization 39.6% (0.1)% (49.4)% (45.3)% 16.2% 14.4% 36.5% 38.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Refer to notes to financial tables on page 17.
</TABLE>
12
<PAGE>
<TABLE>
SEGMENT TABLES
Tredegar Corporation and Subsidiaries
<CAPTION>
Net Sales
- ------------------------------------------------------------------------------------------------------------------------------------
Segment 1999 1998 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Film Products $ 342,300 $ 286,965 $ 298,862 $ 257,306 $ 237,770 $ 188,672 $ 177,052 $ 183,117
Fiberlux 9,092 11,629 10,596 10,564 11,329 11,479 10,239 10,655
Aluminum Extrusions 461,241 395,455 266,585 219,044 221,657 193,870 166,465 150,524
Technology:
Molecumetics 7,617 5,718 2,583 36 - 200 - -
Therics 161 - - - - - - -
Other - 29 2,378 2,090 1,953 2,517 2,994 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total ongoing operations (n) 820,411 699,796 581,004 489,040 472,709 396,738 356,750 344,296
Divested operations (a):
Molded Products - - - 21,131 84,911 76,579 68,233 80,834
Brudi - - - 13,380 31,834 28,891 24,225 20,099
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 820,411 $ 699,796 $ 581,004 $ 523,551 $ 589,454 $ 502,208 $ 449,208 $ 445,229
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Refer to notes to financial tables on page 17.
13
<PAGE>
<TABLE>
SEGMENT TABLES
Tredegar Corporation and Subsidiaries
<CAPTION>
Operating Profit
- --------------------------------------------------------------------------------------------------------------------------------
Segment 1999 1998 1997 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Film Products:
Ongoing operations $ 59,554 $ 53,786 $ 50,463 $ 43,158 $ 36,019 $ 34,726 $ 22,320 $ 26,700
Unusual items (1,170)(c) - - 680 (f) 1,750 (g) - (1,815)(i) -
- --------------------------------------------------------------------------------------------------------------------------------
58,384 53,786 50,463 43,838 37,769 34,726 20,505 26,700
- --------------------------------------------------------------------------------------------------------------------------------
Fiberlux:
Ongoing operations 57 1,433 845 1,220 452 950 557 (127)
Unusual items - - - - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
57 1,433 845 1,220 452 950 557 (127)
- --------------------------------------------------------------------------------------------------------------------------------
Aluminum Extrusions:
Ongoing operations 56,501 47,091 32,057 23,371 16,777 11,311 7,964 4,180
Unusual items - (664)(d) - - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
56,501 46,427 32,057 23,371 16,777 11,311 7,964 4,180
- --------------------------------------------------------------------------------------------------------------------------------
Technology:
Molecumetics (3,421) (3,504) (4,488) (6,564) (4,769) (3,534) (3,324) (1,031)
Therics (5,235) - - - - - - -
Venture capital investments (7,079) 615 13,880 2,139 (695) - - -
Other - (428) (267) (118) (566) (5,354) (6,380) (834)
Unusual items (3,607)(c) 765 (d) - - (1,672)(g) (9,521)(h) 2,263 (i) 1,092 (j)
- --------------------------------------------------------------------------------------------------------------------------------
(19,342) (2,552) 9,125 (4,543) (7,702) (18,409) (7,441) (773)
- --------------------------------------------------------------------------------------------------------------------------------
Divested operations (a):
Molded Products - - - 1,011 2,718 (2,484) (228) 1,176
Brudi - - - 231 222 (356) 177 513
Unusual items - - 2,250 (e) 10,747 (f) - (6,973)(h) - (1,182)(j)
- --------------------------------------------------------------------------------------------------------------------------------
- - 2,250 11,989 2,940 (9,813) (51) 507
- --------------------------------------------------------------------------------------------------------------------------------
Total operating profit 95,600 99,094 94,740 75,875 50,236 18,765 21,534 30,487
Interest income (p) 1,419 2,279 4,959 2,956 333 544 - -
Interest expense (b) 9,088 1,318 1,952 2,176 3,039 4,008 5,044 5,615
Corporate expenses, net 6,389 4,845 7,581 7,660 9,208 9,967 9,565 (i) 8,930
- --------------------------------------------------------------------------------------------------------------------------------
Income from continuing
operations before
income taxes 81,542 95,210 90,166 68,995 38,322 5,334 6,925 15,942
Income taxes 28,894 31,054 (d) 31,720 23,960 14,269 3,917 3,202 6,425
- --------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 52,648 64,156 58,446 45,035 24,053 1,417 3,723 9,517
Income from discontinued Energy
segment operations (a) - 4,713 - - - 37,218 6,784 5,795
- --------------------------------------------------------------------------------------------------------------------------------
Net income before extraordinary
item and cumulative effect
of accounting changes $ 52,648 $ 68,869 $ 58,446 $ 45,035 $ 24,053 $ 38,635 $ 10,507 $ 15,312
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Refer to notes to financial tables on page 17.
14
<PAGE>
<TABLE>
SEGMENT TABLES
Tredegar Corporation and Subsidiaries
<CAPTION>
Identifiable Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Segment 1999 1998 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Film Products $ 360,517 $ 132,241 $ 123,613 $ 116,520 $ 118,096 $ 108,862 $ 109,916 $ 112,153
Fiberlux 7,859 7,811 6,886 6,203 6,330 6,448 6,667 7,762
Aluminum Extrusions 216,258 201,518 101,855 83,814 80,955 89,406 89,498 93,365
Technology:
Molecumetics 4,749 5,196 2,550 2,911 2,018 1,536 1,926 1,415
Therics 9,905 - - - - - - -
Investments and other (o) 145,028 61,098 34,611 7,760 5,442 5,780 13,321 15,441
- ------------------------------------------------------------------------------------------------------------------------------------
Identifiable assets for ongoing
operations 744,316 407,864 269,515 217,208 212,841 212,032 221,328 230,136
Nonoperating assets held for sale - - - - 6,057 5,018 3,605 4,330
General corporate 22,419 23,905 21,357 22,608 20,326 12,789 12,031 11,745
Cash and cash equivalents 25,752 25,409 120,065 101,261 2,145 9,036 - -
Divested operations (a):
Molded Products - - - - 44,173 48,932 54,487 50,151
Brudi - - - - 28,510 30,538 30,956 28,744
Net assets of discontinued Energy
segment operations (a) - - - - - - 30,976 29,804
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 792,487 $ 457,178 $ 410,937 $ 341,077 $ 314,052 $ 318,345 $ 353,383 $ 354,910
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Refer to notes to financial tables on page 17.
15
<PAGE>
<TABLE>
SEGMENT TABLES
Tredegar Corporation and Subsidiaries
<CAPTION>
Depreciation and Amortization
- ------------------------------------------------------------------------------------------------------------------------------------
Segment 1999 1998 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Film Products $ 18,751 $ 11,993 $ 10,947 $ 11,262 $ 9,766 $ 9,097 $ 9,200 $ 7,697
Fiberlux 498 544 515 507 577 644 826 883
Aluminum Extrusions 9,484 8,393 5,508 5,407 5,966 5,948 6,240 7,093
Technology:
Molecumetics 1,490 1,260 996 780 592 573 443 -
Therics 1,195 - - - - - - -
Investments and other 22 21 135 161 197 720 1,868 -
- ------------------------------------------------------------------------------------------------------------------------------------
Subtotal 31,440 22,211 18,101 18,117 17,098 16,982 18,577 15,673
General corporate 253 254 313 390 481 570 685 703
- ------------------------------------------------------------------------------------------------------------------------------------
Total ongoing operations 31,693 22,465 18,414 18,507 17,579 17,552 19,262 16,376
Divested operations (a):
Molded Products - - - 1,261 5,055 5,956 5,289 5,416
Brudi - - - 550 1,201 1,337 1,272 1,085
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 31,693 $ 22,465 $ 18,414 $ 20,318 $ 23,835 $ 24,845 $ 25,823 $ 22,877
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Expenditures,
Acquisitions and Investments
- ------------------------------------------------------------------------------------------------------------------------------------
Segment 1999 1998 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Film Products $ 25,296 $ 18,456 $ 15,354 $ 11,932 $ 10,734 $ 6,710 $ 6,561 $ 12,931
Fiberlux 812 1,477 530 417 465 416 14 283
Aluminum Extrusions 16,388 10,407 6,372 8,598 5,454 4,391 1,870 2,487
Technology:
Molecumetics 1,362 3,561 366 1,594 894 178 939 1,414
Therics 757 - - - - - - -
Investments and other - 54 5 14 - 99 905 -
- ------------------------------------------------------------------------------------------------------------------------------------
Subtotal 44,615 33,955 22,627 22,555 17,547 11,794 10,289 17,115
General corporate 606 115 28 143 231 191 2,440 316
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures for ongoing
operations 45,221 34,070 22,655 22,698 17,778 11,985 12,729 17,431
Divested operations (a):
Molded Products - - - 1,158 6,553 2,988 3,235 2,441
Brudi - - - 104 807 606 516 833
- ------------------------------------------------------------------------------------------------------------------------------------
Total capital expenditures 45,221 34,070 22,655 23,960 25,138 15,579 16,480 20,705
Acquisitions and other 215,227 72,102 13,469 - 3,637 - 5,099 17,422
Venture capital investments 81,747 35,399 20,801 3,138 1,904 1,400 600 200
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 342,195 $ 141,571 $ 56,925 $ 27,098 $ 30,679 $ 16,979 $ 22,179 $ 38,327
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Refer to notes to financial tables on page 17.
16
<PAGE>
NOTES TO FINANCIAL TABLES
-----------------------------
(In thousands, except per-share amounts)
(a) On August 16, 1994, Tredegar completed the divestiture of its coal
subsidiary, The Elk Horn Coal Corporation. On February 4, 1994, we sold
our remaining oil and gas properties. As a result of these events, we
report the Energy segment as discontinued operations. In 1998,
discontinued operations includes gains for the reimbursement of payments
made by us to the United Mine Workers of America Combined Benefit Fund
(the "Fund") and the reversal of a related accrued liability established
to cover future payments to the Fund (see Note 18 on page 65). On March
29, 1996, we sold Molded Products. During the second quarter of 1996, we
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. We began reporting Molded Products
and Brudi separately in our segment disclosures in 1995 after announcing
our intent to divest these businesses.
(b) Interest expense has been allocated between continuing and discontinued
operations based on relative capital employed (see (a)).
(c) Unusual items for 1999 include a charge for costs associated with the
evaluation of financing and structural options for the Technology Group
($149), a gain on the sale of corporate real estate ($712), a charge
related to a write-off of in-process research and development expenses
associated with the Therics acquisition ($3,458, see Note 2 on page 46)
and a charge for the write-off of excess packaging film capacity ($1,170).
(d) Unusual items for 1998 include a charge related to the shutdown of the
powder-coat paint line in the production facility in Newnan, Georgia
($664) and a gain on the sale of APPX Software ($765). Income taxes
include a tax benefit of $2,001 related to the sale, including a tax
benefit for the excess of APPX Software's income tax basis over its
financial reporting basis.
(e) Unusual items for 1997 include a gain of $2,250 related to the redemption
of preferred stock received in connection with the 1996 divestiture of
Molded Products.
(f) Unusual items for 1996 include a gain on the sale of Molded Products
($19,893), a gain on the sale of a former plastic films manufacturing site
site in Fremont, California ($1,968), a charge related to the loss on the
divestiture of Brudi ($9,146) 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 our remaining investment in Emisphere Technologies, Inc.
($2,263). Income taxes includes a tax charge of $348 for the impact on
deferred taxes of a one percent increase in the federal income tax rate.
(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) 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.
(l) Consolidated capital employed is debt plus shareholders' equity minus cash
and cash equivalents.
(m) Equity market capitalization is the closing market price per share for
the period times the shares outstanding at the end of the period.
(n) Net sales include sales to P&G totaling $250,020 in 1999, $233,493 in 1998
and $242,229 in 1997. These amounts include plastic film sold to others
that converted the film into materials used in products manufactured by
P&G.
(o) Included in the investments and other category of the Technology segment
are APPX Software (sold in 1998 - see (d)) and venture capital investments
in which our ownership is less than 20% (see Note 7 on page 51).
(p) Interest income was insignificant prior to 1994.
17
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Tredegar is a manufacturer of plastic film, aluminum extrusions and
vinyl extrusions. We also have interests in a variety of technology-based
businesses. Descriptions of our businesses and interests are provided on pages
1-7.
Our manufacturing businesses are quite different from our technology
interests. Our manufacturing businesses can be analyzed and valued by
traditional measures of earnings and cash flow, and because they generate
positive ongoing cash flow, they can be leveraged with borrowed funds.
Our technology operating companies, Molecumetics and Therics, are
drug research and delivery start-up companies. Each generates operating losses
and negative cash flow in the form of net R&D expenditures. Neither has licensed
products to-date, and revenues consist entirely of collaboration revenues (R&D
support payments). They may never generate profits or positive cash flow. If
they were stand-alone, independent operations they would typically be financed
by private venture capital.
Our venture capital investments represent high-risk stakes in
technology start-up companies, primarily in the areas of Internet and
information technologies, communications and life sciences. Our primary
objective in the venture capital area is to generate high after-tax internal
rates of return commensurate with the level of risk involved.
In summary, we have a variety of business interests with dramatically
different risk profiles, which makes the communication of operating results more
difficult, especially since we only have one class of stock. As a result, the
segment information presented on pages 13-17, and the business segment review on
pages 26-31, is critical to the understanding of our operating results and
business risks.
On September 24, 1999, we announced that our board of directors is
evaluating alternative financing and structural options for the Technology Group
(Tredegar Investments, Molecumetics and Therics). These options are still being
studied.
Results of Operations
1999 versus 1998
Revenues. Net sales in 1999 increased by 17% over 1998 due primarily to
acquisitions. Pro forma net sales were up 1.4% for the year ($863.7 million in
1999 versus $851.6 million in 1998) as higher pro forma sales in Aluminum
Extrusions (up 4.5%) and higher R&D support revenues at Molecumetics were offset
by lower pro forma sales in Film Products (down 1.9%). Pro forma sales assume
that acquisitions occurred at the beginning of 1998 (see Note 2 on page 46). Net
losses from venture capital investment activities totaled $7.1 million ($4.5
million after income taxes) in 1999. Net gains from venture capital investment
activities totaled $615,000 ($394,000 after income taxes) in 1998.
18
<PAGE>
Venture capital investment gains and losses recognized are included
in "Other income (expense), net" in the consolidated statements of income on
page 36 and "Venture capital investments" in the operating profit table on page
14. Beginning April 1, 1998, we began classifying the stand-alone operating
expenses (primarily employee compensation and benefits and leased office space
and equipment) for our venture capital investment activities with gains and
losses in "Venture capital investments" in the operating profit table. Prior to
that time they were classified in the "Other" category of the technology
segment. These expenses, which continue to be reported in selling, general and
administrative expenses in the consolidated statements of income, totaled $2.5
million in 1999, $2.1 million in 1998, $1.7 million for the nine months ended
December 31, 1998, and $1 million in 1997.
For more information on net sales and venture capital investment
activities, see the business segment review on pages 26-31.
Operating Costs and Expenses. The gross profit margin during 1999 remained
unchanged at 21%, as a decline in the gross profit margin at Film Products was
offset by an increase in margins at Aluminum Extrusions. Lower gross profit
margins in Film Products were due mainly to lower volume and weakness in
international markets. Higher margins in Aluminum Extrusions were due primarily
to strong demand and higher volume.
Selling, general and administrative expenses ("SG&A") expenses in
1999 were $47.4 million, up from $39.5 million in 1998 due primarily to:
- - The acquisition of Exxon Films (impact of approximately $4 million)
- - A full year of SG&A for the aluminum extrusion plants acquired in Canada last
year (impact of approximately $1.5 million)
- - Increases in SG&A salaries and wages (up approximately 4%)
As a percentage of sales, SG&A expenses increased to 5.8% in 1999 compared with
5.6% in 1998.
R&D expenses increased to $22.3 million in 1999 from $14.5 million in
1998 due to the acquisition of Therics (impact of $4.5 million), higher spending
at Molecumetics in support of collaboration programs (up $2.3 million) and
higher product development spending at Film Products (up $1 million).
Unusual charges (net) in 1999 totaled $4.1 million ($2.6 million
after income taxes) and included:
- - A fourth-quarter charge of $149,000 ($95,000 after taxes) for costs associated
with the evaluation of financing and structural options for the Technology
Group
- - A third-quarter gain of $712,000 ($456,000 after taxes) on the sale of
corporate real estate (included in "Corporate expenses, net" in the operating
profit table on page 14)
- - A second-quarter charge of $3.5 million ($2.2 million after taxes) related to
the write-off of in-process R&D expenses associated with the Therics
acquisition (see page 5 for more information)
- - A second-quarter charge of $1.2 million ($749,000 after taxes) for the write-
off of excess packaging film capacity
19
<PAGE>
For more information on costs and expenses, see the business segment
review on pages 26-31.
Interest Income and Expense. Interest income, which is included in "Other income
(expense), net" in the consolidated statements of income, decreased to $1.4
million in 1999 from $2.3 million in 1998 due to a lower average cash
equivalents balance (see "Cash Flows" on page 23 for more information) and
yields. The average tax-equivalent yield earned on cash equivalents was
approximately 5.1% in 1999 and 5.6% in 1998. Our 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 our policy are
safety of principal and liquidity.
Interest expense increased to $9.1 million in 1999 from $1.3 million
in 1998 due to higher average debt outstanding of $165.3 million ($143 million
of average variable-rate debt and $22.3 million of average fixed-rate debt) in
1999 compared to $27.3 million in 1998 (all fixed-rate debt). The impact on
interest expense of higher average debt (see "Cash Flows" on page 23 for more
information) was partially offset by:
- - Lower average interest cost of 6.2% in 1999 (6.1% average on variable-rate
debt and 7.2% on fixed-rate debt) versus 7.2% in 1998 (all fixed-rate debt)
- - Higher capitalized interest from higher capital expenditures ($1.6 million in
1999 versus $915,000 in 1998)
Income Taxes. The effective tax rate, excluding unusual items and venture
capital investment activities, was approximately 35.5% in 1999 compared to 35%
in 1998. The increase during 1999 was due to a higher effective state income tax
rate and lower tax-exempt interest income, partially offset by a higher R&D tax
credit from higher R&D expenses. See Note 15 on page 62 for additional tax rate
information.
1998 versus 1997
Revenues. Net sales in 1998 increased by 20% over 1997 due primarily to
acquisitions. Pro forma net sales were flat for the year as higher pro forma
sales in Aluminum Extrusions (up 3%), higher collaboration revenues at
Molecumetics and higher sales at Fiberlux were offset by lower sales in Film
Products (down 4%). Net gains realized from venture capital investment
activities totaled $615,000 ($394,000 after income taxes) in 1998 and $13.9
million ($8.9 million after income taxes) in 1997. For more information on net
sales and venture capital investment activities, see the business segment review
on pages 26-31.
Operating Costs and Expenses. The gross profit margin during 1998 decreased to
21% from 21.2% in 1997 due primarily to acquisitions in Aluminum Extrusions. The
acquired businesses generally have lower margins than those realized in Film
Products. Higher contract research revenues had a positive impact on margins.
SG&A expenses in 1998 were $39.5 million, up from $37 million in 1997
due to acquisitions, partially offset by lower charges for the savings
restoration plan and higher pension income. As a percentage of sales, SG&A
expenses declined to 5.6% in 1998 compared with 6.4% in 1997.
20
<PAGE>
Research and development expenses increased to $14.5 million in 1998
from $13.2 million in 1997 due to higher spending at Molecumetics in support of
collaboration programs. Research and development spending at Film Products in
1998 was about the same as 1997, with primary focus on breathable and
elastomeric film technologies, which were commercialized in 1998.
Unusual income (net) in 1998 totaled $101,000 ($2.4 million after
income tax benefits) and included:
- - A fourth-quarter charge of $664,000 ($425,000 after taxes) related to the
shutdown of the powder-coat paint line at the aluminum extrusion facility in
Newnan, Georgia
- - A first-quarter gain of $765,000 ($2.8 million after tax benefits) on the
sale of APPX Software
Income taxes for continuing operations in 1998 include a tax benefit
of $2 million related to the sale of APPX Software, reflecting a tax benefit for
the excess of its income tax basis over its financial reporting basis.
For more information on costs and expenses, see the business segment
review on pages 26-31.
Interest Income and Expense. Interest income decreased to $2.3 million in 1998
from $5 million in 1997 due to a lower average cash equivalents balance (see
"Cash Flows" on page 23 for more information). The average tax-equivalent yield
earned on cash equivalents was approximately 5.6% in 1998 and 5.7% in 1997.
Interest expense decreased to $1.3 million in 1998 from $2 million in
1997 due to higher capitalized interest from higher capital expenditures, the
1997 write-off of deferred financing costs related to the refinancing of our
revolving credit facility, and lower average debt outstanding.
Income Taxes. The effective tax rate, excluding unusual items and venture
capital investment activities, was approximately 35% in 1998 and 1997, as the
impact of a decline in average tax-exempt investments was offset by a lower
effective state income tax rate. See Note 15 on page 62 for additional tax rate
information.
Discontinued Operations. Gains recognized in 1998 related to our discontinued
coal operations include:
- - A third-quarter after-tax gain of $3.4 million for the reversal of an
accrued liability established to cover future payments to the United Mine
Workers of America Combined Benefit Fund (the "UMWA Fund")
- - A fourth-quarter after-tax gain of $1.2 million for the reimbursement of
payments made by us to the UMWA Fund
We were relieved of any liability to the UMWA Fund as the result of a 1998
Supreme Court ruling.
21
<PAGE>
Financial Condition
Assets
Total assets increased to $792.5 million at December 31, 1999, from
$457.2 million at December 31, 1998, due mainly to:
- - The acquisition of Exxon Films on May 17, 1999 (total assets acquired of $210
million)
- - New venture capital investments ($77.8 million, net of proceeds from invest-
ments sold)
- - Higher receivables and inventories supporting manufacturing operations (up
$15.4 million)
- - Capital expenditures in excess of depreciation and amortization($13.5 million)
- - An increase in unrealized appreciation from available-for-sale securities (up
$10.9 million)
- - The acquisition of Therics on April 8, 1999 (total assets acquired of $10.1
million net of the in-process R&D write-off of $3.5 million)
Liabilities and Available Credit
Total liabilities were $420.3 million at December 31, 1999, up from
$146.9 million at December 31, 1998, due primarily to:
- - Higher debt (net increase of $245 million - see "Cash Flows" on page 23 for
more information)
- - Higher accounts payable primarily in support of manufacturing operations (up
$11.4 million)
- - Liabilities assumed from the acquisition of Exxon Films ($5 million)
- - An increase in the deferred income tax liability of $8.3 million, including an
increase due to higher unrealized appreciation from available-for-sale
securities ($3.9 million)
Debt outstanding of $270 million at December 31, 1999, consisted of a
$250 million term loan and a note payable with a remaining balance $20 million.
We also have a revolving credit facility that permits borrowings of up to $275
million (no amounts borrowed at December 31, 1999). 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 54 for more information on debt and
credit agreements.
Shareholders' Equity
At December 31, 1999, Tredegar had 37,661,140 shares of common stock
outstanding and a total market capitalization of $779.1 million, compared with
36,660,751 shares outstanding and a total market capitalization of $824.9
million at December 31, 1998.
We did not purchase any shares of our common stock during 1999. During
1998, we purchased 1,667,054 shares of our common stock for $36.8 million
($22.06 per share). During 1997, we purchased 166,989 shares of our common stock
for $2.5 million ($15.15 per share). Since becoming an independent company in
1989, we have purchased a total of 20.2 million shares, or 35% of our issued and
outstanding common stock, for $115.5 million ($5.70 per share). Under a standing
authorization from our board of directors, we may purchase an additional four
million shares in the open market or in privately negotiated transactions at
prices management deems appropriate.
22
<PAGE>
Cash Flows
The reasons for the changes in cash and cash equivalents during 1999,
1998 and 1997, are summarized below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
(In Millions)
1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and cash equivalents, beginning of year $ 25.4 $120.1 $101.3
- ------------------------------------------------------------------------------------------------
Cash provided by continuing operating activities
in excess of capital expenditures and dividends 40.8 33.2 39.5
Cash used by discontinued operations - (1.9) -
Proceeds from the exercise of stock options (including
related income tax benefits realized by Tredegar) 7.4 6.2 4.8
Acquisitions (see Note 2 on page 46) (215.2) (60.9) (13.5)
Repurchases of Tredegar common stock - (36.8) (2.5)
New venture capital investments, net of proceeds
from disposals (see Note 7 on page 51) (77.8) (29.9) (5.7)
Other, net .2 .4 1.2
Net increase (decrease) in borrowings 245.0 (5.0) (5.0)
- ------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents .4 (94.7) 18.8
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 25.8 $ 25.4 $120.1
- ------------------------------------------------------------------------------------------------
</TABLE>
Net cash provided by continuing operating activities in excess of
capital expenditures and dividends increased $7.6 million in 1999 due primarily
to higher cash flow from operating activities, partially offset by higher
capital expenditures (up $11.2 million).
Capital expenditures in 1999 reflect the normal replacement of
machinery and equipment and:
- - Machinery and equipment purchased for the Hungary facility, which produces
disposable films for hygiene products marketed in Eastern Europe
- - Machinery and equipment purchased for the manufacture of breathable and
elastomeric films (these films are replacing conventional diaper backsheet
and other components in order to improve comfort and fit)
- - Further expansion of diaper backsheet film capacity in Brazil
- - Commercial production capacity for new film products
- - Expenditures for the second phase of a modernization program at the
aluminum extrusion plant in Newnan, Georgia (the first phase was completed
in 1996)
Net cash provided by continuing operating activities in excess of
capital expenditures and dividends decreased $6.3 million in 1998 due primarily
to higher capital expenditures for manufacturing and research operations and
higher dividends, partially offset by improved operating results. Cash used by
discontinued operations of $1.9 million was due to the recapture of tax
deductions previously taken on the UMWA Fund liability, partially offset by
reimbursements received from the UMWA Fund.
23
<PAGE>
Capital expenditures increased $11.4 million in 1998. Capital
expenditures in 1998 reflect the normal replacement of machinery and equipment
and:
- - The new facility in Hungary
- - Machinery and equipment purchased for the manufacture of breathable and
elastomeric films
- - Expansion of diaper backsheet film capacity in Brazil
- - The second phase of a modernization program at the aluminum extrusion plant
in Newnan, Georgia
- - Expansion of Molecumetics' research lab in Bellevue, Washington
Net cash provided by continuing operating activities in excess of
capital expenditures and dividends was $39.5 million in 1997, up from $18.1
million in 1996 due primarily to:
- - Improved operating results
- - Lower capital expenditures in Aluminum Extrusions due to the completion of
the first phase of the modernization project at the Newnan plant in late 1996
- - Lower capital expenditures due to the 1996 Molded Products and Brudi
divestitures (Molded Products and Brudi had combined capital expenditures
of $1.3 million in 1996)
These items were partially offset in 1997 by:
- - Income taxes paid on venture capital investment net gains
- - Higher capital expenditures in Film Products reflecting normal replacement of
machinery and equipment and permeable film additions, including expansion
into China and Eastern Europe
Quantitative and Qualitative Disclosures about Market Risk
Tredegar has exposure to the volatility of interest rates,
polyethylene and polypropylene resin prices, aluminum ingot and scrap prices,
foreign currencies, emerging markets and technology stocks. See Note 9 on page
54 regarding credit agreements and interest rate exposures.
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. See Note 6 on page 50 for more information.
24
<PAGE>
We sell to customers in foreign markets through our foreign
operations and through exports from U.S. plants. The percentage of sales, income
and total assets related to foreign markets for 1999 and 1998 are presented
below:
<TABLE>
- ---------------------------------------------------------------------------------------------
Tredegar Corporation
Percentage of Net Sales, Pretax Income and Total Assets Related to Foreign Markets
- ---------------------------------------------------------------------------------------------
<CAPTION>
1999 1998
-------------------------------------------------------------------------------
% of Total % of Total % Total % of Total % of Total % Total
Net Sales Pretax Income* Assets - Net Sales Pretax Income* Assets -
--------- --------------- --------- ---------------
Exports Foreign ExportsForeign Foreign ExportsForeign ExportsForeign Foreign
From Oper- From Oper- Oper- From Oper- From Oper- Oper-
U.S. ations U.S. ations ations U.S. ations U.S. ations ations
---- ------ ---- ------ ------ ---- ------ ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Canada 3 19 6 12 12 3 15 6 7 20
Europe 1 4 3 7 3 1 4 1 10 3
Latin America 3 2 7 3 2 3 4 4 5 4
Asia 4 1 5 2 1 4 - 6 (1) 1
- ---------------------------------------------------------------------------------------------
Total % exposure
to foreign
markets 11 26 21 24 18 11 23 17 21 28
- ---------------------------------------------------------------------------------------------
</TABLE>
* The percentages of pretax income for foreign markets are relative to
Tredegar's total pretax income from manufacturing and technology operations
(consolidated pretax income from continuing operations excluding venture
capital investment 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
generally 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, the German Mark or 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 the 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. The acquisition of Exxon
Films on May 17, 1999, has increased the proportion of assets located in the
U.S. It has also increased the amount of operating profit earned in the U.S.,
partially offset by higher U.S. Dollar interest expense on higher debt related
to the acquisition.
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. The portfolio
is subject to risks typically associated with investments in technology start-up
companies, which include business failure, illiquidity and stock market
volatility. Furthermore, publicly traded stocks of emerging, technology-based
companies have higher volatility and risk than the U.S. stock market as a whole.
See the business segment review on page 29 and Note 7 on page 51 for more
information.
New Accounting Standards
The Financial Accounting Standards Board has issued a new standard
affecting the accounting for derivative instruments and hedging activities. This
25
<PAGE>
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 2001.
Business Segment Review
Film Products
Sales. Film Products sales increased by 19% in 1999 due to the acquisition of
Exxon Films on May 17, 1999 (see Note 2 on page 46), partially offset by lower
volume in existing operations. Lower volume from existing operations (down 4.6%)
was due to:
- - The transition to breathable and elastomeric films (these films are
replacing conventional diaper backsheet and other diaper components in
order to improve comfort and fit)
- - Lower volume due to decline in the market share of a major customer
- - Weakness in international markets (volume was down 3.7% for European
operations and down 13.3% for Latin American operations)
On a pro forma basis (assuming the acquisition of Exxon Films occurred at the
beginning of 1998), Film Products sales declined by almost 2% to $386 million in
1999 from $393 million in 1998.
Film Products sales decreased by 4% in 1998 due to lower selling
prices reflecting lower average plastic resin costs and lower volume of plastic
film in Asia (primarily supplied to P&G), partially offset by:
- - Sales of breathable backsheet and other new products to P&G
- - Higher volume of VisPore(R) film (primarily used for ground cover applica-
tions)
- - Higher volume of permeable film supplied to P&G in Europe
- - Higher sales to new customers
Operating Profit. Film Products operating profit (excluding unusual items) was
$59.6 million in 1999, up from $53.8 million in 1998 due to the acquisition of
Exxon Films, partially offset by lower profit from existing operations. Lower
profit from existing operations (down $6.9 million or 12.8%) was due to:
- - Lower volume from the transition to new products and lower customer market
share as noted above
- - Weakness in international markets (profits down $2.3 million for foreign
operations), including a decline in profits in Brazil (down $2 million due
primarily to the economic impact of the devaluation of the Real) and lower
profits from European operations (down $2.8 million due mainly to lower
volume and higher losses of $900,000 from start-up of the new plant in
Hungary), partially offset by higher profits in China (up $2.6 million)
- - Higher product development spending (up $1 million)
Tredegar expects that, by 2001, the annual ongoing benefits from
synergies (cost reductions, efficiencies and technology enhancements expected
from the integration of Exxon Films into existing operations) will range from $7
- - $9 million.
26
<PAGE>
Film Products operating profit was $53.8 million in 1998, up from
$50.5 million in 1997 due to higher volume in the areas noted above and material
efficiencies in nonwoven film laminates, partially offset by:
- - Lower volume and operating profits relating to Asia (profits down $3 million)
- - Higher costs related to new product introductions
- - Start-up costs for the new permeable film production sites in China and
Hungary
Identifiable Assets. Identifiable assets in Film Products were $360.5
million in 1999, up from $132.2 million in 1998 due primarily to:
- - The acquisition of Exxon Films (assets acquired totaled $210 million,
including goodwill of $115 million)
- - Higher receivables and inventories (up $9 million) reflecting primarily higher
raw material costs from higher plastic resin prices at the end of the year
- - Capital expenditures in excess of depreciation and amortization ($6.5 million)
Identifiable assets in Film Products were $132.2 million in 1998, up
from $123.6 million in 1997 due primarily to capital expenditures in excess of
depreciation and amortization.
Depreciation, Amortization and Capital Expenditures. Depreciation and
amortization for Film Products was $18.8 million in 1999, up from $12 million in
1998 due to the acquisition of Exxon Films. Depreciation and amortization for
Film Products was $12 million in 1998, up from $10.9 million in 1997 due to
higher capital expenditures.
Capital expenditures in Film Products in 1999 reflect the normal
replacement of machinery and equipment and:
- - Machinery and equipment purchased for the Hungary facility, which produces
disposable films for hygiene products marketed in Eastern Europe
- - Machinery and equipment purchased for the manufacture of breathable and
elastomeric films
- - Further expansion of diaper backsheet film capacity in Brazil
- - Commercial production capacity for new products
Capital expenditures in Film Products for 1998 reflect the normal
replacement of machinery and equipment and:
- - The new facility in Hungary
- - Machinery and equipment purchased for the manufacture of breathable and
elastomeric films
- - Expansion of diaper backsheet film capacity in Brazil
Fiberlux
Fiberlux is currently not material to the consolidated results of
operations.
Aluminum Extrusions
Sales. Sales in Aluminum Extrusions increased by 17% in 1999 due to acquisitions
27
<PAGE>
in 1998 (there were no acquisitions in Aluminum Extrusions in 1999 - see Note 2
on page 46) and higher volume from strong demand (see our market segments in the
table on page 3), partially offset by lower average selling prices. Volume was
up 10.6% on a comparable basis excluding acquisitions. Lower average selling
prices (down about 6 cents per pound or 4%) were due primarily to lower average
raw material (aluminum) costs. On a pro forma basis, assuming acquisitions in
Aluminum Extrusions in 1997 and 1998 occurred at the beginning of 1997, sales
increased by 4.5% in 1999.
Sales in Aluminum Extrusions increased by 48% in 1998 due to
acquisitions and strength in all building and construction markets and higher
sales to distributors. Pro forma sales in Aluminum Extrusions increased by 3% in
1998.
Operating Profit. Operating profit increased by 20% in 1999 due to higher volume
and acquisitions as noted above. Operating results were adversely affected by
press and furnace repairs and resulting downtime at the El Campo, Texas
facility, and expenses and disruptions associated with the second phase of the
press modernization project at the Newnan, Georgia plant (the first phase was
completed in 1996).
Operating profit increased by 47% in 1998 due to higher volume,
related lower unit conversion costs and acquisitions. Conversion costs were also
reduced by an insurance recovery of $791,000 related to expenses incurred in
1997 for repairs to the casting furnaces at the Newnan, Georgia, plant.
Identifiable Assets. Identifiable assets in Aluminum Extrusions were $216.3
million in 1999, up from $201.5 million in 1998, due primarily to:
- - Capital expenditures in excess of depreciation and amortization ($6.9 million)
- - Higher accounts receivable (up $7 million) from higher sales in the fourth
quarter of 1999 compared to the fourth quarter of 1998
Identifiable assets in Aluminum Extrusions were $201.5 million in
1998, up from $101.9 million in 1997, due to acquisitions (assets related to
acquisitions in 1998 totaled $97 million, including goodwill of $13.1 million)
and capital expenditures in excess of depreciation and amortization ($2
million).
Depreciation, Amortization and Capital Expenditures. Depreciation and
amortization for Aluminum Extrusions was $9.5 million in 1999, up from $8.4
million in 1998 due to acquisitions. Depreciation and amortization for Aluminum
Extrusions was $8.4 million in 1998, up from $5.5 million in 1997 due to
acquisitions, partially offset by the full depreciation of certain assets in
1997.
Capital expenditures in 1999 and 1998 reflect the normal replacement
of machinery and equipment, and expenditures for the second phase of the press
modernization project at the Newnan plant. Total capital outlays for this
project are expected to be $10 million, of which $6.2 million was spent in 1999
and $1.3 million was spent in 1998.
28
<PAGE>
Technology
Revenues recognized to date for technology operating companies,
Molecumetics and Therics (Therics was acquired on April 8, 1999), relate
entirely to payments received for R&D support, including revenues of $7.8
million in 1999, $5.7 million in 1998 and $2.6 million in 1997. Operating losses
(excluding unusual items) from technology operating companies increased by $5.2
million in 1999 due to the acquisition of Therics. R&D support revenues from
collaboration arrangements increased at Molecumetics in 1999, but were offset by
related higher R&D expenses. Operating losses at Molecumetics declined to $3.5
million in 1998 from $4.5 million in 1997 due to R&D support revenues from
collaborations. See pages 3-6 for more information on Molecumetics and Therics.
Changes in Technology segment identifiable assets over the last three
years are summarized below:
<TABLE>
- -----------------------------------------------------------------------------------------------
<CAPTION>
(In Millions)
1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Technology segment identifiable assets,
beginning of year $ 66.3 $ 37.2 $ 10.7
- -----------------------------------------------------------------------------------------------
Molecumetics:
Capital expenditures, primarily expansion of its
research lab in Bellevue, Washington 1.4 3.6 .4
Depreciation (1.5) (1.3) (1.1)
Therics:
Assets acquired (see Note 2 on page 46) 13.6 - -
Write-off of in-process R&D (unusual item, see
pages 5-6) (3.5) - -
Capital expenditures .8 - -
Depreciation (.5) - -
Amortization of intangibles (.7) - -
Tredegar Investments (see Note 7 on page 51):
New investments 81.7 35.4 20.8
Proceeds from the sale of investments (3.9) (5.5) (15.1)
Realized gains 3.1 4.6 14.3
Realized losses, write-offs and write-downs (7.7) (2.3) (.4)
Transfer of carrying value of Therics out of
portfolio (acquired by Tredegar) (3.4) - -
Increase (decrease) in unrealized gain on
available-for-sale securities 10.9 (5.7) 7.8
Other (primarily increase in deferred income tax
asset in 1999) 3.0 .3 (.2)
- -----------------------------------------------------------------------------------------------
Net increase in Technology segment identifiable
assets 93.3 29.1 26.5
- -----------------------------------------------------------------------------------------------
Technology segment identifiable assets,
end of year $ 159.6 $ 66.3 $ 37.2
- -----------------------------------------------------------------------------------------------
</TABLE>
Tredegar Investments is our venture capital subsidiary. A schedule of
investments is provided in Note 7 on page 51. Information on how we account for
and value our venture capital investments is provided in Note 1 on page 41.
29
<PAGE>
The appreciation (depreciation) in net asset value ("NAV") related to
venture capital investment activities for the last three years is summarized
below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
(In Millions)
1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net realized gains, losses, writedowns and related
operating expenses for venture capital
investments reflected in consolidated
statements of income (net of tax) $ (4.5) $ .4 $ 8.2
Change in unrealized appreciation of venture
capital investments (net of tax) 41.4 (1.4) 4.0
- --------------------------------------------------------------------------------------------
Appreciation (depreciation) in net asset value
related to venture capital investment activities $ 36.9 $ (1.0) $ 12.2
- --------------------------------------------------------------------------------------------
</TABLE>
The substantial increase in the net asset value in 1999 was due to a
strong market for technology investments, IPOs and mergers, especially in the
fourth quarter of 1999, and further maturity of the companies in the portfolio.
The following companies held directly in the portfolio, or held indirectly
through our interests in other venture capital funds, accounted for more than
half of the net asset value appreciation in 1999:
- - Caliper Technologies Corporation, IPO ($4.4 million NAV appreciation in
1999)
- - Monterey Networks, acquired by Cisco Systems through merger (indirectly
held through our interest in Communications Ventures II, L.P.) ($4.4
million NAV appreciation in 1999)
- - Digital Island, IPO (indirectly held through our interest in Vanguard V,
L.P.) ($3.4 million NAV appreciation in 1999)
- - Cobalt Networks, Inc., IPO (indirectly held through our interest in
Vanguard V, L.P.) ($2.8 million NAV appreciation in 1999)
- - V-Bits, Inc., acquired by Cisco Systems through merger ($2.7 million NAV
appreciation in 1999)
- - Superconductor Technologies, Inc. ($1 million NAV appreciation in 1999 on
common stock equivalent basis)
- - Lightspeed International, acquired by Cisco Systems through merger
(indirectly held through our interest in Vanguard V, L.P.) ($1.3 million
NAV appreciation in 1999)
Higher valuations (net of writedowns) of private securities in the
portfolio (direct and indirect) accounted for most of the remaining appreciation
in NAV. The cost basis, carrying value and net asset value of the venture
capital portfolio is reconciled on the next page.
30
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
(In Millions)
December 31
--------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost basis of venture capital investments $ 135.5 $ 60.6 $ 25.9
Writedowns taken on securities held (charged to
earnings) (7.8) (2.7) (.2)
Unrealized appreciation on public securities held
by Tredegar (reflected directly in equity net of
deferred income taxes) 13.0 2.1 7.8
- --------------------------------------------------------------------------------------------------
Carrying value of venture capital investments
reflected in the balance sheet 140.7 60.0 33.5
Unrealized appreciation in private securities held by
Tredegar and in its indirect interest in all securities
held by venture capital funds 64.7 10.8 7.3
- --------------------------------------------------------------------------------------------------
Estimated fair value of venture capital investments 205.4 70.8 40.8
Estimated income taxes on assumed disposal at
fair value (25.2) (3.7) (5.4)
- --------------------------------------------------------------------------------------------------
Estimated NAV of venture capital investments $ 180.2 $ 67.1 $ 35.4
- --------------------------------------------------------------------------------------------------
</TABLE>
Our internal rate of return ("IRR") since inception in 1992 through
December 31, 1999, is estimated at 51% (34% after income taxes), but is not
necessarily indicative of the IRR that we will generate in the future. The
pooled IRR for the venture capital industry reported by Venture
Economics/Thomson Financial Securities Data ("Venture Economics") was 35.2% for
the five years ended September 30, 1999, 20.8% for the 10 years ended September
30, 1999, and 16.3% for the 20 years ended September 30, 1999.
IRR is the discount rate that equates the net present value of
investment cash inflows with investment cash outflows. The IRR is calculated as
an annualized compounded rate of return using actual investment cash flows,
modified to incorporate our share of the current valuation of unliquidated
holdings and operating expenses (and taxes in case of the after-tax IRR). The
pooled IRR for the venture capital industry was computed by Venture Economics
from the combined cash flows and net asset values of all venture capital funds
in their database as if the funds were one portfolio. These are pre-tax returns
and computed on the same basis as Tredegar's pre-tax IRR. However, it is
important to note that the predominant structure for private venture capital
funds is the limited partnership, which, unlike corporations, is not subject to
income taxes. As a result, the after-tax IRR for most private venture capital
funds is equal to the funds' pre-tax IRR.
Our portfolio is subject to risks typically associated with
investments in technology start-up companies, which include business failure,
illiquidity and stock market volatility.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the index on page 34 for references to the report of independent
accountants, management's report on the financial statements, the consolidated
financial statements and selected quarterly financial data.
31
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF TREDEGAR
The information concerning directors and persons nominated to become
directors of Tredegar included in the Proxy Statement under the heading
"Election of Directors" is incorporated herein by reference.
The information included in the Proxy Statement under the heading
"Stock Ownership" is incorporated herein by reference.
Set forth below are the names, ages and titles of our executive
officers:
Name Age Title
John D. Gottwald 45 President and Chief Executive Officer
Douglas R. Monk 54 Executive Vice President and Chief Operating Officer
Norman A. Scher 62 Executive Vice President and Chief Financial Officer
D. Andrew Edwards 41 Vice President, Treasurer and Controller
Michael W. Giancaspro 44 Vice President, Corporate Development
Nancy M. Taylor 40 Vice President, General Counsel and Secretary
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.
Douglas R. Monk. Mr. Monk was elected Executive Vice President and Chief
Operating Officer on November 18, 1998, and is responsible for our manufacturing
operations. Mr. Monk has served as a Vice President since August 29, 1994, and
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
for our Aluminum Division.
D. Andrew Edwards. Mr. Edwards was elected Vice President on November 18, 1998.
Mr. Edwards served as Controller from October 19, 1992, until May 22, 1997, when
he was elected Treasurer and Controller.
32
<PAGE>
Nancy M. Taylor. Ms. Taylor was elected Vice President on November 18, 1998. Ms.
Taylor has served as General Counsel and Secretary since May 22, 1997. From
February 25, 1994 until May 22, 1997, Ms. Taylor served as Corporate Counsel and
Secretary. She served as Assistant General Counsel from September 1, 1991 until
February 25, 1994.
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. Mr. Giancaspro has submitted his
resignation effective as of April 30, 2000.
Item 11. EXECUTIVE COMPENSATION
The information included in the Proxy Statement under the heading
"Compensation of Executive Officers and Directors" is incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information included in the Proxy Statement under the heading
"Stock Ownership" is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
33
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) List of documents filed as a part of the report:
(1) Financial statements:
<TABLE>
<CAPTION>
Tredegar Corporation
Index to Financial Statements and Supplementary Data
Page
<S> <C>
Report of Independent Accountants 35
Management's Report on the Financial Statements 35
Financial Statements (Audited):
Consolidated Statements of Income for the Years Ended 36
December 31, 1999, 1998 and 1997
Consolidated Balance Sheets as of December 31, 37
1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended 38
December 31, 1999, 1998 and 1997
Consolidated Statements of Shareholder's Equity for the 39
Years Ended December 31, 1999, 1998 and 1997
Notes to Financial Statements 40-65
Selected Quarterly Financial Data (Unaudited) 66
</TABLE>
(2) Financial statement schedules:
None
(3) Exhibits:
See Exhibit Index on page 69.
(b) Reports on Form 8-K
We did not file or amend any reports on Form 8-K during the
last quarter of the year ended December 31, 1999.
34
<PAGE>
INDEPENDENT ACCOUNTANTS' AND MANAGEMENT'S REPORTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Tredegar Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, cash flows and shareholders' equity
present fairly, in all material respects, the financial position of Tredegar
Corporation and Subsidiaries ("Tredegar") at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Richmond, Virginia
January 20, 2000
MANAGEMENT'S REPORT ON THE FINANCIAL STATEMENTS
Tredegar's management has prepared the financial statements and related
notes appearing on pages 36-65 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 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 PricewaterhouseCoopers
LLP, independent 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.
35
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
- -----------------------------------------------------------------------------
Tredegar Corporation and Subsidiaries
<CAPTION>
Years Ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------
(In thousands, except per-share amounts)
<S> <C> <C> <C>
Revenues:
Net sales $820,411 $ 699,796 $ 581,004
Other income (expense), net (4,362) 4,015 17,015
- -----------------------------------------------------------------------------
Total 816,049 703,811 598,019
- -----------------------------------------------------------------------------
Costs and expenses:
Cost of goods sold 648,254 553,184 457,896
Selling, general and administrative 47,357 39,493 37,035
Research and development 22,313 14,502 13,170
Amortization of intangibles 3,430 205 50
Interest 9,088 1,318 1,952
Unusual items 4,065 (101) (2,250)
- -----------------------------------------------------------------------------
Total 734,507 608,601 507,853
- -----------------------------------------------------------------------------
Income from continuing operations
before income taxes 81,542 95,210 90,166
Income taxes 28,894 31,054 31,720
- -----------------------------------------------------------------------------
Income from continuing operations 52,648 64,156 58,446
Income from discontinued operations - 4,713 -
- -----------------------------------------------------------------------------
Net income $ 52,648 $ 68,869 $ 58,446
- -----------------------------------------------------------------------------
Earnings per share:
Basic:
Continuing operations $ 1.42 $ 1.77 $ 1.59
Discontinued operations - .13 -
- -----------------------------------------------------------------------------
Net income $ 1.42 $ 1.90 $ 1.59
- -----------------------------------------------------------------------------
Diluted:
Continuing operations $ 1.36 $ 1.66 $ 1.48
Discontinued operations - .12 -
- -----------------------------------------------------------------------------
Net income $ 1.36 $ 1.78 $ 1.48
- -----------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------
Tredegar Corporation and Subsidiaries
<CAPTION>
December 31 1999 1998
- -----------------------------------------------------------------------------
(In thousands, except share amounts)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 25,752 $ 25,409
Accounts and notes receivable 121,820 94,341
Inventories 53,129 34,276
Deferred income taxes 11,230 8,762
Prepaid expenses and other 2,657 3,536
- -----------------------------------------------------------------------------
Total current assets 214,588 166,324
- -----------------------------------------------------------------------------
Property, plant and equipment, at cost:
Land and land improvements 12,328 9,162
Buildings 62,466 51,633
Machinery and equipment 392,771 295,616
- -----------------------------------------------------------------------------
Total property, plant and equipment 467,565 356,411
Less accumulated depreciation 224,158 200,380
- -----------------------------------------------------------------------------
Net property, plant and equipment 243,407 156,031
Venture capital investments 140,698 60,024
Other assets and deferred charges 41,250 41,886
Goodwill and other intangibles 152,544 32,913
- -----------------------------------------------------------------------------
Total assets $792,487 $ 457,178
- -----------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 61,476 $ 47,551
Accrued expenses 45,030 41,071
Income taxes payable 1,736 243
- -----------------------------------------------------------------------------
Total current liabilities 108,242 88,865
Long-term debt 270,000 25,000
Deferred income taxes 33,205 24,914
Other noncurrent liabilities 8,812 8,104
- -----------------------------------------------------------------------------
Total liabilities 420,259 146,883
- -----------------------------------------------------------------------------
Commitments and contingencies (Notes 7, 12 and 17)
Shareholders' equity:
Common stock (no par value):
Authorized 150,000,000 shares;
Issued and outstanding - 37,661,140 shares
in 1999 and 36,660,751 in 1998 103,327 95,893
Common stock held in trust for savings restoration
plan (53,871 shares in 1999 and 1998) (1,212) (1,212)
Accumulated other comprehensive income (loss):
Unrealized gain on available-for-sale securities 8,330 1,376
Foreign currency translation adjustment (1,672) (2,519)
Retained earnings 263,455 216,757
- -----------------------------------------------------------------------------
Total shareholders' equity 372,228 310,295
- -----------------------------------------------------------------------------
Total liabilities and shareholders' equity $792,487 $ 457,178
- -----------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------
Tredegar Corporation and Subsidiaries
<CAPTION>
Years Ended December 31 1999 1998 1997
- ------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income from continuing operations $52,648 $ 64,156 $58,446
Adjustments for noncash items:
Depreciation 28,263 22,260 18,364
Amortization of intangibles 3,430 205 50
Write-off of in-process R&D acquired and other intangibles 3,725 - 7
Deferred income taxes 1,456 431 3,341
Accrued pension income and postretirement benefits (2,904) (3,931) (2,975)
Loss (gain) on sale of venture capital investments 4,622 (2,267) (13,880)
Loss (gain) on equipment writedowns and divestitures 458 (101) (2,250)
Net cash used by discontinued operating activities - (1,910) -
Changes in assets and liabilities, net of
effects from acquisitions and divestitures:
Accounts and notes receivable (13,293) (4,271) (1,937)
Inventories (2,120) (4,035) 994
Income taxes recoverable and other prepaid expenses 1,059 1,263 280
Accounts payable and accrued expenses 15,547 665 8,010
Other, net (871) (1,691) (2,130)
- ------------------------------------------------------------------------------------------------
Net cash provided by operating activities 92,020 70,774 66,320
- ------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (45,221) (34,070) (22,655)
Acquisitions (net of cash acquired of $1,097 in
1998; excludes equity issued of $11,219 in 1998) (215,227) (60,883) (13,469)
Venture capital investments (81,747) (35,399) (20,801)
Proceeds from the sale of venture capital investments 3,936 5,462 15,060
Proceeds from property disposals and divestitures 1,424 747 2,637
Other, net (1,326) (74) (359)
- ------------------------------------------------------------------------------------------------
Net cash used in investing activities (338,161) (124,217) (39,587)
- ------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Dividends paid (5,950) (5,404) (4,181)
Net increase (decrease) in borrowings 245,000 (5,000) (5,000)
Repurchases of Tredegar common stock - (36,774) (2,531)
Tredegar common stock purchased by trust for
savings restoration plan - (192) (1,020)
Proceeds from exercise of stock options (including
related income tax benefits realized) 7,434 6,157 4,803
- ------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 246,484 (41,213) (7,929)
- ------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 343 (94,656) 18,804
Cash and cash equivalents at beginning of period 25,409 120,065 101,261
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $25,752 $ 25,409 $120,065
- ------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest payments (net of amount capitalized) $ 5,554 $ 1,333 $ 1,968
Income tax payments, net $24,367 $ 34,464 $24,485
- ------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
38
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------------
Tredegar Corporation and Subsidiaries
<CAPTION>
Accumulated
Other Comprehensive
Income (Loss)
--------------------
Unrealized
Trust for Gain on Foreign Total
Savings Available- Currency Share-
Common Stock Retained Restora- for-Sale Trans- holders'
Shares Amount Earnings tion Plan Securities lation Equity
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share and per-share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996 36,714,159 $113,019 $ 99,027 $ - $ - $ 499 $212,545
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 58,446 - - - 58,446
Other comprehensive income (loss):
Available-for-sale securities adjustment,
net of reclassification adjustment
(net of tax provision of $2,824) - - - - 5,020 - 5,020
Foreign currency translation adjustment
(net of tax benefit of $289) - - - - - (536) (536)
---------
Comprehensive income 62,930
Cash dividends declared ($.113 per share) - - (4,181) - - - (4,181)
Repurchases of Tredegar common stock (166,989) (2,531) - - - - (2,531)
Issued upon exercise of stock options
(including related income tax benefits
realized by Tredegar of $2,042) 566,565 4,803 - - - - 4,803
Tredegar common stock purchased by
trust for savings restoration plan - - - (1,020) - - (1,020)
- --------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1997 37,113,735 115,291 153,292 (1,020) 5,020 (37) 272,546
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 68,869 - - - 68,869
Other comprehensive loss:
Available-for-sale securities adjustment,
net of reclassification adjustment
(net of tax benefit of $2,049) - - - - (3,644) - (3,644)
Foreign currency translation adjustment
(net of tax benefit of $1,336) - - - - - (2,482) (2,482)
---------
Comprehensive income 62,743
Cash dividends declared ($.15 per share) - - (5,404) - - - (5,404)
Shares issued for acquisition 380,172 11,219 - - - - 11,219
Repurchases of Tredegar common stock (1,667,054) (36,774) - - - - (36,774)
Issued upon exercise of stock options
(including related income tax benefits
realized by Tredegar of $2,521) 833,898 6,157 - - - - 6,157
Tredegar common stock purchased by
trust for savings restoration plan - - - (192) - - (192)
- --------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1998 36,660,751 95,893 216,757 (1,212) 1,376 (2,519) 310,295
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 52,648 - - - 52,648
Other comprehensive income:
Available-for-sale securities adjustment,
net of reclassification adjustment
(net of tax benefit of $3,911) - - - - 6,954 - 6,954
Foreign currency translation adjustment
(net of tax benefit of $466) - - - - - 847 847
---------
Comprehensive income 60,449
Cash dividends declared ($.16 per share) - - (5,950) - - - (5,950)
Issued upon exercise of stock options
(including related income tax benefits
realized by Tredegar of $3,007) 1,000,389 7,434 - - - - 7,434
- -------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1999 37,661,140 $103,327 $263,455 $ (1,212) $ 8,330 $ (1,672) $372,228
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
39
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Tredegar Corporation and Subsidiaries
(In thousands, except Tredegar share and per-share amounts and unless otherwise
stated)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations. Tredegar Corporation and subsidiaries
("Tredegar") is engaged in the manufacture of plastic films, vinyl extrusions
and aluminum extrusions. We also have interests in a variety of technology-based
businesses. For more information on our products, principal markets and
customers, see the "Description of Business" on pages 1-7 and the segment tables
on pages 13-17.
During 1997-1999, we made several acquisitions (see Note 2).
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 1999
presentation.
On May 20, 1998, we declared a three-for-one stock split payable on
July 1, 1998, to shareholders of record on June 15, 1998. All historical
references to shares, per-share amounts, stock option data and market prices of
our common stock have been restated to reflect the split.
The preparation of financial statements in conformity with generally
accepted accounting principles requires us 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 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 2001.
Revenue Recognition. Revenue from the sale of products is recognized when title
and risk of loss have transferred to the buyer, which is when the product is
shipped.
Contract research revenue from collaboration agreements with our
technology operating companies (Molecumetics and Therics) is accounted for under
the percentage-of-completion method. Under the percentage-of-completion method,
contract research support payments received in advance are recorded as deferred
revenue and recognized as revenue only after the services to which they relate
have been performed. The application of this revenue recognition method is
dependent on the contractual arrangement of each agreement. Accordingly, revenue
is recognized on the proportional achievement of deliveries against a compound
delivery schedule or as development labor is expended against a total research
and development labor plan, as appropriate. A contract is considered
substantially complete when the remaining costs and potential risks associated
with that contract are insignificant in amount. There is little or no profit
generated from contract research support programs. At December 31, 1999, no
40
<PAGE>
contractually-defined milestones had been achieved and there were no licensed
products. Accordingly, no milestone-driven revenue or royalties have been
recognized.
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, 1999 and
1998, Tredegar had approximately $25,000 invested in securities with maturities
of two months or less.
Our 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 the 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, we enter 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 6).
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 $1,550
in 1999, $915 in 1998 and $751 in 1997.
Depreciation is computed primarily by the straight-line method based on
the estimated useful lives of the assets.
Investments. 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. These
investments individually represent ownership interests of less than 20%.
Beginning in 1997, the securities of public companies held by us
(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 us (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
41
<PAGE>
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.
We write-down or write-off an investment and recognize a loss when
events indicate that the investment is permanently impaired. For private
securities and ownership interests in private venture capital funds, permanent
impairment is deemed to exist whenever the estimated fair value at quarterly
valuation dates is below carrying value. For available-for-sale securities,
permanent impairment is deemed to exist if analyst reports or other information
on the company indicates that recovery of value above cost basis is unlikely
within several quarters.
The fair value of securities of public companies is determined based on
closing price quotations, subject to estimated restricted stock discounts.
Restricted securities are securities for which an agreement exists not to sell
shares for a specified period of time, usually 180 days. Also included within
the category of restricted securities are unregistered securities, the sale of
which must comply with an exemption to the Securities Act of 1933 (usually SEC
Rule 144). These unregistered securities are either the same class of stock that
is registered and publicly traded or are convertible into a class of stock that
is registered and publicly traded. Restricted issues of the same class of stock
that is publicly traded are classified as available-for-sale securities if the
securities can be reasonably expected to qualify for sale within one year. We
estimate discounts to apply to restricted stock based on the circumstances
surrounding each security, including the restriction period, the average trading
volume of the security relative to our holdings and the discount applied by
other venture capital funds with similar restrictions, if known.
We estimate the fair value of securities of private companies using
purchase cost, prices of recent significant private placements of securities of
the same issuer, changes in financial condition and prospects of the issuer, and
estimates of liquidation value. The fair value of ownership interests in private
venture capital funds is based on our estimate of our distributable share of
fund net assets using, among other information:
- - The general partners' estimate of the fair value of nonmarketable
securities held by the funds (which is usually the indicative value from
the latest round of financing or a reduced amount if events subsequent to
the financing imply a lower valuation)
- - Closing bid prices of publicly traded securities held by the funds, subject
to estimated restricted stock discounts
- - Fund formulas for allocating profits, losses and distributions
The limited partnership agreements for each venture capital fund that
we participate in are similar. Generally, 80% of the capital transaction gain or
loss and net income or loss is allocated to all partners in proportion to their
respective total capital contributions. The remaining 20% is allocated to the
general partner. Should the allocation of losses lead to a negative balance in
the capital account of the general partner, the amount of loss necessary to
bring the general partner's capital account to zero is reallocated to limited
partners. If the capital accounts of the limited partners include reallocated
loss from the general partner, the 20% share of capital transaction gains
allocable to the general partner is first applied to the limited partners until
the loss is restored in the ratio of 99:1 in favor of the limited partners. The
remaining reallocated capital transaction gains or net income or loss, if any,
are allocated to the general partner and limited partners according to their
normal allocation percentages.
42
<PAGE>
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. The portfolio is
subject to risks typically associated with investments in technology start-up
companies, which include business failure, illiquidity and stock market
volatility. 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 are included in "Other income (expense),
net" in the consolidated statements of income on page 36 and "Venture capital
investments" in the operating profit table on page 48. Beginning April 1, 1998,
we began classifying the stand-alone operating expenses (primarily employee
compensation and benefits and leased office space and equipment) for our venture
capital investment activities with gains and losses in "Venture capital
investments" in the operating profit table. Prior to that time they were
classified in the "Other" category of the technology segment. These expenses,
which continue to be reported in selling, general and administrative expenses in
the consolidated statements of income, totaled $2,457 in 1999, $2,073 in 1998,
$1,651 for the nine months ended December 31, 1998, and $1,033 in 1997.
Goodwill and Other Intangibles. The components of goodwill and other intangibles
at December 31, 1999 and 1998, and related amortization periods are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
December 31 1999 1998 Amortization Periods
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Goodwill at acquisition date related to:
The acquisition of the assets of the plastic films business
of Exxon Chemical Company (May 17, 1999) $115,243 $ - 30 years
The acquisition of the assets of Therics, Inc.
(April 8, 1999) 4,908 - 10 years
The acquisition of Exal Aluminum Inc. (June 11, 1998) 13,074 13,074 40 years
Acquisitions prior to November 1, 1970, and
relating to Aluminum Extrusions 19,484 19,484 Not amortized
Other Therics intangibles at acquisition date:
In-process R&D 3,458 - Immediate write-off
Tradename 2,236 - 10 years
Workforce 881 - 5 years
Other (primarily patent rights and licenses acquired) 603 810 No more than 17 yrs.
- -------------------------------------------------------------------------------------------------------------
Total 159,887 33,368
Accumulated amortization and in-process R&D write-off (7,343) (455)
- -------------------------------------------------------------------------------------------------------------
Net $152,544 $32,913
- -------------------------------------------------------------------------------------------------------------
</TABLE>
We evaluate the periods of amortization continually to determine
whether events and circumstances warrant revised estimates of useful lives.
Impairment of Long-Lived Assets. We review long-lived tangible and intangible
assets for possible impairment on a quarterly basis. For assets to be held and
used in operations, if events indicate that an asset may be impaired, we
estimate the future unlevered cash flows expected to result from the use of the
asset and its eventual disposition. Assets (including intangibles) 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.
43
<PAGE>
Assets to be disposed of are reported at the lower of their carrying
amount or estimated fair value less cost to sell, with an impairment loss
recognized for any write-downs required.
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. Our policy is to fund our
pension plans at amounts not less than the minimum requirements of the Employee
Retirement Income Security Act of 1974 and to fund postretirement benefits other
than pensions when claims are incurred.
Postemployment Benefits. We periodically provide certain postemployment benefits
purely on a discretionary basis. Related costs for these programs are accrued
when it is probable that benefits will be paid. All other postemployment
benefits are either accrued under current benefit plans or are not material to
our 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). We accrue U.S. federal income taxes on
undistributed earnings of our foreign subsidiaries.
Foreign Currency Translation. The financial statements of foreign subsidiaries,
where the local currency is the functional currency, are translated into U.S.
Dollars using exchange rates in effect at the period end for assets and
liabilities and average exchange rates during each reporting period for results
of operations. Adjustments resulting from the translation of these financial
statements are reflected as a separate component of shareholders' equity.
The financial statements of foreign subsidiaries where the U.S. Dollar
is the functional currency, and which have certain transactions in a local
currency, are remeasured as if the functional currency were the U.S. Dollar. The
remeasurement of local currencies into U.S. Dollars creates translation
adjustments which are included in income.
Transaction and remeasurement exchange gains or losses included in
income were not material in 1999, 1998 and 1997.
Earnings Per Share. Basic earnings per share is computed using the weighted
average number of shares of common stock outstanding. Diluted earnings per share
is computed using the weighted average common and potentially dilutive common
equivalent shares outstanding, determined as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average shares outstanding used
to compute basic earnings per share 36,991,974 36,286,476 36,862,917
Incremental shares issuable upon the
assumed exercise of stock options 1,747,504 2,383,147 2,672,469
- ----------------------------------------------------------------------------------------
Shares used to compute diluted
earnings per share 38,739,478 38,669,623 39,535,386
- ----------------------------------------------------------------------------------------
</TABLE>
Incremental shares issuable upon the assumed exercise of outstanding
stock options are computed using the average market price during the related
period.
44
<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:
- - 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
- - 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 multiplied by the difference between the market price of our
stock and the amount the employee is required to pay
The company provides additional pro forma disclosures of the fair value
based method (see Note 11).
Comprehensive Income. Comprehensive income, which is included in the
consolidated statement of shareholders' equity, is defined as net income and
other comprehensive income. 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.
The available-for-sale securities adjustment included in the
consolidated statement of shareholders' equity is comprised of the following
components:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Available-for-sale securities adjustment:
Unrealized net holding gains (losses)
arising during the period $ 12,295 $ (3,426) $ 21,724
Income taxes (4,426) 1,233 (7,822)
Reclassification adjustment for net
losses (gains) realized in income (1,429) (2,267) (13,880)
Income taxes 514 816 4,998
- -------------------------------------------------------------------------------------
Available-for-sale securities adjustment $ 6,954 $ (3,644) $ 5,020
- -------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
2 ACQUISITIONS
On May 17, 1999, Tredegar acquired the assets of Exxon Chemical
Company's plastic films business ("Exxon Films") for cash consideration of
approximately $205,007 (including transaction costs). The acquisition was funded
with borrowings under our revolving credit facility, and has since been
refinanced by our new term loan (see Note 9). The asset-purchase structure,
unlike a stock-purchase transaction, allows Tredegar to deduct for tax purposes
over time the full value of depreciable fixed assets and intangibles (goodwill).
In addition to Exxon Films, Tredegar acquired:
- - The assets of Therics, Inc. ("Therics") on April 8, 1999
- - The stock of Canadian-based Exal Aluminum Inc. ("Exal") on June 11, 1998
- - Two Canadian-based aluminum extrusion and fabrication plants from
Reynolds Metals Company ("Reynolds") on February 6, 1998
- - An aluminum extrusion and fabrication plant in El Campo, Texas, from
Reynolds on May 30, 1997
The assets of Therics were acquired for cash consideration of $13,600
(including transaction costs). Before the acquisition, Tredegar owned
approximately 19% of Therics. Upon the final liquidation of the former Therics,
Tredegar will have paid approximately $10,220 to effectively acquire the
remaining 81% ownership interest. Tredegar recognized a nonrecurring charge of
$3,458 (classified in unusual items in the consolidated statements of income) in
the second quarter of 1999 related to the write-off of acquired in-process R&D
(see more information on pages 5-6).
Exal was acquired for $44,106 (including transaction costs), which was
comprised of:
- - Cash consideration of $32,887 ($31,790 net of cash acquired)
- - 380,172 shares of Class I non-voting preferred shares of Tredegar's Bon L
Canada subsidiary (the "Class I Shares")
The Class I Shares are exchangeable into shares of Tredegar common
stock on a one-for-one basis. Each Class I Share is economically equivalent to
one share of Tredegar common stock and accordingly accounted for in the same
manner.
The aluminum extrusion plants acquired in the Exal transaction are
located in Pickering, Ontario and Aurora, Ontario. Both facilities manufacture
extrusions for distribution, transportation, electrical, machinery and
equipment, and building and construction markets. The Pickering facility also
produces aluminum logs and billet for internal use and for sale to customers.
46
<PAGE>
The two Canadian-based aluminum extrusion and fabrication plants were
acquired from Reynolds for cash consideration of $29,093 (including transaction
costs). The plants are located in Ste-Therese, Quebec, and Richmond Hill,
Ontario. Both facilities manufacture products used primarily in building and
construction, transportation, electrical, machinery and equipment, and consumer
durables markets.
The aluminum extrusion and fabrication plant in El Campo, Texas, was
acquired from Reynolds for cash consideration of $13,469 (including transaction
costs). The El Campo facility extrudes and fabricates products used primarily in
transportation, electrical and consumer durables markets.
Detailed pro forma financial information for these acquisitions was
included in our Form 8-K/As filed on June 25, 1999, and August 19, 1998.
Selected 1999 and 1998 historical and pro forma financial information for
Tredegar is as follows (assumes the acquisitions occurred at the beginning of
1998):
<TABLE>
- -----------------------------------------------------------------------------------------------
Selected Historical and Pro Forma Financial Information
- ------------------------------------------------------------------------------------------------
<CAPTION>
Historical Pro Forma (Unaudited)
------------------------- -----------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $820,411 $699,796 $863,706 $851,631
Income from continuing operations 52,648 64,156 51,323 56,332
Diluted earnings per share from continuing
operations 1.36 1.66 1.32 1.45
- ------------------------------------------------------------------------------------------------
</TABLE>
These acquisitions were accounted for using the purchase method. No
goodwill arose from the acquisitions of the former Reynolds plants since the
estimated fair value of the identifiable net assets acquired equaled the
purchase price. Goodwill (the excess of the purchase price over the estimated
fair value of identifiable net assets acquired) and identifiable intangibles
arising from the acquisitions of Exxon Films, Therics and Exal are summarized in
Note 1. The operating results for the acquired business have been included in
the consolidated statements of income since the dates acquired.
47
<PAGE>
3 BUSINESS SEGMENTS
Information by business segment and geographic area for the last three
years is provided in the tables below. There are no accounting transactions
between segments and no allocations to segments.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Net Sales Operating Profit
1999 1998 1997 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Film Products:
Ongoing operations $342,300 $ 286,965 $298,862 $59,554 $ 53,786 $50,463
Unusual items * - - - (1,170) - -
- ----------------------------------------------------------------------------------
342,300 286,965 298,862 58,384 53,786 50,463
- ----------------------------------------------------------------------------------
Fiberlux 9,092 11,629 10,596 57 1,433 845
- ----------------------------------------------------------------------------------
Aluminum Extrusions:
Ongoing operations 461,241 395,455 266,585 56,501 47,091 32,057
Unusual items * - - - - (664) -
- ----------------------------------------------------------------------------------
461,241 395,455 266,585 56,501 46,427 32,057
- ----------------------------------------------------------------------------------
Technology:
Molecumetics 7,617 5,718 2,583 (3,421) (3,504) (4,488)
Therics 161 - - (5,235) - -
Venture capital investments - - - (7,079) 615 13,880
Other - 29 2,378 - (428) (267)
Unusual items * - - - (3,607) 765 -
- ----------------------------------------------------------------------------------
7,778 5,747 4,961 (19,342) (2,552) 9,125
- ----------------------------------------------------------------------------------
Divested operations - unusual
item * - - - - - 2,250
- ----------------------------------------------------------------------------------
Total $820,411 $ 699,796 $581,004 95,600 99,094 94,740
Interest income 1,419 2,279 4,959
Interest expense 9,088 1,318 1,952
Corp. exp., net * 6,389 4,845 7,581
- ------------------------- ----------------------------
Income from continuing oper.
before income taxes 81,542 95,210 90,166
Income taxes * 28,894 31,054 31,720
- ------------------------- ----------------------------
Income from continuing oper. 52,648 64,156 58,446
Income from discont. Energy
segment oper. * - 4,713 -
- ------------------------- ----------------------------
Net income $52,648 $ 68,869$ 58,446
- ------------------------- ----------------------------
</TABLE>
* See Note 16 for more information on unusual items, and Note 18 for more
information on divested and discontinued operations.
48
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------
Identifiable Assets
December 31 1999 1998 1997
- -------------------------------------------------------
<S> <C> <C> <C>
Film Products $360,517 $ 132,241 $ 123,613
Fiberlux 7,859 7,811 6,886
Aluminum Extrusions 216,258 201,518 101,855
Technology:
Molecumetics 4,749 5,196 2,550
Therics 9,905 - -
Investments and other 145,028 61,098 34,611
- -------------------------------------------------------
Subtotal 744,316 407,864 269,515
General corporate 22,419 23,905 21,357
Cash and cash equivalents 25,752 25,409 120,065
- -------------------------------------------------------
Total $792,487 $ 457,178 $ 410,937
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Depreciation and Amortization Capital Expenditures
1999 1998 1997 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Film Products $18,751 $ 11,993 $ 10,947 $25,296 $ 18,456 $15,354
Fiberlux 498 544 515 812 1,477 530
Aluminum Extrusions 9,484 8,393 5,508 16,388 10,407 6,372
Technology:
Molecumetics 1,490 1,260 996 1,362 3,561 366
Therics 1,195 - - 757 - -
Investments and other 22 21 135 - 54 5
- ----------------------------------------------------------------------------------
Subtotal 31,440 22,211 18,101 44,615 33,955 22,627
General corporate 253 254 313 606 115 28
- ----------------------------------------------------------------------------------
Total $31,693 $ 22,465 $ 18,414 $45,221 $ 34,070 $22,655
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------
Net Sales by Geographic Area
1999 1998 1997
- ------------------------------------------------------
<S> <C> <C> <C>
United States $528,243 $460,330 $437,634
Exports from the United
States to:
Canada 25,365 23,393 22,687
Latin America 23,453 19,764 18,423
Europe 8,815 4,116 2,992
Asia 30,156 30,548 41,012
Foreign operations:
Canada 152,379 104,189 -
Europe 29,588 31,150 29,629
Latin America 18,054 24,785 28,627
Asia 4,358 1,521 -
- ------------------------------------------------------
Total $820,411 $699,796 $581,004
- ------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------
Identifiable Assets by
Geographic Area
December 31 1999 1998 1997
- ------------------------------------------------------
<S> <C> <C> <C>
United States $605,659 $282,332 $240,248
Canada 96,786 92,829 -
Europe 22,349 12,781 8,118
Latin America 14,421 15,084 17,127
Asia 5,101 4,838 4,022
General corporate 22,419 23,905 21,357
Cash and cash equivalents 25,752 25,409 120,065
- ------------------------------------------------------
Total $792,487 $457,178 $410,937
- ------------------------------------------------------
</TABLE>
49
<PAGE>
4 ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
December 31 1999 1998
- ----------------------------------------------------------------------
<S> <C> <C>
Trade, less allowance for doubtful
accounts and sales returns of $4,046
in 1999 and $3,699 in 1998 $118,643 $ 90,761
Other 3,177 3,580
- ----------------------------------------------------------------------
Total $121,820 $ 94,341
- ----------------------------------------------------------------------
</TABLE>
5 INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
December 31 1999 1998
- ----------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 9,928 $ 4,805
Work-in-process 4,322 3,751
Raw materials 29,174 17,690
Stores, supplies and other 9,705 8,030
- ----------------------------------------------------------------------
Total $ 53,129 $ 34,276
- ----------------------------------------------------------------------
</TABLE>
Inventories stated on the LIFO basis amounted to $28,826 at December
31, 1999 and $13,701 at December 31, 1998, which are below replacement costs by
approximately $14,857 at December 31, 1999 and $9,678 at December 31, 1998.
6 ALUMINUM FORWARD SALES, PURCHASE AND FUTURES CONTRACTS
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. These contracts involve elements of credit and market
risk that are not reflected on our balance sheet, including the risk of dealing
with counterparties and their ability to meet the terms of the contracts. The
counterparties to the company's forward purchase commitments are major aluminum
brokers and suppliers, and the counterparties to the company's futures contracts
are major financial institutions. Fixed-price forward sales contracts are only
made available to our best and most credit-worthy customers.
50
<PAGE>
The off-balance sheet asset or liability at December 31, 1999 and 1998,
relating to the forward purchase commitments and futures contracts (which was
substantially offset by an unrealized loss or gain on the related fixed-price
forward sales contracts) consist of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
December 31 1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
Millions of pounds of aluminum under forward
purchase commitments and futures contracts 34.6 60.8
Weighted average market price of aluminum
(cents per pound):
At date of contracts 72.3 66.1
At end of year 78.7 59.9
Off-balance sheet asset (liability) on forward purchase
commitments and futures contracts (in thousands) $ 2,214 $ (3,770)
- --------------------------------------------------------------------------------------
</TABLE>
7 INVESTMENTS
A summary of our venture capital investment activities is provided
below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Carrying value of venture capital
investments, beginning of period $ 60,024 $33,513 $6,048
Venture capital investment activity
for period (pre-tax amounts):
New investments 81,747 35,399 20,801
Proceeds from the sale of investments (3,936) (5,462) (15,060)
Realized gains 3,112 4,582 14,309
Realized losses, write-offs and write-downs (7,734) (2,315) (429)
Transfer of carrying value of Therics out
of portfolio (acquired by Tredegar) (3,380) - -
Increase (decrease) in net unrealized gain on
available-for-sale securities 10,865 (5,693) 7,844
- -------------------------------------------------------------------------------
Carrying value of venture capital
investments, end of period $ 140,698 $60,024 $33,513
- -------------------------------------------------------------------------------
</TABLE>
Our remaining unfunded commitments to private venture capital funds
totaled approximately $30,000 at December 31, 1999, which we expect to fund over
the next two years.
A schedule of investments is provided on the next two pages.
51
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Tredegar Corporation
Schedule of Investments at December 31, 1999 and 1998
(In Thousands, Except Per-Share Amounts)
<CAPTION>
Yrs. Web Site
Investment Symbol Held (a) Description (www.)
- ------------------------------------------------------------------------------------------------------------------------------------
Securities of Public Companies Held:
<S> <C> <C> <C> <C>
Cisco Systems (d) CSCO .3 Networking for the Internet cisco.com
Caliper Technologies Corp.(e) CALP 2.6 Lab on a chip calipertech.com
Superconductor Tech, Inc.(f) SCON .5 Manufactures filters for wireless networks suptech.com
Eclipse Surgical Tech., Inc.(g) ESTI 5.6 Coronary revascularization eclipsesurg.com
InterVU, Inc. ITVU 1.2 Service provider of Internet and audio delivery solutions intervu.com
3D Labs, Inc. TDDD 2.7 2D/3D graphics acceleration hardware and software
CardioGenesis Corporation (g) Coronary revascularization
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities of public companies held
- ------------------------------------------------------------------------------------------------------------------------------------
Securities of Private Companies Held:
CyroGen 4.3 Micro-cryogenic catheters for medical applications cyrogen-inc.com
Sensitech Inc. 2.8 Perishable product management solutions sensitech.com
Rosetta Inpharmatics, Inc. 2.6 Gene function/drug screening on a chip rii.com
Bell Geospace 2.5 Presentation of 3D data to the oil & gas industry bellgeo.com
Songbird Medical, Inc. 2.4 Disposable hearing aids
RedCreek Communications 2.4 Internet and intranet security redcreek.com
Appliant, Inc. 2.2 Software tools for managing executable software appliant.com
Ellipsys Technologies, Inc. 2.2 Telephone system error detection ellipsystech.com
HemoSense 2.1 Point of care blood coagulation time test device hemosense.com
Moai Technologies, Inc. 2.0 System for holding auctions on the Internet moai.com
Eprise Corporation 2.0 Web site maintenance & development tool eprise.com
Vascular Solutions 2.0 Vascular access site closure system vascularsolutions.com
Babycare, Ltd. 1.9 Direct retailing of baby care products in China
SignalSoft Corporation 1.8 Wireless caller location detection software signalsoftcorp.com
EPiCON 1.8 Network software manager epicon.com
NovaLux, Inc. 1.6 Blue-green light lasers novalux.com
IRSI 1.6 Optical inspection systems irsinc.com
Xycte Therapies, Inc. 1.4 Develops drugs to treat cancer & other disorders xcytetherapies.com
Illumina, Inc. 1.1 Fiber optic sensor technology for drug screening illumina.com
Advanced Diagnostics, Inc. 1.1 3-D medical imaging equipment
Adolor Corporation 1.1 Develops pain-management therapeutic drugs adolor.com
Praxon, Inc. 1.0 Integrated business communications equipment praxon.com
AdiCom Wireless, Inc. 1.0 Wireless local loop technology adicomwireless.com
EndoVasix, Inc. .9 Device for treatment of ischemic strokes endovasix.com
eWireless, inc. .9 Technology linking cell phone users & advertising ewireless.com
Cooking.com, Inc. .8 Sales of cooking-related items over the Internet cooking.com
MediaFlex.com .7 Internet-based printing & publishing mediaflex.com
eBabyCare Ltd. .6 Sales of babycare products over the Internet in China
Kodiak Technologies, Inc. .5 Cooling products for organ & pharma transport kodiaktech.com
Genesis Medical, Inc. .5 Medical devices for breast cancer surgery
CEPTYR, Inc. .4 Develops small molecule drugs ceptyr.com
GreaterGood.com .4 Internet marketing targeted at donors to charities greatergood.com
Etera Corporation .3 Sales of branded perennial plants over the Internet etera.com
- ------------------------------------------------------------------------------------------------------------------------------------
Subtotal securities of private companies held
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes on page 53.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Tredegar Corporation
Schedule of Investments at December 31, 1999 and 1998
(In Thousands, Except Per-Share Amounts)
<CAPTION>
Public Common Stock or
Equivalents at 12/31/99 12/31/99 (c) 12/31/98 (c)
---------------------------- ------------------------- -----------------------------
Estimated
Restricted Estimated Estimated
Shares Closing Stock Dis- Fair Carrying Cost Fair Carrying Cost
Investment Held (b) Price count (c) Value (b) Value (b) Basis Value (b) Value (b) Basis
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities of Public Companies Held:
Cisco Systems (d) 65 $ 107.13 10% $ 6,276 $ 6,276 $ 2,000 $ 1,895 $ 1,895 $ 250
Caliper Technologies Corp.(e) 157 66.75 20% 8,386 8,386 1,000 1,500 1,000 1,000
Superconductor Tech, Inc.(f) 1,183 4.88 20% 4,613 3,000 3,000 - - -
Eclipse Surgical Tech., Inc.(g) 453 7.38 n/a 3,342 3,342 2,464 - - -
InterVU, Inc. 5 105.00 n/a 536 536 57 - - -
3D Labs, Inc. - - - 267 267 604
CardioGenesis Corporation (g) - - - 3,187 3,187 2,464
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities of public companies held 23,153 21,540 8,521 6,849 6,349 4,318
- ------------------------------------------------------------------------------------------------------------------------------------
Securities of Private Companies Held:
CyroGen 3,759 2,553 2,553 2,732 1,804 1,804
Sensitech Inc. 2,000 2,000 2,000 2,000 2,000 2,000
Rosetta Inpharmatics, Inc. 4,558 3,000 3,000 1,250 1,250 1,250
Bell Geospace - - 3,500 3,465 3,000 3,000
Songbird Medical, Inc. 5,922 3,960 3,960 2,920 1,960 1,960
RedCreek Communications 2,071 2,071 2,256 3,875 1,820 1,820
Appliant, Inc. 5,036 2,599 2,599 1,900 1,500 1,500
Ellipsys Technologies, Inc. 1,987 1,987 2,737 1,441 1,441 2,091
HemoSense 1,735 1,485 1,485 638 638 638
Moai Technologies, Inc. 7,389 2,021 2,021 2,371 1,521 1,521
Eprise Corporation 7,309 2,900 2,900 2,711 2,400 2,400
Vascular Solutions 4,409 2,450 2,450 4,050 2,450 2,450
Babycare, Ltd. 1,009 1,009 1,009 170 170 170
SignalSoft Corporation 5,624 2,996 2,996 2,000 2,000 2,000
EPiCON 2,945 750 750 750 750 750
NovaLux, Inc. 5,193 3,183 3,183 683 683 683
IRSI 2,848 2,825 3,700 1,750 1,750 1,750
Xycte Therapies, Inc. 3,000 3,000 3,000 3,000 3,000 3,000
Illumina, Inc. 6,853 3,925 3,925 925 925 925
Advanced Diagnostics, Inc. 705 705 705 117 117 117
Adolor Corporation 2,613 2,000 2,000 2,000 2,000 2,000
Praxon, Inc. 2,661 2,309 2,309 2,000 2,000 2,000
AdiCom Wireless, Inc. 3,000 3,000 3,000 - - -
EndoVasix, Inc. 2,500 2,500 2,500 - - -
eWireless, inc. 2,250 2,250 2,250 - - -
Cooking.com, Inc. 7,021 4,500 4,500 - - -
MediaFlex.com 1,500 1,500 1,500 - - -
eBabyCare Ltd. 120 120 120 - - -
Kodiak Technologies, Inc. 1,194 1,194 1,194 - - -
Genesis Medical, Inc. 800 800 800 - - -
CEPTYR, Inc. 1,750 1,750 1,750 - - -
GreaterGood.com 3,200 3,200 3,200 - - -
Etera Corporation 3,000 3,000 3,000 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Subtotal securities of private companies held 105,961 73,542 78,852 42,748 35,179 35,829
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes on page 53.
52
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Tredegar Corporation
Schedule of Investments at December 31, 1999 and 1998, Continued
(In Thousands, Except Per-Share Amounts)
<CAPTION>
Yrs. Web Site
Investment Held (a) Description (www.)
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities of public companies held (from page 52)
- ------------------------------------------------------------------------------------------------------------------------------------
Subtotal securities of private companies held (from page 52)
<S> <C> <C> <C>
ThinkFree.com .2 Java-based software complementary to Microsoft Office thinkfree.com
@mobile.com, Inc. .1 Server solutions to increase wireless-carrier profitability atmobile.com
PurePacket Communications, Inc. .1 Next generation packet-based CLEC (phone carrier) purepacket.com
Onprem Networks, Inc. .1 Access products for carriers to provide DSL services onprem.com
Quarry Technologies, Inc. .1 Technology for delivery of differentiated service levels quarrytech.com
Norborn Medical, Inc. <.1 Device for treatment of cardiovascular disease
FlowGenix Corporation 3.0 Chemical separation technology
Therics, Inc. (h) Drug delivery & tissue engineering systems
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities of private companies held
- ------------------------------------------------------------------------------------------------------------------------------------
Limited partnership interests in private venture capital funds (period held of .1 - 7.3 years) (i)
- ------------------------------------------------------------------------------------------------------------------------------------
Total investments
Estimated income taxes on assumed disposal at fair value
- ------------------------------------------------------------------------------------------------------------------------------------
Estimated net asset value ("NAV")
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
Tredegar Corporation
Schedule of Investments at December 31, 1999 and 1998, Continued
(In Thousands, Except Per-Share Amounts)
12/31/99 (c) 12/31/98 (c)
<CAPTION>
----------------------------- ----------------------------
Estimated Estimated
Fair Carrying Cost Fair Carrying Cost
Investment Value (b) Value (b) Basis Value (b) Value (b)Basis
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total securities of public companies held (from page 52) 23,153 21,540 8,521 6,849 6,349 4,318
- ----------------------------------------------------------------------------------------------------------------------------------
----------
Subtotal securities of private companies held (from page 52) 105,961 73,542 78,852 42,748 35,179 35,829
ThinkFree.com 1,001 1,001 1,001 - - -
@mobile.com, Inc. 2,000 2,000 2,000 - - -
PurePacket Communications, Inc. 1,797 1,797 1,797 - - -
Onprem Networks, Inc. 1,460 1,460 1,460 - - -
Quarry Technologies, Inc. 3,000 3,000 3,000 - - -
Norborn Medical, Inc. 188 188 188 - - -
FlowGenix Corporation - - - 109 - 381
Therics, Inc. - - - 3,248 3,248 3,889
- ----------------------------------------------------------------------------------------------------------------------------------
Total securities of private companies held 115,407 82,988 88,298 46,105 38,427 40,099
- ----------------------------------------------------------------------------------------------------------------------------------
Limited partnership interests in private venture capital funds
(period held of .1 - 7.3 years)(i) 66,803 36,170 38,650 17,887 15,248 16,200
- ----------------------------------------------------------------------------------------------------------------------------------
Total investments 205,363 $ 140,698$ 135,469 70,841 $ 60,024$ 60,617
Estimated income taxes on assumed disposal at fair value 25,162 ------------------ 3,681 -----------------
- --------------------------------------------------------------------------------- ----------
Estimated net asset value ("NAV") $ 180,201 $ 67,160
- --------------------------------------------------------------------------------- ----------
</TABLE>
Notes:
(a) The period held for an investment in a company or a venture capital fund is
computed using the initial investment date and the current valuation date. If a
company has merged with another company, then the initial investment date is the
date of the investment in the predecessor company.
(b) Amounts are shown net of carried interest estimated using realized and
unrealized net gains to date. Amounts may change due to changes in estimated
carried interest, and such changes are not expected to be material. Carried
interest is the portion of value payable to portfolio managers based on realized
net gains and is a customary incentive in the venture capital industry.
(c) See the investment accounting policy note on page 41.
(d) The Cisco Systems common stock held at 12/31/99 was obtained when it
acquired V-Bits, Inc. through merger in 1999. The shares can be sold in
accordance with the S-3 registration statement filed by Cisco Systems (except
approximately 10% of the shares which are held in escrow until no later than
December 6, 2000).
(e) Caliper Technologies Corporation went public in 1999. These shares are
restricted due to a lock-up agreement which expires on June 11, 2000, and are
unregistered securities to which SEC Rule 144 will apply.
(f) Superconductor Technologies, Inc. is a public company (symbol: SCON).
Tredegar owns Superconductor's series D convertible preferred stock and common
stock warrants. The shares shown in the table are the common equivalent shares
at 12/31/99 (net of estimated carried interest). Fair value was estimated on a
common stock equivalent basis, net of an estimated restricted stock discount
(unregistered securities to which SEC Rule 144 will apply).
(g) The Eclipse Surgical Technologies, Inc. stock was obtained when it acquired
CardioGenesis Corporation through merger in 1999.
(h) The assets of Therics, Inc. were acquired by Tredegar on April 8, 1999 (see
Note 2 on page 46).
(i) At December 31, 1999, Tredegar had ownership interests in 20 venture capital
funds, including an indirect interest in the following public companies, among
others (disposition of shares held by venture funds, including distributions to
limited partners, is at the sole discretion of the general partner of the fund):
<TABLE>
<CAPTION>
Indirect Average Indirect
Interest in Restricted Estimated
Common Closing Stock Dis- Fair Cost
Indirect Investment Symbol Description Shares Price count Value Basis
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cisco Systems CSCO Networking for the Internet (cisco.com) 83 $ 107.13 14% $ 7,664 $ 331
Digital Island ISLD Web site management (digisle.net) 74 95.13 20% 5,637 166
Cobalt Networks, Inc. COBT Network servers (cobalt.com) 53 108.38 20% 4,551 99
Watchguard Tech., Inc. WGRD Computer/network perimeter defense
system (watchguard.com) 62 30.25 15% 1,598 122
Tut Systems, Inc. TUTS Local area network products (tutsys.com) 29 53.63 n/a 1,552 145
DSL Net Inc. DSLN High speed data communications technology (dsl.net) 93 14.44 20% 1,075 170
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 22,077 $ 1,033
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE>
8 ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
December 31 1999 1998
- ----------------------------------------------------------------------
<S> <C> <C>
Payrolls, related taxes and medical and
other benefits $ 15,547 $ 16,114
Workmen's compensation and disabilities 5,480 5,625
Vacation 7,353 5,855
Contract research revenues received
in advance 501 833
Environmental, plant shutdowns
and divestitures 205 526
Other 15,944 12,118
- ----------------------------------------------------------------------
Total $ 45,030 $ 41,071
- ----------------------------------------------------------------------
</TABLE>
9 DEBT AND CREDIT AGREEMENTS
On October 20, 1999, Tredegar borrowed $250,000 under a new term loan
agreement dated October 13, 1999. A portion of the term loan proceeds ($230,000)
was used to repay all of the outstanding borrowings at that time under our
revolving credit facility. The balance ($20,000) was invested in cash
equivalents and is being used to fund capital expenditures and venture capital
investment opportunities. The revolving credit facility permits borrowings of up
to $275,000 (no amounts borrowed at December 31, 1999 and 1998) and matures on
July 9, 2002, with an annual extension of one year permitted subject to the
approval of participating banks. Tredegar also has a note payable with a
remaining balance of $20,000. Total debt due and outstanding at December 31,
1999, is summarized below:
<TABLE>
- -------------------------------------------------
Debt Due and Outstanding at 12/31/99
- -------------------------------------------------
<CAPTION>
Total
Year Note Term Debt
Due Payable Loan Due
- -------------------------------------------------
<S> <C> <C> <C>
2000 $ 5,000 $ - $ 5,000
2001 5,000 - 5,000
2002 5,000 - 5,000
2003 5,000 50,000 55,000
2004 - 75,000 75,000
2005 - 125,000 125,000
- -------------------------------------------------
Total $ 20,000 $ 250,000 $ 270,000
- -------------------------------------------------
</TABLE>
54
<PAGE>
The term loan and revolving credit agreements provide for interest to
be charged at a base rate (generally the London Interbank Offered Rate
("LIBOR")) plus a spread that is dependent on our quarterly debt-to-total
capitalization ratio. The fully-borrowed spread over LIBOR charged at the
various debt-to-total capitalization levels are as follows:
-------------------------------------------------
Fully-Borrowed Spread Over LIBOR
Under Credit Agreements (Basis Points)
-------------------------------------------------
Debt-to-Total Term
Capitalization Ratio Revolver Loan
-------------------------------------------------
> 55% and <= 60% 50.0 100.0
> 50% and <= 55% 50.0 87.5
> 40% and <= 50% 37.5 75.0
> 35% and <= 40% 37.5 62.5
> 30% and <= 35% 30.0 62.5
<= 30% 30.0 50.0
-------------------------------------------------
Interest is payable on the note semi-annually at 7.2% per year. The
$5,000 principal payment due on the note in June 2000 has been classified as
long-term in accordance with our ability to refinance such obligation on a
long-term basis. At December 31, 1999, the prepayment value of the note was
$20,200.
Our 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, 1999, shareholders' equity was in excess of the
minimum required by $196,501, 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 30, 1999, between
Tredegar and American Stock Transfer and Trust Company as Rights Agent (the
"Rights Agreement"), one Right is attendant to each share of our 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 $150 (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 our common stock or
announces a tender offer which would result in ownership by a person or group of
10% or more of our common stock. Any action by a person or group whose
beneficial ownership is reported on Amendment No. 4 to the Schedule 13D filed
with respect to Tredegar on May 20, 1997, 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, 2009.
55
<PAGE>
11 STOCK OPTION PLANS
We have two stock option plans under which stock options may be granted
to purchase a specified number of shares of common stock at a price no lower
than the fair market value on the date of grant and for a term not to exceed 10
years. One of those options plans is a directors' stock plan. In addition, we
have two other stock option plans under which there are options that remain
outstanding, but no future grants can be made under those plans. Employee
options ordinarily vest one to two years from the date of grant. The outstanding
options granted to directors vest over three years. The option plans also permit
the grant of restricted stock. The current option plans do not provide for SARs
and no SARs have been granted since 1992. The SARs that remain outstanding were
granted in tandem with stock options and the share appreciation that can be
realized upon their exercise is limited to the fair market value on the date of
grant. As such, it is more likely that related stock options will be exercised
rather than SARs when the price of our common stock is in excess of $7.42 per
share (our closing price on December 31, 1999 was $20.69).
Had compensation cost for our stock-based compensation plans been
determined in 1999, 1998 and 1997 based on the fair value at the grant dates,
our income and diluted earnings per share from continuing operations would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations:
As reported $ 52,648 $ 64,156 $ 58,446
Pro forma 49,199 62,696 56,412
Diluted earnings per share from
continuing operations:
As reported 1.36 1.66 1.48
Pro forma 1.27 1.62 1.43
- --------------------------------------------------------------------------
</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 1999, 1998 and 1997 are provided below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend yield .7% .6% .6%
Volatility percentage 40.0% 28.0% 30.0%
Weighted average risk-free interest rate 4.8% 5.5% 6.7%
Holding period (years):
Officers 7.0 n/a 8.3
Management 5.0 5.0 4.6
Other employees (and directors in 1998) 3.0 3.6 2.4
Weighted average market price at
date of grant:
Officers and management
(management only in 1998) $ 23.36 $ 29.94 $ 16.54
Other employees (and directors in 1998) 23.53 29.82 17.31
Weighted average exercise price for
options granted where exercise price
exceeds market price:
Officers 37.89 n/a 21.00
Management 34.90 n/a n/a
- --------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
Stock options granted during 1999, 1998 and 1997, and their estimated
fair value at the date of grant, are provided below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Stock options granted (number of shares):
Where exercise price equals market price:
Officers n/a n/a 144,000
Management 33,200 59,985 261,750
Other employees (and directors in 1998) 92,400 28,590 64,350
Where exercise price exceeds market price:
Officers 416,000 n/a 141,000
Management 444,700 n/a -
- ----------------------------------------------------------------------------------
Total 986,300 88,575 611,100
- ----------------------------------------------------------------------------------
Estimated weighted average fair value of
options per share at date of grant:
Where exercise price equals market price:
Officers n/a n/a $ 8.02
Management $ 10.25 $ 10.06 5.80
Other employees (and directors in 1998) 7.33 8.16 4.14
Where exercise price exceeds market price:
Officers 7.79 n/a 6.74
Management 6.58 n/a n/a
- ----------------------------------------------------------------------------------
Total estimated fair value of stock
options granted $ 7,186 $ 837 $ 3,889
- ----------------------------------------------------------------------------------
</TABLE>
A summary of our stock options outstanding at December 31, 1999, 1998
and 1997, and changes during those years, is presented below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Exercise Price Per Share
----------------------------------------
Number of Shares
--------------------------------- Wgted. Aggre-
Options SARs Range Ave. gate
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at 12/31/96 3,738,960 1,377,960 $ 2.70 to $ 9.67 $ 4.42 $ 16,514
Granted in 1997 611,100 - 16.54 to 21.00 17.67 10,798
Lapsed in 1997 (5,400) - 3.36 to 18.75 9.44 (51)
Options exercised in 1997 (566,565) (287,925) 2.70 to 9.67 4.87 (2,761)
- ------------------------------------------------------------------------------------------------------------------------
Outstanding at 12/31/97 3,778,095 1,090,035 2.70 to 21.00 6.48 24,500
Granted in 1998 88,575 - 28.61 to 29.94 29.82 2,641
Lapsed in 1998 - - - to - - -
Options exercised in 1998 (833,898) (494,550) 2.70 to 21.00 4.36 (3,636)
- ------------------------------------------------------------------------------------------------------------------------
Outstanding at 12/31/98 3,032,772 595,485 2.70 to 29.94 7.75 23,505
Granted in 1999 986,300 - 23.31 to 46.63 34.75 34,274
Lapsed in 1999 (33,960) - 3.37 to 46.63 28.06 (953)
Options exercised in 1999 (1,000,389) (430,650) 2.70 to 18.37 4.43 (4,427)
- ------------------------------------------------------------------------------------------------------------------------
Outstanding at 12/31/99 2,984,723 164,835 $ 2.70 to $46.63 $17.56 $ 52,399
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
The following table summarizes additional information about stock
options outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Options Outstanding at Options Exercisable at
December 31, 1999 December 31, 1999
--------------------------------------------------------------------------
Weighted Average
----------------------------
Remaining Wgted.
Contract- Exer- Ave.
Range of ual Life cise Exercise
Exercise Prices Shares (Years) Price Shares Price
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2.70 to $ 3.73 170,835 2.2 $ 2.76 170,835 $ 2.76
3.36 to 5.33 575,800 4.2 4.12 575,800 4.12
3.86 to 4.17 354,640 5.2 4.16 354,640 4.16
7.38 to 9.67 299,828 6.1 8.52 299,828 8.52
16.55 to 21.00 537,545 7.4 17.74 537,545 17.74
28.61 to 29.94 88,575 8.5 29.82 2,700 28.61
23.31 to 46.63 957,500 6.0 34.83 - -
- ------------------------------------------------------------------------------------------------------
$ 2.70 to $ 46.63 2,984,723 5.7 $ 17.56 1,941,348 $ 8.49
- ------------------------------------------------------------------------------------------------------
</TABLE>
Stock options exercisable totaled 2,944,197 shares at December 31, 1998
and 3,169,245 shares at December 31, 1997. Stock options available for grant
totaled 1,800,825 shares at December 31, 1999, 1,338,825 shares at December 31,
1998 and 1,375,650 shares at December 31, 1997.
12 RENTAL EXPENSE AND CONTRACTUAL COMMITMENTS
Rental expense was $4,408 in 1999, $3,517 in 1998 and $2,746 in 1997.
Rental commitments under all noncancelable operating leases as of December 31,
1999, are as follows:
2000 $ 2,870
2001 2,848
2002 2,060
2003 1,177
2004 708
Remainder -
- ---------------------------------------
Total $ 9,663
- ---------------------------------------
Contractual obligations for plant construction and purchases of real
property and equipment amounted to $13,975 at December 31, 1999, and $9,512 at
December 31, 1998.
58
<PAGE>
13 RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS
We have noncontributory and contributory defined benefit (pension)
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. Pension plan assets consist principally of domestic and
international common stocks and domestic and international government and
corporate obligations. In addition to providing pension benefits, we provide
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
to cover a portion of their health care premiums.
Assumptions used for financial reporting purposes to compute net
benefit income or cost and benefit obligations, and the components of net
periodic benefit income or cost, are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Other Post-
Pension Benefits Retirement Benefits
1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted-average assumptions:
Discount rate, end of year 7.50% 6.75% 7.25% 7.50% 6.75% 7.25%
Rate of compensation increases,
end of year 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Expected long-term return on plan
assets, during the year 9.00% 9.00% 9.00% n/a n/a n/a
Rate of increase in per-capita cost of covered health care benefits:
Indemnity plans, end of year n/a n/a n/a 8.00% 9.00% 10.00%
Managed care plans, end of year n/a n/a n/a 6.60% 7.40% 8.10%
Components of net periodic benefit income (cost):
Service cost $(4,462) $(2,725) $(2,235) $(169) $(137) $(113)
Interest cost (9,868) (8,960) (8,002) (544) (494) (467)
Employee contributions 225 - - - - -
Other (118) - - - - -
Expected return on plan assets 17,513 15,684 13,395 - - -
Amortization of:
Net transition asset 898 899 899 - - -
Prior service costs and gains
or losses (642) (393) (578) 71 57 76
- ------------------------------------------------------------------------------------------------
Net periodic benefit income (cost) $3,546 $4,505 $3,479 $(642) $(574) $(504)
- ------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE>
The following tables reconcile the changes in benefit obligations and
plan assets in 1999 and 1998, and reconcile the funded status to prepaid or
accrued cost at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Other Post-
Pension Benefits Retirement Benefits
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation, beginning of year $142,296 $ 117,864 $ 7,642 $ 6,543
Acquisitions 6,216 8,614 - 355
Service cost 4,462 2,725 169 137
Interest cost 9,868 8,960 544 494
Plan amendments 621 1,245 (37) -
Effect of discount rate change (13,993) 9,000 (712) 426
Employee contributions (293) 295 - -
Other 566 470 612 71
Benefits paid (7,150) (6,877) (449) (384)
- ----------------------------------------------------------------------------------------------
Benefit obligation, end of year $142,593 $ 142,296 $ 7,769 $ 7,642
- ----------------------------------------------------------------------------------------------
Change in plan assets:
Plan assets at fair value,
beginning of year $221,818 $ 191,922 $ - $ -
Acquisition - 11,908 - -
Actual return on plan assets 58,617 24,065 - -
Employee contributions 225 295 - -
Employer contributions 784 505 449 384
Other (118) - - -
Benefits paid (7,150) (6,877) (449) (384)
- ----------------------------------------------------------------------------------------------
Plan assets at fair value, end of year $274,176 $ 221,818 $ - $ -
- ----------------------------------------------------------------------------------------------
Reconciliation of prepaid (accrued) cost:
Funded status of the plans $131,583 $ 79,522 $ (7,769) $ (7,642)
Unrecognized net transition
(asset) obligation (280) (1,178) - -
Unrecognized prior service cost 3,235 3,567 - -
Unrecognized net (gain) loss (97,436) (43,039) (1,364) (448)
- ----------------------------------------------------------------------------------------------
Prepaid (accrued) cost, end of year $ 37,102 $ 38,872 $ (9,133) $ (8,090)
- ----------------------------------------------------------------------------------------------
</TABLE>
Net benefit income or cost is determined using assumptions at the
beginning of each year. Funded status is determined using assumptions at the end
of each year.
The rates for the per-capita cost of covered health care benefits were
assumed to decrease gradually to 6% for the indemnity plan and 5% for the
managed care plan in 2002, and remain at that level thereafter. At December 31,
1999, the effect of a 1% change in the health care cost trend rate assumptions
would be immaterial.
Prepaid pension cost of $37,102 at December 31, 1999, and $38,872 at
December 31, 1998, is included in "Other assets and deferred charges" in the
consolidated balance sheets. Accrued postretirement benefit cost of $9,133 at
December 31, 1999 and $8,090 at December 31, 1998, is included in "Other
noncurrent liabilities" in the consolidated balance sheets.
60
<PAGE>
We also have 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 our principal
pension plans if it were not for limitations imposed by income tax regulations.
The projected benefit obligation relating to this unfunded plan was $2,044 at
December 31, 1999, and $1,931 at December 31, 1998. Pension expense recognized
was $478 in 1999, $152 in 1998 and $150 in 1997. This information has been
included in the preceding pension benefit tables.
14 SAVINGS PLAN
We have a savings plan that allows eligible employees to voluntarily
contribute a percentage (generally 10%) of their compensation. Under the
provisions of the plan, we match a portion (generally 50%) of the employee's
contribution to the plan with shares of our common stock. We also have 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 for these plans were $2,514 in 1999, $2,255 in 1998 and
$2,564 in 1997. Our liability under the restoration plan was $1,670 at December
31, 1999 (consisting of 80,720 phantom shares of our common stock) and $1,887 at
December 31, 1998 (consisting of 83,862 phantom shares of our common stock),
valued at the closing market price on that date.
The Tredegar Corporation Benefits Plan Trust (the "Trust") purchased
7,200 shares of our common stock in 1998 for $192 and 46,671 shares of our
common stock in 1997 for $1,020, as a partial hedge against the phantom shares
held in the restoration plan. There were no shares purchased in 1999. The cost
of the shares held by the Trust is shown as a reduction to shareholders' equity
in the consolidated balance sheets.
61
<PAGE>
15 INCOME TAXES
Income from continuing operations before income taxes and income taxes
are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations
before income taxes:
Domestic $ 68,865 $ 83,882 $ 84,356
Foreign 12,677 11,328 5,810
- ----------------------------------------------------------------------------
Total $ 81,542 $ 95,210 $ 90,166
- ----------------------------------------------------------------------------
Current income taxes:
Federal $ 19,612 $ 23,824 $ 22,769
State 1,694 1,803 3,700
Foreign 6,132 4,996 1,910
- ----------------------------------------------------------------------------
Total 27,438 30,623 28,379
- ----------------------------------------------------------------------------
Deferred income taxes:
Federal 944 692 2,576
State 497 147 310
Foreign 15 (408) 455
- ----------------------------------------------------------------------------
Total 1,456 431 3,341
- ----------------------------------------------------------------------------
Total income taxes $ 28,894 $ 31,054 $ 31,720
- ----------------------------------------------------------------------------
</TABLE>
The significant differences between the U.S. federal statutory rate and
the effective income tax rate for continuing operations are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Percent of Income
Before Income Taxes
-------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense at federal statutory rate 35.0 35.0 35.0
State taxes, net of federal income tax benefit 1.8 1.3 2.9
Excess of income tax basis over financial
reporting basis for APPX Software
(see Note 16) - (2.4) -
Foreign Sales Corporation (1.1) (1.1) (1.1)
Research and development tax credit (.7) (.3) (.3)
Tax-exempt interest income - (.2) (1.1)
Goodwill amortization .1 .1 -
Other items, net .3 .2 (.2)
- ----------------------------------------------------------------------------------
Effective income tax rate 35.4 32.6 35.2
- ----------------------------------------------------------------------------------
</TABLE>
62
<PAGE>
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 for continuing operations are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation $ 2,583 $ 72 $ 553
Employee benefits 2,195 1,617 1,912
Plant shutdowns, divestitures and
environmental accruals 119 497 (459)
Write-downs of venture capital
investments (1,731) (478) -
Allowance for doubtful accounts
and sales returns (247) (130) 868
Tax benefit on NOL carryforwards of
certain foreign subsidiaries (246) (755) (310)
Other items, net (1,217) (392) 777
- ----------------------------------------------------------------------------------
Total $ 1,456 $ 431 $ 3,341
- ----------------------------------------------------------------------------------
</TABLE>
Deferred tax liabilities and deferred tax assets at December 31, 1999
and 1998, are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
December 31 1999 1998
- ----------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 20,131 $ 17,548
Pensions 13,893 14,556
Unrealized gain on available-for-sale securities 4,686 775
Other 918 265
- ----------------------------------------------------------------------------------
Total deferred tax liabilities 39,628 33,144
- ----------------------------------------------------------------------------------
Deferred tax assets:
Employee benefits 8,727 9,156
Write-downs of venture capital investments 2,209 478
Inventory 1,317 1,233
Tax benefit on NOL carryforwards of certain
foreign subsidiaries 1,311 1,065
Foreign currency translation adjustment 900 1,356
Deductible tax goodwill in excess of book goodwill 892 2,073
Allowance for doubtful accounts and sales returns 815 568
Environmental, plant shutdowns and divestitures 75 194
Other 1,407 869
- ----------------------------------------------------------------------------------
Total deferred tax assets 17,653 16,992
- ----------------------------------------------------------------------------------
Net deferred tax liability $ 21,975 $ 16,152
- ----------------------------------------------------------------------------------
Included in the balance sheet:
Noncurrent deferred tax liabilities in excess of assets $ 33,205 $ 24,914
Current deferred tax assets in excess of liabilities 11,230 8,762
- ----------------------------------------------------------------------------------
Net deferred tax liability $ 21,975 $ 16,152
- ----------------------------------------------------------------------------------
</TABLE>
63
<PAGE>
16 UNUSUAL ITEMS
In 1999, unusual charges (net) totaling $4,065 ($2,602 after income
taxes) included:
- - A fourth-quarter charge of $149 ($95 after taxes) for costs associated with
the evaluation of financing and structural options for the Technology Group
- - A third-quarter gain of $712 ($456 after taxes) on the sale of corporate
real estate (included in "Corporate expenses, net" in the operating profit
table on page 48)
- - A second-quarter charge of $3,458 ($2,213 after taxes) related to the
write-off of in-process R&D expenses associated with the Therics
acquisition (see page 5 for more information)
- - A second-quarter charge of $1,170 ($749 after taxes) for the write-off of
excess packaging film capacity
In 1998, unusual income (net) totaling $101 ($2,341 after income tax
benefits) included:
- - A fourth-quarter charge of $664 ($425 after taxes) related to the shutdown
of the powder-coat paint line at the aluminum extrusion facility in Newnan,
Georgia
- - A first-quarter gain of $765 ($2,766 after tax benefits) on the sale of
APPX Software on January 16, 1998
Income taxes for continuing operations includes a tax benefit of $2,001
related to the sale of APPX Software, reflecting a tax benefit for the excess of
its income tax basis over its financial reporting basis.
In 1997, unusual income included a gain of $2,250 (net of transaction
costs of $250 and $1,440 after income taxes) related to the redemption of
preferred stock received in connection with the 1996 divestiture of Tredegar
Molded Products Company.
17 CONTINGENCIES
We are involved in various stages of investigation and cleanup relating
to environmental matters at certain plant locations. Where we have determined
the nature and scope of any required environmental cleanup activity, estimates
of cleanup costs have been obtained and accrued. As we continue efforts to
assure compliance with environmental laws and regulations, additional
contingencies may be identified. If additional contingencies are identified, our
practice is to determine the nature and scope of those contingencies, obtain and
accrue estimates of the cost of remediation, and perform remediation. We do not
believe that additional costs that could arise from those activities will have a
material adverse effect on our financial position. However, those costs could
have a material adverse effect on quarterly or annual operating results at that
time.
We are involved in various other legal actions arising in the normal
course of business. After taking into consideration legal counsels' evaluation
of these actions, we believe that we have sufficiently accrued for possible
losses and that the actions will not have a material adverse effect on our
financial position. However, the resolution of the actions in a future period
could have a material adverse effect on quarterly or annual operating results at
that time.
64
<PAGE>
18 DIVESTED AND DISCONTINUED OPERATIONS
On August 16, 1994, the Elk Horn Coal Corporation ("Elk Horn"), our
former 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 us in the divestiture transaction. Under the Act, former
employers were 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 ("UMWA").
We were relieved of any liability under the Act as the result of a 1998
Supreme Court ruling. Accordingly, in 1998 we recognized:
- - A third-quarter gain of $5,300 ($3,421 after taxes) for the reversal of the
remaining accrued obligation established to cover future payments to the
UMWA Combined Benefit Fund (the "UMWA Fund")
- - A fourth-quarter gain of $2,019 ($1,292 after taxes) for the reimbursement
of payments made by us to the UMWA Fund
These gains were reported net of income taxes in discontinued
operations consistent with the treatment of Elk Horn when sold.
During the first quarter of 1998, we sold all of the outstanding
capital stock of APPX Software (see Note 16).
65
<PAGE>
<TABLE>
SELECTED QUARTERLY FINANCIAL DATA
Tredegar Corporation and Subsidiaries
(In thousands, except per-share amounts)
(Unaudited)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
- ----------------------------------------------------------------------------------------------------------
1999
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $179,541 $194,840 $215,911 $230,119 $820,411
Gross profit 39,302 40,854 44,522 47,479 172,157
Net income 15,298 10,190 12,315 14,845 52,648
Earnings per share:
Basic .42 .28 .33 .40 1.42
Diluted .39 .26 .32 .38 1.36
Shares used to compute earnings per share:
Basic 36,724 36,852 37,098 37,286 36,992
Diluted 38,800 38,798 38,718 38,699 38,739
- ----------------------------------------------------------------------------------------------------------
1998
- ----------------------------------------------------------------------------------------------------------
Net sales $156,660 $169,946 $186,638 $186,552 $699,796
Gross profit 33,572 35,497 38,415 39,128 146,612
Income from continuing operations 17,296 15,161 15,960 15,739 64,156
Income from discontinued operations - - 3,421 1,292 4,713
- ----------------------------------------------------------------------------------------------------------
Net income 17,296 15,161 19,381 17,031 68,869
Earnings per share:
Basic:
Continuing operations .48 .42 .44 .43 1.77
Discontinued operations - - .09 .04 .13
- ----------------------------------------------------------------------------------------------------------
Net income .48 .42 .53 .47 1.90
Diluted:
Continuing operations .44 .39 .41 .41 1.66
Discontinued operations - - .09 .03 .12
- ----------------------------------------------------------------------------------------------------------
Net income .44 .39 .50 .44 1.78
Shares used to compute earnings per share:
Basic 36,396 35,904 36,351 36,528 36,286
Diluted 39,000 38,557 38,582 38,577 38,670
</TABLE>
66
<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 CORPORATION
(Registrant)
Dated: February 22, 2000 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 22, 2000.
Signature Title
/s/ John D. Gottwald President and Director
- ------------------------------------ (Principal Executive Officer)
(John D. Gottwald)
/s/ N. A. Scher Executive Vice President and Director
- ------------------------------------ (Principal Financial Officer)
(Norman A. Scher)
/s/ D. Andrew Edwards Vice President, Treasurer and Controller
- ------------------------------------ (Principal Accounting Officer)
(D. Andrew Edwards)
/s/ Austin Brockenbrough, III Director
- ------------------------------------
(Austin Brockenbrough, III)
/s/ Phyllis Cothran Director
- ------------------------------------
(Phyllis Cothran)
/s/ R. W. Goodrum Director
- ------------------------------------
(Richard W. Goodrum)
/s/ Floyd D. Gottwald, Jr. Director
- ------------------------------------
(Floyd D. Gottwald, Jr.)
67
<PAGE>
/s/ William M. Gottwald Director
- ------------------------------------
(William M. Gottwald)
/s/ Richard L. Morrill Director
- ------------------------------------
(Richard L. Morrill)
/s/ Emmett J. Rice Director
- ------------------------------------
(Emmett J. Rice)
/s/ Thomas G. Slater, Jr. Director
- ------------------------------------
(Thomas G. Slater, Jr.)
68
<PAGE>
EXHIBIT INDEX
3.1 Amended and Restated Articles of Incorporation of Tredegar (filed as
Exhibit 3.1 to Tredegar's Quarterly Report on Form 10-Q for the
quarter ended June 30, 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, 1998,
and incorporated herein by reference)
3.3 Articles of Amendment (filed herewith)
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 30, 1999, by and between Tredegar
and American Stock Transfer & Trust Company, as Rights Agent (filed
as Exhibit 99.1 to the Registration Statement on Form 8-A, filed
June 16, 1999, as amended, 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 as
Exhibit 4.3.2 to Tredegar's Annual Report on Form 10-K for the year
ended December 31, 1998, and incorporated herein by reference)
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 as Exhibit 4.4.1 to Tredegar's
Annual Report on Form 10-K for the year ended December 31, 1997, and
incorporated herein by reference)
4.5 Credit Agreement, dated October 13, 1999, among Tredegar, the banks
named therein, Bank of America, N.A. as Administrative Agent, the
Bank of New York and Crestar Bank as Co-Document Agents (filed as
Exhibit 4 to Tredegar's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, and incorporated herein by
reference)
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)
69
<PAGE>
*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)
10.4 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)
*10.5 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)
*10.5.1 Amendment to the Tredegar 1989 Incentive Stock Option Plan (filed as
Exhibit 10.5.1 to Tredegar's Annual Report on Form 10-K for the year
ended December 31, 1998, and incorporated herein by reference)
*10.6 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)
*10.7 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)
*10.7.1 Amendment to the Tredegar 1992 Omnibus Incentive Plan (filed as
Exhibit 10.7.1 to Tredegar's Annual Report on Form 10-K for the year
ended December 31, 1998, and incorporated herein by reference)
*10.8 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)
*10.8.1 Amendment to the Tredegar Retirement Benefit Restoration Plan (filed
as Exhibit 10.8.1 to Tredegar's Annual Report on Form 10-K for the
year ended December 31, 1998, and incorporated herein by reference)
*10.9 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)
10.10 Tredegar Industries, Inc. Amended and Restated Incentive Plan
(included as Exhibit 99.2 to the Form S-8 Registration Statement No.
333-88177, and incorporated herein by reference)
*10.11 Consulting Agreement made as of March 31, 1996 between Tredegar and
Richard W. Goodrum (filed as Exhibit 10.14 to Tredegar's Annual
Report on Form 10-K for the year ended December 31, 1997, and
incorporated herein by reference)
*10.11.1 First Amendment to Consulting Agreement made as of July 1, 1997
between Tredegar and Richard W. Goodrum (filed as Exhibit 10.14.1 to
Tredegar's Annual Report on Form 10-K for the year ended December
31, 1997, and incorporated herein by reference)
70
<PAGE>
*10.12 Tredegar Industries, Inc. Directors' Stock Plan (filed as Exhibit
10.12 to Tredegar's Annual Report on Form 10-K for the year ended
December 31, 1998, and incorporated herein by reference)
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.
71
TREDEGAR INDUSTRIES, INC.
ARTICLES OF AMENDMENT
I.
The name of the Corporation is Tredegar Industries, Inc. (the
"Corporation").
II.
Article I of the Corporation's Articles of Incorporation is hereby
amended to read as follows:
"The name of the Corporation is Tredegar Corporation."
III.
The amendment was proposed by the board of directors and submitted to
the shareholders of the Corporation in accordance with Chapter 9 of Article 13.1
of the Code of Virginia. The designation, number of outstanding shares, and
number of votes entitled to be cast by each voting group entitled to vote
separately on the amendment are as follows:
Designation Number of Outstanding Shares Number of Votes
- ----------- ---------------------------- ---------------
Common 36,441,339 33,693,653
The total number of undisputed votes cast for the amendment by each
voting group was as follows:
Designation Number of Undisputed Votes for the Amendment
Common 33,693,653
<PAGE>
The number of votes cast for the amendment by each voting group was
sufficient for approval by that voting group.
TREDEGAR INDUSTRIES, INC.
Dated: May 20, 1999 By: /s/ Nancy M. Taylor
------------------------------------
Nancy M. Taylor
Vice President and Secretary
Exhibit 21
TREDEGAR CORPORATION
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, LC Virginia
TGI Fund II, LC Virginia
TGI Fund III, LLC Virginia
TGI Fund IV, LLC Virginia
Therics, Inc. 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 Kft Hungary
Tredegar Film Products - Lake Zurich, Inc. Virginia
Tredegar Film Products - Pottsville, Inc. Virginia
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 INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Tredegar Corporation 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, File No. 333-12985, File No.
333-63487 and File No. 333-88177) of our report dated January 20, 2000, on our
audits of the consolidated financial statements of Tredegar Corporation and
subsidiaries as of December 31, 1999 and 1998 and for each of the three years in
the period ended December 31, 1999, which report is included in the Annual
Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
March 16, 2000
Richmond, Virginia
<TABLE> <S> <C>
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<LEGEND>
THE SCHEDULE CONTAINS UNAUDITED SUMMARY FINANCIAL INFORMATION FOR TREDEGAR
CORPORATION AND SUBSIDIARIES EXTRACTED FROM THE BALANCE SHEET FOR THE PERIOD
ENDED DECEMBER 31, 1999 AND THE STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
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<RECEIVABLES> 125,866
<ALLOWANCES> 4,406
<INVENTORY> 53,129
<CURRENT-ASSETS> 214,588
<PP&E> 467,565
<DEPRECIATION> 224,158
<TOTAL-ASSETS> 792,487
<CURRENT-LIABILITIES> 108,242
<BONDS> 270,000
0
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<COMMON> 103,327
<OTHER-SE> 268,901
<TOTAL-LIABILITY-AND-EQUITY> 792,487
<SALES> 820,411
<TOTAL-REVENUES> 816,049
<CGS> 648,254
<TOTAL-COSTS> 648,254
<OTHER-EXPENSES> 74,311
<LOSS-PROVISION> 1,854
<INTEREST-EXPENSE> 9,088
<INCOME-PRETAX> 81,542
<INCOME-TAX> 28,894
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