SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
___ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
/X / OF THE SECURITIES EXCHANGE ACT OF 1934
- ---
For the quarterly period ended September 30, 2000
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
/ / OF THE SECURITIES EXCHANGE ACT OF 1934
- ---
For the transition period from to
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Commission file number 1-10258
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Tredegar Corporation
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(Exact Name of Registrant as Specified in its Charter)
Virginia 54-1497771
- ---------------------------------- -------------------------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1100 Boulders Parkway
Richmond, Virginia 23225
- ------------------------------------------- -----------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (804) 330-1000
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Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares of Common Stock, no par value, outstanding as of
October 31, 2000: 38,018,017.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Tredegar Corporation
Consolidated Balance Sheets
(In Thousands)
(Unaudited)
Sept. 30, Dec. 31,
2000 1999
----------- ----------
Assets
Current assets:
Cash and cash equivalents $ 47,158 $ 25,752
Receivable from securities brokers 16,213 -
Accounts and notes receivable 109,800 121,820
Inventories 47,063 53,129
Deferred income taxes 12,189 11,230
Prepaid expenses and other 2,283 2,657
----------- ----------
Total current assets 234,706 214,588
----------- ----------
Property, plant and equipment, at cost 503,597 467,565
Less accumulated depreciation and amortization 240,582 224,158
----------- ----------
Net property, plant and equipment 263,015 243,407
----------- ----------
Venture capital investments 358,104 140,698
Other assets and deferred charges 46,816 41,250
Goodwill and other intangibles 137,939 152,544
----------- ----------
Total assets $ 1,040,580 $ 792,487
=========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 59,699 $ 61,476
Accrued expenses 39,912 45,030
Income taxes payable 15,266 1,736
----------- ----------
Total current liabilities 114,877 108,242
Long-term debt 265,000 270,000
Deferred income taxes 92,925 33,205
Other noncurrent liabilities 9,224 8,812
----------- ----------
Total liabilities 482,026 420,259
----------- ----------
Shareholders' equity:
Common stock, no par value 107,037 103,327
Common stock held in trust for savings
restoration plan (1,212) (1,212)
Unrealized gain on available-for-sale securities 107,342 8,330
Foreign currency translation adjustment (5,383) (1,672)
Retained earnings 350,770 263,455
----------- ----------
Total shareholders' equity 558,554 372,228
----------- ----------
Total liabilities and shareholders' equity $1,040,580 $ 792,487
=========== ==========
See accompanying notes to financial statements.
2
Tredegar Corporation
Consolidated Statements of Income
(In Thousands)
(Unaudited)
Third Quarter Nine Months
Ended September 30 Ended September 30
-------------------------- -----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Revenues:
Net sales $215,627 $215,911 $671,358 $590,292
Other income (expense), net 79,641 (3,889) 113,567 (4,907)
--------- --------- --------- ---------
Total 295,268 212,022 784,925 585,385
--------- --------- --------- ---------
Costs and expenses:
Cost of goods sold 177,170 171,389 542,172 465,614
Selling, general and administrative 15,236 11,991 41,161 34,513
Research and development 6,910 5,969 18,887 15,819
Amortization of intangibles 1,276 1,275 3,828 2,144
Interest 4,455 3,047 13,057 4,853
Unusual items 16,870 (712) 21,829 3,916
--------- --------- --------- ---------
Total 221,917 192,959 640,934 526,859
--------- --------- --------- ---------
Income before income taxes 73,351 19,063 143,991 58,526
Income taxes 26,313 6,748 52,122 20,723
--------- --------- --------- ---------
Net income $ 47,038 $ 12,315 $ 91,869 $ 37,803
========= ========= ========= =========
Earnings per share:
Basic $ 1.24 $ .33 $ 2.43 $ 1.02
Diluted 1.21 .32 2.36 .97
Shares used to compute earnings per share:
Basic 37,944 37,098 37,859 36,893
Diluted 38,847 38,718 38,952 38,754
Dividends per share $ .04 $ .04 $ .12 $ .12
See accompanying notes to financial statements.
3
Tredegar Corporation
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Nine Months Ended
September 30
----------------------------
2000 1999
---------- ----------
Cash flows from operating activities:
Net income $ 91,869 $ 37,803
Adjustments for noncash items:
Depreciation 23,734 20,146
Amortization of intangibles 3,828 2,144
Write-off of goodwill and in-process R&D acquired 9,950 3,725
Deferred income taxes 1,661 (1,071)
Accrued pension income and postretirement benefits (5,703) (2,331)
(Gain) loss on sale of venture capital investments (112,839) 4,994
Loss on equipment writedowns and divestitures 11,689 458
Changes in assets and liabilities, net of effects from acquisitions
and divestitures:
Accounts and notes receivable 9,673 (10,208)
Inventories 3,630 4,806
Prepaid expenses and other 329 1,624
Accounts payable (1,020) 10,502
Accrued expenses and income taxes payable 7,020 1,347
Other, net (378) (2,117)
---------- ----------
Net cash provided by operating activities 43,443 71,822
---------- ----------
Cash flows from investing activities:
Capital expenditures (60,418) (32,792)
Acquisitions - (215,227)
Venture capital investments (74,783) (55,727)
Proceeds from the sale of venture capital investments 112,131 2,234
Proceeds from property disposals and divestitures 9,205 905
Other, net (2,328) (841)
---------- ----------
Net cash used in investing activities (16,193) (301,448)
---------- ----------
Cash flows from financing activities:
Dividends paid (4,554) (4,428)
Net increase (decrease) in borrowings (5,000) 225,000
Proceeds from exercise of stock options (including
related income tax benefits realized) 3,710 3,079
---------- ----------
Net cash provided by (used in) financing activities (5,844) 223,651
---------- ----------
Increase (decrease) in cash and cash equivalents 21,406 (5,975)
Cash and cash equivalents at beginning of period 25,752 25,409
---------- ----------
Cash and cash equivalents at end of period $ 47,158 $ 19,434
========== ==========
See accompanying notes to financial statements.
4
TREDEGAR CORPORATION
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying consolidated financial
statements of Tredegar Corporation and Subsidiaries ("Tredegar")
contain all adjustments necessary to present fairly, in all material
respects, Tredegar's consolidated financial position as of September
30, 2000, and the consolidated results of operations and cash flows for
the nine months ended September 30, 2000 and 1999. All such adjustments
are deemed to be of a normal recurring nature. These financial
statements should be read in conjunction with the consolidated
financial statements and related notes included in Tredegar's Annual
Report on Form 10-K for the year ended December 31, 1999. The results
of operations for the nine months ended September 30, 2000 are not
necessarily indicative of the results to be expected for the full year.
2. See pages 10 through 12 for information on unusual items recognized
during the quarter and the nine months ended September 30, 2000 and
1999.
In the third quarter we recognized a net after-tax charge of
$10.8 million (28 cents per share) related primarily to a write-off of
excess capacity and associated goodwill in our plastic films business.
On October 13, 2000, we announced the completion of the
acquisition of the stock of ADMA and Promea, film and film equipment
manufacturers located in Italy. The combined companies have annual
sales of approximately $9 million.
3. A summary of our venture capital activities for the quarter and
nine months ended September 30, 2000 and 1999, is provided below:
(In Thousands)
Third Quarter Nine Months
Ended September 30 Ended September 30
--------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Carrying value, beginning of period $262,277 $ 85,154 $140,698 $ 60,024
Activity for period (pre-tax):
New investments 27,772 23,890 74,783 55,727
Proceeds from the sale of investments (84,909) (45) (128,344) (2,234)
Realized gains 80,301 35 117,306 1,961
Realized losses, write-offs and write-downs (1,003) (3,846) (4,467) (6,955)
Transfer of carrying value of Therics out of
portfolio (acquired by Tredegar) - - - (3,380)
Increase in net unrealized gain on
available-for-sale securities 73,666 2,688 158,128 2,733
--------- --------- --------- ---------
Carrying value, end of period $358,104 $107,876 $358,104 $107,876
========= ========= ========= ==========
Our remaining unfunded commitments to private venture capital
funds totaled approximately $57 million at September 30, 2000, and $30
million at December 31, 1999.
A schedule of investments is provided on the following two
pages.
5
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Tredegar Corporation
Schedule of Investments at September 30, 2000 and December 31, 1999
(In Thousands, Except Per-Share Amounts)
Yrs. Web Site
Investment Symbol Held (a) Description (www.)
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Securities of Public Companies Held:
Illumina, Inc. (e) ILMN 1.9 Fiber optic sensor technology for drug screening illumina.com
SignalSoft Corporation (e) SGSF 2.6 Wireless caller location detection software signalsoftcorp.com
Rosetta Inpharmatics, Inc. (e) RSTA 3.3 Gene function/drug screening on a chip rii.com
Eprise Corporation (e) EPRS 2.8 Web site maintenance & development tool eprise.com
Superconductor Tech, Inc. SCON 1.3 Manufactures filters for wireless networks suptech.com
Vascular Solutions (e) VASC 2.8 Vascular access sit closure system vascularsolutions.com
Nortel Networks Corp. (f) NT 2.5 Networking solutions and services nortelnetworks.com
Lucent Technologies, Inc. (f) LU 2.5 Developer and manufacturer of communications systems lucent.com
Software.com, Inc. (f) SWCM .9 Infrastructure applications for the Internet software.com
Cobalt Networks, Inc. COBT 3.0 Network servers cobalt.com
Tut Systems, Inc. TUTS 7.2 Local area network products tutsys.com
Siebel Systems, Inc. (f) SEBL 2.3 Provider of eBusiness applications siebel.com
Eclipse Surgical Tech., Inc. ESTI 6.3 Coronary revascularization eclipsesurg.com
Avaya Inc. (f) AV 2.5 Communications systems avaya.com
Cisco Systems (f) CSCO 1.2 Networking for the Internet cisco.com
Tibco Software, Inc. (f) TIBX 2.5 eBusiness infrastructure software products tibco.com
Yahoo! Inc. (f) YHOO 1.6 Internet media company yahoo.com
DSL.net Inc. DSLN 1.5 High speed data communications technology dsl.net
BCE Emergis Inc. (f) IFM.TO 2.5 E-commerce solutions emergis.com
Telaxis Communications TLXS 2.9 High speed wireless access equipment telaxiscomm.com
America Online, Inc. (f) AOL 1.3 Internet services aol.com
Copper Mountain Networks CMTN .4 Digital subscriber line communication products coppermountain.com
Caliper Technologies Corp. CALP 2.9 Lab on a chip calipertech.com
Akamai Technologies, Inc. AKAM 1.1 Global delivery service of Internet content akamai.com
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Total securities of public companies held
- ------------------------------------------------------------------------------------------------------------------------------------
Securities of Private Companies Held:
CyroGen 5.0 Micro-cryogenic catheters for medical applications cyrogen-inc.com
Sensitech Inc. 3.6 Perishable product management solutions sensitech.com
Bell Geospace 3.3 Presentation of 3D data to the oil & gas industry bellgeo.com
Songbird Medical, Inc. 3.2 Disposable hearing aids
RedCreek Communications 3.1 Internet and intranet security redcreek.com
Appliant, Inc. 3.0 Software tools for managing executable software appliant.com
Ellipsys Technologies, Inc. 2.9 Telephone system error detection ellipsystech.com
HemoSense 2.9 Point of care blood coagulation time test device hemosense.com
Moai Technologies, Inc. 2.8 System for holding auctions on the Internet moai.com
Babycare, Ltd. 2.6 Direct retailing of baby care products in China
NovaLux, Inc. 2.4 Blue-green light lasers novalux.com
IRSI 2.3 Optical inspection systems irsinc.com
Xycte Therapies, Inc. 2.2 Develops drugs to treat cancer & other disorders xcytetherapies.com
Advanced Diagnostics, Inc. 1.9 3-D medical imaging equipment
Adolor Corporation 1.8 Develops pain-management therapeutic drugs adolor.com
Praxon, Inc. 1.8 Integrated business communications equipment praxon.com
AdiCom Wireless, Inc. 1.7 Wireless local loop technology adicomwireless.com
EndoVasix, Inc. 1.7 Device for treatment of ischemic strokes endovasix.com
eWireless, inc. 1.7 Technology linking cell phone users & advertising ewireless.com
Cooking.com, Inc. 1.5 Sales of cooking-related items over the Internet cooking.com
MediaFlex.com 1.5 Internet-based printing & publishing mediaflex.com
eBabyCare Ltd. 1.3 Sales of babycare products over the Internet in China
Kodiak Technologies, Inc. 1.3 Cooling products for organ & pharma transport kodiaktech.com
Genesis Medical, Inc. 1.2 Medical devices for breast cancer surgery
CEPTYR, Inc. 1.2 Develops small molecule drugs ceptyr.com
GreaterGood.com 1.2 Internet marketing targeted at donors to charities greatergood.com
Etera Corporation 1.1 Sales of branded perennial plants over the Internet etera.com
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Subtotal securities of private companies held
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See notes on page 7.
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Tredegar Corporation Public Common Stock or
Schedule of Investments at September 30, Equivalents at 9/30/00 9/30/00 (g) 12/31/99 (g)
2000 and December 31, 1999 ---------------------------- -----------------------------------------------------------
(In Thousands, Except Per-Share Amounts)
Estimated
Restricted Estimated Estimated
Shares Closing Stock Dis- Fair Carrying Cost Fair Carrying Cost
Investment Held Price count (c) Value (b) Value (b) Basis Value (b) Value (b) Basis
- ------------------------------------------------------------------------------------------------------------------------------------
Securities of Public Companies Held:
Illumina, Inc. (e) 1,659 $ 45.38 20% $ 60,244 $ 60,244 $ 3,925 6,853 3,925 3,925
SignalSoft Corporation (e) 922 40.62 20% 29,959 29,959 3,006 5,624 2,996 2,996
Rosetta Inpharmatics, Inc. (e) 1,044 27.89 20% 23,299 23,299 4,745 4,558 3,000 3,000
Eprise Corporation (e) 1,900 8.62 1% 16,156 16,156 3,057 7,309 2,900 2,900
Superconductor Tech, Inc. 776 18.06 3% 13,577 13,577 2,160 4,613 3,000 3,000
Vascular Solutions (e) 854 18.77 20% 12,825 12,825 2,450 4,409 2,450 2,450
Nortel Networks Corp. (f) 185 60.38 3% 10,888 10,888 883 2,945 750 750
Lucent Technologies, Inc. (f) 318 30.50 n/a 9,693 9,693 212 - - -
Software.com, Inc. (f) 43 181.44 20% 6,185 6,185 348 2,000 2,000 2,000
Cobalt Networks, Inc. 54 57.88 n/a 3,101 3,101 99 - - -
Tut Systems, Inc. 29 86.31 n/a 2,481 2,481 145 - - -
Siebel Systems, Inc. (f) 22 111.31 2% 2,412 2,412 156 - - -
Eclipse Surgical Tech., Inc. 453 4.00 n/a 1,813 1,813 2,464 3,342 3,342 2,464
Avaya Inc. (f) 26 22.94 n/a 607 607 - - - -
Cisco Systems (f) 13 55.25 17% 572 572 200 6,276 6,276 2,000
Tibco Software, Inc. (f) 6 84.44 3% 479 479 67 - - -
Yahoo! Inc. (f) 3 91.00 4% 288 288 50 - - -
DSL.net Inc. 90 3.06 n/a 276 276 170 - - -
BCE Emergis Inc. (f) 6 47.78 13% 272 272 20 - - -
Telaxis Communications 34 6.09 n/a 205 205 145 - - -
America Online, Inc. (f) 3 53.65 n/a 135 135 20 - - -
Copper Mountain Networks - - 20% - - - 1,460 1,460 1,460
Caliper Technologies Corp. - - 20% - - - 8,386 8,386 1,000
Akamai Technologies, Inc. - - 20% - - - 536 536 57
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Total securities of public companies held 195,467 195,467 24,322 58,311 41,021 28,002
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Securities of Private Companies Held:
CyroGen 4,213 3,054 3,054 3,759 2,553 2,553
Sensitech Inc. 3,100 2,333 2,333 2,000 2,000 2,000
Bell Geospace - - 3,500 - - 3,500
Songbird Medical, Inc. 5,859 3,960 3,960 5,922 3,960 3,960
RedCreek Communications 549 549 2,256 2,071 2,071 2,256
Appliant, Inc. 6,243 3,899 3,899 5,036 2,599 2,599
Ellipsys Technologies, Inc. - - 2,275 1,987 1,987 2,737
HemoSense 2,686 2,485 2,485 1,735 1,485 1,485
Moai Technologies, Inc. 30,817 2,021 2,021 7,389 2,021 2,021
Babycare, Ltd. 1,009 1,009 1,009 1,009 1,009 1,009
NovaLux, Inc. 50,624 10,149 10,149 5,193 3,183 3,183
IRSI 7,780 3,325 4,200 2,848 2,825 3,700
Xycte Therapies, Inc. 5,578 3,795 3,795 3,000 3,000 3,000
Advanced Diagnostics, Inc. 1,316 1,371 1,371 705 705 705
Adolor Corporation 5,324 3,000 3,000 2,613 2,000 2,000
Praxon, Inc. 2,577 2,309 2,309 2,661 2,309 2,309
AdiCom Wireless, Inc. 4,093 4,062 4,062 3,000 3,000 3,000
EndoVasix, Inc. 4,255 4,000 4,000 2,500 2,500 2,500
eWireless, inc. 31,593 2,250 2,250 2,250 2,250 2,250
Cooking.com, Inc. 6,801 4,500 4,500 7,021 4,500 4,500
MediaFlex.com 3,998 3,500 3,500 1,500 1,500 1,500
eBabyCare Ltd. 314 314 314 120 120 120
Kodiak Technologies, Inc. 1,694 1,694 1,694 1,194 1,194 1,194
Genesis Medical, Inc. 3,133 2,467 2,467 800 800 800
CEPTYR, Inc. 1,750 1,750 1,750 1,750 1,750 1,750
GreaterGood.com 4,905 3,749 3,749 3,200 3,200 3,200
Etera Corporation 3,952 4,000 4,000 3,000 3,000 3,000
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Subtotal securities of private companies held 194,163 75,545 83,902 74,263 57,521 62,831
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See notes on page 7.
6
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Tredegar Corporation
Schedule of Investments at September 30, 2000 and December 31, 1999
(In Thousands, Except Per-Share Amounts)
Yrs. Web Site
Investment Held (a) Description (www.)
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities of public companies held (from page 6)
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Subtotal securities of private companies held (from page 6)
ThinkFree.com 1.0 Java-based software complementary to Microsoft Office thinkfree.com
PurePacket Communications, Inc. .9 Next generation packet-based CLEC (phone carrier) purepacket.com
Quarry Technologies, Inc. .9 Technology for delivery of differentiated service level quarrytech.com
Norborn Medical, Inc. .8 Device for treatment of cardiovascular disease
FastTrack Systems, Inc. .7 Clinical trial data management information systems
Riveon .6 Web-based data mining software for business managers
Medmanage Systems, Inc. .5 Management of prescription drug sampling program
Linx Communications, Inc. .3 Unified communications and messaging system
Infinicon, Inc. .3 Manufacturer of infiniband input/output products
Cbyon, Inc. .2 Provider of software image data to assist surgeons
Extreme Devices - Manufacturer of integrated, solid-state electron source
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Total securities of private companies held
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Limited partnership interests in private venture capital funds (period held of
.1 - 7.5 years) (d)
- ------------------------------------------------------------------------------------------------------------------------------------
Total investments
Estimated taxes on assumed disposal at fair value
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Estimated net asset value ("NAV")
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- ------------------------------------------------------------------------------------------------------------------------------------
Tredegar Corporation
Schedule of Investments at September 30, 2000 and December 31, 1999 9/30/00 (g) 12/31/99 (g)
(In Thousands, Except Per-Share Amounts) -----------------------------------------------------------------
Estimated Estimated
Fair Carrying Cost Fair Carrying Cost
Investment Value (b) Value (b) Basis Value (b) Value (b) Basis
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Total securities of public companies held (from page 6) 195,467 195,467 24,322 58,311 41,021 28,002
- ------------------------------------------------------------------------------------------------------------------------------------
Subtotal securities of private companies held (from page 6) 194,163 75,545 83,902 74,263 57,521 62,831
ThinkFree.com 1,491 1,491 1,491 1,001 1,001 1,001
PurePacket Communications, Inc. 8,943 4,779 4,779 1,797 1,797 1,797
Quarry Technologies, Inc. 3,000 3,000 3,000 3,000 3,000 3,000
Norborn Medical, Inc. - - 188 188 188 188
FastTrack Systems, Inc. 3,000 3,000 3,000 - - -
Riveon 1,200 1,200 1,200 - - -
Medmanage Systems, Inc. 4,000 4,000 4,000 - - -
Linx Communications, Inc. 3,000 3,000 3,000 - - -
Infinicon, Inc. 3,485 3,485 3,485 - - -
Cbyon, Inc. 3,500 3,500 3,500 - - -
Extreme Devices 5,000 5,000 5,000 - - -
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Total securities of private companies held 230,782 108,000 116,545 80,249 63,507 68,817
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Limited partnership interests in private venture capital funds
(period held of .1 - 7.5 years) (d) 125,921 54,637 58,346 66,803 36,170 38,650
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Total investments 552,170 $ 358,104 $199,213 205,363 $140,698 $135,469
-------------------- -------------------
Estimated taxes on assumed disposal at fair value 131,582 25,162
- ------------------------------------------------------------------------------- -----------
Estimated net asset value ("NAV") $ 420,588 $ 180,201
- ------------------------------------------------------------------------------- -----------
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) 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.
(d) At September 30, 2000, Tredegar had ownership interests in 27 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):
Indirect Investment Symbol Description
- -------------------------------------------------------------------------------------------------------------------------
Cosine Communications SCON Communications platforms for network service providers (cosinecom.com)
Illumina, Inc. ILMN Fiber optic sensor technology for drug screening
Sonus Networks SONS Provider of voice infrastructure products (sonusnet.com)
Universal Access, Inc. UAXS Wholesale provider of high bandwidth services (universalaccessinc.com)
Paradigm Genetics, Inc. PDGM Industrialization of the process of determining gene function (paragen.com)
Lucent Technologies, Inc. LU Developer and manufacturer of communications systems
SignalSoft Corporation SGSF Wireless caller location detection software
Rosetta Inpharmatics, Inc. RSTA Gene function/drug screening on a chip
Digital Island ISLD Web site management (digisle.net)
Loudeye Technologies, Inc. LOUD Internet media infrastructure services and applications (loudeye.com)
ASAR Holdings Limited ASTT Provider of semiconductor assembly and testing services (asat.com)
- -------------------------------------------------------------------------------------------------------------------------
Indirect Average Indirect
--------
Interest in Restricted Estimated
Common Closing Stock Dis- Fair Cost
Indirect Investment Shares Price count Value Basis
- -------------------------------------------------------------------------------------------------
Cosine Communications 396 $ 55.56 20% $ 17,580 $ 562
Illumina, Inc. 192 45.38 20% 6,978 333
Sonus Networks 49 126.38 0% 6,191 63
Universal Access, Inc. 600 11.75 20% 5,639 521
Paradigm Genetics, Inc. 114 23.88 20% 2,184 212
Lucent Technologies, Inc. 70 30.50 n/a 2,124 152
SignalSoft Corporation 46 40.62 20% 1,498 162
Rosetta Inpharmatics, Inc. 56 27.89 20% 1,253 253
Digital Island 69 18.75 20% 1,036 131
Loudeye Technologies, Inc. 169 6.81 20% 920 437
ASAR Holdings Limited 164 6.56 20% 863 365
- -------------------------------------------------------------------------------------------------
7
4. Comprehensive income, defined as net income and other comprehensive
income, was $89 million for the third quarter of 2000 and $14 million
for the third quarter of 1999. Comprehensive income was $187.2 million
for the first nine months of 2000 and $40.4 million for the first nine
months of 1999. Other comprehensive income includes changes in
unrealized gains and losses on available-for-sale securities and
foreign currency translation adjustments recorded net of deferred
income taxes directly in shareholders' equity.
5. The components of inventories are as follows:
(In Thousands)
Sept. 30 Dec. 31
2000 1999
-------------- --------------
Finished goods $7,098 $9,928
Work-in-process 4,462 4,322
Raw materials 25,136 29,174
Stores, supplies and other 10,367 9,705
-------------- --------------
Total $47,063 $53,129
============== ==============
6. Basic earnings per share is computed by dividing net income by the
weighted average number of shares of common stock outstanding. Diluted
earnings per share is computed by dividing net income by the weighted
average common and potentially dilutive common equivalent shares
outstanding, determined as follows:
(In Thousands)
Third Quarter Nine Months
Ended Sept. 30 Ended Sept. 30
-------------------- ---------------------
2000 1999 2000 1999
-------- --------- -------- ----------
Weighted average shares outstanding used
to compute basic earnings per share 37,944 37,098 37,859 36,893
Incremental shares issuable upon the
assumed exercise of stock options 903 1,620 1,093 1,861
-------- --------- -------- ----------
Shares used to compute diluted earnings
per share 38,847 38,718 38,952 38,754
======== ========= ======== ==========
Incremental shares issuable upon the assumed exercise of
outstanding stock options are computed using the average market price
during the related period.
7. The Financial Accounting Standards Board has issued a new standard
affecting the accounting for derivative instruments and hedging
activities. This standard is not expected to significantly change our
operating results, financial condition or disclosures. The new standard
will be adopted in the first quarter of 2001.
In December 1999, the Securities and Exchange Commission
issued a new bulletin regarding the recognition of revenue in the
financial statements. This bulletin is not expected to significantly
change our operating results, financial condition or disclosures. The
new standard will be adopted in the fourth quarter of 2000.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Third Quarter 2000 Compared with Third Quarter 1999
Net income for the third quarter of 2000 was $47 million, up from $12.3
million in 1999 ($1.21 per share versus 32 cents per share). Results in the
third quarter of 2000 include $49.8 million ($1.28 per share) of realized
after-tax gains from venture capital investments compared to an after-tax loss
of $2.8 million (7 cents per share) in the third quarter of 1999. Results in the
third quarter of 2000 also include a net after tax charge of $10.8 million (28
cents per share) related primarily to a write-off of excess capacity and
associated goodwill in the company's plastic films business.
On October 23, 2000, we announced a series of strategic initiatives
aimed at accelerating the growth of the two operating companies in our
technology segment, Therics, Inc., and Molecumetics, Ltd. We will significantly
increase Therics' product development spending and are exploring external
financing and other strategic alternatives to fund the growth of Molecumetics.
We will use cash generated by our existing venture capital investments
to support more aggressive spending in our Therics subsidiary. As part of the
plan, we will reduce future investments in our venture portfolio, which is
expected to yield significant positive cash flows over the next few years. This
cash is expected to be more than adequate to fund the increased spending at
Therics. Excess cash may be used for stock repurchases, debt reduction and
acquisitions. We are currently authorized by our board of directors to
repurchase up to four million shares of our common stock in the open market or
in privately negotiated transactions.
We plan to invest approximately $60 million ($40 million net of
expected tax benefits) in Therics over the next three years, with the goal of
achieving substantial revenue and profit growth by 2004. We believe Therics is
making encouraging progress in its development of bone replacement and
reconstructive products as well as implantable and oral drugs. Therics'
operating losses could reach $25 million per year in 2001 and 2002. Our goal is
for Therics to begin generating revenue and reducing losses in 2003, with rapid
growth in sales and profits thereafter.
Therics' technology can take very sensitive, biologically compatible
materials and fabricate them into anatomically accurate bone replacement
products with precise internal micro-architectures. We plan to use this unique
capability to gain access to a potential multi-billion dollar market for more
sophisticated tissue-engineered products. Our initial efforts are aimed at
surgical procedures that require relatively simple combinations of materials and
strength. Subsequent products will be designed to facilitate full incorporation
into a patient's body tissue.
Our plan is to pursue the quickest route to profitability by focusing
on commercializing our bone replacement products while continuing to develop our
drug delivery and tissue engineering technologies. We expect the first of our
bone replacement products to clear FDA regulatory hurdles by the end of 2001.
Full-scale marketing efforts are planned to begin in 2002.
We also announced the exploration of external financing and other
strategic alternatives for Molecumetics. Molecumetics uses proprietary chemistry
and an integrated set of drug discovery capabilities to accelerate the
identification of novel drug candidates. External financing would
9
fund higher spending levels and reduce new cash outlays from Tredegar. However,
due to accounting rules, our earnings may reflect up to $10 million per year in
operating losses from Molecumetics in 2001 and 2002.
In order to accelerate efforts to build our technology operations, we
have decided to harvest our existing venture portfolio. We intend to fund
existing commitments and support existing portfolio companies, but will not make
any new direct investments in 2001.
Some of the information contained herein may constitute forward-looking
information. Although we believe that all such statements are based on
reasonable assumptions within the bounds of our knowledge of our businesses,
actual results may differ materially from expectations.
Pretax realized gains and losses from venture capital investment
activities are included in "Other income (expense), net" in the consolidated
statements of income on page 3 and "Venture capital investments" in the
operating profit table on page 13. Operating expenses (primarily employee
compensation, benefits and leased office space and equipment) for our venture
capital investment activities are classified in "Selling, general and
administrative expenses" ("SG&A") in the consolidated statements of income and
"Venture capital investments" in the operating profit table.
After-tax appreciation in the net asset value ("NAV") of the venture
capital investment portfolio during the third quarter was $101.5 million. At
September 30, 2000, the NAV of the portfolio was $420.6 million. For more
information on our venture capital investment activities, see pages 14 through
16 and Note 3 on pages 5 through 7.
Net sales in the third quarter of 2000 were $215.6 million versus
$215.9 million in the third quarter of 1999. An overall volume decrease was
offset by higher selling prices which were driven by higher raw material costs.
See the business segment review beginning on page 13.
The gross profit margin during the third quarter of 2000 declined to
17.8% from 20.6% in 1999 due primarily to lower volume and higher production
costs for new products in Film Products.
SG&A expenses in the third quarter of 2000 were $15.2 million, up from
$12 million in 1999 due primarily to a $3.5 million charge for a provision for
doubtful accounts related to two diaper film customers. As a percentage of
sales, SG&A expenses increased to 7.1% in the third quarter of 2000 compared
with 5.6% in 1999.
R&D expenses increased to $6.9 million from $6 million in the third
quarter of 1999 due to higher spending at Molecumetics in support of
collaboration programs and higher spending at Therics in support of its
development of bone replacement and reconstructive products.
Unusual items in the third quarter of 2000 totaled $16.9 million ($10.8
million after income taxes) and included:
- - a charge of $17.9 million ($11.4 million after income taxes) for the
write-off of excess production capacity at our plastic film plants in Lake
Zurich, Illinois, and Terre Haute, Indiana, including an impairment loss
for equipment of $7.9 million and an impairment loss for the related
goodwill of $10 million; and
10
- - a reversal of $1 million ($640,000 after income taxes) related to the first
quarter charge for the shutdown of the Manchester, Iowa, production
facility due to revised estimates.
Unusual items in the third quarter of 1999 include a gain of $712,000
on the sale of corporate real estate ($465,000 after income taxes).
Interest income, which is included in "Other income (expense), net" in
the consolidated statements of income, was $494,000 in the third quarter of 2000
and $310,000 in 1999. The average tax-equivalent yield earned on cash
equivalents was approximately 6.5% in the third quarter of 2000 and 5.1% in the
third quarter of last year. 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 $4.5 million in the third quarter of 2000
from $3 million in 1999, due to higher average debt outstanding (up $36 million)
from acquisitions and investments made in 1999. The average rate on
variable-rate debt ($259.8 million in 2000 versus $218.6 million in 1999) was 7%
in the third quarter of 2000 versus 5.54% in 1999. The average rate on
fixed-rate debt ($15 million in the third quarter of 2000 and $20 million in the
third quarter of 1999) was 7.2% in both periods.
The effective tax rate on manufacturing operations, excluding unusual
items, increased to 36.5% in the third quarter of 2000 from 35.4% in 1999 due to
higher taxes accrued on income from foreign operations. The overall effective
tax rate, excluding unusual items was 36.2% due to the increased investment
gains.
Nine Months 2000 Compared with Nine Months 1999
Net income for the first nine months of 2000 was $91.9 million, up from
$37.8 million in 1999 ($2.36 per share versus 97 cents per share). Results for
2000 include $69.8 million ($1.79 per share) of realized after-tax gains from
venture capital investments compared to a loss of $4.3 million (11 cents per
share) in 1999.
The after-tax appreciation in the NAV through the first nine months of
this year was $250.1 million.
Net sales for the nine months ended September 30, 2000, increased 13.7%
over the same period of last year. The improved net sales are due primarily to
the acquisition of Exxon Films and overall higher selling prices driven by
higher raw material costs. On a pro forma basis, net sales increased 6%.
For more information on net sales, see the business segment review
beginning on page 13.
The gross profit margin for the first nine months of 2000 decreased to
19.2% from 21.1% in 1999 due to lower volume and higher production costs for new
products in Film Products.
SG&A expenses were $41.2 million in 2000, up from $34.5 million in 1999
due primarily to the acquisition of Exxon Films, a $3.5 million provision for
doubtful accounts related to two diaper film customers, and increased operating
expenses relative to our venture capital portfolio. As a percentage of sales,
SG&A expenses increased to 6.1% in the first nine months of 2000 compared with
5.8% in the same period of 1999.
11
R&D expenses increased to $18.9 million in 2000 from $15.8 million in
1999 due to the acquisition of Therics (impact of $2.3 million), higher spending
at Molecumetics in support of collaboration programs (up $700,000) and slightly
higher product development spending at Film Products (up $115,000).
Unusual items for the nine months ended September 30, 2000, totaled
$21.8 million ($14 million after income taxes) and included:
- - a charge of $5.3 million ($3.4 million after income taxes) for the shutdown
of a plastic films manufacturing facility in Manchester, Iowa, including an
impairment loss for building and equipment ($4.1 million), severance costs
($700,000), and excess inventory and other items ($450,000);
- - a charge of $191,000 ($122,000 after income taxes) for costs associated
with the evaluation of financing and structural options for the Technology
Group;
- - a gain of $525,000 ($336,000 after income taxes) for the sale of the assets
of Fiberlux, Inc.;
- - a charge of $17.9 million ($11.4 million after income taxes) for the
write-off of excess production capacity at our plastic film plants in Lake
Zurich, Illinois, and Terre Haute, Indiana, including an impairment loss
for equipment of $7.9 million and write-off of the related goodwill of $10
million; and
- - a reversal of $1 million ($640,000 after income taxes) related to the first
quarter charge for the shutdown of the Manchester, Iowa, production
facility due to revised estimates.
Unusual items for the nine months ended September 30, 1999, totaled
$3.9 million ($2.5 million after income taxes) and included:
- - a charge of $3.5 million ($2.2 million after income taxes) related to the
write-off of purchased in-process research and development expenses
associated with the Therics acquisition;
- - a charge of $1.2 million ($749,000 after income taxes) for the write-off
of excess packaging film capacity; and
- - a gain of $712,000 ($456,000 after income taxes) on the sale of corporate
real estate.
Interest income for 2000 was $1.4 million versus $892,000 in 1999. The
average tax-equivalent yield earned on cash equivalents was approximately 6.2%
for 2000 and 4.95% for 1999.
Interest expense increased to $13.1 million in 2000 from $4.9 million
in 1999 due to higher average debt outstanding (up $141.5 million) from
acquisitions and investments made in 1999. The average rate on variable-rate
debt ($254.3 million in 2000 and $107.8 million in 1999) was 7.1% in 2000 versus
5.5% in 1999. The average rate on fixed-rate debt ($18 million in 2000 and $23
million in 1999) was 7.2% in both periods.
The effective income tax rate on manufacturing operations, excluding
unusual items, increased to 36.5% in 2000 from 35.4% in 1999 due to higher taxes
accrued on income from foreign operations. The overall effective tax rate,
excluding unusual items, was 36.2% due to the increased investment gains.
12
Business Segment Review
The following tables present Tredegar's net sales and operating profit
by segment for the third quarter and nine months ended September 30, 2000 and
1999.
Net Sales by Segment
(In Thousands)
(Unaudited)
Third Quarter Nine Months
Ended September 30 Ended September 30
-------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Film Products $ 95,058 $ 93,548 $288,448 $236,567
Fiberlux - 2,620 1,856 7,098
Aluminum Extrusions 118,622 118,022 375,467 341,141
Technology:
Molecumetics 1,826 1,626 5,278 5,391
Therics 121 95 309 95
--------- --------- --------- ---------
Total net sales $215,627 $215,911 $671,358 $590,292
========= ========= ========= =========
Operating Profit by Segment
(In Thousands)
(Unaudited)
Third Quarter Nine Months
Ended September 30 Ended September 30
-------------------- ---------------------
2000 1999 2000 1999
-------- --------- -------- ----------
Film Products:
Ongoing operations $ 7,675 $ 16,235 $36,206 $ 41,783
Unusual items (16,870) - (22,163) (1,170)
-------- --------- -------- ----------
Total Film Products (9,195) 16,235 14,043 40,613
-------- --------- -------- ----------
Fiberlux:
Ongoing operations - 160 (264) 19
Unusual items - - 525 -
-------- --------- -------- ----------
Total Fiberlux - 160 261 19
-------- --------- -------- ----------
Aluminum Extrusions 12,941 14,107 45,786 42,587
Technology:
Molecumetics (1,014) (1,078) (3,521) (2,825)
Therics (1,930) (1,746) (5,783) (3,343)
Venture capital investments 77,843 (4,420) 109,046 (6,767)
Unusual items - - (191) (3,458)
-------- --------- -------- ----------
Total technology 74,899 (7,244) 99,551 (16,393)
-------- --------- -------- ----------
Total operating profit 78,645 23,258 159,641 66,826
Interest income 494 310 1,391 892
Interest expense 4,455 3,047 13,057 4,853
Corporate expenses, net 1,333 1,458 3,984 4,339
-------- --------- -------- ----------
Income before income taxes 73,351 19,063 143,991 58,526
Income taxes 26,313 6,748 52,122 20,723
-------- --------- -------- ----------
Net income $ 47,038 $ 12,315 $ 91,869 $ 37,803
======== ========= ======== ==========
13
Third quarter sales in Film Products were $95.1 million, up slightly
from $93.5 million in 1999 due to raw material-driven price increases. Operating
profit for the quarter (excluding unusual items) was $7.7 million, down from
$16.2 million in the prior year's quarter, while volume declined 8.5%. In
addition to the declining volume, ongoing results in films were adversely
affected by manufacturing inefficiencies associated with the roll-out of
cloth-like breathable film backsheet for diapers, lower volumes in regular
backsheet due to the transition to cloth-like breathable materials, lower
customer market share and the loss of some regular backsheet export business to
foreign customers. Operating results were also negatively affected by a $3.5
million provision for doubtful accounts related to two diaper film customers.
Third quarter results in Film Products also include a charge of $16.9
million ($10.8 million after income taxes or 28 cents per share) related
primarily to the write-off of excess production capacity and associated goodwill
at our plastic film plants in Lake Zurich, Illinois, and Terre Haute, Indiana.
The charge includes: an impairment loss of fixed assets related to excess
capacity in the films business of $7.9 million; an impairment loss of related
goodwill of $10 million; offset by the reversal of $1 million related to the
first quarter charge for the shutdown of the Manchester, Iowa, production
facility due to revisions of estimates. This charge reflects continuing efforts
to reduce costs and consolidate operations in response to rapidly changing
market conditions. Diaper manufacturers are increasingly demanding softer, more
cloth-like and breathable films to replace traditional embossed materials.
On a year-to-date basis, sales in Film Products increased 21.9% to
$288.5 million while operating profit (excluding unusual items) was $36.2
million, down 13.3%. The increase in sales was due primarily to the mid-1999
acquisition of Exxon Films. On a pro forma basis (i.e., assuming the acquisition
had occurred at the beginning of 1999), year-to-date sales increased 3.1% due to
raw material-driven price increases. On a pro forma basis, year-to-date
operating profit decreased by 7.5% due to lower volume (down 7.5%) and for
reasons similar to those noted above for the third quarter.
In Aluminum Extrusions, third quarter sales were $118.6 million versus
$118 million in 1999 while operating profit was $12.9 million, down from $14.1
million in the third quarter of 1999. Operating results for the quarter were
adversely affected by softer demand (volume declined 9%) in residential,
construction, transportation and distribution markets. On a year-to-date basis,
sales rose 10% to $375.5 million while operating profit was $45.8 million, up
7.5% compared to the same period of the prior year. Sales and operating profit
increased on a year-to-date basis due primarily to more favorable pricing driven
by higher raw material costs. Volume for the first nine months of the year was
up less than 1%.
For the technology operating companies, revenue was relatively flat for
both the quarter and nine months ended September 30, 2000, compared to the same
periods of the prior year. The third quarter operating loss for the technology
operating companies in 2000 was $2.9 million versus $2.8 million in 1999. On a
year-to-date basis, excluding unusual items, the operating loss was $9.3 million
in 2000 versus $6.2 million in 1999. The higher losses in 2000 were due
primarily to the acquisition of Therics in April 1999. See pages 9 through 10
for more information on our strategic initiatives announced for Therics and
Molecumetics.
14
The appreciation in NAV related to venture capital investment
activities for the third quarter and nine months ended September 30, 2000 and
1999 is summarized below:
(In Millions)
Third Quarter Nine Months
Ended September 30 Ended September 30
-------------------- ---------------------
2000 1999 2000 1999
-------- --------- -------- ----------
Net realized gains, losses, write-downs and
related operating expenses for venture
capital investments reflected in
Tredegar's consolidated statements of
income (net of tax) $ 49.8 $ (2.8) $ 69.8 $ (4.3)
Change in unrealized appreciation of venture
capital investments (net of tax) 51.7 12.8 180.3 14.4
-------- --------- -------- ----------
Appreciation (depreciation) in net asset value
("NAV") related to investment performance $ 101.5 $ 10.0 $ 250.1 $ 10.1
======== ========= ======== ==========
The appreciation was driven by a combination of events including
acquisitions, IPOs, and private investment asset write-ups. The following
companies held directly in the portfolio, or indirectly through our interests in
other venture capital funds, accounted for most of the net appreciation in NAV
during the quarter and nine months ended September 30, 2000:
(In Millions)
Appreciation (Depreciation)
in Estimated NAV
---------------------------
3rd Quarter Nine Months
Ended Ended
Investment Reason for Change 9/30/00 9/30/00
- ------------------------------------------------------------------------------------------------------------------------------------
Public companies:
Software.com, Inc Acquisition of @mobile.com, Inc., a direct holding $ 12.4 $ 38.9
Illumina, Inc. Initial public offering, a direct holding 37.7 37.7
SignalSoft Corporation Initial public offering, a direct holding 16.2 16.1
Lucent Technologies, Inc. Acquisition of Chromatis Networks, indirect holding (5.1) 14.5
Superconductor Tech., Inc. Change in stock price (7.2) 14.0
Rosetta Inpharmatics, Inc. Initial public offering, a direct holding 9.1 11.3
Cosine Communications Initial public offering, an indirect holding 10.7 10.7
Copper Mountain Networks Acquisition of OnPrem Networks, Inc, a direct holding - 8.4
Eprise Corporation Initial public offering, a direct holding (6.0) 5.6
Vascular Solutions Initial public offering, a direct holding 5.5 5.5
Nortel Networks Corporation Acquisition of EPiCON, a direct holding 5.0 5.0
Sonus Networks Initial public offering, an indirect holding - 4.5
Cisco Systems, Inc. Change in stock price - 3.9
Universal Access, Inc. Change in stock price (3.9) 3.0
Digital Island, Inc. Change in stock price (1.0) (2.6)
Private companies:
NovaLux, Inc. New round of financing at higher valuation 24.2 24.1
eWireless, Inc. New round of financing at higher valuation (.7) 19.8
Moai Technologies, Inc. New round of financing at higher valuation (.3) 14.7
Venture capital funds Various 1.3 10.9
IRSI New round of financing at higher valuation (.1) 2.8
PurePacket Communications, Inc. New round of financing at higher valuation 2.6 2.6
Other public and private companies Various 3.8 2.8
-------- --------
Appreciation in NAV before operating expenses 104.2 254.2
After-tax operating and other expenses (2.7) (4.2)
-------- --------
Appreciation in NAV related to investment performance $ 101.5 $ 250.1
======== ========
15
The cost basis, carrying value and NAV of the venture capital portfolio
is reconciled below:
(In Millions)
Sept. 30, Dec. 31,
2000 1999
---------------------
Cost basis of investments $ 199.2 $ 135.5
Write-downs taken on securities held (charged to earnings) (12.2) (7.8)
Unrealized appreciation on public securities held by Tredegar
(reflected directly in equity net of deferred income taxes) 171.1 13.0
-------- --------
Carrying value of investments reflected in the balance sheet 358.1 140.7
Unrealized appreciation in private securities held by Tredegar
and in its indirect interest in all securities held by venture
capital funds 194.1 64.7
-------- --------
Estimated fair value of venture capital investments 552.2 205.4
Estimated income taxes on assumed disposal at fair value (131.6) (25.2)
-------- --------
NAV of venture capital investments $ 420.6 $ 180.2
======== ========
Changes in NAV for the quarter and nine months ended September 30, 2000
and 1999 are summarized below:
(In Millions)
Third Quarter Nine Months
Ended September 30 Ended September 30
-------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- -------
NAV at beginning of period $ 347.2 $ 94.0 $ 180.2 $ 67.2
-------- -------- -------- -------
After-tax appreciation (depreciation) in NAV
related to investment performance
(net of operating expenses) 101.5 10.0 250.1 10.1
After-tax operating expenses funded by Tredegar 1.1 .4 2.6 1.1
New investments 27.8 23.9 74.8 55.7
Transfer of the NAV of Therics out of portfolio
(acquired by Tredegar) - - - (4.3)
Reduction in NAV due to the sale of investments (57.0) - (87.1) (1.5)
-------- -------- -------- --------
Increase in NAV 73.4 34.3 240.4 61.1
-------- -------- -------- --------
NAV at end of the period $ 420.6 $ 128.3 $ 420.6 $ 128.3
======== ======== ======== ========
Our portfolio is subject to risks typically associated with investments
in technology start-up companies, which include business failure, illiquidity
and stock market volatility. See pages 9 through 10 for more information on
strategic changes announced for our venture capital investment activities.
Liquidity and Capital Resources
Tredegar's total assets increased to $1.04 billion at September 30,
2000, from $792.5 million at December 31, 1999, due primarily to an increase in
the carrying value of venture capital investments and cash and cash equivalents.
The carrying value of venture capital investments increased compared to December
31, 1999, due to an increase in unrealized gains on available-for-sale
securities of $158.1 million and an increase in the cost basis of investments of
$59.3 million, net of write-downs taken.
16
The reasons for the change in cash and cash equivalents are summarized
below:
(In Thousands)
Nine Months
Ended Sept. 30
-----------------------
2000 1999
--------- --------
Cash and cash equivalents, beginning of period $ 25,752 $ 25,409
--------- --------
Cash provided by operating activities, net of
capital expenditures and dividends (21,529) 34,602
Proceeds from the exercise of stock options 3,710 3,079
Net increase (decrease) in borrowings (5,000) 225,000
Acquisitions - (215,227)
New venture capital investments, net of proceeds
from disposals 37,348 (53,493)
Other, net 6,877 64
--------- --------
Net increase (decrease) in cash and cash equivalents 21,406 (5,975)
--------- --------
Cash and cash equivalents, end of period $ 47,158 $ 19,434
========= =========
Cash provided by operating activities decreased from $71.8 million in
1999 to $43.4 million in 2000 due mainly to higher working capital and higher
income taxes (approximately $15.1 million) on realized gains from venture
capital activities. Capital expenditures have increased from $32.8 million in
1999 to $60.4 million in 2000. Capital expenditures in 2000 reflect the normal
replacement of machinery and equipment and the following key capital projects:
- - A new feminine pad topsheet film production line at the plant in Terre
Haute, Indiana;
- - 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);
- - Expansion of capacity in Brazil for disposable films for hygiene products,
such as feminine pads and diapers;
- - Continued expansion of capacity at the Hungary facility, which produces
disposable films for hygiene products marketed in Europe;
- - A new plastic film manufacturing facility in Shanghai, China (this plant,
which is expected to begin production in the second quarter of 2001, will
make film used primarily for hygiene products); and
- - The second phase of a modernization program at the aluminum extrusion plant
in Newnan, Georgia.
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.
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.
17
In the normal course of business, we enter into fixed-price forward
sales contracts with certain customers for the sale of fixed quantities of
aluminum extrusions at scheduled intervals. In order to hedge our exposure to
aluminum price volatility under these fixed-price arrangements, which generally
have a duration of not more than 12 months, we enter into a combination of
forward purchase commitments and futures contracts to acquire aluminum, based on
the scheduled deliveries.
We sell to customers in foreign markets through our foreign operations
and through exports from U.S. plants. The percentage of consolidated pretax
income earned by geographic area for the nine months ended September 30, 2000
and 1999 are presented below:
Percentage of Consolidated Pretax
Income Earned by Geographic Area*
----------------------------------
Nine Months
Ended Sept. 30
-------------------
2000 1999
-------- ---------
United States 39 % 57 %
Canada 25 19
Europe 12 9
Latin America 15 8
Asia 9 7
-------- ---------
Total 100 % 100 %
======== =========
* Based on consolidated pretax income from continuing
operations excluding venture capital activities and unusual
items.
We attempt to match the pricing and cost of our products in the same
currency and generally view the volatility of foreign currencies and emerging
markets, and the corresponding impact on earnings and cash flow, as part of the
overall risk of operating in a global environment. Exports from the U.S. are
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.
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 pages 14 through 16 and Note 3 on pages 5 through 7 for more information.
18
New Accounting Standards
The Financial Accounting Standards Board has issued a new standard
affecting the accounting for derivative instruments and hedging activities. This
standard is not expected to significantly change our operating results,
financial condition or disclosures. The new standard will be adopted in the
first quarter of 2001.
In December 1999, the Securities and Exchange Commission issued a new
bulletin regarding the recognition of revenue in the financial statements. This
bulletin is not expected to significantly change our operating results,
financial condition or disclosures. The new standard will be adopted in the
fourth quarter of 2000.
Item 3. Quantitaive and Qualitative Disclosures About Market Risk
See discussion under "Quantitative and Qualitative Disclosures About
Market Risk" beginning on page 17.
19
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
for the quarter ended September 30, 2000.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Tredegar Corporation
(Registrant)
Date: November 14, 2000 /s/ N. A. Scher
------------------------- -------------------------------------
Norman A. Scher
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: November 14, 2000 /s/ Michelle O. Mosier
------------------------- -------------------------------------
Michelle O. Mosier
Corporate Controller
(Principal Accounting Officer)
21
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule
22