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
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For the quarterly period ended June 30, 2001
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
/ / OF THE SECURITIES EXCHANGE ACT OF 1934
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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 of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1100 Boulders Parkway
Richmond, Virginia 23225
- ---------------------------------------- -----------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (804) 330-1000
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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
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The number of shares of Common Stock, no par value, outstanding as of
July 31, 2001: 38,113,427.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Tredegar Corporation
Consolidated Balance Sheets
(In Thousands)
(Unaudited)
June 30, Dec. 31,
2001 2000
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 71,785 $ 44,530
Receivable from securities brokers 1,742 292
Accounts and notes receivable 100,048 96,652
Income taxes recoverable 3,228 3,857
Inventories 42,868 46,825
Deferred income taxes 13,916 13,788
Prepaid expenses and other 2,952 2,818
------------ ------------
Total current assets 236,539 208,762
------------ ------------
Property, plant and equipment, at cost 535,060 518,174
Less accumulated depreciation and amortization 256,260 244,667
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Net property, plant and equipment 278,800 273,507
------------ ------------
Venture capital investments 198,476 232,259
Other assets and deferred charges 52,937 49,661
Goodwill and other intangibles 139,076 139,579
------------ ------------
Total assets $ 905,828 $ 903,768
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 54,091 $ 51,818
Accrued expenses 37,739 36,593
------------ ------------
Total current liabilities 91,830 88,411
Long-term debt 264,495 268,102
Deferred income taxes 36,219 40,650
Other noncurrent liabilities 9,320 8,877
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Total liabilities 401,864 406,040
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Shareholders' equity:
Common stock, no par value 106,739 106,587
Common stock held in trust for savings
restoration plan (1,212) (1,212)
Unrealized gain on available-for-sale securities 23,067 29,331
Foreign currency translation adjustment (4,941) (5,732)
Loss on derivative financial instruments (810) -
Retained earnings 381,121 368,754
------------ ------------
Total shareholders' equity 503,964 497,728
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Total liabilities and shareholders' equity $ 905,828 $ 903,768
============ ============
See accompanying notes to financial statements.
2
Tredegar Corporation
Consolidated Statements of Income
(In Thousands)
(Unaudited)
Second Quarter Six Months
Ended June 30 Ended June 30
------------------------- ------------------------
2001 2000 2001 2000
------------ ------------ ----------- ------------
Revenues:
Gross sales $ 201,442 $ 228,010 $ 396,931 $ 464,520
Freight 3,998 4,507 7,685 8,789
------------ ------------ ----------- ------------
Net sales 197,444 223,503 389,246 455,731
Other income (expense), net 2,237 20,694 (3,688) 33,926
------------ ------------ ----------- ------------
Total 199,681 244,197 385,558 489,657
------------ ------------ ----------- ------------
Costs and expenses:
Cost of goods sold 160,982 178,608 317,837 365,002
Selling, general and administrative 11,389 13,323 23,331 25,925
Research and development 8,003 5,687 15,257 11,977
Amortization of intangibles 1,242 1,276 2,456 2,552
Interest 3,232 4,307 7,273 8,602
Unusual items (971) (525) 629 4,959
------------ ------------ ----------- ------------
Total 183,877 202,676 366,783 419,017
------------ ------------ ----------- ------------
Income from continuing operations before
income taxes 15,804 41,521 18,775 70,640
Income taxes 3,691 15,153 4,761 25,809
------------ ------------ ----------- ------------
Income from continuing operations 12,113 26,368 14,014 44,831
Income from discontinued operations 1,396 - 1,396 -
------------ ------------ ----------- ------------
Net income $ 13,509 $ 26,368 $ 15,410 $ 44,831
============ ============ =========== ============
Earnings per share:
Basic:
Continuing operations $ .32 $ .70 $ .37 $ 1.19
Discontinued operations .04 - .04 -
------------ ------------ ----------- ------------
Net income $ .36 $ .70 $ .41 $ 1.19
============ ============ =========== ============
Diluted:
Continuing operations $ .31 $ .68 $ .36 $ 1.15
Discontinued operations .04 - .04 -
------------ ------------ ----------- ------------
Net income $ .35 $ .68 $ .40 $ 1.15
============ ============ =========== ============
Shares used to compute earnings per share:
Basic 38,055 37,911 38,053 37,815
Diluted 38,838 39,067 38,818 38,999
Dividends per share $ .04 $ .04 $ .08 $ .08
See accompanying notes to financial statements.
3
Tredegar Corporation
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Six Months Ended
June 30
------------------------
2001 2000
------------ -----------
Cash flows from operating activities:
Net income from continuing operations $ 14,014 $ 44,831
Adjustments for noncash items:
Depreciation 16,099 16,189
Amortization of intangibles 2,456 2,552
Deferred income taxes (179) (1,446)
Accrued pension income and postretirement benefits (5,108) (3,809)
Loss (gain) on sale of venture capital investments 4,861 (33,541)
Loss on equipment writedowns and divestitures - 4,768
Changes in assets and liabilities, net of effects from
acquisitions and divestitures:
Accounts and notes receivable (3,318) 4,783
Inventories 4,080 702
Income taxes recoverable 629 -
Prepaid expenses and other (135) (1,701)
Accounts payable 3,458 (7,337)
Accrued expenses and income taxes payable 528 (7,679)
Other, net 2,164 480
------------ -----------
Net cash provided by operating activities 39,549 18,792
------------ -----------
Cash flows from investing activities:
Capital expenditures (22,109) (39,489)
Venture capital investments (9,108) (47,011)
Proceeds from the sale of venture capital investments 26,792 41,451
Proceeds from property disposals and divestitures 353 9,357
Other, net (1,724) 1,129
------------ -----------
Net cash used in investing activities (5,796) (34,563)
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Cash flows from financing activities:
Dividends paid (3,043) (3,037)
Net (decrease) increase in borrowings (3,607) 5,000
Proceeds from exercise of stock options (including
related income tax benefits realized) 152 3,487
------------ -----------
Net cash (used in) provided by financing activities (6,498) 5,450
------------ -----------
Increase (decrease) in cash and cash equivalents 27,255 (10,321)
Cash and cash equivalents at beginning of period 44,530 25,752
------------ -----------
Cash and cash equivalents at end of period $ 71,785 $ 15,431
============ ===========
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 June 30,
2001, and the consolidated results of operations and cash flows for the
six months ended June 30, 2001 and 2000. 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, 2000. The results of
operations for the six months ended June 30, 2001 are not necessarily
indicative of the results to be expected for the full year.
Effective January 1, 2001, we adopted the new accounting standard for
derivative instruments and hedging activities issued by the Financial
Accounting Standards Board. This standard affects our accounting for
futures contracts to hedge aluminum price risk and our interest rate
swap agreements to hedge interest rate risk.
2. See pages 10 through 12 for information on unusual items recognized
during the quarter and the six months ended June 30, 2001 and 2000.
3. A summary of our venture capital activities for the quarter and six
months ended June 30, 2001 and 2000, is provided below:
(In Thousands)
Second Quarter Six Months
Ended June 30 Ended June 30
------------------------- ------------------------
2001 2000 2001 2000
------------ ------------ ------------ -----------
Carrying value, beginning of period $ 199,457 $ 224,980 $ 232,259 $ 140,698
Activity for period (pre-tax):
New investments 4,757 25,408 9,108 47,011
Proceeds from the sale of investments (17,910) (25,112) (28,242) (43,435)
Realized gains 11,617 20,746 18,862 37,005
Realized losses, write-offs and write-downs (9,830) (310) (23,723) (3,464)
Increase (decrease) in net unrealized gain
on available-for-sale securities 10,385 16,565 (9,788) 84,462
------------ ------------ ------------ -----------
Carrying value, end of period $ 198,476 $ 262,277 $ 198,476 $ 262,277
============ ============ ============ ===========
Our remaining unfunded commitments to private venture capital
funds totaled approximately $40.5 million at June 30, 2001, and $50.9
million at December 31, 2000.
A schedule of investments is provided on the following two
pages.
5
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Tredegar Corporation
Schedule of Investments at June 30, 2001 and December 31, 2000
(In Thousands, Except Per-Share Amounts)
Yrs. Web Site
Investment Symbol Held(a) Description (www.)
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<c>
Securities of Public Companies Held:
Adolor Corporation ADLR 2.6 Develops pain-management therapeutic drugs adolor.com
Illumina, Inc. ILMN 2.6 Fiber optic sensor technology for drug screening illumina.com
Rosetta Inpharmatics, Inc. RSTA 4.1 Gene function/drug screening on a chip rii.com
Vascular Solutions VASC 3.5 Vascular access site closure system vascularsolutions.com
SignalSoft Corporation SGSF 3.3 Wireless caller location detection software signalsoftcorp.com
Openwave Systems, Inc. OPWV 1.6 Infrastructure applications for the Internet openwave.com
Eprise Corporation EPRS 3.5 Web site maintenance & development tool eprise.com
CardioGenesis Corporation CGCP 7.1 Coronary revascularization eclipsesurg.com
Superconductor Tech., Inc. SCON 2.0 Manufactures filters for wireless networks suptech.com
Cisco Systems, Inc. CSCO 2.0 Worldwide leader in networking for the Internet cisco.com
Nortel Networks Corporation NT 3.3 Networking solutions and services nortelnetworks.com
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Total securities of public companies held
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Securities of Private Companies Held:
CryoGen 5.8 Micro-cryogenic catheters for medical applications cryogen-inc.com
Sensitech Inc. 4.3 Perishable product mgmt. solutions sensitech.com
Bell Geospace 4.0 Presentation of 3D data to the oil & gas industry bellgeo.com
Songbird Medical, Inc. 3.9 Disposable hearing aids
RedCreek Communications 3.9 Internet and intranet security redcreek.com
Appliant, Inc. 3.7 Software tools for managing executable software appliant.com
Ellipsys Technologies, Inc. 3.7 Telephone system error detection ellipsystech.com
HemoSense 3.6 Point of care blood coagulation time test device hemosense.com
Moai Technologies, Inc. 3.5 System for holding auctions on the Internet moai.com
Babycare, Ltd. 3.4 Direct retailing of baby care products in China
NovaLux, Inc. 3.1 Blue-green light lasers novalux.com
IRSI 3.1 Optical inspection systems irsinc.com
Xcyte Therapies, Inc. 2.9 Develops drugs to treat cancer & other disorders xcytetherapies.com
Advanced Diagnostics, Inc. 2.6 3-D medical imaging equipment
Praxon, Inc. 2.5 Integrated business communications equipment praxon.com
AdiCom Wireless, Inc. 2.5 Wireless local loop technology adicomwireless.com
EndoVasix, Inc. 2.4 Device for treatment of ischemic strokes endovasix.com
eWireless, inc. 2.4 Technology linking cell phone users & advertising ewireless.com
Cooking.com, Inc. 2.3 Sales of cooking-related items over the Internet cooking.com
MediaFlex.com 2.2 Internet-based printing & publishing mediaflex.com
eBabyCare Ltd. 2.1 Sales of babycare products over the Internet in China
Kodiak Technologies, Inc. 2.0 Cooling products for organ & pharma transport kodiaktech.com
Artemis Medical, Inc. 2.0 Medical devices for breast cancer surgery
CEPTYR, Inc. 1.9 Develops small molecule drugs ceptyr.com
GreaterGood.com 1.9 Internet marketing targeted at donors to charities greatergood.com
Etera Corporation 1.8 Sales of branded perennial plants over the Internet etera.com
ThinkFree.com 1.7 Java-based software complementary to Microsoft Office thinkfree.com
BroadRiver Communications 1.6 Local DSL provider purepacket.com
Quarry Technologies, Inc. 1.6 Technology for delivery of differentiated service levels quarrytech.com
Norborn Medical, Inc. 1.5 Device for treatment of cardiovascular disease
FastTrack Systems, Inc. 1.4 Clinical trial data management information systems
Riveon, Inc. 1.4 Web-based data mining software for business managers
MedManage Systems Inc. 1.2 Management of prescription drug sampling programs
Linx Communications, Inc. 1.0 Unified communications and messaging systems
Infinicon, Inc. 1.0 Manufacturer of infiniband input/output products
Cbyon, Inc. 1.0 Provider of software image data to assist surgeons
Extreme Devices .8 Manufacturer of integrated, solid-state electron source
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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
Schedule of Investments at June 30, 2001 and December 31, 2000
(In Thousands, Except Per-Share Amounts)
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Public Common Stock or
Equivalents at 6/30/01 6/30/01 (e) 12/31/00 (e)
----------------------------- ------------------------------------------------------------
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
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Securities of Public Companies Held:
Adolor Corporation 658 $ 21.60 0% $ 14,220 $ 14,220 $ 2,693 $ 12,291 $ 12,291 $ 3,000
Illumina, Inc. 1,480 11.78 0% 17,435 17,435 3,520 21,395 21,395 3,925
Rosetta Inpharmatics, Inc. 195 15.50 0% 3,027 3,027 907 13,599 13,599 4,745
Vascular Solutions 861 8.27 0% 7,118 7,118 2,429 5,060 5,060 2,450
SignalSoft Corporation 412 11.50 0% 4,717 4,717 1,330 7,261 7,261 3,006
Openwave Systems, Inc. 1 34.70 0% 49 49 7 2,689 2,689 348
Eprise Corporation - - 0% - - - 2,633 2,633 2,382
CardioGenesis Corporation 113 2.94 0% 333 333 616 381 381 2,464
Superconductor Tech., Inc. - - 0% - - - 603 603 552
Cisco Systems, Inc. 14 18.20 0% 246 246 200 405 405 200
Nortel Networks Corporation 24 9.03 20% 174 174 117 617 617 117
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Total securities of public companies held 47,319 47,319 11,819 66,934 66,934 23,189
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Securities of Private Companies Held
CryoGen 4,430 3,179 3,179 4,265 3,054 3,054
Sensitech Inc. 3,194 2,333 2,333 3,154 2,333 2,333
Bell Geospace - - 3,500 - - 3,500
Songbird Medical, Inc. 8,116 4,210 4,210 8,013 4,210 4,210
RedCreek Communications 706 549 2,256 706 549 2,256
Appliant, Inc. 6,434 3,899 3,899 6,352 3,899 3,899
Ellipsys Technologies, Inc. - - 2,275 - - 2,275
HemoSense 2,769 2,485 2,485 2,733 2,485 2,485
Moai Technologies, Inc. 4,679 2,021 2,021 6,263 2,021 2,021
Babycare, Ltd. - - 1,009 - - 1,009
NovaLux, Inc. 50,724 10,149 10,149 50,801 10,149 10,149
IRSI 2,542 2,542 4,700 14,993 3,825 4,700
Xcyte Therapies, Inc. 5,589 3,795 3,795 5,598 3,795 3,795
Advanced Diagnostics, Inc. 1,556 1,621 1,621 1,321 1,371 1,371
Praxon, Inc. - - 2,309 - - 2,309
AdiCom Wireless, Inc. - - 4,062 2,648 2,648 4,062
EndoVasix, Inc. 4,264 4,000 4,000 4,270 4,000 4,000
eWireless, inc. 47,655 2,250 2,250 47,728 2,250 2,250
Cooking.com, Inc. 1,500 1,500 4,500 1,500 1,500 4,500
MediaFlex.com - - 3,500 4,085 3,500 3,500
eBabyCare Ltd. - - 314 - - 314
Kodiak Technologies, Inc. 1,934 1,934 1,934 1,694 1,694 1,694
Artemis Medical, Inc. 3,267 2,467 2,467 3,201 2,467 2,467
CEPTYR, Inc. 1,750 1,750 1,750 1,750 1,750 1,750
GreaterGood.com - - 3,797 - - 3,781
Etera Corporation - - 5,500 5,269 5,000 5,000
ThinkFree.com 3,773 1,491 1,491 3,696 1,491 1,491
BroadRiver Communications - - 4,779 9,136 4,779 4,779
Quarry Technologies, Inc. 2,567 2,567 4,046 3,425 3,425 3,425
Norborn Medical, Inc. - - 188 - - 188
FastTrack Systems, Inc. 7,182 5,479 5,479 7,962 5,134 5,134
Riveon, Inc. - - 1,975 1,700 1,700 1,700
MedManage Systems Inc. 4,000 4,000 4,000 4,000 4,000 4,000
Linx Communications, Inc. 3,000 3,000 3,000 3,000 3,000 3,000
Infinicon, Inc. 3,485 3,485 3,485 3,485 3,485 3,485
Cbyon, Inc. 3,500 3,500 3,500 3,500 3,500 3,500
Extreme Devices 5,000 5,000 5,000 5,000 5,000 5,000
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Subtotal securities of private companies held 183,616 79,206 120,758 221,248 98,014 118,386
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See notes on page 7.
6
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Tredegar Corporation
Schedule of Investments at June 30, 2001 and December 31, 2000
(In Thousands, Except Per-Share Amounts)
Yrs. Web Site
Investment Held (a) Description (www.)
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Total securities of public companies held (from page 6)
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Subtotal securities of private companies held (from page 6)
Locus Discovery .6 Computational chemogenomics technology
eTunnels .5 VPNs across all ISPs and companies
Elixir .5 Evaluation technology for anti-aging compounds
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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 .6 - 8.8 years) (d)
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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 June 30, 2001 and December 31, 2000 6/30/01 (e) 12/31/00 (e)
(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) 47,319 47,319 11,819 66,934 66,934 23,189
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Subtotal securities of private companies held (from page 6) 183,616 79,206 120,758 221,248 98,014 118,386
Locus Discovery 3,000 3,000 3,000 3,000 3,000 3,000
eTunnels 3,000 3,000 3,000 3,000 3,000 3,000
Elixir 250 250 250 250 250 250
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Total securities of private companies held 189,866 85,456 127,008 227,498 104,264 124,636
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Limited partnership interests in private venture capital funds
(period held of .6 - 8.8 years) (d) 96,295 65,701 71,041 109,099 61,061 65,271
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Total investments 333,480 $ 198,476 $ 209,868 403,531 $ 232,259 $ 213,096
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Estimated taxes on assumed disposal at fair value 44,501 68,557
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Estimated net asset value ("NAV") $ 288,979 $ 334,974
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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 June 30, 2001, Tredegar had ownership interests in 28 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
- -----------------------------------------------------------------------------------------------------------------
Universal Access, Inc. UAXS Wholesale provider of high bandwidth services (universalaccessinc.com)
Illumina, Inc. ILMN Fiber optic sensor technology for drug screening (illumina.com)
Adolor Corporation ADLR Develops pain-management therapeutic drugs (adolor.com)
Array Biopharma ARRY Drug discovery research using innovative chemistry (arraybiopharma.com)
Metromedia Fiber Network MFNX Provider of high-band width fiber optic communications (mmfn.com)
ASAT Holdings ASTT Provider of semiconductor assemply and testing services (asat.com)
Seattle Genetics SGEN Biopharmaceuticals for treatment of cancers (seattlegenetics.com)
- -----------------------------------------------------------------------------------------------------------------
Indirect
Indirect -------------------
Interest in Restricted Estimated
Common Closing Stock Dis- Fair Cost
Indirect Investment Shares Price count Value Basis
- ----------------------------------------------------------------------------------------
Universal Access, Inc. 610 6.20 20% 3,025 521
Illumina, Inc. 197 11.78 20% 1,861 333
Adolor Corporation 83 21.60 20% 1,442 411
Array Biopharma 129 9.10 20% 941 279
Metromedia Fiber Network 428 2.04 20% 699 546
ASAT Holdings 175 4.57 20% 640 448
Seattle Genetics 118 6.10 20% 577 219
- ----------------------------------------------------------------------------------------
(e) Our portfolio is subject to risks typically associated with investments in
technology start-up companies, which include business failure, illiquidity and
stock market volatility.
7
4. Comprehensive income, defined as net income and other comprehensive
income, was $20.6 million for the second quarter of 2001 and $36.7
million for the second quarter of 2000. Comprehensive income was $9.1
million for the first six months of 2001 and $98.2 million for the
first six months of 2000. Other comprehensive income for both years
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. For 2001, other
comprehensive income includes the cumulative-effect adjustment for the
adoption of the new accounting standard for derivative financial
instruments (see Note 1) and changes in the gains and losses on
derivative financial instruments recorded net of deferred income taxes
directly in shareholders' equity.
5. The components of inventories are as follows:
(In Thousands)
June 30, Dec. 31
2001 2000
------------ ------------
Finished goods $7,128 $7,997
Work-in-process 3,922 4,314
Raw materials 20,450 23,889
Stores, supplies and other 11,368 10,625
------------ ------------
Total $42,868 $46,825
============ ============
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)
Second Quarter Six Months
Ended June 30 Ended June 30
------------------------- ------------------------
2001 2000 2001 2000
------------ ------------ ----------- ------------
Weighted average shares outstanding used
to compute basic earnings per share 38,055 37,911 38,053 37,815
Incremental shares issuable upon the
assumed exercise of stock options 783 1,156 765 1,184
------------ ------------ ----------- ------------
Shares used to compute diluted earnings
per share 38,838 39,067 38,818 38,999
============ ============ =========== ============
Incremental shares issuable upon the assumed exercise of
outstanding stock options are computed using the average market price
during the related period.
7. On April 27, 2001, we entered into a two-year interest rate swap
agreement, with a notional amount of $50 million, under which we will
pay to a counterparty a fixed interest rate of 4.85% and the
counterparty will pay us a variable interest rate based on one-month
LIBOR reset each month. This swap has been designated as and will be
accounted for as a cash flow hedge. This interest rate swap effectively
fixes the rate on $50 million of our $250 million term loan at 4.85%
plus the applicable credit spread (currently 62.5 basis points).
8
On June 22, 2001, we entered into another two-year interest rate swap
agreement, with a notional amount of $25 million, under which we will
pay to a counterparty a fixed interest rate of 4.64% and the
counterparty will pay us a variable interest rate based on one-month
LIBOR reset each month. This swap has been designated as and will be
accounted for as a cash flow hedge. This interest rate swap effectively
fixes the rate on $25 million of our $250 million term loan at 4.64%
plus the applicable credit spread (currently 62.5 basis points).
8. Our overall effective tax rate from continuing operations for the
quarter ended June 30, 2001 is 23.4% and for the six months ended June
30, 2001 is 25.4% compared with 36.5% in both periods of the prior
year. The decline in the overall effective tax rate is due primarily to
the $1.9 million tax benefit related to the reversal of income tax
contingency accruals upon favorable conclusion of IRS examinations
through 1997.
Second quarter results also include an after-tax gain from discontinued
operations of $1.4 million related to the reversal of an income tax
contingency accrual upon favorable conclusion of IRS examinations
through 1997. The accrual was originally recorded in conjunction with
the sale of The Elk Horn Coal Corporation in 1994.
9. In June 2001, the Financial Accounting Standards Board issued two new
standards that primarily affect the accounting for acquisitions
initiated after June 30, 2001 and the accounting for goodwill. There
are transition provisions that may result in the reclassification of
carrying values among existing goodwill and other intangible assets.
Once adopted, these standards prohibit amortization of goodwill, but
require transitional and annual impairment reviews that may result in
the recognition of losses, among other requirements. While we have not
yet completed our assessment of the impact of these statements on our
financial statements, adoption will result in a reduction in our
amortization expense but will have no impact on cash flow. We will
adopt these standards in the first quarter of 2002.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Second Quarter 2001 Compared with Second Quarter 2000
Net income for the second quarter of 2001 was $13.5 million, down from
$26.4 million in 2000 (35 cents per share versus 68 cents per share). Results in
the second quarter of 2001 include $123,000 of realized net after-tax gains from
venture capital investments compared with a net after-tax gain of $12.2 million
(31 cents per share) in the second quarter of 2000. Results in 2001 include an
after-tax gain of $2.5 million (seven cents per share) related to the reversal
of income tax contingency accruals and related interest received on tax
overpayments upon favorable conclusion of certain IRS examinations.
Second-quarter results also include $1.4 million (four cents per share) related
to the reversal of income tax contingency accruals associated with discontinued
operations.
Pre-tax 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 management fee
expenses) 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 second quarter was $1.4 million. At June
30, 2001, the NAV of the portfolio was $289 million. For more information on our
venture capital investment activities, see pages 14-16 and Note 3 on pages 5-7.
Net sales in the second quarter of 2001 decreased by 12% compared with
2000 due primarily to lower volume in both Aluminum Extrusions (volume down 20%)
and Film Products (volume down 6%). For more information on net sales, see the
business segment review beginning on page 13.
The gross profit margin during the second quarter of 2001 declined to
18.5% from 20.1% in 2000. The lower profit margin was driven mainly by lower
profits in Aluminum Extrusions due to lower volume and higher conversion costs.
The impact on profit margin of the decrease in volume in Film Products was
offset by higher sales of new higher margin products.
SG&A expenses in the second quarter of 2001 were $11.4 million, down
from $13.3 million in 2000 due to lower employee-related costs. The benefit of
lower employee costs was partially offset by increased operating expenses at
Tredegar Investments and increased expenses at Film Products due to the
acquisition of ADMA and Promea in October 2000. As a percentage of net sales,
SG&A expenses were 5.8% in the second quarter of 2001 compared with 6% in 2000.
R&D expenses increased to $8 million in the second quarter of 2001
versus $5.7 million in 2000 primarily due to higher spending in Tredegar Biotech
in support of increased research and development efforts.
10
Unusual items in the second quarter of 2001 include a pre-tax gain of
$1 million related to interest received on tax overpayments upon favorable
conclusion of IRS examinations through 1997 (included in "Corporate expenses,
net" in the net sales and operating profit by segment table). Income taxes
include a second-quarter tax benefit of $1.9 million related to the reversal of
income tax contingency accruals upon favorable conclusion of IRS examinations
through 1997. Second-quarter results also include an after-tax gain from
discontinued operations of $1.4 million related to the reversal of an income tax
contingency accrual upon favorable conclusion of IRS examinations through 1997.
The accrual was originally recorded in conjunction with the sale of The Elk Horn
Coal Corporation in 1994.
Unusual items in the second quarter of 2000 include a gain of $525,000
($336,000 after income taxes) on the sale of Fiberlux, Inc., a producer of vinyl
extrusions.
Interest income, which is included in "Other income (expense), net" in
the consolidated statements of income, was $726,000 in the second quarter of
2001 and $503,000 in 2000. The average tax-equivalent yield earned on cash
equivalents was approximately 4.4% in the second quarter of 2001 and 6.3% in the
second 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 decreased to $3.2 million in the second quarter of
2001 from $4.3 million in 2000 due to a lower overall average interest rate and
lower average debt outstanding (down $5 million). The average rate on
variable-rate debt (approximately $250 million in both quarters) was 5.25% in
the second quarter of 2001 versus 7.1% in 2000. The average rate on fixed-rate
debt ($14 million in the second quarter of 2001 and $19 million in the second
quarter of 2000) was 7.2% in both periods.
The effective tax rate from manufacturing operations, excluding unusual
items, decreased to 35.4% in the second quarter of 2001 from 36.5% in 2000 due
to lower taxes accrued on income from foreign operations. The overall effective
tax rate for the quarter declined to 23.4% due to the impact of the $1.9 million
tax benefit related to the reversal of income tax contingency accruals upon
favorable conclusion of IRS examinations as noted above.
Six Months 2001 Compared with Six Months 2000
Net income for the first six months of 2001 was $15.4 million, down
from $44.8 million in 2000 (40 cents per share versus $1.15 per share). Results
for 2001 include $5.2 million (13 cents per share) of realized after-tax losses
from venture capital investments compared to a gain of $20 million (51 cents per
share) in 2000.
The after-tax depreciation in the NAV through the first six months of
this year was $34.7 million.
Net sales for the six months ended June 30, 2001, decreased by 14.6%
compared with the same period of last year. The lower net sales are due to lower
volume in both Aluminum Extrusions (volume down 24%) and Film Products (volume
down 9%). For more information on net sales, see the business segment review
beginning on page 13.
The gross profit margin for the first six months of 2001 decreased to
18.3% from 19.9% in 2000 primarily due to lower profit in Aluminum Extrusions
resulting from lower volume and higher conversion costs.
11
SG&A expenses were $23.3 million in 2001, down from $25.9 million in
2000. The decrease is primarily attributable to lower employee-related costs.
The benefit of lower employee costs was partially offset by increased operating
expenses at Tredegar Investments and increased expenses at Film Products due to
the acquisition of ADMA and Promea in October 2000. As a percentage of net
sales, SG&A expenses increased to 6% in the first six months of 2001 compared
with 5.7% in the same period of 2000 due to overall lower volume.
R&D expenses increased to $15.3 million in 2001 from $12 million in
2000 due to higher spending in Tredegar Biotech in support of increased research
and development efforts.
Unusual items for the six months ended June 30, 2001, included:
- - a charge of $1.6 million ($1 million after income taxes) for further
rationalization in the plastic films business;
- - a gain of $1 million ($621,000 after income taxes) for interest received
on tax overpayments upon favorable conclusion of IRS examinations
through 1997 (included in "Corporate expenses, net" in the net sales and
operating profit by segment table); and
- - an income tax benefit of $1.9 million related to the reversal of income
tax contingency accruals upon favorable conclusion of IRS examinations
through 1997 (included in "Income taxes" in the Consolidated Statements
of Income).
Unusual items for the six months ended June 30, 2000, totaled $5
million ($3.2 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 Tredegar
Investments; and
- - a gain of $525,000 ($336,000 after income taxes) for the sale of
Fiberlux, Inc.
Interest income for 2001 was $1.4 million versus $897,000 in 2000. The
average cash and cash equivalents balance was $47.3 million for the six months
ended June 30, 2001 versus $22.6 million for the same period in 2000. The
average tax-equivalent yield earned on cash equivalents was approximately 5% for
2001 and 6.02% for 2000.
Interest expense decreased to $7.3 million in 2001 from $8.6 million in
2000 due to lower average debt outstanding (down $6 million) and a lower overall
average interest rate. The average rate on variable-rate debt ($250 million in
both periods) was 6% in 2001 versus 7% in 2000. The average rate on fixed-rate
debt ($15 million in 2001 and $20 million in 2000) was 7.2% in both periods.
The effective income tax rate from manufacturing operations, excluding
unusual items, decreased to 35.5% in 2001 from 36.5% in 2000 due to lower taxes
accrued on income from foreign operations. The overall effective tax rate for
the six months ended June 30, 2001, declined to 25.4% due to the impact of the
$1.9 million tax benefit related to the reversal of income tax contingency
accruals upon favorable conclusion of IRS examinations as mentioned above.
12
Business Segment Review
The following tables present Tredegar's net sales and operating profit
by segment for the second quarter and six months ended June 30, 2001 and 2000.
Net Sales by Segment
(In Thousands)
(Unaudited)
Second Quarter Six Months
Ended June 30 Ended June 30
------------------------- ------------------------
2001 2000 2001 2000
------------ ------------ ----------- ------------
Film Products $ 90,743 $ 93,904 $ 187,573 $ 193,390
Aluminum Extrusions 105,034 127,605 198,506 256,845
Fiberlux - 74 - 1,856
Tredegar Biotech:
Molecumetics 1,573 1,826 2,904 3,452
Therics 94 94 263 188
------------ ------------ ----------- ------------
Total net sales $ 197,444 $ 223,503 $ 389,246 $ 455,731
============ ============ =========== ============
Operating Profit by Segment
(In Thousands)
(Unaudited)
Second Quarter Six Months
Ended June 30 Ended June 30
------------------------- ------------------------
2001 2000 2001 2000
------------ ------------ ----------- ------------
Film Products:
Ongoing operations $ 12,872 $ 12,781 $ 27,966 $ 28,531
Unusual items - - (1,600) (5,293)
------------ ------------ ----------- ------------
Total Film Products 12,872 12,781 26,366 23,238
------------ ------------ ----------- ------------
Aluminum Extrusions 10,171 17,131 16,552 32,845
------------ ------------ ----------- ------------
Fiberlux:
Ongoing operations - (55) - (264)
Unusual items - 525 - 525
------------ ------------ ----------- ------------
Total Fiberlux - 470 - 261
------------ ------------ ----------- ------------
Tredegar Biotech:
Molecumetics (1,384) (1,278) (3,156) (2,507)
Therics (3,219) (2,054) (5,568) (3,853)
------------ ------------ ----------- ------------
Total Tredegar Biotech (4,603) (3,332) (8,724) (6,360)
------------ ------------ ----------- ------------
Tredegar Investments:
Venture capital investments 191 19,060 (8,071) 31,203
Unusual items - - - (191)
------------ ------------ ----------- ------------
Total Tredegar Investments 191 19,060 (8,071) 31,012
------------ ------------ ----------- ------------
Total operating profit 18,631 46,110 26,123 80,996
Interest income 726 503 1,414 897
Interest expense 3,232 4,307 7,273 8,602
Corporate expenses, net 321 785 1,489 2,651
------------ ------------ ----------- ------------
Income from continuing operations
before income taxes 15,804 41,521 18,775 70,640
Income taxes 3,691 15,153 4,761 25,809
------------ ------------ ----------- ------------
Income from continuing operations 12,113 26,368 14,014 44,831
Income from discontinued operations 1,396 - 1,396 -
------------ ------------ ----------- ------------
Net income $ 13,509 $ 26,368 $ 15,410 $ 44,831
============ ============ =========== ============
13
Second-quarter sales in Film Products declined 3% to $90.7 million
while operating profit, excluding unusual items, was up slightly from $12.8
million in 2000 to $12.9 million in 2001. On a year-to-date basis, sales in Film
Products decreased 3% to $187.6 million while operating profit, excluding
unusual items, was $28 million, down 2%. The decline in sales is primarily due
to lower volume reflecting lower demand for our diaper backsheet film. The
profit impact of the volume decline in diaper backsheet was partially offset by
higher sales of new specialty components for diapers and feminine hygiene
products.
In Aluminum Extrusions, second-quarter sales were down 18% to $105
million while operating profit was $10.2 million, down 41% versus the second
quarter of 2000. On a year-to-date basis, sales declined 23% to $198.5 million
while operating profit was $16.6 million, down 50% compared with the same period
of the prior year. Sales and operating profit declined due to lower demand
across most of our end markets resulting from general economic weakness.
For Tredegar Biotech, revenue was down for both the quarter and six
months ended June 30, 2001 compared with the same periods of the prior year. The
second-quarter operating loss in 2001, excluding unusual items, was $4.6 million
versus $3.3 million in 2000. On a year-to-date basis, excluding unusual items,
the operating loss was $8.7 million in 2001 versus $6.4 million in 2000. The
higher losses in 2001 were due primarily to increased spending at both
Molecumetics and Therics.
The appreciation in NAV related to venture capital investment
activities for the second quarter and six months ended June 30, 2001 and 2000 is
summarized below:
(In Millions)
Second Quarter Six Months
Ended June 30 Ended June 30
------------------------- ------------------------
2001 2000 2001 2000
------------ ------------ ----------- ------------
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) $ .1 $ 12.2 $ (5.2) $ 20.0
Change in unrealized appreciation of venture
capital investments (net of tax) 1.3 49.6 (29.5) 128.6
------------ ------------ ----------- ------------
After-tax appreciation (depreciation) in NAV
related to investment performance $ 1.4 $ 61.8 $ (34.7) $ 148.6
============ ============ =========== ============
The following companies held directly in the portfolio, or indirectly
through our interests in other venture capital funds, accounted for most of the
change in NAV during the quarter and six months ended June 30, 2001:
14
(In Millions)
Appreciation (Depreciation)
in Estimated NAV
-----------------------------
2nd Quarter Six Months
Ended Ended
Investment Reason for Change 6/30/01 6/30/01
- -------------------------------------------------------------------------------------------------------------------------
Public companies:
Adolor Corporation Change in stock price $ 3.3 $ 2.3
Vascular Solutions Change in stock price 1.1 1.4
SignalSoft Corporation Change in stock price 0.9 0.9
Copper Mountain Change in stock price - 0.8
Rosetta Inpharmatics, Inc. Change in stock price 3.4 0.2
Openwave Systems, Inc. Change in stock price 0.9 (0.1)
Illumina, Inc. Change in stock price 5.0 (1.1)
Eprise Corporation Change in stock price - (1.1)
Cosine Communications Change in stock price - (2.2)
Private companies:
Quarry Technologies, Inc. Lower valuation of the company - (0.9)
Moai Technologies, Inc. Lower valuation of the company - (1.0)
Riveon Lower valuation of the company (1.3) (1.3)
AdiCom Wireless, Inc. Lower valuation of the company - (1.7)
MediaFlex.com Lower valuation of the company - (2.6)
Etera Corporation Lower valuation of the company (3.8) (3.7)
BroadRiver Communications Lower valuation of the company (1.3) (5.8)
Venture capital funds Various (6.0) (7.4)
IRSI Lower valuation of the company - (8.0)
Other public and private companies Various 0.2 (1.4)
-------------- --------------
Appreciation in NAV before operating expenses 2.4 (32.7)
After-tax operating expenses (1.0) (2.0)
-------------- --------------
Appreciation in NAV related to investment performance $ 1.4 $ (34.7)
-------------- --------------
The cost basis, carrying value and NAV of the venture capital portfolio
is reconciled below:
(In Millions)
June 30, Dec. 31,
2001 2000
------------------------
Cost basis of investments $ 209.9 $ 213.1
Write-downs taken on securities held (charged to earnings) (47.4) (26.6)
Unrealized appreciation on public securities held by Tredegar
(reflected directly in equity net of deferred income taxes) 36.0 45.8
----------- ------------
Carrying value of investments reflected in the balance sheet 198.5 232.3
Unrealized appreciation in private securities held by Tredegar
and in its indirect interest in all securities held by venture
capital funds 135.0 171.3
----------- ------------
Estimated fair value of venture capital investments 333.5 403.6
Estimated income taxes on assumed disposal at fair value (44.5) (68.6)
----------- ------------
NAV of venture capital investments $ 289.0 $ 335.0
=========== ===========
15
Changes in NAV for the quarter and six months ended June 30, 2001 and
2000 are summarized below:
(In Millions)
Second Quarter Six Months
Ended June 30 Ended June 30
------------------------- ------------------------
2001 2000 2001 2000
------------ ------------ ----------- ------------
NAV at beginning of period $ 296.5 $ 276.7 $ 335.0 $ 180.2
------------ ------------ ----------- ------------
After-tax appreciation (depreciation) in NAV
related to investment performance
(net of operating expenses) 1.4 61.8 (34.7) 148.6
After-tax operating expenses funded by Tredegar 1.1 .9 2.1 1.5
New investments 4.7 25.4 9.1 47.0
Reduction in NAV due to the sale of investments (14.7) (17.6) (22.5) (30.1)
------------ ------------ ----------- ------------
(Decrease) increase in NAV (7.5) 70.5 (46.0) 167.0
------------ ------------ ----------- ------------
NAV at end of the period $ 289.0 $ 347.2 $ 289.0 $ 347.2
============ ============ =========== ============
Our internal rate of return ("IRR") since inception in 1992 through
June 30, 2001, is estimated at 59% (40% after income taxes), but is not
necessarily indicative of the IRR that we will generate in the future. 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).
Liquidity and Capital Resources
Tredegar's total assets increased to $905.8 million at June 30, 2001,
from $903.8 million at December 31, 2000. While the carrying value of venture
capital investments decreased $33.8 million to $198.5, total assets increased
primarily due to the following:
- - Cash and cash equivalents increased ($27.3 million) due to the reasons
described on the next page;
- - Capital expenditures in excess of depreciation, amortization and asset
write-offs ($3.6 million); and
- - Higher prepaid pension asset (up $5.4 million) due to pension income
recognized during the period.
The carrying value of the venture capital investments decreased
compared with December 31, 2000, due to a decrease in unrealized gains on
available-for-sale securities of $9.8 million and a decrease in the cost basis
of investments of $24 million, net of write-downs taken.
16
The reasons for the increase in cash and cash equivalents to $71.8
million at June 30, 2001, from $44.5 million at December 31, 2000, are
summarized below:
(In Thousands)
Six Months
Ended June 30
------------------------
2001 2000
------------ -----------
Cash and cash equivalents, beginning of period $ 44,530 $ 25,752
------------ -----------
Cash provided by (used in) operating activities
net of capital expenditures and dividends 14,397 (23,734)
Proceeds from the exercise of stock options 152 3,487
Net (decrease) increase in borrowings (3,607) 5,000
Proceeds from disposal of venture capital investments in
excess of (less than) new venture capital investments 17,684 (5,560)
Proceeds from divestitures and property disposals 353 9,357
Other, net (1,724) 1,129
------------ -----------
Net increase (decrease) in cash and cash equivalents 27,255 (10,321)
------------ -----------
Cash and cash equivalents, end of period $ 71,785 $ 15,431
============ ===========
In 2001, cash provided by continuing operating activities, net of
capital expenditures and dividends was $14.4 million compared with cash used in
operating activities, net of capital expenditures and dividends of $23.7 million
in 2000. The change is primarily due to changes in working capital.
Capital expenditures have decreased from $39.5 million in 2000 to $22.1
million in 2001. Capital expenditures in 2001 reflect the normal replacement of
machinery and equipment and the following key capital projects:
- - Press modernization at the aluminum extrusion plant in Kentland,
Indiana;
- - A new plastic film manufacturing facility in Shanghai, China; and
- - Continued expansion of capacity at the facility in Hungary.
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.
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.
17
We sell to customers in foreign markets through our foreign operations
and through exports from U.S. plants. The percentage of consolidated net sales
from manufacturing operations related to foreign markets for the six months
ended June 30, 2001 and 2000 are presented below:
Percentage of Net Sales from Manufacturing
Operations Related to Foreign Markets*
-----------------------------------------------------------------
Six Months
Ended June 30
-------------------------------------------------
2001 2000
----------------------- ---------------------
Exports Foreign Exports Foreign
From U.S. Operations From U.S. Operations
--------- ---------- ---------- ----------
Canada 3% 15% 3% 18%
Europe 1 7 1 4
Latin America 3 3 3 2
Asia 3 1 3 1
----- ----- ----- -----
Total 10% 26% 10% 25%
===== ===== ===== =====
* Based on consolidated net sales from manufacturing operations
(excluding Tredegar Biotech and Tredegar Investments).
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 pages 14-16 and Note 3 on pages 5-7 for more information.
New Accounting Standards
In June 2001, the Financial Accounting Standards Board issued two new
standards that primarily affect the accounting for acquisitions initiated after
June 30, 2001 and the accounting for goodwill. There are transition provisions
that may result in the reclassification of carrying values among existing
goodwill and other intangible assets. Once adopted, these standards prohibit
18
amortization of goodwill, but require transitional and annual impairment reviews
that may result in the recognition of losses, among other requirements. While we
have not yet completed our assessment of the impact of these statements on our
financial statements, adoption will result in a reduction in our amortization
expense but will have no impact on cash flow. We will adopt these standards in
the first quarter of 2002.
19
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
Tredegar's Annual Meeting of Shareholders was held on May 24,
2001. The following sets forth the vote results with respect
to each of the matters voted upon at the meeting:
(a) Election of Directors
No. of No. of Votes
Nominee Votes "For" "Withheld"
------- ----------- ----------
John D. Gottwald 33,382,493 2,105,785
Thomas G. Slater, Jr. 34,753,808 734,470
There were no broker non-votes with respect to the election of
directors.
(b) Approval of Auditors
Approval of the designation of PricewaterhouseCoopers LLP as
the auditors for Tredegar for the fiscal year ending December
31, 2001:
No. of Votes No. of Votes No. of
"For" "Against" Abstentions
----- --------- -----------
35,362,873 83,293 42,112
There were no broker non-votes with respect to the approval of
auditors.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit No.
-----------
None
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
for the quarter ended June 30, 2001.
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: August 3, 2001 /s/ N. A. Scher
------------------------- ----------------------------------------
Norman A. Scher
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 3, 2001 /s/ Michelle O. Mosier
------------------------- ----------------------------------------
Michelle O. Mosier
Corporate Controller
(Principal Accounting Officer)