TREDEGAR INDUSTRIES
OFFICERS AND OPERATING
DIRECTORS CORPORATE STAFF MANAGEMENT
John D. Gottwald* John D. Gottwald Plastics
President President
Tredegar Industries, Inc. Chief Executive Officer Tredegar
Richmond, Virginia Chairman, Executive Film Products
Committee Anthony J. Rinaldi
Richard W. Goodrum* President
Executive Vice President Richard W. Goodrun
Tredegar Industries, Inc. Executive Vice President Tredegar Molded
Richmond, Virginia Chief Operating Officer Products
William L. Driggers
Norman A. Scher* Norman A. Scher President
Executive Vice President Executive Vice President
Tredegar Industries, Inc. Chief Financial Officer Fiberlux, Inc.
Richmond, Virginia Treasurer Ralph J. Vasami
President
Austin Brockenbrough, III Michael W. Giancaspro
Founding Partner and Vice President, Metal Products
Managing Director Corporate Planning
Lowe, Brockenbrough, Aluminum Extrusions
Tierney & Tatterstall, Steven M. Johnson Douglas R. Monk
Inc. Vice President, President
Richmond, Virginia Corporate Developement
Brudi, Inc.
Phyllis Cothran Frederick P. Woods Wayne W. Bostad
President and Chief Vice President, President
Operating Officer Personnel
Blue Cross & Blue Shield Energy
of Virginia Edward A. Cunningham
Richmond, Virginia Director, Corporate The Elk Horn Coal
Communications and Corporation and
Bruce C. Gottwald Investor Relations Tredegar Oil & Gas
President and Chief David D. Reed
Executive Officer D. Andrew Edwards President
Ethyl Corporation Controller
Richmond, Virginia Other
Lawrence J. Scott
Floyd D. Gottwald, Jr. Director, Audit APPX Software, Inc.
Chairman of the Board of Stephen A. Andersen
Directors Nancy M. Taylor President
Ethyl Corporation Corporate Counsel
Richmond, Virginia Secretary
Andre B. Lacy F. Case Whittemore
President Director,
LDI Management, Inc. Risk Management
Indianapolis, Indiana
James F. Miller
Investment Banker
Paine Webber, Inc.
New York, New York
Emmett J. Rice
Retired Member
Board of Governors
Federal Reserve System
Washington, D.C.
W. Thomas Rice
Former Chairman of the Board
Seaboard Coast Line
Industries, Inc.
Richmond, Virginia
*Member of the Executive Committee
Five-Year Summary
Tredegar Industries, Inc., and Subsidiaries
Years Ended December 31 1993 1992 1991 1990 1989
(In thousands, except per-share data)
Results of Operations [(a) & (b)]:
Net sales $449,208 $445,229 $439,186 $505,884 $594,919
Other (expense) income, net (387) 226 745 861 152
448,821 445,455 439,931 506,745 595,071
Cost of goods sold 379,286 370,652 373,429 450,843 522,020
Selling, general and administrative
expenses 47,973 48,130 49,764 54,457 49,388
Research and development expenses 9,141 5,026 4,541 4,850 4,129
Interest expense (c) 5,044 5,615 7,489 7,101 3,777
Unusual items 452(d) 90(e) 721(f) 32,915(g) -
441,896 429,513 435,944 550,166 579,314
Income (loss) from continuing operations
before income taxes 6,925 15,942 3,987 (43,421) 15,757
Income taxes 3,202 6,425 1,468 (14,734) 6,335
Income (loss) from continuing operations 3,723 9,517 2,519 (28,687) 9,422
Income from discontinued operations (h) 6,784 5,795 3,104 4,001 7,852
Net income (loss) before extraordinary
item and cumulative effect of changes
in accounting principles 10,507 15,312 5,623 (24,686) 17,274
Extraordinary item-prepayment premium on
extinguishment of debt (net of tax) (1,115) - - - -
Cumulative effect of changes in
accounting for postretirement benefits
other than pensions (net of tax) and
income taxes 150 - - - -
Net income (loss) $ 9,542 $ 15,312 $ 5,623 ($ 24,686) $ 17,274
Share Data:
Earnings (loss) per share (b):
Continuing operations $ .34 $ .88 $ .24 ($ 2.54) $ .79
Discontinued operations (h) .63 .53 .28 .35 .65
Before extraordinary item and
cumulative effect of changes
in accounting principles .97 1.41 .52 (2.19) 1.44
Net income (loss) .88 1.41 .52 (2.19) 1.44
Equity per share 15.52 14.91 13.79 13.52 15.69
Return on average equity (i) 6% 10% 4% (15)% 7%
Cash dividends declared per share .24 .24 .24 .24 .12
Weighted average shares outstanding 10,895 10,894 10,894 11,296 11,993
Closing market price per share:
High 18.00 18.63 10.75 15.75 17.63
Low 12.50 10.00 6.38 7.00 12.88
End of year 15.00 15.50 10.00 7.38 15.88
Total return to shareholders (j) (2)% 57% 39% (52)% 37%
Financial Position and Other Data:
Total assets $353,383 $354,910 $335,415 $339,114 $361,046
Working capital 62,064 56,365 60,841 73,180 77,646
Current ratio 2.1:1 2.0:1 2.1:1 2.2:1 2.7:1
Unleveraged after-tax earnings
(loss) ( k) 14,132 19,203 10,753 (19,639) 20,059
Capital employed:
Debt 97,000 101,500 100,000 100,000 100,000
Shareholders' equity 169,088 162,397 150,223 147,261 185,061
Total 266,088 263,897 250,223 247,261 285,061
Average 264,993 257,060 248,742 266,161 281,687
Return on average capital employed (l) 5.3% 7.5% 4.3% (7.4)% 7.1%
Debt as % of total capitalization 36% 38% 40% 40% 35%
Depreciation (continuing operations) 23,117 21,963 24,089 23,641 21,822
Amortization of intangibles
(continuing operations) 2,706 914 1,113 764 762
Capital expenditures (continuing
operations) 16,480 20,705 21,360 34,799 40,212
Acquisitions and other investments 5,699 17,622 25,654 - 2,997
Gross margin as % of net sales
(continuing operations) 15.6% 16.8% 15.0% 10.9% 12.3%
Effective income tax rate
(continuing operations) 46% 40% 37% 34% 40%
Refer to Notes to Financial Tables on page 26.
RESULTS OF OPERATIONS
Summary
Net income for 1993 declined 38% to $9.5 million, or $.88 per share, compared
with $15.3 million, or $1.41 per share, in 1992. As described in Note (b) to
Notes to Financial Tables on page 26, results for 1993 and 1992 include several
special items that affect the comparability of operating results between years.
Excluding these items, net income for 1993 declined 35% to $10.3 million, or
$.95 per share, compared with $15.8 million, or $1.46 per share, in 1992. The
lower operating results are due primarily to losses from new business
development activities included in the Other segment (primarily investments in
high-technology businesses, including APPX Software, Inc., Molecumetics, Ltd.
and Emisphere Technologies, Inc.), and lower volume and higher operating costs
related to unused capacity in Film Products and Molded Products, partially
offset by improved results in the Metal Products segment. Ongoing operations
from the Other segment contributed net losses of $6.6 million ($.60 per share)
and $1.4 million ($.12 per share) in 1993 and 1992, respectively.
Net income for 1992 increased to $15.3 million, or $1.41 per share, compared
with $5.6 million, or $.52 per share, in 1991. Excluding special items (see Note
(b) to Notes to Financial Tables on page 26), net income for 1992 increased by
$9.7 million to $15.8 million, or $1.46 per share, compared with $6.1 million,
or $.56 per share in 1991. The improvement in operating results in 1992 was led
by turnarounds in Aluminum Extrusions and Molded Products.
In July 1993, Film Products announced the closing of its Fremont, California,
plant and the consolidation of capacity at its new plant in Tacoma, Washington.
The Fremont plant is expected to close by May 1994. No provision for the
shutdown was recorded in 1993 since the estimated net realizable value of the
facility exceeds the total of its carrying value and expected shutdown and
disposal costs. In January 1994, Film Products announced its intention to sell
or close its Flemington, New Jersey, plant in order to exit the non-strategic,
conventional films business (single layer, blown polyethylene film used
primarily for general purpose industrial packaging). A pretax loss of $1.8
million was accrued at the end of 1993 to cover the expected loss on the
disposal of this facility.
During the third quarter of 1993, Molded Products acquired the assets of
Polestar Plastics, Inc., thereby gaining access to growing medical and
electronics markets for its products.
In the fourth quarter of 1993, Tredegar recorded a provision of $.9 million for
the decentralization and downsizing of certain corporate functions.
In November 1993, Tredegar announced that it is pursuing the sale of its coal
subsidiary, The Elk Horn Coal Corporation ("Elk Horn"). Assuming Elk Horn can be
sold on terms agreeable to Tredegar, the sale is expected to be completed by
mid-1994, and a gain is expected to be recognized. In addition, in February
1994, Tredegar sold its remaining oil and gas properties for approximately $8
million. This transaction resulted in a gain of approximately $6.1 million ($3.9
million after taxes), which will be recognized in 1994. As a result of the
potential sale of Elk Horn and the sale of Tredegar's remaining oil and gas
properties, the Energy segment is reported as discontinued operations.
Accordingly, information about results of operations, financial condition, cash
flows and industry segments has been reclassified where appropriate. Combined
financial statements for the Energy segment are presented in Note 2 of Notes to
Financial Statements on page 33.
Results from continuing operations are not indicative of future performance
because they exclude income that would be generated from reinvestment of
divestiture proceeds. Tredegar expects to use these proceeds to repay
outstanding borrowings under its revolving credit agreement, with remaining
proceeds invested until other opportunities, in existing businesses or
elsewhere, are identified.
1993 Compared with 1992
Revenues
Net sales from continuing operations increased 1% in 1993,
compared with 1992. Metal Products sales improved significantly due primarily
to higher volume in Aluminum Extrusions. Plastics revenues declined,
particularly in Molded Products. For more information, see Net Sales by Industry
Segment on page 19.
Operating Costs and Expenses
Tredegar's gross profit margin for continuing operations decreased to 15.6% in
1993 from 16.8% in 1992 due to lower volume and higher costs related to unused
capacity in Film Products and Molded Products, and the inclusion of APPX
Software in 1993 results. The unfavorable effect of these items on gross margin
was partially offset by the impact of higher volumes and manufacturing
efficiencies, including lower scrap rates and customer returns, in
Aluminum Extrusions.
Selling, general and administrative expenses for continuing operations decreased
slightly in 1993 due to cost-reduction efforts, partially offset by the
inclusion in 1993 of APPX Software.
Research and development expenses increased to $9.1 million in 1993 from $5
million in 1992 due to higher spending at Molecumetics (Tredegar's research
subsidiary involved in the synthesis of peptide mimetics used in rational drug
design); software development costs at APPX Software; and ongoing product
development efforts in Film Products.
Unusual items in 1993 of $.5 million include estimated costs related to the
closing of the Film Products plant in Flemington, New Jersey ($1.8 million),
and the reorganization of corporate functions ($.9 million), partially offset
by a gain on the sale of Tredegar's remaining investment in Emisphere ($2.3
million).
Interest Expense
Interest expense has been allocated between continuing operations and
discontinued operations based on relative capital employed (see Note 2 of
Notes to Financial Statements on page 33). Interest expense for continuing
operations declined 10% in 1993 due to lower interest rates and lower average
consolidated debt outstanding. The weighted average interest rate on
consolidated debt outstanding was 5.6% for the year, compared with 6.1% in
1992. Average consolidated debt outstanding during these periods totaled $95.8
million and $101.3 million, respectively.
Income Taxes
The effective tax rate for continuing operations in 1993 was 46%, compared with
40% in 1992. The increase was primarily due to an adjustment of deferred income
taxes for the 1% increase in the federal income tax rate in 1993, a higher
effective state income tax rate, and an increase in non-deductible goodwill
amortization, partially offset by the research and development tax credit. See
Note 16 of Notes to Financial Statements on page 38 for details on effective
tax rates.
Discontinued Operations
Energy segment net sales increased 2% to $33.4 million in 1993 from $32.9
million in 1992. The increase was driven by higher coal trading and gas
revenues, partially offset by lower coal royalties and slightly lower coal
sales volume.
Operating profit increased 8% to $11 million from $10.2 million due primarily to
gains totaling $1.4 million on the sale of certain oil and gas properties,
partially offset by a $.4 million charge for Elk Horn's required annual
contribution to fund medical and death benefits for assigned miners and
dependents under the Coal Industry Retiree Health Benefit Act of 1992
(see Note 2 of Notes to Financial Statements on page 33) .
Interest expense allocated to the Energy segment was approximately $.7 million
in 1993 and 1992 as a result of higher average capital employed, offset by
lower interest rates. The effective tax rate declined to 34.7% in 1993 from
39.6% in 1992 due to relatively higher percentage depletion.
Extraordinary Item
On June 16, 1993, Tredegar paid a prepayment premium to an institutional lender
in the amount of $1.8 million ($1.1 million after taxes) to refinance its $35
million, 8.6% fixed-rate debt that was due in September 1994. The new note
carries a fixed rate of 7.2% and matures in June 2003. Annual principal
payments of $5 million will begin in 1997.
Accounting Changes
Tredegar provides postretirement life insurance and health care benefits for
certain groups of employees. Tredegar and retirees share in the cost of
postretirement health care benefits, with employees retiring after July 1,
1993, receiving a fixed subsidy from Tredegar to cover a portion of their
health care premiums. Effective January 1, 1993, Tredegar adopted Statement of
Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." SFAS No. 106 requires recognition
of the cost of postretirement benefits during the employees' service periods.
Previously, such expenses were accounted for on a cash basis. Tredegar elected
to immediately recognize the liability for prior years' service as the
cumulative effect of a change in accounting principle. Accordingly, in the first
quarter of 1993, Tredegar recorded an unfunded, accumulated postretirement
benefit obligation of $6.7 million and a noncurrent, deferred income tax
benefit of $2.5 million, resulting in an after-tax charge of $4.2 million.
Effective January 1, 1993, Tredegar adopted SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires the asset and liability
method of accounting for deferred income taxes, whereby enacted statutory tax
rates are applied to the differences between the financial reporting and
tax bases of assets and liabilities. The cumulative effect of this change in
accounting principle was a reduction in deferred income taxes and a
corresponding increase in net income of $4.3 million in the first
quarter of 1993.
1992 Compared With 1991
Revenues
Net sales from continuing operations in 1992 increased 1% over 1991. Sales
increases in Metal Products were partially offset by sales declines in
Plastics. Metal Products benefited from higher sales in Aluminum Extrusions
and the inclusion of a full year of Brudi, Inc., sales in 1992
(Brudi was acquired in April 1991). The sales decline in Plastics was primarily
due to the divestiture, in the fourth quarter of 1991, of Molded Products'
beverage closure business. See Net Sales by Industry Segment on page 19 for
more information.
Operating Costs and Expenses
Tredegar's gross profit margin from continuing operations increased to 16.8% in
1992 from 15% in 1991 due to higher profits in Aluminum Extrusions and Molded
Products, partially offset by lower profits in Film Products. Aluminum
Extrusions' profits improved due to lower unit conversion costs, reflecting
higher sales and production volumes and internal improvements. The increase in
Molded Products' profits resulted primarily from restructuring efforts. The
decline in Film Products' profits was due to higher domestic unit conversion
costs, reflecting lower sales and production volume, partially offset by higher
profits from foreign operations.
Selling, general and administrative expenses for continuing operations decreased
3% in 1992 due to divestitures, restructuring-related cost reductions and a
continued focus on internal improvements.
Research and development expense increased to $5 million in 1992 from $4.5
million in 1991 due to product development projects in the Plastics segment and
research and development of certain new technologies.
Unusual items in 1992 include the accelerated write-off of certain goodwill
associated with the restructuring of Molded Products ($1.2 million),
partially offset by the gain on the sale of a portion of Tredegar's investment
in Emisphere ($1.1 million).
Interest Expense
Interest expense allocated to continuing operations declined 25%, or $1.9
million, in 1992 due to lower average interest rates and lower
average debt levels. Weighted average interest rates on consolidated debt
outstanding during 1992 and 1991 were 6.1% and 7.2%, respectively. Average
consolidated debt outstanding during these periods totaled $101.3 million and
$117.7 million, respectively.
Income Taxes
The effective tax rate for continuing operations in 1992 was 40%, compared with
37% in 1991. The increase was primarily due to lower tax benefits attributable
to the foreign sales corporation partially offset by a lower effective state
income tax rate. See Note 16 of Notes to Financial Statements on page 38 for
details regarding effective tax rates.
Discontinued Operations
Energy segment net sales declined 4%, to $32.9 million in 1992 from $34.3
million in 1991, due primarily to lower coal volume and lower oil and gas
revenues resulting from the termination of the horizontal drilling partnership
in 1991. Lower coal volume was partially offset by improved royalty rates,
improved prices in the coal sales business and higher minimum royalty
income. Mild weather and industry over-capacity relative to demand contributed
to coal volume declines.
Operating profit increased by $4.6 million or 81%, to $10.2 million from $5.6
million, due primarily to the termination in 1991 of the horizontal drilling
partnership and the elimination of related operating losses as well as improved
coal trading income.
Interest expense allocated to the Energy segment declined to $.7 million in 1992
from $.8 million in 1991 due to lower average interest rates, partially offset
by higher average capital employed.
The effective tax rate in 1992 increased to 39.6% from 36.4% in 1991 due
primarily to lower percentage depletion.
FINANCIAL CONDITION
Assets
Total assets at December 31, 1993, were $353.4 million, a decrease of $1.5
million from December 31, 1992. Net assets of discontinued operations increased
to $31 million from $29.8 million in 1992 due to higher coal trading
inventories. Total assets of continuing operations decreased $2.7 million.
The current ratio remained strong at 2.1 to 1 and 2.0 to 1 as of December 31,
1993 and 1992, respectively.
Liabilities
Total liabilities decreased 4% to $184.3 million at December 31, 1993, due
primarily to lower deferred income taxes caused by the adoption of SFAS No. 109
and reductions in consolidated long-term debt and accrued costs related to
divestitures, partially offset by an increase in other noncurrent liabilities
due to the adoption of SFAS No. 106 and the acquisition of Polestar.
Consolidated debt decreased to $97 million in 1993 from $101.5 million in 1992.
Consolidated debt at December 31, 1993, consisted of $35 million maturing in
2003 with annual principal payments of $5 million beginning in 1997 and a fixed
annual interest rate of 7.2%, and $62 million borrowed under variable-rate
agreements with various maturities and an average interest rate of 4.2%. The
weighted average interest rate on debt as of December 31, 1993 and 1992 was
5.3% and 6.1%, respectively. This overall decline is due to lower rates on both
fixed-rate and variable-rate credit arrangements. Debt as a percentage of total
capitalization was 36% at December 31, 1993, compared with 38% at December 31,
1992. See Note 10 of Notes to Financial Statements on page 35 for details
of credit agreements.
Shareholders' Equity
Shareholders' equity increased to $169.1 million at December 31, 1993,
reflecting consolidated net income of $9.5 million and dividends declared of
$2.6 million. The total market capitalization of Tredegar's 10.9 million common
shares decreased to $163.4 million at December 31, 1993, from $168.9 million at
December 31, 1992, due to a lower stock price at year end.
Tredegar has not purchased shares of its capital stock since 1990. In 1989 and
1990, Tredegar purchased an aggregate of 1.1 million shares of its capital stock
in the open market and in privately negotiated transactions at an average price
of $12.76 per share. Tredegar may make stock purchases, up to an aggregate of
3.2 million shares, under a standing authorization from the Board of Directors
at prices management deems appropriate.
Cash Flows
Net cash provided by continuing operating activities decreased to $17.6 million
in 1993 from $30.9 million in 1992 due to lower operating results and
additional working capital investment to support higher sales at the end of
the year. Net cash used in 1993 for the prepayment premium on extinguishment of
debt was $1.1 million. Net cash provided by discontinued operating activities
increased to $4.3 million in 1993 from $.5 million in 1992 due to lower
incremental working capital investment in the coal trading business.
Net cash used in investing activities of continuing operations
declined to $14.2 million in 1993 from $29.8 million in 1992 as a result of
lower capital expenditures and lower spending for acquisitions. Proceeds from
asset disposals totaled $8.6 million in 1993 and $9.2 million in 1992. Lower
capital expenditures for continuing operations in 1993 were primarily due to
unused capacity in Film Products and Molded Products as a result of unfavorable
market conditions and higher spending for capacity expansions in Film Products
from 1989 through 1992. Net cash was provided by investing activities of
discontinued operations in 1993 due to the sale for $1.7 million of certain oil
and gas properties, partially offset by capital expenditures.
In 1993, overall net cash provided by consolidated operating activities
exceeded net cash used in consolidated investing activities by $7.9 million,
which was sufficient to pay dividends of $3.3 million and to repay $4.5 million
of debt.
Net cash provided by continuing operating activities declined to $30.9 million
in 1992 from $34.9 million in 1991 due primarily to divestiture-related working
capital liquidations in 1991. Net cash provided by discontinued operating
activities declined to $.5 million in 1992 from $6.6 million in 1991 due to
additional investment in coal working capital in 1992 to support expansion of
the coal trading business.
Net cash used in investing activities of continuing operations declined to $29.8
million in 1992 from $35.7 million in 1991 due to lower spending on
acquisitions. In 1991, the net cash used in investing activities of discontinued
operations totaling $5 million was primarily due to the purchase of coal
reserves. During 1992, capital expenditures returned to a normal level for
supporting existing Energy segment operations.
In 1992, overall net cash provided by consolidated operating activities
exceeded capital expenditures and dividends by $7.8 million. This excess cash
flow, combined with proceeds from asset disposals, net borrowings and cash
available from 1991, funded acquisitions and other investments of $17.6
million.
In 1991, overall cash flows from operations were $41.5 million, up from $34.6
million in 1990. Cash flows from operations in 1991 exceeded capital
expenditures and dividends by $12.3 million, permitting Tredegar to pay down
debt incurred to finance the Brudi acquisition. Proceeds from the sale of
businesses and other property disposals allowed Tredegar to liquidate all
additional debt incurred in 1991, and end the year with $100 million
in long-term debt.
Normal operating cash requirements over the next 3-5 years are expected to be
met from continuing operations. Tredegar expects that proceeds from the
possible sale of its energy businesses will be used to repay outstanding
borrowings under its revolving credit agreement, with remaining proceeds
invested until other opportunities, in existing businesses or elsewhere, are
identified. The amount and timing of any additions to capital will depend on
Tredegar's specific cash requirements and the cost of such capital.
Net Sales by Industry Segment
1993 Compared With 1992
Plastics net sales decreased 7% in 1993 due to lower sales in Film Products and
significantly lower revenues in Molded Products. Film Products 1993 sales were
down due primarily to lower volume in industrial films, domestic disposable
permeable films, domestic disposable backsheet film supplied to private-label
manufacturers, and the discontinuance of certain unprofitable agricultural
product lines, partially offset by higher sales volume from foreign operations
and domestic disposable backsheet film supplied to The Procter & Gamble Company
("P&G").
Film Products is the largest U.S. supplier of embossed and permeable films for
disposable personal products. In each of the last three years, this class of
products accounted for more than 20% of the consolidated revenues of Tredegar.
Film Products supplies embossed films for use as backsheet in such disposable
products as baby diapers and adult incontinent products, feminine hygiene
products and hospital underpads. Film Products' primary customer
for embossed films for backsheet is P&G, the leading disposable diaper
manufacturer.
Film Products also supplies permeable films to P&G for use as liners in adult
incontinent products, feminine hygiene products and hospital underpads. In
addition, P&G purchases molded plastic products from Molded Products. P&G and
Tredegar have had a successful, long-term relationship based on cooperation,
product innovation and continuous process improvement. The loss or significant
reduction of business associated with P&G would have a material adverse effect
on Tredegar's business.
Molded Products sales declined due primarily to significantly lower technical
services revenues and lower volume in tooling and packaging and industrial
products, partially offset by the inclusion of Polestar since its acquisition
effective July 31, 1993.
Net Sales By Industry Segment
Tredegar Industries, Inc., and Subsidiaries
Industry Segment (a) 1993 1992 1991 1990 1989
(In thousands)
Plastics:
Ongoing operations (m) $255,524 $274,606 $281,613 $273,983 $271,514
Plants closed and
businesses sold - - - 10,717(n) 25,535
255,524 274,606 281,613 284,700 297,049
Metal Products:
Ongoing operations 190,690 170,623 157,573 193,347 228,563
Plants closed and
businesses sold - - - 27,837(n) 69,307
190,690 170,623 157,573 221,184 297,870
Other (o) 2,994 - - - -
Total continuing
operations (p) 449,208 445,229 439,186 505,884 594,919
Discontinued operations (h) 33,431 32,859 34,283 40,702 41,787
Total $482,639 $478,088 $473,469 $546,586 $636,706
Refer to Notes to Financial Tables on page 26.
Metal Products sales increased 12% in 1993 due primarily to higher volume in
Aluminum Extrusions. Improved economic conditions and efforts to increase volume
with new and existing customers contributed to the improvement.
Net sales reported under the Other segment are primarily APPX Software revenues.
1992 Compared With 1991
Plastics net sales declined 2% in 1992 due primarily to the divestiture of
Molded Products' beverage closure business in the fourth quarter of 1991. Film
Products sales in 1992 declined slightly compared with record sales in 1991.
Domestic disposable volume declined due to reduced customer market share. For
Film Products overall, lower domestic volumes were partially offset by higher
average selling prices and higher sales volume from foreign operations.
Excluding beverage closure sales for 1991, Molded Products showed a slight
improvement in sales for 1992, reflecting higher sales volume and average
prices.
Metal Products sales increased 8% in 1992 due primarily to significantly higher
volume in Aluminum Extrusions and a full year of Brudi sales (acquired in April
1991). Higher sales volume in Aluminum Extrusions resulted from increased
capacity and orders for wood-clad window and automobile after-market products,
improved economic conditions, increased focus on targeted customers and
customer response to lower average prices. The decline in average selling prices
reflected lower aluminum costs.
OPERATING PROFIT BY INDUSTRY SEGMENT
Tredegar Industries, Inc., and Subsidiaries
Industry Segment (a) 1993 1992 1991 1990 1989
(In thousands)
Plastics:
Ongoing operations $22,649 $27,749 $23,638 $13,202 $23,484
Plants closed and
businesses sold - - - (1,799)(n) 953
Unusual items (1,815)(d) (1,182)(e) (721)(f) (2,831)(g) -
20,834 26,567 22,917 8,572 24,437
Metal Products:
Ongoing operations 8,141 4,693 (2,377) (1,713) 2,880
Plants closed and
businesses sold - - - (3,304)(n) (2,021)
Unusual items - - - (30,084)(g) -
8,141 4,693 (2,377) (35,101) 859
Other (o):
Ongoing operations (9,704) (1,865) - - -
Unusual items 2,263(d) 1,092(e) - - -
(7,441) (773) - - -
Operating profit (loss) 21,534 30,487 20,540 (26,529) 25,296
Interest expense (c) 5,044 5,615 7,489 7,101 3,777
Corporate expenses, net 9,565(d) 8,930 9,064 9,791 5,762
Income (loss) from
continuing
operations before
income taxes 6,925 15,942 3,987 (43,421) 15,757
Income taxes 3,202 6,425 1,468 (14,734) 6,335
Income (loss) from
continuing operations 3,723 9,517 2,519 (28,687) 9,422
Income from discontinued
operations (h) 6,784 5,795 3,104 4,001 7,852
Net income (loss) before
extraordinary item and
cumulative effect of
changes in accounting
principles (b) $10,507 $15,312 $ 5,623 ($24,686) $17,274
Refer to Notes to Financial Tables on page 26.
Operating Profit By Industry Segment
Segment operating profit includes certain charges for general and administrative
expenses incurred at the corporate level. These charges are readily identifiable
with each industry segment. However, segment operating profit excludes corporate
charges that, by their nature, cannot be identified with or assigned to an
industry segment.
1993 Compared With 1992
Plastics segment operating profit declined $5.7 million, or 22%, from 1992 due
to unusual items (see applicable references to Notes to Financial Tables) and
lower profits from ongoing operations in both Film Products and Molded
Products. A major cause of the decline in operating results in Film Products
was lower-than-expected demand for industrial films, disposable permeable films
for domestic markets and disposable backsheet film for private-label diaper
manufacturers. In recent years, Film Products has invested in new capacity and
printing capabilities aimed at meeting anticipated customer needs. These
expected sales have not materialized and, as such, the costs associated with
these investments have reduced profitability. Also, the commercialization of
Monax Plus packaging films is taking longer than expected. In response to the
changing competitive environment, Tredegar is exiting the conventional films
business through the planned divestiture of its Flemington, New Jersey, plant;
consolidating manufacturing capacity with the planned disposal of its Fremont,
California, facility; and cutting costs and seeking new avenues to sales
growth.
Reduced demand from manufacturers of branded consumer products has also
affected results in Molded Products. Molded Products operating profit declined
due to lower volume, especially lower tooling and technical sales, and higher
conversion costs. The decline was partially offset by the inclusion of Polestar
results since July 31, 1993, the effective date of acquisition.
Metal Products operating profit increased significantly in 1993, driven by a
11% increase in volume in Aluminum Extrusions. Operating profits were also up as
a result of Aluminum Extrusions' successful efforts to improve manufacturing
efficiency, including lower scrap rates and customer returns, and lower selling,
general and administrative costs.
Tredegar's overall results continue to be adversely affected by operating
losses at APPX Software and spending at Molecumetics. Expenses in these areas
have been higher than expected. In addition, software revenues are not
developing as quickly as anticipated. The resulting losses were partially
offset by pretax gains of $2.3 million realized on the sale of Tredegar's
remaining investment in Emisphere common stock. Ongoing activities resulted in
an operating loss of $9.7 million in 1993. Looking forward, it is anticipated
that these activities will continue to generate losses in the near term.
1992 Compared With 1991
Plastics segment operating profit increased $3.7 million in 1992 due to higher
profits in Molded Products, partially offset by lower profits in Film Products
and the $1.2 million accelerated write-off of certain goodwill associated with
the Molded Products restructuring. The significant increase in Molded Products
operating profit is primarily due to restructuring efforts. Film Products
operating profit declined as a result of lower domestic sales in
disposables and related higher unit conversion costs, partially offset by higher
sales from foreign operations.
Metal Products operating profit in 1992 increased by $7.1 million over 1991,
reflecting significantly higher sales volume and lower unit conversion costs in
Aluminum Extrusions. Internal improvements, including lower administrative
costs, also contributed to higher profits.
The Other segment reflects research and development efforts at Molecumetics and
other new technologies, partially offset by a pretax gain of $1.1 million
realized on the sale of a portion of Emisphere common stock.
IDENTIFIABLE ASSETS BY INDUSTRY SEGMENT
Tredegar Industries, Inc., and Subsidiaries
Industry Segment (a) 1993 1992 1991 1990 1989
(In thousands)
Plastics $171,070 $170,066 $162,762 $176,282 $167,564
Metal Products 120,454 122,109 121,416 116,391 144,228
Other (o) 15,247 16,856 3,334 750 -
Identifiable assets 306,771 309,031 287,512 293,423 311,792
Net assets held for
sale (q) 3,605 4,330 13,600 13,908 -
General corporate 12,031 11,745 9,947 8,937 4,071
Net assets of discontinued
operations (h) 30,976 29,804 24,356 22,846 45,183
Total $353,383 $354,910 $335,415 $339,114 $361,046
Refer to Notes to Financial Tables on page 26.
Identifiable Assets By Industry Segment
The amounts reported as identifiable assets are total assets of all
subsidiaries and divisions in each segment. Identifiable assets in the Other
segment represent primarily APPX Software, Molecumetics and investments in
Emisphere common stock as well as certain other investments. General corporate
assets are primarily corporate property, plant and equipment. Net assets
held for sale, primarily land and buildings held for sale related to closed
facilities, are shown separately at estimated net realizable value.
Identifiable assets by industry segment were $306.8 million at December 31,
1993, a decrease of approximately $2.3 million from 1992. The increase in the
Plastics segment was primarily due to the acquisition of Polestar. The decrease
in Metal Products was attributable to depreciation in excess of capital
spending and asset disposals, partially offset by higher inventories and
receivables to support higher sales. The decrease in Other segment
identifiable assets was primarily due to depreciation and amortization in
excess of capital spending and the sale of Emisphere common stock, partially
offset by new investments totaling $.6 million and the write-up of certain
intangibles to their pretax amounts under SFAS No. 109.
Identifiable assets by industry segment were $309 million at December 31, 1992,
an increase of $21.5 million from 1991 identifiable assets. The increase is
primarily Film Products' investment in the new Tacoma facility, and the
acquisition of APPX Software at the end of 1992. The decrease in net assets held
for sale resulted primarily from the sale of the Pittsfield, Massachusetts,
tooling facility in the fourth quarter of 1992. The increase in the assets of
Plastics and Metal Products reflected the acquisitions of Folium Plasticos
Especiais and Fielden Engineers, Ltd., respectively.
DEPRECIATION AND AMORTIZATION BY INDUSTRY SEGMENT
Tredegar Industries, Inc., and Subsidiaries
Industry Segment (a) 1993 1992 1991 1990 1989
(In thousands)
Plastics $15,315 $13,996 $15,682 $13,602 $12,217
Metal Products 7,512 8,178 8,831 10,236 10,262
Other (o) 2,311 - - - -
Subtotal 25,138 22,174 24,513 23,838 22,479
General corporate 685 703 689 567 105
Total continuing
operations 25,823 22,877 25,202 24,405 22,584
Discontinued
operations (h) 747 765 5,777 3,981 5,747
Total $26,570 $23,642 $30,979 $28,386 $28,331
Refer to Notes to Financial Tables on page 26.
Depreciation and Amortization By Industry Segment
Segment depreciation and amortization increased to $25.1 million from $22.2
million in 1992 due to the Other segment (APPX Software and Molecumetics) and
higher depreciation in Film Products as a result of starting up the Tacoma,
Washington, plant in 1993. Metal Products had lower depreciation due to lower
levels of spending in 1992 and 1991. The Other segment includes primarily
amortization of intangibles acquired in the acquisition of APPX Software.
In 1992, total segment depreciation and amortization declined $2.3 million as
Molded Products and Aluminum Extrusions had lower depreciation due to
restructuring and lower levels of capital spending in 1992 and 1991.
Maintenance and repairs of property, plant and equipment were $17.3 million,
$17.9 million and $19.4 million in 1993, 1992 and 1991, respectively. The
decreases reflect fewer plants and the modernization of remaining
plants.
Capital Expenditures By Industry Segment
Segment capital expenditures in 1993 were $14 million, down from $20.4 million
in 1992. Plastics capital expenditures decreased due to unused capacity in Film
Products and Molded Products as a result of unfavorable market conditions and
higher spending for capacity expansions in Film Products from 1989 through 1992.
Capital spending in Metal Products declined as a result of relatively higher
capital spending in prior years. The Other segment reflects capital spending at
APPX Software and Molecumetics. Acquisitions and other investments in 1993
include primarily Polestar.
Segment capital expenditures in 1992 were $20.4 million, down slightly from
1991. Plastics segment expenditures reflect the addition of capacity in Film
Products, including the Tacoma, Washington, plant. These expenditures were
offset by lower spending in Molded Products. Metal Products capital
requirements were significantly lower than in prior years as major projects
were completed. Other expenditures were primarily related to leasehold
improvements and equipment purchases at the Molecumetics research laboratory.
Acquisitions in 1992 include APPX Software, Folium Plasticos Especiais (plastic
film) and Fielden Engineers (materials handling). In early 1992, Tredegar
exercised its right to acquire additional shares of Emisphere common stock
which were sold at a gain in 1993.
CAPITAL EXPENDITURES BY INDUSTRY SEGMENT
Tredegar Industries, Inc., and Subsidiaries
Industry Segment (a) 1993 1992 1991 1990 1989
(In thousands)
Plastics $9,810 $15,655 $12,952 $24,145 $28,720
Metal Products 2,386 3,320 7,985 9,509 8,707
Other (o) 1,844 1,414 - - -
Subtotal 14,040 20,389 20,937 33,654 37,427
General corporate 2,440 316 423 1,145 2,785
Total continuing
operations 16,480 20,705 21,360 34,799 40,212
Discontinued operations (h) 417 341 5,233 4,918 3,140
Total capital
expenditures 16,897 21,046 26,593 39,717 43,352
Acquisitions and other
investments 5,699 17,622 25,654 - 2,997
Total capital
expenditures,
acquisitions
and investments $22,596 $38,668 $52,247 $39,717 $46,349
Refer to Notes to Financial Tables on page 26.
SELECTED QUARTERLY FINANCIAL DATA (a)
Tredegar Industries, Inc., and Subsidiaries
First Quarter Second Quarter Third Quarter Fourth Quarter
(In thousands, except
per-share amounts)
(Unaudited)
1993
Net sales:
Continuing operations $111,198 $108,042 $113,922 $116,046
Discontinued operations (h) 7,998 7,933 8,281 9,219
Total 119,196 115,975 122,203 125,265
Gross profit (continuing
operations) 17,184 16,574 18,095 18,069
Operating profit:
Continuing operations 6,226 4,802 5,821 4,685
Discontinued operations (h) 2,932 3,404 2,114 2,587
Total 9,158 8,206 7,935 7,272
Income from continuing operations 1,710 674 1,145 194
Income from discontinued
operations (h) 1,841 2,154 1,162 1,627
Net income before extraordinary
item and cumulative effect of
changes in accounting principles 3,551 2,828 2,307 1,821
Net income (r) 3,701 1,713 2,307 1,821
Earnings per share:
Income from continuing operations .16 .06 .10 .02
Income from discontinued
operations (h) .17 .20 .11 .15
Before extraordinary item and
cumulative effect of changes
in accounting principles .33 .26 .21 .17
Net income (r) .34 .16 .21 .17
Shares used to compute earnings
per share 10,895 10,895 10,895 10,895
1992
Net sales:
Continuing operations $109,824 $108,938 $117,699 $108,768
Discontinued operations (h) 8,431 8,391 7,893 8,144
Total 118,255 117,329 125,592 116,912
Gross profit (continuing
operations) 18,861 17,910 18,502 19,304
Operating profit:
Continuing operations 6,492 7,872 7,858 8,265
Discontinued operations (h) 2,564 2,530 2,506 2,649
Total 9,056 10,402 10,364 10,914
Income from continuing operations 1,318 2,395 2,682 3,122
Income from discontinued
operations (h) 1,451 1,417 1,419 1,508
Net income (r) 2,769 3,812 4,101 4,630
Earnings per share:
Income from continuing operations .12 .22 .25 .29
Income from discontinued
operations (h) .13 .13 .13 .14
Net income (r) .25 .35 .38 .43
Shares used to compute earnings
per share 10,894 10,894 10,894 10,894
Refer to Notes to Financial Tables on page 26.
Notes to Financial Tables
(a) Certain prior-period amounts have been reclassified to conform to the
current-year presentation.
(b) Net income (loss) and earnings (loss) per share, adjusted for special items
affecting the comparability of operating results between years, are
presented below:
1993 1992 1991 1990 1989
Net income (loss)
as reported $9,542 $15,312 $5,623 ($24,686) $17,274
After-tax effects of
special items:
Extraordinary charge 1,115 - - - -
Income related to
cumulative
effect of
accounting changes (150) - - - -
Unusual charges related
to continuing operations 246 502 447 24,424 665
Impact on deferred taxes
of 1% increase in federal
income tax rate
(including $177 relating
to discontinued
operations) 525 - - - -
Unusual (income) charge
related to discontinued
operations (938) - - 3,242 (273)
Pro forma charge
related to
the spin-off
(including $570
relating to
discontinued
operations) - - - - (6,021)
Net income as adjusted
for special items 10,340 15,814 6,070 2,980 11,645
Income from
discontinued
operations as
adjusted for special
items (6,023) (5,795) (3,104) (7,243) (7,009)
Net income (loss) from
continuing operations
as adjusted for special
items $4,317 $10,019 $2,966 ($4,263) $4,636
Earnings (loss) per
share:
As reported $ .88 $1.41 $ .52 ($2.19) $ 1.44
As adjusted for
special items $ .95 $1.46 $ .56 $ .26 $ .97
From continuing
operations as
adjusted for special $ .40 $ .92 $ .27 ($ .38) $ .39
Included in the above amounts are net losses from ongoing operations of the
Other segment (primarily investments in new businesses and related research)
of $6,568 ($.60 per share) and $1,349 ($.12 per share) in 1993 and 1992,
respectively.
(c) Interest expense has been allocated between continuing and discontinued
operations based on relative capital employed. See Note 2 of Notes to
Financial Statements on page 33.
(d) Unusual items in 1993 include estimated costs related to the closing of
a Film Products plant in Flemington, New Jersey ($1,815), and the reorga-
nization of corporate functions ($900), partially offset by the gain on the sale
of Tredegar's remaining investment in Emisphere Technologies, Inc. ($2,263).
(e) Unusual items in 1992 include the accelerated write-off of certain
goodwill associated with the restructuring of Molded Products ($1,182)
partially offset by the gain on the sale of a portion of an investment in
Emisphere Technologies, Inc. ($1,092).
(f) Unusual items in 1991 include costs related to plant closings in Molded
Products ($4,412) offset by a credit ($2,797) related to management's
decision to continue operating the vinyl extrusions business, and the gain on
the sale of Molded Products' beverage closure business ($894).
(g) Unusual items in 1990 include costs related to divestitures and
reorganization, including results of operations from August 1. The Metal
Products segment also includes provisions for environmental review and cleanup
and costs related to certain legal proceedings for ongoing operations.
(h) In the fourth quarter of 1993, Tredegar announced that it is pursuing
the sale of its coal subsidiary, The Elk Horn Coal Corporation. On February 4,
1994, Tredegar sold its remaining oil and gas properties. As a result of these
events, Tredegar is reporting its Energy segment as discontinued operations.
Results of continuing operations are not indicative of the results to be
expected in the future since they exclude income that would be generated from
the reinvestment of divestiture proceeds. See Note 2 of Notes to Financial
Statements on page 33.
(i) Return on average equity is equal to net income per share divided by
average equity per share.
(j) Total return to shareholders is computed as the sum of the change in
stock price during the year plus dividends per share, divided by the stock price
at the beginning of the year.
(k) Unleveraged after-tax earnings (loss) are net income (loss) plus after-
tax interest expense.
(l) Return on average capital employed is unleveraged after-tax earnings
(loss) divided by average capital employed.
(m) Net sales include sales to P&G totaling $145,631, $145,560 and $154,953
in 1993, 1992 and 1991, respectively.
(n) Includes results to August 1.
(o) In 1993, Tredegar began reporting its business development activities,
primarily investments in high-technology businesses (APPX Software, Inc.,
Molecumetics, Ltd. and Emisphere Technologies, Inc.), as a separate industry
segment.
(p) Export sales totaled $52,642, $48,566 and $49,595 in 1993, 1992 and
1991, respectively. The majority of these export sales were made by the
Plastics segment.
(q) Net assets held for sale include zero, $1,721 and $9,600 in current
assets and $3,605, $2,609 and $4,000 in noncurrent assets in 1993, 1992 and
1991, respectively.
(r) Quarterly net income and earnings per share, adjusted for special items
affecting the comparability of operating results between quarters, are
presented below:
First Second Third Fourth
Quarter Quarter Quarter Quarter
1993
Net income $2,326 $1,705 $2,832 $3,477
Earnings per share .21 .16 .26 .32
1992
Net income 3,951 3,812 4,101 3,950
Earnings per share .36 .35 .38 .37
Report of Independent Accountants
To the Board of Directors and Shareholders of Tredegar Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Tredegar
Industries, Inc., and Subsidiaries ("Tredegar") as of December 31, 1993 and
1992, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1993. These financial statements are the responsibility of Tredegar's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Tredegar as of
December 31, 1993 and 1992, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 1993, in conformity with generally accepted accounting principles.
As discussed in Notes 14 and 16 to the consolidated financial statements,
effective as of the beginning of 1993, Tredegar changed its method of accounting
for postretirement benefits other than pensions to conform with Statement of
Financial Accounting Standards No. 106 and its method of accounting for income
taxes to conform with Statement of Financial Accounting Standards No. 109.
COOPERS & LYBRAND
Richmond, Virginia
January 17, 1994, except for the information presented in Note 2,
for which the date is February 4, 1994.
Management's Report on the Financial Statements
Tredegar's management has prepared the financial statements and related notes
appearing on pages 28 through 39 in conformity with generally accepted
accounting principles. In so doing, management makes informed judgments and
estimates of the expected effects of events and transactions. Financial data
appearing elsewhere in this annual report are consistent with these financial
statements.
Tredegar maintains a system of internal controls to provide reasonable, but not
absolute, assurance of the reliability of the financial records and the
protection of assets. The internal control system is supported by written
policies and procedures, careful selection and training of qualified
personnel and an extensive internal audit program.
These financial statements have been audited by Coopers & Lybrand, independent
certified public accountants. Their audit was made in accordance with
generally accepted auditing standards and included a review of Tredegar's
internal accounting controls to the extent considered necessary to determine
audit procedures.
The Audit Committee of the Board of Directors, composed of outside directors
only, meets with management, internal auditors and the independent
accountants to review accounting, auditing and financial reporting matters. The
independent accountants are appointed by the Board on recommendation of the
Audit Committee, subject to shareholder approval.
(table page 28)
CONSOLIDATED STATEMENTS OF INCOME
Tredegar Industries, Inc., and Subsidiaries
Years Ended December 31 1993 1992 1991
(In thousands, except
per-share amounts)
Revenues:
Net sales $449,208 $445,229 $439,186
Other (expense) income, net (387) 226 745
Total 448,821 445,455 439,931
Costs and expenses:
Cost of goods sold 379,286 370,652 373,429
Selling, general and
administrative 47,973 48,130 49,764
Research and development 9,141 5,026 4,541
Interest 5,044 5,615 7,489
Unusual items 452 90 721
Total 441,896 429,513 435,944
Income from continuing
operations before
income taxes 6,925 15,942 3,987
Income taxes 3,202 6,425 1,468
Income from continuing
operations 3,723 9,517 2,519
Income from discontinued
operations 6,784 5,795 3,104
Net income before extraordinary
item and cumulative effect of
changes in accounting
principles 10,507 15,312 5,623
Extraordinary item-prepayment
premium on extinguishment of
debt (net of income tax benefit
of $685) (1,115) - -
Cumulative effect of changes in
accounting for:
Postretirement benefits other
than pensions (net of income
tax benefit of $2,545) (4,150) - -
Income taxes 4,300 - -
Net income $9,542 $15,312 $5,623
Earnings per share:
Continuing operations $ .34 $ .88 $ .24
Discontinued operations .63 .53 .28
Before extraordinary item
and cumulative effect
of changes in accounting
principles .97 1.41 .52
Extraordinary item (.10) - -
Cumulative effect of changes
in accounting principles .01 - -
Net income $ .88 $ 1.41 $ .52
See accompanying notes to financial statements.
(table page 29)
CONSOLIDATED BALANCE SHEETS
Tredegar Industries, Inc., and Subsidiaries
December 31 1993 1992
(In thousands, except share amounts)
Assets
Current assets:
Accounts and notes receivable $ 70,173 $ 62,137
Inventories 34,211 31,358
Deferred income taxes 11,555 14,515
Prepaid expenses and other 881 4,207
Net assets held for sale - 1,721
Total current assets 116,820 113,938
Property, plant and equipment, at cost:
Land and land improvements 7,194 5,368
Buildings 46,608 46,839
Machinery and equipment 270,131 259,151
Total property, plant and equipment 323,933 311,358
Less accumulated depreciation and amortization 188,531 171,595
Net property, plant and equipment 135,402 139,763
Other assets and deferred charges 24,456 26,828
Goodwill and other intangibles 45,729 44,577
Net assets of discontinued operations 30,976 29,804
Total assets $353,383 $354,910
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 19,376 $ 16,977
Accrued expenses 35,380 40,596
Total current liabilities 54,756 57,573
Long-term debt 97,000 101,500
Deferred income taxes 23,108 32,646
Other noncurrent liabilities 9,431 794
Total liabilities 184,295 192,513
Commitments and contingencies
Shareholders' equity:
Common stock (no par value):
Authorized-50,000,000 shares;
Issued and outstanding-10,894,904 shares 170,140 170,131
Foreign currency translation adjustment (283) (39)
Retained earnings (deficit) (769) (7,695)
Total shareholders' equity 169,088 162,397
Total liabilities and shareholders' equity $353,383 $354,910
See accompanying notes to financial statements.
(table page 30)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Tredegar Industries, Inc., and Subsidiaries
Retained Foreign Total
Common Stock Earnings Currency Shareholders'
Years ended December 31, 1993, 1992 and 1991 Shares Amount (Deficit) Translation Equity
(In thousands, except share and per-share data)
Balance December 31, 1990 10,894,357 $170,131 ($23,399) $529 $147,261
Net income - - 5,623 - 5,623
Cash dividends declared ($.24 per share) - - (2,615) - (2,615)
Foreign currency translation adjustment - - - (46) (46)
Balance December 31, 1991 10,894,357 170,131 (20,391) 483 150,223
Net income - - 15,312 - 15,312
Cash dividends declared ($.24 per share) - - (2,616) - (2,616)
Issued upon exercise of SARs 44 - - - -
Foreign currency translation adjustment - - - (522) (522)
Balance December 31, 1992 10,894,401 170,131 (7,695) (39) 162,397
Net income - - 9,542 - 9,542
Cash dividends declared ($.24 per share) - - (2,616) - (2,616)
Issued upon exercise of SARs 503 9 - - 9
Foreign currency translation adjustment - - - (244) (244)
Balance December 31, 1993 10,894,904 $170,140 ($769) ($283) $169,088
See accompanying notes to financial statements.
(table page 31)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Tredegar Industries, Inc., and Subsidiaries
Years Ended December 31 1993 1992 1991
(In thousands)
Cash flows from operating activities:
Continuing operations:
Income from continuing operations $ 3,723 $ 9,517 $ 2,519
Adjustments for noncash items:
Depreciation 23,117 21,963 24,089
Amortization of intangibles 2,706 914 1,113
Write-off of goodwill and
intangibles - 1,576 -
Deferred income taxes (1,418) (98) 1,099
Accrued pension income and
postretirement benefits (621) (1,086) (1,447)
Loss (gain) on divestitures and
sale of businesses 1,815 - (2,820)
Gain on sale of investments (2,263) (1,092) -
Changes in assets and liabilities,
net of effects from acquisitions:
Accounts and notes receivable (7,194) 723 10,337
Inventories (2,480) 113 6,424
Prepaid expenses 3,347 (1,609) 3,556
Accounts payable and accrued
expenses (1,701) 1,602 (7,273)
Other, net (1,435) (1,595) (2,671)
Net cash provided by continuing
operating activities 17,596 30,928 34,926
Net cash used for extraordinary item (1,115) - -
Net cash provided by discontinued
operating activities 4,318 536 6,579
Net cash provided by
operating activities 20,799 31,464 41,505
Cash flows from investing activities:
Continuing operations:
Capital expenditures (16,480) (20,705) (21,360)
Acquisitions (net of $398, $294 and
$1,898 cash acquired in 1993,
1992 and 1991, respectively) (5,099) (15,922) (23,254)
Investments (600) (1,700) (2,400)
Proceeds from sales of investments 5,263 1,992 -
Property disposals 3,373 4,025 2,220
Proceeds from sales of businesses - 3,167 9,123
Other, net (613) (661) (68)
Net cash used in investing
activities
of continuing operations (14,156) (29,804) (35,739)
Discontinued operations:
Capital expenditures (417) (341) (5,233)
Property disposals 1,711 152 248
Net cash provided by (used
in) investing activities of
discontinued operations 1,294 (189) (4,985)
Net cash used in investing
activities (12,862) (29,993) (40,724)
Cash flows from financing activities:
Dividends paid (3,270) (2,616) (2,615)
Net (decrease) increase in borrowings (4,500) 1,500 -
Other, net (167) (855) 44
Net cash used in financing
activities (7,937) (1,971) (2,571)
Decrease in cash and cash equivalents - (500) (1,790)
Cash and cash equivalents at
beginning of year - 500 2,290
Cash and cash equivalents at
end of year $ - $ - $ 500
Supplemental cash flow information:
Interest payments (net of amount
capitalized) $ 8,332 $ 6,331 $8,333
Income tax payments (refunds), net $ 6,673 $ 8,051 ($2,489)
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
Tredegar Industries, Inc., and Subsidiaries
(Dollars in thousands, except per-share amounts)
1. Summary of Significant Accounting Policies
Organization and Operations. Tredegar Industries, Inc., and subsidiaries
("Tredegar") became an independent company on July 10, 1989, when Ethyl
Corporation ("Ethyl") spun off its plastics, aluminum and energy businesses.
During 1993, Tredegar acquired Polestar Plastics, Inc., a custom molder of
precision plastic parts for the medical and electronics markets. During 1992,
Tredegar acquired APPX Software, Inc. (formerly Kennedy & Company) (software),
Folium Plasticos Especiais (plastic film) and Fielden Engineers, Ltd.
(materials handling). These acquisitions were accounted for using the purchase
method; accordingly, the assets and liabilities of the acquired entities have
been recorded at their estimated fair value at the date of acquisition. The
excess of the purchase price over the estimated fair value of the identifiable
net assets acquired is being amortized on a straight-line basis over
periods from 7 to 15 years. The operating results of entities acquired have
been included in the Consolidated Statements of Income since the
date of acquisition.
Basis of Presentation and Principles of Consolidation. The consolidated
financial statements include accounts and operations of Tredegar and all of its
subsidiaries. Intercompany accounts and transactions within Tredegar have been
eliminated. Certain previously reported amounts have been reclassified to
conform to the 1993 presentation.
Cash Equivalents. Cash equivalents consist of cash in excess of daily operating
requirements invested in marketable securities with maturities of three months
or less.
Inventories. Inventories are stated at the lower of cost or market, with cost
principally determined on the last-in, first-out ("LIFO") basis. Other
inventories are stated on either the weighted average cost or the first-in,
first-out basis. Cost elements included in work-in-process and finished goods
inventories are raw materials, direct labor and manufacturing overhead.
Property, Plant and Equipment. Accounts include costs of
assets constructed or purchased, related delivery and installation costs and
interest incurred on significant capital projects during their construction
periods. Expenditures for renewals and betterments also are capitalized, but
expenditures for repairs and maintenance are expensed as incurred. The cost and
accumulated depreciation applicable to assets retired or sold are removed from
the respective accounts, and gains or losses thereon are included in
income.
Property, plant and equipment includes capitalization of interest incurred on
capital projects of $320, $607 and $813 in 1993, 1992 and 1991, respectively.
Depreciation is computed primarily by the straight-line method based on the
estimated useful lives of the assets. Depletion of coal mineral rights and
development costs are computed by the unit-of-production method based on
estimated proven recoverable reserves.
Tredegar follows the successful efforts method of accounting for its oil and gas
exploration and production activities whereby (i) geological and geophysical
costs are expensed as incurred, and (ii) exploratory drilling
costs that result in the discovery of proved reserves and development costs,
including development of dry holes, are capitalized. Depletion of producing oil
and gas properties is computed by the unit-of-production method based on an
estimate of proved recoverable oil and gas reserves. Leasehold costs of
unproved properties are capitalized and amortized on a composite basis at rates
based on past experience and average lease life.
Goodwill and Other Intangibles. Goodwill acquired prior to November 1, 1970
($19,879), is not being amortized. Goodwill acquired subsequently ($19,764,
$19,946 and $18,043 at December 31, 1993, 1992 and 1991, respectively, net of
accumulated amortization), is amortized on a straight-line basis over periods
from 7 to 40 years. Other intangibles ($6,086, $4,752 and $519 at December 31,
1993, 1992 and 1991, respectively, net of accumulated amortization), consisting
primarily of proprietary software technology acquired and the cost of certain
non-competition agreements, are being amortized on a straight-line basis over
periods from 5 to 7 years.
Pension Plans. Annual costs of pension plans are determined
actuarially in compliance with Statement of Financial Accounting
Standards ("SFAS") No. 87, "Employers Accounting for Pensions."
Tredegar's policy is to fund its pension plans at amounts not less than the
minimum requirements of the Employee Retirement Income
Security Act of 1974.
Postretirement Benefits Other Than Pensions. Effective January 1, 1993,
Tredegar adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." SFAS No. 106 requires recognition of the cost of
postretirement benefits during the employees' service periods. Previously, such
expenses were accounted for on a cash basis. Tredegar elected to immediately
recognize the liability for prior years' service as the cumulative effect
of a change in accounting principle. Accordingly, in the first quarter of 1993
Tredegar recorded an unfunded, accumulated postretirement benefit obligation of
$6,695 and a noncurrent, deferred income tax benefit of $2,545, resulting in an
after-tax charge of $4,150. Tredegar's current policy is to fund related
benefits when claims are incurred.
Postemployment Benefits. Tredegar periodically provides certain postemployment
benefits purely on a discretionary basis. Accordingly, under SFAS No.
112, "Employers Accounting for Postemployment Benefits," related costs for these
programs are accrued when it is probable that such benefits will be paid. All
other postemployment benefits are either accrued under current benefit plans or
are not material to Tredegar's financial position or results of operations.
Income Taxes. Effective January 1, 1993, Tredegar adopted SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires the asset and liability
method of accounting for deferred income taxes, whereby enacted statutory tax
rates are applied to the differences between the financial reporting and tax
bases of assets and liabilities. The cumulative effect of this change in
accounting principle was a reduction in deferred income taxes and a
corresponding increase in net income of $4,300 in the first quarter of 1993.
Deferred income taxes were determined under Accounting Principles Board Opinion
No. 11 prior to 1993.
Deferred income taxes arise from temporary differences between financial and
income tax reporting of various items, principally depreciation and accruals for
employee benefits, divestitures, plant shutdowns and environmental remediation.
Software Development Costs. Tredegar, through APPX
Software, a wholly owned subsidiary, is involved in the development and sale of
computer software. Software development costs are accounted for in accordance
with SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed." This statement requires that all costs incurred
to establish the technological feasibility of a computer software product to be
sold, leased or otherwise marketed be considered research and development
costs. Such costs are expensed as incurred. Once technological feasibility is
established, all software development and production costs are capitalized and
subsequently reported at the lower of unamortized cost or net realizable value.
Capitalization is discontinued once software is available for sale or lease.
Capitalized costs are amortized based on current and anticipated future revenues
for each product over periods not exceeding 5 years, with an annual minimum
equal to the straight-line amortization over the estimated remaining life of
the product.
Capitalized software costs are included in "Other assets and deferred charges"
and totaled $433 and $561 at December 31, 1993 and 1992, respectively.
Earnings Per Share. Earnings per share is computed using the weighted average
number of shares of common stock outstanding during the period. For the periods
presented, stock options have an immaterial dilutive effect. The number of
shares used in computing earnings per share were 10,894,802, 10,894,370 and
10,894,357 in 1993, 1992 and 1991, respectively.
2. Discontinued Operations
In November 1993, Tredegar announced that it is pursuing the sale of its coal
subsidiary, The Elk Horn Coal Corporation ("Elk Horn"). Assuming Elk Horn
can be sold on terms agreeable to Tredegar, the sale is expected to be
completed by mid-1994, and a gain is expected to be recognized. In addition, on
February 4, 1994, Tredegar sold its remaining oil and gas properties for
approximately $8,000. This transaction resulted in a gain of approximately
$6,100 ($3,900 after income taxes), which will be recognized in 1994. As a
result of the potential sale of Elk Horn and the sale of Tredegar's remaining
oil and gas properties, the Energy segment is being reported as discontinued
operations. Accordingly, information about results of operations, financial
condition, cash flows and industry segments has been reclassified
where appropriate.
Results from continuing operations are not indicative of future performance
because they exclude income that would be generated from reinvestment of
divestiture proceeds. Tredegar expects to use these proceeds to repay
outstanding borrowings under its revolving credit agreement, with remaining
proceeds invested until opportunities, in existing businesses or elsewhere,
are identified.
The combined statements of income and net assets of the
discontinued Energy segment are presented below:
Combined Statements of Income
Discontinued Energy Segment (Unaudited)
Years Ended December 31 1993 1992 1991
Revenues:
Net sales $33,431 $32,859 $34,283
Other expenses, net (13) (2) (8)
Total 33,418 32,857 34,275
Costs and expenses:
Cost of goods sold 20,381 19,355 25,276
Selling, general &
administrative 3,424 3,253 3,333
Interest allocated 653 661 785
Unusual items (1,424) - -
Total 23,034 23,269 29,394
Income from discontinued operations
before income taxes 10,384 9,588 4,881
Income taxes 3,600 3,793 1,777
Income from
discontinued operations $ 6,784 $ 5,795 $ 3,104
Combined Statement of Net Assets
Discontinued Energy Segment (Unaudited)
December 31 1993 1992
Current assets:
Accounts and notes receivable $ 6,173 $ 6,910
Inventories 6,695 3,763
Total current assets 12,868 10,673
Property, plant and equipment:
Land and land improvements 2,477 2,428
Buildings 471 470
Machinery and equipment 930 982
Coal lands 29,502 22,846
Oil and gas properties 8,782 9,152
Total property, plant & equipment 42,162 35,878
Less accumulated depreciation and
depletion 12,958 12,750
Net property, plant and equipment 29,204 23,128
Deferred income taxes - 1,499
Other assets and deferred charges 184 158
Total assets 42,256 35,458
Current liabilities:
Accounts payable 1,653 2,259
Accrued expenses 3,308 2,640
Total current liabilities 4,961 4,899
Deferred income taxes 5,434 -
Other noncurrent liabilities 885 755
Total liabilities 11,280 5,654
Net assets of discontinued operations $30,976 $29,804
Transactions between Tredegar and the Energy segment are reflected in the
combined financial statements as though they are settled immediately and there
are no amounts due to or from Tredegar at the end of any period. All of the
Energy segment's full-time employees participate in Tredegar's noncontributory
defined benefit plan for salaried employees. These employees also participate
in Tredegar's welfare (medical, life and disability) and savings plans.
Accordingly, related costs have been allocated to discontinued operations.
Interest expense was allocated to discontinued operations based upon the ratio
of the Energy segment's capital employed (net assets) to Tredegar's consolidated
capital employed.
For federal income tax purposes, results of the Energy segment's operations have
been included in Tredegar's consolidated tax return. The Energy segment's
provision for income taxes represents its allocated share of Tredegar's income
tax expense. The allocated share approximates income tax expense that would have
been incurred had the Energy segment (i) filed a separate consolidated tax
return, and (ii) separately computed income taxes in accordance with SFAS No.
109 in 1993 and Accounting Principles Board Opinion No. 11 prior to 1993.
Unusual items totaling $1,424 in 1993 include gains on the sale of certain oil
and gas properties. The significant changes in coal lands and deferred income
taxes from December 31, 1992 to December 31, 1993, were due to the write-up of
coal lands to their pretax amount in accordance with SFAS No. 109.
Under a new law (the Coal Industry Retiree Health Benefit Act of 1992) (the
"Act"), assigned operators (former employers) are responsible for a portion of
the funding of medical and death benefits of certain retired miners and
dependents of the United Mine Workers of America. Elk Horn was notified in
October 1993 that it is responsible for 57 retirees and 143 dependents
under the Act. In accordance with applicable pronouncements, premiums of $371
have been charged to Elk Horn's operating results in 1993. Based upon an
actuarial valuation, Tredegar estimates that the present value of the
unfunded obligation amounts to approximately $6,000 ($3,720 after income taxes).
Should Tredegar sell Elk Horn and retain the obligations under the Act, the
expected gain will be reduced accordingly.
3. Industry Segments
See pages 19 to 24 for net sales, operating profit, identifiable assets
and related information about Tredegar's industry segments that are presented
for the years 1989-1993. The discussion of segment information is unaudited.
4. Accounts and Notes Receivable
Accounts and notes receivable consist of:
December 31 1993 1992
Trade, less allowance for doubtful accounts
and sales returns of $3,216 and $3,291
in 1993 and 1992 $69,051 $61,213
Other 1,122 924
Total $70,173 $62,137
5. Inventories
Inventories consist of the following:
December 31 1993 1992
Finished goods $ 5,735 $ 4,699
Work-in-process 5,298 4,380
Raw materials 15,497 15,132
Stores, supplies and other 7,681 7,147
Total $34,211 $31,358
Inventories stated on the LIFO basis amounted to $15,044 and $15,748 at December
31, 1993 and1992, respectively, which are below replacement costs by
approximately $10,590 and $10,564, respectively.
6. Net Assets Held For Sale
Included in "Other assets and deferred charges" are net assets held for sale,
primarily land and buildings related to closed facilities, totaling $3,605 and
$2,609 as of December 31, 1993 and 1992, respectively. Such assets are stated at
estimated net realizable value and are expected to be sold over the next 1 to 2
years. At December 31, 1992, current assets included net assets held for sale
totaling $1,721, which were sold during 1993.
7. Investments
On February 15, 1991, Tredegar, through a subsidiary, entered into a Stock and
Warrant Purchase Agreement (the "Agreement") with Emisphere Technologies,
Inc. ("Emisphere"), a pharmaceutical research and development organization that
is developing an oral delivery system for drugs currently administered by
injection. Pursuant to the Agreement, during 1991 and 1992, Tredegar purchased
428,571 unregistered shares of Emisphere common stock for $7 per share.
Tredegar also purchased 112,500 registered shares of Emisphere common stock for
$8 per share in 1991. In total, Tredegar acquired 541,071 shares of Emisphere's
common stock for $3,900.
In 1992, Tredegar sold its 112,500 registered shares for $1,992 and recognized a
pretax gain of $1,092 ($680 after income taxes). In 1993, Tredegar sold its
remaining 428,571 shares for $5,263 and recognized a pretax gain of $2,263
($1,410 after income taxes). In total, Tredegar received $7,255 for its $3,900
investment in Emisphere common stock, resulting in a pretax gain of $3,355
($2,090 after income taxes).
As of December 31, 1993, Tredegar, through a subsidiary, owned 5% of a venture
capital limited partnership. Tredegar's total capital commitment is $2,000, with
$800 invested as of December 31, 1993. Additional contributions of $1,200 are
expected to be made over the next two years but will not exceed $667 in any 12-
month period.
8. Goodwill and Other Intangibles
Goodwill and other intangibles, and the related accumulated amortization, are as
follows:
December 31 1993 1992
Goodwill and other intangibles $60,185 $53,135
Additions 3,858 8,626
Write-offs & disposals - (1,576)
Subtotal 64,043 60,185
Accumulated amortization (18,314) (15,608)
Net $45,729 $44,577
9. Accrued Expenses
Accrued expenses consist of the following:
December 31 1993 1992
Workmen's compensation and disabilities $ 6,094 $ 5,597
Payrolls, related taxes and medical and
other benefits 6,036 7,098
Vacation 5,298 5,332
Environmental 4,293 5,909
Divestitures 2,709 5,812
Other 10,950 10,848
Total $35,380 $40,596
10. Debt and Credit Agreements
Long-term debt consists of:
December 31 1993 1992
Borrowings under short-term variable-
rate credit arrangements $ 6,000 $ 6,500
Variable-rate revolving loan due in 1996 20,000 24,000
Variable-rate term loan due in 1997 35,000 35,000
7.2% note to institutional lender due
in 2003 35,000 -
8.6% note to institutional lender - 35,000
Other 1,000 1,000
Total $97,000 $101,500
At December 31, 1993 and 1992, $6,000 and $6,500, respectively, were borrowed
under short-term credit arrangements at average interest rates of 3.8% and
5.1%, respectively. The balances outstanding in each year were classified as
long-term debt in accordance with Tredegar's intention and ability to refinance
such obligations on a long-term basis.
On June 16, 1993, Tredegar paid a $1,800 ($1,115 after income taxes) prepayment
premium to an institutional lender to refinance its $35,000, 8.6% fixed-rate
debt that was due in September 1994. The new note carries a fixed rate of 7.2%
and matures in June 2003. Annual principal payments of $5,000 will begin in
1997. Tredegar estimates that the carrying value of its fixed-rate note
approximated its fair value at December 31, 1993.
During the third quarter of 1993, Tredegar's variable-rate revolving credit
agreement was amended to increase the maximum debt allowed under such agreement
from $150,000 to $180,000. The maturity date under the agreement was extended by
one year to June 16, 1996. The agreement provides for a commitment fee of .375%
on the unused amount. The agreement also provides for extensions of the
maturity date in one-year increments. The interest rate on the revolving loan
was 4% and 4.4% at December 31, 1993 and 1992, respectively.
During 1992, Tredegar borrowed $35,000 under a variable-rate term loan due on
June 7, 1997. The interest rate on the term loan was 4.4% and 4.9% at December
31, 1993 and 1992, respectively.
The weighted average interest rate on all variable-rate loans outstanding
during the year was 4.2% in 1993, compared with 4.9% in 1992.
Tredegar's loan agreements contain restrictions, among others, on the payment
of cash dividends. At December 31, 1993, $37,415 was available for cash
dividend payments.
11. Shareholder Rights Agreement
Pursuant to a Rights Agreement dated as of June 15, 1989 (as amended), between
Tredegar and American Stock Transfer and Trust Company as Rights Agent (the
"Rights Agreement"), one Right is attendant to each share of Tredegar common
stock. Each Right entitles the registered holder to purchase from Tredegar
one one-hundredth of a share of Participating Cumulative Preferred Stock,
Series A (the "Preferred Stock"), at an exercise price of $50 (the "Purchase
Price"). The Rights will become exercisable, if not earlier redeemed, only if
a person or group acquires 10% or more of the outstanding shares of Tredegar
common stock or announces a tender offer, the consummation of which would
result in ownership by a person or group of 10% or more of Tredegar common
stock. Any action by a person who, together with his associates and affiliates,
owned 10% or more of the outstanding shares of Tredegar common stock on
July 10, 1989, cannot cause the Rights to become exercisable.
Each holder of a Right, upon the occurrence of certain events, will become
entitled to receive, upon exercise and payment of the Purchase Price, Preferred
Stock (or in certain circumstances, cash, property or other securities of
Tredegar or a potential acquirer) having a value equal to twice the amount of
the Purchase Price.
The Rights will expire on June 30, 1999.
12. Stock Option Plans
Tredegar has two stock option plans whereby stock options may be granted to
purchase a specified number of shares of Tredegar common stock at a price not
less than the fair market value on the date of grant and for a term not to
exceed 10 years. In addition to the stock options, recipients may also be
granted stock appreciation rights ("SARs") and restricted stock.
Activity for 1991-1993 is shown at the bottom of this page.
At December 31, 1993 and 1992, options to purchase 452,352 and 247,473 shares,
respectively, were exercisable and 752,900 and 761,900 shares, respectively,
were available for grant.
Stock Option Plan Information Number of Shares Option Price
Options SARs Per Share Aggregate
Outstanding at December 31, 1990 351,100 351,100 $16.7045 $5,865
Lapsed in 1991 (47,600) (47,600) $16.7045 (795)
Outstanding at December 31, 1991 303,500 303,500 $16.7045 5,070
Granted in 1992 210,000 192,000 $12.125 to $17.00 2,627
Lapsed in 1992 (25,400) (25,400) $16.7045 (424)
SARs exercised in 1992 (1,500) (1,500) $16.7045 (25)
Outstanding at December 31, 1992 486,600 468,600 $12.125 to $17.00 7,248
Granted in 1993 20,000 - $12.875 258
Lapsed in 1993 (11,000) (11,000) $16.7045 (184)
SARs exercised in 1993 (6,000) (6,000) $12.125 to $16.7045 (89)
Outstanding at December 31, 1993 489,600 451,600 $12.125 to $17.00 $7,233
13. Rental Expense and Contractual Commitments
Rental expense was $2,936, $2,026 and $1,539 for 1993, 1992 and 1991,
respectively. Rental commitments under all noncancelable operating leases
as of December 31, 1993, are as follows:
1994 $ 2,883
1995 2,535
1996 1,930
1997 1,112
1998 974
Remainder 2,475
Total $11,909
Contractual obligations for plant construction and purchases of real property
and equipment amounted to approximately $2,029 and $2,062 at December 31, 1993
and 1992, respectively.
14. Retirement Plans & Other Postretirement Benefits
Tredegar has noncontributory defined benefit plans covering most employees. The
plans for salaried and hourly employees currently in effect are based on a
formula using the participant's years of service and compensation or using the
participant's years of service and a dollar amount. Plan assets consist
principally of common stock and U.S. government and corporate obligations.
The components of net pension income for Tredegar's plans for 1993, 1992 and
1991 are as follows:
1993 1992 1991
Return on plan assets:
Actual return $18,557 $7,509 $18,000
Expected return greater
(lower) than actual (8,097) 2,327 (8,191)
Expected return 10,460 9,836 9,809
Amortization of transition asset 1,231 1,231 1,235
Service cost (benefits earned
during the year) (3,072) (3,139) (2,953)
Interest cost on projected
benefit obligation (6,515) (6,104) (5,685)
Amortization of prior service costs (805) (738) (729)
Curtailment loss recognized - - (230)
Net pension income $ 1,299 $ 1,086 $ 1,447
The following table presents a reconciliation of the funded status of Tredegar's
pension plans at December 31, 1993, 1992 and 1991, to prepaid pension expense:
1993 1992 1991
Plan assets at fair value $130,603 $116,587 $111,714
Actuarial present value
of benefit obligations:
Accumulated benefit obligation
(including vested benefits of
$85,828, $65,400 and
$60,437, respectively) (89,221) (68,469) (63,868)
Projected compensation
increase (11,225) (15,209) (15,470)
Projected benefit obligation (100,446) (83,678) (79,338)
Plan assets in excess of projected
benefit obligation 30,157 32,909 32,376
Unrecognized net gain (11,736) (14,475) (15,508)
Unrecognized transition asset
being amortized principally
over 16 years (6,687) (7,918) (9,149)
Unrecognized prior service costs
being amortized 5,464 5,631 6,273
Prepaid pension expense $17,198 $16,147 $13,992
Prepaid pension expense of $17,198 and $16,147 is included in "Other assets and
deferred charges" in the consolidated balance sheets at December 31, 1993 and
1992, respectively.
Net pension income and plan obligations are calculated using assumptions of
discount rates on projected benefit obligations, rates of projected increases in
compensation, and expected rates of return on plan assets. The discount rate on
projected benefit obligations was assumed to be 7% at December 31, 1993, and 8%
at December 31, 1992 and 1991. The rate of projected compensation increase was
assumed to be 5% at December 31, 1993, and 5.5% at December 31, 1992 and 1991.
The expected long-term rate of return on plan assets was assumed to be 9% each
year. Net pension income is determined using assumptions as of the beginning of
each year. Funded status is determined using assumptions as of the end of each
year.
In December 1993, Tredegar established a non-qualified supplemental pension plan
covering certain employees. The plan is designed to restore all or a part of the
pension benefits that would have been payable to designated participants from
Tredegar's principal pension plans if it were not for limitations imposed by
income tax regulations. The projected benefit obligation relating to this
unfunded plan ($612 at December 31, 1993) is being amortized over the average
remaining working life of participants in the plan (approximately $100
annually).
In addition to providing pension benefits, Tredegar provides postretirement life
insurance and health care benefits for certain groups of employees. Tredegar and
retirees share in the cost of postretirement health care benefits, with
employees retiring after July 1, 1993, receiving a fixed subsidy from Tredegar
to cover a portion of their health care premiums. Effective January 1, 1993,
Tredegar adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (see Note 1 on page 32). In accordance with the
new standard, prior years' financial statements have not been restated.
Previously, such expenses were accounted for on a cash basis.
The components of net periodic postretirement benefit cost are
as follows:
1993
Service cost (benefits earned during the year) $186
Interest cost on accumulated postretirement
benefit obligation 492
Net postretirement benefit cost $678
The following table presents a reconciliation of the funded status of Tredegar's
postretirement life insurance and health care benefit plans at December 31, 1993
and January 1, 1993, to accrued postretirement benefit cost:
1993 1993
Plan assets at fair value $ - $ -
Accumulated postretirement benefit
obligation (APBO):
Retirees (3,001) (3,411)
Other fully eligible participants (2,408) (1,749)
Other active participants (1,755) (1,535)
Total APBO (7,164) (6,695)
APBO in excess of plan assets (7,164) (6,695)
Unrecognized gain (52) -
Accrued postretirement benefit cost ($7,216) ($6,695)
Accrued postretirement benefit cost of $7,216 is included in "Other noncurrent
liabilities" in the consolidated balance sheet at December 31, 1993.
The discount rate used in determining the accumulated postretirement benefit
obligation was 7% at December 31, 1993, and 8% at January 1, 1993. The rate of
annual pay increase for life insurance benefits was assumed to be 5% at December
31, 1993, and 5.5% at January 1, 1993. A 14% and 11.2% annual rate of increase
in the per-capita cost of covered health care benefits was assumed at December
31, 1993, for the indemnity and managed care plans, respectively. A 15% and 12%
annual rate of increase in the per-capita cost of covered health care benefits
was assumed at January 1, 1993, for the indemnity and managed care plans,
respectively. The rates were assumed to decrease gradually to 6% and 5%,
respectively, in year 2002 and remain at that level thereafter. Net
postretirement benefit cost is determined using assumptions as of the beginning
of each year. Funded status is determined using assumptions as of the end of
each year.
If the health care cost trend rate assumptions were changed by 1%, the
accumulated postretirement benefit obligation as of December 31, 1993,
would be changed by approximately $25. The effect of this change on the sum of
the service cost and interest cost components of net periodic postretirement
benefit cost for 1993 would be immaterial.
15. Savings Plan
Tredegar has a savings plan whereby eligible employees may voluntarily
contribute a percentage of their compensation. Under the provisions of the plan,
Tredegar matches a portion of the employee's contribution to the plan with
shares of Tredegar common stock. Contributions accrued by Tredegar in 1993,
1992 and 1991, amounted to $2,146, $1,818 and $2,121, respectively.
16. Income Taxes
Effective January 1, 1993, Tredegar adopted SFAS No. 109, "Accounting for Income
Taxes," which requires use of the asset and liability method of accounting for
deferred income taxes (see Note 1 on page 32). As permitted under the new
standard, prior years' financial statements have not been restated. Deferred
income taxes were determined under Accounting Principles Board Opinion No. 11
for years prior to 1993.
Income from continuing operations before income taxes and
income taxes are as follows:
1993 1992 1991
Income from continuing operations
before income taxes:
Domestic $4,460 $13,307 $3,252
Foreign 2,465 2,635 735
Total $6,925 $15,942 $3,987
Current income taxes:
Federal $2,190 $ 5,423 ($621)
State 759 919 849
Foreign 1,671 181 141
Total 4,620 6,523 369
Deferred income taxes:
Federal (848) (378) 1,520
State (197) (222) (537)
Foreign (721) 502 116
Adjustment for 1% increase in
federal statutory rate 348 - -
Total (1,418) (98) 1,099
Total income taxes $3,202 $ 6,425 $1,468
The significant differences between the U.S. federal statutory rate and the
effective income tax rate for continuing operations are as follows:
Percent of Income from Continuing
Operations Before Income Taxes
Years Ended December 31 1993 1992 1991
Income tax expense at federal
statutory rate 35.0 34.0 34.0
State taxes, net of federal
income tax benefit 5.3 2.9 5.2
Foreign Sales Corporation (3.1) (3.6) (13.6)
Adjustment of deferred income
taxes for 1% increase in
federal statutory rate 5.0 - -
Research and development tax
credit (5.8) - -
Goodwill amortization 5.1 1.0 3.8
Accelerated write-off of
certain goodwill - 2.5 -
Other items, net 4.7 3.5 7.4
Effective income tax rate 46.2 40.3 36.8
Deferred income taxes result from temporary differences between financial and
income tax reporting of various items. The source of these differences and the
tax effects for continuing operations were as follows:
1993 1992 1991
Depreciation ($2,002) $1,176 ($1,461)
Divestitures, plant shutdowns
and environmental accruals 1,229 (846) 2,992
Employee benefits 309 (132) (310)
Other items, net (954) (296) (122)
Total ($1,418) ($98) $1,099
Deferred tax liabilities and deferred tax assets as of December 31, 1993 and
January 1, 1993, reflecting the adoption of SFAS No. 106 and 109, are as
follows:
December 31, January 1,
1993 1993
Deferred tax liabilities:
Depreciation $16,982 $18,984
Pensions 6,642 5,854
Other 2,442 3,776
Total deferred tax liabilities 26,066 28,614
Deferred tax assets:
Employee benefits 7,899 7,420
Environmental accruals 1,697 2,174
Divestitures 1,279 2,031
Inventory 1,441 1,332
Allowance for doubtful accounts and
sales returns 1,169 1,201
Alternative minimum tax credit
carryforward 524 732
Other 504 601
Total deferred tax assets 14,513 15,491
Net deferred tax liability $11,553 $13,123
Included in the balance sheet at December 31,1993:
Noncurrent deferred tax liabilities
in excess of assets $23,108
Current deferred tax assets in excess
of liabilities 11,555
Net deferred tax liability $11,553
17. Unusual Items
In 1993, unusual items totaling $452 include estimated costs related to the
planned disposal of a Film Products plant in Flemington, New Jersey ($1,815),
and the reorganization of corporate functions ($900), partially offset by a gain
on the sale of Tredegar's remaining investment in Emisphere ($2,263) (see Note 7
on page 35).
In 1992, unusual items totaling $90 include the accelerated write-off of certain
goodwill associated with the restructuring of Molded Products ($1,182) partially
offset by the gain on the sale of a portion of Tredegar's investment in
Emisphere ($1,092) (see Note 7 on page 35).
In 1991, the decisions to close the Pomona, California, and LaGrange, Kentucky,
Molded Products plants and to sell the Pittsfield, Massachusetts, tooling plant
resulted in unusual charges to earnings totaling $4,412. Management's decision
in 1991 to continue to operate Fiberlux resulted in a $2,797 reversal of the
unusual charge accrued in 1990. In addition, a gain on the sale of the
Molded Products beverage closure business of $894 is reflected in unusual items
in 1991.
18. Contingencies
Tredegar is involved in various stages of investigation and clean up relating
to environmental matters at certain of its plant locations. Where management
has determined the nature and scope of any required environmental cleanup
activity, estimates of cleanup costs have been obtained and accrued. As
management continues its efforts to assure compliance with environmental laws
and regulations, additional contingencies may be identified. If additional
contingencies are identified, it is management's practice to determine the
nature and scope of such contingencies, obtain and accrue the estimated cost of
remediation, and begin remediation. While it is not possible to predict the
course of ongoing environmental compliance activities, management does not
currently believe that additional costs that could arise from such activities
will have a material adverse effect on Tredegar's financial position; however,
such costs could have a material adverse effect on quarterly or annual
operating results when resolved in a future period.
Tredegar is involved in various other legal actions arising in the normal
course of business. After taking into consideration legal counsels' evaluation
of such actions, management believes that Tredegar has sufficiently accrued for
possible losses and that these actions will not have a material adverse effect
on Tredegar's financial position; however, the resolution of such actions in a
future period could have a material adverse effect on quarterly or annual
operating results at that time.
Tredegar Industries, Inc., is a diversified manufacturer of plastics and metal
products. Tredegar also has interests in energy, computer software and rational
drug design research.
Annual Meeting
The annual meeting of shareholders of Tredegar Industries, Inc., will be held on
Thursday, May 26, 1994, beginning at 9:00 a.m. E.D.T. at the Atlanta Airport
Hilton and Towers in Atlanta, Georgia. Formal notices of the annual meeting,
proxies and proxy statements will be mailed to shareholders on or before March
31.
Corporate Headquarters
1100 Boulders Parkway
Richmond, Virginia 23225
804-330-1000
Number of Employees
Approximately 3,500
Counsel
Hunton & Williams
Richmond, Virginia
Independent Accountants
Coopers & Lybrand
Richmond, Virginia
Stock Listing
New York Stock Exchange
Ticker Symbol: TG
Transfer Agent and Registrar
American Stock Transfer & Trust Company
New York, New York
Inquiries
Inquiries concerning stock transfers, dividend reinvestment, consolidating
accounts, changes of address, or lost or stolen stock certificates should be
directed to:
American Stock Transfer & Trust Company
Shareholder Services Department
40 Wall Street - 46th Floor
New York, New York 10005
Telephone: 212-936-5100
All other inquiries should be directed to:
Tredegar Industries, Inc.
Corporate Communications Department
1100 Boulders Parkway
Richmond, Virginia 23225
Telephone: 804-330-1044
Dividend Information
During 1993 and 1992, the Board of Directors declared quarterly dividends of
$.06 per share, or $.24 per share on an annual basis. All decisions with
respect to payment of dividends will be made by the Tredegar Board of Directors
based upon Tredegar's earnings, financial condition, anticipated cash needs and
such other considerations as the Board deems relevant. See Note 10 of Notes to
The Financial Statements on page 35 for details of restrictions on dividends.
Market Prices of Common Stock and Shareholder Data
The following table shows the reported high and low closing prices of
Tredegar's common stock by quarter for the past two years.
1993 1992
High Low High Low
First Quarter 18 15 14 1/2 10
Second Quarter 16 3/8 13 18 1/4 13 3/8
Third Quarter 13 7/8 12 1/2 18 5/8 13 5/8
Fourth Quarter 15 3/8 12 7/8 16 3/4 13 1/2
Tredegar has no preferred stock outstanding.
There were 10,895,611 shares of common stock held by 8,165 shareholders of
record on January 31, 1994.
Plants, Facilities and Offices
Corporate Headquarters:
Richmond, Virginia
Tredegar Film Products:
Carbondale, Pennsylvania
Flemington, New Jersey
Fremont, California
LaGrange, Georgia
Manchester, Iowa
New Bern, North Carolina
Tacoma, Washington
Terre Haute, Indiana (2)
(plant and technical center)
Kerkrade, the Netherlands
Sao Paulo, Brazil
Molded Products:
Alsip, Illinois
Excelsior Springs, Missouri
South Grafton, Massachusetts
St. Petersburg, Florida (3)
(2 plants and technical center)
Phillipsburg, Pennsylvania
State College, Pennsylvania
Fiberlux:
Pawling, New York
Purchase, New York (headquarters)
South Bend, Indiana
Aluminum Extrusions:
Carthage, Tennessee
Kentland, Indiana
Newnan, Georgia
Brudi:
Ridgefield, Washington
Kelso, Washington
Adelaide, Australia
Halifax, United Kingdom
Elk Horn Coal:
Prestonsburg, Kentucky
APPX Software, Inc.:
Richmond, Virginia
Molecumetics, Ltd.:
Bellevue, Washington