Tredegar Corp (TG) 2002 Q1 法說會逐字稿

Good morning ladies and gentlemen and welcome to Tredegar Corporation's First Quarter Earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star zero on your touch tone telephone. As a reminder, the conference call is being recorded. I would now like to introduce , Tredegar's Vice President of Investor Relations who is your host for today's conference. Mr. Cunningham, you may begin your conference.

Thanks Carmen. Good mornign everyone and welcome to our conference call. Today's call includes several of our senior managers. Joining us from Richmond are Norm Scher, President and Chief Executive Officer; Doug Monk, Chief Operating Officer; Drew Edwards, Vice President of Finance and Treasurer; Tom Cochran, President of Tredegar Film Products is joining us from Hong Kong; and , President of our Aluminum Business is joining us from , Georgia.

Here's the agenda for today's call. I'll begin with a brief overview of yesterday's earnings release. Norm Scher will follow with some general comments. Next, Tom Cochran and Bill Wetmore will discuss operating results in films and aluminum and Drew Edwards will close with some comments on cash flow and financial condition. This should only take about 15 minutes and then we'll open it up for questions.

Before proceeding, we offer the following cautionary statement. The comments we make today in responses to your questions may contain forward looking statements. Information concerning factors that could cause actual results to differ materially from those contained in such forward looking statements is included in our Annual Report on Form 10K which has been filed with the SEC for the year ended December 31, 2001.

I'll begin with a summary of earnings by business segment. For those of you who have our press release, I'm referring to the table on page one. Total revenues for the quarter were $174.2 million, down from last year's first quarter as both films and aluminum had sales declines in the 8 to 9 percent range. On a gap reporting basis, first quarter net income was $583,000 or 2 cents per share, down from $1.9 million or 5 cents per share in 2001. Figures from both periods include results from manufacturing operations, Tredegar Biotech, Tredegar Investments and unusual items. Results from this year's first quarter also include a positive impact of two cents per share related to the eliminate of goodwill amortization. Our films business was the primary beneficiary of this impact. Excluding unusual items, net earnings from manufacturing operations were $13.1 million or 34 cents per share. And increase of about 20 percent over last year's earnings of $10.8 million or 28 cents per share. Tredegar Biotech posted a net loss of $4.7 million or 12 cents per share versus last year's first quarter net loss of $2.6 million or 7 cents per share. Tredegar Investments generated a net loss of $7.2 million or 18 cents per share versus last loss of $5.3 million or 13 cents. Net unusual items in the quarter totaled $637,000 or 2 cents per share and were related to previously announced plant closings. Last year we had unusual items of $1 million or 3 cents per share. From this point on, unless otherwise noted, the comments we're making in today's call will exclude the impact of unusual items.

The year over year improvement in manufacturing operations was driving entirely by our films business where pre-tax operating profit rose 20 percent to $18.1 million. If you exclude $900,000 related to the positive impact on the elimination of good will expense, profits in films were still up about 14 percent over last year. Tom Cochran will provide more details in a few minutes.

In aluminum, pre-tax operating profits fell 16 percent to $5.4 million, as this business continued to be affected by generally weak economic conditions. Bill Wetmore will update you on what we hope is an improving outlook in this business. Pre-tax income was also helped by a $1.7 million reduction in net interest expense which was partially offset by lower pension income.

I'm now going to turn it over to our Chief Executive Officer, Norm Scher.

Thanks Ed. Good morning everyone and thanks for taking the time to listen in. Before getting into the details of the quarter, I'd like to make some general comments. In regard to earnings, we're very pleased with the improvement in the performance of our films business which continued to deliver profit growth while navigating a critical transition in its product mix.

Our aluminum business had another down quarter, but we're beginning to see some signs of improving demand in our end markets. It's still too early to tell. But we hope that the worst effects of the economic slowdown are now behind us.

I'd like to depart from earnings for just a moment. As most of you know, on March 22nd, we announced our intent to divest our two biotech units, Molecumetics and Therics. Our goal is to complete these divestitures by year end and hopefully sooner. This is a very significant decision for us, a decision that we think is the best route to creating additional value for our shareholders. We also feel that the value and growth potential of the divested businesses should be more quickly realized as part of a biotech industry player.

Last year, Tredegar Biotech had an after-tax loss of about 14 million, which equates to a loss of 36 cents per share. And this year's first quarter, after-tax loss was 4.7 million, or 12 cents a share. Upon completing these divestitures, our cash flow will no longer be diluted by the expenses associated with biotech R&D.

More important, we believe our films and aluminum businesses have significant opportunities to grow profits from current levels. New products, new customers, and continued global expansion should drive growth in films. And we think our aluminum business will respond well to improved economic conditions.

Looking ahead to the second quarter and the rest of 2002, if we continue to execute on our strategies and if the economy cooperates, we should be able to deliver year-over-year earnings growth in our manufacturing businesses. In summary, by focusing our resources on becoming a market-driven, process-managed manufacturing company, we hope to deliver consistent growth in earnings and cash flow. We should also be easier to understand and value. Hopefully, this will enable us to attract a broader group of investors than we have in the past.

Now, I'm to turn it over to Tom Cochran, President of Tredegar Film Products, and, as you know, Tom is in Hong Kong. It's becoming fairly late in China. Tom, are you still with us?

I'm here, Norm. Thanks. Good morning, everyone.

First quarter sales in film products were down about eight percent on level volume. The sales decline was due primarily to raw material driven price declines. Operating profit improved to 18.1 million, up about 14 percent over last year when you exclude the effects of goodwill amortization.

This profit growth continues our recent trend, with solid execution and cost reductions more than offsetting the decline of domestic diaper backsheet sales. We're now generating higher profits from an improving product and customer mix, as well as increasing operating efficiencies.

Our strategy of selling value-added specialty hygiene components to an expanding global customer base is driving the mix improvement. We are now selling these products to all of the major global consumer product companies, as well as many regional and private label producers of diapers and sanitary pads. This shift in our product and customer mix, combined with increased operating efficiencies has helped improve operating margins, which, after being depressed from late 1999 to 2001, have returned to our historical range in the mid- to high teens.

Our expansion efforts in Europe and Asia are going well. In Hungary, we have doubled both our feminine pad topsheet and breathable film capacity, and we have successfully integrated the late 2000 acquisition of ADMA Promea in Italy. To serve Asian markets, we recently opened a new factory in Shanghai and achieved profitability within the first year. We are gaining new customers in both Europe and Asia, and expect further profit growth in both regions.

In summary, we're very pleased that we have been able to grow profits during this period of transition in our product mix. Looking out at the balance of 2002, we hope to continue this trend of year-over-year profit growth despite little or no expected growth in revenue. Longer term, we believe our strategy will drive a resumption in revenue growth and further profit improvement.

That's it for films. Next up is Bill Wetmore, President of our Aluminum Extrusions Division.

Thanks, Tom, and good morning to everybody.

First quarter sales in aluminum were $84.7 million, and that's down approximately nine percent. Now, about half of this decline was due to lower volume, and the other half was due to lower selling prices. And basically, all this was, again, driven by our weak economic conditions, and Norm mentioned. And these continue to affect us in our various end markets. The negative impact of these conditions was partially offset by lower metal costs, which accounted for about 75 percent of the decline in the selling prices that I mentioned.

Now, operating profit was $5.4 million for the quarter, and that's down from the $6.4 million last year, but it's up from the $1.7 million in the fourth quarter. Unfortunately, we began 2002 with a much lower backlog of business than we had at the beginning of 2001, so that hurt us somewhat.

While first -- while first quarter results were disappointing, we are beginning to see some improvement in customer orders, shipments, and, therefore, operating margins. And we ended the quarter with a significantly higher backlog than we started with. So this type of pickup really supports our view that the worst of the economic downturn may be behind us. And in talking with most of our customers, we're hearing pretty much the same things, and I think most of you all know though that still -- jury's still very much out as far as the strength of the recovery, so that's something we've got to keep our eye on.

And as we've always noted in the past, ours is clearly a cyclical business, so the outlook for the rest of the year really depends on your view of the economy. Right now, we think business will continue to improve, but it will still be a challenge to deliver second quarter profits that match last year's level of $10.2 million.

But regardless of the economy, we're working hard to improve efficiencies and reduce costs, and we've made a lot of progress here. A good example is the shutdown of our El Campo, Texas, facility. And that was completed at the end of last year. And most of that business -- and we targeted about 75 percent of that total business -- was transferred to other plants where it's being produced at a lower cost.

In summary, I do think we'll learn a lot about the strength of the economy during this current quarter, and, therefore, what the near-term outlook is for our business. As I have said, it will be difficult to meet last year's second quarter profits, but if the economy cooperates, we hope to see improving profits in the third and the fourth quarter. But if the economy doesn't cooperate, then really, all bets are off.

I'll now turn it over to Drew Edwards, Vice President, Finance and Treasurer, who will cover cash flow and financial conditions. Drew?

Thanks, Bill.

If you have our press release, please turn to the cash flow table on page nine. This is a new table that we added to the earnings release. It splits our consolidated cash flow statement into manufacturing, biotech, and venture capital components. From this table, you can see that our manufacturing operations generated after-tax cash flow of 19 million in 2000, 58 million in 2001, and $11 million in the first quarter of this year.

At March 31, we had debt of $264 million and cash of $99 million for overall net debt of 165 million, or 1.4 times our last 12 months manufacturing . This ratio is indicative of companies classified in the investment grade category. We are close to completing a $100 million, 364-day credit facility to replace the revolver, but we don't expect any draw downs at this point, given our current cash position. The new facility is expected to have to total capitalization limitation of 50 percent. At March 31, this ratio for Tredegar was 36 percent.

This short-term facility is an interim step to a longer-term refinancing that we plan to initiate once Molecumetics and Therics are divested and our post-divestiture cash position becomes clear. The divestiture of Molecumetics and Therics should improve our overall credit and financing profile.

That's it for my presentation. Now, let's open it up for questions.

Thank you. Ladies and gentlemen, if you have a question at this time, please press star, one on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press star, two. If you are using a speaker phone, please lift the handset before asking your question. Again, if you have a question at this time, please press star, one on your touch-tone telephone. One moment please for your first question.

Your first question is from of .

Good morning.

Hi, .

Hey, .

I got a small question and then a larger one. Remind us what the -- you anticipate the funding commitments for the venture capital portfolio to be this year.

, this is Drew. We have $35 million of firm commitment still left for other VC funds. We expect that to be funded over the next two years. We also are funding, on a discretionary basis, some follow-on investments in our direct portfolio, and at this point, we expect that to be a minor amount.

I did notice, if I read this right though, that in the first quarter, we net -- well, we net put money in, but only a little bit.

Yes, we did.

My broader question is your balance sheet is good. Assuming we sell the biotech companies, a significant cash drain is gone. You got capital spending you're talking about of 40 million versus depreciation of 30. At some point, you will have money coming in from net liquidation of this 160 million in venture capital, and yet I don't think our manufacturing facilities are anywhere near capacity.

The question, after all that, is what are we going to do with the money? Where are the opportunities for Tredegar to grow? And I hate to ask it this way, but what's it going to look like in two or three years? I mean, what sort of opportunities do we have this -- to put this money to work and leverage the balance sheet properly?

, this is Norm. And let me start out to answer that question, and then I'm going to also ask both Tom and Bill to comment because obviously, that is a key or the key question.

In terms of capacity of operations, it will be interesting for you to listen to what Tom might say to follow up my remarks, as well as what Bill might say, and so I'm going to ask them to comment on -- to the extent that they can discuss capacities.

In terms of opportunities, in my view -- and I want Tom to supplement this -- the opportunities for growth in the films business are quite fascinating. They are out there. They're being looked at as we speak. There's nothing that we can announce today, but I think that if we execute on our strategies, the use of capital to support that execution could be significant in the years to come.

With respect to aluminum, Bill has got some strategies that also would consume capital, and those strategies need to be carefully looked at an analyzed, but they're there. So I wouldn't want you or anyone else on the phone to think that we don't have good opportunities out there to grow these two businesses.

So that said, let me ask Tom, first of all, to follow up and maybe cover his view of capacity and opportunities, and then Bill, I'm going to ask you to comment on the same basis. Tom?

Thanks, Norm.

With our -- with our three recent plant closings, -- Manchester, Tacoma, and Carbondale -- and the manufacturing restructuring last year, we've obviously removed a great deal of our North American backsheet capacity. At the same time, we've been investing a great deal in overseas expansion. I think that, with the new products that we have coming in the pipeline, the development opportunities that we have with our customers, that we're going to have some -- we are going to have organic growth opportunities that are going to require continued capital investments, and I think those investments will be -- , that will pay off nicely.

We also are looking at other types of add-on acquisitions. I think between the -- what you consider the customer base that we've developed, our global breadth, I think we have a really nice opportunity to make some small, add-on acquisitions and round out our product portfolio and be able to provide more value to our -- to our global customers.

So I do think we will have opportunities. As Norm said, there's nothing we can announce today, but I think we'll have -- we'll have opportunities that you'll see over the next couple of years.

All right.

OK. Bill, would you like to also comment on capacity and opportunities?

Sure. , first thing I'll mention though, we spent quite a bit of capital over the past few years focused heavily on cost reductions to make us a low-cost producer and also improve our quality, and at the same time, this typically increases our capacity. So there's lots of opportunities out there to continue upgrading presses and various downstream operations in just new technology and automation.

Taking a look at our seven plants, , we are currently operating in the 75 to 80 percent capacity range. And hopefully, if volume picks up, we'll, in the second half of the year, approach 85 percent. So with our seven plants and the business plans and marketing strategies that we have in place, our plans are to need to increase capacity as time goes forward.

So it's really a double benefit as far as getting the good solid cost reductions, as well as increasing capacity in needed areas and needed markets.

OK. Thank you. I guess I looked back at the last couple of things, the -- in films, the money we spent on Exxon, I know maybe in the long run, that'll pay off, but that seemed to have not offered a real high return, and also the last two aluminum plants. So I'm , you know, and it will be interesting for me to see what you do, because I guess I'm not convinced that there are really big opportunities. You did mention small ones.

Well, , let me -- let me -- let me follow up and just make a point to you, and Tom may want to supplement this too on Exxon. While that expenditure would look from a numbers standpoint to have been, at least up till now, not the world's greatest acquisition, we have looked at it extremely carefully in a lessons learned context and tried to figure out what that acquisition really has meant to us. And we feel very strongly -- and I hope this doesn't come across as an apology -- it really isn't -- that the opportunities that are now in front of us to grow our films business and to sell types of products and types of customers that we haven't sold before have a lot to do with that Exxon acquisition.

It was a significant cultural experience for us. It put new blood into our films makeup, and it opened our eyes to opportunities that we had not seen before. And let me -- let me stop right there and ask Tom to say whatever he'd like to say to supplement it because we don't really consider that acquisition as an unsuccessful acquisition. We -- on -- after a couple years and looking to the future, believe it or not, feel pretty good about that acquisition.

So Tom, would you follow-up on those remarks?

Sure. I think we're pleased with most aspect of the Exxon acquisition. We did acquire a great customer list. We acquired some nice technologies and some good employees, as Norm mentioned. In the initial years, our customers did not accept the technologies as fast as we had expected. But today, several of those technologies and several of those products are driving the mix and margin improvement that you're seeing in films results.

So we're getting more and more confident about that acquisition, .

Yeah. OK. I wasn't picking on you about it. I just ...

No, I don't think you were. I just wanted to make the point that I think, you know, from our standpoint anyway, that acquisition has made a real difference to us, and it's interesting to reflect on.

I have one or two other questions, but I'll go to the back of the line. Thanks.

OK. Thank you.

Your next question is from -- I'm sorry. of . Please proceed with your question.

Hi, guys. Thanks for the call. Appreciate it.

Thank you, .

My question I guess really revolves around the VC portfolio. It seems like, you know, this portfolio made a lot more sense when there were some, you know, when we had the biotech that wasn't going to be divested. What is a timeline for, you know, maybe getting away from that VC portfolio?

And seems like a real theme now is getting back to the -- to the core manufacturing, which, you know, you guys are best at. Can you give me some kind of timeline that maybe for that to be spun off, harvested, you know, something done with that, or is that going to be a long-term component?

, this is Norm Scher, and thank you for calling us. That's an excellent question. You're absolutely right in what you said in terms of our strategy, and that is that the venture capital portfolio is not a strategic part of Tredegar. On the other hand, we are stewards to the stockholders, and we have an obligation to look at that portfolio extremely carefully and try to exact the best possible value for our company.

In terms of time constraints, the portfolio continues to be managed by the former division people up here who were at Tredegar and who have now set up their own management company. So we continue to have a management contract where we can keep an eye on that portfolio through this outside group that's watching it for us. And I think you know as well as we do that this is the worst possible time for the management of a early stage venture portfolio where the various companies in that portfolio come up for additional follow-on investing, and they come up at times where money is scarce. And if you have an interest in that portfolio or one of those companies, you're put to the test of either you put some additional money in or you get diluted to the point where it is a relatively worthless investment.

So we consider that on a case-by-case basis. We also obviously are considering and will continue to consider the sale of all or part of that portfolio to people who do make . But really, the way we're playing this game -- and I'm going to ask Drew Edwards, who watches it with me, to comment -- is we are trying to make the best decisions to extract the most value we can from that portfolio, and they're not easy decisions, and they won't be over quickly unless we ultimately decide to sell the whole portfolio. We're not anywhere close to having made that decision, and we're really continuing down the road of very careful, company-by-company analysis to see what the right thing to do is.

So let me ask Drew is he has anything to follow up on.

Yeah. , if we were, under current market conditions, letting the portfolio liquidate on its own, the private companies in the portfolio going IPO, and then us liquidating those securities, it could take quite a while. Let me give you a couple of key points.

We generated significant capital gains in the portfolio in 1990 -- excuse me -- in 2000 and 2001. One hundred fifty-eight million of taxable gains in 2000, and around 30 million in 2001. Those gains are available for carryback, and 2003 is the last year in which we can take capital losses to carryback to the big year of 2000 where we had capital gains. So the year 2003 will be a pivotal year for us where we could actually generate about $65 million worth of tax benefits, for example, with a full writeoff of the portfolio.

Hopefully, that answers your question.

OK. Yeah, I appreciate that. And maybe just a quick follow-on. I don't want to take too much time, but I noticed one of the -- that the R&D spending in the biotech area, and just kind of a question there. Maybe a little bit of an explanation why R&D ...

... what you're looking at are first quarter through March 31 expenditures. Again, even in the sale process, as you would expect, these businesses need to continue what they are working on, and that's what we're doing. We're extremely carefully monitoring those expenses, and those expenses are considerably reduced from a forecast that they had last year when they did not expect to be in a divestiture mode. But these are expenses that we believe continue to add value to those companies as we offer them for sale.

OK. Great. I appreciate your -- appreciate your answers there.

Thank you.

The next question is from of . Please proceed with your question.

Yes, good morning.

Morning, .

I have one question -- -- for Bill on the -- on the end use markets. Could you give some color on the construction market with the split between res and non-residential and how those end markets are doing? And then secondly the conversion price increases that have been announced. You know, how well are those sticking?

, how you doing this morning?

Good, Bill. Thank you.

Let's talk a little about construction first. Just a little background. And about 55 percent of our business -- let's take last year's volume -- 55 percent was in the construction area. And if you look at the breakdown between residential and commercial, we've only got about 25 percent in residential, and so, you know, you've seen housing start -- stay pretty level, and hasn't dropped off like some of the other indicators. But again, only 25 percent of our business in there. In fact, it's really targeted at some selective areas like high-end windows, which that market's been down, and tub and shower enclosures.

The other 35 percent of building construction is on commercial. Wide range of areas there. And we saw a trend starting down, I guess, late third quarter of last year, and that carried through the first quarter, but it is showing some signs pretty much across the board in the different end use markets and commercial picking up. And of course, we only have short-term visibility to that. So that's good news.

And so the outlook there in general looks good. In fact, and this may be a little outside your question, if I say 55 percent of our business is building and construction, what caused our downturn in volume? Well, it was our other markets, and pretty much across the board, distribution, electrical, transportation, consumer durables, those types of things really dropped off. We are seeing pickups for the most part in all of those end use markets. They're stabilizing, and, to various degrees, we're seeing increases.

Your second question I believe dealt with converging cost increase. Are you specifically referring to in distribution?

I'm sorry, , I ...

Yes, yeah, we'll take that one.

Yes, and we have made -- Bonnell, along with I would think at least three major players, have made increases in that market, both -- and we've done that both in the U.S. and Canada, and at this point, it -- for the group, it seems to be holding. ?

OK.

Go ahead, .

. OK, I have one quick follow-up on that -- or on a different issue. The proceeds from the biotech sale, do you have a range in mind? I know it's difficult to, you know, pinpoint something, but, you know, just some range might be helpful for us in understanding what you may get for that divestiture.

No, . Obviously, we all have ranges in mind, but I think it would be very misleading for us to answer that question. It's early in the process, and we obviously would love to get as much as we possibly can, but it's just much too early in the process. Hopefully, we'll be able to announce where we are in the not-too-distant future.

OK. Thank you.

Thank you.

Thanks, .

Your next question is from of . Please proceed with your question.

Morning.

Hey, . How are you?

Good. How are you all?

Good.

To follow-up on question, can you give us more of an indication of the size and possibly the timing of these add-on acquisitions?

Well, I'm going to throw that one to Tom. My guess is that Tom is going to have to be fairly general in what he has to say, but clearly, ADMA Promea is an acquisition that was a relatively small acquisition, but I certainly would categorize that as a add- on acquisition. So Tom, you might want to start with that and proceed.

Right, Norm. I think that was a good example of the other types of -- of the types of acquisitions and relationships we're trying to form. Unfortunately, there's not much I can add to -- in terms of definite details about that. You know, we're in it -- really depends on how negotiations -- how negotiations with different parties go.

OK. And my second question is on -- are there any added incentives in place for the new management team going forward? Or is anything on the planning table as far as, you know, extra motivation to perform?

Great question, . In terms of added incentives, no, there were no special deals cut, special payments made, or anything like that. There was, however, a very generous decision by our comp committee to grant options to all of us in not only senior management, but throughout the entire company. That probably has not -- I think in the proxy statement, you will see that I got 35,000 shares, and I think Doug got 26,000 shares, and so it was scaled back accordingly.

So there was a nice option grant by the comp committee, but that option grant was sort of in line with what the committee had done in the past. We are seriously considering a more permanent type of incentive compensation plan for Tredegar now that Tredegar is films and aluminum. One of the great difficulties we've had in the past is that it was difficult to come up with a compensation plan where we had also biotech, and we had venture capital and other possibilities that could influence the results of our company.

That plan will be economic profit added driven. And it's a plan that is in the process of being looked at very carefully now and considered, but it will be an incentive plan that will make sense and will the company to grow economic profit, which we feel is in the best interest of the stockholders as well as the management folks.

So that's where we are, and this isn't anything of rocket science. I think we all have a significant stake in the company with our options, and I think we're all working extremely hard because of our equity ownership. And I think we all feel as a group that economic profit and a percentage of economic profit is the way to look at maybe a shorter-term incentive plan, and that is in process as we speak.

Thanks, Norm.

Thank you.

Your next question is from of .

Just one thought as a follow-on on the -- on the VC portfolio. Obviously to the extent you want to monetize, you know, I do agree with your point, it's not the best time. I'm sure there's consideration given, and I guess I'd throw out my comments that it stands to reason that there -- in a more upbeat, enthusiastic, growth-oriented market, there are a class of investors that like the VC portfolio. To the extent you all have been pulling cash flow from the manufacturing businesses and investing there, one of the things you may want to give serious consideration to is actually just spinning it out, taking the track record, and using that as a vehicle for growing it as a stand-alone business, the people internally, and just letting that flow there as a public company where folks that want that exposure can buy it, and we run the manufacturing businesses for cash flow and to grow them through acquisition to the extent that's a -- that's part of the strategy.

I -- , Norm Scher. I appreciate those comments, and it's good to hear from you again. The point I want to make to you is we are not now operating our venture capital portfolio as a business. There are no employees within Tredegar who devote full- time to that portfolio. It is being managed by the former operators of that portfolio who are now no longer with us and are -- who are under a contract back to us to manufacture. So the emphasis I want to put to you is we do not have in place, nor is there any intention to put in place, a business within Tredegar called venture capital. It is really being operated as a portfolio under an outside management contract.

OK. Fair enough. Because, you know, there are no public plays on the VC market, and to the extent, you know, we will go through another VC cycle, it's just a question of timing.

I hope you're right.

Right. Thanks.

Your next question is from of . Please proceed with your question.

Thank you. Just following up on this capital issue. Norm, could you describe to me Tredegar's dividend policy, and have you talked about changing it? And, you know, dividends are sort of in now, and probably for a long time, and you would appear to have the capability to pay a significantly larger one.

Right. And I would agree with you that we do appear to have the capability of paying a larger one. Our policy, basically, I think our dividend's been at four cents a quarter, Drew, for some time.

Yes.

And obviously, we are going to reexamine that policy with the board. Our timing on that is basically to determine what happens with the venture cap -- excuse me -- the biotech sale. Look a little bit harder at the venture capital portfolio, and reconsider. So there's clearly been no decision made in terms of changing or increasing the dividend, but that's on our list, and it is something that will be considered carefully.

Your next question is from of . Please proceed with your question.

Hi, guys. Just another question for you. Wanted to see if I could get a feel from maybe the different managers of film products and aluminum some idea of long-term operating profit margins. You know, looked like we're very strong through the -- through the late '90s and have both dipped, you know, for obvious reasons. Where do you think, long term, we're headed with those -- with those margins?

All right. Tom, you want to start out?

Sure. We've, as you know, we have -- our operating margins were depressed in films from late 1999 into 2001. We're very pleased with the shift in our product and customer mix and our increased operating efficiencies, and our margins are back up into the mid- to high teens. Actually, we closed even a little bit higher than that in the -- with the first quarter. So we're pleased with this level, and we hope to be able to maintain it.

Bill?

, as you know, 1999 was a record year for us, both from a standpoint of volume as well as operating profit. But we've got to keep in mind that that was really the top of the cycle for the entire industry. And, you know, and with the downturn, obviously we would -- we've dropped off quite a bit. I believe the number was around six to seven percent for the quarter just ended.

Maybe I can answer the question along these lines. What's the opportunity to return to those type of levels? I think -- I think there's good opportunity in our division. We're certainly focused on the right market strategies to grow our business in the right areas. And we have what I feel is the right philosophy from a value pricing standpoint. We have a lot of competitive advantages out there. And so we're not out having to buy market share. We're -- we again are a value pricing type company. And I think our customers will back this up with the value that we do add to our product and our services.

Along with that, and which of course will help allow us to get the right type of mix and the right type of pricing and spread, we're working very hard on reducing our costs and to become a low- cost producer. And, as you know, we've got pretty good operating leverage. Basically, from a standpoint of one percent increase in volume would give us about a two to three percent in operating profit. So you take all these things into account a lot of capital expenditures, really using what we have in place now and our folks working on the processes internally, we have an opportunity ...

Well, thank you, . Thanks for this call too. My question was just answered on aluminum, thank you. On films, if you're going to maintain the same margins, can you give us a breakdown of where fem hygiene is versus diapers? I mean, is the percentage increasing there? I know that's your higher profit area.

Tom, that's for you.

Yes, you're absolutely right. Our share of business in feminine hygiene is increasing, and has been increasing. Domestic backsheet was over half of our volume in 1999, and it's less than 40 percent today. So the feminine hygiene side of the business is increasing, but also, we're adding some new types of components for diapers, like elastic components, that are -- that are -- that are helping our business also.

Well, thank you.

Mr. , there are no further questions at this time.

OK. Thank you, . I want to thank everyone for participating in our call today, and we look forward to updating you in the second quarter during July.

Thank you very much for participating.

Ladies and gentlemen, thank you for your participation in today's conference. This call will be available for a replay beginning at 1:00 p.m. Eastern Time today through 11:59 p.m. Eastern Time on Wednesday, April 24th, 2002. The conference ID number for the replay is 3702587. Again, the conference ID number for the replay is 3702587. The number to dial for the replay is 1-800-642-1687 or 706-645-9291.

An archived copy of the Webcast will be available for replay on the company's Web site, www.tredegar.com. Again, that's www.tredegar.com. beginning at 1:00 p.m. Eastern Time today for approximately two weeks. To listen to the call, select the "Webcast of First Quarter Results" link under "What's New" on the home page.

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