Tredegar Corporation (NYSE:TG, also the “Company” or “Tredegar”)
today reported third quarter financial results for the period ended
September 30, 2019.
The Company recognized net income of $17.1 million ($0.51 per
share) in the third quarter of 2019 compared to a net loss of $34.2
million ($1.03 per share) in the third quarter of 2018. Net income
from ongoing operations, which excludes special items, was $11.4
million ($0.34 per share) in the third quarter of 2019 compared
with $8.6 million ($0.26 per share) in the third quarter of 2018. A
reconciliation of net income (loss), a financial measure calculated
in accordance with U.S. generally accepted accounting principles
(“GAAP”), to net income from ongoing operations, a non-GAAP
financial measure, for the three and nine months ended September
30, 2019 and 2018, is provided in Note (a) of the Notes to the
Financial Tables in this press release.
Third Quarter Financial Results Highlights
- Operating profit from ongoing operations for Bonnell Aluminum
of $12.1 million was $0.4 million higher than the third quarter of
2018
- Operating profit from ongoing operations for PE Films of $6.9
million was $2.7 million higher than the third quarter of 2018
- Operating profit from ongoing operations for Flexible Packaging
Films of $4.0 million was $0.4 million higher than the third
quarter of 2018
John Steitz, Tredegar’s president and chief executive officer
said, “The aluminum extrusions industry and Bonnell Aluminum
continue to experience softness in sales volume, with higher
selling prices at Bonnell helping to offset the adverse impact on
profits. The Surface Protection component of PE Films is on track
to achieving record profitability this year, while continuing to
focus on obtaining new business and productivity improvements to
offset a previously disclosed customer product transition.”
Mr. Steitz continued, “Our Personal Care component of PE Films
is challenged with achieving sales growth and cost reductions to
return to profitability. At Terphane, future profit growth will
mostly depend on our ability to continue to increase our
value-added product sales and customer service levels. Lastly,
Tredegar’s overall cash generation for the first nine months of
2019 was exceptional with debt net of cash declining by $36
million.”
OPERATIONS REVIEW
Aluminum Extrusions
Aluminum Extrusions, which is also referred to as Bonnell
Aluminum, produces high-quality, soft-alloy and medium-strength
aluminum extrusions primarily for the following markets: building
and construction, automotive, and specialty, which consists of
consumer durables, machinery and equipment, electrical and
distribution end-use products.
A summary of third quarter and year-to-date operating results
from ongoing operations for Bonnell Aluminum is provided below:
Three Months Ended
Favorable/
Nine Months Ended
Favorable/
September 30,
(Unfavorable)
September 30,
(Unfavorable)
(In Thousands, Except Percentages)
2019
2018
% Change
2019
2018
% Change
Sales volume (lbs)
51,404
56,632
(9.2
)%
158,657
163,192
(2.8
)%
Net sales
$
129,506
$
147,661
(12.3
)%
$
405,310
$
420,455
(3.6
)%
Operating profit from ongoing
operations
$
12,147
$
11,730
3.6
%
$
38,751
$
35,086
10.4
%
Third Quarter 2019 Results vs. Third
Quarter 2018 Results
Net sales (sales less freight) in the third quarter of 2019
decreased versus 2018 primarily due to lower sales volume and the
passthrough of lower metal costs, partially offset by an increase
in average selling prices to cover higher operating costs. Sales
volume in the third quarter of 2019 decreased by 9.2% versus 2018.
This volume decline, in addition to booking and backlog information
for Bonnell Aluminum and industry data, indicates softness across
all key end-use markets.
Operating profit from ongoing operations in the third quarter of
2019 increased by $0.4 million in comparison to the third quarter
of 2018 due to higher pricing ($7.7 million), partially offset by
lower volumes ($3.5 million), higher labor and employee-related
expenses ($2.3 million), higher supplies, maintenance and other
operating costs ($1.1 million) and higher freight expense ($0.4
million).
In October 2019, Bonnell Aluminum announced that it will
implement a selling price increase of $0.035 per pound and an
additional 5% on fabrication and finishing services effective on
shipments beginning January 6, 2020, or as permissible by contract.
The Company estimates that approximately 20% - 25% of Bonnell
Aluminum’s net sales relate to applicable value-added fabrication
and finishing services. The price increase is in addition to
selling price changes that normally occur from the passthrough to
customers of aluminum raw material cost volatility. The price
increase is expected to offset continuous cost pressures in the
current tight market for skilled labor and other areas.
First Nine Months 2019 Results vs. First
Nine Months 2018 Results
Net sales in the first nine months of 2019 decreased versus 2018
primarily due to lower volume and the passthrough of lower metal
costs, partially offset by an increase in average selling price to
cover higher operating costs.
Operating profit from ongoing operations in the first nine
months of 2019 increased by $3.7 million in comparison to the first
nine months of 2018 primarily due to higher pricing ($18.6
million), partially offset by lower volume ($2.7 million),
increased labor and employee-related expenses ($6.3 million),
higher supplies, maintenance, utilities and other operating costs
($3.2 million), increased freight costs ($1.7 million), and
increased general and administrative expenses ($1.0 million).
Capital Expenditures, Depreciation &
Amortization
Capital expenditures in Bonnell Aluminum were $11.8 million in
the first nine months of 2019, compared to $8.9 million in the
first nine months of 2018. Capital expenditures are projected to be
$15 million in 2019, including approximately $6 million for
infrastructure upgrades at the Carthage, Tennessee facility and
other productivity improvements, approximately $2 million for
fabrication and automation capabilities, and approximately $7
million required to support continuity of current operations.
Depreciation expense was $10.2 million in the first nine months of
2019 compared to $9.9 million in the first nine months of 2018, and
is projected to be $14 million in 2019. Amortization expense was
$4.8 million in the first nine months of 2019 and $2.7 million in
the first nine months of 2018, and is projected to be $13 million
in 2019. See Note (f) in the Notes to the Financial Tables for
additional details on the increase in amortization expense in
2019.
PE Films
PE Films is composed of surface protection films, personal care
materials, polyethylene overwrap films and films for other markets.
A summary of third quarter and year-to-date operating results from
ongoing operations for PE Films is provided below:
Three Months Ended
Favorable/
Nine Months Ended
Favorable/
September 30,
(Unfavorable)
September 30,
(Unfavorable)
(In Thousands, Except Percentages)
2019
2018
% Change
2019
2018
% Change
Sales volume (lbs)
26,411
29,597
(10.8
)%
77,768
94,519
(17.7
)%
Net sales
$
69,837
$
76,470
(8.7
)%
$
205,778
$
252,177
(18.4
)%
Operating profit from ongoing
operations
$
6,889
$
4,145
66.2
%
$
17,606
$
26,857
(34.4
)%
Third Quarter 2019 Results vs. Third
Quarter 2018 Results
Net sales in the third quarter of 2019 decreased by $6.6 million
versus 2018 due to lower sales in Personal Care. Surface Protection
sales increased $10 million while Personal Care sales decreased $16
million.
Net sales in Surface Protection increased in the third quarter
of 2019 versus the third quarter of 2018 due to higher volume and
selling prices, and quality claims in 2018 that did not recur in
2019. As discussed further below, a possible customer product
transition in Surface Protection continues to be delayed. Net sales
decreased in Personal Care as a result of lower volume in most
product categories from competitive pressures ($14 million),
including a large portion associated with the previously disclosed
customer product transition discussed below. In addition, net sales
were adversely impacted by unfavorable product mix and pricing and
the decline in the value of currencies for operations outside of
the U.S. relative to the U.S. Dollar.
Operating profit from ongoing operations in the third quarter of
2019 increased by $2.7 million versus the third quarter of 2018
primarily due to:
- Higher contribution to profits from Surface Protection of $7.5
million, primarily due to higher volume and selling prices (net
favorable impact of $4.3 million), quality claims in 2018 that did
not recur in 2019 ($2.4 million), improved operating efficiencies
($0.5 million) and favorable resin prices ($0.5 million);
- Lower contribution to profits from Personal Care of $4.4
million, primarily due to lower volume ($5.2 million), unfavorable
mix and pricing ($2.0 million), unfavorable production efficiencies
($0.8 million) and an unfavorable foreign exchange impact ($0.3
million), partially offset by the favorable timing in the
passthrough of changes in resin prices ($1.0 million), and lower
fixed manufacturing ($2.2 million) and selling, general and
administrative costs ($0.7 million); and
- An unfavorable variance in other components of PE Films of $0.4
million.
Customer Product Transitions in Surface Protection and Personal
Care
The Surface Protection component of PE Films supports
manufacturers of optical and other specialty substrates used in
flat panel display products. These films are primarily used by
customers to protect components of displays in the manufacturing
and transportation process and then discarded.
The Company previously reported the risk that a portion of its
film products used in surface protection applications could be made
obsolete by possible future customer product transitions to less
costly alternative processes or materials. These transitions
principally relate to one customer. The full transition continues
to encounter delays, resulting in higher than expected sales to
this customer in 2019. The Company estimates that during the next
four quarters the adverse impact on operating profit from this
customer shift versus the last four quarters ended September 30,
2019 could possibly be $14 million. To offset the potential adverse
impact, the Company is aggressively pursuing and making progress
generating sales from new surface protection products, applications
and customers.
The Company previously disclosed a significant customer product
transition that is underway in the Personal Care component of PE
Films. The annual sales for this product for Personal Care in 2018
was approximately $70 million. During 2019, the Company expects
sales for the product of $30 to $35 million. The timing of the
possible future loss of these remaining sales is uncertain.
Personal Care had operating profit from ongoing operations plus
depreciation and amortization of $3.1 million in the fourth quarter
of 2018 and $0.5 million in the first nine months of 2019, and
expects negative $1.3 million during the fourth quarter of 2019.
Competitive pressures have led Personal Care to miss its sales and
margin goals in 2019. Management continues to focus on new business
development and cost reduction initiatives.
First Nine Months 2019 Results vs. First
Nine Months 2018 Results
Net sales in the first nine months of 2019 decreased by $46
million versus 2018 due to lower sales in Personal Care of $51
million. The decline in sales in Personal Care was primarily due to
lower volume in most product categories from competitive pressures
($40 million), including a large portion associated with the
previously disclosed customer product transition. In addition, net
sales were adversely impacted by mix, the timing in the passthrough
of changes in resin prices and the decline in the value of
currencies for operations outside of the U.S. relative to the U.S.
Dollar.
Operating profit from ongoing operations in the first nine
months of 2019 decreased by $9.3 million versus 2018 primarily due
to:
- Higher contribution to profits from Surface Protection of $6.7
million, primarily due to higher selling prices ($6.1 million),
quality claims in 2018 that did not recur in 2019 ($3.7 million),
production efficiencies ($1.5 million), and favorable raw material
costs ($1.1 million), partially offset by lower volume and
unfavorable mix (net impact of $5.3 million) and higher fixed and
general and administrative costs ($0.5 million); and
- Lower contribution to profits from Personal Care of $15.9
million primarily due to lower volume and unfavorable mix ($15.3
million), unfavorable pricing ($3.9 million), unfavorable
production efficiencies ($3.4 million), and the decline in the
value of currencies for operations outside of the U.S. relative to
the U.S. Dollar ($0.3 million), partially offset by the timing in
the passthrough of changes in resin prices ($1.4 million), lower
fixed manufacturing ($3.4 million) and selling, general and
administrative costs ($2.5 million).
Capital Expenditures, Depreciation &
Amortization
Capital expenditures in PE Films were $19.5 million in the first
nine months of 2019 compared to $13.5 million in the first nine
months of 2018. The Company’s latest estimate for 2019 includes
projected capital expenditures of $27 million including: $12
million of a total $25 million which completed the North American
capacity expansion for elastics products in Personal Care; $4
million for a new scale-up line in Surface Protection to improve
development and speed to market for new products; $4 million for
other development projects; and $10 million for capital
expenditures required to support continuity of current
operations.
Depreciation expense was $11.4 million in the first nine months
of 2019 and $11.7 million in the first nine months of 2018.
Depreciation expense is projected to be $15 million in 2019.
Flexible Packaging Films
Flexible Packaging Films, which is also referred to as Terphane,
produces polyester-based films for use in packaging applications
that have specialized properties, such as heat resistance,
strength, barrier protection and the ability to accept high-quality
print graphics. A summary of third quarter and year-to-date
operating results from ongoing operations for Flexible Packaging
Films is provided below:
Three Months Ended
Favorable/
Nine Months Ended
Favorable/
September 30,
(Unfavorable)
September 30,
(Unfavorable)
(In Thousands, Except Percentages)
2019
2018
% Change
2019
2018
% Change
Sales volume (lbs)
27,920
27,258
2.4
%
79,841
74,276
7.5
%
Net sales
$
34,888
$
33,725
3.4
%
$
101,950
$
90,466
12.7
%
Operating profit from ongoing
operations
$
4,000
$
3,609
10.8
%
$
9,376
$
6,617
41.7
%
Third Quarter 2019 Results vs. Third
Quarter 2018 Results
Net sales increased in the third quarter of 2019 compared to the
third quarter of 2018 due to higher sales volume and increased
selling prices.
Terphane’s operating profit from ongoing operations in the third
quarter of 2019 increased by $0.4 million versus the third quarter
of 2018 primarily due to:
- Higher volume ($0.3 million) and higher selling prices ($1.0
million), partially offset by higher fixed and variable costs ($0.9
million);
- Net unfavorable foreign currency translation of
Real-denominated operating costs ($0.4 million); and
- Foreign currency transaction gains of $0.3 million in 2019
versus losses of $0.1 million in 2018.
First Nine Months 2019 Results vs. First
Nine Months 2018 Results
Net sales increased in the first nine months of 2019 compared to
the first nine months of 2018 due to higher sales volume and
increased selling prices.
Terphane’s operating results from ongoing operations in the
first nine months of 2019 increased by $2.8 million versus the
first nine months of 2018 primarily due to:
- Higher volume ($2.2 million) and higher selling prices ($1.8
million), partially offset by higher fixed and variable costs,
including costs related to a restarted line ($2.3 million);
- Net favorable foreign currency translation of Real-denominated
operating costs of $0.3 million; and
- Foreign currency transaction gains of $0.3 million in 2019
versus losses of $0.5 million in 2018.
Capital Expenditures, Depreciation &
Amortization
Capital expenditures in Terphane were $5.7 million in the first
nine months of 2019 compared to $2.3 million in the first nine
months of 2018. Capital expenditures are projected to be $10
million in 2019, including $5 million for new capacity for
value-added products and productivity projects and $5 million for
capital expenditures required to support continuity of current
operations. Depreciation expense was $0.8 million in the first nine
months of 2019 and $0.6 million in the first nine months of 2018.
Depreciation expense is projected to be $1.0 million in 2019.
Amortization expense was $0.3 million in the first nine months of
2019 and $0.3 million in the first nine months of 2018, and is
projected to be $0.5 million in 2019.
Corporate Expenses, Interest, Taxes & Other
Pension expense was $7.2 million in the first nine months of
2019, versus $7.8 million in the first nine months of 2018. The
impact on earnings from pension expense is reflected in “Corporate
expenses, net” in the Net Sales and Operating Profit by Segment
table. Pension expense is projected to be $9.7 million in 2019.
Corporate expenses, net, increased in the first nine months of 2019
versus 2018 primarily due to higher stock-based employee
compensation ($1.3 million), and consulting fees ($3.5 million)
related to the identification and remediation of previously
disclosed material weaknesses in the Company’s internal control
over financial reporting, business development activities, and
implementation of new accounting guidance.
Interest expense was $3.4 million in the first nine months of
2019 in comparison to $4.5 million in the first nine months of
2018, primarily due to lower average debt levels.
The effective tax rate used to compute income tax expense from
continuing operations was 14.1% in the first nine months of 2019,
compared to 172.1% in the first nine months of 2018. The tax rate
in 2018 was affected by a pretax loss caused by a non-deductible
goodwill impairment charge of $46.8 million. The effective tax rate
from ongoing operations comparable to the earnings reconciliation
table provided in Note (a) of the Notes to Financial Tables in this
press release was 20.3% for the first nine months of 2019 versus
22.4% in 2018 (see also Note (h) of the Notes to Financial Tables).
An explanation of differences between the effective tax rate for
income from continuing operations and the U.S. federal statutory
rate for 2019 and 2018 will be provided in the Company’s Quarterly
Report on Form 10-Q for the period ended September 30, 2019.
Tredegar’s approximately 18.4% ownership in kaleo, Inc.
(“kaléo”), which is accounted for under the fair value method, was
estimated at a value of $95.5 million at September 30, 2019, versus
$84.6 million at December 31, 2018. In addition, the Company
received a cash dividend from kaléo of $17.6 million on April 30,
2019, which had been declared on March 29, 2019. Dividend income
recognized on kaléo and changes in the estimated fair value of the
Company’s investment in kaléo, which are included in net income
(loss) under GAAP, have consistently been excluded from net income
from ongoing operations as shown in the reconciliation table in
Note (a) of the Notes to the Financial Tables in this press
release. Kaléo’s stock is not publicly traded. The ultimate value
of Tredegar’s ownership interest in kaléo could be materially
different from the $95.5 million estimated fair value reflected in
the Company’s financial statements at September 30, 2019.
CAPITAL STRUCTURE
Total debt was $68.0 million at September 30, 2019, compared to
$101.5 million at December 31, 2018. Net debt (debt in excess of
cash and cash equivalents) was $31.1 million at September 30, 2019,
compared to $67.1 million at December 31, 2018. Net debt is a
financial measure that is not calculated or presented in accordance
with GAAP. See Note (g) of the Notes to the Financial Tables in
this press release for a reconciliation of this non-GAAP financial
measure to the most directly comparable GAAP financial measure.
On June 28, 2019, Tredegar entered into a $500 million
five-year, secured revolving credit facility (“Credit Agreement”),
with an option to increase that amount by $100 million. The Credit
Agreement replaced the Company’s previous $400 million five-year,
secured revolving credit facility that was due to expire on March
1, 2021.
FORWARD-LOOKING AND CAUTIONARY
STATEMENTS
Some of the information contained in this press release may
constitute “forward-looking statements” within the meaning of the
“safe harbor” provisions of the Private Securities Litigation
Reform Act of 1995. When we use the words “believe,” “estimate,”
“anticipate,” “expect,” “project,” “plan,” “likely,” “may” and
similar expressions, we do so to identify forward-looking
statements. Such statements are based on our then current
expectations and are subject to a number of risks and uncertainties
that could cause actual results to differ materially from those
addressed in the forward-looking statements. It is possible that
our actual results and financial condition may differ, possibly
materially, from the anticipated results and financial condition
indicated in or implied by these forward-looking statements.
Accordingly, you should not place undue reliance on these
forward-looking statements. Factors that could cause actual results
to differ from expectations include, without limitation, the
following:
- loss or gain of sales to significant customers on which our
business is highly dependent;
- inability to achieve sales to new customers to replace lost
business;
- inability to develop, efficiently manufacture and deliver new
products at competitive prices;
- failure of our customers to achieve success or maintain market
share;
- failure to protect our intellectual property rights;
- risks of doing business in countries outside the U.S. that
affect our substantial international operations;
- political, economic, and regulatory factors concerning our
products;
- uncertain economic conditions in countries in which we do
business;
- competition from other manufacturers, including manufacturers
in lower-cost countries and manufacturers benefiting from
government subsidies;
- impact of fluctuations in foreign exchange rates;
- a change in the amount of our underfunded defined benefit
(pension) plan liability;
- an increase in the operating costs incurred by our operating
companies, including, for example, the cost of raw materials and
energy;
- inability to successfully identify, complete or integrate
strategic acquisitions; failure to realize the expected benefits of
such acquisitions and assumption of unanticipated risks in such
acquisitions;
- disruption to our manufacturing facilities;
- an information technology system failure or breach;
- volatility and uncertainty of the valuation of our investment
in kaléo;
- the impact of the imposition of tariffs and sanctions on
imported aluminum ingot used in our aluminum extrusions;
- the impact of new tariffs or duties imposed as a result of
rising trade tensions between the U.S. and other countries;
- failure to establish and maintain effective internal control
over financial reporting;
- the termination of anti-dumping duties on products imported to
Brazil that compete with products produced by Flexible
Packaging;
and the other factors discussed in the reports Tredegar files
with or furnishes to the Securities and Exchange Commission (the
“SEC”) from time to time, including the risks and important factors
set forth in additional detail in Part I, Item 1A of Tredegar’s
Annual Report on Form 10-K for the year ended December 31, 2018.
Readers are urged to review and consider carefully the disclosures
Tredegar makes in its filings with the SEC.
Tredegar does not undertake, and expressly disclaims any duty,
to update any forward-looking statement made in this press release
to reflect any change in management’s expectations or any change in
conditions, assumptions or circumstances on which such statements
are based, except as required by applicable law.
To the extent that the financial information portion of this
press release contains non-GAAP financial measures, it also
presents both the most directly comparable financial measures
calculated and presented in accordance with GAAP and a quantitative
reconciliation of the difference between any such non-GAAP measures
and such comparable GAAP financial measures. Reconciliations of
non-GAAP financial measures are provided in the Notes to the
Financial Tables included with this press release and can also be
found within “Presentations” in the “Investors” section of our
website, www.tredegar.com.
Tredegar uses its website as a channel of distribution of
material company information. Financial information and other
material information regarding Tredegar is posted on and assembled
in the “Investors” section of its website.
Tredegar Corporation is a manufacturer of plastic films and
aluminum extrusions. A global company headquartered in Richmond,
Virginia, Tredegar had 2018 sales of $1.1 billion. With
approximately 3,000 employees, the company operates manufacturing
facilities in North America, South America, Europe, and Asia.
Tredegar Corporation
Condensed Consolidated
Statements of Income
(In Thousands, Except
Per-Share Data)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2019
2018
2019
2018
Sales
$
243,217
$
267,294
$
739,931
$
789,765
Other income (expense), net (b)(d)
10,634
(2,557
)
34,840
11,532
253,851
264,737
774,771
801,297
Cost of goods sold (b)
191,565
217,378
584,799
631,235
Freight
8,986
9,438
26,893
26,667
Selling, R&D and general expenses
(b)
28,072
25,826
83,883
77,559
Amortization of intangibles (f)
3,400
1,022
5,182
3,076
Pension and postretirement benefits
2,415
2,653
7,246
7,809
Interest expense
859
1,318
3,354
4,539
Asset impairments and costs associated
with exit and disposal activities, net of adjustments (b)
1,464
1,209
3,595
1,799
Goodwill impairment (e)
—
46,792
—
46,792
236,761
305,636
714,952
799,476
Income (loss) before income taxes
17,090
(40,899
)
59,819
1,821
Income tax expense (benefit)
(43
)
(6,699
)
8,424
3,135
Net income (loss)
$
17,133
$
(34,200
)
$
51,395
$
(1,314
)
Earnings (loss) per share:
Basic
$
0.51
$
(1.03
)
$
1.55
$
(0.04
)
Diluted
$
0.51
$
(1.03
)
$
1.55
$
(0.04
)
Shares used to compute earnings (loss) per
share:
Basic
33,271
33,110
33,222
33,056
Diluted
33,285
33,110
33,230
33,056
Tredegar Corporation
Net Sales and Operating Profit
by Segment
(In Thousands)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2019
2018
2019
2018
Net Sales
Aluminum Extrusions
$
129,506
$
147,661
$
405,310
$
420,455
PE Films
69,837
76,470
205,778
252,177
Flexible Packaging Films
34,888
33,725
101,950
90,466
Total net sales
234,231
257,856
713,038
763,098
Add back freight
8,986
9,438
26,893
26,667
Sales as shown in the Condensed
Consolidated Statements of Income
$
243,217
$
267,294
$
739,931
$
789,765
Operating Profit (Loss)
Aluminum Extrusions:
Ongoing operations
$
12,147
$
11,730
$
38,751
$
35,086
Plant shutdowns, asset impairments,
restructurings and other (b)
(610
)
(297
)
(667
)
(396
)
Trade name accelerated amortization
(f)
(2,510
)
—
(2,510
)
—
PE Films:
Ongoing operations
6,889
4,145
17,606
26,857
Plant shutdowns, asset impairments,
restructurings and other (b)(c)
3,834
(2,355
)
933
(4,542
)
Goodwill impairment charge (e)
—
(46,792
)
—
(46,792
)
Flexible Packaging Films:
Ongoing operations
4,000
3,609
9,376
6,617
Plant shutdowns, asset impairments,
restructurings and other
—
—
—
—
Total
23,750
(29,960
)
63,489
16,830
Interest income
56
6
163
290
Interest expense
859
1,318
3,354
4,539
Gain (loss) on investment in kaléo
accounted for under fair value method (d)
4,300
(2,100
)
28,482
11,900
Unrealized loss on investment property
—
186
—
186
Stock option-based compensation costs
807
415
2,121
806
Corporate expenses, net (b)
9,350
6,926
26,840
21,668
Income (loss) before income taxes
17,090
(40,899
)
59,819
1,821
Income tax expense (benefit)
(43
)
(6,699
)
8,424
3,135
Net income (loss)
$
17,133
$
(34,200
)
$
51,395
$
(1,314
)
Tredegar Corporation
Condensed Consolidated Balance
Sheets
(In Thousands)
(Unaudited)
September 30, 2019
December 31, 2018
Assets
Cash & cash equivalents
$
36,886
$
34,397
Restricted cash
7,766
—
Accounts & other receivables, net
115,661
124,727
Income taxes recoverable
5,263
6,783
Inventories
85,315
93,810
Prepaid expenses & other
9,438
9,564
Total current assets
260,329
269,281
Property, plant & equipment, net
236,336
228,369
Right-of-use leased assets
19,526
—
Investment in kaléo (cost basis of
$7,500)
95,500
84,600
Identifiable intangible assets, net
31,010
36,295
Goodwill
81,404
81,404
Deferred income taxes
1,740
3,412
Other assets
5,089
4,012
Total assets
$
730,934
$
707,373
Liabilities and Shareholders’
Equity
Accounts payable
$
103,926
$
112,758
Accrued expenses
47,677
42,495
Lease liability, short-term
2,842
—
Income taxes payable
—
—
Total current liabilities
154,445
155,253
Lease liability, long-term
18,197
—
Long-term debt
68,000
101,500
Pension and other postretirement benefit
obligations, net
80,665
88,124
Deferred income taxes
6,816
—
Other noncurrent liabilities
4,976
7,639
Shareholders’ equity
397,835
354,857
Total liabilities and shareholders’
equity
$
730,934
$
707,373
Tredegar Corporation
Condensed Consolidated
Statements of Cash Flows
(In Thousands)
(Unaudited)
Nine Months Ended September
30,
2019
2018
Cash flows from operating activities:
Net income (loss)
$
51,395
$
(1,314
)
Adjustments for noncash items:
Depreciation
22,572
22,272
Amortization of intangibles
5,182
3,076
Amortization of right-of-use lease
asset
1,899
—
Goodwill impairment
—
46,792
Deferred income taxes
7,404
1,152
Accrued pension income and post-retirement
benefits
7,246
7,809
(Gain)/loss on investment accounted for
under the fair value method
(10,900
)
(11,900
)
(Gain)/loss on asset impairments and
divestitures
519
185
Net (gain)/loss on sale of assets
(6,328
)
(86
)
Changes in assets and liabilities, net of
effects of acquisitions and divestitures:
Accounts and other receivables
7,715
(13,020
)
Inventories
6,625
(9,204
)
Income taxes recoverable/payable
1,439
25,912
Prepaid expenses and other
14
(1,655
)
Accounts payable and accrued expenses
(223
)
29,452
Lease liability
(1,991
)
—
Pension and postretirement benefit plan
contributions
(6,692
)
(7,182
)
Other, net
447
705
Net cash provided by operating
activities
86,323
92,994
Cash flows from investing activities:
Capital expenditures
(37,214
)
(25,078
)
Return of escrowed funds relating to
acquisition earn-out
—
4,250
Proceeds from the sale of assets and
other
10,931
1,108
Net cash used in investing activities
(26,283
)
(19,720
)
Cash flows from financing activities:
Borrowings
53,000
34,750
Debt principal payments
(86,500
)
(95,750
)
Dividends paid
(11,322
)
(10,943
)
Debt financing costs
(1,817
)
—
Proceeds from exercise of stock options
and other
(854
)
1,004
Net cash used in financing activities
(47,493
)
(70,939
)
Effect of exchange rate changes on
cash
(2,292
)
(2,050
)
Increase in cash, cash equivalents and
restricted cash
10,255
285
Cash, cash equivalents and restricted cash
at beginning of period
34,397
36,491
Cash, cash equivalents and restricted cash
at end of period
$
44,652
$
36,776
Notes to the Financial
Tables
(Unaudited)
(a)
Tredegar’s presentation of net income and
earnings per share from ongoing operations are non-GAAP financial
measures that exclude the effects of gains or losses associated
with plant shutdowns, asset impairments and restructurings, gains
or losses from the sale of assets, goodwill impairment charges and
other items (which includes unrealized gains and losses for an
investment accounted for under the fair value method), which have
been presented separately and removed from net income and diluted
earnings per share as reported under GAAP. Net income and earnings
per share from ongoing operations are key financial and analytical
measures used by management to gauge the operating performance of
Tredegar’s ongoing operations. They are not intended to represent
the stand-alone results for Tredegar’s ongoing operations under
GAAP and should not be considered as an alternative to net income
or earnings per share as defined by GAAP. They exclude items that
management believes do not relate to Tredegar’s ongoing operations.
A reconciliation to net income and earnings per share from ongoing
operations for the three and nine months ended September 30, 2019
and 2018 is shown below:
(in millions, except per share data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019
2018
2019
2018
Net income (loss) as reported under
GAAP
$
17.1
$
(34.2
)
$
51.4
$
(1.3
)
After-tax effects of:
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
(4.2
)
2.0
(2.2
)
2.6
(Gains) losses from sale of assets and
other:
(Gain) loss associated with the investment
in kaléo
(3.4
)
1.6
(23.3
)
(9.3
)
Other
1.9
1.0
4.5
2.9
Goodwill impairment
—
38.2
—
38.2
Net income from ongoing operations
$
11.4
$
8.6
$
30.4
$
33.1
Earnings (loss) per share as reported
under GAAP (diluted)
$
0.51
$
(1.03
)
$
1.55
$
(0.04
)
After-tax effects per diluted share
of:
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
(0.13
)
0.06
(0.07
)
0.08
(Gains) losses from sale of assets and
other:
(Gain) loss associated with the investment
in kaléo
(0.10
)
0.05
(0.71
)
(0.28
)
Other
0.06
0.03
0.14
0.09
Goodwill impairment
—
1.15
—
1.15
Earnings per share from ongoing operations
(diluted)
$
0.34
$
0.26
$
0.91
$
1.00
Reconciliations of the pre-tax and
post-tax balances attributed to net income are shown in Note
(h).
(b)
Losses associated with plant shutdowns,
asset impairments, restructurings and other items for continuing
operations in the third quarter and first nine months of 2019 and
2018 detailed below are shown in the statements of net sales and
operating profit by segment and are included in “Asset impairments
and costs associated with exit and disposal activities, net of
adjustments” in the condensed consolidated statements of income,
unless otherwise noted.
($ in millions)
Three Months Ended
September 30, 2019
Nine Months Ended
September 30, 2019
Pre-Tax
Net of Tax
Pre-Tax
Net of Tax
Aluminum Extrusions:
Losses from sale of assets, investment
writedowns and other items:
Wind damage to roof of Elkhart, Indiana
plant2
$
0.3
$
0.2
$
0.3
$
0.2
Environmental charges at Carthage
Tennessee plant1
0.3
0.2
0.3
0.3
Total for Aluminum Extrusions
$
0.6
$
0.4
$
0.6
$
0.5
PE Films:
(Gains)/losses associated with plant
shutdowns, asset impairments and restructurings:
Shanghai plant shutdown:
Asset-related expenses
$
0.2
$
0.2
$
0.6
$
0.6
Employee-related expenses
—
—
0.1
0.1
Gain from sale of plant3
(6.3
)
(5.9
)
(6.3
)
(5.9
)
Consolidation of Personal Care
manufacturing facilities - U.S. and Europe:4
Severance
0.5
0.4
0.6
0.4
Asset impairment
—
—
0.1
0.1
Lake Zurich, Illinois plant shutdown and
transfer of production to new elastics lines in Terre Haute,
Indiana:4
Severance
0.5
0.4
0.7
0.6
Asset impairment
—
—
0.2
0.2
Accelerated depreciation1
0.5
0.4
0.8
0.6
Product qualifications1
0.1
0.1
0.2
0.1
Reserve for inventory impairment -
Personal Care's Hungary facility
0.2
0.1
0.2
0.1
Other restructuring costs - severance
0.1
0.1
0.7
0.5
Write-off Personal Care production line -
Guangzhou, China facility
—
—
0.4
0.3
Total
(4.2
)
(4.2
)
(1.7
)
(2.2
)
Losses from sale of assets, investment
writedowns and other items:
Estimated excess costs associated with
ramp-up of new product offerings and additional expenses related to
strategic capacity expansion projects1
0.3
0.3
0.8
0.6
Total for PE Films
$
(3.9
)
$
(3.9
)
$
(0.9
)
$
(1.6
)
Corporate:
Professional fees associated with:
remediation activities and other costs relating to the Company’s
material weaknesses in internal control over financial reporting;
business development activities; and implementation of new
accounting guidance2
$
1.6
$
1.3
$
4.5
$
3.5
Tax adjustment - FIN 48 reserve
reversal
—
(2.0
)
—
(2.0
)
Total for Corporate
$
1.6
$
(0.7
)
$
4.5
$
1.5
1 Included in “Cost of goods sold” in the
condensed consolidated statements of income.
2 Included in “Selling, R&D and
general expenses” in the condensed consolidated statements of
income.
3 Included in “Other income (expense),
net” in the condensed consolidated statements of income.
4 See additional details in (c) below.
Three Months Ended
September 30, 2018
Nine Months Ended
September 30, 2018
($ in millions)
Pre-Tax
Net of Tax
Pre-Tax
Net of Tax
Aluminum Extrusions:
Losses associated with plant shutdowns,
asset impairments and restructurings:
Other restructuring costs - severance
$
—
$
—
$
0.1
$
0.1
Losses from sale of assets, investment
writedowns and other items:
Wind damage to roof of Elkhart, Indiana
plant2
0.1
0.1
0.1
0.1
Environmental charges at Carthage,
Tennessee facility1
0.2
0.1
0.2
0.1
Total
0.3
0.2
0.3
0.2
Total for Aluminum Extrusions
$
0.3
$
0.2
$
0.4
$
0.3
PE Films:
Losses associated with plant shutdowns,
asset impairments and restructurings:
Shanghai plant shutdown:
Asset-related expenses
$
—
$
—
$
0.1
$
0.1
Severance & employee-related
expenses
1.1
1.1
1.4
1.4
Severance & employee-related expenses
- administrative1
0.2
0.2
0.3
0.3
Accelerated depreciation1
0.4
0.4
0.5
0.5
Other restructuring costs - severance
0.2
0.2
0.3
0.3
Total
1.9
1.9
2.6
2.6
Losses from sale of assets, investment
writedowns and other items:
Estimated excess costs associated with
ramp-up of new product offerings and additional expenses related to
strategic capacity expansion projects1
0.2
0.1
1.7
1.5
Costs to prepare a market study2
0.2
0.1
0.2
0.1
Total
0.4
0.2
1.9
1.6
Total for PE Films
$
2.3
$
2.1
$
4.5
$
4.2
Corporate:
Professional fees associated with:
remediation activities and other costs relating to the Company’s
material weaknesses in internal control over financial reporting;
business development activities; and implementation of new
accounting guidance2
$
0.2
$
0.1
$
0.5
$
0.4
1 Included in “Cost of goods sold” in the
condensed consolidated statements of income.
2 Included in “Selling, R&D and
general expenses” in the condensed consolidated statements of
income.
(c)
The Company plans to further consolidate
the production of certain personal care products in the US and
Europe and, in connection with this consolidation, to close its PE
Films manufacturing facility in Lake Zurich, Illinois, which
produces elastic materials. Production at the Lake Zurich plant is
expected to cease during the fourth quarter of 2019 with product
transfers to the new elastic production line at Terre Haute,
Indiana. The Company anticipates product transfers in Europe to
take place over the next twelve months. As a result of this
consolidation, the Company expects to recognize pre-tax cash costs
of $9.3 million associated with these activities comprised of (i)
customer-related costs ($1.2 million), (ii) severance and other
employee related costs ($3.0 million), and (iii) asset disposal and
other cash costs ($5.1 million). In addition, the Company expects
non-cash asset write-offs and accelerated depreciation of $1.7
million. Pre-tax annual cash savings from consolidating operations
of $4 million are expected. Proceeds from the expected sale of Lake
Zurich’s real property are estimated at approximately $5 million.
The Company anticipates that these activities will be completed by
the end of 2020.
(d)
A gain on the Company’s investment in
kaléo of $4.3 million was recognized in the third quarter of 2019,
and $28.5 million was recognized in the first nine months of 2019,
which included a $17.6 million dividend, compared to a loss of $2.1
million in the third quarter of 2018 and a gain of $11.9 million in
the first nine months of 2018 (included in “Other income (expense),
net” in the condensed consolidated statements of income).
(e)
During the third quarter of 2018, the
Company performed a goodwill impairment analysis related to the
Personal Care component of PE Films. This review was undertaken as
a result of the loss of business from a key customer and revised
projections for PE Films. Based on an evaluation of projections
under various business planning scenarios, the Company concluded
that the value of the Personal Care component of PE Films was less
than the carrying value of the underlying working capital and
long-lived net assets. The assessment resulted in a full write-off
of the goodwill of $47 million associated with the acquisition of
certain components of PE Films.
(f)
On October 30, 2019, Bonnell Aluminum
announced a rebranding initiative. Bonnell and its subsidiaries,
AACOA and Futura, will now all fall under the Bonnell Aluminum
brand. The usage of the AACOA and Futura trade names will be
discontinued at the end of 2019. In September 2019, management
committed to implement the rebranding initiative. Prior to this
commitment, the AACOA trade name had an indefinite useful life and
a remaining net book value of $4.8 million, and the Futura trade
name had an estimated remaining useful life of approximately 10.5
years and a remaining net book value of $5.4 million. As a result
of the rebranding initiative, there was a change in estimate in the
useful lives for both trade names to 4 months, the point at which
the rebranding initiative is estimated to be substantially
complete. The non-cash amounts amortized and to be amortized in the
third and fourth quarters of 2019, respectively, related to these
trade names are as follows:
(in millions)
Three Months Ended
September 30, 2019
December 31, 2019
AACOA - accelerated
$
1.2
$
3.6
Futura - accelerated
1.3
3.9
Futura - ongoing1
0.1
0.1
Total amortization
$
2.6
$
7.6
1 Amortization based on original useful life.
(g)
Net debt is calculated as follows:
(in millions)
September 30,
December 31,
Increase/
2019
2018
(Decrease)
Debt
$
68.0
$
101.5
$
(33.5
)
Less: Cash and cash equivalents
36.9
34.4
2.5
Net debt
$
31.1
$
67.1
$
(36.0
)
Net debt is not intended to represent
total debt as defined by GAAP. Net debt is utilized by management
in evaluating the Company’s financial leverage and equity
valuation, and management believes that investors also may find net
debt to be helpful for the same purposes.
(h)
Tredegar’s presentation of net income and
earnings per share from ongoing operations are non-GAAP financial
measures that exclude the effects of gains or losses associated
with plant shutdowns, asset impairments and restructurings, gains
or losses from the sale of assets, goodwill impairment charges and
other items (which includes unrealized gains and losses for an
investment accounted for under the fair value method), which have
been presented separately and removed from net income and diluted
earnings per share as reported under GAAP. Net income and earnings
per share from ongoing operations are key financial and analytical
measures used by management to gauge the operating performance of
Tredegar’s ongoing operations. They are not intended to represent
the stand-alone results for Tredegar’s ongoing operations under
GAAP and should not be considered as an alternative to net income
or earnings per share as defined by GAAP. They exclude items that
we believe do not relate to Tredegar’s ongoing operations.
Reconciliations of the pre-tax and post-tax balances attributed to
net income from ongoing operations for the three and nine months
ended September 30, 2019 and 2018 are shown below in order to show
the impact on the effective tax rate:
(In Millions)
Pre-tax
Taxes Expense
(Benefit)
After-Tax
Effective
Tax Rate
Three Months Ended September 30,
2019
(a)
(b)
(b)/(a)
Net income reported under GAAP
$
17.1
$
—
$
17.1
(0.3
)%
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
(4.1
)
0.1
(4.2
)
(Gains) losses from sale of assets and
other
0.7
2.2
(1.5
)
Net income from ongoing operations
$
13.7
$
2.3
$
11.4
16.9
%
Three Months Ended September 30,
2018
Net loss reported under GAAP
$
(40.9
)
$
(6.7
)
$
(34.2
)
16.4
%
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
2.1
0.1
2.0
(Gains) losses from sale of assets and
other
3.2
0.6
2.6
Goodwill impairment
46.8
8.6
38.2
Net income from ongoing operations
$
11.2
$
2.6
$
8.6
22.9
%
Nine Months Ended September 30,
2019
Net income reported under GAAP
$
59.8
$
8.4
$
51.4
14.1
%
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
(1.6
)
0.6
(2.2
)
(Gains) losses from sale of assets and
other
(20.1
)
(1.3
)
(18.8
)
Net income from ongoing operations
$
38.1
$
7.7
$
30.4
20.3
%
Nine Months Ended September 30,
2018
Net income (loss) reported under GAAP
$
1.8
$
3.1
$
(1.3
)
172.1
%
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
2.8
0.2
2.6
(Gains) losses from sale of assets and
other
(8.7
)
(2.3
)
(6.4
)
Goodwill impairment
46.8
8.6
38.2
Net income from ongoing operations
$
42.7
$
9.6
$
33.1
22.4
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191106006036/en/
Tredegar Corporation Neill Bellamy, 804-330-1211
neill.bellamy@tredegar.com
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