Tredegar Corporation (NYSE:TG, also the “Company” or “Tredegar”)
today reported first quarter financial results for the period ended
March 31, 2020.
First quarter 2020 net loss was $22.3 million ($0.67 per share)
compared with net income of $19.8 million ($0.60 per share) in the
first quarter of 2019. Net income from ongoing operations, which
excludes special items, was $11.3 million ($0.34 per share) in the
first quarter of 2020 and $7.3 million ($0.22 per share) in the
first quarter of 2019. 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 months
ended March 31, 2020 and 2019, is provided in Note (a) of the Notes
to the Financial Tables in this press release.
First Quarter Financial Results Highlights
- Earnings before interest, taxes, depreciation and amortization
("EBITDA") from ongoing operations for Aluminum Extrusions of $11.7
million was $4.5 million lower than the first quarter of 2019
- EBITDA from ongoing operations for PE Films of $14.2 million
was $7.6 million higher than the first quarter of 2019
- EBITDA from ongoing operations for Flexible Packaging Films of
$6.6 million was $3.4 million higher than the first quarter of
2019
John Steitz, Tredegar’s president and chief executive officer
said, “All of our manufacturing sites remain operational under
COVID-19 conditions as essential businesses, with the health and
safety of our employees being our top priority. Consolidated
financial results from ongoing operations for the first quarter
were favorable to last year despite results at Bonnell Aluminum
being adversely impacted by a downturn in its markets, particularly
during the last two weeks of the quarter due to the pandemic.
Consumer demand during the pandemic has been strong for the end-use
products made with materials supplied by Terphane and the Personal
Care component of PE Films. Our Surface Protection component of PE
Films had the third highest profit quarter on record but is
expecting a slowdown for most of the balance of 2020, based on
industry projections for products using flat panel displays.”
Mr. Steitz continued, “As we face the challenges of COVID-19, we
feel extremely fortunate to have a strong balance sheet with debt
net of cash that has not exceeded $21 million on a weekly basis so
far in 2020.”
THE IMPACT OF COVID-19
Essential Business and Employee Considerations
The Company’s priorities during the COVID-19 pandemic have been
to protect the health and safety of employees while keeping its
manufacturing sites open due to the essential nature of many of its
products. The Company’s businesses have been deemed “essential
services,” “critical manufacturers,” and “life sustaining
industries” under applicable state or national stay-at-home orders
and therefore remain operational as of the date of this
communication. Within the limitations imposed by the health and
safety procedures described below, the Company has continued to
manufacture a broad range of products at its facilities, including
components for end-uses that are essential, critical or life
sustaining such as: (i) polyester-based materials for flexible food
packaging, (ii) polyethylene-based film and laminate materials for
personal hygiene and packaging products, (iii) aluminum extrusion
parts for hospital beds, FEMA tents, temporary hospital structures
and medical equipment, (iv) materials for face masks, and (v)
polyethylene-based films used to protect components of flat panel
displays during manufacturing and transportation processes, which
are instrumental to allowing employees to work from home.
The Company’s efforts to protect the health and well-being of
its employees from COVID-19 began at the Company’s Guangzhou, China
facility. Protocols developed at Guangzhou guided our COVID-related
efforts at other facilities as the outbreak spread beyond China.
Those efforts continue to improve as COVID-19-informed work
practices evolve and the Company responds to recommended and
mandated actions of government and health authorities.
The Company has educated employees about COVID-19 symptoms and
hygiene best practices. It has adopted COVID-19-related pay and
sick leave policies that incentivize employees to stay home if they
feel ill or have been exposed to others with the illness. The
Company’s policies include taking employee’s temperature before
entering production facilities; mandating handwashing; requiring
social distancing and, where social distancing is difficult,
requiring face coverings; streamlining onsite personnel to only
those required for production and distribution; strongly
encouraging and, where mandated, requiring remote work for all
those who can work from home; and disinfecting facilities. In the
U.S., the Company has educated employees on COVID-19-related
benefits (including leave benefits) under the Families First
Coronavirus Response Act (“FFCRA”) and the Federal CARES Act. In
addition, the Company is providing sickness- and childcare-related
paid leave rights equivalent to those available under the FFCRA to
employees at 500+ employee facilities who would not otherwise
qualify for such paid leave rights under U.S. law. Based on the
Company's understanding, it does not currently qualify for the U.S.
government Paycheck Protection Program or Economic Injury Disaster
Loan program.
On April 1, the Company began providing a weekly dashboard to
its Board of Directors (the “Board”) highlighting the impacts of
COVID-19 on its employees, businesses and financial condition.
As of May 6, the Company was aware of twelve confirmed cases of
COVID-19 for its employees, with additional employees absent,
pending testing results or self-quarantined. The Personal Care
facility in Pune, India was temporarily shut down by a nationwide
lockdown from late March to early April. The only COVID-19-related
employee layoffs to-date have occurred at Bonnell Aluminum.
Bonnell Aluminum continuously attempts to match its direct labor
with demand, including declining demand associated with the
pandemic. Its layoffs of full-time, temporary or contract workers
through May 6 was approximately 240 people. The Company’s Newnan,
Georgia plant was temporarily shut down for disinfecting for 2 days
in late March and 7.5 days again in April, which the Company
estimates costs it approximately $300,000 per five-day week for
paying direct labor not covered by programs under the FFCRA.
Financial Considerations
The 2020 annual plan for Bonnell Aluminum (pre-COVID-19)
included sales volume of 201 million pounds and EBITDA from ongoing
operations of $65 million, versus 2019 sales volume of 208 million
pounds and EBITDA from ongoing operations of $65.7 million. Bonnell
Aluminum’s current projection for 2020, which accounts for the
pandemic and is highly uncertain, includes sales volume of 173
million pounds and EBITDA from ongoing operations of $45 million.
The latest projections assume no further downtime at Bonnell
Aluminum facilities and the collection of approximately 98% of
gross accounts receivable (consistent with historical levels),
which totaled approximately $65 million at the end of the first
quarter of 2020. There were approximately 790 accounts receivable
at the end of the first quarter of 2020, averaging $82,000 per
account, with 10 accounts exceeding $1 million each and the highest
single balance of $3.7 million.
To date, Bonnell Aluminum’s Niles, Michigan and Elkhart, Indiana
facilities (which were acquired as “AACOA” in October 2012) have
been the most severely impacted by the pandemic, with over 80% of
the aluminum extrusions manufactured at these facilities sold to
customers that make consumer durable products, such as recreational
boating and power sports vehicles, as well as to customers serving
building and construction and automotive markets. The original 2020
plan for EBITDA from ongoing operations associated with AACOA
before the pandemic was $9.7 million. The latest EBITDA from
ongoing operations projection for 2020, which accounts for a
significant downturn expected with reduced demand created by the
pandemic, is less than $1 million. Based on this projection and
further recession and recovery scenarios, the Company concluded
that the estimated fair value of the AACOA reporting unit was less
than its carrying value, resulting in a write-off of its goodwill
of $13.7 million ($10.5 million after related deferred income
taxes).
Bonnell Aluminum’s future sales volume, EBITDA from ongoing
operations, collections, bad debts, employment level and net cash
flow are highly dependent upon the time it takes to safely reopen
the U.S. economy, the ability of its customers and consumers to
access government programs providing liquidity and support during
the crisis, and the depth and duration of the recession that
COVID-19 causes.
Demand has been strong under COVID-19 conditions for the
Company’s flexible food packaging films produced by Terphane and
the hygiene materials and tissue & towel overwrap films
produced by the Personal Care component of PE Films. During the
first quarter of 2020, the Surface Protection component of PE Films
had its third highest profit quarter on record but is now expecting
a slowdown for most of the balance of 2020, based on industry
projections for products using flat panel displays. No significant
issues have arisen to-date on the collection of accounts receivable
at Terphane, Personal Care or Surface Protection.
Tredegar’s defined benefit pension plan, which was frozen at the
end of 2007, was underfunded on a GAAP basis by $100 million at
December 31, 2019, comprised of investments at fair value of $218
million and a projected benefit obligation (“PBO”) of $318 million.
GAAP accounting requires adjustment for changes in values of assets
and the PBO only at the end of each year, even though the value of
these amounts changes daily. The Company estimates COVID-19-related
changes to the values of pension plan assets and liabilities
resulted in an increase in the underfunding from $100 million to
$125 million at March 31, 2020.
Tredegar owns approximately 18.4% of Kaleo, Inc. (“kaléo”),
which makes and sells an epinephrine delivery device under the name
AUVI-Q®. The Company accounts for its investment in kaléo on a fair
value basis. The Company’s estimate of the fair value of its
interest in kaléo at March 31, 2020 was $69.4 million ($57.6
million after deferred income taxes), a decline of $26.1 million
($20.4 million after deferred income taxes) since the previous
December 31, 2019 valuation. The decline in estimated fair value
was primarily due to: (i) a decline in enterprise value-to-EBITDA
multiples for comparable companies, (ii) lower expectations for
2020 EBITDA and net cash flow associated with lower market demand
for epinephrine delivery devices resulting from COVID-19-related
stay-at-home guidelines, especially if such guidelines impact the
peak back-to-school season, and (iii) a higher private company
liquidity discount. Kaléo’s stock is not publicly traded. The
ultimate value of Tredegar’s ownership interest in kaléo could be
materially different from the $69.4 million estimated fair value
reflected in the Company’s financial statements at March 31,
2020.
Tredegar had debt (all under its revolving credit agreement) of
$43 million and cash of $35.1 million at March 31, 2020. The
revolving credit agreement allows borrowings of up to $500 million
and matures in June 2024. The Company believes that its most
restrictive covenant (computed quarterly) is the leverage ratio,
which permits maximum borrowings of up to 4x EBITDA, as defined
under the agreement for the trailing four quarters (“Credit
EBITDA”). The Company had Credit EBITDA and a leverage ratio
(calculated in the “Liquidity and Capital Resources” section of the
Company’s Form 10-Q) of $97.0 million and 0.44x respectively, at
March 31, 2020. The Company’s stress testing under a
COVID-19-driven recession indicates a low probability that a future
leverage ratio will exceed 4.0x, given the low leverage ratio that
exists today. In any event, the Company is focused on conserving
cash and borrowing capacity and has reduced its capital
expenditures budget for 2020 from $47 million to $36 million and
continues to optimize working capital. The Company’s current
quarterly dividend at 12 cents per share aggregates to quarterly
dividend payments of approximately $4 million. All decisions with
respect to the declaration and payment of dividends will be made by
the Board based upon earnings, financial condition, anticipated
cash needs, restrictions under the revolving credit agreement and
other relevant considerations.
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 first quarter results for Aluminum Extrusions is
provided below:
Three Months Ended
Favorable/ (Unfavorable) %
Change
(In thousands, except percentages)
March 31,
2020
2019
Sales volume (lbs)
47,317
53,616
(11.7)
%
Net sales
$
117,887
$
139,047
(15.2)
%
Ongoing operations:
EBITDA
$
11,677
$
16,166
(27.8)
%
Depreciation & amortization
$
(4,113)
$
(4,081)
(0.8)
%
EBIT*
$
7,564
$
12,085
(37.4)
%
Capital expenditures
$
1,574
$
4,367
* See the net sales and EBITDA from
ongoing operations by segment statements for a reconciliation of
this non-GAAP measure to GAAP.
First Quarter 2020 Results vs. First
Quarter 2019 Results
Net sales (sales less freight) in the first quarter of 2020
decreased versus 2019 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 first quarter of 2020 decreased by 11.7% versus
2019.
EBITDA from ongoing operations in the first quarter of 2020
decreased by $4.5 million in comparison to the first quarter of
2019 due to lower volumes ($4.9 million), higher labor and
employee-related costs and miscellaneous expenses ($1.1 million),
partially offset by higher pricing ($1.6 million).
Lower sales volume and bookings for Bonnell Aluminum coupled
with industry data reflecting, among other factors, the impact of
COVID-19, appear to indicate a downturn is occurring across all key
end-use markets, with double-digit declines in the automotive and
specialty markets. See the “The Impact of COVID-19” section for
more information on business conditions and projections, including
the write-off of goodwill relating to AACOA.
Projected Capital Expenditures and
Depreciation & Amortization
Capital expenditures for Bonnell Aluminum are projected to be
$14 million in 2020, including the expected initial investment for
a multi-year project to migrate to a new division-wide enterprise
resource planning and manufacturing excellence system ($3 million,
which could be delayed as a result of COVID-19), infrastructure
upgrades at the Carthage, Tennessee and Newnan, Georgia facilities
($2 million), and approximately $9 million required to support
continuity of current operations. Depreciation expense is projected
to be $14 million in 2020. Amortization expense is projected to be
$3 million in 2020.
PE Films
PE Films is composed of surface protection films, personal care
materials, polyethylene overwrap films and films for other markets.
A summary of first quarter operating results from ongoing
operations for PE Films is provided below:
Three Months Ended
Favorable/ (Unfavorable) %
Change
(In thousands, except percentages)
March 31,
2020
2019
Sales volume (lbs)
27,529
25,846
6.5
%
Net sales
$
71,261
$
66,779
6.7
%
Ongoing operations:
EBITDA
$
14,189
$
6,543
116.9
%
Depreciation & amortization
$
(3,724)
$
(3,592)
(3.7)
%
EBIT*
$
10,465
$
2,951
254.6
%
Capital expenditures
$
2,416
$
6,704
* See the net sales and EBITDA from
ongoing operations by segment statements for a reconciliation of
this non-GAAP measure to GAAP.
First Quarter 2020 Results vs. First
Quarter 2019 Results
Net sales in the first quarter of 2020 increased by $4.5 million
versus 2019 due to higher sales in Surface Protection. Surface
Protection sales increased $8.5 million while Personal Care sales
decreased $3.6 million.
Net sales in Surface Protection increased due to higher volume
and favorable mix. Financial results in the first quarter of 2019
were unfavorably impacted by weak volume associated with a
customer’s inventory correction and a slowdown in the mobile phone
market. As discussed further below, a possible customer product
transition in Surface Protection continues to be delayed. Net sales
decreased by $1.7 million in Personal Care as a result of lower
volume in elastics and unfavorable pricing, partially offset by
higher volume in acquisition distribution layer, tissue & towel
overwrap and topsheet materials, which the Company believes all
benefited from COVID-19. In addition, net sales were adversely
impacted by the decline in the value of currencies for operations
outside of the U.S. relative to the U.S. Dollar ($1.9 million).
EBITDA from ongoing operations in the first quarter of 2020
increased by $7.6 million versus the first quarter of 2019
primarily due to:
- A $5.4 million increase from Surface Protection, primarily due
to higher volume and mix (net favorable impact of $5.6 million) and
lower fixed costs ($0.9 million), partially offset by higher
selling, general and administrative costs ($0.6 million) and lower
productivity ($0.5 million); and
- A $2.6 million increase from Personal Care, primarily due to
favorable production efficiencies ($1.0 million), lower fixed and
selling, general and administrative costs ($0.8 million), the
favorable impact of the timing of resin cost passthroughs ($0.9
million) and favorable net foreign exchange impact ($0.6 million),
partially offset by unfavorable pricing ($0.6 million).
See the “The Impact of COVID-19” section for more
information.
Customer Product Transitions in Personal Care and Surface
Protection
The Company previously disclosed a significant customer product
transition for the Personal Care component of PE Films. Annual
sales for this product declined from approximately $70 million in
2018 to $30 million in 2019. The Company extended an arrangement
with this customer that is expected to generate sales of this
product at approximately 2019 levels through at least 2022.
Personal Care had approximately break-even EBITDA from ongoing
operations in 2019 as competitive pressures resulted in missed
sales and margin goals. Personal Care continues to focus on new
business development and cost reduction initiatives in an effort to
improve profitability.
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 processes and then discarded.
The Company previously reported the risk that a portion of its
film products used in surface protection applications will 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 the last four quarters. The Company estimates that
during the next four quarters the adverse impact on EBITDA from
ongoing operations from this customer shift versus the last four
quarters ended March 31, 2020 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.
Projected Capital Expenditures and
Depreciation & Amortization
Capital expenditures for PE Films are projected to be $14
million in 2020 including: $1.5 million to complete a scale-up line
in Surface Protection to improve development and speed to market
for new products; $6 million for other development projects; and $6
million for capital expenditures required to support continuity of
current operations. Depreciation expense is projected to be $15
million in 2020. There is no amortization expense for PE Films.
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 first quarter operating results from
ongoing operations for Flexible Packaging Films is provided
below:
Three Months Ended
Favorable/ (Unfavorable) %
Change
(In thousands, except percentages)
March 31,
2020
2019
Sales volume (lbs)
25,779
25,462
1.2
%
Net sales
$
30,574
$
33,619
(9.1)
%
Ongoing operations:
EBITDA
$
6,553
$
3,203
104.6
%
Depreciation & amortization
$
(428)
$
(344)
(24.4)
%
EBIT*
$
6,125
$
2,859
114.2
%
Capital expenditures
$
848
$
1,735
* See the net sales and EBITDA from
ongoing operations by segment statements for a reconciliation of
this non-GAAP measure to GAAP.
First Quarter 2020 Results vs. First
Quarter 2019 Results
Net sales in the first quarter of 2020 decreased 9.1% versus the
first quarter of 2019 primarily due to lower selling prices from
the passthrough of lower raw material costs.
Terphane’s EBITDA from ongoing operations in the first quarter
of 2020 increased by $3.4 million versus the first quarter of 2019
primarily due to:
- A benefit from pricing and higher volume ($0.9 million),
production efficiencies ($0.4 million) and lower fixed costs ($0.5
million);
- A benefit of $1.2 million resulting from the favorable
settlement of a dispute related to value-added taxes;
- Net favorable foreign currency translation of Real-denominated
operating costs ($0.2 million); and
- Foreign currency transaction gains of $0.1 million in 2020
versus minimal gains in the first quarter of 2019.
Terphane has experienced strong demand for food packaging
materials during the COVID-19 environment. See the “The Impact of
COVID-19” section for more information.
Projected Capital Expenditures and
Depreciation & Amortization
Capital expenditures are projected to be $8 million in 2020,
including $4 million for new capacity for value-added products and
productivity projects and $4 million for capital expenditures
required to support continuity of current operations. Depreciation
expense is projected to be $2.0 million in 2020. Amortization
expense is projected to be $0.4 million in 2020.
Corporate Expenses, Interest, Taxes & Other
Pension expense was $3.5 million in the first three months of
2020, versus $2.4 million in the first three months of 2019. The
impact on earnings from pension expense is reflected in “Corporate
expenses, net” in the Net sales and EBITDA from ongoing operations
by segment table. Pension expense is projected to be $14.2 million
in 2020, which is determined at the beginning of the year based on
the funded status of the Company’s defined benefit pension plan and
actuarial assumptions at that time. See the “The Impact of
COVID-19” section for the Company’s estimate of the funded status
of the pension plan at March 31, 2020. Corporate expenses, net,
increased in the first three months of 2020 versus 2019 primarily
due to higher stock-based employee compensation ($0.2 million), and
consulting fees ($1.5 million) related to the identification and
remediation of previously disclosed material weaknesses in the
Company’s internal control over financial reporting and to business
development activities.
Interest expense was $0.6 million in the first three months of
2020 in comparison to $1.2 million in the first three months of
2019, primarily due to lower average debt levels.
The effective tax rate used to compute income tax expense from
continuing operations was 22.7% in the first three months of 2020,
compared to 16.9% in the first three months of 2019. 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 25.0% for the first three months
of 2020 versus 19.8% in 2019 (see also Note (g) 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 2020 and 2019 will be provided in
the Company’s Quarterly Report on Form 10-Q for the period ended
March 31, 2020 ("Form 10-Q").
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,” “appear to,” “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. In
addition, our current projections for Tredegar's businesses could
be materially affected by the highly uncertain impact of COVID-19
upon our businesses. As a consequence, our results could differ
significantly from our projections, depending on, among other
things, the duration of "shelter in place" orders and the ultimate
impact of the pandemic on our employees, our supply chains, our
customers and the U.S. and world economies. 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;
- the impact of public health epidemics on our employees, our
production and the global economy, such as the coronavirus
(COVID-19) currently impacting the global economy;
- 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, 2019.
Readers are urged to review and consider carefully the disclosures
Tredegar makes in its filings with the SEC and part II, Item 1A of
the Form 10-Q.
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 2019 sales of $1.0 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
March 31,
2020
2019
Sales
$
228,302
$
248,466
Other income (expense), net (c)(d)
(26,211)
17,110
202,091
265,576
Cost of goods sold (c)
175,311
200,653
Freight
8,580
9,021
Selling, R&D and general expenses
(c)
28,024
26,497
Amortization of intangibles
758
891
Pension and postretirement benefits
3,567
2,415
Interest expense
555
1,232
Asset impairments and costs associated
with exit and disposal activities, net of adjustments (c)
461
1,056
Goodwill impairment (e)
13,696
—
230,952
241,765
Income (loss) before income taxes
(28,861)
23,811
Income tax expense (benefit)
(6,540)
4,026
Net income (loss)
$
(22,321)
$
19,785
Earnings (loss) per share:
Basic
$
(0.67)
$
0.60
Diluted
$
(0.67)
$
0.60
Shares used to compute earnings (loss) per
share:
Basic
33,313
33,123
Diluted
33,313
33,127
Tredegar Corporation
Net Sales and EBITDA from
Ongoing Operations by Segment
(In Thousands)
(Unaudited)
Three Months Ended
March 31,
2020
2019
Net Sales
Aluminum Extrusions
$
117,887
$
139,047
PE Films
71,261
66,779
Flexible Packaging Films
30,574
33,619
Total net sales
219,722
239,445
Add back freight
8,580
9,021
Sales as shown in the Condensed
Consolidated Statements of Income
$
228,302
$
248,466
EBITDA from Ongoing Operations
Aluminum Extrusions:
Ongoing operations:
EBITDA (b)
11,677
16,166
Depreciation & amortization
(4,113)
(4,081)
EBIT (b)
7,564
12,085
Plant shutdowns, asset impairments,
restructurings and other (c)
(688)
(40)
Goodwill impairment (e)
(13,696)
—
PE Films:
Ongoing operations:
EBITDA (b)
14,189
6,543
Depreciation & amortization
(3,724)
(3,592)
EBIT (b)
10,465
2,951
Plant shutdowns, asset impairments,
restructurings and other (c)
(906)
(1,378)
Flexible Packaging Films:
Ongoing operations:
EBITDA (b)
6,553
3,203
Depreciation & amortization
(428)
(344)
EBIT (b)
6,125
2,859
Total
8,864
16,477
Interest income
52
59
Interest expense
555
1,232
Gain (loss) on investment in kaléo
accounted for under fair value method (d)
(26,100)
17,082
Stock option-based compensation costs
584
415
Corporate expenses, net (c)
10,538
8,160
Income (loss) before income taxes
(28,861)
23,811
Income tax expense (benefit)
(6,540)
4,026
Net income (loss)
$
(22,321)
$
19,785
Tredegar Corporation
Condensed Consolidated Balance
Sheets
(In Thousands)
(Unaudited)
March 31, 2020
December 31, 2019
Assets
Cash & cash equivalents
$
35,059
$
31,422
Accounts & other receivables, net
106,211
107,558
Income taxes recoverable
565
4,100
Inventories
84,215
81,380
Prepaid expenses & other
8,772
8,696
Total current assets
234,822
233,156
Property, plant & equipment, net
233,631
242,890
Right-of-use leased assets
18,559
19,220
Investment in kaléo (cost basis of
$7,500)
69,400
95,500
Identifiable intangible assets, net
21,571
22,636
Goodwill
67,708
81,404
Deferred income taxes
13,218
13,129
Other assets
4,277
4,733
Total assets
$
663,186
$
712,668
Liabilities and Shareholders’
Equity
Accounts payable
$
105,066
$
103,657
Accrued expenses
46,862
45,809
Lease liability, short-term
2,973
3,002
Total current liabilities
154,901
152,468
Lease liability, long-term
17,010
17,689
Long-term debt
43,000
42,000
Pension and other postretirement benefit
obligations, net
105,265
107,446
Deferred income taxes
—
11,019
Other noncurrent liabilities
4,420
5,297
Shareholders’ equity
338,590
376,749
Total liabilities and shareholders’
equity
$
663,186
$
712,668
Tredegar Corporation
Condensed Consolidated
Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months Ended March 31,
2020
2019
Cash flows from operating activities:
Net income (loss)
$
(22,321)
$
19,785
Adjustments for noncash items:
Depreciation
7,557
7,168
Amortization of intangibles
758
891
Reduction of right-of-use lease asset
696
632
Goodwill impairment
13,696
—
Deferred income taxes
(9,804)
2,410
Accrued pension income and post-retirement
benefits
3,567
2,415
(Gain) loss on investment accounted for
under the fair value method
26,100
(17,082)
(Gain) loss on asset impairments and
divestitures
—
421
Net (gain) loss on sale of assets
—
(385)
Changes in assets and liabilities:
Accounts and other receivables
(2,849)
1,595
Inventories
(6,982)
(6,794)
Income taxes recoverable/payable
3,478
1,664
Prepaid expenses and other
(294)
1,078
Accounts payable and accrued expenses
3,588
(2,033)
Lease liability
(741)
(640)
Pension and postretirement benefit plan
contributions
(1,967)
(1,724)
Other, net
595
1,727
Net cash provided by operating
activities
15,077
11,128
Cash flows from investing activities:
Capital expenditures
(4,854)
(12,879)
Proceeds from the sale of assets and
other
—
22
Net cash used in investing activities
(4,854)
(12,857)
Cash flows from financing activities:
Borrowings
16,500
23,750
Debt principal payments
(15,500)
(15,250)
Dividends paid
(4,005)
(3,652)
Repurchase of employee common stock for
tax withholdings
(586)
(815)
Net cash (used in) provided by financing
activities
(3,591)
4,033
Effect of exchange rate changes on
cash
(2,995)
(399)
Increase in cash and cash equivalents
3,637
1,905
Cash and cash equivalents at beginning of
period
31,422
34,397
Cash and cash equivalents at end of
period
$
35,059
$
36,302
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 months ended March 31, 2020 and 2019 is shown below:
(in millions, except per share data)
Three Months Ended March 31,
2020
2019
Net income (loss) as reported under
GAAP
$
(22.3)
$
19.8
After-tax effects of:
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
0.4
0.8
(Gains) losses from sale of assets and
other:
(Gain) loss associated with the investment
in kaléo
20.4
(14.3)
Other
2.3
1.0
Goodwill impairment
10.5
—
Net income from ongoing operations
$
11.3
$
7.3
Earnings (loss) per share as reported
under GAAP (diluted)
$
(0.67)
$
0.60
After-tax effects per diluted share
of:
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
0.01
0.02
(Gains) losses from sale of assets and
other:
(Gain) loss associated with the investment
in kaléo
0.61
(0.43)
Other
0.07
0.03
Goodwill impairment
0.32
—
Earnings per share from ongoing operations
(diluted)
$
0.34
$
0.22
Reconciliations of the pre-tax and
post-tax balances attributed to net income are shown in Note
(g).
(b)
EBITDA (earnings before interest, taxes, depreciation and
amortization) from ongoing operations is the key profitability
metric used by the Company’s chief operating decision maker to
assess segment financial performance. For more business segment
information, see Note 11 in the Notes to Financial Statements in
the Form 10-Q. EBIT (earnings before interest and taxes)
from ongoing operations is a non-GAAP financial measure included in
the accompanying tables and the reconciliation of segment financial
information to consolidated results for the Company in the net
sales and EBITDA from ongoing operations by segment statements. It
is 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 as defined by GAAP. EBIT is a widely
understood and utilized metric that is meaningful to certain
investors. The Company believes that including this financial
metric in the reconciliation of management’s performance metric,
EBITDA from ongoing operations, provides useful information to
those investors that primarily utilize EBIT to analyze the
Company’s core operations.
(c)
Losses associated with plant shutdowns, asset impairments,
restructurings and other items in the first three months of 2020
and 2019 detailed below are shown in the statements of net sales
and EBITDA from ongoing operations 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 March 31,
2020
Pre-Tax
Net of Tax
Aluminum Extrusions:
Losses from sale of assets, investment
writedowns and other items:
Consulting expenses for ERP feasibility
study3
$
0.7
$
0.5
PE Films:
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings:
Consolidation of Personal Care
manufacturing facilities - U.S. and Europe:
Product qualifications1
$
0.1
$
0.1
Lake Zurich, Illinois plant shutdown and
transfer of production to new elastics lines in Terre Haute,
Indiana:
Severance
0.1
0.1
Asset impairment
0.3
0.2
Subtotal for PE Films
0.5
0.4
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
0.4
0.3
Total for PE Films
$
0.9
$
0.7
Corporate:
Professional fees associated with:
remediation activities and other costs relating to the Company’s
material weaknesses in internal control over financial reporting;
and business development activities2
$
2.3
$
1.8
Write-down of investment in Harbinger
Capital Partners Special Situations Fund3
0.2
0.1
Total for Corporate
$
2.5
$
1.9
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.
Three months ended March 31,
2019
($ in millions)
Pre-Tax
Net of Tax
PE Films:
Losses associated with plant shutdowns,
asset impairments and restructurings:
Shanghai plant shutdown:
Asset-related expenses
$
0.2
$
0.2
Other restructuring costs - severance
0.4
0.3
Write-off of Personal Care production line
- Guangzhou, China facility
0.4
0.3
Subtotal for PE Films
1.0
0.8
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
0.2
Total for PE Films
$
1.3
$
1.0
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
$
0.9
$
0.7
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.
(d)
A pre-tax loss on the Company’s investment in kaléo of $26.1
million was recognized in the first quarter of 2020, compared to a
pre-tax gain of $17.1 million in the first quarter of 2019, which
included a $17.6 million dividend (included in “Other income
(expense), net” in the condensed consolidated statements of
income).
(e)
The operations of Aluminum Extrusions’s Niles, Michigan and
Elkhart, Indiana facilities (which were acquired as “AACOA” in
October 2012) have been severely impacted by the COVID-19 pandemic,
with over 80% of the aluminum extrusions manufactured at these
facilities sold to customers that make consumer durable products,
such as recreational boating and power sports vehicles, as well as
to customers serving building and construction and automotive
markets. In the first quarter of 2020, a goodwill impairment charge
of $13.7 million was recognized in Aluminum Extrusions, which
represented the entire amount of goodwill associated with the
acquisition of AACOA. The original 2020 plan for EBITDA from
ongoing operations associated with AACOA before the pandemic was
$9.7 million. The latest EBITDA from ongoing operations projection
for 2020, which accounts for a significant downturn expected with
reduced demand created by the pandemic, is less than $1 million.
Based on this projection and further recession and recovery
scenarios, the Company concluded that the fair value of the AACOA
reporting unit was less than its carrying value.
(f)
Net debt is calculated as follows:
(in millions)
March 31,
December 31,
Increase/
2020
2019
(Decrease)
Debt
$
43.0
$
42.0
$
1.0
Less: Cash and cash equivalents
35.1
31.4
3.7
Net debt
$
7.9
$
10.6
$
(2.7)
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.
(g)
Tredegar’s presentation of net income from ongoing operations is
non-GAAP financial measure that excludes 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 has been presented separately and removed from net
income as reported under GAAP. Net income from ongoing operations
is a key financial and analytical measures used by management to
gauge the operating performance of Tredegar’s ongoing operations.
It is 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 as defined by GAAP. It
excludes 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
months ended March 31, 2020 and 2019 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 March 31,
2020
(a)
(b)
(b)/(a)
Net loss reported under GAAP
$
(28.9)
$
(6.6)
$
(22.3)
22.7
%
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
0.5
0.1
0.4
(Gains) losses from sale of assets and
other
29.7
7.0
22.7
Goodwill impairment
13.7
3.2
10.5
Net income from ongoing operations
$
15.0
$
3.7
$
11.3
25.0
%
Three Months Ended March 31,
2019
Net income reported under GAAP
$
23.8
$
4.0
$
19.8
16.9
%
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
1.0
0.2
0.8
(Gains) losses from sale of assets and
other
(15.8)
(2.5)
(13.3)
Goodwill impairment
—
—
—
Net income from ongoing operations
$
9.0
$
1.7
$
7.3
19.8
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200511005521/en/
Tredegar Corporation Neill Bellamy, 804-330-1211
neill.bellamy@tredegar.com
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