Tredegar Corporation (NYSE:TG, also the “Company” or “Tredegar”)
today reported second quarter financial results for the period
ended June 30, 2019.
The Company recognized net income of $14.5 million ($0.44 per
share) in the second quarter of 2019 compared to net income of
$14.7 million ($0.44 per share) in the second quarter of 2018. Net
income from ongoing operations, which excludes special items, was
$11.7 million ($0.35 per share) in the second quarter of 2019
compared with $11.5 million ($0.35 per share) in the second 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 six months ended June
30, 2019 and 2018, is provided in Note (a) of the Notes to the
Financial Tables in this press release.
Second Quarter Financial Results Highlights
- Operating profit from ongoing operations for PE Films of $7.8
million was $0.9 million lower than the second quarter of 2018
- Operating profit from ongoing operations for Flexible Packaging
Films of $2.5 million was $1.2 million higher than the second
quarter of 2018
- Operating profit from ongoing operations for Bonnell Aluminum
of $14.5 million was $1.4 million higher than the second quarter of
2018
John Steitz, Tredegar’s president and chief executive officer,
said, “Overall PE Films profits declined mainly from the previously
disclosed lost business relating to a customer product transition
in our Personal Care component. Our Surface Protection component of
PE Films had record contribution to our quarterly operating profits
and continued to benefit from a delay in a possible future customer
product transition. Personal Care remains very focused on getting
new business as well as cost reduction initiatives.”
Mr. Steitz continued, “Terphane had another quarter of profit
growth supported by the re-start in June 2018 of a previously idled
production line. Operating profits in Bonnell Aluminum increased in
the quarter despite lower volume. If the volume shortfall persists,
we’ll continue to develop contingency plans to address these
conditions, including proper alignment of our cost structure with
customer demand.”
Mr. Steitz further commented, “We had good net cash flow with
debt net of cash declining by $29 million during the first half of
2019, including a $17.6 million dividend received in April from our
kaléo investment.”
OPERATIONS REVIEW
PE Films
PE Films is composed of surface protection films, personal care
materials, polyethylene overwrap films and films for other markets.
A summary of second quarter and year-to-date operating results from
ongoing operations for PE Films is provided below:
(In Thousands, Except Percentages)
Three Months Ended June 30,
Favorable/ (Unfavorable) %
Change
Six Months Ended June 30,
Favorable/ (Unfavorable) %
Change
2019
2018
2019
2018
Sales volume (lbs)
25,476
30,099
(15.4
)%
51,322
64,922
(20.9
)%
Net sales
$
69,161
$
82,457
(16.1
)%
$
135,941
$
175,707
(22.6
)%
Operating profit from ongoing
operations
$
7,766
$
8,678
(10.5
)%
$
10,717
$
22,712
(52.8
)%
Second Quarter 2019 Results vs. Second
Quarter 2018 Results
Net sales (sales less freight) in the second quarter of 2019
decreased by $13.3 million versus 2018 due to lower sales in
Personal Care. Surface Protection sales increased $4.3 million
while Personal Care sales decreased $18.0 million.
Net sales in Surface Protection increased in the second quarter
of 2019 versus the second quarter of 2018 due to higher 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 ($13 million), including a
large portion associated with the previously disclosed customer
product transition discussed below. 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 second quarter
of 2019 decreased by $0.9 million versus the second quarter of 2018
primarily due to:
- Higher contribution to profits from Surface Protection
primarily due to higher selling prices slightly offset by mix (net
favorable impact of $2.1 million), quality claims in 2018 that did
not recur in 2019 ($1.3 million) and improved operating
efficiencies ($1.9 million);
- Lower contribution to profits from Personal Care primarily due
to lower volume ($5.5 million), unfavorable mix ($1.8 million), the
unfavorable timing in the passthrough of changes in resin prices
($0.4 million) and an unfavorable foreign exchange impact ($0.4
million), partially offset by efficiencies primarily from lower
fixed manufacturing and selling, general and administrative costs
($1.6 million); and
- A favorable variance in other components of PE Films of $0.3
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 Company previously believed
the transitions could possibly be fully implemented by the fourth
quarter of 2019; however, these transitions continue to encounter
delays resulting in higher than expected volumes which contributed
to record operating profit for Surface Protection during the second
quarter of 2019. If fully implemented, the Company estimates that
the annualized adverse impact on future operating profit from this
customer shift versus the performance during the last four quarters
ended June 30, 2019, would be approximately $14 million. To offset
the potential adverse impact, the Company is aggressively pursuing
and making progress on new surface protection products,
applications, markets and customers.
During October 2018, the Personal Care component of PE Films
completed negotiations with its customer regarding a previously
disclosed significant product transition. The total annual sales
that will be adversely impacted by this product transition is
approximately $70 million. During 2019, the Company expects sales
for the product of $30 to $35 million with the potential for no
sales thereafter.
Personal Care had operating profit from ongoing operations plus
depreciation and amortization of $3.1 million in the fourth quarter
of 2018 and negative $0.5 million in the first half of 2019, and
expects negative $1.0 million in the second half of 2019.
Competitive pressures have led Personal Care to miss its sales and
margin goals so far in 2019. Management continues to focus on new
business development and cost reduction initiatives.
First Six Months 2019 Results vs. First
Six Months 2018 Results
Net sales (sales less freight) in the first six months of 2019
decreased by $40 million versus 2018 primarily due to lower sales
in Surface Protection and Personal Care of $5.6 million and $34.8
million, respectively. The decline in sales in Surface Protection
occurred in the first quarter of 2019 which the Company believes
was the result of customer inventory builds in previous periods.
The decline in sales in Personal Care was primarily due to lower
volume in most product categories from competitive pressures ($26
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 six months
of 2019 decreased by $12.0 million versus 2018 primarily due
to:
- Lower contribution to profits from Surface Protection,
primarily due to lower volume and mix ($8.1 million) and higher
research and development spending ($0.8 million), partially offset
by higher selling prices ($4.6 million), quality claims in 2018
that did not recur in 2019 ($1.3 million), manufacturing
efficiencies ($1.2 million), favorable raw material costs ($0.7
million), and lower selling, general and administrative costs ($0.3
million);
- Lower contribution to profits from Personal Care primarily due
to lower volume ($10.6 million) and unfavorable mix ($3.1 million),
partially offset by efficiencies primarily from lower fixed
manufacturing and selling, general and administrative costs ($2.2
million); and
- A favorable variance in other components of PE Films of $0.3
million.
Capital Expenditures, Depreciation &
Amortization
Capital expenditures in PE Films were $12.4 million in the first
six months of 2019 compared to $7.4 million in the first six months
of 2018. The Company’s latest estimate for 2019 includes projected
capital expenditures of $33 million including: $12 million of a
total $25 million needed to complete the North American capacity
expansion for elastics products in Personal Care ($8 million spent
in the first half of 2019); $4 million for a new scale-up line in
Surface Protection to improve development and speed to market for
new products; $5 million for other development projects; and $10
million for capital expenditures required to support continuity of
current operations.
Depreciation expense was $7.2 million in the first six months of
2019 and $7.6 million in the first six 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 second quarter and year-to-date
operating results from ongoing operations for Flexible Packaging
Films is provided below:
Three Months Ended June 30,
Favorable/ (Unfavorable) %
Change
Six Months Ended June 30,
Favorable/ (Unfavorable) %
Change
(In Thousands, Except Percentages)
2019
2018
2019
2018
Sales volume (lbs)
26,460
23,701
11.6
%
51,921
47,018
10.4
%
Net sales
$
33,443
$
28,304
18.2
%
$
67,062
$
56,741
18.2
%
Operating profit from ongoing
operations
$
2,517
$
1,294
94.5
%
$
5,377
$
3,008
78.8
%
Second Quarter 2019 Results vs. Second
Quarter 2018 Results
Net sales increased in the second quarter of 2019 compared to
the second quarter of 2018 due to higher sales volume and increased
selling prices associated with the passthrough of higher resin
costs. The higher sales volume was associated with increased
production capacity for Terphane’s Brazilian operations resulting
from the re-start of a previously idled production line in June
2018.
Terphane’s operating profit from ongoing operations in the
second quarter of 2019 increased by $1.2 million versus the second
quarter of 2018 primarily due to:
- Higher volume ($1.1 million) and higher selling prices ($0.4
million), partially offset by higher fixed and variable costs ($1.1
million) and costs related to the restarted line ($0.3
million);
- Net favorable foreign currency translation of Real-denominated
operating costs ($0.9 million); and
- Net lower foreign currency transaction losses of $0.2 million
(losses of $0.1 million in 2019 versus losses of $0.3 million in
2018).
First Six Months 2019 Results vs. First
Six Months 2018 Results
Net sales and volume increased in the first six months of 2019
compared to the first six months of 2018. The factors impacting
sales for Terphane during the first half of 2019 versus last year
are similar to the factors described above in the quarterly
comparison.
Terphane’s operating results from ongoing operations in the
first six months of 2019 increased by $2.4 million versus the first
six months of 2018 primarily due to:
- Higher sales volume ($2.0 million) and higher selling prices
($0.8 million), partially offset by higher fixed and variable costs
($1.9 million) and costs related to the restarted line ($0.6
million);
- Net favorable foreign currency translation of Real-denominated
operating costs of $1.6 million;
- Net lower foreign currency transaction losses of $0.4 million
(break even in 2019 versus losses of $0.4 million in 2018).
Capital Expenditures, Depreciation &
Amortization
Capital expenditures in Terphane were $3.0 million in the first
six months of 2019 compared to $1.4 million in the first six months
of 2018. Capital expenditures are projected to be $12 million in
2019, including $7 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 $0.5 million in the first six months of
2019 and $0.4 million in the first six months of 2018. Depreciation
expense is projected to be $1.0 million in 2019. Amortization
expense was $0.2 million in the first six months of 2019 and $0.2
million in the first six months of 2018, and is projected to be
$0.5 million in 2019.
Aluminum Extrusions
Aluminum Extrusions, which includes Bonnell Aluminum and its
operating divisions, AACOA and Futura, 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 second quarter and year-to-date operating results
from ongoing operations for Aluminum Extrusions is provided
below:
Three Months Ended June 30,
Favorable/ (Unfavorable) %
Change
Six Months Ended June 30,
Favorable/ (Unfavorable) %
Change
(In Thousands, Except Percentages)
2019
2018
2019
2018
Sales volume (lbs)
53,127
55,057
(3.5
)%
106,839
106,560
0.3
%
Net sales
$
136,757
$
144,558
(5.4
)%
$
275,804
$
272,793
1.1
%
Operating profit from ongoing
operations
$
14,518
$
13,156
10.4
%
$
26,603
$
23,355
13.9
%
Second Quarter 2019 Results vs. Second
Quarter 2018 Results
Net sales in the second 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 second
quarter of 2019 decreased by 3.5% versus 2018 due to lower volume
in the building and construction and specialty markets.
Operating profit from ongoing operations in the second quarter
of 2019 increased by $1.4 million in comparison to the second
quarter of 2018, due to higher pricing ($2.6 million) and improved
performance at the Niles, Michigan facility ($0.4 million),
partially offset by lower volumes ($1.2 million) and higher freight
costs ($0.5 million).
First Six Months 2019 Results vs. First
Six Months 2018 Results
Net sales in the first six months of 2019 increased versus 2018
primarily due to higher volume in the first quarter of 2019 and an
increase in average selling price to cover higher operating costs,
partially offset by the passthrough of lower metal costs. Sales
volume in the first six months of 2019 was relatively flat versus
2018. Higher average net selling prices had a favorable impact on
net sales of $2.0 million, and higher volume improved net sales by
$1.1 million.
Operating profit from ongoing operations in the first six months
of 2019 increased by $3.2 million in comparison to the first six
months of 2018, primarily due to higher pricing ($10.9 million) and
higher volume ($0.5 million), partially offset by increased labor
and employee-related expenses ($3.9 million), higher operating
costs including increased freight costs ($1.4 million), higher
supplies and maintenance in the first quarter of 2019 ($1.3
million) and other costs ($1.4 million).
Capital Expenditures, Depreciation &
Amortization
Capital expenditures in Bonnell Aluminum were $8.8 million in
the first six months of 2019, compared to $5.6 million in the first
six months of 2018. Capital expenditures are projected to be $17
million in 2019, including approximately $7 million for
infrastructure upgrades at the Carthage, Tennessee facility and
other productivity improvements, approximately $1 million for
fabrication and automation capabilities, and approximately $9
million required to support continuity of current operations.
Depreciation expense was $6.7 million in the first six months of
2019 compared to $6.6 million in the first six months of 2018, and
is projected to be $13 million in 2019. Amortization expense was
$1.5 million in the first six months of 2019 and $1.8 million in
the first six months of 2018, and is projected to be $3 million in
2019.
Corporate Expenses, Interest, Taxes & Other
Pension expense was $4.8 million in the first six months of
2019, versus $5.1 million in the first six 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 six months of 2019
versus 2018 primarily due to higher stock-based employee
compensation ($0.7 million), and consulting fees ($2.9 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 $2.5 million in the first six months of
2019 in comparison to $3.2 million in the first six months of 2018,
primarily due to lower average debt levels.
The effective tax rate used to compute income tax expense from
continuing operations was 19.8% in the first six months of 2019,
compared to 23.0% in the first six months of 2018. 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 22.2% for the first six months of
2019 versus 22.2% in 2018 (see also Note (f) 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
June 30, 2019.
Tredegar’s approximately 20% ownership in kaleo, Inc. (“kaléo”),
which is accounted for under the fair value method, was estimated
at a value of $91.2 million at June 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 $91.2
million estimated fair value reflected in the Company’s financial
statements at June 30, 2019.
CAPITAL STRUCTURE
Total debt was $73.0 million at June 30, 2019, compared to
$101.5 million at December 31, 2018. Net debt (debt in excess of
cash and cash equivalents) was $38.3 million at June 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 (e) 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 replaces 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 3,100 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
Six Months Ended
June 30,
June 30,
2019
2018
2019
2018
Sales
$
248,248
$
263,759
$
496,714
$
522,470
Other income (expense), net (b)(d)
7,096
5,857
24,206
14,089
255,344
269,616
520,920
536,559
Cost of goods sold (b)
192,581
210,667
393,235
413,856
Freight
8,887
8,440
17,907
17,229
Selling, R&D and general expenses
(b)
29,315
25,592
55,811
51,732
Amortization of intangibles
890
1,025
1,782
2,054
Pension and postretirement benefits
2,416
2,578
4,831
5,156
Interest expense
1,263
1,577
2,495
3,221
Asset impairments and costs associated
with exit and disposal activities, net of adjustments (b)
1,075
468
2,131
590
236,427
250,347
478,192
493,838
Income before income taxes
18,917
19,269
42,728
42,721
Income tax expense
4,440
4,547
8,467
9,834
Net income
$
14,477
$
14,722
$
34,261
$
32,887
Earnings per share:
Basic
$
0.44
$
0.45
$
1.03
$
1.00
Diluted
$
0.44
$
0.44
$
1.03
$
1.00
Shares used to compute earnings per
share:
Basic
33,270
33,074
33,197
33,028
Diluted
33,278
33,108
33,203
33,048
Tredegar Corporation
Net Sales and Operating Profit
by Segment
(In Thousands)
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2019
2018
2019
2018
Net Sales
PE Films
$
69,161
$
82,457
$
135,941
$
175,707
Flexible Packaging Films
33,443
28,304
67,062
56,741
Aluminum Extrusions
136,757
144,558
275,804
272,793
Total net sales
239,361
255,319
478,807
505,241
Add back freight
8,887
8,440
17,907
17,229
Sales as shown in the Condensed
Consolidated Statements of Income
$
248,248
$
263,759
$
496,714
$
522,470
Operating Profit (Loss)
PE Films:
Ongoing operations
$
7,766
$
8,678
$
10,717
$
22,712
Plant shutdowns, asset impairments,
restructurings and other (b)
(1,523
)
(1,135
)
(2,901
)
(2,187
)
Flexible Packaging Films:
Ongoing operations
2,517
1,294
5,377
3,008
Plant shutdowns, asset impairments,
restructurings and other (b)
—
—
—
—
Aluminum Extrusions:
Ongoing operations
14,518
13,156
26,603
23,355
Plant shutdowns, asset impairments,
restructurings and other (b)
(17
)
(46
)
(57
)
(99
)
Total
23,261
21,947
39,739
46,789
Interest income
48
228
107
284
Interest expense
1,263
1,577
2,495
3,221
Gain (loss) on investment in kaléo
accounted for under fair value method (d)
7,100
5,800
24,182
14,000
Stock option-based compensation costs
898
305
1,313
391
Corporate expenses, net (b)
9,331
6,824
17,492
14,740
Income before income taxes
18,917
19,269
42,728
42,721
Income tax expense
4,440
4,547
8,467
9,834
Net income
$
14,477
$
14,722
$
34,261
$
32,887
Tredegar Corporation
Condensed Consolidated Balance
Sheets
(In Thousands)
(Unaudited)
June 30, 2019
December 31, 2018
Assets
Cash & cash equivalents
$
34,660
$
34,397
Restricted cash
5,109
—
Accounts & other receivables, net
116,370
124,727
Income taxes recoverable
2,923
6,783
Inventories
93,359
93,810
Prepaid expenses & other
8,501
9,564
Total current assets
260,922
269,281
Property, plant & equipment, net
235,715
228,369
Right-of-use leased assets
19,610
—
Investment in kaléo (cost basis of
$7,500)
91,200
84,600
Identifiable intangible assets, net
34,530
36,295
Goodwill
81,404
81,404
Deferred income taxes
1,343
3,412
Other assets
5,376
4,012
Total assets
$
730,100
$
707,373
Liabilities and Shareholders’
Equity
Accounts payable
$
106,871
$
112,758
Accrued expenses
46,479
42,495
Lease liability, short-term
2,650
—
Total current liabilities
156,000
155,253
Lease liability, long-term
18,526
—
Long-term debt
73,000
101,500
Pension and other postretirement benefit
obligations, net
83,965
88,124
Deferred income taxes
4,402
—
Other noncurrent liabilities
5,931
7,639
Shareholders’ equity
388,276
354,857
Total liabilities and shareholders’
equity
$
730,100
$
707,373
Tredegar Corporation
Condensed Consolidated
Statements of Cash Flows
(In Thousands)
(Unaudited)
Six Months Ended
June 30,
2019
2018
Cash flows from operating activities:
Net income
$
34,261
$
32,887
Adjustments for noncash items:
Depreciation
14,465
14,688
Amortization of intangibles
1,782
2,054
Amortization of right-of-use lease
asset
1,270
—
Deferred income taxes
5,339
8,996
Accrued pension income and post-retirement
benefits
4,831
5,156
(Gain)/loss on investment accounted for
under the fair value method
(6,600
)
(14,000
)
(Gain)/loss on asset impairments and
divestitures
522
—
Net (gain)/loss on sale of assets
(11
)
(109
)
Changes in assets and liabilities, net of
effects of acquisitions and divestitures:
Accounts and other receivables
8,471
(15,205
)
Inventories
702
(810
)
Income taxes recoverable/payable
3,860
26,277
Prepaid expenses and other
1,081
(2,057
)
Accounts payable and accrued expenses
(566
)
13,879
Lease liability
(1,306
)
—
Pension and postretirement benefit plan
contributions
(3,648
)
(2,912
)
Other, net
4,043
2,926
Net cash provided by operating
activities
68,496
71,770
Cash flows from investing activities:
Capital expenditures
(24,251
)
(14,528
)
Return of escrowed funds relating to
acquisition earn-out
—
4,250
Proceeds from the sale of assets and
other
22
1,095
Net cash used in investing activities
(24,229
)
(9,183
)
Cash flows from financing activities:
Borrowings
30,000
28,000
Debt principal payments
(58,500
)
(57,000
)
Dividends paid
(7,320
)
(7,293
)
Debt financing costs
(1,757
)
—
Proceeds from exercise of stock options
and other
(854
)
926
Net cash used in financing activities
(38,431
)
(35,367
)
Effect of exchange rate changes on
cash
(464
)
(1,390
)
Increase in cash, cash equivalents and
restricted cash
5,372
25,830
Cash, cash equivalents and restricted cash
at beginning of period
34,397
36,491
Cash, cash equivalents and restricted cash
at end of period
$
39,769
$
62,321
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 six
months ended June 30, 2019 and 2018 is shown below:
(in millions, except per share data)
Three Months Ended June 30,
Six Months Ended June 30,
2019
2018
2019
2018
Net income as reported under GAAP
$
14.5
$
14.7
$
34.3
$
32.9
After-tax effects of:
Losses associated with plant shutdowns,
asset impairments and restructurings
1.1
0.6
2.0
0.7
(Gains) losses from sale of assets and
other:
(Gain) loss associated with the investment
in kaléo
(5.6
)
(4.5
)
(19.9
)
(10.9
)
Other
1.7
0.7
2.6
1.8
Net income from ongoing operations
$
11.7
$
11.5
$
19.0
$
24.5
Earnings per share as reported under GAAP
(diluted)
$
0.44
$
0.44
$
1.03
$
1.00
After-tax effects per diluted share
of:
Losses associated with plant shutdowns,
asset impairments and restructurings
0.03
0.02
0.06
0.02
(Gains) losses from sale of assets and
other:
(Gain) loss associated with the investment
in kaléo
(0.17
)
(0.14
)
(0.60
)
(0.33
)
Other
0.05
0.03
0.08
0.05
Earnings per share from ongoing operations
(diluted)
$
0.35
$
0.35
$
0.57
$
0.74
Reconciliations of the pre-tax
and post-tax balances attributed to net income are shown in Note
(f).
(b)
Losses associated with plant
shutdowns, asset impairments, restructurings and other items for
continuing operations in the second quarter and first six 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.
Plant shutdowns, asset
impairments, restructurings and other items in the second quarter
of 2019 include:
- Pretax charges of $2.0 million for 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 guidance (included in “Selling, R&D and general
expenses” in the condensed consolidated statements of income);
- Pretax charges of $1.0 million associated with the
consolidation of certain PE Films manufacturing activities in the
U.S. and Europe for its Personal Care business component, including
the eventual shutdown of the facility in Lake Zurich, Illinois and
the transfer of its production of elastics materials to the new
elastics production lines in Terre Haute, Indiana. The pretax
charges are comprised of severance and other employee-related
accrued costs of $0.4 million, asset impairments of $0.3 million
and accelerated depreciation of $0.3 million (included in “Cost of
goods sold” in the condensed consolidated statements of
income);
- Pretax charges of $0.1 million for severance and other
employee-related costs associated with restructurings in PE
Films;
- Pretax charges of $0.2 million related to estimated excess
costs associated with the ramp-up of new product offerings and
additional expenses related to strategic capacity expansion
projects by PE Films (included in “Cost of goods sold” in the
condensed consolidated statements of income); and
- Pretax charges of $0.3 million associated with the shutdown of
PE Films’ manufacturing facility in Shanghai, China, which consists
of other facility-related costs.
Plant shutdowns, asset
impairments, restructurings and other items in the first six months
of 2019 include:
- Pretax charges of $2.9 million for 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 guidance (included in “Selling, R&D and general
expenses” in the condensed consolidated statements of income);
- Pretax charges of $1.0 million associated with the
consolidation of certain PE Films manufacturing activities in the
U.S. and Europe for its Personal Care business component, including
the eventual shutdown of the facility in Lake Zurich, Illinois and
the transfer of its production of elastics materials to the new
elastics production lines in Terre Haute, Indiana. The pretax
charges are comprised of severance and other employee-related
accrued costs of $0.4 million, asset impairments of $0.3 million
and accelerated depreciation of $0.3 million (included in “Cost of
goods sold” in the condensed consolidated statements of
income);
- Pretax charges of $0.4 million for the write-off of a Personal
Care production line at PE Films’ Guangzhou, China facility;
- Pretax charges of $0.5 million for severance and other
employee-related costs associated with restructurings in PE
Films;
- Pretax charges of $0.4 million related to estimated excess
costs associated with the ramp-up of new product offerings and
additional expenses related to strategic capacity expansion
projects by PE Films (included in “Cost of goods sold” in the
condensed consolidated statements of income); and
- Pretax charges of $0.5 million associated with the shutdown of
PE Films’ manufacturing facility in Shanghai, China, which consists
of other facility-related costs.
Plant shutdowns, asset
impairments, restructurings and other items in the second quarter
of 2018 include:
- Pretax charges of $0.6 million related to estimated excess
costs associated with the ramp-up of new product offerings and
additional expenses related to strategic capacity expansion
projects by PE Films (included in “Cost of goods sold” in the
condensed consolidated statements of income); and
- Pretax charges of $0.7 million associated with the shutdown of
PE Films’ manufacturing facility in Shanghai, China, which consists
of severance and other employee-related accrued costs of $0.4
million, accelerated depreciation of $0.1 million (included in
“Cost of goods sold” in the condensed consolidated statements of
income) and other facility consolidation-related expenses of $0.2
million.
Plant shutdowns, asset
impairments, restructurings and other items in the first six months
of 2018 include:
- Pretax charges of $1.5 million related to estimated excess
costs associated with the ramp-up of new product offerings and
additional expenses related to strategic capacity expansion
projects by PE Films (included in “Cost of goods sold” in the
condensed consolidated statements of income);
- Pretax charges of $0.3 million for professional fees associated
with the Terphane Limitada worthless stock deduction, the
impairment of assets of Flexible Packaging Films and determining
the effect of the new U.S. federal income tax law (included in
“Selling, R&D and general expenses” in the statements of net
sales and operating profit by segment and “Corporate expenses, net”
in the statements of net sales and operating profit by segment);
and
- Pretax charges of $0.7 million associated with the shutdown of
PE Films’ manufacturing facility in Shanghai, China, which consists
of severance and other employee-related accrued costs of $0.4
million, accelerated depreciation of $0.1 million (included in
“Cost of goods sold” in the condensed consolidated statements of
income) and other facility consolidation-related expenses of $0.2
million.
(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 $7.1 million was recognized in the second quarter of 2019,
and $24.2 million was recognized in the first six months of 2019,
which included a $17.6 million dividend, compared to a gain of $5.8
million and $14.0 million in the second quarter and first six
months of 2018, respectively (included in “Other income (expense),
net” in the condensed consolidated statements of income).
(e)
Net debt is calculated as follows:
(in millions)
June 30,
December 31,
Increase/
2019
2018
(Decrease)
Debt
$
73.0
$
101.5
$
(28.5
)
Less: Cash and cash equivalents
34.7
34.4
0.3
Net debt
$
38.3
$
67.1
$
(28.8
)
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. (f)
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. A
reconciliation of the pre-tax and post-tax balances attributed to
net income from ongoing operations for the three and six months
ended June 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 June 30,
2019
(a)
(b)
(b)/(a)
Net income reported under GAAP
$
18.9
$
4.4
$
14.5
23.5
%
Losses associated with plant shutdowns,
asset impairments and restructurings
1.4
0.3
1.1
(Gains) losses from sale of assets and
other
(5.0
)
(1.1
)
(3.9
)
Net income from ongoing operations
$
15.3
$
3.6
$
11.7
23.6
%
Three Months Ended June 30,
2018
Net income reported under GAAP
$
19.3
$
4.5
$
14.7
23.6
%
Losses associated with plant shutdowns,
asset impairments and restructurings
0.6
—
0.6
(Gains) losses from sale of assets and
other
(5.0
)
(1.2
)
(3.8
)
Net income from ongoing operations
$
14.8
$
3.3
$
11.5
22.4
%
Six Months Ended June 30, 2019
Net income reported under GAAP
$
42.7
$
8.5
$
34.3
19.8
%
Losses associated with plant shutdowns,
asset impairments and restructurings
2.4
0.4
2.0
(Gains) losses from sale of assets and
other
(20.8
)
(3.5
)
(17.3
)
Net income from ongoing operations
$
24.4
$
5.4
$
19.0
22.2
%
Six Months Ended June 30, 2018
Net income reported under GAAP
$
42.7
$
9.8
$
32.9
23.0
%
Losses associated with plant shutdowns,
asset impairments and restructurings
0.7
—
0.7
(Gains) losses from sale of assets and
other
(12.0
)
(2.9
)
(9.1
)
Net income from ongoing operations
$
31.4
$
6.9
$
24.5
22.2
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190808005869/en/
Tredegar Corporation Neill Bellamy, 804-330-1211
neill.bellamy@tredegar.com
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