Tredegar Corporation (NYSE:TG, also the “Company” or “Tredegar”)
today reported third quarter financial results for the period ended
September 30, 2020.
Third quarter 2020 net loss from continuing operations was $17.0
million ($0.51 per diluted share) compared to net income from
continuing operations of $15.1 million ($0.45 per diluted share) in
the third quarter of 2019. Net income from ongoing operations,
which excludes special items and discontinued operations, was $13.2
million ($0.39 per diluted share) in the third quarter of 2020
compared with $13.3 million ($0.40 per diluted share) in the third
quarter of 2019. A reconciliation of net income (loss) from
continuing operations, 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, 2020 and 2019, is
provided in Note (a) of the Notes to the Financial Tables in this
press release.
On August 24, 2020, the Company entered into a definitive
agreement to sell its Personal Care Films business ("Personal Care
business"), which excludes the packaging film lines and related
operations located at the Pottsville, Pennsylvania manufacturing
site ("Pottsville Packaging"). The Company completed this
divestiture at the end of October and received gross proceeds of
$60.5 million. Net cash proceeds from the sale, after future
deductions for transaction costs, purchase price adjustments and
transition services after September 30, 2020, are estimated at $45
to $50 million. Net cash income tax costs or benefits relating to
the transaction are expected to be negligible. All historical
results for the Personal Care business have been presented as
discontinued operations. The surface protection component of the PE
Films segment now includes Pottsville Packaging.
Third Quarter Financial Results Highlights
- Earnings before interest, taxes, depreciation and amortization
("EBITDA") from ongoing operations for Aluminum Extrusions of $16.5
million was $0.1 million higher than the third quarter of 2019
- EBITDA from ongoing operations for PE Films of $6.0 million was
$4.2 million lower than the third quarter of 2019
- EBITDA from ongoing operations for Flexible Packaging Films of
$9.5 million was $5.2 million higher than the third quarter of
2019
John Steitz, Tredegar’s president and chief executive officer
said, “Despite COVID-19-related lower volume, Bonnell Aluminum's
EBITDA from ongoing operations during the third quarter was
essentially flat with last year. It continues to outperform our
expectations. The PE Films segment experienced a decline in
profitability during the third quarter versus last year due to
previously disclosed customer product transitions in the Surface
Protection component that had been delayed. Our Surface Protection
team has been making progress in generating sales from new
products, applications and customers to help offset the expected
future adverse impact of the transitions. Regarding Terphane, our
flexible packaging films business, its performance has been a great
story since 2017, but especially in 2020 with EBITDA from ongoing
operations doubling in 2020 versus 2019."
Mr. Steitz continued, "We had strong cash flow during the third
quarter with net cash in excess of debt as of September 30, 2020 of
$28.0 million, up from $5.9 million as of June 30, 2020, which
excludes the net cash proceeds expected from the sale of the
Personal Care business of $45 to $50 million."
On a final note, Mr. Steitz commented, "I'd like to thank again
all of our employees for their hard work and dedication during
these unprecedented times."
THE IMPACT OF COVID-19
Essential Business and Employee Considerations
The Company’s priorities during the COVID-19 pandemic continue
to be 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. Within the limitations imposed
by the health and safety procedures described below, the Company
has continued to manufacture the full range of products at its
facilities, including certain products that are 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 for packaging products, (iii) aluminum
extrusion parts for hospital beds, FEMA tents, temporary hospital
structures and medical equipment, (iv) materials for face shields,
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 protocols to protect the health and well-being of
its employees from COVID-19 continue to develop 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 require employees to stay home if they
feel ill or have been exposed to others with the illness, until
they are released to return to work by our Human Resources team.
The Company’s policies include taking an employee’s temperature
before entering production facilities; answering self-screening
questions related to potential exposure and COVID-19 symptoms;
mandating handwashing; requiring social distancing, and requiring
face coverings on production floors at all times, requiring face
coverings in common areas and office settings where social
distancing is difficult; 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
government benefits.
In April 2020, the Company began providing a weekly dashboard to
its Board of Directors highlighting the impacts of COVID-19 on its
employees, businesses and financial condition.
As of November 4, the Company was aware that 202 of its
employees have had confirmed cases of COVID-19 since the outbreak
began, with no fatalities. 179 of those employees have returned to
work. Additional employees have been absent or self-quarantined due
to COVID-19. Bonnell Aluminum is experiencing higher than normal
absenteeism and hiring difficulties which it attributes to
COVID-19-related factors. Bonnell Aluminum continuously attempts to
match its direct labor with demand and is facing difficulty hiring
sufficient labor to meet desired shipment levels.
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's current projections for 2020 include sales volume of 184
million pounds and EBITDA from ongoing operations of $51 million.
The current projections reflect an improvement versus the previous
projections which were communicated on August 6, 2020 and included
sales volume of 170 million pounds and EBITDA from ongoing
operations of $42 million.
Approximately 59% of Bonnell Aluminum’s net sales in 2019 were
related to building and construction (“B&C”) markets
(non-residential B&C of 51% and residential B&C of 8%).
Much of the current sales volume associated with the B&C market
is related to contracts that existed at the start of the COVID-19
pandemic. Once completed, the level of new contracts is uncertain.
During the economic downturn from 2007 to 2009 (also known as “The
Great Recession”), the Company estimates that the aluminum
extrusion industry demand peak-to-trough fell approximately, 40%
from 2006 to 2009, with sequential annual declines during this
period of approximately 13%, 13% and 20%, respectively. The Company
estimates that the average peak-to-trough decline in demand in past
business cycles since 1982 for the aluminum extrusions industry is
approximately 20%. Overall, the Company believes that volume
results for Bonnell Aluminum in the third quarter and year-to-date
have outperformed the industry, and performance to date during the
COVID-19 environment has exceeded the Company's expectations. No
significant issues have arisen to date on the collection of
accounts receivable at Bonnell Aluminum.
Demand has remained strong under COVID-19 conditions for the
Company’s flexible food packaging films produced by Terphane. The
Surface Protection component of PE Films had record performance for
EBITDA from ongoing operations in the second quarter and first half
of 2020, but experienced a slowdown in the third quarter which it
expects to continue for the fourth quarter of 2020, based on
industry projections for products using flat panel displays and
current customer inventory corrections. In addition, the Company
estimates that a portion of the third quarter decline in volume for
the Surface Protection business is related to a customer product
transition previously disclosed (see the PE Films section of this
report for further discussion). No significant issues have arisen
to date on the collection of accounts receivable at Terphane 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
(mainly an increase in liabilities from the adverse impact of
applying a lower discount rate to estimate the projected benefit
obligation) resulted in an increase in the underfunding from $100
million to $120 million at September 30, 2020.
Tredegar owns approximately 18% 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 September 30, 2020 was $34.5 million ($30.3
million after taxes), which represents a decrease of $36.2 million
($28.2 million after taxes) and a decrease of $61.0 million ($47.7
million after taxes) since June 30, 2020 and December 31, 2019,
respectively. The decline in estimated fair value during the first
nine months of 2020 was primarily due to: (i) lower expectations
for 2020 EBITDA and net cash flow associated with lower market
demand for epinephrine delivery devices, resulting from
COVID-19-related delays in in-person back-to-school schedules which
significantly impacted kaléo’s peak back-to-school season, and
social distancing guidelines which disrupted 2020 summer and
after-school activities, (ii) pricing pressure, 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 $34.5 million
estimated fair value reflected in the Company’s financial
statements at September 30, 2020.
Tredegar had debt (all under its revolving credit agreement) of
$7.0 million and cash of $35.0 million at September 30, 2020. Cash
balances increased at the end of October as a result of the sale of
the Personal Care business. 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 revolving credit 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 Quarterly Report on
the period ended September 30, 2020 ("Form 10-Q")) of $95.7 million
and 0.07x, respectively, at September 30, 2020. The Company’s
current stress testing under a COVID-19-driven recession indicates
a low probability that a future leverage ratio will exceed
4.0x.
CONTINUING 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: B&C,
automotive, and specialty (which consists of consumer durables,
machinery and equipment, electrical and distribution end-use
products).
A summary of third quarter operating results for Aluminum
Extrusions is provided below:
Three Months Ended
Favorable/ (Unfavorable) %
Change
Nine Months Ended
Favorable/ (Unfavorable) %
Change
(In thousands, except percentages)
September 30,
September 30,
2020
2019
2020
2019
Sales volume (lbs)
48,859
51,404
(5.0
)%
139,985
158,657
(11.8
)%
Net sales
$
115,621
$
129,505
(10.7
)%
$
339,566
$
405,310
(16.2
)%
Ongoing operations:
EBITDA
$
16,540
$
16,464
0.5
%
$
41,496
$
51,231
(19.0
)%
Depreciation & amortization*
$
(4,251
)
$
(4,317
)
1.5
%
$
(12,632
)
$
(12,481
)
(1.2
)%
EBIT**
$
12,289
$
12,147
1.2
%
$
28,864
$
38,750
(25.5
)%
Capital expenditures
$
1,784
$
3,057
$
4,713
$
11,844
*Excludes pre-tax accelerated amortization of trade name of $2.5
million in the three and nine months ended September 30, 2019. See
Note (g) of the Notes to the Financial Tables. **See the net sales
and EBITDA from ongoing operations by segment statements for a
reconciliation of this non-GAAP measure to GAAP.
Third Quarter 2020 Results vs. Third
Quarter 2019 Results
Net sales (sales less freight) in the third quarter of 2020
decreased versus 2019 primarily due to lower sales volume and the
pass-through 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 2020 decreased by 5.0% versus 2019.
Sales volume in the specialty market, which represented
approximately 32% of 2019 sales, experienced double-digit declines
for the period. Sales volume in the automotive market, which
represented approximately 9% of 2019 sales, was flat versus the
third quarter of 2019. Non-residential B&C shipments increased
2.5% in the third quarter of 2020 versus the third quarter of 2019,
but the Company expects a decline in its shipments for this end
market, potentially beginning at the end of 2020, as a result of
COVID-19-related reduced demand. However, overall the Company
believes that volume results for Bonnell Aluminum in the third
quarter of 2020 and year-to-date have outperformed the industry,
and performance to date during the COVID-19 environment has
exceeded the Company's expectations. See the “The Impact of
COVID-19” section for more information on business conditions and
projections.
EBITDA from ongoing operations in the third quarter of 2020 was
relatively flat in comparison to the third quarter of 2019. Lower
volumes ($2.4 million) and higher labor and employee-related costs
($0.4 million), were partially offset by higher pricing ($1.0
million) and lower freight costs ($0.5 million). In addition, the
timing of the flow through under the first-in first-out ("FIFO")
method of aluminum raw material costs previously acquired at lower
prices in a quickly rising commodity pricing environment resulted
in a benefit of $1.5 million in the third quarter of 2020 versus a
charge of $0.3 million in the third quarter of 2019.
First Nine Months 2020 Results vs. First
Nine Months 2019 Results
Net sales in the first nine months of 2020 decreased versus 2019
primarily due to lower sales volume and the pass-through of lower
metal costs, partially offset by an increase in average selling
prices to cover higher operating costs. Sales volume in the first
nine months of 2020 decreased by 11.8% versus 2019, which the
Company believes was mainly a result of COVID-19-related lower
demand.
EBITDA from ongoing operations in the first nine months of 2020
decreased in comparison to the first nine months of 2019 due to
lower volumes ($13.2 million) and higher labor and employee-related
costs ($2.0 million), partially offset by higher pricing ($5.7
million) and lower freight ($1.0 million). In addition, inventories
accounted for under the FIFO method resulted in a charge of $1.8
million in the first nine months of 2020 versus a charge of $0.9
million in the first nine months of 2019.
Projected Capital Expenditures and
Depreciation & Amortization
Capital expenditures for Bonnell Aluminum are projected to be
$11 million in 2020, including 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, polyethylene
overwrap films and films for other markets. All historical results
for the Personal Care business have been presented as discontinued
operations. The surface protection component of the PE Films
segment now includes Pottsville Packaging. A summary of third
quarter operating results for PE Films is provided below:
Three Months Ended
Favorable/ (Unfavorable) %
Change
Nine Months Ended
Favorable/ (Unfavorable) %
Change
(In thousands, except percentages)
September 30,
September 30,
2020
2019
2020
2019
Sales volume (lbs)
9,556
11,132
(14.2
)%
33,348
31,936
4.4
%
Net sales
$
26,440
$
34,487
(23.3
)%
$
103,444
$
99,313
4.2
%
Ongoing operations:
EBITDA
$
6,041
$
10,257
(41.1
)%
$
33,928
$
30,452
11.4
%
Depreciation & amortization
$
(1,785
)
$
(1,458
)
(22.4
)%
$
(4,868
)
$
(4,380
)
(11.1
)%
EBIT*
$
4,256
$
8,799
(51.6
)%
$
29,060
$
26,072
11.5
%
Capital expenditures
$
187
$
3,623
$
3,231
$
5,575
* See the net sales and EBITDA from ongoing operations by segment
statements for a reconciliation of this non-GAAP measure to GAAP.
Third Quarter 2020 Results vs. Third
Quarter 2019 Results
Net sales declined by $8.1 million in the third quarter of 2020
versus 2019 primarily due to previously disclosed customer product
transitions in Surface Protection, inclusive of some cyclical
customer inventory corrections ($6.8 million), and COVID-19-related
factors in other product segments within PE Films ($1.3 million).
The Company believes that the inventory corrections are related to
a build-up by customers during the strong first half of 2020.
EBITDA from ongoing operations in the third quarter of 2020
decreased by $4.3 million versus the third quarter of 2019
primarily due to the customer product transitions in Surface
Protection, inclusive of some inventory corrections ($4.4 million)
and higher manufacturing operating costs and selling, general and
administrative expenses ($0.5 million), partially offset by higher
contribution from sales not impacted by the customer product
transitions ($0.5 million).
Customer Product Transitions in Surface Protection
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 Company believes that
previously reported delays in this customer's transitions were
recently resolved by the customer and much of the remaining
transitions could occur by the end of 2021. Under this scenario,
the Company estimates that the contribution to EBITDA from ongoing
operations for PE Films could decline due to the remaining customer
product transitions by $18 million in 2021 versus 2020 and $4
million in 2022 versus 2021. To offset the potential adverse
impact, the Company is aggressively pursuing and making progress in
generating contribution from sales from new surface protection
products, applications and customers. Annual contribution to EBITDA
from ongoing operations for PE Films on surface protection products
unrelated to the customer product transitions has increased since
2018 by approximately $11 million.
First Nine Months 2020 Results vs. First
Nine Months 2019 Results
Net sales increased by $4.1 million in the first nine months of
2020 versus 2019 due to higher sales of products unrelated to
customer product transitions ($5.8 million), partially offset by
lower sales associated with the customer product transitions that
occurred during the third quarter of this year ($1.7 million).
EBITDA from ongoing operations in the first nine months of 2020
increased by $3.3 million versus the first nine months of 2019
primarily due to:
- A $1.9 million increase from Surface Protection, primarily due
to sales of products unrelated to the customer product transitions
($3.7 million), partially offset by lower sales associated with the
customer product transitions that occurred during the third quarter
of this year ($1.3 million) and higher net manufacturing operating
costs and selling, general and administrative expenses ($0.5
million); and
- A $1.2 million increase from Pottsville Packaging primarily
related to higher sales volume and a $0.4 million favorable
variance from other activities.
Projected Capital Expenditures and
Depreciation & Amortization
Capital expenditures for PE Films are projected to be $8 million
in 2020 including: $2 million to complete a scale-up line in
Surface Protection to improve development and speed to market for
new products, and $6 million for capital expenditures required to
support continuity of current operations. Depreciation expense is
projected to be $6 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 third quarter operating results for
Flexible Packaging Films is provided below:
Three Months Ended
Favorable/ (Unfavorable) %
Change
Nine Months Ended
Favorable/ (Unfavorable) %
Change
(In thousands, except percentages)
September 30,
September 30,
2020
2019
2020
2019
Sales volume (lbs)
30,115
27,920
7.9
%
85,089
79,841
6.6
%
Net sales
$
35,856
$
34,888
2.8
%
$
100,534
$
101,950
(1.4
)%
Ongoing operations:
EBITDA
$
9,546
$
4,394
117.3
%
$
22,594
$
10,477
115.7
%
Depreciation & amortization
$
(443
)
$
(394
)
(12.4
)%
$
(1,306
)
$
(1,101
)
(18.6
)%
EBIT*
$
9,103
$
4,000
127.6
%
$
21,288
$
9,376
127.0
%
Capital expenditures
$
1,183
$
2,698
$
2,448
$
5,692
* See the net sales and EBITDA from ongoing operations by segment
statements for a reconciliation of this non-GAAP measure to GAAP.
Third Quarter 2020 Results vs. Third
Quarter 2019 Results
Net sales in the third quarter of 2020 increased 2.8% compared
to the third quarter of 2019 primarily due to higher sales volume
and favorable product mix, partially offset by lower selling prices
from the pass-through of lower resin costs.
Terphane’s EBITDA from ongoing operations in the third quarter
of 2020 increased by $5.1 million versus the third quarter of 2019
primarily due to:
- Lower raw material costs, net of lower selling prices ($0.9
million), higher sales volume ($0.9 million), favorable product mix
($1.0 million), and lower fixed ($1.2 million) and variable costs
($0.4 million);
- Net favorable foreign currency translation of Real-denominated
operating costs ($0.6 million); and
- Foreign currency transaction gains of $0.5 million in 2020
versus gains of $0.3 million in 2019.
Terphane has experienced strong demand in all of its markets,
including Brazil, North America and export markets, and especially
in the U.S. for value-added products, driven by the need for safe
packaged food and cleaning products during the COVID-19
environment. See the “The Impact of COVID-19” section for more
information.
First Nine Months 2020 Results vs. First
Nine Months 2019 Results
Net sales in the first nine months of 2020 decreased 1.4%
compared to the first nine months of 2019 primarily due to lower
selling prices from the pass-through of lower resin costs,
partially offset by higher sales volume.
Terphane’s EBITDA from ongoing operations in the first nine
months of 2020 increased by $12.1 million versus the first nine
months of 2019 primarily due to:
- Lower raw material costs, net of lower selling prices ($5.6
million), higher sales volume ($2.2 million), favorable product mix
($1.8 million), lower fixed costs ($1.3 million), partially offset
by higher variable costs ($1.1 million);
- Net favorable foreign currency translation of Real-denominated
costs ($1.2 million);
- Foreign currency transaction gains of $0.2 million in the first
nine months of 2020 versus transaction gains of $0.3 million in
2019; and
- A benefit of $1.2 million in the first three months of 2020
resulting from the favorable settlement of a dispute related to
value-added taxes.
Projected Capital Expenditures and
Depreciation & Amortization
Capital expenditures for Flexible Packaging Films are projected
to be $5 million in 2020, including $1 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 $1 million in
2020. Amortization expense is projected to be $0.4 million in
2020.
Corporate Expenses, Interest, Taxes & Other
Pension expense was $10.6 million in the first nine months of
2020, versus $7.2 million in the first nine 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 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 September 30, 2020. In addition to the
higher pension expense in the first nine months of 2020 compared to
2019, corporate expenses, net, increased primarily due to higher
professional fees ($2.1 million) related to business development
activities, partially offset by lower employee-related insurance
costs ($0.9 million).
Interest expense was $1.6 million in the first nine months of
2020 in comparison to $3.4 million in the first nine months of
2019, primarily due to lower average debt levels.
The effective tax rate used to compute income tax expense from
continuing operations was 26.3% in the first nine months of 2020,
compared to 15.5% in the first nine 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 20.4% for the first nine months of
2020 versus 19.5% in 2019 (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 2020 and 2019 will be provided in
the 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 the Company uses the words “believe,”
“estimate,” “anticipate,” “appear to,” “expect,” “project,” “plan,”
“likely,” “may” and similar expressions, it does so to identify
forward-looking statements. Such statements are based on the
Company's 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 the Company's 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, the Company's current
projections for its businesses could be materially affected by the
highly uncertain impact of COVID-19. As a consequence, the
Company's results could differ significantly from its projections,
depending on, among other things, the duration of "shelter in
place" orders and the ultimate impact of the pandemic on employees,
supply chains, 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 the
Company's 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 the Company's 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 the
Company's products;
- uncertain economic conditions in countries in which the Company
does 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 the Company's underfunded defined
benefit pension plan liability;
- an increase in the operating costs incurred by the Company's
business units, 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 the Company's manufacturing facilities;
- the impact of public health epidemics on employees, 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 the Company's
investment in kaléo;
- the impact of the imposition of tariffs and sanctions on
imported aluminum ingot used by Bonnell Aluminum;
- the impact of new tariffs, duties or other trade restrictions
imposed as a result of rising trade tensions between the U.S. and
other countries;
- the termination of anti-dumping duties on products imported to
Brazil that compete with products produced by Flexible
Packaging;
- failure to establish and maintain effective internal control
over financial reporting;
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 and
Quarterly Report on Form 10-Q for the period ended March 31, 2020.
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 an industrial manufacturer with three
primary businesses: custom aluminum extrusions for the North
American building & construction, automotive and specialty
end-use markets; surface protection films for high-technology
applications in the global electronics industry; and specialized
polyester films primarily for the Latin American flexible packaging
market. Tredegar had 2019 sales from continuing operations of $826
million. With approximately 2,500 employees, the Company operates
manufacturing facilities in North America, South America, 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,
2020
2019
2020
2019
Sales
$
184,370
$
205,968
$
562,766
$
628,011
Other income (expense), net (c)(d)
(37,934)
4,272
(63,898)
28,508
146,436
210,240
498,868
656,519
Cost of goods sold (c)
136,008
159,989
415,212
488,320
Freight
6,453
7,088
19,222
21,438
Selling, R&D and general expenses
(c)
22,076
21,162
67,717
62,350
Amortization of intangibles
753
3,400
2,264
5,182
Pension and postretirement benefits
3,567
2,415
10,701
7,246
Interest expense
494
859
1,598
3,354
Asset impairments and costs associated
with exit and disposal activities, net of adjustments (c)
3
98
74
608
Goodwill impairment (e)
—
—
13,696
—
169,354
195,011
530,484
588,498
Income (loss) from continuing operations
before income taxes
(22,918)
15,229
(31,616)
68,021
Income tax expense (benefit)
(5,942)
177
(8,308)
10,550
Net income (loss) from continuing
operations
(16,976)
15,052
(23,308)
57,471
Income (loss) from discontinued
operations, net of tax
(48,237)
2,081
(53,031)
(6,076)
Net income (loss)
$
(65,213)
$
17,133
$
(76,339)
$
51,395
Earnings (loss) per share:
Basic:
Continuing operations
$
(0.51)
$
0.45
$
(0.70)
$
1.73
Discontinued operations
(1.44)
0.06
(1.59)
(0.18)
Basic earnings (loss) per share
$
(1.95)
$
0.51
$
(2.29)
$
1.55
Diluted:
Continuing operations
$
(0.51)
$
0.45
$
(0.70)
$
1.73
Discontinued operations
(1.44)
0.06
(1.59)
(0.18)
Diluted earnings (loss) per share
$
(1.95)
$
0.51
$
(2.29)
$
1.55
Shares used to compute earnings (loss) per
share:
Basic
33,439
33,271
33,396
33,222
Diluted
33,439
33,285
33,396
33,230
Tredegar Corporation
Net Sales and EBITDA from
Ongoing Operations by Segment
(In Thousands)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2020
2019
2020
2019
Net Sales
Aluminum Extrusions
$
115,621
$
129,505
$
339,566
$
405,310
PE Films
26,440
34,487
103,444
99,313
Flexible Packaging Films
35,856
34,888
100,534
101,950
Total net sales
177,917
198,880
543,544
606,573
Add back freight
6,453
7,088
19,222
21,438
Sales as shown in the Condensed
Consolidated Statements of Income
$
184,370
$
205,968
$
562,766
$
628,011
EBITDA from Ongoing Operations
Aluminum Extrusions:
Ongoing operations:
EBITDA (b)
$
16,540
$
16,464
$
41,496
$
51,231
Depreciation & amortization
(4,251)
(4,317)
(12,632)
(12,481)
EBIT (b)
12,289
12,147
28,864
38,750
Plant shutdowns, asset impairments,
restructurings and other (c)
(720)
(610)
(2,637)
(667)
Goodwill impairment (e)
—
—
(13,696)
—
Trade name accelerated amortization
(g)
—
(2,510)
—
(2,510)
PE Films:
Ongoing operations:
EBITDA (b)
6,041
10,257
33,928
30,452
Depreciation & amortization
(1,785)
(1,458)
(4,868)
(4,380)
EBIT (b)
4,256
8,799
29,060
26,072
Plant shutdowns, asset impairments,
restructurings and other (c)
(56)
(60)
(225)
(555)
Flexible Packaging Films:
Ongoing operations:
EBITDA (b)
9,546
4,394
22,594
10,477
Depreciation & amortization
(443)
(394)
(1,306)
(1,101)
EBIT (b)
9,103
4,000
21,288
9,376
Plant shutdowns, asset impairments,
restructurings and other (c)
(3)
—
(14)
—
Total
24,869
21,766
62,640
70,466
Interest income
11
11
43
25
Interest expense
494
859
1,598
3,354
Gain (loss) on investment in kaléo
accounted for under fair value method (d)
(36,200)
4,300
(61,000)
28,482
Stock option-based compensation costs
518
791
1,786
2,060
Corporate expenses, net (c)
10,586
9,198
29,915
25,538
Income (loss) from continuing operations
before income taxes
(22,918)
15,229
(31,616)
68,021
Income tax expense (benefit)
(5,942)
177
(8,308)
10,550
Net income (loss) from continuing
operations
(16,976)
15,052
(23,308)
57,471
Net income (loss) from discontinued
operations, net of tax
(48,237)
2,081
(53,031)
(6,076)
Net income (loss)
$
(65,213)
$
17,133
$
(76,339)
$
51,395
Tredegar Corporation
Condensed Consolidated Balance
Sheets
(In Thousands)
(Unaudited)
September 30, 2020
December 31, 2019
Assets
Cash & cash equivalents
$
35,022
$
31,422
Accounts & other receivables, net
82,089
89,117
Income taxes recoverable
58
2,661
Inventories
63,543
64,205
Prepaid expenses & other
13,421
8,333
Current assets of discontinued
operations
45,955
37,418
Total current assets
240,088
233,156
Property, plant & equipment, net
164,940
173,556
Right-of-use leased assets
16,965
18,492
Investment in kaléo (cost basis of
$7,500)
34,500
95,500
Identifiable intangible assets, net
19,985
22,636
Goodwill
67,708
81,404
Deferred income taxes
19,761
12,435
Other assets
3,693
4,628
Non-current assets of discontinued
operations
—
70,861
Total assets
$
567,640
$
712,668
Liabilities and Shareholders’
Equity
Accounts payable
$
76,049
$
87,296
Accrued expenses
44,582
39,465
Lease liability, short-term
2,705
2,427
Income taxes payable
2,296
—
Current liabilities of discontinued
operations
21,333
23,280
Total current liabilities
146,965
152,468
Lease liability, long-term
15,583
17,338
Long-term debt
7,000
42,000
Pension and other postretirement benefit
obligations, net
104,563
107,446
Deferred income taxes
—
11,019
Other non-current liabilities
4,220
5,297
Non-current liabilities of discontinued
operations
—
351
Shareholders’ equity
289,309
376,749
Total liabilities and shareholders’
equity
$
567,640
$
712,668
Tredegar Corporation
Condensed Consolidated
Statements of Cash Flows
(In Thousands)
(Unaudited)
Nine Months Ended September
30,
2020
2019
Cash flows from operating activities:
Net income (loss)
$
(76,339)
$
51,395
Adjustments for noncash items:
Depreciation
23,218
22,572
Amortization of intangibles
2,264
5,182
Reduction of right-of-use lease asset
2,102
1,899
Goodwill impairment
13,696
—
Deferred income taxes
(19,492)
7,404
Accrued pension income and post-retirement
benefits
10,701
7,246
(Gain) loss on investment accounted for
under the fair value method
61,000
(10,900)
Held for sale impairment loss on divested
assets
45,054
—
Net gain on sale of assets
—
(6,328)
Changes in assets and liabilities:
Accounts and other receivables
4,961
7,715
Inventories
(2,761)
6,625
Income taxes recoverable/payable
5,332
1,439
Prepaid expenses and other
(5,305)
14
Accounts payable and accrued expenses
(2,112)
(223)
Lease liability
(2,245)
(1,991)
Pension and postretirement benefit plan
contributions
(2,254)
(6,692)
Other, net
8,506
966
Net cash provided by operating
activities
66,326
86,323
Cash flows from investing activities:
Capital expenditures
(13,416)
(37,214)
Proceeds from the sale of assets and
other
—
10,931
Net cash used in investing activities
(13,416)
(26,283)
Cash flows from financing activities:
Borrowings
25,000
53,000
Debt principal payments
(60,000)
(86,500)
Dividends paid
(12,048)
(11,322)
Debt financing costs
—
(1,817)
Repurchase of employee common stock for
tax withholdings
(586)
(854)
Net cash used in financing activities
(47,634)
(47,493)
Effect of exchange rate changes on
cash
(1,676)
(2,292)
Increase in cash and cash equivalents
3,600
10,255
Cash and cash equivalents at beginning of
period
31,422
34,397
Cash and cash equivalents at end of
period
$
35,022
$
44,652
Notes to the Financial
Tables
(Unaudited)
(a)
Tredegar’s presentation of net income
(loss) and diluted 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, discontinued operations 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 (loss) from continuing
operations and diluted earnings per share as reported under GAAP.
Net income and diluted earnings (loss) 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 (loss) from
continuing operations or earnings (loss) 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
(loss) and diluted earnings (loss) per share from ongoing
operations for the three and nine months ended September 30, 2020
and 2019 is shown below:
(in millions, except per share data)
Three Months Ended September
30,
Nine Months Ended September
30,
Net income (loss) from continuing
operations as reported under GAAP
$
(17.0)
$
15.1
$
(23.3)
$
57.5
After-tax effects of:
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
—
0.1
0.1
0.5
(Gains) losses from sale of assets and
other:
(Gain) loss associated with the investment
in kaléo
28.2
(3.4)
47.7
(23.3)
Other
2.0
1.5
6.1
2.9
Goodwill impairment
—
—
10.5
—
Net income (loss) from ongoing
operations
$
13.2
$
13.3
$
41.1
$
37.6
Earnings (loss) from continuing operations
per share as reported under GAAP (diluted)
$
(0.51)
$
0.45
$
(0.70)
$
1.73
After-tax effects per diluted share
of:
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
—
—
—
0.01
(Gains) losses from sale of assets and
other:
(Gain) loss associated with the investment
in kaléo
0.84
(0.10)
1.43
(0.71)
Other
0.06
0.05
0.17
0.09
Goodwill impairment
—
—
0.32
—
Earnings (loss) per share from ongoing
operations (diluted)
$
0.39
$
0.40
$
1.22
$
1.12
Reconciliations of the pre-tax and
post-tax balances attributed to net income are shown in Note
(f).
(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 for the quarter ended September 30,
2020.
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 (loss) 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 for the three and
nine months ended September 30, 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.
Three Months Ended September 30,
2020
Nine Months Ended September 30,
2020
($ in millions)
Pre-Tax
Net of Tax
Pre-Tax
Net of Tax
Aluminum Extrusions:
Losses from sale of assets, investment
writedowns and other items:
Consulting expenses for ERP feasibility
study1
$
0.3
$
0.2
$
1.2
$
0.9
COVID-19-related expenses2
0.5
0.4
1.4
1.1
Total for Aluminum Extrusions
$
0.8
$
0.6
$
2.6
$
2.0
PE Films:
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings:
Other restructuring costs - severance
$
—
$
—
$
0.1
$
—
Losses from sale of assets, investment
writedowns and other items:
COVID-19-related expenses2
—
—
0.2
0.1
Total for PE Films
$
—
$
—
$
0.3
$
0.1
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 guidance1
$
0.6
$
0.4
$
4.1
$
3.2
Accelerated recognition of stock-based
compensation expense1
—
—
0.1
0.1
Corporate costs associated with the
divested Personal Care business1
1.1
0.9
1.1
0.9
Write-down of investment in Harbinger
Capital Partners Special Situations Fund2
0.1
0.1
0.3
0.2
U.S. tax on foreign branch income3
—
—
—
(0.6)
Total for Corporate
$
1.8
$
1.4
$
5.6
$
3.8
- Included in “Selling, R&D and general expenses” in the
condensed consolidated statements of income.
-
Included in “Other income (expense), net” in the condensed
consolidated statements of income.
-
Included in "Income tax expense (benefit)" in the condensed
consolidated statements of income.
Three Months Ended September 30,
2019
Nine Months Ended September 30,
2019
($ in millions)
Pre-Tax
Net of Tax
Pre-Tax
Net of Tax
Aluminum Extrusions:
(Gains) 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:
Write-off of films production line -
Guangzhou, China facility
$
—
$
—
$
0.4
$
0.3
Other restructuring costs - severance
0.1
—
0.1
0.1
Total for PE Films
$
0.1
$
—
$
0.5
$
0.4
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
$
1.5
$
1.2
$
3.3
$
2.6
Tax adjustment - FIN 48 reserve
reversal3
—
(2.0)
—
(2.0)
Total for Corporate
$
1.5
$
(0.8)
$
3.3
$
0.6
-
Included in “Cost of goods sold” in the condensed consolidated
statements of income.
-
Included in “Selling, R&D and general expenses” in the
condensed consolidated statements of income.
-
Included in "Income tax expense (benefit)" in the condensed
consolidated statements of income.
(d)
A loss on the Company’s investment in
kaléo of $36.2 million and $61.0 million was recognized in the
three and nine months ended September 30 2020, respectively,
compared to a gain of $4.3 million and $28.5 million in the three
and nine months ended September 30 2019, respectively. The first
nine months of 2019 included a $17.6 million dividend that is
reported in “Other income (expense), net” in the condensed
consolidated statements of income.
(e)
In the first quarter of 2020, the
operations of Aluminum Extrusions’ Niles, Michigan and Elkhart,
Indiana facilities (which were acquired as “AACOA” in October 2012)
was expected to be 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, and to
customers serving the building and construction and automotive
markets. As a result, 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.
(f)
Tredegar’s presentation of net income
(loss) from ongoing operations is a 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, discontinued
operations, 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 (loss) as reported under GAAP. Net income (loss) from
ongoing operations is a key financial and analytical measure 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 (loss) 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 (loss) from ongoing operations for the three and nine
months ended September 30, 2020 and 2019 are shown below in order
to show the impact on the effective tax rate:
(in millions)
Pre-tax
Tax Expense (Benefit)
After- Tax
Effective Tax Rate
Three Months Ended September 30,
2020
(a)
(b)
(b)/(a)
Net income (loss) from continuing
operations reported under GAAP
$
(22.9)
$
(5.9)
$
(17.0)
25.8
%
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
—
—
—
(Gains) losses from sale of assets and
other
38.8
8.6
30.2
Net income (loss) from ongoing
operations
$
15.9
$
2.7
$
13.2
17.1
%
Three Months Ended September 30,
2019
Net income (loss) from continuing
operations reported under GAAP
$
15.2
$
0.1
$
15.1
1.2
%
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
0.1
$
—
0.1
(Gains) losses from sale of assets and
other
0.4
2.3
(1.9)
Net income (loss) from ongoing
operations
$
15.7
$
2.4
$
13.3
15.3
%
Nine Months Ended September 30,
2020
Net income (loss) from continuing
operations reported under GAAP
$
(31.6)
$
(8.3)
$
(23.3)
26.3
%
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
0.1
—
0.1
(Gains) losses from sale of assets and
other
69.4
15.6
53.8
Goodwill impairment
13.7
3.2
10.5
Net income (loss) from ongoing
operations
$
51.6
$
10.5
$
41.1
20.4
%
Nine Months Ended September 30,
2019
Net income (loss) from continuing
operations reported under GAAP
$
68.0
$
10.5
$
57.5
15.4
%
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
0.6
$
0.1
0.5
(Gains) losses from sale of assets and
other
(21.9)
(1.5)
(20.4)
Net income (loss) from ongoing
operations
$
46.7
$
9.1
$
37.6
19.5
%
(g)
On October 30, 2019, Bonnell Aluminum
announced a rebranding initiative under which Bonnell and its
subsidiaries, at that date, AACOA and Futura, would all operate
under the Bonnell Aluminum brand. The usage of the AACOA and Futura
trade names was 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 $5.4 million. As a
result of the rebranding initiative, there was a change in estimate
in the useful lives for both trade names to 4 months. The non-cash
amounts amortized related to these trade names were as follows:
Three Months Ended
($ in millions)
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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201109005396/en/
Tredegar Corporation Neill Bellamy, 804-330-1211
neill.bellamy@tredegar.com
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