NOTES TO FINANCIAL STATEMENTS
Tredegar Corporation and Subsidiaries
1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations. Tredegar Corporation and subsidiaries (collectively “Tredegar,” “the Company,” “we,” “us” or “our”) 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; polyethylene overwrap films used in bathroom tissue and paper towels; and polyester-based films for use in packaging applications that have specialized properties primarily for the Latin American and the United States (“U.S.”) flexible packaging markets. The Company’s business segments are Aluminum Extrusions (also referred to as Bonnell Aluminum), PE Films, and Flexible Packaging Films (also referred to as Terphane). More information on the Company’s business segments is provided in Note 5.
On October 30, 2020, the Company completed the sale of its personal care films business (“Personal Care Films”), which was part of its PE Films segment. The transaction excluded the packaging film lines and related operations located at the Pottsville, Pennsylvania manufacturing site (“Pottsville Packaging”), which are now being reported within the Surface Protection component of PE Films. Commencing in the third quarter of 2020, all historical results for Personal Care Films have been presented as discontinued operations.
In December 2020, the Company entered into a definitive agreement to sell Bright View Technologies (“Bright View”), with the transaction completed on December 31, 2020. The sale does not represent a strategic shift nor does it have a major effect on the Company’s historical and ongoing operations, thus all financial information for Bright View has been presented as continuing operations. Bright View historically has been reported in the PE Films segment.
For more information on these transactions, see Note 2 in the Notes to Financial Statements
Basis of Presentation and Principles of Consolidation. The consolidated financial statements include the accounts and operations of the Company and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Intercompany balances and transactions have been eliminated in consolidation. Certain amounts for the prior years have been reclassified to conform to current year presentation.
Fiscal Year End. The Company operates on a calendar fiscal year except for the Aluminum Extrusions segment, which operates on a 52/53-week fiscal year basis. References to Aluminum Extrusions for 2020, 2019 and 2018 relate to the 52-week fiscal year ended December 27, 2020, the 52-week fiscal year ended December 29, 2019 and the 53-week fiscal year ended December 30, 2018, respectively. The Company does not believe the impact of reporting the results of this segment in this manner is material to the consolidated financial results. The Company may fund or receive cash from the Aluminum Extrusions segment based on Aluminum Extrusion’s cash flows from operations during the intervening period from Aluminum Extrusion’s fiscal year end to the Company’s calendar year end. As a result, the Company’s cash and cash equivalents declined by $3.8 million as of December 31, 2020 since the Company made payments to the Aluminum Extrusions segment to fund its working capital during the intervening period.
Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and disclosure of contingent assets and liabilities (if any). Actual results could differ from those estimates.
Risk and Uncertainties. While it is not possible to estimate the impact that the coronavirus pandemic (“COVID-19”) may have on the Company’s business, estimates related to the accounting for impairment of long-lived assets and goodwill, an investment accounted for under the fair value method, pension benefits and income taxes could be materially adversely affected in future periods. Due to the uncertainty with respect to the magnitude of the impact and duration of COVID-19, future developments associated with COVID-19 may adversely affect the Company's financial condition, results of operations and cash flows. The Company continues to monitor the impact of COVID-19 on the business and its effect on the consolidated financial statements.
Foreign Currency Translation. The financial statements of subsidiaries located outside the U.S., where the local currency is the functional currency, are translated into U.S. Dollars using exchange rates in effect at the period end for assets and liabilities and average exchange rates during each reporting period for results of operations. Adjustments resulting from the translation of these financial statements are reflected as a separate component of shareholders’ equity. There are no operating subsidiaries located outside the U.S. where the U.S. Dollar is the functional currency. Transaction and remeasurement gains or losses included in income were gains of $0.6 million, losses of $0.6 million and gains of $0.1 million in 2020, 2019 and 2018, respectively. These amounts do not include the effects between reporting periods that exchange rate changes have on income of the locations outside the U.S. that result from translation into U.S. Dollars.
Cash and Cash Equivalents. Cash and cash equivalents consist of cash on hand in excess of daily operating requirements and highly liquid investments with original maturities of three months or less. At December 31, 2020 and 2019, Tredegar had cash
and cash equivalents of $11.8 million and $31.4 million, respectively, including funds held in locations outside the U.S. of $9.4 million and $8.9 million, respectively.
The Company’s policy permits investment of excess cash in marketable securities that have the highest credit ratings and maturities of less than one year. The primary objectives of the policy are safety of principal and liquidity.
Accounts and Other Receivables. Accounts receivable are stated at the amount invoiced to customers less allowances for doubtful accounts and sales returns. Accounts receivable are non-interest bearing and arise from the sale of product to customers under typical industry trade terms. Notes receivable are not significant. Past due amounts are determined based on established terms and charged-off when deemed uncollectible. The allowance for doubtful accounts is determined based on an assessment of probable losses taking into account past due amounts, customer credit profile, historical experience and current economic conditions. For receivables that do not have a specific allowance, the loss rate is computed by segment to apply to the remaining receivables balance, using each segment’s historic loss rate. Other receivables include value-added taxes related to certain foreign subsidiaries and other miscellaneous receivables due within one year. For certain customers, the Company has arrangements in place with financial institutions whereby certain customer receivables are sold to the financial institution at a discount and without recourse. Upon sale, the associated receivable is unrecognized and the discount is recognized as a reduction of sales. For more information on accounts receivable and other receivables, net, see Note 6.
Inventories. Inventories are stated at the lower of cost or market, with cost determined using the last in, first out (“LIFO”), the weighted average cost or the first in, first out method. Cost elements included in work-in-process and finished goods inventories are raw materials, direct labor and manufacturing overhead. Finished goods, work-in-process, raw materials and supplies, stores and other inventory are reviewed to determine if inventory quantities are in excess of forecasted usage or if they have become obsolete.
Property, Plant and Equipment. Accounts include costs of assets constructed or purchased, related delivery and installation costs and interest incurred on significant capital projects during their construction periods. Expenditures for renewals and betterments also are capitalized, but expenditures for repairs and maintenance are expensed as incurred. The cost and accumulated depreciation applicable to assets retired or sold are removed from the respective accounts, and gains or losses thereon are included in income. Capital expenditures for property, plant and equipment include capitalized interest. Capitalized interest included in capital expenditures for property, plant and equipment was $0.1 million, $0.3 million and $0.1 million in 2020, 2019 and 2018, respectively. Depreciation is computed primarily by the straight-line method based on the estimated useful lives of the assets that generally range from 5 to 40 years for buildings and land improvements and 2 to 20 years for machinery and equipment.
Investments in Private Entities with Less Than or Equal to 50% Voting Ownership Interest. The Company accounts for its investments in private entities where its voting ownership is less than or equal to 50% based on the facts and circumstances surrounding the investment. For those investments measured at fair value, GAAP requires disclosure of the level within the fair value hierarchy in which fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3). For more information on investments, see Note 4.
Goodwill and Identifiable Intangibles. The excess of the purchase price over the fair value of identifiable net assets of acquired companies is allocated to goodwill. The Company assesses goodwill for impairment when events or circumstances indicate that the carrying value may not be recoverable or, at a minimum, on an annual basis (December 1st of each year). When assessing goodwill for impairment, accounting guidance allows the Company to first perform a qualitative assessment about the likelihood of the carrying value of a reporting unit exceeding its fair value, referred to as the "Step 0" assessment. The Step 0 assessment requires the evaluation of certain qualitative factors, including macroeconomic conditions, industry and market considerations, cost factors and overall financial performance, as well as company and reporting unit factors. If the Company's Step 0 analysis indicates that it is more likely than not that the fair value of a reporting unit is less than the carrying amount, then the Company would perform a quantitative impairment test.
During the first three months of 2020, the Company performed goodwill impairment tests and recognized a goodwill impairment charge of $13.7 million ($10.5 million after taxes), which represented the entire amount of goodwill associated with Aluminum Extrusions’ AACOA reporting unit. The operations of the AACOA reporting unit, which includes the Niles, Michigan and Elkhart, Indiana facilities, were expected to be severely impacted by COVID-19, 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 of December 1, 2020, the Company’s reporting units with goodwill were Surface Protection in PE Films and Futura in Aluminum Extrusions. Both of these reporting units have separately identifiable operating net assets (operating assets including goodwill and identifiable intangible assets net of operating liabilities). The Company estimates the fair value of its reporting units using discounted cash flow analyses and comparative enterprise value-to-EBITDA (earnings before interest, taxes, depreciation and amortization) multiples.
As of December 1, 2020, the Company applied the Step 0 goodwill assessment to Surface Protection and Futura, which both had fair values significantly in excess of their carrying amounts when last tested using the quantitative impairment test. The Company's Step 0 analyses in 2020 of these reporting units concluded that it is not more likely than not that the fair values of each reporting unit was less than its carrying amount. Therefore, the quantitative goodwill impairment tests for these reporting units were not necessary in 2020. The Surface Protection and Futura reporting units had goodwill in the amounts of $57.3 million and $10.4 million, respectively, at December 31, 2020.
Indefinite-lived identifiable intangible assets are assessed for impairment when events or circumstances indicate that the carrying value may not be recoverable. The Company estimates the fair value of its trade names using a relief-from-royalty method that relies upon a corresponding discounted cash flow analysis.
Additional disclosure of Tredegar’s goodwill and identifiable intangible assets and the impairments recorded in 2018 are included in Note 8.
Impairment of Long-Lived Assets. The Company reviews long-lived assets for possible impairment when events indicate that an impairment may exist. For assets that are held and used in operations, if events indicate that an asset may be impaired, the Company estimates the future unlevered pre-tax cash flows expected to result from the use of the asset and its eventual disposition. Assets are grouped for this purpose at the lowest level for which there are identifiable and independent cash flows. If the sum of these undiscounted pre-tax cash flows is less than the carrying amount of the asset group, an impairment loss is calculated. Measurement of the impairment loss is the amount by which the carrying amount exceeds the estimated fair value of the asset group.
Assets that are held for sale are reported at the lower of their carrying amount or estimated fair value less cost to sell, with an impairment loss recognized for any write-down required.
Pension Costs and Postretirement Benefit Costs Other than Pensions. Pension costs and postretirement benefit costs other than pensions have been accrued over the period employees provided service to Tredegar. Liabilities and expenses for pension plans and other postretirement benefits are determined using actuarial methodologies and incorporate significant assumptions, including the rate used to discount the future estimated liability, the long-term rate of return on plan assets, and several assumptions relating to the employee workforce. The Company recognizes the funded status of its pension and other postretirement plans in the accompanying consolidated balance sheets. Tredegar’s policy is to fund its pension plans at amounts not less than the minimum requirements of the Employee Retirement Income Security Act (“ERISA”) of 1974 and to fund postretirement benefits other than pensions when claims are incurred.
Additional disclosure regarding Tredegar’s pension costs and postretirement benefit costs other than pensions is included in Note 13.
Revenue Recognition. The Company’s revenue is primarily generated from the sale of finished products to customers. Those sales predominantly contain a single performance obligation and revenue is recognized at the point in time when control of the product is transferred to customers, along with the title, risk of loss and rewards of ownership. Depending on the arrangement with the customer, these criteria are met either at the time the product is shipped or when the product is made available or delivered at the destination specified in the agreement with the customer.
Sales revenue is recognized in an amount that reflects the consideration the Company expects to be entitled to in exchange for that finished product. The Company offers various discounts, rebates and allowances to customers, (collectively, “allowances”), all of which are considered when determining the transaction price. Certain allowances are fixed and determinable at the time of sale and are recorded at the time of sale as a reduction to revenues. Other allowances can vary depending on future outcomes such as customer sales volume and represent variable consideration.
Amounts billed to customers related to freight are classified as sales revenue and the cost of freight is classified as a separate line in the accompanying consolidated statements of income. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction between Tredegar and its customers (such as value-added taxes) are accounted for on a net basis and therefore excluded from revenues. See Note 5 for disaggregation of revenue by segment and type. See Note 6 for a table showing accounts and other receivables, net of allowance for bad debts and sales returns.
Revenue expected to be recognized in any future period related to remaining performance obligations, excluding i) revenue pertaining to contracts that have an original expected duration of one year or less, ii) contracts where revenue is recognized as invoiced and iii) variable consideration related to unsatisfied performance obligations, is not expected to materially impact the Company’s financial results.
Research & Development (“R&D”) Costs. R&D costs are expensed as incurred and include primarily salaries, wages, employee benefits, equipment depreciation, facility costs and the cost of materials consumed relating to R&D efforts. R&D costs include a reasonable allocation of indirect costs.
Leases. In February 2016, the Financial Accounting Standards Board (“FASB”) issued a revised standard on lease accounting, ASU 2016-2, Leases (Topic 842). The Company adopted the standard effective January 1, 2019. At inception, the Company determines if an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease. The Company has elected to not record short-term leases with an original lease term of one year or less in the consolidated balance sheet. To the extent such leases contain renewal options that the Company intends to exercise, the related Right-of-Use (“ROU”) asset and lease liability are included in the consolidated balance sheet. Some of the Company’s lease arrangements contain lease components (e.g., minimum rent payments) and non-lease components (e.g., maintenance, labor charges, etc.). The Company generally accounts for the lease and non-lease components as a single lease component.
Certain of the Company’s lease agreements include rental payments that are adjusted periodically for an index or rate. The leases are initially measured using the projected payments adjusted for the index or rate in effect at the commencement date. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Operating leases are included in “Right-of-use lease assets”, “Lease liabilities - short-term” and “Lease liabilities - long-term” on the consolidated balance sheets. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates, adjusted for term and geographic location using country-based swap rates. As a result of the Company’s review of new and existing lease contracts, there were no instances where the Company could readily determine a rate implicit in the lease.
Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease expense is recognized in the period in which the obligation for those payments is incurred. Depending upon the specific use of the ROU asset, lease expense is included in the “Cost of goods sold”, “Freight”, “Selling, general and administrative”, and “Research and development” line items on the consolidated statements of income. Lease income is not material to the results of operations for the years ended December 31, 2020 and 2019, respectively. Additional disclosure regarding Tredegar’s leases is included in Note 15.
Income Taxes. Income taxes are recognized during the period in which transactions enter into the determination of income for financial reporting purposes, with deferred income taxes being provided at enacted statutory tax rates on the differences between the financial reporting and tax bases of assets and liabilities (see Note 16). Tredegar’s policy is to accrue U.S. federal income taxes to the extent required under GAAP on unremitted earnings of all foreign subsidiaries where required. However, due to changes in the taxation of dividends under the Tax Cuts and Jobs Act (the “TCJA”) enacted by the U.S. government in December 2017, Tredegar only records U.S. federal income taxes on unremitted earnings of its foreign subsidiaries where Tredegar cannot take steps to eliminate any potential tax on future distributions from its foreign subsidiaries. Because of the accumulation of significant losses related to foreign currency translations at Terphane Limitada, there were no unrecorded deferred income tax liabilities associated with U.S. federal income taxes and foreign withholding taxes on Terphane Limitada’s undistributed earnings as of December 31, 2020 and December 31, 2019.
A valuation allowance is recorded in the period when the Company determines that it is more likely than not that all or a portion of deferred income tax assets may not be realized. The establishment and removal of a valuation allowance requires the Company to consider all positive and negative evidence and make a judgmental decision regarding the amount of valuation allowance required as of a reporting date. The benefit of an uncertain tax position is included in the accompanying financial statements when the Company determines that it is more likely than not that the position will be sustained, based on the technical merits of the position, if the taxing authority examines the position and the dispute is litigated. This determination is made on the basis of all the facts, circumstances and information available as of the reporting date.
Earnings Per Share. Basic earnings per share is computed using the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed using the weighted average common and potentially dilutive common equivalent shares outstanding, determined as follows:
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|
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2020
|
|
2019
|
|
2018
|
Weighted average shares outstanding used to compute basic earnings per share
|
33,402,147
|
|
|
33,236,115
|
|
|
33,067,800
|
|
Incremental shares attributable to stock options and restricted stock
|
—
|
|
|
22,022
|
|
|
24,674
|
|
Shares used to compute diluted earnings per share
|
33,402,147
|
|
|
33,258,137
|
|
|
33,092,474
|
|
Incremental shares attributable to stock options and restricted stock are computed using the average market price during the related period. The Company had a net loss from continuing operations for the year ended December 31, 2020, so there is no dilutive impact for such shares. If the Company had reported net income from continuing operations for the year ended December 31, 2020, average out-of-the-money options to purchase shares that were excluded from the calculation of incremental shares attributable to stock options and restricted stock were 1,212,375. For the years ended December 31, 2019 and 2018, average out-of-the-money options to purchase shares that were excluded from the calculation of incremental shares attributable to stock options and restricted stock were 209,592 and 726,475, respectively.
Stock-Based Employee Compensation Plans. The cost of all share-based payments is recognized using the calculated fair value at the grant date, or the date of any later modification, over the requisite service period under the graded-vesting method. See Note 12 for additional information.
Financial Instruments. Tredegar uses derivative financial instruments for the purpose of hedging aluminum price volatility and currency exchange rate exposures that exist as part of transactions associated with ongoing business operations. The Company’s derivative financial instruments are designated as and qualify as cash flow hedges and are recognized in the accompanying balance sheet at fair value. A change in the fair value of the derivative that is highly effective and that is designated and qualifies as a cash flow hedge is recorded in other comprehensive income. Gains and losses reported in other comprehensive income (loss) are reclassified to earnings in the periods in which earnings are affected by the variability of cash flows of the hedged transaction. Such gains and losses are reported on the same line as the underlying hedged item, and the cash flows related to financial instruments are classified in the consolidated statements of cash flows in a manner consistent with those of the transactions being hedged. Any hedge ineffectiveness (which represents the amount by which the changes in the fair value of the derivative exceed the variability in the cash flows of the forecasted transaction) is recorded in current period earnings. The amount of gains and losses recognized for hedge ineffectiveness were not material in 2020, 2019 and 2018.
The Company’s policy requires that it formally document all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Company also formally assesses (both at the hedge’s inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the fair value or cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not (or has ceased to be) highly effective as a hedge, the Company discontinues hedge accounting prospectively.
As a policy, Tredegar does not engage in speculative or leveraged transactions, nor does it hold or issue financial instruments for trading purposes. Additional disclosure of the utilization of derivative hedging instruments is included in Note 9.
Comprehensive Income (Loss). Comprehensive income (loss) is defined as net income or loss as adjusted by other comprehensive income or loss items. Other comprehensive income (loss) includes changes in foreign currency translation adjustments, unrealized gains and losses on derivative financial instruments, prior service costs and net gains or losses from pension and other postretirement benefit plans arising during the period and amortization of these prior service costs and net gain or loss adjustments, all recorded net of deferred income taxes.
The following table summarizes the after-tax changes in accumulated other comprehensive income (loss) for the year ended December 31, 2020:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Foreign currency translation adjustment
|
|
Gain (loss) on derivative financial instruments
|
|
Pension and other post-retirement benefit adjustments
|
|
Total
|
Beginning balance, January 1, 2020
|
$
|
(100,663)
|
|
|
$
|
(1,307)
|
|
|
$
|
(95,681)
|
|
|
$
|
(197,651)
|
|
Other comprehensive income (loss) before reclassifications
|
(8,781)
|
|
|
(3,285)
|
|
|
(12,197)
|
|
|
(24,263)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
25,295
|
|
|
6,856
|
|
|
11,359
|
|
|
43,510
|
|
Net other comprehensive income (loss) - current period
|
16,514
|
|
|
3,571
|
|
|
(838)
|
|
|
19,247
|
|
Ending balance, December 31, 2020
|
$
|
(84,149)
|
|
|
$
|
2,264
|
|
|
$
|
(96,519)
|
|
|
$
|
(178,404)
|
|
The following table summarizes the after-tax changes in accumulated other comprehensive income (loss) for the year ended December 31, 2019:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Foreign currency translation adjustment
|
|
Gain (loss) on derivative financial instruments
|
|
Pension and other post-retirement benefit adjustments
|
|
Total
|
Beginning balance, January 1, 2019
|
$
|
(96,940)
|
|
|
$
|
(1,601)
|
|
|
$
|
(81,446)
|
|
|
$
|
(179,987)
|
|
Other comprehensive income (loss) before reclassifications
|
(3,723)
|
|
|
(2,686)
|
|
|
(22,508)
|
|
|
(28,917)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
2,980
|
|
|
8,273
|
|
|
11,253
|
|
Net other comprehensive income (loss) - current period
|
(3,723)
|
|
|
294
|
|
|
(14,235)
|
|
|
(17,664)
|
|
Ending balance, December 31, 2019
|
$
|
(100,663)
|
|
|
$
|
(1,307)
|
|
|
$
|
(95,681)
|
|
|
$
|
(197,651)
|
|
Reclassifications of balances out of accumulated other comprehensive income (loss) into net income during 2020 are summarized as follows:
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|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Amount reclassified from other comprehensive income (loss)
|
|
Location of gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (loss)
|
Gain (loss) on derivative financial instruments:
|
|
|
|
Aluminum future contracts, before taxes
|
$
|
(2,717)
|
|
|
Cost of goods sold
|
Foreign currency forward contracts, before taxes
|
(6,069)
|
|
|
Selling, general and administrative
|
Foreign currency forward contracts, before taxes
|
62
|
|
|
Cost of goods sold
|
Total, before taxes
|
(8,724)
|
|
|
|
Income tax expense (benefit)
|
(1,868)
|
|
|
Income tax expense (benefit)
|
Total, net of tax
|
$
|
(6,856)
|
|
|
|
Amortization of pension and other post-retirement benefits:
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|
|
|
Actuarial gain (loss) and prior service costs, before taxes
|
$
|
(15,296)
|
|
|
(a)
|
Income tax expense (benefit)
|
(3,937)
|
|
|
Income tax expense (benefit)
|
Total, net of tax
|
$
|
(11,359)
|
|
|
|
Reclassification adjustment of foreign currency translation loss included in income:
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|
|
|
Realized loss on foreign currency translation adjustments related to the sale of Personal Care Films
|
$
|
(25,295)
|
|
|
Income (loss) from discontinued operations, net of tax
|
(a) This component of accumulated other comprehensive income is included in the computation of net periodic pension cost (see Note 13 for additional detail).
|
Reclassifications of balances out of accumulated other comprehensive income (loss) into net income during 2019 are summarized as follows:
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|
|
|
|
|
|
|
|
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(In thousands)
|
Amount reclassified from other comprehensive income (loss)
|
|
Location of gain (loss) reclassified from accumulated other comprehensive income (loss) to net income
|
Gain (loss) on derivative financial instruments:
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|
|
|
Aluminum future contracts, before taxes
|
$
|
(2,736)
|
|
|
Cost of goods sold
|
Foreign currency forward contracts, before taxes
|
(904)
|
|
|
Selling, general and administrative
|
Foreign currency forward contracts, before taxes
|
62
|
|
|
Cost of goods sold
|
Total, before taxes
|
(3,578)
|
|
|
|
Income tax expense (benefit)
|
(598)
|
|
|
Income tax expense (benefit)
|
Total, net of tax
|
$
|
(2,980)
|
|
|
|
Amortization of pension and other post-retirement benefits:
|
|
|
|
Actuarial gain (loss) and prior service costs, before taxes
|
$
|
(10,632)
|
|
|
(a)
|
Income tax expense (benefit)
|
(2,359)
|
|
|
Income tax expense (benefit)
|
Total, net of tax
|
$
|
(8,273)
|
|
|
|
(a) This component of accumulated other comprehensive income is included in the computation of net periodic pension cost (see Note 13 for additional detail).
|
Reclassifications of balances out of accumulated other comprehensive income (loss) into net income during 2018 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Amount reclassified from other comprehensive income (loss)
|
|
Location of gain (loss) reclassified from accumulated other comprehensive income (loss) to net income
|
Gain (loss) on derivative financial instruments:
|
|
|
|
Aluminum future contracts, before taxes
|
$
|
1,069
|
|
|
Cost of goods sold
|
Foreign currency forward contracts, before taxes
|
(1,796)
|
|
|
Selling, general and administrative
|
Foreign currency forward contracts, before taxes
|
62
|
|
|
Cost of goods sold
|
Total, before taxes
|
(665)
|
|
|
|
Income tax expense (benefit)
|
253
|
|
|
Income tax expense (benefit)
|
Total, net of tax
|
$
|
(918)
|
|
|
|
Amortization of pension and other post-retirement benefits:
|
|
|
|
Actuarial gain (loss) and prior service costs, before taxes
|
$
|
(13,650)
|
|
|
(a)
|
Income tax expense (benefit)
|
(3,028)
|
|
|
Income tax expense (benefit)
|
Total, net of tax
|
$
|
(10,622)
|
|
|
|
(a) This component of accumulated other comprehensive income is included in the computation of net periodic pension cost (see Note 13 for additional detail).
|
Accounting Standards Adopted.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326).” The pronouncement replaces the incurred loss methodology to record credit losses with a methodology that reflects the expected credit losses for financial assets not accounted for at fair value with gains and losses recognized through net income. In the first quarter of 2020, the Company adopted ASU 2016-13 which resulted in an adjustment of less than $0.2 million and, therefore, did not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which changes the disclosure requirements for fair value measurements by removing, adding and modifying certain disclosures. ASU 2018-13 is effective for annual periods beginning after December 15, 2019, with early adoption permitted. This ASU became effective on January 1, 2020 and the requirements of this ASU did not have a material impact on the Company's fair value disclosures.
Accounting Standards Not Yet Adopted.
In December 2019, the FASB issued ASU 2019-12, which simplifies the accounting for income taxes. The new guidance simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, hybrid taxes and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. The amendments are effective for fiscal years beginning after December 15, 2020 and interim periods therein, with early adoption permitted. The Company is currently evaluating the impact of this new guidance.
2 DIVESTITURES AND ASSETS HELD FOR SALE
Divestitures
Personal Care Films
On August 24, 2020, the Company entered into a definitive agreement to sell Personal Care Films for an aggregate purchase price of approximately $60.5 million, subject to customary adjustments. Upon completion of the sale on October 30, 2020, the Company recognized a pre-tax loss of $50.0 million ($46.7 million after-tax) for the year ended December 31, 2020, which includes the realization of other comprehensive losses on foreign currency translation adjustments of $25.3 million previously reflected in shareholder’s equity. In addition, the Company agreed to provide certain transition services related to finance, human resources and information technology which are expected to end in the first half of 2021. Personal Care Films was previously reported in the PE Films segment.
The following table summarizes the financial results of discontinued operations reflected in the Consolidated Statements of Income for the year ended December 31, 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
(In thousands)
|
2020
|
|
2019
|
|
2018
|
Revenues and other items:
|
|
|
|
|
|
Sales
|
$
|
110,246
|
|
|
$
|
146,034
|
|
|
$
|
213,637
|
|
Other income (expense), net
|
(333)
|
|
|
6,424
|
|
|
4
|
|
|
109,913
|
|
|
152,458
|
|
|
213,641
|
|
Costs and expenses:
|
|
|
|
|
|
Cost of goods sold
|
92,079
|
|
|
126,371
|
|
|
170,091
|
|
Freight
|
5,229
|
|
|
7,083
|
|
|
8,857
|
|
Selling, general and administrative
|
16,824
|
|
|
17,754
|
|
|
17,354
|
|
Research and development
|
8,863
|
|
|
11,743
|
|
|
12,035
|
|
Asset impairments and costs associated with exit and disposal activities, net of adjustments
|
1,529
|
|
|
3,341
|
|
|
2,515
|
|
Goodwill impairment
|
—
|
|
|
—
|
|
|
46,792
|
|
Loss on sale of business
|
50,027
|
|
|
—
|
|
|
—
|
|
Total
|
174,551
|
|
|
166,292
|
|
|
257,644
|
|
Income (loss) from discontinued operations before income taxes
|
(64,638)
|
|
|
(13,834)
|
|
|
(44,003)
|
|
Income tax expense (benefit)
|
(6,027)
|
|
|
(3,632)
|
|
|
(7,281)
|
|
Income (loss) from discontinued operations, net of tax
|
$
|
(58,611)
|
|
|
$
|
(10,202)
|
|
|
$
|
(36,722)
|
|
The assets and liabilities of the discontinued operations reflected in the Consolidated Balance Sheets as of December 31, 2020 and 2019, respectively were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
(In thousands)
|
2020
|
|
2019
|
Assets
|
|
|
|
Accounts and other receivables, net
|
$
|
—
|
|
|
$
|
18,441
|
|
Income tax recoverable
|
—
|
|
|
1,439
|
|
Inventories
|
—
|
|
|
17,175
|
|
Prepaid expenses and other (b)
|
1,339
|
|
|
363
|
|
Total current assets
|
1,339
|
|
|
37,418
|
|
Property, plant and equipment, net
|
—
|
|
|
69,334
|
|
Right-of-use leased assets
|
—
|
|
|
728
|
|
Deferred income taxes
|
—
|
|
|
694
|
|
Other assets
|
151
|
|
|
105
|
|
Total non-current assets
|
151
|
|
|
70,861
|
|
Total assets of discontinued operations
|
$
|
1,490
|
|
|
$
|
108,279
|
|
|
|
|
|
Liabilities
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
16,361
|
|
Accrued expenses (b)
|
7,521
|
|
|
6,344
|
|
Lease liability, short-term
|
—
|
|
|
575
|
|
Total current liabilities
|
7,521
|
|
|
23,280
|
|
Lease liability, long-term
|
—
|
|
|
351
|
|
Total non-current liabilities
|
—
|
|
|
351
|
|
Total liabilities of discontinued operations (a)
|
$
|
7,521
|
|
|
$
|
23,631
|
|
|
|
|
|
(a) Pension and other postretirement benefit liabilities related to Personal Care Films have been retained by the Company.
(b) The consolidated balance sheet of discontinued operations as of December 31, 2020 includes $0.4 million of other receivables related to the settlement of customary post-closing adjustments, deferred assets of $0.9 million and deferred obligations of $5.3 million related to transition services, accrued severance of $2.1 million, and other miscellaneous accrued expenses of $0.2 million.
|
The following table provides significant operating and investing cash flow information for discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2020
|
|
2019
|
|
2018
|
Operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
$
|
5,511
|
|
|
$
|
9,962
|
|
|
$
|
9,312
|
|
Gain from the sale of the Shanghai manufacturing facility assets
|
—
|
|
|
(6,316)
|
|
|
—
|
|
Loss on sale of Personal Care Films
|
50,027
|
|
|
—
|
|
|
—
|
|
Total
|
55,538
|
|
|
3,646
|
|
|
9,312
|
|
Investing activities:
|
|
|
|
|
|
Net proceeds on sale of Personal Care Films
|
$
|
55,115
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Proceeds from the sale of the Shanghai manufacturing facility assets
|
—
|
|
|
10,936
|
|
|
—
|
|
Capital expenditures
|
(1,912)
|
|
|
(15,353)
|
|
|
(19,475)
|
|
Total
|
$
|
53,203
|
|
|
$
|
(4,417)
|
|
|
$
|
(19,475)
|
|
Bright View
In December 2020, the Company entered into a definitive agreement and completed the sale of Bright View for an aggregate purchase price of $1.5 million, subject to customary adjustments, which resulted in the recognition of a pre-tax loss of $2.3 million ($1.8 million after-tax) included in “Other income (expense), net” in the consolidated statements of income for the year ended December 31, 2020. In addition, the Company agreed to provide certain transition services related to information technology. The sale does not represent a strategic shift nor does it have a major effect on the Company’s
historical and ongoing operations, thus all financial information for Bright View has been presented as continuing operations. Bright View historically has been reported in the PE Films segment.
Assets Held For Sale
In July 2019, the Company committed to a plan to close its manufacturing facility in Lake Zurich, Illinois, which historically was reported by the Company within the personal care component of its PE Films segment. In March 2020, this facility was shut down and the production of elastic materials it previously produced was transferred to Terre Haute, Indiana.
In the third quarter of 2020, the held for sale criteria was met since the Company expected the sale of the facility to be completed within one year. As of December 31, 2020, the disposal group carrying value of $4.6 million consists of land, building, and building improvements and is reported in "Prepaid expenses and other" in the Consolidated Balance Sheet. These assets were not included as part of the sale of Personal Care Films.
3 OTHER INCOME (EXPENSE), NET
Other income (expense), net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2020
|
|
2019
|
|
2018
|
(Loss) gain on investment in kaléo accounted for under fair value method
|
$
|
(60,900)
|
|
|
$
|
28,482
|
|
|
$
|
30,600
|
|
Loss on sale of Bright View Technologies
|
(2,299)
|
|
|
—
|
|
|
—
|
|
Corporate costs associated with the divestiture of Personal Care Films
|
(851)
|
|
|
—
|
|
|
—
|
|
COVID-19-related expenses (a)
|
(2,231)
|
|
|
—
|
|
|
—
|
|
Other
|
(1,013)
|
|
|
(111)
|
|
|
(145)
|
|
Total
|
$
|
(67,294)
|
|
|
$
|
28,371
|
|
|
$
|
30,455
|
|
(a) Costs associated with operating under COVID-19 conditions include employee overtime expenses associated with absenteeism, personal protective equipment supplies and facility maintenance.
|
The gain on investment in kaléo accounted for under the fair value method of $28.5 million includes a cash dividend of $17.6 million received in 2019 from kaléo. See Note 4 for more details on the investment in kaléo.
4 INVESTMENTS
In August 2007 and December 2008, the Company made an aggregate investment of $7.5 million in kaleo, Inc. (“kaléo”), a privately held specialty pharmaceutical company dedicated to building innovative solutions for serious and life-threatening medical conditions. Tredegar owns Series A-3 Preferred Stock and Series B Preferred Stock in kaléo that, taken together, represents on a fully-diluted basis an approximate 20% interest in kaléo. Tredegar accounts for its investment in kaléo under the fair value option. At the time of the initial investment, the Company elected the fair value option of accounting since its investment objectives were similar to those of venture capitalists, which typically do not have controlling financial interests. kaléo’s stock is not publicly traded.
The estimated fair value of the Company’s investment was $34.6 million as of December 31, 2020 and $95.5 million as of December 31, 2019. The Company recognized a pre-tax loss on its investment in kaléo of $60.9 million ($47.6 million after taxes) in 2020, which was primarily due to: (i) current projections that assume ongoing pricing pressures, (ii) expected changes in market access as well as continued lower market demand for epinephrine delivery devices resulting from COVID-19-driven delays in in-person back-to-school schedules and social distancing guidelines, and (iii) a higher private company liquidity discount. The net appreciation on its investment of $28.5 million ($23.4 million after taxes) in 2019 included a pre-tax cash dividend of $17.6 million received on April 30, 2019. Future dividends are subject to the discretion of kaléo’s board of directors. Amounts recognized associated with the Company’s investment in kaléo are included in “Other income (expense), net” in the consolidated statements of income and separately stated in the EBITDA from ongoing operations table in Note 5.
The Company estimates the fair value of its investment in kaléo by: (i) computing the weighted average estimated enterprise value (“EV”) utilizing both the discounted cash flow method (the “DCF Method”) and the application of a market multiple to earnings before interest, taxes, depreciation and amortization (the “EBITDA Multiple Method”), (ii) applying adjustments for any surplus or deficient working capital and estimates of contingent liabilities, (iii) adding cash and cash equivalents, (iv) subtracting interest-bearing debt, (v) subtracting a private company liquidity discount estimated at 20% at December 31, 2020 (versus 10% at December 31, 2019) of the net result of (i) through (iv), and (vi) applying liquidation preferences and fully diluted ownership percentages to the estimated equity value computed in (i) through (v).
The Company’s estimate of kaléo’s EV as of December 31, 2020 was determined by weighting the EBITDA Multiple Method by 20% and the DCF Method by 80% compared to an 80% and 20% weighting of the EBITDA Multiple Method and DCF Method, respectively, used in the Company's estimate of kaléo’s EV as of December 31, 2019. A heavier weighting towards the DCF Method as of December 31, 2020 was used since kaléo’s projections better reflect ongoing pricing pressures and expected changes in market access. The DCF Method projections rely on numerous assumptions and Level 3 inputs. In
addition, there are various regulatory and legal enforcement efforts, including an ongoing Department of Justice investigation related to kaléo’s discontinued Evzio business, which could have a material adverse effect on kaléo’s business that require assessment in any valuation method applied.
The ultimate value of the Company’s ownership interest in kaléo will be determined and realized only if and when a liquidity event occurs, and the ultimate value could be materially different from the $34.6 million estimated fair value reflected in the Company’s financial statements at December 31, 2020.
5 BUSINESS SEGMENTS
The Company's business segments are Aluminum Extrusions, PE Films and Flexible Packaging Films. Aluminum Extrusions, also referred to as Bonnell Aluminum, produces high-quality, soft-alloy and medium-strength custom fabricated and finished aluminum extrusions for the building and construction, automotive and transportation, consumer durables, machinery and equipment, electrical and renewable energy, and distribution markets. PE Films is composed of surface protection films, polyethylene overwrap films and films for other markets. Flexible Packaging Films is comprised of the Company’s polyester films business, Terphane Holdings LLC (“Terphane”).
The Company’s reportable segments are based on its method of internal reporting, which is generally segregated by differences in products. Accounting standards for presentation of segments require an approach based on the way the Company organizes the segments for making operating decisions and how the chief operating decision maker (“CODM”) assesses performance.
Earnings before interest, taxes, depreciation and amortization from ongoing operations (“EBITDA from ongoing operations”) is the measure of profit and loss used by the CODM (Tredegar’s President and Chief Executive Officer) for purposes of assessing financial performance. In the fourth quarter of 2019, the Company concluded that “EBITDA from ongoing operations,” instead of “operating profit from ongoing operations,” is the most relevant metric for measuring segment financial performance. This change resulted in a revision of the Company’s segment disclosures for all periods to report EBITDA from ongoing operations as the measure of segment financial performance. The Company uses sales less freight (“net sales”) as its measure of revenues from external customers at the segment level. This measure is separately included in the financial information regularly provided to the CODM.
Information by business segment and geographic area for the last three years is provided in the segment tables below. There were no accounting transactions between segments and no allocations to segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
(In thousands)
|
2020
|
|
2019
|
|
2018
|
Aluminum Extrusions
|
$
|
455,711
|
|
|
$
|
529,602
|
|
|
$
|
573,126
|
|
PE Films
|
139,288
|
|
|
133,807
|
|
|
127,708
|
|
Flexible Packaging Films
|
134,605
|
|
|
133,935
|
|
|
123,830
|
|
Total net sales
|
729,604
|
|
|
797,344
|
|
|
824,664
|
|
Add back freight
|
25,686
|
|
|
28,980
|
|
|
27,170
|
|
Sales as shown in consolidated statements of income
|
$
|
755,290
|
|
|
$
|
826,324
|
|
|
$
|
851,834
|
|
Refer to Notes to Financial Tables that follow these tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA from Ongoing Operations
|
(In thousands)
|
2020
|
|
2019
|
|
2018
|
Aluminum Extrusions:
|
|
|
|
|
|
Ongoing operations:
|
|
|
|
|
|
EBITDA
|
$
|
55,137
|
|
|
$
|
65,683
|
|
|
$
|
65,479
|
|
Depreciation & amortization (d)
|
(17,403)
|
|
|
(16,719)
|
|
|
(16,866)
|
|
EBIT
|
37,734
|
|
|
48,964
|
|
|
48,613
|
|
Plant shutdowns, asset impairments, restructurings and other (a)
|
(3,506)
|
|
|
(561)
|
|
|
(505)
|
|
Goodwill impairment charge
|
(13,696)
|
|
|
—
|
|
|
—
|
|
Trade name accelerated amortization (d)
|
—
|
|
|
(10,040)
|
|
|
—
|
|
PE Films:
|
|
|
|
|
|
Ongoing operations:
|
|
|
|
|
|
EBITDA
|
45,107
|
|
|
41,133
|
|
|
32,404
|
|
Depreciation & amortization
|
(6,762)
|
|
|
(5,860)
|
|
|
(6,201)
|
|
EBIT
|
38,345
|
|
|
35,273
|
|
|
26,203
|
|
Plant shutdowns, asset impairments, restructurings and other (a)
|
(1,974)
|
|
|
(733)
|
|
|
(186)
|
|
Flexible Packaging Films:
|
|
|
|
|
|
Ongoing operations:
|
|
|
|
|
|
EBITDA
|
30,645
|
|
|
14,737
|
|
|
11,154
|
|
Depreciation & amortization
|
(1,761)
|
|
|
(1,517)
|
|
|
(1,262)
|
|
EBIT
|
28,884
|
|
|
13,220
|
|
|
9,892
|
|
Plant shutdowns, asset impairments, restructurings and other (a)
|
(18)
|
|
|
—
|
|
|
(45)
|
|
Total
|
85,769
|
|
|
86,123
|
|
|
83,972
|
|
Interest income
|
44
|
|
|
66
|
|
|
146
|
|
Interest expense
|
2,587
|
|
|
4,051
|
|
|
5,702
|
|
Gain (loss) on investment in kaléo accounted for under the fair value method (a)
|
(60,900)
|
|
|
28,482
|
|
|
30,600
|
|
Loss on sale of Bright View (f)
|
(2,299)
|
|
|
—
|
|
|
—
|
|
Loss on sale of investment property (a)
|
—
|
|
|
—
|
|
|
(38)
|
|
Unrealized loss on investment property (a)
|
—
|
|
|
—
|
|
|
(186)
|
|
Stock option-based compensation expense
|
2,161
|
|
|
4,132
|
|
|
1,156
|
|
Corporate expenses, net (a)
|
42,912
|
|
|
34,482
|
|
|
27,265
|
|
Income (loss) from continuing operations before income taxes
|
(25,046)
|
|
|
72,006
|
|
|
80,371
|
|
Income tax expense (benefit) (a)
|
(8,213)
|
|
|
13,545
|
|
|
18,807
|
|
Income (loss) from continuing operations
|
(16,833)
|
|
|
58,461
|
|
|
61,564
|
|
Income (loss) from discontinued operations, net of tax (a)
|
(58,611)
|
|
|
(10,202)
|
|
|
(36,722)
|
|
Net income (loss)
|
$
|
(75,444)
|
|
|
$
|
48,259
|
|
|
$
|
24,842
|
|
Refer to Notes to Financial Tables that follow these tables.
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable Assets
|
(In thousands)
|
2020
|
|
2019
|
Aluminum Extrusions
|
$
|
244,560
|
|
|
$
|
265,027
|
|
PE Films
|
119,013
|
|
|
124,269
|
|
Flexible Packaging Films
|
66,453
|
|
|
74,016
|
|
Subtotal
|
430,026
|
|
|
463,312
|
|
General corporate
|
71,508
|
|
|
109,655
|
|
Cash and cash equivalents (b)
|
11,846
|
|
|
31,422
|
|
Discontinued operations
|
1,490
|
|
|
108,279
|
|
Total
|
$
|
514,870
|
|
|
$
|
712,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
Capital Expenditures
|
(In thousands)
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
Aluminum Extrusions
|
$
|
17,403
|
|
|
$
|
26,759
|
|
|
$
|
16,866
|
|
|
$
|
10,260
|
|
|
$
|
17,855
|
|
|
$
|
12,966
|
|
PE Films
|
6,762
|
|
|
5,860
|
|
|
6,201
|
|
|
6,024
|
|
|
8,567
|
|
|
2,523
|
|
Flexible Packaging Films
|
1,761
|
|
|
1,517
|
|
|
1,262
|
|
|
4,959
|
|
|
8,866
|
|
|
5,423
|
|
Subtotal
|
25,926
|
|
|
34,136
|
|
|
24,329
|
|
|
21,243
|
|
|
35,288
|
|
|
20,912
|
|
General corporate (e)
|
520
|
|
|
186
|
|
|
163
|
|
|
200
|
|
|
223
|
|
|
427
|
|
Discontinued operations
|
5,511
|
|
|
9,962
|
|
|
9,312
|
|
|
1,912
|
|
|
15,353
|
|
|
19,475
|
|
Total
|
$
|
31,957
|
|
|
$
|
44,284
|
|
|
$
|
33,804
|
|
|
$
|
23,355
|
|
|
$
|
50,864
|
|
|
$
|
40,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales by Geographic Area (c)
|
(In thousands)
|
2020
|
|
2019
|
|
2018
|
United States
|
$
|
530,243
|
|
|
$
|
593,599
|
|
|
$
|
636,968
|
|
Exports from the United States to:
|
|
|
|
|
|
Asia
|
80,217
|
|
|
82,342
|
|
|
74,499
|
|
Canada
|
18,024
|
|
|
15,022
|
|
|
16,467
|
|
Europe
|
5,440
|
|
|
5,752
|
|
|
3,909
|
|
Latin America
|
2,169
|
|
|
4,135
|
|
|
991
|
|
Operations outside the United States:
|
|
|
|
|
|
Brazil
|
93,511
|
|
|
96,274
|
|
|
85,868
|
|
China
|
—
|
|
|
220
|
|
|
5,962
|
|
Total
|
$
|
729,604
|
|
|
$
|
797,344
|
|
|
$
|
824,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable Assets
by Geographic Area (c)
|
|
Property, Plant & Equipment,
Net by Geographic Area (c)
|
(In thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
United States
|
$
|
363,106
|
|
|
$
|
403,366
|
|
|
$
|
132,268
|
|
|
$
|
140,609
|
|
Operations outside the United States:
|
|
|
|
|
|
|
|
Brazil
|
49,157
|
|
|
41,890
|
|
|
15,588
|
|
|
15,348
|
|
China
|
17,763
|
|
|
18,056
|
|
|
16,245
|
|
|
16,210
|
|
General corporate
|
71,508
|
|
|
109,655
|
|
|
2,444
|
|
|
1,389
|
|
Cash and cash equivalents (b)
|
11,846
|
|
|
31,422
|
|
|
n/a
|
|
n/a
|
Discontinued operations
|
1,490
|
|
|
108,279
|
|
|
—
|
|
|
69,334
|
|
Total
|
$
|
514,870
|
|
|
$
|
712,668
|
|
|
$
|
166,545
|
|
|
$
|
242,890
|
|
Refer to Notes to Financial Tables that follow these tables.
The Company’s facilities in Pottsville, PA (“PV”) and Guangzhou, China (“GZ”) have a tolling arrangement whereby certain surface protection films are manufactured in GZ for a fee with raw materials supplied from PV that are then shipped by GZ directly to customers principally in the Asian market but paid by customers directly to PV. Amounts associated with this
intercompany tolling arrangement are reported in the table above as export sales from the U.S. to Asia, and include net sales of $35.1 million in 2020, $32.1 million in 2019 and $28.9 million in 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales by Product Group
|
(In thousands)
|
2020
|
|
2019
|
|
2018
|
Aluminum Extrusions:
|
|
|
|
|
|
Nonresidential building & construction
|
$
|
253,126
|
|
|
$
|
272,729
|
|
|
$
|
289,572
|
|
Consumer durables
|
44,167
|
|
|
57,607
|
|
|
66,416
|
|
Automotive
|
35,895
|
|
|
46,461
|
|
|
48,037
|
|
Machinery & equipment
|
30,649
|
|
|
38,657
|
|
|
41,899
|
|
Distribution
|
28,339
|
|
|
34,753
|
|
|
40,924
|
|
Residential building & construction
|
40,049
|
|
|
43,554
|
|
|
43,943
|
|
Electrical
|
23,486
|
|
|
35,841
|
|
|
42,335
|
|
Subtotal
|
455,711
|
|
|
529,602
|
|
|
573,126
|
|
PE Films:
|
|
|
|
|
|
Surface protection films
|
109,097
|
|
|
103,893
|
|
|
98,126
|
|
Packaging
|
22,700
|
|
|
22,542
|
|
|
22,310
|
|
LED-based products
|
7,491
|
|
|
7,372
|
|
|
7,272
|
|
Subtotal
|
139,288
|
|
|
133,807
|
|
|
127,708
|
|
Flexible Packaging Films
|
134,605
|
|
|
133,935
|
|
|
123,830
|
|
Total
|
$
|
729,604
|
|
|
$
|
797,344
|
|
|
$
|
824,664
|
|
(a)See Notes 1, 2, 3, 4 and 17 for more information on losses associated with plant shutdowns, asset impairments and restructurings, unusual items, gains or losses from sale of assets, gains or losses on an investment accounted for under the fair value method and other items.
(b)Cash and cash equivalents includes funds held in locations outside the U.S. of $9.4 million and $8.9 million at December 31, 2020 and 2019, respectively.
(c)Information on exports and foreign operations are provided on the previous page. Export sales relate almost entirely to PE Films. Operations in China relate to PE Films. Operations in Brazil relate to Flexible Packaging Films.
(d)Depreciation and amortization for Aluminum Extrusions in 2019 excludes $10.0 million for accelerated amortization of trade names as a result of a rebranding initiative (see Note 8 for more information)
(e)Corporate depreciation and amortization are included in Corporate expenses, net, on the EBITDA from ongoing operations table above.
(f)In December 2020, the Company entered into a definitive agreement and completed the sale of Bright View. See Note 2 for more details.
6 ACCOUNTS AND OTHER RECEIVABLES
As of December 31, 2020 and 2019, accounts receivable and other receivables, net, were $86.3 million and $89.1 million, respectively, made up of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2020
|
|
2019
|
Customer receivables
|
$
|
85,274
|
|
|
$
|
88,822
|
|
Other accounts and notes receivable
|
3,850
|
|
|
2,199
|
|
Total accounts and other receivables
|
89,124
|
|
|
91,021
|
|
Less: Allowance for bad debts and sales returns
|
(2,797)
|
|
|
(1,904)
|
|
Total accounts and other receivables, net
|
$
|
86,327
|
|
|
$
|
89,117
|
|
A reconciliation of the beginning and ending balances of the allowance for doubtful accounts and sales returns for the three years ended December 31, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2020
|
|
2019
|
|
2018
|
Balance, beginning of year
|
$
|
1,904
|
|
|
$
|
2,054
|
|
|
$
|
2,227
|
|
Charges to expense
|
1,901
|
|
|
715
|
|
|
450
|
|
Recoveries
|
(90)
|
|
|
(38)
|
|
|
(85)
|
|
Write-offs and settlements
|
(709)
|
|
|
(756)
|
|
|
(414)
|
|
Foreign exchange and other
|
(209)
|
|
|
(71)
|
|
|
(124)
|
|
Balance, end of year
|
$
|
2,797
|
|
|
$
|
1,904
|
|
|
$
|
2,054
|
|
7 INVENTORIES
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2020
|
|
2019
|
Finished goods
|
$
|
15,251
|
|
|
$
|
18,217
|
|
Work-in-process
|
9,098
|
|
|
12,123
|
|
Raw materials
|
25,913
|
|
|
20,121
|
|
Stores, supplies and other
|
16,175
|
|
|
13,744
|
|
Total
|
$
|
66,437
|
|
|
$
|
64,205
|
|
Inventories stated on the LIFO basis amounted to $14.4 million at December 31, 2020 and $12.6 million at December 31, 2019, which were below replacement costs by $12.1 million at December 31, 2020 and $8.6 million at December 31, 2019. Inventories stated on the weighted average cost basis was $33.6 million and $32.9 million at December 31, 2020 and 2019, respectively, while inventories stated on the first in, first out method amounted to $18.4 million and $18.7 million at December 31, 2020 and 2019, respectively.
8 GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
The components of goodwill and identifiable intangibles at December 31, 2020 and 2019, and related amortization periods are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2020
|
|
2019
|
|
Amortization Periods
|
Goodwill
|
$
|
67,708
|
|
|
$
|
81,404
|
|
|
Not amortized
|
Identifiable intangible assets, net:
|
|
|
|
|
|
Customer relationships (cost basis of $29,450 in 2020 and $29,550 in 2019)
|
17,551
|
|
|
20,198
|
|
|
10-12 years
|
Proprietary technology (cost basis of $3,726 in 2020 and $6,181 in 2019)
|
194
|
|
|
895
|
|
|
Not more than 15 years
|
Trade names (cost basis of $13,397 in 2020 and $13,645 in 2019)
|
1,075
|
|
|
1,543
|
|
|
5 - 13 years
|
Total carrying value of identifiable intangibles
|
18,820
|
|
|
22,636
|
|
|
|
Total carrying value of goodwill and identifiable intangible assets
|
$
|
86,528
|
|
|
$
|
104,040
|
|
|
|
In the third quarter of 2019, the Company implemented a rebranding initiative at Bonnell Aluminum whereby the use of the AACOA and Futura trade names was discontinued as of December 31, 2019. The associated trade names assets, with a remaining net book value of $10.2 million, were amortized over the last four months of 2019.
A reconciliation of goodwill at December 31, 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Aluminum Extrusions1
|
|
PE Films1
|
|
Total
|
Net carrying value of goodwill at December 31, 2018
|
|
$
|
24,066
|
|
|
$
|
57,338
|
|
|
$
|
81,404
|
|
Goodwill impairment charge
|
|
—
|
|
|
—
|
|
|
—
|
|
Net carrying value of goodwill at December 31, 2019
|
|
24,066
|
|
|
57,338
|
|
|
81,404
|
|
Goodwill impairment charge
|
|
(13,696)
|
|
|
—
|
|
|
(13,696)
|
|
Net carrying value of goodwill at December 31, 2020
|
|
$
|
10,370
|
|
|
$
|
57,338
|
|
|
$
|
67,708
|
|
1.The goodwill of Aluminum Extrusions and PE Films is carried by the Futura and Surface Protection reporting units, respectively.
|
A reconciliation of identifiable intangibles at December 31, 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Customer Relationships
|
|
Proprietary Technology
|
|
Trade Names
|
|
Total
|
|
Aluminum Extrusions:
|
|
|
|
|
|
|
|
|
|
Net carrying value at December 31, 2018
|
$
|
22,124
|
|
|
$
|
75
|
|
|
$
|
10,555
|
|
|
$
|
32,754
|
|
|
|
|
Amortization expense
|
(2,480)
|
|
|
(20)
|
|
|
(10,555)
|
|
|
(13,055)
|
|
|
|
Net carrying value at December 31, 2019
|
19,644
|
|
|
55
|
|
|
—
|
|
|
19,699
|
|
|
|
|
Amortization expense
|
(2,480)
|
|
|
(20)
|
|
|
—
|
|
|
(2,500)
|
|
|
|
Net carrying value at December 31, 2020
|
$
|
17,164
|
|
|
$
|
35
|
|
|
$
|
—
|
|
|
$
|
17,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PE Films:
|
|
|
|
|
|
|
|
|
|
Net carrying value at December 31, 2018
|
$
|
—
|
|
|
$
|
730
|
|
|
$
|
—
|
|
|
$
|
730
|
|
|
|
|
Amortization expense
|
—
|
|
|
(120)
|
|
|
—
|
|
|
(120)
|
|
|
|
Net carrying value at December 31, 2019
|
—
|
|
|
610
|
|
|
—
|
|
|
610
|
|
|
|
|
Amortization expense
|
—
|
|
|
(120)
|
|
|
—
|
|
|
(120)
|
|
|
|
|
Bright View disposal
|
—
|
|
|
(490)
|
|
|
—
|
|
|
(490)
|
|
|
|
Net carrying value at December 31, 2020
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flexible Packaging Films:
|
|
|
|
|
|
|
|
|
|
Net carrying value at December 31, 2018
|
$
|
661
|
|
|
$
|
288
|
|
|
$
|
1,862
|
|
|
$
|
2,811
|
|
|
|
|
Amortization expense
|
(91)
|
|
|
(55)
|
|
|
(280)
|
|
|
(426)
|
|
|
|
|
Increase (decrease) due to foreign currency translation
|
(16)
|
|
|
(3)
|
|
|
(39)
|
|
|
(58)
|
|
|
|
|
Impairment loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Net carrying value at December 31, 2019
|
554
|
|
|
230
|
|
|
1,543
|
|
|
2,327
|
|
|
|
|
Amortization expense
|
(84)
|
|
|
(53)
|
|
|
(260)
|
|
|
(397)
|
|
|
|
|
Increase (decrease) due to foreign currency translation
|
(83)
|
|
|
(18)
|
|
|
(208)
|
|
|
(309)
|
|
|
|
Net carrying value at December 31, 2020
|
$
|
387
|
|
|
$
|
159
|
|
|
$
|
1,075
|
|
|
$
|
1,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net carrying value of identifiable intangibles at December 31, 2020
|
$
|
17,551
|
|
|
$
|
194
|
|
|
$
|
1,075
|
|
|
$
|
18,820
|
|
|
Amortization expense over the next five years is expected to be as follows:
|
|
|
|
|
|
Year
|
Amount
(In thousands)
|
2021
|
$
|
2,955
|
|
2022
|
2,820
|
|
2023
|
2,195
|
|
2024
|
2,154
|
|
2025
|
2,154
|
|
9 FINANCIAL INSTRUMENTS
Tredegar uses derivative financial instruments for the purpose of hedging margin exposure from fixed-price forward sales contracts in Aluminum Extrusions and exposure from currency volatility that exist as part of ongoing business operations (primarily in Flexible Packaging Films). These derivative financial instruments are designated as and qualify as cash flow hedges and are recognized in the consolidated balance sheet at fair value. The fair value of derivative instruments recorded on the consolidated balance sheets are based upon Level 2 inputs. If individual derivative instruments with the same counterparty can be settled on a net basis, the Company records the corresponding derivative fair values as a net asset or net liability.
In the normal course of business, Aluminum Extrusions enters into fixed-price forward sales contracts with certain customers for the future sale of fixed quantities of aluminum extrusions at scheduled intervals. In order to hedge margin exposure created from the fixing of future sales prices relative to volatile raw material (aluminum) costs, Aluminum Extrusions enters into a combination of forward purchase commitments and futures contracts to acquire or hedge aluminum, based on the scheduled purchases for the firm sales commitments. The fixed-price firm sales commitments and related hedging instruments generally have durations of not more than 12 months, and the notional amount of aluminum futures contracts that hedged future
purchases of aluminum to meet fixed-price forward sales contract obligations was $12.1 million (13.0 million pounds of aluminum) at December 31, 2020 and $20.2 million (19.6 million pounds of aluminum) at December 31, 2019.
The table below summarizes the location and gross amounts of aluminum derivative contract fair values (Level 2) in the consolidated balance sheets as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(In thousands)
|
Balance Sheet
Account
|
|
Fair
Value
|
|
Balance Sheet
Account
|
|
Fair
Value
|
Derivatives Designated as Hedging Instruments
|
|
|
|
|
|
|
|
Asset derivatives:
Aluminum futures contracts
|
Prepaid expenses & other
|
|
$
|
1,560
|
|
|
Accrued expenses
|
|
$
|
6
|
|
Liability derivatives:
|
|
|
|
|
|
|
|
Liability derivatives:
Aluminum futures contracts
|
Accrued expenses
|
|
(22)
|
|
|
Accrued expenses
|
|
(1,259)
|
|
Net asset (liability)
|
|
|
$
|
1,538
|
|
|
|
|
$
|
(1,253)
|
|
In the event that a counterparty to an aluminum fixed-price forward sales contract chooses not to take delivery of its aluminum extrusions, the customer is contractually obligated to compensate Aluminum Extrusions for any losses on the related aluminum futures and/or forward contracts through the date of cancellation.
The table below summarizes the location and gross amounts of foreign currency forward contract fair values (Level 2) in the consolidated balance sheets as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(In thousands)
|
Balance Sheet
Account
|
|
Fair
Value
|
|
Balance Sheet
Account
|
|
Fair
Value
|
Derivatives Designated as Hedging Instruments
|
|
|
|
|
|
|
|
Asset derivatives:
Foreign currency forward contracts
|
Prepaid expenses and other
|
|
$
|
853
|
|
|
Prepaid expenses and other
|
|
$
|
83
|
|
Liability derivatives:
Foreign currency forward contracts
|
Accrued expenses
|
|
(466)
|
|
|
Accrued expenses
|
|
(935)
|
|
Net asset (liability)
|
|
|
$
|
387
|
|
|
|
|
$
|
(852)
|
|
The Company's earnings are exposed to foreign currency exchange risk primarily through the translation of the financial statements of subsidiaries that have a functional currency other than the U.S. Dollar. The Company estimates that the net mismatch translation exposure for the Flexible Packaging Film's business unit in Brazil (“Terphane Ltda.”) of its sales and raw materials quoted or priced in U.S. Dollars and its variable conversion, fixed conversion and sales, general and administrative costs (before depreciation and amortization) quoted or priced in Brazilian Real is annual net costs of R$119 million Brazilian Real ("R$").
Terphane Ltda. has the following outstanding foreign exchange average forward rate contracts to purchase Brazilian Real and sell U.S. Dollars:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD Notional Amount (000s)
|
Average Forward Rate Contracted on USD/BRL
|
R$ Equivalent Amount (000s)
|
Applicable Month
|
Estimated % of Terphane Ltda. R$ Operating Cost Exposure Hedged
|
$1,270
|
5.4638
|
R$6,939
|
Jan-21
|
70%
|
$1,290
|
5.4674
|
R$7,053
|
Feb-21
|
71%
|
$1,270
|
5.4693
|
R$6,946
|
Mar-21
|
70%
|
$1,320
|
5.4765
|
R$7,229
|
Apr-21
|
73%
|
$1,285
|
5.4778
|
R$7,039
|
May-21
|
71%
|
$1,395
|
5.4882
|
R$7,656
|
Jun-21
|
77%
|
$1,450
|
5.4945
|
R$7,967
|
Jul-21
|
80%
|
$1,430
|
5.4993
|
R$7,864
|
Aug-21
|
79%
|
$1,520
|
5.5105
|
R$8,376
|
Sep-21
|
84%
|
$1,400
|
5.5100
|
R$7,714
|
Oct-21
|
78%
|
$1,495
|
5.5224
|
R$8,256
|
Nov-21
|
83%
|
$1,170
|
5.5060
|
R$6,442
|
Dec-21
|
65%
|
$16,295
|
5.4913
|
R$89,481
|
|
75%
|
These foreign currency exchange contracts have been designated and qualify as cash flow hedges of Terphane Ltda.’s forecasted sales to customers quoted or priced in U.S. Dollars over that period. By changing the currency risk associated with these U.S. Dollar sales, the derivatives have the effect of offsetting operating costs quoted or priced in Brazilian Real and decreasing the net exposure to Brazilian Real in the consolidated statements of income. The pre-tax net fair value of the open forward contracts was a negative $0.9 million as of December 31, 2020.
These derivative contracts involve elements of market risk that are not reflected on the consolidated balance sheet, including the risk of dealing with counterparties and their ability to meet the terms of the contracts. The counterparties to any forward purchase commitments are major aluminum brokers and suppliers, and the counterparties to any aluminum futures contracts are major financial institutions. Fixed-price forward sales contracts are only made available to the best and most credit-worthy customers. The counterparties to the Company’s foreign currency cash flow hedge contracts are major financial institutions.
The pretax effect on net income (loss) from continuing operations and other comprehensive income (loss) of derivative instruments classified as cash flow hedges and described in the previous paragraphs for years ended December 31, 2020, 2019, and 2018 is summarized in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Cash Flow Derivative Hedges
|
|
Aluminum Futures Contracts
|
Years Ended December 31,
|
2020
|
|
2019
|
|
2018
|
Amount of pre-tax gain (loss) recognized in other comprehensive income
|
$
|
74
|
|
|
$
|
(2,359)
|
|
|
$
|
(1,123)
|
|
Location of gain (loss) reclassified from accumulated other comprehensive income into net income (effective portion)
|
Cost of
goods sold
|
|
Cost of
goods sold
|
|
Cost of
goods sold
|
Amount of pre-tax gain (loss) reclassified from accumulated other comprehensive income to net income (effective portion)
|
$
|
(2,717)
|
|
|
$
|
(2,736)
|
|
|
$
|
1,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Cash Flow Derivative Hedges
|
|
Foreign Currency Forward Contracts
|
Years Ended December 31,
|
2020
|
|
2019
|
|
2018
|
Amount of pre-tax gain (loss) recognized in other comprehensive income
|
$
|
—
|
|
$
|
(4,437)
|
|
|
$
|
—
|
|
$
|
(856)
|
|
|
$
|
—
|
|
$
|
(2,105)
|
|
Location of gain (loss) reclassified from accumulated other comprehensive income into net income (effective portion)
|
Cost of
goods sold
|
Selling, general & admin
|
|
Cost of
goods sold
|
Selling, general & admin
|
|
Cost of
goods sold
|
Selling, general & admin
|
Amount of pre-tax gain (loss) reclassified from accumulated other comprehensive income to net income (effective portion)
|
$
|
62
|
|
$
|
(6,069)
|
|
|
$
|
62
|
|
$
|
(904)
|
|
|
$
|
62
|
|
$
|
(1,796)
|
|
As of December 31, 2020, the Company expects $1.2 million of unrealized after-tax losses on derivative instruments reported in accumulated other comprehensive income (loss) to be reclassified to earnings within the next 12 months. For the years ended December 31, 2020, 2019 and 2018, net gains or losses realized, from previously unrealized net gains or losses on hedges that had been discontinued, were not material.
10 ACCRUED EXPENSES
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2020
|
|
2019
|
Payrolls, related taxes and medical and other benefits
|
$
|
9,571
|
|
|
$
|
6,227
|
|
Incentive compensation
|
8,138
|
|
|
9,603
|
|
Vacation
|
7,283
|
|
|
6,975
|
|
Workers’ compensation and disabilities
|
2,986
|
|
|
3,546
|
|
Environmental liabilities (current)
|
2,066
|
|
|
2,122
|
|
Accrued severance
|
1,894
|
|
|
1,180
|
|
Accrued utilities
|
1,460
|
|
|
1,711
|
|
Customer rebates
|
1,398
|
|
|
1,504
|
|
Accrued freight
|
1,397
|
|
|
1,389
|
|
Derivative contract liability
|
487
|
|
|
2,188
|
|
Other
|
4,061
|
|
|
3,020
|
|
Total
|
$
|
40,741
|
|
|
$
|
39,465
|
|
11 DEBT AND CREDIT AGREEMENTS
On December 1, 2020, Tredegar entered into an amendment (“Amendment No. 1”) to its five-year secured revolving credit agreement (the “Credit Agreement”), which matures in June 2024. The material changes from Amendment No. 1 are as follows:
•Aggregate borrowings available under the facility were reduced from $500 million to $375 million.
•The definition of Credit EBITDA was amended to permit certain adjustments for prepayment of pension obligations on a pro forma basis.
•Amendments were made to certain of the negative covenants, including, among other amendments, the following: (i) the restricted payments covenant was amended to permit a one-time special dividend payment of up to $200 million and allow for an aggregate amount of dividend payments up to $75 million subsequent to Amendment No. 1 through the maturity date of the Credit Agreement; (ii) the asset disposition covenant was amended to reduce the general basket to 20% of consolidated total assets over the life of the facility and was reset as of December 1, 2020; and (iii) the indebtedness covenant was amended to reduce several baskets to $25 million each.
Borrowings under the Credit Agreement bear an interest rate of LIBOR plus a credit spread and commitment fees charged on the unused amount under the Credit Agreement at various indebtedness-to-Credit EBITDA levels as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pricing Under Credit Agreement (Basis Points)
|
|
Indebtedness-to-Credit EBITDA Ratio
|
Credit Spread
Over LIBOR
|
|
Commitment
Fee
|
|
> 3.5x but <= 4.0x
|
200.0
|
|
|
40
|
|
|
> 3.0x but <= 3.5x
|
187.5
|
|
|
35
|
|
|
> 2.0x but <= 3.0x
|
175.0
|
|
|
30
|
|
|
> 1.0x but <= 2.0x
|
162.5
|
|
|
25
|
|
|
<= 1.0x
|
150.0
|
|
|
20
|
|
|
At December 31, 2020, the interest cost on debt borrowed under the Credit Agreement was priced at one-month LIBOR plus the applicable credit spread of 162.5 basis points.
The most restrictive covenants in the Credit Agreement include:
•Maximum indebtedness-to-Credit EBITDA (“Leverage Ratio”) of 4.00x;
•Minimum Credit EBITDA-to-interest expense of 3.00x; and
•Maximum aggregate distributions to shareholders over the remaining term of the Credit Agreement of $75 million; provided, that if the Leverage Ratio of equal to or greater than 3.00x, a limitation on such payments for the succeeding quarter at the greater of (i) $4.75 million and (ii) 50% of consolidated net income for the most recent fiscal quarter.
The Credit Agreement is secured by substantially all of the Company’s and its domestic subsidiaries’ assets, including equity in certain material first-tier foreign subsidiaries. At December 31, 2020, based upon the most restrictive covenant within the Credit Agreement, available credit under the Credit Agreement was approximately $241 million. Total debt outstanding was $134 million and $42 million as of December 31, 2020 and 2019, respectively.
Tredegar was in compliance with all of its debt covenants as of December 31, 2020. Noncompliance with any of the debt covenants may have a material adverse effect on its financial condition or liquidity, in the event such noncompliance cannot be cured or should the Company be unable to obtain a waiver from the lenders. Renegotiation of the covenant through an amendment to the Credit Agreement may effectively cure the noncompliance, but may have an effect on its financial condition or liquidity depending upon how the covenant is renegotiated.
12 STOCK OPTION AND STOCK AWARD PLANS
As of December 31, 2020, the Company had one stock-based compensation plan that permits the grants of stock options, stock appreciation rights (“SARs”), stock, restricted stock, and stock unit awards. Stock options may be granted to purchase a specified number of shares of common stock at a price no lower than the fair market value on the date of grant and for a term not to exceed 10 years. Stock options granted by the Company in 2020, 2019, and 2018 vest after 2 years and have a 7-year life or vest after 3 years and have a 5-year life. Stock options exercisable totaled 1,287,792 and 360,218 shares at December 31, 2020 and 2019, respectively. Stock options available for grant totaled 484,835 shares at December 31, 2020.
On December 1, 2020, Tredegar’s Board of Directors declared a special cash dividend of $200 million, or $5.97 per share, on the Company’s common stock (the “Special Dividend”). The Special Dividend was payable on December 18, 2020 and had an ex-dividend date of December 21, 2020. All stock option awards that were outstanding at the time of the Special Dividend were modified pursuant to the nondiscretionary anti-dilution provisions in the related stock-based compensation plan. SARs that were outstanding at the time of the Special Dividend were also modified pursuant to the nondiscretionary anti-dilution provisions in the related SARs grant agreements. The modifications included increasing the number of outstanding stock options and SARs as well as reducing the exercise prices of all outstanding stock options and SARS. The modification did not result in additional stock-based compensation expense. No other terms or conditions of outstanding awards were modified.
A summary of stock options outstanding at December 31, 2020, 2019 and 2018, and changes during those years, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Exercise Price/Share
|
|
Number of
Options
|
|
Range
|
|
Weighted
Average
|
Outstanding at December 31, 2017
|
608,520
|
|
|
$
|
15.65
|
|
|
to
|
|
$
|
24.84
|
|
|
$
|
19.75
|
|
Granted
|
451,083
|
|
|
19.35
|
|
|
to
|
|
19.35
|
|
|
19.35
|
|
Forfeited and expired
|
(96,089)
|
|
|
15.65
|
|
|
to
|
|
24.84
|
|
|
19.58
|
|
Exercised
|
(73,398)
|
|
|
15.65
|
|
|
to
|
|
22.49
|
|
|
18.15
|
|
Outstanding at December 31, 2018
|
890,116
|
|
|
15.65
|
|
|
to
|
|
24.84
|
|
|
19.69
|
|
Granted
|
758,287
|
|
|
18.48
|
|
|
to
|
|
18.48
|
|
|
18.48
|
|
Forfeited and expired
|
(10,000)
|
|
|
19.40
|
|
|
to
|
|
19.40
|
|
|
19.40
|
|
Exercised
|
(9,500)
|
|
|
19.40
|
|
|
to
|
|
19.40
|
|
|
19.40
|
|
Outstanding at December 31, 2019
|
1,628,903
|
|
|
15.65
|
|
|
to
|
|
24.84
|
|
|
19.13
|
|
Granted1
|
638,074
|
|
|
10.75
|
|
|
to
|
|
14.62
|
|
|
11.90
|
|
Modification for special cash dividend1
|
701,535
|
|
|
10.75
|
|
|
to
|
|
14.62
|
|
|
11.90
|
|
Forfeited and expired1
|
(141,074)
|
|
|
10.75
|
|
|
to
|
|
24.84
|
|
|
11.87
|
|
Exercised
|
—
|
|
|
—
|
|
|
to
|
|
—
|
|
|
—
|
|
Outstanding at December 31, 20201
|
2,827,438
|
|
|
$
|
10.75
|
|
|
to
|
|
$
|
22.49
|
|
|
$
|
13.55
|
|
1.The option exercise price per share reflects the reduction to the exercise prices of outstanding stock options impacted by the modification due to the anti-dilution provisions in the stock-based compensation plan.
|
The assumptions used in the Black-Scholes options-pricing model for valuing Tredegar stock options originally granted in 2020, 2019 and 2018, and the related estimated fair values at the date of grant, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Dividend yield
|
2.5
|
%
|
|
2.4
|
%
|
|
2.3
|
%
|
Weighted average volatility percentage
|
43.8
|
%
|
|
38.3
|
%
|
|
38.3
|
%
|
Weighted average risk-free interest rate
|
0.8
|
%
|
|
2.4
|
%
|
|
2.8
|
%
|
Holding period (years)
|
5
|
|
5
|
|
5
|
Weighted average exercise price at date of grant (also weighted average market price at date of grant)1
|
$
|
14.41
|
|
|
$
|
18.48
|
|
|
$
|
19.35
|
|
Estimated weighted average fair value of options per share at date of grant
|
$
|
4.44
|
|
|
$
|
5.43
|
|
|
$
|
5.87
|
|
Total estimated fair value of stock options granted (in thousands)
|
$
|
2,833
|
|
|
$
|
4,117
|
|
|
$
|
2,648
|
|
1.In December 2020, the weighted average exercise price for outstanding stock option awards granted in 2020, 2019 and 2018 were modified to $10.75, $13.78 and $14.43, respectively. As the anti-dilution provisions in the stock-based compensation plan were structured to equitably adjust the award’s fair value before and after the modification, there is no resulting incremental fair value.
|
The dividend yield is the actual dividend yield on Tredegar’s common stock at the date of grant, which the Company believes is a reasonable estimate of the expected yield during the holding period. The expected volatility is based on the historical volatility of Tredegar’s common stock using a sequential period of historical data equal to the expected holding period of the option. The Company has no reason to believe that future volatility for this period is likely to differ from the past. The assumed risk-free interest rate is based on observed interest rates for U.S. Treasury debt securities appropriate for the expected holding period.
The following table summarizes additional information about stock options outstanding and exercisable at December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding at December 31, 2020
|
|
Options Exercisable at December 31, 2020
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
Aggregate Intrinsic Value
|
|
|
|
|
|
Aggregate Intrinsic Value
|
Range of
Exercise Prices
|
|
Shares
|
|
Remaining Contractual Life
|
|
Exercise
Price
|
|
|
Shares
|
|
Weighted Average Exercise Price
|
|
$
|
—
|
|
|
to
|
|
$
|
13.99
|
|
|
1,598,700
|
|
|
5.4 years
|
|
$
|
12.11
|
|
|
$
|
7,338,799
|
|
|
425,219
|
|
|
$
|
12.50
|
|
|
$
|
1,785,553
|
|
13.99
|
|
|
to
|
|
18.65
|
|
|
1,059,138
|
|
|
4.4 years
|
|
14.64
|
|
|
2,209,408
|
|
|
692,973
|
|
|
14.66
|
|
|
1,447,785
|
|
18.65
|
|
|
to
|
|
23.32
|
|
|
169,600
|
|
|
2.1 years
|
|
20.27
|
|
|
—
|
|
|
169,600
|
|
|
20.27
|
|
|
—
|
|
Total
|
|
2,827,438
|
|
|
4.9 years
|
|
$
|
13.55
|
|
|
$
|
9,548,207
|
|
|
1,287,792
|
|
|
$
|
14.68
|
|
|
$
|
3,233,338
|
|
Restricted stock grants ordinarily vest three years from the date of grant based upon continued employment. The fair value of restricted stock awards is estimated as of the grant date using the closing stock price on that date. Stock unit awards vest upon the achievement of certain performance targets. The following table summarizes additional information about unvested restricted stock outstanding at December 31, 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested Restricted Stock
|
|
Maximum Unvested Restricted Stock Units Issuable Upon Satisfaction of Certain Performance Criteria
|
|
Number
of Shares
|
|
Weighted Avg. Grant Date Fair Value/Share
|
|
Grant Date
Fair Value
(In thousands)
|
|
Number
of Shares
|
|
Weighted Avg. Grant Date Fair Value/Share
|
|
Grant Date
Fair Value
(In thousands)
|
Outstanding at January 1, 2018
|
206,676
|
|
|
$
|
16.15
|
|
|
$
|
3,337
|
|
|
172,133
|
|
|
$
|
15.78
|
|
|
$
|
2,716
|
|
Granted
|
119,915
|
|
|
17.39
|
|
|
2,085
|
|
|
61,227
|
|
|
17.35
|
|
|
1,062
|
|
Vested
|
(64,702)
|
|
|
18.31
|
|
|
(1,185)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(17,153)
|
|
|
15.84
|
|
|
(272)
|
|
|
(48,651)
|
|
|
13.23
|
|
|
(644)
|
|
Outstanding at December 31, 2018
|
244,736
|
|
|
16.20
|
|
|
3,965
|
|
|
184,709
|
|
|
16.97
|
|
|
3,134
|
|
Granted
|
185,422
|
|
|
18.46
|
|
|
3,423
|
|
|
57,442
|
|
|
18.34
|
|
|
1,053
|
|
Vested
|
(117,834)
|
|
|
14.76
|
|
|
(1,739)
|
|
|
(69,926)
|
|
|
10.96
|
|
|
(766)
|
|
Forfeited
|
(26,389)
|
|
|
16.11
|
|
|
(425)
|
|
|
(24,562)
|
|
|
11.51
|
|
|
(283)
|
|
Outstanding at December 31, 2019
|
285,935
|
|
|
18.27
|
|
|
5,224
|
|
|
147,663
|
|
|
21.25
|
|
|
3,138
|
|
Granted
|
155,138
|
|
|
14.55
|
|
|
2,257
|
|
|
34,275
|
|
|
15.25
|
|
|
523
|
|
Vested
|
(148,709)
|
|
|
17.39
|
|
|
(2,586)
|
|
|
(37,370)
|
|
|
17.38
|
|
|
(649)
|
|
Forfeited
|
(57,385)
|
|
|
17.00
|
|
|
(976)
|
|
|
(32,066)
|
|
|
17.36
|
|
|
(557)
|
|
Outstanding at December 31, 2020
|
234,979
|
|
|
$
|
16.68
|
|
|
$
|
3,919
|
|
|
112,502
|
|
|
$
|
21.82
|
|
|
$
|
2,455
|
|
The total intrinsic value of stock options exercised was $0.1 million and $0.4 million in 2019 and 2018, respectively. There were no stock options exercised in 2020. The grant-date fair value of stock option-based awards vested was $3.0 million, $0.5 million, and $0.1 million in 2020, 2019, and 2018, respectively. As of December 31, 2020, there was unrecognized compensation cost for continuing operations of $2.0 million related to stock option-based awards and $1.7 million related to non-vested restricted stock and other stock-based awards. This cost is expected to be recognized over the remaining weighted average period of 1.2 years for stock option-based awards and 1.4 years for non-vested restricted stock and other stock-based awards. Commencing in 2019, stock option award grants include a retirement provision that allow for the immediate vesting of options held by a participant that ceases to provide service, including service as a member of the board of directors, with the Company, subsequent to reaching the age of 65. As a result of this provision, the Company recognized accelerated stock compensation expense for continuing operations of $0.1 million and $1.3 million in 2020 and 2019, respectively.
SARs granted in 2020 have the same terms and vesting requirements as the 2020 stock option grants except SARs may be settled in cash upon exercise and therefore are classified as liabilities and included in accrued expenses in the consolidated balance sheet. The fair value of these liability awards is remeasured at each reporting period until the date of settlement. Increases and decreases in stock-based compensation expense is recognized over the vesting period, or immediately, for vested awards.
The following table summarizes SARs activity in 2020 as no SARs were granted prior to January 1, 2020 since 1992:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise Price/Share
|
|
Number of
SARs
|
|
Range
|
|
Weighted
Average
|
Outstanding at January 1, 2020
|
—
|
|
|
$
|
—
|
|
|
to
|
|
$
|
—
|
|
|
$
|
—
|
|
Granted1
|
387,252
|
|
|
10.75
|
|
|
to
|
|
19.64
|
|
|
11.60
|
|
Modification for special cash dividend
|
71,402
|
|
|
10.75
|
|
|
to
|
|
19.64
|
|
|
11.60
|
|
Forfeited and expired
|
(82,214)
|
|
|
10.75
|
|
|
to
|
|
19.64
|
|
|
11.39
|
|
Exercised
|
—
|
|
|
—
|
|
|
to
|
|
—
|
|
|
—
|
|
Outstanding at December 31, 2020
|
376,440
|
|
|
$
|
10.75
|
|
|
to
|
|
$
|
19.64
|
|
|
$
|
11.64
|
|
1.The SARs exercise price per share reflects the reduction to the exercise prices of outstanding SARs as a results of the modification to the awards pursuant to the nondiscretionary anti-dilution provisions in the related SARs grant agreements.
|
The grant-date fair value of SARs awards vested in 2020 was $0.6 million. As of December 31, 2020, the SARs unrecognized compensation cost for continuing operations was $1.5 million. This cost is expected to be recognized over the remaining weighted average vesting period of 1.1 years.
13 RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS
Tredegar sponsors a noncontributory defined benefit (pension) plan covering certain current and former U.S. employees. The plan for salaried and hourly employees currently in effect is based on a formula using the participant’s years of service and compensation or using the participant’s years of service and a dollar amount. The plan is closed to new participants and pay for active plan participants for benefit calculations was frozen as of December 31, 2007. As of January 31, 2018, the plan no longer accrued benefits associated with crediting employees for service, thereby freezing all future benefits under the plan.
In addition to providing pension benefits, the Company provides postretirement life insurance and health care benefits for certain groups of employees. Tredegar and retirees share in the cost of postretirement health care benefits, with employees hired on or before January 1, 1993, receiving a fixed subsidy to cover a portion of their health care premiums. The Company eliminated prescription drug coverage for Medicare-eligible retirees as of January 1, 2006. Consequently, Tredegar is not eligible for any federal subsidies.
The following tables reconcile the changes in benefit obligations and plan assets in 2020 and 2019, and reconcile the funded status to prepaid or accrued cost at December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Post-
Retirement Benefits
|
(In thousands)
|
2020
|
|
2019
|
|
|
2020
|
|
2019
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
$
|
318,763
|
|
|
$
|
287,240
|
|
|
|
$
|
7,650
|
|
|
$
|
6,889
|
|
Service cost
|
—
|
|
|
—
|
|
|
|
29
|
|
|
26
|
|
Interest cost
|
10,156
|
|
|
12,222
|
|
|
|
243
|
|
|
290
|
|
Effect of actuarial (gains) losses related to the following:
|
|
|
|
|
|
|
|
|
Discount rate change
|
26,887
|
|
|
38,919
|
|
|
|
644
|
|
|
894
|
|
Retirement rate assumptions and mortality table adjustments
|
(3,446)
|
|
|
(2,589)
|
|
|
|
13
|
|
|
21
|
|
Other
|
69
|
|
|
(1,047)
|
|
|
|
55
|
|
|
(176)
|
|
Plan participant contributions
|
—
|
|
|
—
|
|
|
|
606
|
|
|
649
|
|
Benefits paid
|
(16,270)
|
|
|
(15,982)
|
|
|
|
(1,076)
|
|
|
(943)
|
|
Benefit obligation, end of year
|
$
|
336,159
|
|
|
$
|
318,763
|
|
|
|
$
|
8,164
|
|
|
$
|
7,650
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Plan assets at fair value, beginning of year
|
$
|
218,329
|
|
|
$
|
205,367
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on plan assets
|
18,800
|
|
|
20,624
|
|
|
|
—
|
|
|
—
|
|
Employer contributions
|
12,216
|
|
|
8,320
|
|
|
|
470
|
|
|
294
|
|
Plan participant contributions
|
—
|
|
|
—
|
|
|
|
606
|
|
|
649
|
|
Benefits paid
|
(16,270)
|
|
|
(15,982)
|
|
|
|
(1,076)
|
|
|
(943)
|
|
Plan assets at fair value, end of year
|
$
|
233,075
|
|
|
$
|
218,329
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Funded status of the plans
|
$
|
(103,084)
|
|
|
$
|
(100,434)
|
|
|
|
$
|
(8,164)
|
|
|
$
|
(7,650)
|
|
Amounts recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Accrued expenses (current)
|
$
|
181
|
|
|
$
|
168
|
|
|
|
$
|
481
|
|
|
$
|
470
|
|
Pension and other postretirement benefit obligations, net
|
102,903
|
|
|
100,266
|
|
|
|
7,683
|
|
|
7,180
|
|
Net amount recognized
|
$
|
103,084
|
|
|
$
|
100,434
|
|
|
|
$
|
8,164
|
|
|
$
|
7,650
|
|
The following table sets forth the assumptions used in accounting for the pension and other post-retirement benefits, and the components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Post-
Retirement Benefits
|
(In thousands, except percentages)
|
2020
|
|
2019
|
|
2018
|
|
|
2020
|
|
2019
|
|
2018
|
Weighted-average assumptions used to determine benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
2.57
|
%
|
|
3.27
|
%
|
|
4.40
|
%
|
|
|
2.54
|
%
|
|
3.25
|
%
|
|
4.37
|
%
|
Expected long-term return on plan assets
|
5.00
|
%
|
|
5.00
|
%
|
|
6.00
|
%
|
|
|
n/a
|
|
n/a
|
|
n/a
|
Weighted-average assumptions used to determine net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
3.27
|
%
|
|
4.40
|
%
|
|
3.72
|
%
|
|
|
3.25
|
%
|
|
4.37
|
%
|
|
3.69
|
%
|
Expected long-term return on plan assets
|
5.00
|
%
|
|
6.00
|
%
|
|
6.50
|
%
|
|
|
n/a
|
|
n/a
|
|
n/a
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17
|
|
|
|
$
|
29
|
|
|
$
|
26
|
|
|
$
|
36
|
|
Interest cost
|
10,156
|
|
|
12,222
|
|
|
11,442
|
|
|
|
243
|
|
|
290
|
|
|
271
|
|
Expected return on plan assets
|
(11,004)
|
|
|
(13,528)
|
|
|
(15,011)
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service costs and gains or losses
|
15,494
|
|
|
10,891
|
|
|
13,894
|
|
|
|
(198)
|
|
|
(258)
|
|
|
(243)
|
|
Net periodic benefit cost
|
$
|
14,646
|
|
|
$
|
9,585
|
|
|
$
|
10,342
|
|
|
|
$
|
74
|
|
|
$
|
58
|
|
|
$
|
64
|
|
Net periodic benefit cost is determined using assumptions at the beginning of each year. Funded status is determined using assumptions at the end of each year. The amount of the accumulated benefit obligation is the same as the projected benefit obligation. At December 31, 2020, the effect of a 1% change in the health care cost trend rate assumptions would not impact the post-retirement obligation.
Expected benefit payments over the next five years and in the aggregate for 2026-2030 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Pension
Benefits
|
|
Other Post-
Retirement
Benefits
|
2021
|
$
|
17,593
|
|
|
$
|
481
|
|
2022
|
18,001
|
|
|
482
|
|
2023
|
18,205
|
|
|
478
|
|
2024
|
18,445
|
|
|
473
|
|
2025
|
18,511
|
|
|
468
|
|
2026—2030
|
90,778
|
|
|
2,196
|
|
The pre-tax amounts recorded in 2020, 2019 and 2018 in accumulated other comprehensive income consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Other Post-Retirement
|
(In thousands)
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
Net actuarial (gain) loss
|
$
|
150,267
|
|
|
$
|
150,047
|
|
|
$
|
132,751
|
|
|
$
|
86
|
|
|
$
|
(824)
|
|
|
$
|
(1,821)
|
|
Pension expense is expected to be $14.0 million in 2021. The amounts in accumulated other comprehensive income, before related deferred income taxes, that are expected to be recognized as components of net periodic cost during 2021 are $17.1 million of cost for the pension plan and $0.1 million of benefit for other post-retirement plans.
The percentage composition of assets held by pension plans at December 31, 2020, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Composition of Plan Assets
at December 31,
|
|
2020
|
|
2019
|
|
2018
|
Pension plans:
|
|
|
|
|
|
Fixed income securities
|
7.7
|
%
|
|
8.7
|
%
|
|
8.6
|
%
|
Large/mid-capitalization equity securities
|
27.1
|
|
|
21.3
|
|
|
18.2
|
|
Small-capitalization equity securities
|
8.6
|
|
|
7.8
|
|
|
6.8
|
|
International and emerging market equity securities
|
20.6
|
|
|
19.7
|
|
|
16.0
|
|
Total equity securities
|
56.3
|
|
|
48.8
|
|
|
41.0
|
|
Private equity and hedge funds
|
12.1
|
|
|
35.0
|
|
|
42.3
|
|
Cash and cash equivalents
|
17.5
|
|
|
1.4
|
|
|
1.4
|
|
Other assets
|
6.4
|
|
|
6.1
|
|
|
6.7
|
|
Total
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Tredegar’s targeted allocation percentage for pension plan assets and the expected long-term rate of return on assets used to determine its benefit obligation at December 31, 2020, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Target % Composition of Plan Assets1
|
|
Expected Long-term Return %
|
Pension plans:
|
|
|
|
Fixed income securities
|
12.0
|
%
|
|
1.3
|
%
|
Large/mid-capitalization equity securities
|
27.0
|
|
|
6.3
|
|
Small-capitalization equity securities
|
8.0
|
|
|
6.8
|
|
International and emerging market equity securities
|
20.0
|
|
|
5.6
|
|
Total equity securities
|
55.0
|
|
|
6.1
|
|
Private equity and hedge funds
|
33.0
|
|
|
4.4
|
|
Total
|
100.0
|
%
|
|
5.0
|
%
|
1.Target percentages for the composition of plan assets represents a neutral position within the approved range of allocations for such assets.
|
Expected long-term returns are estimated by asset class and generally are based on inflation-adjusted historical returns, volatilities, risk premiums and managed asset premiums. The portfolio of fixed income securities is structured with maturities that generally match estimated benefit payments over the next 1-2 years. The other assets category is primarily comprised of cash and contracts with insurance companies. The Company’s primary investment objective is to maximize total return with a strong emphasis on the preservation of capital, and it believes that over the long-term a diversified portfolio of fixed income securities, equity securities, hedge funds and private equity funds has a better risk-return profile than fixed income securities alone. The average remaining duration of benefit payments for the pension plans is about 11.5 years. The Company expects its required contributions to be approximately $11.7 million in 2021.
Estimates of the fair value of assets held by the Company’s pension plan are provided by unaffiliated third parties. Investments in private equity and hedge funds and certain fixed income securities by the Company’s pension plan are measured at net asset value, which is a practical expedient for measuring fair value. These assets are therefore excluded from the fair value hierarchy for each of the years presented.
At December 31, 2020 and 2019, the pension plan assets are categorized by level within the fair value measurement hierarchy as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Total
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Balances at December 31, 2020
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
40,890
|
|
|
$
|
40,890
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Large/mid-capitalization equity securities
|
63,146
|
|
|
63,146
|
|
|
—
|
|
|
—
|
|
Small-capitalization equity securities
|
19,932
|
|
|
19,932
|
|
|
—
|
|
|
—
|
|
International and emerging market equity securities
|
24,325
|
|
|
24,325
|
|
|
—
|
|
|
—
|
|
Fixed income securities
|
18,008
|
|
|
6,690
|
|
|
11,318
|
|
|
—
|
|
Contracts with insurance companies
|
9,118
|
|
|
—
|
|
|
—
|
|
|
9,118
|
|
Other assets
|
5,629
|
|
|
5,629
|
|
|
—
|
|
|
—
|
|
Total plan assets at fair value
|
$
|
181,048
|
|
|
$
|
160,612
|
|
|
$
|
11,318
|
|
|
$
|
9,118
|
|
Investments measured at net asset value1
|
52,027
|
|
|
|
|
|
|
|
Total plan assets, December 31, 2020
|
$
|
233,075
|
|
|
|
|
|
|
|
Balances at December 31, 2019
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
3,076
|
|
|
$
|
3,076
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Large/mid-capitalization equity securities
|
46,440
|
|
|
46,440
|
|
|
—
|
|
|
—
|
|
Small-capitalization equity securities
|
17,135
|
|
|
17,135
|
|
|
—
|
|
|
—
|
|
International and emerging market equity securities
|
43,079
|
|
|
19,117
|
|
|
23,962
|
|
|
—
|
|
Fixed income securities
|
18,911
|
|
|
6,209
|
|
|
12,702
|
|
|
—
|
|
Contracts with insurance companies
|
8,840
|
|
|
—
|
|
|
—
|
|
|
8,840
|
|
Other assets
|
4,509
|
|
|
4,509
|
|
|
—
|
|
|
—
|
|
Total plan assets at fair value
|
$
|
141,990
|
|
|
$
|
96,486
|
|
|
$
|
36,664
|
|
|
$
|
8,840
|
|
Investments measured at net asset value1
|
76,339
|
|
|
|
|
|
|
|
Total plan assets, December 31, 2019
|
$
|
218,329
|
|
|
|
|
|
|
|
1.Includes private equity, hedge funds and certain international equity securities measured at net asset value.
|
Tredegar also has a non-qualified supplemental pension plan covering certain employees. Effective December 31, 2005, further participation in this plan was terminated and benefit accruals for existing participants were frozen. The plan was designed to restore all or a part of the pension benefits that would have been payable to designated participants from the principal pension plans if it were not for limitations imposed by income tax regulations. The projected benefit obligation relating to this unfunded plan was $2.2 million at December 31, 2020 and December 31, 2019. Pension expense recognized for this plan was $0.1 million in 2020, 2019, and 2018. This information has been included in the preceding pension benefit tables.
Pension and other postretirement benefit liabilities related to Personal Care Films have been retained by the Company. Pension expense recognized for participation by these former employees in the Company’s plans is not material for the years ended December 31, 2020, 2019, and 2018.
14 SAVINGS PLAN
Tredegar has a savings plan that allows eligible employees to voluntarily contribute a percentage of their compensation, up to Internal Revenue Service (“IRS”) limitations. The provisions of the savings plan provided the following benefits for salaried and certain hourly employees:
•The Company makes matching contributions to the savings plan of $1 for every $1 an employee contributes per pay period up to a maximum of 5% of eligible compensation.
•The savings plan includes immediate vesting of matching contributions and automatic enrollment at 3% of eligible compensation unless the employee opts out or elects a different percentage.
The Company also has a non-qualified plan that restores matching benefits for employees suspended from the savings plan due to certain limitations imposed by income tax regulations (“restoration plan”). Charges recognized for these plans were $4.0 million in 2020, $3.9 million in 2019 and $3.7 million in 2018. The Company’s liability under the restoration plan was
$1.0 million at December 31, 2020 (consisting of 61,394 phantom shares of common stock) and $1.4 million at December 31, 2019 (consisting of 62,475 phantom shares of common stock) and valued at the closing market price on those dates.
The Tredegar Corporation Benefits Plan Trust (the “Trust”) purchased 7,200 shares of the Company’s common stock in 1998 for $0.2 million and 46,671 shares of its common stock in 1997 for $1.0 million, as a partial hedge against the phantom shares held in the restoration plan. There have been no shares purchased since 1998 except for re-invested dividends. The cost of the shares held by the Trust is shown as a reduction to shareholders’ equity in the consolidated balance sheets.
15 LEASES
Tredegar has various lease agreements with terms up to 10 years, including leases of real estate, office equipment and vehicles. Some leases include options to purchase the leased asset, terminate the agreement or extend the term of the agreement for one or more years. These options are included in the lease term when it is reasonably certain that the option will be exercised.
The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Future Lease Payments
|
|
2021
|
|
$
|
2,749
|
|
|
2022
|
|
2,653
|
|
|
2023
|
|
2,525
|
|
|
2024
|
|
2,417
|
|
|
2025
|
|
2,417
|
|
|
Thereafter
|
|
7,404
|
|
|
Total undiscounted operating lease payments
|
|
20,165
|
|
|
Less: Imputed interest
|
|
3,134
|
|
|
Present value of operating lease liabilities
|
|
$
|
17,031
|
|
|
As of January 1, 2019, an initial right-of-use asset of $20 million was recognized as a non-cash asset addition and an initial lease liability of $22 million was recognized as a non-cash liability addition with the adoption of the new lease accounting standard.
The following table summarizes lease costs, related cash flow and other information for the years ended December 31, 2020 and 2019. These costs are primarily related to long-term operating leases, but also include amounts for variable leases and short-term leases.
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2020
|
|
2019
|
Operating lease expense
|
$
|
3,260
|
|
|
$
|
3,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets recognized as non-cash additions from the execution of new operating leases
|
$
|
529
|
|
|
$
|
20,709
|
|
Other Information:
|
|
|
|
Weighted-average remaining lease term for operating leases
|
8 years
|
|
9 years
|
Weighted-average discount rate for operating leases
|
4.21
|
%
|
|
4.24
|
%
|
16 INCOME TAXES
Income (loss) from continuing operations before income taxes and income tax expense (benefit) for continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2020
|
|
2019
|
|
2018
|
Income (loss) from continuing operations before income taxes:
|
|
|
|
|
|
Domestic
|
$
|
(58,033)
|
|
|
$
|
52,536
|
|
|
$
|
67,806
|
|
Foreign
|
32,987
|
|
|
19,470
|
|
|
12,565
|
|
Total
|
$
|
(25,046)
|
|
|
$
|
72,006
|
|
|
$
|
80,371
|
|
Current income tax expense (benefit):
|
|
|
|
|
|
Federal
|
$
|
4,777
|
|
|
$
|
7,551
|
|
|
$
|
30
|
|
State
|
136
|
|
|
1,558
|
|
|
766
|
|
Foreign
|
2,374
|
|
|
579
|
|
|
771
|
|
Total
|
7,287
|
|
|
9,688
|
|
|
1,567
|
|
Deferred income tax expense (benefit):
|
|
|
|
|
|
Federal
|
(18,191)
|
|
|
15,298
|
|
|
16,264
|
|
State
|
(640)
|
|
|
187
|
|
|
948
|
|
Foreign
|
3,331
|
|
|
(11,628)
|
|
|
28
|
|
Total
|
(15,500)
|
|
|
3,857
|
|
|
17,240
|
|
Total income tax expense (benefit)
|
$
|
(8,213)
|
|
|
$
|
13,545
|
|
|
$
|
18,807
|
|
The significant differences between the U.S. federal statutory rate and the effective income tax rate related to continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
(In thousands, except percentages)
|
Amount
|
%
|
|
Amount
|
%
|
|
Amount
|
%
|
Foreign rate differences
|
$
|
3,753
|
|
(14.9)
|
|
|
$
|
1,533
|
|
1.9
|
|
|
$
|
1,576
|
|
2.1
|
|
U.S. tax on foreign branch income
|
1,409
|
|
(5.6)
|
|
|
16,029
|
|
22.3
|
|
|
2,229
|
|
2.8
|
|
Non-deductible expenses
|
219
|
|
(0.9)
|
|
|
285
|
|
0.4
|
|
|
99
|
|
0.1
|
|
Valuation allowance for capital loss carryforwards
|
52
|
|
(0.2)
|
|
|
60
|
|
0.1
|
|
|
553
|
|
0.7
|
|
Unremitted earnings from foreign operations
|
13
|
|
(0.1)
|
|
|
60
|
|
0.1
|
|
|
126
|
|
0.2
|
|
Foreign derived intangible income deduction
|
—
|
|
—
|
|
|
(319)
|
|
(0.4)
|
|
|
(695)
|
|
(0.9)
|
|
Valuation allowance due to foreign losses and impairments
|
—
|
|
—
|
|
|
(14,350)
|
|
(19.9)
|
|
|
(2,162)
|
|
(2.7)
|
|
Stock-based compensation
|
(24)
|
|
0.1
|
|
|
292
|
|
0.4
|
|
|
177
|
|
0.2
|
|
Dividend received deduction net of foreign withholding tax
|
(52)
|
|
0.2
|
|
|
(1,016)
|
|
(1.4)
|
|
|
—
|
|
—
|
|
Tax contingency accruals and tax settlements
|
(58)
|
|
0.2
|
|
|
(2,543)
|
|
(3.5)
|
|
|
673
|
|
0.8
|
|
State taxes, net of federal income tax benefit
|
(373)
|
|
1.5
|
|
|
1,050
|
|
1.5
|
|
|
1,203
|
|
1.5
|
|
Research and development tax credit
|
(633)
|
|
2.5
|
|
|
(523)
|
|
(0.7)
|
|
|
(130)
|
|
(0.2)
|
|
Changes in estimates related to prior year tax provision
|
(2,472)
|
|
9.9
|
|
|
(135)
|
|
(0.2)
|
|
|
(380)
|
|
(0.5)
|
|
Brazilian tax incentive
|
(4,787)
|
|
19.1
|
|
|
(1,999)
|
|
(2.8)
|
|
|
(1,340)
|
|
(1.7)
|
|
Income tax expense (benefit) at federal statutory rate
|
(5,260)
|
|
21.0
|
|
|
15,121
|
|
21.0
|
|
|
16,878
|
|
21.0
|
|
Income tax expense (benefit) at effective income tax rate
|
$
|
(8,213)
|
|
32.8
|
|
|
$
|
13,545
|
|
18.8
|
|
|
$
|
18,807
|
|
23.4
|
|
Income taxes in 2020 were primarily impacted by the tax impact of Terphane Ltda. being included in Tredegar’s U.S. consolidated tax return as a foreign branch, the tax impact of the local statutory tax rates of Tredegar’s foreign subsidiaries being higher than the current US tax rate of 21%, the benefit of tax incentives in Brazil, and by claims for prior years’ U.S. research and development tax credits.
During 2019, due to favorable earnings trends, the Company released a $12.4 million valuation allowance on the net deferred tax assets of its Brazilian subsidiary Terphane Ltda. Because Terphane Ltda. is taxed as a foreign branch for U.S. tax purposes, Tredegar also recorded a related deferred tax liability of $12.4 million for the reduction in foreign tax credits that would result from Terphane Ltda. realizing this net deferred tax asset.
Income taxes in 2018 were primarily impacted the additional tax impact of Terphane Ltda. being included in Tredegar’s U.S. consolidated tax return as a foreign branch as well as the tax impact of the local statutory tax rates of Tredegar’s foreign subsidiaries being higher than the current U.S. tax rate of 21%. These increases to income tax expense were offset by recording a tax benefit on a portion of foreign losses and impairments, by the tax benefit of the foreign derived intangible income deduction under the TCJA, and by the benefit of tax incentives in Brazil.
Tredegar accrues U.S. federal income taxes on unremitted earnings of all foreign subsidiaries where required. However, due to changes in the taxation of dividends under TCJA, Tredegar will only record U.S. federal income taxes on unremitted earnings of its foreign subsidiaries where Tredegar cannot take steps to eliminate any potential tax on future distributions from its foreign subsidiaries. Because of the accumulation of significant losses related to foreign currency translations at Terphane Ltda., there were no deferred income tax liabilities associated with the U.S. federal income taxes and foreign withholding taxes on Terphane Ltda.’s undistributed earnings as of and December 31, 2020 and 2019.
The Brazilian federal statutory income tax rate is a composite of 34.0% (25.0% of income tax and 9.0% of social contribution on income). Terphane’s manufacturing facility in Brazil is the beneficiary of certain income tax incentives that allow for a reduction in the statutory Brazilian federal income tax rate levied on the operating profit of its products. These incentives produce a current tax rate of 15.25% for Terphane (6.25% of income tax and 9.0% social contribution on income). The incentives were originally granted for a 10-year period commencing January 1, 2015 and expiring at the end of 2024. Terphane Brazil has been granted an additional three years of tax incentives through the end of 2027. The benefit from the tax incentives was $4.8 million, $2.0 million and $1.3 million in 2020, 2019 and 2018, respectively.
Deferred income tax liabilities and deferred income tax assets for continuing operations at December 31, 2020 and 2019, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2020
|
|
2019
|
Deferred income tax liabilities:
|
|
|
|
Amortization of goodwill and identifiable intangibles
|
$
|
9,520
|
|
|
$
|
12,080
|
|
Depreciation
|
10,844
|
|
|
7,395
|
|
Foregone tax credits on foreign branch income
|
5,714
|
|
|
12,361
|
|
Excess of carrying value over tax basis of investment in kaléo
|
4,905
|
|
|
17,504
|
|
Derivative financial instruments
|
659
|
|
|
—
|
|
Right-of-use leased assets
|
2,979
|
|
|
751
|
|
Other
|
285
|
|
|
488
|
|
Total deferred income tax liabilities
|
34,906
|
|
|
50,579
|
|
Deferred income tax assets:
|
|
|
|
Pensions
|
25,576
|
|
|
21,025
|
|
Employee benefits
|
9,757
|
|
|
7,963
|
|
Excess capital losses
|
7,462
|
|
|
1,551
|
|
Inventory
|
2,613
|
|
|
3,759
|
|
Asset write-offs, divestitures and environmental accruals
|
2,904
|
|
|
1,355
|
|
Tax benefit on U.S. federal, state and foreign NOL and credit carryforwards
|
18,305
|
|
|
17,992
|
|
Timing adjustment for unrecognized tax benefits on uncertain tax positions, including portion relating to interest and penalties
|
134
|
|
|
187
|
|
Allowance for doubtful accounts
|
141
|
|
|
383
|
|
Lease liabilities
|
3,144
|
|
|
967
|
|
Derivative financial instruments
|
—
|
|
|
345
|
|
Foreign currency translation gain adjustment
|
1,423
|
|
|
255
|
|
Deferred income tax assets before valuation allowance
|
71,459
|
|
|
55,782
|
|
Less: Valuation allowance
|
17,485
|
|
|
3,787
|
|
Total deferred income tax assets
|
53,974
|
|
|
51,995
|
|
Net deferred income tax (assets) liabilities
|
$
|
(19,068)
|
|
|
$
|
(1,416)
|
|
Amounts recognized in the consolidated balance sheets:
|
|
|
|
Deferred income tax assets (noncurrent)
|
$
|
19,068
|
|
|
$
|
12,435
|
|
Deferred income tax liabilities (noncurrent)
|
—
|
|
|
11,019
|
|
Net deferred income tax assets (liabilities)
|
$
|
19,068
|
|
|
$
|
1,416
|
|
Except as noted below, the Company believes that it is more likely than not that future taxable income will exceed future tax-deductible amounts thereby resulting in the realization of deferred income tax assets. The Company has estimated gross federal, state and foreign tax credits and net operating loss carryforwards of $18.3 million and $18.0 million at December 31, 2020 and 2019, respectively. The U.S. federal foreign tax credits will expire by 2027 and the U.S. federal research and development tax credits will expire by 2040. The U.S. state carryforwards expire at different points over the next 20 years.
Valuation allowances of $5.5 million, $2.5 million and $6.6 million at December 31, 2020, 2019 and 2018, respectively, are recorded against the tax benefit on U.S. federal, state and foreign tax credits and net operating loss carryforwards generated by certain foreign and domestic subsidiaries that may not be recoverable in the carryforward period. The valuation allowance for excess capital losses from investments and other related items was $7.1 million, $1.3 million and $1.2 million at December 31, 2020, 2019 and 2018, respectively. The 2020 balance increased primarily due to capital loss carryforwards created by the sale of Personal Care Films. The 2018 balance decreased primarily due to the expiration of a portion of prior year capital loss carryforwards. The amount of the deferred income tax asset considered realizable, however, could be adjusted in the near term if estimates of the fair value of certain investments during the carryforward period change. Tredegar continues to evaluate opportunities to utilize capital loss carryforwards prior to their expiration at various dates in the future. As circumstances and events warrant, allowances will be reversed when it is more likely than not that future taxable income will exceed deductible amounts, thereby resulting in the realization of deferred income tax assets. A valuation allowance of $4.9 million was recorded in 2020 related to various deferred state tax assets. The valuation allowance for asset impairments in foreign jurisdictions where the Company believes it is more likely than not that the deferred income tax asset will not be realized was zero at December 31, 2020 and 2019, and $15.8 million at December 31, 2018. In 2019, the Company reversed a $12.4 million valuation allowance on the net deferred tax assets of its Brazilian subsidiary Terphane Ltda due to favorable earnings trends. Since Terphane Ltda. is taxed as a foreign branch for US tax purposes, Tredegar also recorded a related deferred tax liability of $12.4 million for the reduction in foreign tax credits that would result from Terphane Ltda. realizing this net deferred tax asset.
A reconciliation of the Company’s unrecognized uncertain tax positions since January 1, 2018, is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(In thousands)
|
2020
|
|
2019
|
|
2018
|
Balance at beginning of period
|
$
|
881
|
|
|
$
|
3,361
|
|
|
$
|
1,962
|
|
Increase (decrease) due to tax positions taken in:
|
|
|
|
|
|
Current period
|
12
|
|
|
12
|
|
|
13
|
|
Prior period
|
—
|
|
|
49
|
|
|
1,430
|
|
Increase (decrease) due to settlements with taxing authorities
|
(265)
|
|
|
(151)
|
|
|
—
|
|
Reductions due to lapse of statute of limitations
|
—
|
|
|
(2,390)
|
|
|
(44)
|
|
Balance at end of period
|
$
|
628
|
|
|
$
|
881
|
|
|
$
|
3,361
|
|
Additional information related to unrecognized uncertain tax positions since January 1, 2018 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(In thousands)
|
2020
|
|
2019
|
|
2018
|
Gross unrecognized tax benefits on uncertain tax positions (reflected in
current income tax, other noncurrent liability accounts, or deferred tax assets in the balance sheet)
|
$
|
628
|
|
|
$
|
881
|
|
|
$
|
3,361
|
|
Deferred income tax assets related to unrecognized tax benefits on uncertain tax positions (reflected in deferred income tax accounts in the balance sheet)
|
(110)
|
|
|
(163)
|
|
|
(211)
|
|
Net unrecognized tax benefits on uncertain tax positions, which would impact the effective tax rate if recognized
|
518
|
|
|
718
|
|
|
3,150
|
|
Interest and penalties accrued on deductions taken relating to uncertain tax positions (approximately $2, $(144) and $107 reflected in income tax expense in the income statement in 2020, 2019 and 2018, respectively, with the balance shown in current income tax and other noncurrent liability accounts in the balance sheet)
|
102
|
|
|
100
|
|
|
243
|
|
Related deferred income tax assets recognized on interest and penalties
|
(24)
|
|
|
(23)
|
|
|
(56)
|
|
Interest and penalties accrued on uncertain tax positions net of related deferred income tax benefits, which would impact the effective tax rate if recognized
|
78
|
|
|
77
|
|
|
187
|
|
Total net unrecognized tax benefits on uncertain tax positions reflected in the balance sheet, which would impact the effective tax rate if recognized
|
$
|
596
|
|
|
$
|
795
|
|
|
$
|
3,337
|
|
Tredegar, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction, various states and jurisdictions outside the U.S. With few exceptions, Tredegar is no longer subject to U.S. federal, state or non-U.S. income tax examinations by tax authorities for years before 2017. The Company anticipates that it is reasonably possible that Federal and state income tax audits or statutes may settle or close within the next 12 months, which could result in the recognition of up to approximately $0.5 million of the balance of unrecognized tax positions, including any payments that may be made.
17 ASSET IMPAIRMENTS AND COSTS ASSOCIATED WITH EXIT AND DISPOSAL ACTIVITIES
In connection with the anticipated customer product transitions in Surface Protection, the Company recognized severance and other employee-related expenses of $1.6 million in the fourth quarter of 2020. The Company recognizes termination benefits that are covered by a contract or an ongoing benefit arrangement when it is probable that employees will be entitled to benefits and the amount can be reasonably estimated. Other accrued expenses and losses related to asset impairments and costs associated with exit and disposal activities for continuing operations were not material for the years ended December 31, 2020, 2019 and 2018, respectively.
18 CONTINGENCIES
Tredegar is involved in various stages of investigation and remediation relating to environmental matters at certain current and former plant locations. Where the Company has determined the nature and scope of any required environmental remediation activity, estimates of cleanup costs have been obtained and accrued. As efforts continue to maintain compliance with applicable environmental laws and regulations, additional contingencies may be identified. If additional contingencies are identified in the future, the Company’s practice is to determine at that time the nature and scope of those contingencies, obtain and accrue estimates of the cost of remediation, and perform remediation. While the Company believes it is currently adequately accrued for known environmental issues, it is possible that unexpected future costs for known or unknown environmental issues could have a material adverse effect on its financial condition, results of operations and cash flows at that time.
The Company is involved in various other legal actions arising in the normal course of business. After taking into consideration the relevant information, the Company believes that it has sufficiently accrued for probable losses and that the actions will not have a material adverse effect on its financial position.
From time to time, the Company enters into transactions with third parties in connection with the sale of assets or businesses in which it agrees to indemnify the buyers or third parties involved in the transaction, or in which the sellers or third parties involved in the transaction agree to indemnify Tredegar, for certain liabilities or risks related to the assets or business. Also, in the ordinary course of its business, the Company may enter into agreements with third parties for the sale of goods or services that may contain indemnification provisions. In the event that an indemnification claim is asserted, liability for indemnification would be subject to an assessment of the underlying facts and circumstances under the terms of the applicable agreement. For these reasons, Tredegar is unable to estimate the maximum amount of the potential future liability under the indemnity provisions of these agreements. The Company does, however, accrue for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable and the amount is reasonably estimable. The Company discloses contingent liabilities if the probability of loss is reasonably possible and material.
19 SELECTED QUARTERLY FINANCIAL DATA
Tredegar Corporation and Subsidiaries
(In Thousands, Except Per-Share Amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
For the year ended December 31, 2020
|
|
|
|
|
|
|
|
Sales
|
$
|
192,136
|
|
|
$
|
186,260
|
|
|
$
|
184,370
|
|
|
$
|
192,524
|
|
Gross profit
|
40,092
|
|
|
46,331
|
|
|
41,909
|
|
|
42,305
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of tax
|
(20,663)
|
|
|
14,332
|
|
|
(16,976)
|
|
|
6,475
|
|
Income (loss) from discontinued operations, net of tax
|
(1,658)
|
|
|
(3,136)
|
|
|
(48,237)
|
|
|
(5,580)
|
|
Net income (loss)
|
$
|
(22,321)
|
|
|
$
|
11,196
|
|
|
$
|
(65,213)
|
|
|
$
|
895
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
(0.62)
|
|
|
$
|
0.43
|
|
|
$
|
(0.51)
|
|
|
$
|
0.19
|
|
Discontinued operations
|
(0.05)
|
|
|
(0.10)
|
|
|
(1.44)
|
|
|
(0.17)
|
|
Basic
|
$
|
(0.67)
|
|
|
$
|
0.33
|
|
|
$
|
(1.95)
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
(0.62)
|
|
|
$
|
0.43
|
|
|
$
|
(0.51)
|
|
|
$
|
0.19
|
|
Discontinued operations
|
(0.05)
|
|
|
(0.10)
|
|
|
(1.44)
|
|
|
(0.17)
|
|
Diluted
|
$
|
(0.67)
|
|
|
$
|
0.33
|
|
|
$
|
(1.95)
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2019
|
|
|
|
|
|
|
|
Sales
|
$
|
207,948
|
|
|
$
|
214,095
|
|
|
$
|
205,968
|
|
|
$
|
198,313
|
|
Gross profit
|
34,986
|
|
|
44,375
|
|
|
38,892
|
|
|
37,951
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of tax
|
22,548
|
|
|
19,871
|
|
|
15,052
|
|
|
990
|
|
Income (loss) from discontinued operations, net of tax
|
(2,763)
|
|
|
(5,394)
|
|
|
2,081
|
|
|
(4,126)
|
|
Net income
|
$
|
19,785
|
|
|
$
|
14,477
|
|
|
$
|
17,133
|
|
|
$
|
(3,136)
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.68
|
|
|
$
|
0.60
|
|
|
$
|
0.45
|
|
|
$
|
0.03
|
|
Discontinued operations
|
(0.08)
|
|
|
(0.16)
|
|
|
0.06
|
|
|
(0.12)
|
|
Basic
|
$
|
0.60
|
|
|
$
|
0.44
|
|
|
$
|
0.51
|
|
|
$
|
(0.09)
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.68
|
|
|
$
|
0.60
|
|
|
$
|
0.45
|
|
|
$
|
0.03
|
|
Discontinued operations
|
(0.08)
|
|
|
(0.16)
|
|
|
0.06
|
|
|
(0.12)
|
|
Diluted
|
$
|
0.60
|
|
|
$
|
0.44
|
|
|
$
|
0.51
|
|
|
$
|
(0.09)
|
|
Due to rounding, the sum of quarterly amounts presented in the table above may not add up precisely to the corresponding full year amounts.
Item 16. FORM 10-K SUMMARY
Not Applicable.