Tredegar Corporation (NYSE:TG, also the “Company” or “Tredegar”)
today reported third-quarter financial results for the period ended
September 30, 2018.
The Company recognized a net loss of $34.2 million ($1.03 per
share) in the third quarter of 2018 compared with net income of
$8.3 million ($0.25 per share) in the third quarter of 2017.
Results for the third quarter of 2018 included a goodwill
impairment loss for the Personal Care component of PE Films ($38.2
million after taxes or $1.15 per share). Net income from ongoing
operations, which excludes special items, was $8.6 million ($0.26
per share) in the third quarter of 2018 compared with $9.4 million
($0.28 per share) in the third quarter of 2017. A reconciliation of
net income (loss), a financial measure calculated in accordance
with U.S. generally accepted accounting principles (“GAAP”), to net
income from ongoing operations, a non-GAAP financial measure, for
the three and nine months ended September 30, 2018 and 2017,
is provided in Note (a) of the Notes to the Financial Tables in
this press release.
Third Quarter Financial Results Highlights
- Operating profit from ongoing
operations for PE Films of $4.1 million was $7.1 million lower than
the third quarter of 2017
- Operating profit from ongoing
operations for Flexible Packaging Films was $3.6 million, which was
favorable by $4.7 million versus the operating loss in the third
quarter of 2017
- Operating profit from ongoing
operations for Bonnell Aluminum of $11.7 million was $0.9 million
lower than the third quarter of 2017
John Gottwald, Tredegar’s president and chief executive officer,
said, “Tredegar has provided disclosures over the past three years
related to significant risks of lost business in the Personal Care
and Surface Protection business units of our PE Films segment, and
both of these exposures have become clearer this quarter. We
anticipate pre-tax operating profit in 2019 to be impacted by $21
million or more. Furthermore, Personal Care’s goodwill of $47
million has been written off. Both business units have increased
R&D and capital spending to develop new customers and products.
It is premature to forecast the impact of these efforts.”
OPERATIONS REVIEW
PE Films
PE Films is composed of personal care materials, surface
protection films, polyethylene overwrap films and films for other
markets. A summary of third-quarter and year-to-date operating
results from ongoing operations for PE Films, which does not
include the goodwill impairment discussed in the Customer Product
Transitions in Personal Care and Surface Protection section, is
provided below:
Three
Months Ended
Favorable/(Unfavorable)% Change
Nine Months Ended
Favorable/(Unfavorable)% Change
(In Thousands, Except Percentages) September 30, September 30,
2018 2017
2018 2017 Sales volume (lbs) 29,597
34,701 (14.7)% 94,519 103,923
(9.0)% Net sales $ 76,470 $ 89,723 (14.8)% $ 252,177 $ 265,773
(5.1)% Operating profit from ongoing operations
$ 4,145 $ 11,251
(63.2)% $ 26,857 $ 30,965
(13.3)%
Third-Quarter 2018 Results vs.
Third-Quarter 2017 Results
Net sales (sales less freight) in the third quarter of 2018
decreased by $13.3 million versus 2017 primarily due to lower
volume in Personal Care and Surface Protection. The volume decline
in Personal Care was primarily related to lower demand for
topsheet. Volume for elastics and acquisition distribution layer
materials increased year-over-year.
Net sales in Surface Protection declined in the third quarter of
2018 versus 2017 (which had particularly strong sales) primarily
due to lower volume that the Company believes was due to customer
inventory corrections and the previously disclosed customer product
transitions to alternative processes or materials, as further
discussed in the Customer Product Transitions in Personal Care and
Surface Protection section.
Operating profit from ongoing operations in the third quarter of
2018 decreased by $7.1 million versus the third quarter of 2017
primarily due to:
- Lower contribution to profits from
surface protection films, primarily due to lower net sales as noted
above ($1.9 million, of which $0.3 million, the Company estimates,
is related to customer product transitions), a sales return reserve
for a quality claim ($2.4 million) and related higher production
costs ($0.9 million), higher freight costs ($0.5 million) and
higher research and development spending ($0.6 million);
- Lower contribution to profits from
personal care films, primarily due to lower volume as noted above,
net of a favorable product mix ($2.2 million), partially offset by
improved pricing on certain products ($0.7 million), and net
favorable impact from the change in U.S. Dollar value of currencies
for operations outside of the U.S. ($0.1 million); and
- Realized cost savings associated with
the North American consolidation of our PE Films manufacturing
facilities completed in 2017 ($0.5 million).
In June 2018, the Company announced plans to close its facility
in Shanghai, China, which primarily produces topsheet films used as
components for personal care products. Production is expected to
cease at this plant during the fourth quarter of 2018, and net
annual cash savings from consolidating operations is projected at
$1.7 million. Additional information on costs associated with exit
and disposal activities (currently estimated at $7.1 million) and
other details are available in Note (b) in the Notes to the
Financial Tables in this press release and in the Company’s
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2018 (“Form 10-Q”).
Customer Product Transitions in Personal Care and Surface
Protection
During October 2018, the Personal Care component of PE Films
completed negotiations with its customer regarding a previously
disclosed significant product transition. The total annual sales
that will be adversely impacted by this product transition is
approximately $70 million. During 2019, the Company expects sales
for the product of $30 to $35 million with the potential for no
sales thereafter. Any actions that the Company takes to reduce
fixed costs to partially mitigate the decline in variable
contribution that will accompany the decline in sales will depend
on the level of success that Personal Care has with replacing the
lost business with new products. The adverse operating profit
impact of the estimated $35 to $40 million decline in sales in 2019
is not clear, although the Company believes that it will be in
excess of $10 million.
Personal Care has increased its R&D spending, reaching an
amount in 2017 approximately $5 million higher than in 2014.
R&D spending in 2018 is expected to be at approximately the
same level as 2017. Personal Care is also investing capital and is
accelerating sales and marketing efforts to capture growth and
diversify its customer base and product offerings in personal care
products.
Because of the significance of the customer transition discussed
above, the Company performed a goodwill impairment analysis of the
Personal Care component of PE Films using projections under various
business planning scenarios. The impairment analysis concluded that
the value of Personal Care was less than the carrying value of
underlying working capital and long-lived net assets. Accordingly,
the goodwill associated with Personal Care of $47 million ($38.2
million after deferred income tax benefits) was written off during
the third quarter of 2018.
The Surface Protection component of PE Films supports
manufacturers of optical and other specialty substrates used in
flat panel display products. These films are primarily used by
customers to protect components of displays in the manufacturing
and transportation process and then discarded.
The Company previously reported the risk that a portion of its
film used in surface protection applications will be made obsolete
by possible future customer product transitions to less costly
alternative processes or materials. The Company anticipates that
the customer product transitions will be fully implemented by the
fourth quarter of 2019. The Company estimates that the adverse
operating profit impact of surface protection transitions in the
third quarter of 2018 was $0.3 million. When fully implemented, the
Company estimates that the annualized adverse impact on future
operating profit from this customer shift will be approximately $11
million. The Company is aggressively pursuing new surface
protection products, applications and customers.
Year-To-Date 2018 Results vs. Year-To-Date
2017 Results
Net sales in the first nine months of 2018 decreased by $13.6
million versus 2017 primarily due to lower topsheet volume in
Personal Care and lower volume in Surface Protection in the third
quarter.
Operating profit from ongoing operations in the first nine
months of 2018 decreased by $4.1 million versus the first nine
months of 2017 primarily due to:
- Lower contribution to profits from
surface protection films, primarily due to reserves for sales
returns for quality claims ($3.6 million) and related higher
production costs ($0.8 million), an inventory write-down and higher
fixed costs ($0.8 million), higher research and development
spending ($0.5 million), and higher freight costs ($0.5 million),
partially offset by improved mix ($2.2 million);
- Lower contribution to profits from
personal care films, primarily due to lower volume in topsheet and
other products ($5.6 million), partially offset by improved pricing
on certain products ($2.0 million), net favorable impact from the
change in U.S. Dollar value of currencies for operations outside of
the U.S. ($1.0 million) and lower fixed and sales, general and
administrative costs ($0.3 million); and
- Realized cost savings associated with
the previously announced project to consolidate domestic
manufacturing facilities in PE Films ($2.3 million).
Capital Expenditures, Depreciation &
Amortization
Capital expenditures in PE Films were $13.5 million in the first
nine months of 2018 compared to $12.9 million in the first nine
months of 2017. Capital expenditures are projected to be $26
million in 2018, including: $15 million of a total $25 million
expected for North American capacity expansion for elastics
products in Personal Care; new capacity for next generation
products in Surface Protection ($3 million); and approximately $8
million for routine capital expenditures required to support
operations. Depreciation expense was $11.7 million in the first
nine months of 2018 and $10.7 million in the first nine months of
2017. Depreciation expense is projected to be $16 million in
2018.
Flexible Packaging Films
Flexible Packaging Films, which is also referred to as Terphane,
produces polyester-based films for use in packaging applications
that have specialized properties, such as heat resistance,
strength, barrier protection and the ability to accept high-quality
print graphics. A summary of third quarter and year-to-date
operating results from ongoing operations for Flexible Packaging
Films is provided below:
Three
Months Ended
Favorable/(Unfavorable)% Change
Nine Months Ended
Favorable/(Unfavorable)% Change
(In Thousands, Except Percentages) September 30, September 30,
2018 2017
2018 2017 Sales volume (lbs) 27,258
21,640 26.0% 74,276 65,668 13.1%
Net sales $ 33,725 $ 26,628 26.7% $ 90,466 $ 79,925 13.2% Operating
profit (loss) from ongoing operations $ 3,609
$ (1,074 ) NA $
6,617 $ (3,392 ) NA
Third-Quarter 2018 Results vs.
Third-Quarter 2017 Results
Net sales increased in the third quarter of 2018 compared with
the third quarter of 2017 due to higher shipments resulting from
improved demand and increased selling prices associated with the
pass-through of higher resin costs. The higher sales volume was
associated with increased production capacity for Terphane’s
Brazilian operations resulting from the re-start of a previously
idled production line in mid-June 2018.
Terphane’s operating results from ongoing operations in the
third quarter of 2018 increased by $4.7 million versus the third
quarter of 2017 primarily due to:
- Significantly lower depreciation and
amortization of $2.2 million resulting from the $101 million
non-cash asset impairment loss recognized in the fourth quarter of
2017;
- A benefit of $3.3 million from higher
volume, partially offset by an unfavorable mix and higher resin
costs ($2.0 million);
- Favorable foreign currency translation
of Real-denominated operating costs ($1.7 million), which was
offset by a $0.8 million loss on foreign currency forward contracts
that partially hedged Real-denominated operating costs; and
- Benefit from lower net foreign currency
transaction losses of $0.2 million (losses of $0.1 million in 2018
versus losses of $0.3 million in 2017).
Terphane’s quarterly financial results have been volatile, and
the Company expects continued uncertainty and volatility until
industry capacity utilization and the competitive dynamics in Latin
America improve.
Year-To-Date 2018 Results vs. Year-To-Date
2017 Results
Net sales and volume increased in the first nine months of 2018
compared with the first nine months of 2017 due to higher demand
and increased production capacity resulting from the re-start of a
previously idled production line in the second quarter of 2018.
Terphane’s operating results from ongoing operations in the
first nine months of 2018 increased by $10.0 million versus the
first nine months of 2017 primarily due to:
- Significantly lower depreciation and
amortization of $6.7 million resulting from the $101 million
non-cash asset impairment loss recognized in the fourth quarter of
2017;
- A benefit from higher volume and
pricing ($4.6 million) and tax incentives and an insurance recovery
($1.1 million), partially offset by higher resin costs ($4.0
million); and
- A benefit of $2.8 million primarily
from favorable foreign currency translation of Real-denominated
operating costs, which was offset by a $1.2 million loss on foreign
currency forward contracts that partially hedged Real-denominated
operating costs.
Capital Expenditures, Depreciation &
Amortization
Capital expenditures in Terphane were $2.3 million in the first
nine months of 2018 compared to $2.3 million in the first nine
months of 2017. Terphane currently estimates that total capital
expenditures in 2018 will be $5 million, including approximately $1
million to re-start the idled production line referenced above and
$4 million for routine capital expenditures required to support
operations. Depreciation expense was $0.6 million in the first nine
months of 2018 and $5.5 million in the first nine months of 2017.
Depreciation expense is projected to be $1.0 million in 2018.
Amortization expense was $0.3 million in the first nine months of
2018 and $2.2 million in the first nine months of 2017, and is
projected to be $0.5 million in 2018. Aggregate depreciation and
amortization expense is projected at $1.5 million in 2018, down
significantly from $10.5 million in 2017 due to the write-down of
Terphane’s long-lived assets during the fourth quarter of 2017.
Aluminum Extrusions
Aluminum Extrusions, which includes Bonnell Aluminum and its
operating divisions, AACOA and Futura, produces high-quality,
soft-alloy and medium-strength aluminum extrusions primarily for
the following markets: building and construction, automotive, and
specialty, which consists of consumer durables, machinery and
equipment, electrical and distribution end-use products.
A summary of third-quarter and year-to-date results from ongoing
operations for Aluminum Extrusions is provided below:
Three Months Ended
Favorable/(Unfavorable)% Change Nine Months
Ended Favorable/(Unfavorable)% Change (In
Thousands, Except Percentages) September 30, September 30,
2018 2017
2018 2017
Sales volume (lbs) * 56,632 52,008 8.9%
139,096 132,598 4.9% Net sales $ 147,661 $
122,149 20.9% $ 420,455 $ 344,956 21.9% Operating profit from
ongoing operations $ 11,730
$ 12,601 (6.9)%
$ 35,086 $ 34,201
2.6%
* Sales volume for the nine months ended
September 30, 2018 and 2017 excludes sales volume associated with
Futura Industries Corporation (“Futura”), acquired on February 15,
2017.
Third-Quarter 2018 Results vs.
Third-Quarter 2017 Results
Net sales in the third quarter of 2018 increased versus 2017
primarily due to an increase in average selling prices from the
pass-through to customers of higher market-driven raw material
costs and higher sales volume.
Sales volume in the third quarter of 2018 increased by 8.9%
versus 2017 due to higher volume in all of Bonnell’s primary
markets. Higher average net selling prices, primarily attributed to
an increase in aluminum market prices, had a favorable impact on
net sales of $14.7 million, and higher volume improved net sales by
$10.9 million. Bonnell Aluminum’s average capacity utilization was
in excess of 90% due to the increased demand. Bookings and backlog
remain strong.
Operating profit from ongoing operations in the third quarter of
2018 decreased by $0.9 million in comparison to the third quarter
of 2017, as higher sales volume ($0.9 million), favorable mix ($1.3
million) and lower healthcare costs ($0.8 million) were more than
offset by additional operating costs, including employee-related
expenses ($1.1 million), higher supplies and dies ($1.6 million),
and higher freight ($0.6 million). These higher operating costs
were also partially the result of continued inefficiencies at
Bonnell’s Niles, Michigan facility.
On March 8, 2018, the U.S. imposed tariffs of 10% on aluminum
ingot and semi-finished aluminum imported into the U.S. from
certain countries, including countries from which Bonnell Aluminum
has historically sourced aluminum supplies. On April 6, 2018, the
U.S. announced sanctions on certain Russian individuals and on
companies controlled by those individuals, including United
Company RUSAL Plc, Russia’s largest aluminum producer and a
substantial supplier of primary aluminum to the U.S. market.
Collectively, these events have resulted in a significant increase
in the cost of aluminum ingot used by Bonnell Aluminum to make its
products. The average U.S. Midwest Transaction price, the benchmark
price for P1020 high-grade aluminum ingot delivered, averaged $1.14
per pound in the third quarter of 2018, up $0.15 from $0.99 per
pound in the third quarter of 2017. This price peaked at $1.35 per
pound on certain days in the second quarter of 2018. In 2017,
aluminum raw materials comprised 43% of Bonnell Aluminum’s average
selling price when the U.S. Midwest Transaction price averaged
$0.98 per pound. For the vast majority of its business, Bonnell
Aluminum expects to be able to pass through higher aluminum costs
to customers. However, sustained higher costs for aluminum
extrusions could result in reduced demand and product substitutions
in place of aluminum extrusions, which could materially and
negatively affect Bonnell Aluminum’s business and results of
operations. In addition, continued sanctions on RUSAL Plc could
result in aluminum billet supply shortages in the U.S. aluminum
extrusion market, although Bonnell does not currently anticipate
any impact of such potential shortages on its access to
aluminum.
Year-To-Date 2018 Results vs. Year-To-Date
2017 Results
Net sales in the first nine months of 2018 increased versus 2017
primarily due to the addition of Futura and higher volume. Futura
contributed $74.5 million of net sales in the first nine months of
2018 versus $49.8 million for the 7½ months owned during the first
nine months of 2017 (acquired on February 15, 2017). Excluding the
impact of Futura, the increase in net sales was the result of
higher sales volume ($14.5 million) and an increase in average
selling prices primarily due to the pass-through to customers of
higher market-driven raw material costs and improved mix ($36.3
million).
Volume on an organic basis (which excludes the impact of the
Futura acquisition) in the first nine months of 2018 increased by
4.9% versus 2017 due to higher volume in all of Bonnell’s primary
markets.
Operating profit from ongoing operations in the first nine
months of 2018 increased by $1.0 million in comparison to the first
nine months of 2017. Excluding the favorable profit impact of
Futura ($1.5 million), operating profit from ongoing operations
decreased $0.5 million, primarily due to:
- Increased operating costs, including
freight, employee-related expenses, maintenance and supplies and
higher depreciation ($10.0 million), partially offset by higher
volume ($2.0 million), favorable mix ($7.3 million) and lower
healthcare costs ($0.3 million); and
- The Company estimates that operating
profit from ongoing operations for the nine months ended September
30, 2018, would have been higher by $2.5 million, if not for the
continued inefficiencies associated with the new extrusion line at
the Niles, Michigan plant.
Capital Expenditures, Depreciation &
Amortization
Capital expenditures in Bonnell Aluminum were $8.9 million in
the first nine months of 2018 (including $2.4 million associated
with Futura), compared to $21.9 million in the first nine months of
2017. Capital expenditures in 2017 included the extrusions capacity
expansion project at the facility in Niles, Michigan. Capital
expenditures are projected to be $15 million in 2018, including
approximately $7 million for infrastructure upgrades and expanded
fabrication and machining capabilities, and approximately $8
million for routine items required to support operations.
Depreciation expense was $9.9 million in the first nine months of
2018 compared to $8.7 million in the first nine months of 2017, and
is projected to be $13 million in 2018. Amortization expense was
$2.7 million in the first nine months of 2018 and $2.2 million in
the first nine months of 2017, and is projected to be $4 million in
2018.
Corporate Expenses, Interest, Taxes & Other
Pension expense was $7.8 million in the first nine months of
2018, versus $7.6 million in the first nine months of 2017. The
impact on earnings from pension expense is reflected in “Corporate
expenses, net” in the Net Sales and Operating Profit by Segment
table. Pension expense is projected to be $10.4 million in 2018.
Corporate expenses, net, increased in the first nine months of 2018
versus 2017 primarily due to higher stock-based employee benefit
costs and professional fees for services rendered early in the
first quarter of 2018 associated with the Terphane non-cash asset
impairment loss that was recognized in the fourth quarter of
2017.
Interest expense was $4.5 million in the first nine months of
2018 in comparison to $4.6 million in the first nine months of
2017, primarily due to higher interest rates offset by lower
average debt levels.
The effective tax rate used to compute income tax expense from
continuing operations was 172.1% in the first nine months of 2018,
compared to 14.7% in the first nine months of 2017. The effective
tax rate from ongoing operations comparable to the earnings
reconciliation table provided in Note (a) of the Notes to Financial
Tables in this press release was 22.4% for the first nine months of
2018 versus 37.2% in 2017 (see also Note (g) of the Notes to
Financial Tables). The effective tax rates benefited from the U.S.
Tax Cuts and Jobs Act enacted in December 2017, which, among other
impacts, reduced the U.S. federal corporate income tax rate from
35% to 21% beginning in 2018. An explanation of additional
significant differences between the effective tax rate for income
from continuing operations and the U.S. federal statutory rate for
2018 and 2017 will be provided in the Form 10-Q.
Tredegar’s approximately 20% ownership in kaleo, Inc. (“kaléo”),
which is accounted for under the fair value method, was estimated
at a value of $65.9 million at September 30, 2018, versus $54
million at December 31, 2017 and $68 million at June 30, 2018. The
changes in the estimated fair value of the Company’s investment in
kaléo, which are included in net income (loss) under GAAP, have
consistently been excluded from net income from ongoing operations
as shown in the reconciliation table in Note (a) of the Notes to
the Financial Tables in this press release. Kaléo’s stock is not
publicly traded. The Company’s valuation estimate is based on
projection assumptions that have a wide range of possible outcomes.
Ultimately, the true value of Tredegar’s ownership interest in
kaléo will be determined if and when a liquidity event occurs.
CAPITAL STRUCTURE
Total debt was $91.0 million at September 30, 2018,
compared to $152.0 million at December 31, 2017. Net debt
(debt in excess of cash and cash equivalents) was $54.2 million at
September 30, 2018, compared to $115.5 million at
December 31, 2017. The decline in net debt includes the impact
of U.S. federal income tax refunds received in the first nine
months of 2018 of approximately $26 million. Net debt is a
financial measure that is not calculated or presented in accordance
with GAAP. See Note (f) of the Notes to the Financial Tables in
this press release for a reconciliation of this non-GAAP financial
measure to the most directly comparable GAAP financial measure.
FORWARD-LOOKING AND CAUTIONARY
STATEMENTS
Some of the information contained in this press release may
constitute “forward-looking statements” within the meaning of the
“safe harbor” provisions of the Private Securities Litigation
Reform Act of 1995. When we use the words “believe,” “estimate,”
“anticipate,” “expect,” “project,” “plan,” “likely,” “may” and
similar expressions, we do so to identify forward-looking
statements. Such statements are based on our then current
expectations and are subject to a number of risks and uncertainties
that could cause actual results to differ materially from those
addressed in the forward-looking statements. It is possible that
our actual results and financial condition may differ, possibly
materially, from the anticipated results and financial condition
indicated in or implied by these forward-looking statements.
Accordingly, you should not place undue reliance on these
forward-looking statements. Factors that could cause actual results
to differ from expectations include, without limitation, the
following:
- loss or gain of sales to significant
customers on which our business is highly dependent;
- inability to achieve sales to new
customers to replace lost business;
- ability to develop, efficiently
manufacture and deliver new products at competitive prices;
- failure of our customers to achieve
success or maintain market share;
- failure to protect our intellectual
property rights;
- risks of doing business in countries
outside the U.S. that affect our substantial international
operations;
- political, economic, and regulatory
factors concerning our products;
- uncertain economic conditions in
countries in which we do business;
- competition from other manufacturers,
including manufacturers in lower-cost countries and manufacturers
benefiting from government subsidies;
- impact of fluctuations in foreign
exchange rates;
- a change in the amount of our
underfunded defined benefit (pension) plan liability;
- an increase in the operating costs
incurred by our operating companies, including, for example, the
cost of raw materials and energy;
- inability to successfully identify,
complete or integrate strategic acquisitions; failure to realize
the expected benefits of such acquisitions and assumption of
unanticipated risks in such acquisitions;
- disruption to our manufacturing
facilities;
- occurrence or threat of extraordinary
events, including natural disasters and terrorist attacks;
- an information technology system
failure or breach;
- volatility and uncertainty of the
valuation of our cost-basis investment in kaléo;
- the impact of the imposition of tariffs
and sanctions on imported aluminum ingot used in our aluminum
extrusions;
- the impact of new tariffs or duties
imposed as a result of rising trade tensions between the U.S. and
other countries;
- failure to establish and maintain
effective internal control over financial reporting;
and the other factors discussed in the reports Tredegar files
with or furnishes to the Securities and Exchange Commission (the
“SEC”) from time to time, including the risks and important factors
set forth in additional detail in Part I, Item 1A of Tredegar’s
Annual Report on Form 10-K for the year ended December 31,
2017. Readers are urged to review and consider carefully the
disclosures Tredegar makes in its filings with the SEC.
Tredegar does not undertake, and expressly disclaims any duty,
to update any forward-looking statement made in this press release
to reflect any change in management’s expectations or any change in
conditions, assumptions or circumstances on which such statements
are based, except as required by applicable law.
To the extent that the financial information portion of this
press release contains non-GAAP financial measures, it also
presents both the most directly comparable financial measures
calculated and presented in accordance with GAAP and a quantitative
reconciliation of the difference between any such non-GAAP measures
and such comparable GAAP financial measures. Reconciliations of
non-GAAP financial measures are provided in the Notes to the
Financial Tables included with this press release and can also be
found within “Presentations” in the “Investors” section of our
website, www.tredegar.com.
Tredegar uses its website as a channel of distribution of
material company information. Financial information and other
material information regarding Tredegar is posted on and assembled
in the “Investors” section of its website.
Tredegar Corporation is a manufacturer of plastic films and
aluminum extrusions. A global company headquartered in Richmond,
Virginia, Tredegar had 2017 sales of $961 million. With
approximately 3,200 employees, the company operates manufacturing
facilities in North America, South America, Europe, and Asia.
Tredegar Corporation Condensed Consolidated
Statements of Income (In Thousands, Except Per-Share
Data) (Unaudited)
Three Months Ended
Nine Months Ended September 30, September 30,
2018 2017 2018
2017 Sales $ 267,294 $ 247,121 $ 789,765
$ 715,494 Other income (expense), net (b)(c)(d)
(2,557 ) 34
11,532 38,055 264,737 247,155 801,297 753,549
Cost of goods sold (b) 217,378 194,508 631,235 569,555
Freight 9,438 8,621 26,667 24,840 Selling, R&D and general
expenses (b) 25,826 25,173 77,559 75,880 Amortization of
intangibles 1,022 1,658 3,076 4,550 Pension and postretirement
benefits 2,653 2,381 7,809 7,645 Interest expense 1,318 1,757 4,539
4,579 Asset impairments and costs associated with exit and disposal
activities, net of adjustments (b) 1,209 361 1,799 653 Goodwill
impairment charge (e) 46,792
— 46,792 —
305,636 234,459
799,476 687,702 Income (loss)
before income taxes (40,899 ) 12,696 1,821 65,847 Income taxes
(benefit) (6,699 ) 4,422
3,135 9,667 Net income (loss)
$ (34,200 ) $ 8,274
$ (1,314 ) $ 56,180 Earnings
(loss) per share: Basic $ (1.03 ) $ 0.25 $ (0.04 ) $ 1.71 Diluted
$ (1.03 ) $ 0.25
$ (0.04 ) $ 1.70 Shares used to compute
earnings per share: Basic 33,110 32,954 33,056 32,945 Diluted
33,110 32,954
33,056 32,952
Tredegar Corporation Net Sales and Operating Profit by
Segment (In Thousands) (Unaudited)
Three Months Ended Nine Months Ended September 30,
September 30, 2018 2017
2018 2017
Net Sales
PE Films
$ 76,470 $ 89,723 $ 252,177 $ 265,773 Flexible Packaging Films
33,725 26,628 90,466 79,925 Aluminum Extrusions
147,661 122,149
420,455 344,956 Total net sales 257,856
238,500 763,098 690,654
Add back freight
9,438 8,621
26,667 24,840 Sales as shown in
the Condensed Consolidated Statements of Income
$ 267,294 $ 247,121
$ 789,765 $ 715,494
Operating Profit (Loss) PE Films: Ongoing operations $ 4,145
$ 11,251 $ 26,857 $ 30,965 Plant shutdowns, asset impairments,
restructurings and other (b) (2,355 ) (919 ) (4,542 ) (3,890 )
Goodwill impairment charge (e) (46,792 ) — (46,792 ) — Flexible
Packaging Films: Ongoing operations 3,609 (1,074 ) 6,617 (3,392 )
Plant shutdowns, asset impairments, restructurings and other (b) —
— — 11,856 Aluminum Extrusions: Ongoing operations 11,730 12,601
35,086 34,201 Plant shutdowns, asset impairments, restructurings
and other (b) (297 ) (377 )
(396 ) (3,147 ) Total (29,960 ) 21,482
16,830 66,593 Interest income 6 42 290 171 Interest expense 1,318
1,757 4,539 4,579 Gain (loss) on investment in kaleo accounted for
under fair value method (c) (2,100 ) — 11,900 24,800 Unrealized
loss on investment property (d) (186 ) — (186 ) — Stock
option-based compensation costs 415 111 806 153 Corporate expenses,
net (b) 6,926 6,960
21,668 20,985
Income (loss) before income taxes (40,899 ) 12,696 1,821 65,847
Income taxes (benefit) (6,699 )
4,422 3,135 9,667
Net income (loss) $ (34,200 ) $
8,274 $ (1,314 ) $ 56,180
Tredegar Corporation Condensed Consolidated
Balance Sheets (In Thousands) (Unaudited)
September 30, 2018
December 31, 2017
Assets
Cash & cash equivalents $ 36,776 $ 36,491 Accounts &
other receivables, net 125,368 120,135 Income taxes recoverable
5,886 32,080 Inventories 92,800 86,907 Prepaid expenses & other
7,754 8,224 Total
current assets 268,584 283,837 Property, plant & equipment, net
218,283 223,091 Investment in kaléo (cost basis of $7,500) 65,900
54,000 Identifiable intangible assets, net 37,142 40,552 Goodwill
81,404 128,208 Deferred income taxes 11,357 16,636 Other assets
8,266 9,419 Total
assets $ 690,936 $
755,743
Liabilities and Shareholders’ Equity Accounts
payable $ 128,034 $ 108,391 Accrued expenses
45,138 42,433 Total current liabilities
173,172 150,824 Long-term debt 91,000 152,000 Pension and other
postretirement benefit obligations, net 89,227 98,837 Deferred
income taxes — 2,123 Other noncurrent liabilities 8,766 8,179
Shareholders’ equity 328,771
343,780 Total liabilities and shareholders’ equity
$ 690,936 $
755,743
Tredegar Corporation Condensed
Consolidated Statements of Cash Flows (In Thousands)
(Unaudited)
Nine Months Ended September 30,
2018 2017 Cash flows from operating activities:
Net income (loss) $ (1,314 ) $ 56,180 Adjustments for
noncash items: Depreciation 22,272 25,072 Amortization of
intangibles 3,076 4,550 Goodwill impairment charge 46,792 —
Deferred income taxes 1,152 (104 ) Accrued pension income and
post-retirement benefits 7,809 7,645 (Gain)/loss on investment
accounted for under the fair value method (11,900 ) (24,800 )
(Gain)/loss on asset impairments and divestitures 185 50 Net
(gain)/loss on sale of assets (86 ) 412 Changes in assets and
liabilities, net of effects of acquisitions and divestitures:
Accounts and other receivables (13,020 ) (16,925 ) Inventories
(9,204 ) (4,220 ) Income taxes recoverable/payable 25,912 (603 )
Prepaid expenses and other (1,655 ) 129 Accounts payable and
accrued expenses 29,452 8,674 Pension and postretirement benefit
plan contributions (7,182 ) (4,642 ) Other, net
705 2,093 Net cash provided by
operating activities 92,994 53,511 Cash flows from investing
activities: Capital expenditures (25,078 ) (37,245 ) Acquisition —
(87,110 ) Return of escrowed funds relating to acquisition earn-out
4,250 — Proceeds from the sale of assets and other
1,108 121 Net cash used in
investing activities (19,720 ) (124,234 ) Cash flows from financing
activities: Borrowings 34,750 173,250 Debt principal payments
(95,750 ) (91,250 ) Dividends paid (10,943 ) (10,901 ) Proceeds
from exercise of stock options and other 1,004
695 Net cash provided by (used in)
financing activities (70,939 ) 71,794 Effect of exchange rate
changes on cash (2,050 ) 1,268
Increase (decrease) in cash and cash equivalents 285 2,339
Cash and cash equivalents at beginning of period
36,491 29,511 Cash and cash
equivalents at end of period $ 36,776
$ 31,850
Notes to the Financial Tables
(Unaudited)
(a)
Tredegar’s presentation of net income and
earnings per share from ongoing operations are non-GAAP financial
measures that exclude the effects of gains or losses associated
with plant shutdowns, asset impairments and restructurings, gains
or losses from the sale of assets, goodwill impairment charges and
other items (which includes unrealized gains and losses for an
investment accounted for under the fair value method), which have
been presented separately and removed from net income and diluted
earnings per share as reported under GAAP. Net income and earnings
per share from ongoing operations are key financial and analytical
measures used by management to gauge the operating performance of
Tredegar’s ongoing operations. They are not intended to represent
the stand-alone results for Tredegar’s ongoing operations under
GAAP and should not be considered as an alternative to net income
or earnings per share from continuing operations as defined by
GAAP. They exclude items that management believes do not relate to
Tredegar’s ongoing operations. A reconciliation to net income from
ongoing operations for the three and nine months ended September
30, 2018 and 2017 is shown below:
(in
millions, except per share data)
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
2018 2017
2018 2017 Net income (loss) as reported under GAAP $
(34.2 ) $ 8.3 $ (1.3 ) $ 56.2 After-tax
effects of: Losses associated with plant shutdowns, asset
impairments and restructurings 2.0 0.3 2.6 0.9 (Gains) losses from
sale of assets and other: Unrealized (gain) loss associated with
the investment in kaléo 1.6 — (9.3 ) (18.2 ) Gain associated with
the settlement of an escrow agreement — — — (11.9 ) Income tax
benefit associated with the write-off of the stock basis of a
certain U.S. subsidiary — — — (8.1 ) Other 1.0 0.8 — 2.9 4.7
Goodwill impairment charge 38.2
— 38.2 —
Net income from ongoing operations $ 8.6
$ 9.4 $ 33.1
$ 23.6 Earnings (loss) per share as
reported under GAAP (diluted) $ (1.03 ) $ 0.25 $ (0.04 ) $ 1.70
After-tax effects per diluted share of: Losses associated with
plant shutdowns, asset impairments and restructurings 0.06 0.01
0.08 0.03 (Gains) losses from sale of assets and other: Unrealized
(gain) loss associated with the investment in kaléo 0.05 — (0.28 )
(0.55 ) Gain associated with the settlement of an escrow agreement
— — — (0.36 ) Income tax benefit associated with the write-off of
the stock basis of a certain U.S. subsidiary — — — (0.25 ) Other
0.03 0.02 0.09 0.15 Goodwill impairment charge
1.15 — 1.15
— Earnings per share from ongoing operations
(diluted) $ 0.26 $ 0.28
$ 1.00 $ 0.72
Reconciliations of the pre-tax and
post-tax balances attributed to net income are shown in Note
(g).
(b)
Losses associated with plant shutdowns,
asset impairments, restructurings and other items for continuing
operations in the first nine months of 2018 and 2017 detailed below
are shown in the statements of net sales and operating profit by
segment and are included in “Asset impairments and costs associated
with exit and disposal activities, net of adjustments” in the
condensed consolidated statements of income, unless otherwise
noted.
Plant shutdowns, asset impairments,
restructurings and other items in the third quarter of 2018
include:
- Pretax charges of $1.7 million
associated with the shutdown of PE Films’ manufacturing facility in
Shanghai, China, which consists of severance and other
employee-related costs of $1.3 million ($0.2 million included in
“Cost of goods sold” in the condensed consolidated statements of
income), and accelerated depreciation of $0.4 million (included in
“Cost of goods sold” in the condensed consolidated statements of
income);
- Pretax charges of $0.4 million for
professional fees associated with the Terphane Limitada worthless
stock deduction and a market study for PE Films (included in
“Selling, R&D and general expenses” in the condensed
consolidated statements of income);
- Pretax charges of $0.2 million for
severance and other employee-related costs associated with
restructurings in PE Films;
- Pretax charges of $0.2 million related
to estimated excess costs associated with the ramp-up of new
product offerings and additional expenses related to strategic
capacity expansion projects by PE Films (included in “Cost of goods
sold” in the condensed consolidated statements of income);
- Pretax charges of $0.2 million related
to expected future environmental costs at the aluminum extrusions
manufacturing facility in Carthage, Tennessee (included in “Cost of
goods sold” in the condensed consolidated statements of income);
and
- Pretax charges of $0.1 million related
to wind damage that occurred in the third quarter of 2018 at the
aluminum extrusions manufacturing facility in Elkhart, Indiana
(included in “Selling, R&D and general expenses” in the
condensed consolidated statements of income).
Plant shutdowns, asset impairments,
restructurings and other items in the first nine months of 2018
include:
- Pretax charges of $2.4 million
associated with the shutdown of PE Films’ manufacturing facility in
Shanghai, China, which consists of severance and other
employee-related costs of $1.7 million, accelerated depreciation of
$0.5 million (included in “Cost of goods sold” in the condensed
consolidated statements of income) and other facility
consolidation-related expenses of $0.2 million;
- Pretax charges of $1.7 million related
to estimated excess costs associated with the ramp-up of new
product offerings and additional expenses related to strategic
capacity expansion projects by PE Films (included in “Cost of goods
sold” in the condensed consolidated statements of income);
- Pretax charges of $0.7 million for
professional fees associated with the Terphane Limitada worthless
stock deduction, the impairment of assets of Flexible Packaging
Films, determining the effect of the new U.S. federal income tax
law, and a market study for PE Films (included in “Selling, R&D
and general expenses” in the condensed consolidated statements of
income);
- Pretax charges of $0.3 million for
severance and other employee-related costs associated with
restructurings in PE Films;
- Pretax charges of $0.2 million related
to expected future environmental costs at the aluminum extrusions
manufacturing facility in Carthage, Tennessee (included in “Cost of
goods sold” in the condensed consolidated statements of income);
and
- Pretax charges of $0.1 million related
to wind damage that occurred in the third quarter of 2018 at the
aluminum extrusions manufacturing facility in Elkhart, Indiana
(included in “Selling, R&D and general expenses” in the
condensed consolidated statements of income).
Plant shutdowns, asset impairments,
restructurings and other items in the third quarter of 2017
include:
- Pretax charges of $0.7 million related
to estimated excess costs associated with the ramp-up of new
product offerings and additional expenses related to strategic
capacity expansion projects by PE Films of $0.6 million and by
Bonnell of $0.1 million (included in “Cost of goods sold” in the
condensed consolidated statements of income);
- Pretax charges of $0.2 million
associated with a business development project (included in
“Selling, R&D and general expenses” in the condensed
consolidated statements of income);
- Pretax charges of $0.2 million
associated with the consolidation of domestic PE Films’
manufacturing facilities (included in “Cost of goods sold” in the
condensed consolidated statements of income);
- Pretax charges of $0.2 million
associated with the settlement of customer claims and other costs
related to the previously shutdown aluminum extrusions
manufacturing facility in Kentland, Indiana; and
- Pretax charges of $0.1 million for
severance and other employee-related costs associated with
restructurings in PE Films.
Plant shutdowns, asset impairments,
restructurings and other items in the first nine months of 2017
include:
- Pretax income of $11.9 million related
to the settlement of an escrow arrangement established upon the
acquisition of Terphane in 2011 (included in “Other income
(expense), net” in the condensed consolidated statements of
income). In settling the escrow arrangement, the Company assumed
the risk of the claims (and associated legal fees) against which
the escrow previously secured the Company. While the ultimate
amount of such claims is unknown, the Company believes that it is
reasonably possible that it could be liable for some portion of
these claims, and currently estimates the amount of such future
claims at approximately $1.0 million;
- Pretax charges of $3.3 million related
to the acquisition of Futura, i) associated with accounting
adjustments of $1.7 million made to the value of inventory sold by
Aluminum Extrusions after its acquisition of Futura (included in
“Cost of goods sold” in the condensed consolidated statements of
income), ii) acquisition costs of $1.5 million and, iii)
integration costs of $0.1 million (included in “Selling, R&D
and general expenses” in the condensed consolidated statements of
income), offset by pretax income of $0.7 million related to the
fair valuation of an earnout provision (included in “Other income
(expense), net” in the condensed consolidated statements of
income);
- Pretax charges of $3.5 million related
to estimated excess costs associated with the ramp-up of new
product offerings and additional expenses related to strategic
capacity expansion projects by PE Films of $3.0 million and by
Aluminum Extrusions of $0.5 million (included in “Cost of goods
sold” in the condensed consolidated statements of income);
- Pretax income of $0.5 million related
to the explosion that occurred in the second quarter of 2016 at the
aluminum extrusions manufacturing facility in Newnan, Georgia,
which includes the expected recovery of excess production costs of
$0.6 million incurred in 2016 for which recovery from insurance
carriers was not previously considered to be reasonably assured
(included in “Cost of goods sold” in the condensed consolidated
statements of income), partially offset by legal and consulting
fees of $0.1 million (included in “Selling, R&D and general
expenses” in the condensed consolidated statements of income);
- Pretax charges of $0.8 million
associated with the consolidation of domestic PE Films’
manufacturing facilities, which consists of asset impairments of
$0.1 million, accelerated depreciation of $0.2 million (included in
“Cost of goods sold” in the condensed consolidated statements of
income) and other facility consolidation-related expenses of $0.5
million (included in “Cost of goods sold” in the condensed
consolidated statements of income), offset by pretax income of $0.1
million related to a reduction of severance and other
employee-related accrued costs;
- Pretax charges of $0.4 million related
to expected future environmental costs at the aluminum extrusions
manufacturing facility in Carthage, Tennessee (included in “Cost of
goods sold” in the condensed consolidated statements of
income);
- Pretax charges of $1.1 million
associated with a business development project (included in
“Selling, R&D and general expenses” in the condensed
consolidated statements of income);
- Pretax charges of $0.4 million for
severance and other employee-related costs associated with
restructurings in PE Films ($0.1 million) and Corporate ($0.3
million) (included in “Corporate expenses, net” in the net sales
and operating profit by segment table); and
- Pretax charges of $0.2 million
associated with the settlement of customer claims and other costs
related to the previously shutdown aluminum extrusions
manufacturing facility in Kentland, Indiana.
(c) An unrealized loss on the Company’s investment in
kaléo of $2.1 million was recognized in the third quarter of 2018
and an unrealized gain of $11.9 million was recognized in the first
nine months of 2018, compared to an unrealized gain of $24.8
million in the first nine months of 2017 (included in “Other income
(expense), net” in the condensed consolidated statements of
income). There was no change in the estimated fair value from June
30, 2017 to September 30, 2017, as appreciation in value from the
discount rate for one quarter was offset by a change in the present
value of projected cash flows versus prior projections. An
unrealized loss on the Company’s investment in the Harbinger
Capital Partners Special Situations Fund, L.P. of $0.2 million and
$0.3 million was recognized in the third quarter and first nine
months of 2018, respectively (included in “Other income (expense),
net” in the condensed consolidated statements of income) (none in
2017). (d) The Company recorded an unrealized loss on its
investment property in Alleghany and Bath Counties, Virginia
(included in “Other income (expense), net” in the condensed
consolidated statements of income) of $0.2 million in the third
quarter of 2018. (e) During the third quarter of 2018, the
Company performed a goodwill impairment analysis related to the
Personal Care component of PE Films. This review was undertaken as
a result of the loss of business from a key customer and revised
projections for PE Films. Based on an evaluation of projections
under various business planning scenarios, the Company concluded
that the value of the Personal Care component of PE Films was less
than the carrying value of the underlying working capital and
long-lived net assets. The assessment resulted in a full write-off
of the goodwill of $47 million associated with the acquisition of
certain components of PE Films. (f) Net debt is calculated
as follows:
(in millions) September 30,
December 31, 2018
2017 Debt $ 91.0 $ 152.0 Less: Cash and cash
equivalents 36.8
36.5 Net debt $ 54.2
$ 115.5
Net debt is not intended to represent total
debt as defined by GAAP. Net debt is utilized by management in
evaluating the Company’s financial leverage and equity valuation,
and management believes that investors also may find net debt to be
helpful for the same purposes.
(g) Tredegar’s presentation of net income and
earnings per share from ongoing operations are non-GAAP financial
measures that exclude the effects of gains or losses associated
with plant shutdowns, asset impairments and restructurings, gains
or losses from the sale of assets, goodwill impairment charges and
other items (which includes unrealized gains and losses for an
investment accounted for under the fair value method), which have
been presented separately and removed from net income and diluted
earnings per share as reported under GAAP. Net income and earnings
per share from ongoing operations are key financial and analytical
measures used by management to gauge the operating performance of
Tredegar’s ongoing operations. They are not intended to represent
the stand-alone results for Tredegar’s ongoing operations under
GAAP and should not be considered as an alternative to net income
or earnings per share as defined by GAAP. They exclude items that
we believe do not relate to Tredegar’s ongoing operations. A
reconciliation of the pre-tax and post-tax balances attributed to
net income from ongoing operations for the three and nine months
ended September 30, 2018 and 2017 are shown below in order to show
the impact on the effective tax rate:
(In Millions) Pre-tax
Taxes Expense(Benefit)
After-Tax
EffectiveTax Rate
Three Months Ended September 30, 2018
(a) (b) (b)/(a) Net income
(loss) reported under GAAP $ (40.9 )
$ (6.7 ) $ (34.2 ) 16.4% Losses associated
with plant shutdowns, asset impairments and restructurings 2.1 0.1
2.0 (Gains) losses from sale of assets and other 3.2 0.6 2.6
Goodwill impairment charge 46.8
8.6 38.2 Net income from
ongoing operations $ 11.2
$ 2.6 $ 8.6 22.9%
Three Months Ended September 30, 2017
Net income
reported under GAAP $ 12.7
$ 4.4 $ 8.3 34.8% Losses
associated with plant shutdowns, asset impairments and
restructurings 0.5 0.2 0.3 (Gains) losses from sale of assets and
other 1.0 0.2
0.8 Net income from ongoing operations
$ 14.2 $ 4.8
$ 9.4 34.0%
Nine Months Ended
September 30, 2018
Net income
reported under GAAP $ 1.8
$ 3.1 $ (1.3 ) 172.1% Losses associated with
plant shutdowns, asset impairments and restructurings 2.8 0.2 2.6
(Gains) losses from sale of assets and other (8.7 ) (2.3 ) (6.4 )
Goodwill impairment charge 46.8
8.6 38.2 Net income from
ongoing operations $ 42.7
$ 9.6 $ 33.1 22.4%
Nine Months Ended September 30, 2017
Net income reported under GAAP $ 65.8
$ 9.6 $ 56.2 14.7%
Losses associated with plant shutdowns, asset impairments and
restructurings 1.4 0.5 0.9 (Gains) losses from sale of assets and
other (29.6 ) 3.9 (33.5 ) Goodwill impairment charge
— — —
Net income from ongoing operations $
37.6 $ 14.0 $ 23.6
37.2%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181108006075/en/
Tredegar CorporationNeill Bellamy, 804-330-1211neill.bellamy@tredegar.com
Tredegar (NYSE:TG)
Historical Stock Chart
From Mar 2024 to Apr 2024
Tredegar (NYSE:TG)
Historical Stock Chart
From Apr 2023 to Apr 2024