Tredegar Corporation (NYSE:TG, also the “Company” or “Tredegar”)
today reported fourth quarter and full year financial results for
the period ended December 31, 2019.
Fourth quarter 2019 net loss was $3.1 million ($0.09 per share)
compared with net income of $26.2 million ($0.79 per share) in the
fourth quarter of 2018. Net income from ongoing operations, which
excludes special items, was $7.2 million ($0.22 per share) in the
fourth quarter of 2019 and $14.2 million ($0.43 per share) in the
fourth quarter of 2018. Full year 2019 net income was $48.3 million
($1.45 per share) compared with net income of $24.8 million ($0.75
per share) in 2018. Net income from ongoing operations, which
excludes special items, was $37.6 million ($1.13 per share) in 2019
and $47.3 million ($1.43 per share) in 2018. A reconciliation of
net income (loss), a financial measure calculated in accordance
with U.S. generally accepted accounting principles (“GAAP”), to net
income from ongoing operations, a non-GAAP financial measure, for
the three and twelve months ended December 31, 2019 and 2018, is
provided in Note (a) of the Notes to the Financial Tables in this
press release.
Fourth Quarter Financial Results Highlights
- Earnings before interest, taxes, depreciation and amortization
(“EBITDA”) from ongoing operations for Aluminum Extrusions of $14.5
million was $3.4 million lower than the fourth quarter of 2018
- EBITDA from ongoing operations for PE Films of $9.5 million was
$3.5 million lower than the fourth quarter of 2018
- EBITDA from ongoing operations for Flexible Packaging Films of
$4.3 million was $0.7 million higher than the fourth quarter of
2018
John Steitz, Tredegar’s president and chief executive officer,
said, “Bonnell Aluminum’s full year operating results in 2019 beat
2018 despite softness in its markets. Delivering value to customers
and managing operations and costs to levels consistent with sales
continue to be priorities. Our Surface Protection component of PE
Films achieved record profit in 2019 with the continued delay of a
possible customer product transition, obtaining new business and
cost improvements.”
Mr. Steitz continued, “Our Personal Care component of PE Films
in 2019 mostly mitigated the adverse impact of missed sales and
margin goals with cost reduction efforts. The Personal Care team
continues to be focused on business development activities. In this
regard, they recently completed a contract extension with a key
customer for sales through at least 2022 that we previously thought
might be lost in 2020. Terphane’s turnaround, which began in 2018,
continued into 2019. We look forward to further improvements at
Terphane.”
Mr. Steitz further stated, “Tredegar’s overall cash generation
in 2019 was truly exceptional with debt net of cash declining by
$57 million.”
OPERATIONS REVIEW
Aluminum Extrusions
Aluminum Extrusions, which is also referred to as Bonnell
Aluminum, produces high-quality, soft-alloy and medium-strength
aluminum extrusions primarily for the following markets: building
and construction, automotive, and specialty (which consists of
consumer durables, machinery and equipment, electrical and
distribution end-use products). A summary of fourth quarter and
full year results for Aluminum Extrusions is provided below:
Three Months Ended
Favorable/
Year Ended
Favorable/
December 31,
(Unfavorable)
December 31,
(Unfavorable)
(In thousands, except percentages)
2019
2018
% Change
2019
2018
% Change
Sales volume (lbs)
50,102
60,674
(17.4)%
208,249
223,866
(7.0)%
Net sales
$
124,292
$
152,672
(18.6)%
$
529,602
$
573,126
(7.6)%
Ongoing operations:
EBITDA
$
14,452
$
17,830
(18.9)%
$
65,683
$
65,479
0.3%
Depreciation & amortization*
(4,238
)
(4,303
)
1.5%
(16,719
)
(16,866
)
0.9%
EBIT**
$
10,214
$
13,527
(24.5)%
$
48,964
$
48,613
0.7%
Capital expenditures
$
6,010
$
4,069
$
17,855
$
12,966
*Excludes pre-tax accelerated
amortization of trade names of $7.5 million and $10.0 million in
the three months and year ended December 31, 2019, respectively.
See Note (f) of the Notes to the Financial Tables.
**See the net sales and EBITDA
from ongoing operations by segment statements for a reconciliation
of this non-GAAP measure to GAAP.
Fourth Quarter 2019 Results vs. Fourth
Quarter 2018 Results
Net sales (sales less freight) in the fourth quarter of 2019
decreased versus 2018 primarily due to lower sales volume and the
passthrough of lower metal costs, partially offset by an increase
in average selling prices to cover higher operating costs. Sales
volume in the fourth quarter of 2019 decreased by 17.4% versus
2018. Sales volume in the fourth quarter of 2018 was unusually
strong with an increase of 20% over the fourth quarter of 2017.
Sales volume in the fourth quarter of 2019 was down 1% versus the
fourth quarter of 2017. Lower bookings and backlog information for
Bonnell Aluminum and industry data continues to indicate softness
across all key end-use markets.
EBITDA from ongoing operations in the fourth quarter of 2019
decreased by $3.4 million in comparison to the fourth quarter of
2018 due to:
- Lower volumes ($5.7 million) and higher labor and
employee-related expenses ($0.9 million), partially offset by
higher pricing ($3.5 million) and lower die and other operating
expenses ($1.2 million); and
- A charge for inventories accounted for under the last in, first
out (“LIFO”) method ($0.5 million) in the fourth quarter of 2019
versus a benefit in the fourth quarter of 2018 ($1.0 million).
In October 2019, Bonnell Aluminum announced that it would
implement a selling price increase of $0.035 per pound and an
additional 5% on fabrication and finishing services effective on
shipments beginning January 6, 2020, or as permissible by contract.
The Company estimates that approximately 20% - 25% of Bonnell
Aluminum’s net sales relate to applicable value-added fabrication
and finishing services. The price increase is in addition to
selling price changes that normally occur from the passthrough to
customers of aluminum raw material cost-related volatility. The
price increase is expected to offset continuous cost pressures in
the current tight market for skilled labor and in other areas.
Full Year 2019 Results vs. Full Year 2018
Results
Net sales in 2019 decreased versus 2018 primarily due to lower
sales volume and the passthrough of lower metal costs, partially
offset by an increase in average selling prices to cover higher
operating costs.
EBITDA from ongoing operations in 2019 increased slightly in
comparison to 2018. Excluding the adverse impact of the accounting
for inventories under the LIFO method in the fourth quarter of 2019
versus 2018 ($1.5 million as noted above), EBITDA from ongoing
operations increased $1.7 million despite a 7% decline in sales
volume. The increase was primarily due to higher pricing ($22.8
million) and fabrication profits ($1.0 million), partially offset
by lower sales volume ($8.7 million), increased labor and
employee-related expenses ($7.4 million), higher supplies,
maintenance, utilities and other operating costs ($2.0 million),
increased freight costs ($2.0 million) and increased general and
administrative expenses ($1.9 million).
Projected Capital Expenditures and
Depreciation & Amortization
Capital expenditures for Bonnell Aluminum are projected to be
$23 million in 2020, including the expected initial investment for
a multi-year project to migrate to a new division-wide enterprise
resource planning and manufacturing excellence system ($6 million),
infrastructure upgrades at the Carthage, Tennessee and Newnan,
Georgia facilities ($4 million), and approximately $12 million
required to support continuity of current operations. Depreciation
expense is projected to be $14 million in 2020. Amortization
expense is projected to be $3 million in 2020.
PE Films
PE Films is composed of surface protection films, personal care
materials, polyethylene overwrap films and films for other markets.
A summary of fourth quarter and full year operating results from
ongoing operations for PE Films is provided below:
Three Months Ended
Favorable/
Year Ended
Favorable/
(In thousands, except percentages)
December 31,
(Unfavorable)
December 31,
(Unfavorable)
2019
2018
% Change
2019
2018
% Change
Sales volume (lbs)
26,765
29,064
(7.9
)%
104,497
123,583
(15.4
)%
Net sales
$
66,980
$
80,311
(16.6
)%
$
272,758
$
332,488
(18.0
)%
Ongoing operations:
EBITDA
$
9,456
$
12,976
(27.1
)%
$
37,803
$
51,058
(26.0
)%
Depreciation & amortization
(3,885
)
(3,652
)
(6.4
)%
(14,627
)
(14,877
)
1.7
%
EBIT*
$
5,571
$
9,324
(40.3
)%
$
23,176
$
36,181
(35.9
)%
Capital expenditures
$
4,424
$
8,457
$
23,920
$
21,998
* See the net sales and EBITDA from
ongoing operations by segment statements for a reconciliation of
this non-GAAP measure to GAAP.
Fourth Quarter 2019 Results vs. Fourth
Quarter 2018 Results
Net sales in the fourth quarter of 2019 decreased by $13.3
million versus 2018 due to lower sales in Personal Care. Surface
Protection sales increased $1.5 million while Personal Care sales
decreased $14.3 million.
Net sales in Surface Protection increased in the fourth quarter
of 2019 versus the fourth quarter of 2018 due to higher volume and
favorable mix, partially offset by a one-time benefit in 2018 from
replacement sales associated with prior quality claims. As
discussed further below, a possible customer product transition in
Surface Protection continues to be delayed. Net sales decreased in
Personal Care as a result of lower volume in most product
categories from competitive pressures ($8.0 million), including a
large portion associated with the previously disclosed customer
product transition discussed below. In addition, net sales were
adversely impacted by unfavorable product mix and pricing and the
decline in the value of currencies for operations outside of the
U.S. relative to the U.S. Dollar.
EBITDA from ongoing operations in the fourth quarter of 2019
decreased by $3.5 million versus the fourth quarter of 2018
primarily due to:
- A $0.3 million increase from Surface Protection, primarily due
to higher volume and mix (net favorable impact of $3.3 million) and
favorable resin prices ($0.9 million), partially offset by a
one-time benefit in the fourth quarter of 2018 from replacement
sales associated with prior quality claims ($2.5 million), higher
manufacturing costs ($0.5 million) and higher selling, general and
administrative costs ($0.5 million); and
- A $3.5 million decrease from Personal Care, primarily due to
lower volume ($2.9 million), and unfavorable mix and pricing ($1.8
million), partially offset by lower fixed manufacturing costs ($1.3
million).
Customer Product Transitions in Personal Care and Surface
Protection
The Company previously disclosed a significant customer product
transition for the Personal Care component of PE Films. Annual
sales for this product declined from approximately $70 million in
2018 to $30 million in 2019. The Company recently extended an
arrangement with this customer that is expected to generate sales
of this product at approximately 2019 levels through at least
2022.
Personal Care had approximately break-even EBITDA from ongoing
operations in 2019 as competitive pressures resulted in missed
sales and margin goals. Personal Care continues to focus on new
business development and cost reduction initiatives in an effort to
improve profitability.
The Surface Protection component of PE Films supports
manufacturers of optical and other specialty substrates used in
flat panel display products. These films are primarily used by
customers to protect components of displays in the manufacturing
and transportation processes and then discarded.
The Company previously reported the risk that a portion of its
film products used in surface protection applications will be made
obsolete by possible future customer product transitions to less
costly alternative processes or materials. These transitions
principally relate to one customer. The full transition continues
to encounter delays, resulting in higher than expected sales to
this customer in 2019. The Company estimates that during 2020 the
adverse impact on EBITDA from ongoing operations from this customer
shift versus 2019 could possibly be $14 million. To offset the
potential adverse impact, the Company is aggressively pursuing and
making progress generating sales from new surface protection
products, applications and customers.
Full Year 2019 Results vs. Full Year 2018
Results
Net sales in 2019 decreased by $59.7 million versus 2018 due to
lower sales in Personal Care of $65 million. The decline in net
sales in Personal Care was primarily due to lower volume in most
product categories from competitive pressures ($48 million),
including a large portion associated with the customer product
transition discussed above. In addition, net sales in Personal Care
were adversely impacted by pricing, mix and the decline in the
value of currencies for operations outside of the U.S. relative to
the U.S. Dollar.
EBITDA from ongoing operations in 2019 decreased by $13.3
million versus 2018 primarily due to:
- A $6.8 million increase from Surface Protection, primarily due
to higher selling prices ($6.0 million), quality claims in 2018
that did not recur in 2019 ($1.2 million), production efficiencies
($1.4 million), and favorable raw material costs ($1.9 million),
partially offset by unfavorable mix (net impact of $2.0 million)
and higher fixed manufacturing and general and administrative costs
($1.5 million); and
- A $19.6 million decrease from Personal Care, primarily due to
lower volume and unfavorable mix ($19.3 million), unfavorable
pricing ($4.8 million), and production inefficiencies ($3.8
million), partially offset by the timing in the passthrough of
changes in resin prices ($2.1 million), lower fixed manufacturing
($4.4 million) and selling, general and administrative costs ($1.8
million).
Projected Capital Expenditures and
Depreciation & Amortization
Capital expenditures for PE Films are projected to be $16
million in 2020 including: $1.5 million to complete a scale-up line
in Surface Protection to improve development and speed to market
for new products; $6 million for other development projects; and $8
million for capital expenditures required to support continuity of
current operations. Depreciation expense is projected to be $15
million in 2020. There is no amortization expense for PE Films.
Flexible Packaging Films
Flexible Packaging Films, which is also referred to as Terphane,
produces polyester-based films for use in packaging applications
that have specialized properties, such as heat resistance,
strength, barrier protection and the ability to accept high-quality
print graphics. A summary of fourth quarter and full year operating
results from ongoing operations for Flexible Packaging Films is
provided below:
Three Months Ended
Favorable/
(Unfavorable)
% Change
Year Ended
Favorable/
(Unfavorable)
% Change
(In thousands, except percentages)
December 31,
December 31,
2019
2018
2019
2018
Sales volume (lbs)
25,435
24,718
2.9
%
105,276
98,994
6.3
%
Net sales
$
31,985
$
33,364
(4.1
)%
$
133,935
$
123,830
8.2
%
Ongoing operations:
EBITDA
$
4,260
$
3,608
18.1
%
$
14,737
$
11,154
32.1
%
Depreciation & amortization
(416
)
(334
)
(24.6
)%
(1,517
)
(1,262
)
(20.2
)%
EBIT*
$
3,844
$
3,274
17.4
%
$
13,220
$
9,892
33.6
%
Capital expenditures
$
3,174
$
3,109
$
8,866
$
5,423
* See the net sales and EBITDA from
ongoing operations by segment statements for a reconciliation of
this non-GAAP measure to GAAP.
Fourth Quarter 2019 Results vs. Fourth
Quarter 2018 Results
Net sales in the fourth quarter of 2019 decreased 4.1% versus
the fourth quarter of 2018 primarily due to lower selling
prices.
Terphane’s EBITDA from ongoing operations in the fourth quarter
of 2019 increased by $0.7 million versus the fourth quarter of 2018
primarily due to:
- Higher volume ($0.3 million) and lower fixed and variable costs
($0.2 million), offset by lower selling prices ($0.1 million);
- Net favorable foreign currency translation of Real-denominated
operating costs ($0.1 million); and
- Foreign currency transaction gains of $0.2 million in 2019
versus losses of $0.4 million in 2018.
Full Year 2019 Results vs. Full Year 2018
Results
Net sales in 2019 increased versus 2018 primarily due to higher
sales volume and increased selling prices.
Terphane’s EBITDA from ongoing operations in 2019 increased by
$3.6 million versus 2018 due to:
- Higher volume ($2.6 million) and higher selling prices ($1.6
million), partially offset by higher fixed and variable costs,
including costs related to a restarted line ($2.0 million);
- Net favorable foreign currency translation of Real-denominated
operating costs of $0.4 million; and
- Foreign currency transaction gains of $1.0 million in 2019
versus losses of $0.8 million in 2018.
Projected Capital Expenditures and
Depreciation & Amortization
Capital expenditures for Terphane are projected to be $8 million
in 2020, including $6 million for new capacity for value-added
products and productivity projects and $1 million for capital
expenditures required to support continuity of current operations.
Depreciation expense is projected to be $2 million in 2020.
Amortization expense is projected to be $0.4 million in 2020.
Corporate Expenses, Investments, Interest and Taxes
Pension expense was $9.6 million in 2019, a favorable change of
$0.8 million from 2018. The impact on earnings from pension expense
is reflected in “Corporate expenses, net” in the net sales and
EBITDA from ongoing operations by segment statements. Pension
expense is projected to be $14.2 million in 2020. Corporate
expenses, net, increased in 2019 versus 2018 primarily due to
higher stock-based employee compensation ($1.7 million), and
consulting fees ($4.1 million) related to the identification and
remediation of previously disclosed material weaknesses in the
Company’s internal control over financial reporting, business
development activities, and implementation of new accounting
guidance.
Interest expense was $4.1 million in 2019 in comparison to $5.7
million in 2018, primarily due to lower average debt levels.
During 2019, the Company recognized consolidated income tax
expense of $9.9 million based on pretax income of $58.2
million. During 2018, the Company recognized consolidated
income tax expense of $11.5 million based on pretax income of $36.4
million. 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 22.0% in 2019
and 22.8% in 2018 (see also Note (h) of the Notes to Financial
Tables). An explanation of differences between the effective tax
rate for income from continuing operations and the U.S. federal
statutory rate for 2019 and 2018 will be provided in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2019
(“2019 Form 10-K”).
Tredegar’s approximately 18% ownership in kaleo, Inc. (“kaléo”),
which is accounted for under the fair value method, was estimated
at a value of $95.5 million at December 31, 2019 (unchanged from
September 30, 2019), versus a fair value estimate of $84.6 million
at December 31, 2018. In addition, the Company received a cash
dividend from kaléo of $17.6 million on April 30, 2019. Dividend
income recognized on kaléo and changes in the estimated fair value
of the Company’s investment in kaléo, which are included in net
income (loss) under GAAP, have consistently been excluded from net
income from ongoing operations as shown in the reconciliation table
in Note (a) of the Notes to the Financial Tables in this press
release. Kaléo’s stock is not publicly traded. The ultimate value
of Tredegar’s ownership interest in kaléo could be materially
different from the $95.5 million estimated fair value reflected in
the Company’s financial statements at December 31, 2019.
CAPITAL STRUCTURE
Total debt was $42.0 million at December 31, 2019, compared to
$101.5 million at December 31, 2018. Net debt (debt in excess of
cash and cash equivalents) was $10.6 million at December 31, 2019,
compared to $67.1 million at December 31, 2018. Net debt is a
financial measure that is not calculated or presented in accordance
with GAAP. See the Notes to the Financial Tables 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;
- inability to develop, efficiently manufacture and deliver new
products at competitive prices;
- failure of our customers to achieve success or maintain market
share;
- failure to protect our intellectual property rights;
- risks of doing business in countries outside the U.S. that
affect our substantial international operations;
- political, economic, and regulatory factors concerning our
products;
- uncertain economic conditions in countries in which we do
business;
- competition from other manufacturers, including manufacturers
in lower-cost countries and manufacturers benefiting from
government subsidies;
- impact of fluctuations in foreign exchange rates;
- a change in the amount of our underfunded defined benefit
(pension) plan liability;
- an increase in the operating costs incurred by our operating
companies, including, for example, the cost of raw materials and
energy;
- inability to successfully identify, complete or integrate
strategic acquisitions; failure to realize the expected benefits of
such acquisitions and assumption of unanticipated risks in such
acquisitions;
- disruption to our manufacturing facilities;
- the impact of public health epidemics on our employees, our
production and the global economy, such as the coronavirus
currently impacting a number of countries;
- an information technology system failure or breach;
- volatility and uncertainty of the valuation of our investment
in kaléo;
- the impact of the imposition of tariffs and sanctions on
imported aluminum ingot used in our aluminum extrusions;
- the impact of new tariffs or duties imposed as a result of
rising trade tensions between the U.S. and other countries;
- failure to establish and maintain effective internal control
over financial reporting;
- the termination of anti-dumping duties on products imported to
Brazil that compete with products produced by Flexible Packaging
Films;
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 “Risk Factors” Part I, Item 1A of
the 2019 Form 10-K, filed with the SEC. 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 2019 sales of $1.0 billion. With
approximately 3,000 employees, the company operates manufacturing
facilities in North America, South America, Europe, and Asia.
Tredegar Corporation
Condensed Consolidated
Statements of Income
(In Thousands, Except
Per-Share Data)
(Unaudited)
Three Months Ended
Year Ended
December 31,
December 31,
2019
2018
2019
2018
Sales
$
232,427
$
275,707
$
972,358
$
1,065,471
Other income (expense), net (c) (e)
(45
)
18,927
34,795
30,459
232,382
294,634
1,007,153
1,095,930
Cost of goods sold (c)
182,711
218,521
767,511
849,756
Freight
9,170
9,360
36,063
36,027
Selling, R&D and general expenses
(c)
30,105
26,432
113,988
103,990
Amortization of identifiable intangibles
(f)
8,419
900
13,601
3,976
Pension and postretirement benefits
2,396
2,597
9,642
10,406
Interest expense
697
1,163
4,051
5,702
Asset impairments and costs associated
with exit and disposal activities (c)
530
1,113
4,125
2,913
Goodwill impairment charge (d)
—
—
—
46,792
234,028
260,086
948,981
1,059,562
Income (loss) before income taxes
(1,646
)
34,548
58,172
36,368
Income tax expense (benefit) (g)
1,489
8,391
9,913
11,526
Net income (loss)
$
(3,135
)
$
26,157
$
48,259
$
24,842
Earnings (loss) per share:
Basic
$
(0.09
)
$
0.79
$
1.45
$
0.75
Diluted
$
(0.09
)
$
0.79
$
1.45
$
0.75
Shares used to compute earnings (loss) per
share:
Basic
33,278
33,103
33,236
33,068
Diluted
33,278
33,112
33,258
33,092
Tredegar Corporation
Net Sales and EBITDA from
Ongoing Operations by Segment
(In Thousands)
(Unaudited)
Three Months Ended
Year Ended
December 31,
December 31,
2019
2018
2019
2018
Net Sales
Aluminum Extrusions
$
124,292
$
152,672
$
529,602
$
573,126
PE Films
66,980
80,311
272,758
332,488
Flexible Packaging Films
31,985
33,364
133,935
123,830
Total net sales
223,257
266,347
936,295
1,029,444
Add back freight
9,170
9,360
36,063
36,027
Sales as shown in the Condensed
Consolidated Statements of Income
$
232,427
$
275,707
$
972,358
$
1,065,471
Aluminum Extrusions:
Ongoing operations:
EBITDA (b)
$
14,452
$
17,830
$
65,683
$
65,479
Depreciation & amortization
(4,238
)
(4,303
)
(16,719
)
(16,866
)
EBIT (b)
10,214
13,527
48,964
48,613
Plant shutdowns, asset impairments,
restructurings and other (c)
106
(109
)
(561
)
(505
)
Trade name accelerated amortization
(f)
(7,530
)
—
(10,040
)
—
PE Films:
Ongoing operations:
EBITDA (b)
9,456
12,976
37,803
51,058
Depreciation & amortization
(3,885
)
(3,652
)
(14,627
)
(14,877
)
EBIT (b)
5,571
9,324
23,176
36,181
Plant shutdowns, asset impairments,
restructurings and other (c)
(1,408
)
(1,363
)
(475
)
(5,905
)
Goodwill impairment charge (d)
—
—
—
(46,792
)
Flexible Packaging Films:
Ongoing operations:
EBITDA (b)
4,260
3,608
14,737
11,154
Depreciation & amortization
(416
)
(334
)
(1,517
)
(1,262
)
EBIT (b)
3,844
3,274
13,220
9,892
Plant shutdowns, asset impairments,
restructurings and other (c)
—
(45
)
—
(45
)
10,797
24,608
74,284
41,439
Interest income
133
79
296
369
Interest expense
697
1,163
4,051
5,702
Gain on investment in kaléo accounted for
under fair value method (e)
—
18,700
28,482
30,600
Loss on sale of investment property
—
(38
)
—
(38
)
Unrealized loss on investment property
—
—
—
(186
)
Stock option-based compensation costs
(c)
2,088
415
4,209
1,221
Corporate expenses, net (c)
9,791
7,223
36,630
28,893
Income (loss) before income taxes
(1,646
)
34,548
58,172
36,368
Income tax expense (benefit) (g)
1,489
8,391
9,913
11,526
Net income (loss)
$
(3,135
)
$
26,157
$
48,259
$
24,842
Tredegar Corporation
Condensed Consolidated Balance
Sheets
(In Thousands)
(Unaudited)
December 31, 2019
December 31, 2018
Assets
Cash & cash equivalents
$
31,422
$
34,397
Accounts & other receivables, net
107,558
124,727
Income taxes recoverable
4,100
6,783
Inventories
81,380
93,810
Prepaid expenses & other
8,696
9,564
Total current assets
233,156
269,281
Property, plant & equipment, net
242,890
228,369
Right-of-use leased assets
19,220
—
Investment in kaléo (cost basis of
$7,500)
95,500
84,600
Identifiable intangible assets, net
22,636
36,295
Goodwill
81,404
81,404
Deferred income taxes
13,129
3,412
Other assets
4,733
4,012
Total assets
$
712,668
$
707,373
Liabilities and Shareholders’
Equity
Accounts payable
$
103,657
$
112,758
Accrued expenses
45,809
42,495
Lease liability, short-term
3,002
—
Total current liabilities
152,468
155,253
Lease liability, long-term
17,689
—
Long-term debt
42,000
101,500
Pension and other postretirement benefit
obligations, net
107,446
88,124
Deferred income taxes
11,019
—
Other noncurrent liabilities
5,297
7,639
Shareholders’ equity
376,749
354,857
Total liabilities and shareholders’
equity
$
712,668
$
707,373
Tredegar Corporation
Condensed Consolidated
Statements of Cash Flows
(In Thousands)
(Unaudited)
Year Ended December 31,
2019
2018
Cash flows from operating activities:
Net income
$
48,259
$
24,842
Adjustments for noncash items:
Depreciation
30,683
29,828
Amortization of intangibles
13,601
3,976
Reduction of right-of-use assets
2,588
—
Goodwill impairment charge
—
46,792
Deferred income taxes
5,856
8,626
Accrued pension and postretirement
benefits
9,642
10,406
(Gain) loss on investment in kaléo
accounted for under the fair value method
(10,900
)
(30,600
)
Loss on asset impairments
519
223
(Gain) loss on sale of assets
(6,334
)
(46
)
Changes in assets and liabilities:
Accounts and other receivables
16,471
(11,883
)
Inventories
11,315
(9,577
)
Income taxes recoverable/payable
2,644
25,018
Prepaid expenses and other
795
(1,924
)
Accounts payable and accrued expenses
(2,937
)
5,571
Lease liability
(2,723
)
—
Pension and postretirement benefit plan
contributions
(8,614
)
(8,907
)
Other, net
4,998
5,449
Net cash provided by operating
activities
115,863
97,794
Cash flows from investing activities:
Capital expenditures
(50,864
)
(40,814
)
Return of escrowed funds relating to
acquisition earn-out
—
4,250
Net proceeds from sale of investment
property
—
1,384
Proceeds from the sale of assets and
other
10,936
1,098
Net cash used in investing activities
(39,928
)
(34,082
)
Cash flows from financing activities:
Borrowings
65,500
76,750
Debt principal payments
(125,000
)
(127,250
)
Dividends paid
(15,325
)
(14,592
)
Debt financing costs
(1,817
)
—
Repurchase of employee common stock for
tax withholdings
(854
)
(328
)
Proceeds from exercise of stock options
and other
184
1,332
Net cash used in financing activities
(77,312
)
(64,088
)
Effect of exchange rate changes on
cash
(1,598
)
(1,718
)
Increase (decrease) in cash and cash
equivalents
(2,975
)
(2,094
)
Cash and cash equivalents at beginning of
period
34,397
36,491
Cash and cash equivalents at end of
period
$
31,422
$
34,397
Notes to the Financial
Tables
(Unaudited)
(a)
Tredegar’s presentation of net income from
ongoing operations 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 from ongoing operations and earnings per share from ongoing
operations are key financial and analytical measures used by
management to gauge the operating performance of Tredegar’s ongoing
operations. They are not intended to represent the stand-alone
results for Tredegar’s ongoing operations under GAAP and should not
be considered as an alternative to net income or earnings per share
as defined by GAAP. They exclude items that management believes do
not relate to Tredegar’s ongoing operations. A reconciliation to
net income from ongoing operations and earnings per share from
ongoing operations for the three months and the years ended
December 31, 2019 and 2018 is shown below:
(In millions, except per share data)
Three Months Ended
December 31,
Year Ended
December 31,
2019
2018
2019
2018
Net income (loss) as reported under
GAAP
$
(3.1
)
$
26.2
$
48.3
$
24.8
After-tax effects of:
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
0.9
1.2
(1.3
)
3.8
(Gains) losses from sale of assets and
other:
(Gain) loss associated with the investment
in kaléo
—
(14.7
)
(23.4
)
(23.9
)
Accelerated trade name amortization
5.8
—
7.8
—
Other
3.6
1.5
6.2
4.4
Goodwill impairment charge
—
—
—
38.2
Net income from ongoing operations
$
7.2
$
14.2
$
37.6
$
47.3
Earnings (loss) per share as reported
under GAAP (diluted)
(0.09
)
0.79
1.45
0.75
After-tax effects per diluted share
of:
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
0.03
0.04
(0.04
)
0.12
(Gains) losses from sale of assets and
other:
(Gain) loss associated with the investment
in kaléo
—
(0.44
)
(0.70
)
(0.72
)
Accelerated trade name amortization
0.17
—
0.23
—
Other
0.11
0.04
0.19
0.13
Goodwill impairment charge
—
—
—
1.15
Earnings per share from ongoing operations
(diluted)
0.22
0.43
1.13
1.43
Reconciliations of the pre-tax and
post-tax balances attributed to net income (loss) are shown in Note
(h).
(b)
In the fourth quarter of 2019,
the Company changed its segment measure of profit and loss from
operating profit from ongoing operations to EBITDA (earnings before
interest, taxes, depreciation and amortization) from ongoing
operations. EBITDA from ongoing operations is the key profitability
metric used by the Company’s chief operating decision maker to
assess segment financial performance. For more business segment
information, see Note 5 in the Notes to Financial Statements in the
2019 Form 10-K.
EBIT (earnings before interest
and taxes) from ongoing operations is a non-GAAP financial measure
included in the accompanying tables and the reconciliation of
segment financial information to consolidated results for the
Company in the net sales and EBITDA from ongoing operations by
segment statements. It is not intended to represent the stand-alone
results for Tredegar’s ongoing operations under GAAP and should not
be considered as an alternative to net income as defined by GAAP.
EBIT is a widely understood and utilized metric that is meaningful
to certain investors. We believe that including this financial
metric in the reconciliation of management’s performance metric,
EBITDA from ongoing operations, provides useful information to
those investors that primarily utilize EBIT to analyze the
Company’s core operations.
(c)
Losses associated with plant
shutdowns, asset impairments, restructurings and other items for
continuing operations for the three months and the years ended
December 31, 2019 and 2018 detailed below are shown in the
statements of net sales and EBITDA from ongoing operations by
segment and are included in “Asset impairments and costs associated
with exit and disposal activities, net of adjustments” in the
condensed consolidated statements of income, unless otherwise
noted.
(in millions)
Three Months Ended
December 31, 2019
Year Ended
December 31, 2019
Pre-Tax
Net of Tax
Pre-Tax
Net of Tax
Aluminum Extrusions:
(Gains)/losses from sale of assets,
investment writedowns and other items:
Wind damage to roof of Elkhart, Indiana
plant2
$
(0.4
)
$
(0.3
)
$
(0.1
)
$
(0.1
)
Environmental charges at Carthage
Tennessee plant1
0.2
0.2
0.6
0.5
Total for Aluminum Extrusions
$
(0.2
)
$
(0.1
)
$
0.5
$
0.4
PE Films:
(Gains)/losses associated with plant
shutdowns, asset impairments and restructurings:
Shanghai plant shutdown:4
Asset-related expenses
$
0.1
$
0.1
$
0.7
$
0.7
Gain from sale of plant3
—
—
(6.3
)
(5.9
)
Employee-related expenses
—
—
0.1
0.1
Consolidation of Personal Care
manufacturing facilities - U.S. and Europe:4
Severance
—
—
0.6
0.4
Asset impairment
—
—
0.1
0.1
Product qualifications1
—
—
0.1
0.1
Lake Zurich, Illinois plant shutdown and
transfer of production to new elastics lines in Terre Haute,
Indiana:4
Severance
0.2
0.1
0.9
0.7
Asset impairment
—
—
0.2
0.2
Safety/quality initiative1
0.1
0.1
0.1
0.1
Accelerated depreciation1
0.4
0.3
1.2
0.9
Product qualifications1
0.1
0.1
0.3
0.2
Reserve for inventory impairment -
Personal Care's Hungary facility
—
—
0.2
0.1
Other restructuring costs - severance
0.2
0.2
0.8
0.7
Write-off Personal Care production line -
Guangzhou, China facility
—
—
0.4
0.3
Subtotal for PE Films
1.2
0.9
(0.6
)
(1.3
)
Losses from sale of assets, investment
writedowns and other items:
Estimated excess costs associated with
ramp-up of new product offerings and additional expenses related to
strategic capacity expansion projects1
0.3
0.2
1.0
0.8
Total for PE Films
$
1.4
$
1.1
$
0.4
$
(0.5
)
Corporate:
Professional fees associated with:
internal control over financial reporting; business development
activities; and implementation of new accounting guidance2
$
0.8
$
0.6
$
5.2
$
4.0
Accelerated recognition of stock
option-based compensation5
1.3
1.2
1.3
1.2
Environmental costs not associated with a
business unit2
0.6
0.5
0.6
0.5
Total for Corporate
$
2.7
$
2.3
$
7.1
$
5.7
1. Included in “Cost of goods sold” in the
condensed consolidated statements of income.
2. Included in “Selling, R&D and
general expenses” in the condensed consolidated statements of
income.
3. Included in “Other income (expense),
net” in the condensed consolidated statements of income.
4. Additional information on costs
associated with exit and disposal activities and other details are
available in Note 17 of the 2019 Form 10-K.
5. Included in “Stock option-based
compensation costs” in the net sales and EBITDA from ongoing
operations by segment statements.
Three Months Ended
December 31, 2018
Year Ended
December 31, 2018
(in millions)
Pre-Tax
Net of Tax
Pre-Tax
Net of Tax
Aluminum Extrusions:
Losses associated with plant shutdowns,
asset impairments and restructurings:
Other restructuring costs - severance
$
—
$
—
$
0.1
$
0.1
Losses from sale of assets, investment
writedowns and other items:
Wind damage to roof of Elkhart, Indiana
plant2
—
—
0.1
0.1
Environmental charges at Carthage,
Tennessee facility1
0.1
0.1
0.3
0.2
Subtotal for Aluminum Extrusions
0.1
0.1
0.4
0.3
Total for Aluminum Extrusions
$
0.1
$
0.1
$
0.5
$
0.4
PE Films:
Losses associated with plant shutdowns,
asset impairments and restructurings:
Shanghai plant shutdown:
Asset-related expenses
$
0.3
$
0.3
$
0.3
$
0.3
Severance & employee-related
expenses
0.4
0.4
1.8
1.8
Severance & employee-related expenses
- administrative1
0.1
0.1
0.4
0.4
Accelerated depreciation1
0.1
0.1
0.6
0.6
Other restructuring costs - severance
0.3
0.3
0.7
0.5
Subtotal for PE Films
1.2
1.2
3.8
3.6
Losses from sale of assets, investment
writedowns and other items:
Estimated excess costs associated with
ramp-up of new product offerings and additional expenses related to
strategic capacity expansion projects1
0.3
0.2
2.0
1.7
Costs related to a fire that occurred at a
facility in Retsag, Hungary2
0.1
0.1
0.1
0.1
Costs to prepare a market study2
—
—
0.2
0.1
Gain on reversal of contingent
liability3
(0.3
)
(0.2
)
(0.3
)
(0.2
)
Subtotal for PE Films
0.1
0.1
2.0
1.7
Total for PE Films
$
1.3
$
1.3
$
5.8
$
5.3
Corporate:
Professional fees associated with:
internal control over financial reporting; business development
activities; and implementation of new accounting guidance2
$
0.6
$
0.5
$
1.1
$
0.9
Loss on investment in Harbinger Capital
Partners Special Situations Fund, L.P.3
0.1
0.1
0.5
0.4
Business development projects2
0.5
0.4
0.5
0.4
Total for Corporate
$
1.2
$
1.0
$
2.1
$
1.7
1. Included in “Cost of goods sold” in the
condensed consolidated statements of income.
2. Included in “Selling, R&D and
general expenses” in the condensed consolidated statements of
income.
3. Included in “Other income (expense),
net” in the condensed consolidated statements of income.
(d)
Goodwill impairment charge of $46.8
million ($38.2 million after deferred income tax benefits) was
recognized in the Personal Care component of PE Films in the third
quarter of 2018 upon the completion of an impairment analysis
performed as of September 30, 2018. This non-operating, non-cash
charge, as computed under GAAP, resulted from the expectation of a
significant customer transition. The Company performed an asset
recoverability test and goodwill impairment analysis and concluded
that the fair value of the Personal Care reporting unit was less
than its carrying value.
(e)
A pre-tax gain on the Company’s investment
in kaleo, Inc. (“kaléo”) of $28.5 million was recognized in the
full year of 2019 (none in the fourth quarter of 2019) (included in
“Other income (expense), net” in the condensed consolidated
statements of income), compared to unrealized pre-tax gains of
$18.7 million and $30.6 million in the fourth quarter and full year
of 2018, respectively.
(f)
On October 30, 2019, Bonnell Aluminum
announced a rebranding initiative. Bonnell and its subsidiaries,
AACOA and Futura, now all fall under the Bonnell Aluminum brand.
The usage of the AACOA and Futura trade names was discontinued at
the end of 2019. In September 2019, management committed to
implement the rebranding initiative. Prior to this commitment, the
AACOA trade name had an indefinite useful life and a remaining net
book value of $4.8 million, and the Futura trade name had an
estimated remaining useful life of approximately 10.5 years and a
remaining net book value of $5.4 million. As a result of the
rebranding initiative, there was a change in estimate in the useful
lives for both trade names to 4 months, the point at which the
rebranding initiative was complete. The non-cash amounts amortized
in the third and fourth quarters of 2019, respectively, related to
these trade names are as follows:
(in millions)
Three Months Ended
September 30, 2019
December 31, 2019
AACOA - accelerated
$
1.2
$
3.6
Futura - accelerated
1.3
3.9
Futura - ongoing1
0.1
0.1
Total amortization
$
2.6
$
7.6
1. Amortization based on original useful life.
(g)
Net debt is calculated as follows:
(in millions)
December 31, 2019
December 31, 2018
Debt
$
42.0
$
101.5
Less: Cash and cash equivalents
31.4
34.4
Net debt
$
10.6
$
67.1
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.
(h)
Tredegar’s presentation of net income
(loss) from ongoing operations is a non-GAAP financial measure that
excludes the effects of gains or losses associated with plant
shutdowns, asset impairments and restructurings, gains or losses
from the sale of assets, goodwill impairment charges and other
items (which includes unrealized gains and losses for an investment
accounted for under the fair value method), which have been
presented separately and removed from net income (loss) and diluted
earnings (loss) per share as reported under GAAP. Net income (loss)
from ongoing operations is a key financial and analytical measure
used by management to gauge the operating performance of Tredegar’s
ongoing operations. It is not intended to represent the stand-alone
results for Tredegar’s ongoing operations under GAAP and should not
be considered as an alternative to net income (loss) or earnings
(loss) per share as defined by GAAP. It excludes items that
management believes do not relate to Tredegar’s ongoing operations.
A reconciliation of the pre-tax and post-tax balances attributed to
net income (loss) from ongoing operations for the three and twelve
months ended December 31, 2019 and 2018 is shown below in order to
show the impact on the effective tax rate (due to rounding, numbers
presented in this table may not add up precisely to the totals
provided):
(In millions)
Pre-Tax
Taxes Expense
(Benefit)
After-Tax
Effective
Tax Rate
Three Months Ended December 31,
2019
(a)
(b)
(b)/(a)
Net income (loss) reported under GAAP
$
(1.6
)
$
1.5
$
(3.1
)
(90.5
)%
Losses associated with plant shutdowns,
asset impairments and restructurings
1.2
0.3
0.9
(Gains) losses from sale of assets and
other
10.6
1.2
9.4
Net income (loss) from ongoing
operations
$
10.2
$
3.0
$
7.2
28.4
%
Three Months Ended December 31,
2018
Net income (loss) reported under GAAP
$
34.5
$
—
$
26.2
24.3
%
Losses associated with plant shutdowns,
asset impairments and restructurings
1.3
0.1
1.2
(Gains) losses from sale of assets and
other
(17.2
)
(4.0
)
(13.2
)
Net income (loss) from ongoing
operations
$
18.6
$
(3.9
)
$
14.2
24.9
%
Twelve Months Ended December 31,
2019
Net income (loss) reported under GAAP
$
58.2
$
9.9
$
48.3
17.0
%
Losses associated with plant shutdowns,
asset impairments and restructurings
(0.5
)
0.8
(1.3
)
(Gains) losses from sale of assets and
other
(9.5
)
(0.1
)
(9.4
)
Net income (loss) from ongoing
operations
$
48.2
$
10.6
$
37.6
22.0
%
Twelve Months Ended December 31,
2018
Net income reported under GAAP
$
36.4
$
11.5
$
24.8
31.7
%
Losses associated with plant shutdowns,
asset impairments and restructurings
4.1
0.2
3.8
(Gains) losses from sale of assets and
other
(25.9
)
(6.4
)
(19.5
)
Goodwill impairment charge
46.8
8.6
38.2
Net income (loss) from ongoing
operations
$
61.4
$
13.9
$
47.3
22.8
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200316005431/en/
Tredegar Corporation Neill Bellamy, 804-330-1211
neill.bellamy@tredegar.com
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