RICHMOND, Va.--(BUSINESS WIRE)--Nov. 8, 2018--
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:
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Three Months Ended
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Favorable/ (Unfavorable) % Change
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Nine Months Ended
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Favorable/ (Unfavorable) % Change
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(In Thousands, Except Percentages)
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September 30,
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September 30,
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2018
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2017
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2018
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|
|
2017
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|
Sales volume (lbs)
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|
|
|
29,597
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|
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34,701
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|
(14.7)%
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94,519
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103,923
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(9.0)%
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Net sales
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$
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76,470
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$
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89,723
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(14.8)%
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$
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252,177
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$
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265,773
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(5.1)%
|
Operating profit from ongoing operations
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$
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4,145
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|
$
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11,251
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(63.2)%
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|
$
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26,857
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|
$
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30,965
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(13.3)%
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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 $16 million in
2018.
Flexible Packaging Films
Flexible Packaging Films, which is also referred to as Terphane,
produces polyester-based films for use in packaging applications that
have specialized properties, such as heat resistance, strength, barrier
protection and the ability to accept high-quality print graphics. A
summary of third quarter and year-to-date operating results from ongoing
operations for Flexible Packaging Films is provided below:
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Three Months Ended
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Favorable/ (Unfavorable) % Change
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Nine Months Ended
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Favorable/ (Unfavorable) % Change
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(In Thousands, Except Percentages)
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September 30,
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September 30,
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2018
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2017
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2018
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2017
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Sales volume (lbs)
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27,258
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21,640
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26.0%
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74,276
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65,668
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13.1%
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Net sales
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$
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33,725
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$
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26,628
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26.7%
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$
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90,466
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$
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79,925
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13.2%
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Operating profit (loss) from ongoing operations
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$
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3,609
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$
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(1,074
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)
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NA
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$
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6,617
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$
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(3,392
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)
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NA
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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:
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Three Months Ended
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|
Favorable/ (Unfavorable) % Change
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|
Nine Months Ended
|
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|
Favorable/ (Unfavorable) % Change
|
(In Thousands, Except Percentages)
|
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|
|
September 30,
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|
|
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|
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September 30,
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|
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2018
|
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2017
|
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2018
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2017
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|
Sales volume (lbs) *
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56,632
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|
52,008
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8.9%
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|
|
139,096
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|
132,598
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4.9%
|
Net sales
|
|
|
|
$
|
147,661
|
|
|
|
|
$
|
122,149
|
|
|
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|
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.
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|
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 Ended September 30,
|
|
|
Nine Months Ended September 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
|
|
|
Effective Tax 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/
Source: Tredegar Corporation
Tredegar Corporation Neill Bellamy, 804-330-1211 neill.bellamy@tredegar.com
|