News Release

• Operating profit from ongoing operations for PE Films of $12.4 million was $1.4 million lower than the fourth quarter of last year
• Operating profit from ongoing operations for Flexible Packaging significantly improved
• Operating profit from ongoing operations for Bonnell Aluminum of $9.6 million was exceptionally strong, improving by $2.5 million over the fourth quarter of 2014

RICHMOND, Va.--(BUSINESS WIRE)--Feb. 29, 2016-- Tredegar Corporation (NYSE:TG, also the “Company” or “Tredegar”) today reported fourth-quarter financial results for the period ended December 31, 2015.

John D. Gottwald, Tredegar’s president and chief executive officer, said: “Overall, Tredegar had a solid quarter. Bonnell and Terphane posted improved operating results with strong volume growth for the quarter and full year. Our PE Films segment continues to show volume and profit declines as we manage through lost business and product transitions in personal care materials. On the positive side, surface protection films performed well for the quarter and year. We’ve added R&D resources to PE Films to improve our chances of realizing several opportunities that we see from new products.”

“Looking forward, we will continue to be challenged over the next couple of years by product transitions in personal care materials. Meeting customer needs will be paramount to success, and our prospects improve considerably if we’re successful in our new product development initiatives.”

Mr. Gottwald continued, “In light of recently improved operating efficiencies, our challenge to profit growth at Terphane will continue to be the poor economic conditions in Brazil and tough competitive pressures, given the overcapacity in place.”

OPERATIONS REVIEW

PE Films

PE Films is comprised of the Company’s polyolefin-based operations that manufacture and sell personal care materials, surface protection films, polyethylene overwrap films and related films for other markets. A summary of fourth-quarter and full year operating results from ongoing operations for PE Films is provided below:

Fourth-Quarter Results vs. Prior Year Fourth Quarter

Net sales (sales less freight) in the fourth quarter of 2015 decreased by $16.2 million versus 2014 primarily due to the following:

• The loss of business with PE Films’ largest customer related to various product transitions in personal care materials ($5.5 million);
• A decline in volume from other customers of personal care materials and polyethylene overwrap films ($3.6 million);
• A decrease in average selling prices due to competitive pricing pressures and lower raw material costs ($1.4 million); and
• The unfavorable impact from the change in the U.S. dollar value of currencies for operations outside of the U.S. ($5.7 million).

As noted above, current year sales volume has declined as a result of the wind down of shipments for certain personal care materials due to various product transitions and lost business, primarily with PE Films’ largest customer. In addition, efforts to consolidate domestic manufacturing facilities in PE Films commenced in the third quarter of 2015. This restructuring project is not expected to be completed until the middle of 2017, and once complete, annual pre-tax cash cost savings are expected to be approximately $5-6 million. The table below summarizes the pro forma operating profit from ongoing operations for the fourth quarters of 2015 and 2014, had the impact of the events noted above been fully realized in each period:

Net sales associated with lost business and product transitions that have yet to be fully eliminated were approximately $6.5 million and $15.4 million in the fourth quarters of 2015 and 2014, respectively.

Net of the impact of product transitions and lost business, pro forma estimated operating profit from ongoing operations in the fourth quarter of 2015 increased by $0.9 million versus the fourth quarter of 2014 due to the following:

• Lower volumes and pricing for ongoing personal care films business ($2.4 million);
• The favorable lag in the pass-through of average resin costs of $2.0 million in the fourth quarter of 2015 versus $0.4 million in 2014;
• An increase in volume and a favorable mix for surface protection films partially offset by lower pricing ($1.0 million);
• An increase in research and development costs incurred to support new product development ($0.7 million); and
• A decrease in depreciation expense ($1.4 million) offset by an increase in foreign currency translation and transaction losses ($0.5 million) and other operating expenses ($0.4 million).

The competitive dynamics in PE Films require continuous development of new products to improve cost and performance for customers. PE Films anticipates additional exposure to product transitions and lost business in certain personal care materials. The estimated additional adverse impact to future operating profit from ongoing operations relating to such exposure is $10 million annually, which would not likely occur until after 2017.

2015 vs. 2014

Net sales in 2015 decreased by $78.8 million versus 2014, primarily due to lower volume from lost business and product transitions, and the unfavorable impact from the change in the U.S. dollar value of currencies for operations outside of the U.S.

Consistent with the pro forma information provided for fourth quarter operating results, the table below summarizes the pro forma operating results for 2015 and 2014 had the impact of various product transitions and lost business and efforts to consolidate domestic PE Films manufacturing facilities been fully realized in each period:

Net sales associated with lost business and product transitions that have yet to be fully eliminated were approximately $38.5 million and $84.5 million in 2015 and 2014, respectively.

Net of the impact of product transitions and lost business, pro forma estimated operating profit from ongoing operations in 2015 decreased by $1.3 million versus 2014 due to the following:

• An increase in volume of over 6% and a favorable mix for surface protection films ($4.2 million)
• A decrease in volume for polyethylene overwrap films and other personal care materials ($2.4 million);
• The favorable lag in the pass-through of average resin costs of $1.3 million in 2015 versus a negative $0.1 million in 2014;
• An increase in foreign currency translation and transaction losses ($3.7 million); and
• Other factors including higher research and development costs partially offset by lower depreciation.

Capital Expenditures and Depreciation & Amortization

Capital expenditures in PE Films were $21.2 million in 2015 compared to $17.0 million in 2014. Capital expenditures are projected to be $30 million in 2016, including approximately $10 million for routine items required to support operations. Capital spending for strategic projects in 2016 includes expansion of elastics capacity in Europe, expansion of surface protection films capacity in China and the North American facility consolidation. Depreciation expense was $15.4 million in 2015 and $21.1 million in 2014. Depreciation expense is projected to be $15 million in 2016. Amortization expense was $0.1 million in 2015 and $0.3 million in 2014, and is projected to be $0.1 million in 2016.

Flexible Packaging Films

A summary of fourth-quarter and full year operating results from ongoing operations for Flexible Packaging Films (also referred to as Terphane), which excludes the goodwill impairment charge discussed below, is provided below:

Fourth-Quarter Results vs. Prior Year Fourth Quarter

Net sales in the fourth quarter of 2015 decreased 9.6% versus the fourth quarter of 2014 primarily due to competitive pricing pressures and the pass-through of lower raw material costs, partially offset by a 6.4% increase in sales volume. Higher sales volume had a favorable impact of approximately $2.0 million.

Operating profit (loss) from ongoing operations increased by $4.3 million in the fourth quarter of 2015 versus 2014 due to the following:

• An improvement of $3.7 million in the fourth quarter of 2015 due to higher volume and operating efficiencies, lower depreciation and amortization expenses, partially offset by lower margins from competitive pricing pressures;
• Foreign currency transaction losses associated with U.S. dollar denominated export sales in Brazil of $0.1 million in the fourth quarter of 2015 versus transaction gains of $0.7 million in 2014;
• The estimated lag in the pass through of lower raw material costs of $0.8 million in the fourth quarter of 2015 (none in 2014);
• Duties applied to films imported into the U.S. were zero in the fourth quarter of 2015 as a result of the reinstatement by the U.S. in the third quarter of 2015 of the Generalized System of Preferences (GSP) program allowing for duty-free shipment of Terphane’s products to the U.S., versus duties paid of $0.3 million in 2014; and
• The favorable settlement of certain loss contingencies of $0.6 million in the fourth quarter of 2015 versus $0.3 million in 2014.

The Company expects that Terphane will have a difficult time maintaining the level of operating profits from ongoing operations generated in the fourth quarter of 2015 due to continuing poor economic conditions in Brazil, its primary market, and continuing competitive pressures.

2015 vs. 2014

Net sales in 2015 decreased 7.9% versus 2014 primarily due to competitive pricing pressures and the pass-through to customers of lower raw material costs, partially offset by a 14.3% increase in sales volume.

Operating profit (loss) from ongoing operations improved by $8.4 million in 2015 versus 2014, primarily due to the following:

• An improvement of $1.4 million in 2015 versus 2014 due to higher sales volume and operating efficiencies, partially offset by lower margins from competitive pricing pressures;
• Foreign currency transaction gains associated with U.S. dollar denominated export sales in Brazil of $3.5 million versus $0.5 million in 2014;
• The estimated lag in the pass through of lower raw material costs of $1.0 million in 2015 (none in 2014);
• Net refunds of $1.6 million in 2015 as a result of the reinstatement of the GSP program versus duties paid of $1.1 million in 2014; and
• The favorable settlement of certain loss contingencies of $0.6 million in 2015 versus $0.3 million in 2014.

Capital Expenditures, Depreciation & Amortization and Third Quarter Goodwill Impairment Charge

Capital expenditures were $3.5 million in 2015 compared to $21.8 million in 2014. Capital expenditures in 2014 included approximately $17 million for the capacity expansion project at a manufacturing facility in Cabo de Santo Agostinho, Brazil. Capital expenditures are projected to be $5 million in 2016, including approximately $3 million for routine items required to support operations. Depreciation expense was $6.8 million in 2015 and $5.8 million in 2014. Depreciation expense is projected to be $6 million in 2016. Amortization expense was $2.9 million in 2015 and $3.5 million in 2014, and is projected to be $3 million in 2016.

During the third quarter of 2015, the Company performed a goodwill impairment assessment related to Terphane. This review was undertaken as a result of the continued competitive pressures related to ongoing unfavorable economic conditions in Terphane’s primary market of Brazil, and excess global industry capacity. The assessment resulted in a full write-off of the goodwill of $44.5 million associated with the acquisition of Terphane. The Company believes that unfavorable business conditions in its markets have shifted the competitive environment from a regional to a global landscape and have driven price convergence and lower product margins. Authorities in Brazil have initiated new investigations of dumping against Peru and Bahrain. These new investigations follow recent favorable anti-dumping rulings issued by the Brazilian government against China, Egypt and India, which were in addition to previous actions taken against United Arab Emirates, Mexico, and Turkey.

Aluminum Extrusions

A summary of fourth-quarter and full year operating results from ongoing operations for Aluminum Extrusions (also referred to as Bonnell Aluminum) is provided below:

Fourth-Quarter Results vs. Prior Year Fourth Quarter

Net sales in the fourth quarter of 2015 decreased in comparison to the fourth quarter of 2014 primarily due to a decrease in average selling prices, which largely resulted from significantly lower aluminum costs and mix changes. Higher sales volume had a favorable impact of approximately $9.0 million in the fourth quarter of 2015 versus last year. The decrease in average selling prices reduced net sales by approximately $11.1 million. Increased demand during 2015, primarily from the nonresidential building and construction sector, has pushed Bonnell Aluminum’s average capacity utilization in excess of 90%.

Operating profit from ongoing operations increased in the fourth quarter of 2015 versus 2014 primarily due to higher volume. Results also benefited from improved efficiencies and lower utility costs.

2015 vs. 2014

Net sales in 2015 increased in comparison to 2014 primarily due to higher sales volume in all major markets, offset by a decrease in average selling prices. Higher sales volume had a favorable impact of approximately $40.6 million in 2015 compared to 2014. The decrease in average selling prices, which reduced net sales by approximately $9.5 million, were mainly due to lower aluminum costs and mix changes.

Operating profit from ongoing operations in 2015 increased $4.8 million primarily as a result of higher volume partially offset by new hire costs and other production inefficiencies that occurred in the first three quarters of 2015.

Capital Expenditures and Depreciation & Amortization

Capital expenditures for Bonnell Aluminum were $8.1 million in 2015 compared to $6.1 million in 2014. Capital expenditures are projected to be $24 million in 2016, which includes approximately $5 million for routine items required to support operations and approximately $14 million of a total $18 million expected to add extrusions capacity at the Niles facility. Depreciation expense was $8.7 million in 2015 compared to $8.3 million in 2014, and is projected to be $9 million in 2016. Amortization expense was $1.0 million in 2015 and $1.6 million in 2014, and is projected to be $1 million in 2016.

Corporate Expenses, Investments, Interest and Taxes

Pension expense was $12.3 million in 2015, an unfavorable change of $5.6 million from 2014, primarily due to a drop in the discount rate. Most of the impact on earnings from higher pension expense is reflected in “Corporate expenses, net” in the Net Sales and Operating Profit by Segment table. Pension expense is projected to be $11.3 million in 2016. Corporate expenses, net increased in 2015 versus 2014 primarily due to the increase in pension expense noted above, business development costs and corporate severance charges. In 2015, corporate expenses, net included non-recurring costs of $4.9 million, which consisted mainly of business development costs of $1.0 million and severance and other employee-related charges of $3.9 million associated with the resignations of the Company’s former chief executive and chief financial officers in the second quarter of 2015. In 2014, corporate expenses, net included non-recurring costs of $0.9 million.

The Company has an investment in kaleo, Inc. (“kaléo”), a privately-held pharmaceutical company. In 2009, kaléo licensed exclusive rights to sanofi-aventis U.S. LLC (“Sanofi”) to commercialize an epinephrine auto-injector in the U.S. and Canada. Sanofi began manufacturing and distributing the epinephrine auto-injector, under the names Auvi-Q® in the U.S. and Allerject® in Canada, in 2013. On October 28, 2015, Sanofi announced a voluntary recall of all Auvi-Q and Allerject epinephrine injectors that were currently on the market. The Company recognized an unrealized loss on its investment in kaléo of $20.5 million ($15.7 million after taxes) in the fourth quarter of 2015 that was primarily related to the adverse impact of this product recall.

Interest expense was $3.5 million in 2015 in comparison to $2.7 million in 2014.

The effective tax rate from continuing operations was significantly impacted by the tax effects of the special items included in the introductory earnings reconciliation table. The comparable effective tax rate excluding the impact of these special items was 36.2% in 2015 and 35.1% in 2014. More information on the significant differences between the effective tax rate for income from continuing operations and the U.S. federal statutory rate for 2015 and 2014 will be provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

CAPITAL STRUCTURE

Net debt (debt in excess of cash and cash equivalents) was $59.8 million at December 31, 2015, compared with $87.2 million at December 31, 2014. Net debt is a financial measure that is not calculated or presented in accordance with United States generally accepted accounting principles (“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,” “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: acquired businesses, including Terphane Holdings LLC (“Terphane”) and AACOA, Inc. (“AACOA”), may not achieve expected levels of revenue, profit, productivity, or otherwise perform as expected; acquisitions, including the acquisitions of Terphane and AACOA, involve special risks, including without limitation, diversion of management’s time and attention from our existing businesses, the potential assumption of unanticipated liabilities and contingencies and potential difficulties in integrating acquired businesses and achieving anticipated operational improvements; PE Films is highly dependent on sales associated with one customer — The Procter & Gamble Company (P&G”) and PE Films may not be able to mitigate the impact of the expected decline in net sales to P&G on operating profit from ongoing operations; growth of PE Films depends on its ability to develop and deliver new products at competitive prices; sales volume and profitability of Aluminum Extrusions are cyclical and highly dependent on economic conditions of end-use markets in the U.S., particularly in the building and construction sector, and can also be subject to seasonal slowdowns; Aluminum Extrusions’ efforts to expand product offerings and broaden its customer base may not be successful; substantial international operations subject Tredegar to risks of doing business in countries outside the U.S., which could adversely affect its business, financial condition and results of operations; future performance is influenced by costs incurred by our operating companies, including, for example, the cost of energy and raw materials; and the other factors discussed in the reports Tredegar files with or furnishes to the SEC from time to time, including the risks and important factors set forth in additional detail in “Risk Factors” in Part I, Item 1A of Tredegar’s 2015 Annual Report on Form 10-K (the “2015 Form 10-K”) to be filed with the SEC. Readers are urged to review and consider carefully the disclosures Tredegar makes in its filings with the SEC, including the 2015 Form 10-K when it is filed, except as required by applicable law.

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.

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. Accompanying the reconciliation is management’s statement concerning the reasons why management believes that presentation of non-GAAP measures provides useful information to investors concerning Tredegar’s financial condition and results of operations. 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 our website.

Tredegar Corporation is a manufacturer of plastic films and aluminum extrusions. A global company headquartered in Richmond, Virginia, Tredegar had 2015 sales of $896 million. With approximately 2,800 employees, the company operates manufacturing facilities in North America, South America, Europe, and Asia.

• Pretax charge of $1.1 million ($0.4 million included in “Selling, R&D and general expense” in the condensed consolidated statement of income) for severance and other employee-related costs associated with restructurings in PE Films;
• Pretax charges of $1.0 million associated with the consolidation of domestic PE films manufacturing facilities, which includes severance and other employee-related costs of $0.4 million, accelerated depreciation of $0.1 million (included in “Cost of goods sold” in the condensed consolidated statements of income), asset impairments of $84,000 and other facility consolidation-related expenses of $0.4 million ($89,000 is included in “Cost of goods sold” in the condensed consolidated statements of income);
• Pretax charges of $1.0 million associated with a non-recurring business development project (included in “Selling, R&D and general expense” in the condensed consolidated statement of income and “Corporate expenses, net” in the statement of net sales and operating profit by segment);
• Pretax charges of $0.3 million related to expected future environmental costs at the Company’s aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the condensed consolidated statements of income); and
• Pretax charges of $31,000 associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana.

Plant shutdowns, asset impairments, restructurings and other charges in 2015 include:

• Pretax charges of $3.9 million (included in “Selling, R&D and general expense” in the condensed consolidated statements of income and “Corporate expenses, net” in the statement of net sales and operating profit by segment) for severance and other employee-related costs associated with the resignation of the Company’s former chief executive and chief financial officers;
• Pretax charges of $2.2 million associated with the consolidation of domestic PE films manufacturing facilities, which includes severance and other employee-related costs of $0.8 million, asset impairments of $0.4 million, accelerated depreciation of $0.4 million (included in “Cost of goods sold” in the condensed consolidated statements of income) and other facility consolidation-related expenses of $0.6 million ($0.1 million is included in “Cost of goods sold” in the condensed consolidated statements of income);
• Pretax charge of $2.2 million for severance and other employee-related costs ($0.4 million included in “Selling, R&D and general expense” in the condensed consolidated statement of income) associated with restructurings in PE Films ($2.0 million), Flexible Packaging Films ($0.2 million), Aluminum Extrusions ($35,000) and Corporate ($26,000 included in “Corporate expenses, net” in the statement of net sales and operating profit by segment);
• Pretax charges of $1.0 million associated with a non-recurring business development project (included in “Selling, R&D and general expense” in the condensed consolidated statement of income and “Corporate expenses, net” in the statement of net sales and operating profit by segment);
• Pretax charges of $0.4 million associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana; and
• Pretax charges of $0.3 million related to expected future environmental costs at the Company’s aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the condensed consolidated statements of income).

Plant shutdowns, asset impairments, restructurings and other charges in the fourth quarter of 2014 include:

• Pretax charges of $0.7 million related to expected future environmental costs at the Company’s aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the condensed consolidated statements of income);
• Pretax charges of $0.5 million associated with severance and other employee-related costs associated with restructurings in PE Films ($0.2 million) and Flexible Packaging Films ($0.3 million);
• Pretax gain of $0.1 million related to the sale of a previously shutdown PE film products manufacturing facility in LaGrange, Georgia (included in “Other income (expense), net” in the condensed consolidated statements of income);
• Pretax adjustment of $0.1 million to income to reverse previously accrued severance and other employee-related costs associated with the shutdown of the PE film products manufacturing facility in Red Springs, North Carolina; and
• Pretax charges of $11,000 associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana.

Plant shutdowns, asset impairments, restructurings and other items in 2014 include:

• Pretax charge of $10.0 million (included in “Other income (expense), net” in the condensed consolidated statements of income) associated with a one-time, lump sum license payment to 3M after the Company settled all litigation issues associated with a patent infringement complaint;
• Pretax charges of $2.3 million associated with severance and other employee-related costs associated with restructurings in PE Films ($1.7 million), Flexible Packaging Films ($0.6 million) and Aluminum Extrusions ($31,000);
• Pretax charges of $0.9 million related to expected future environmental costs at the Company’s aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the condensed consolidated statements of income);
• Pretax charges of $0.7 million associated with the shutdown of the PE film products manufacturing facility in Red Springs, North Carolina, which includes severance and other employee-related costs of $0.4 million and asset impairment and other shutdown-related charges of $0.3 million;
• Pretax gain of $0.1 million related to the sale of a previously shutdown PE film products manufacturing facility in LaGrange, Georgia (included in “Other income (expense), net” in the condensed consolidated statements of income); and
• Pretax charges of $54,000 associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160229005976/en/

Source: Tredegar Corporation

Tredegar Corporation
Neill Bellamy, 804-330-1211
Fax: 804-330-1777
neill.bellamy@tredegar.com