News Release
Fourth quarter 2016 net income was
| (in millions, except per share data) |
Three Months Ended |
Year Ended |
|||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||
| Net income (loss) as reported under GAAP | $ | 1.7 | $ | (5.9 | ) | $ | 24.5 | $ | (32.1 | ) | |||||
| After-tax effects of: | |||||||||||||||
| Losses associated with plant shutdowns, asset impairments and restructurings | 0.5 | 1.4 | 3.1 | 3.0 | |||||||||||
| (Gains) losses from sale of assets and other | 1.2 | 15.5 | (4.9 | ) | 17.7 | ||||||||||
| Goodwill impairment charge | — | — | — | 44.5 | |||||||||||
| Net income from ongoing operations * | $ | 3.4 | $ | 11.0 | $ | 22.7 | $ | 33.1 | |||||||
| Earnings (loss) per share as reported under GAAP (diluted) | $ | 0.05 | $ | (0.18 | ) | $ | 0.75 | $ | (0.99 | ) | |||||
| After-tax effects per diluted share of: | |||||||||||||||
| Losses associated with plant shutdowns, asset impairments and restructurings | 0.01 | 0.04 | 0.09 | 0.09 | |||||||||||
| (Gains) losses from sale of assets and other | 0.04 | 0.48 | (0.15 | ) | 0.54 | ||||||||||
| Goodwill impairment charge |
— |
— |
— | 1.37 | |||||||||||
| Earnings per share from ongoing operations (diluted) * | $ | 0.10 | $ | 0.34 | $ | 0.69 | $ | 1.01 | |||||||
| * | See Notes to the Financial Tables in this press release for further details regarding the special items that reconcile net income (loss) to net income from ongoing operations and earnings (loss) per share to earnings per share from ongoing operations. | |
Highlights for the fourth quarter include:
- Operating profit from ongoing operations for Bonnell Aluminum of
$10.0 million was$0.4 million higher than the fourth quarter of 2015 - Operating profit from ongoing operations for PE Films of
$2.7 million was$9.7 million lower than the fourth quarter of 2015 - Operating profit from ongoing operations for Flexible Packaging Films of
$0.6 million was$3.1 million lower than the fourth quarter of 2015
Mr. Gottwald continued, “Earlier this month we announced Bonnell’s acquisition of
OPERATIONS REVIEW
PE Films
PE Films is comprised of personal care materials, surface protection films, polyethylene overwrap films and films for other markets. A summary of fourth-quarter and full year operating results from ongoing operations for PE Films is provided below:
| Three Months Ended | Favorable/ | Year Ended | Favorable/ | |||||||||||||||||
| (In Thousands, Except Percentages) | December 31, | (Unfavorable) | December 31, | (Unfavorable) | ||||||||||||||||
| 2016 | 2015 | % Change | 2016 | 2015 | % Change | |||||||||||||||
| Sales volume (lbs) | 32,806 | 38,417 | (14.6)% | 139,020 | 160,283 | (13.3)% | ||||||||||||||
| Net sales | $ | 79,672 | $ | 93,291 | (14.6)% | $ | 331,146 | $ | 385,550 | (14.1)% | ||||||||||
| Operating profit from ongoing operations | $ | 2,748 | $ | 12,426 | (77.9)% | $ | 26,312 | $ | 48,275 | (45.5)% | ||||||||||
Fourth-Quarter Results vs. Prior Year Fourth Quarter Results
Net sales (sales less freight) in the fourth quarter of 2016 decreased by
- The wind down of volume related to lost business in personal care materials with PE Films’ largest customer (
$4.2 million ) and other personal care customers ($1.2 million ) (see discussion below); - Lower volume in personal care materials primarily due to the timing of product transitions (
$3.5 million ); - Lower volume in surface protection films (
$2.7 million ) that reflects typical seasonality versus a strong performance in the fourth quarter of 2015; and - Lower volume of low margin overwrap films (
$2.0 million ).
As noted above, current year sales volume has declined in part due to the wind down of shipments for certain personal care materials related to previously announced known lost business, primarily with PE Films’ largest customer. The restructuring project to consolidate domestic manufacturing facilities in PE Films, which commenced in the third quarter of 2015 (“North American facility consolidation”), is expected to be completed in the second half of 2017. Once complete, annual pre-tax cash cost savings are expected to be approximately
| Three Months Ended December 31, | ||||||
| (In Thousands) | 2016 | 2015 | ||||
| Operating profit from ongoing operations, as reported | $ | 2,748 | $ | 12,426 | ||
| Contribution to operating profit from ongoing operations associated with known lost business before restructurings & fixed costs reduction | 108 | 2,712 | ||||
| Operating profit from ongoing operations net of the impact of known business that will be fully eliminated in future periods | 2,640 | 9,714 | ||||
| Estimated future benefit of North American facility consolidation | 1,300 | 1,300 | ||||
| Pro forma estimated operating profit from ongoing operations | $ | 3,940 | $ | 11,014 | ||
Net sales associated with known lost business that have yet to be fully eliminated were approximately
Net of the impact of known lost business, pro forma estimated operating profit from ongoing operations in the fourth quarter of 2016 decreased by
- Lower contribution to profits from surface protection films (
$2.1 million ), primarily due to lower volume; - The unfavorable lag in the pass-through of average resin costs of
$0.2 million in the fourth quarter of 2016 versus the favorable lag of$2.0 million in 2015; - A charge for inventories accounted for under the last-in last-out (“LIFO”) method of
$0.9 million in the fourth quarter of 2016 versus income of$0.4 million in 2015; - Lower productivity due to operational inefficiencies in personal care films of
$2.0 million , due in part to elastics production for European customers sourced from theLake Zurich, Illinois facility; and - Higher research and development (“R&D”) expenses to support new product opportunities of
$0.4 million offset by lower general, sales and administrative expenses of$0.6 million .
The surface protection operating segment of the PE Films reporting segment 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 during the manufacturing and transportation process and then discarded. The top three surface protection customers account for a significant portion of surface protection sales.
As previously discussed, the Company believes that over the next few years, there is an increased 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 estimates on a preliminary basis that the annual adverse impact on ongoing operating profit from customer shifts to alternative processes or materials in surface protection is in the range of up to
The Company continues to anticipate a significant additional product transition in its personal care business after 2018 that has an estimated annual adverse impact on ongoing operating profit of
Amounts estimated for the expected impact on future profits of lost business and product transitions are provided on a stand-alone basis and do not include any potential offsets such as sales growth, cost reductions or new product developments.
2016 vs. 2015
Net sales in 2016 decreased by
- The loss of business with PE Films’ largest customer related to various products in personal care materials (
$22.0 million ) and other personal care materials customers ($7.6 million ); - Lower volume in personal care materials primarily due to the timing of product transitions and lower customer demand (
$10.8 million ); - A decline in volume in surface protection films (
$6.2 million ) that the Company believes is primarily the result of lower consumer demand for products with flat panel display screens; and - Lower volume of low margin overwrap films (
$9.1 million ) primarily due to the loss of business with a large customer, partially offset by sales growth for components used in LED lighting products ($1.3 million ).
The table below summarizes the pro forma operating results for 2016 and 2015 had the impact of known lost business and efforts to consolidate domestic PE Films manufacturing facilities been fully realized:
| Twelve Months Ended December 31, | ||||||
| (In Thousands) | 2016 | 2015 | ||||
| Operating profit from ongoing operations, as reported | $ | 26,312 | $ | 48,275 | ||
| Contribution to operating profit from ongoing operations associated with known lost business before restructurings & fixed costs reduction | 2,995 | 13,349 | ||||
| Operating profit from ongoing operations net of the impact of known business that will be fully eliminated in future periods | 23,317 | 34,926 | ||||
| Estimated future benefit of North American facility consolidation | 5,200 | 5,200 | ||||
| Pro forma estimated operating profit from ongoing operations | $ | 28,517 | $ | 40,126 | ||
Net sales associated with known lost business that have yet to be fully eliminated were
Net of the impact of known lost business, pro forma estimated operating profit from ongoing operations in 2016 decreased by
- Lower contribution to profits from surface protection films (
$5.0 million ) primarily due to lower volume and productivity issues; - Lower contribution to profits in personal care materials primarily due to volume declines resulting from the timing of product transitions and lower customer demand (
$3.1 million ) and lower productivity ($1.8 million ) due in part to operational inefficiencies largely related to elastics production for European customers sourced from theLake Zurich, Illinois facility; - The unfavorable lag in the pass-through of average resin costs of
$0.2 million in 2016 versus the favorable lag of$1.3 million in 2015; - A charge for inventories accounted for under the LIFO method of
$0.9 million in 2016 versus income of$0.4 million in 2015; - Higher contribution to profits from other products in PE Films (
$0.7 million ); and - Higher research and development expenses to support new product opportunities (
$3.0 million ), offset by lower general, sales and administrative expenses ($3.6 million ).
Capital Expenditures and Depreciation & Amortization
Capital expenditures in PE Films were
Flexible Packaging Films
Flexible Packaging Films, which is also referred to as Terphane, produces polyester-based films for use in packaging applications that have specialized properties, such as heat resistance, strength, barrier protection and the ability to accept high-quality print graphics. A summary of fourth-quarter and full year operating results from ongoing operations for Flexible Packaging Films, which excludes the 2015 goodwill impairment charge, is provided below:
| Three Months Ended |
Favorable/ |
Year Ended |
Favorable/ |
|||||||||||||||||
| (In Thousands, Except Percentages) | December 31, | December 31, | ||||||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||||||
| Sales volume (lbs) | 23,484 | 22,379 | 4.9% | 89,706 | 82,347 | 8.9% | ||||||||||||||
| Net sales | $ | 27,140 | $ | 27,993 | (3.0)% | $ | 108,028 | $ | 105,332 | 2.6% | ||||||||||
| Operating profit from ongoing operations | $ | 591 | $ | 3,660 | (83.9)% | $ | 1,774 | $ | 5,453 | (67.5)% | ||||||||||
Fourth-Quarter Results vs. Prior Year Fourth Quarter Results
Net sales in the fourth quarter of 2016 decreased 3.0% versus the fourth quarter of 2015 primarily due to competitive pricing pressures and the pass-through of lower raw material costs, partially offset by a 4.9% increase in sales volume. Sales volume improved from the fourth quarter of 2015 to the fourth quarter of 2016 partially due to the increase of end-use applications for flexible packaging films in the Latin American market.
Operating profit from ongoing operations decreased by
- Higher volume partially offset by lower margins from competitive pricing pressures that primarily related to ongoing excess global capacity in the industry, particularly in
Latin America , and unfavorable economic conditions inBrazil (net favorable impact of$0.4 million ); - The favorable settlement of certain loss contingencies of
$0.6 million in the fourth quarter of 2015 (none in 2016); - The estimated lag in the pass through of lower raw material costs of
$0.8 million in the fourth quarter of 2015 (none in 2016); - Higher costs and expenses of
$1.7 million primarily related to the adverse impact of high inflation inBrazil and the appreciation of the Brazilian Real relative to the U.S. Dollar; and - Higher depreciation and amortization costs (
$0.3 million ).
The Company expects Terphane’s future operating results to continue to be volatile until industry capacity utilization and the Brazilian business environment improve.
2016 vs. 2015
Net sales in 2016 increased 2.6% versus 2015 primarily due to a 8.9% increase in sales volume partially offset by competitive pricing pressures and the pass-through to customers of lower raw material costs. Sales volume improved from 2015 to 2016 partially due to the increase of end-use applications for flexible packaging films in the Latin American market.
Operating profit from ongoing operations decreased by
- Foreign currency transaction losses of
$3.5 million in 2016 versus foreign currency transaction gains of$3.5 million in 2015, associated with U.S. dollar denominated export sales inBrazil ; - Higher volume (
$3.0 million ) and operating efficiencies ($0.7 million ); - Net refunds of
$1.6 million in 2015 received as a result of the reinstatement by the U.S. of the Generalized System of Preferences (GSP) program for allowing duty-free shipments of Terphane products into the U.S. (none in 2016); - The favorable settlement of certain loss contingencies of
$0.6 million in 2015 (none in 2016); - The estimated lag in the pass through of lower raw material costs of
$1.2 million in 2016 versus$1.0 million in 2015; and - Lower depreciation and amortization costs (
$0.2 million ) and other costs and expenses ($1.4 million ).
Capital Expenditures, Depreciation & Amortization and Goodwill Impairment Charge
Capital expenditures in Flexible Packaging were
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
Aluminum Extrusions
Aluminum Extrusions, which is also referred to as Bonnell Aluminum, produces high-quality, soft-alloy and medium-strength aluminum extrusions primarily for building and construction, automotive, consumer durables, machinery and equipment, electrical and distribution markets. A summary of fourth-quarter and full year operating results from ongoing operations for Aluminum Extrusions is provided below:
| Three Months Ended | Favorable/ | Year Ended | Favorable/ | |||||||||||||||||
| (In Thousands, Except Percentages) | December 31, | (Unfavorable) | December 31, | (Unfavorable) | ||||||||||||||||
| 2016 | 2015 | % Change | 2016 | 2015 | % Change | |||||||||||||||
| Sales volume (lbs) | 43,114 | 42,861 | 0.6% | 172,986 | 170,045 | 1.7% | ||||||||||||||
| Net sales | $ | 90,111 | $ | 88,797 | 1.5% | $ | 360,098 | $ | 375,457 | (4.1)% | ||||||||||
| Operating profit from ongoing operations | $ | 10,008 | $ | 9,569 | 4.6% | $ | 37,794 | $ | 30,432 | 24.2% | ||||||||||
Fourth-Quarter Results vs. Prior Year Fourth Quarter Results
Net sales in the fourth quarter of 2016 increased versus 2015 primarily due to higher sales volume and an increase in average selling prices. The higher sales volume had a net positive impact of
Operating profit from ongoing operations in the fourth quarter of 2016 increased in comparison to the fourth quarter of 2015 by
2016 vs. 2015
Net sales in 2016 decreased versus 2015 primarily due to a decrease in average selling prices, partially offset by higher sales volume. Higher sales volume, primarily in the automotive market, had a favorable impact of
Operating profit from ongoing operations in 2016 increased in comparison to 2015 by
- Higher volume (
$0.9 million ) and lower materials, supply and other net costs ($2.6 million , including$0.7 million of construction-related costs incurred in 2015 for the anodizing upgrade project); and - Improved management of freight logistics and lower utility costs (
$2.2 million ) and other efficiencies ($1.8 million ).
Cast House Explosion
As previously disclosed, on
Bonnell Aluminum has various forms of insurance to cover losses in the event of such incidents. These policies cover damage to buildings and equipment, workers compensation claims, third party claims, business interruption losses and additional expenses incurred as a result of the explosion.
During 2016, Bonnell recognized a gain of
Capital Expenditures and Depreciation & Amortization
Capital expenditures for Bonnell Aluminum were
Futura Acquisition
On
Futura, headquartered in
Corporate Expenses, Investments, Interest and Taxes
Pension expense was
Interest expense was
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 on the first page. The comparable effective tax rate excluding the impact of these special items was 31.6% in 2016 and 36.2% in 2015. More information on the significant differences between the effective tax rate for income from continuing operations and the U.S. federal statutory rate for 2016 and 2015 will be provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
CAPITAL STRUCTURE
Total debt was
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, the following: we have an underfunded defined benefit (pension) plan to which we will be required to make contributions; our performance is influenced by costs incurred by our operating companies, including, for example, the cost of raw materials and energy; our substantial international operations subject us to risks of doing business in countries outside the U.S., which could adversely affect our consolidated financial condition, results of operations and cash flows; we may not be able to successfully identify, complete or integrate strategic acquisitions; acquired businesses, including
To the extent that 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 Corporation | ||||||||||||||||
| Condensed Consolidated Statements of Income | ||||||||||||||||
| (In Thousands, Except Per-Share Data) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three Months Ended | Year Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Sales | $ | 204,772 | $ | 216,989 | $ | 828,341 | $ | 896,177 | ||||||||
| Other income (expense), net (a) (c) (d) | 900 | (20,492 | ) | 2,381 | (20,113 | ) | ||||||||||
| 205,672 | 196,497 | 830,722 | 876,064 | |||||||||||||
| Cost of goods sold (a) | 169,122 | 169,832 | 668,626 | 725,459 | ||||||||||||
| Freight | 7,849 | 6,908 | 29,069 | 29,838 | ||||||||||||
| Selling, R&D and general expenses (a) | 23,390 | 22,478 | 94,876 | 88,084 | ||||||||||||
| Amortization of intangibles | 1,013 | 960 | 3,978 | 4,073 | ||||||||||||
| Interest expense | 888 | 823 | 3,806 | 3,502 | ||||||||||||
| Asset impairments and costs associated with exit and disposal activities (a) | 329 | 1,508 | 2,684 | 3,850 | ||||||||||||
| Goodwill impairment charge (b) | — | — | — | 44,465 | ||||||||||||
| 202,591 | 202,509 | 803,039 | 899,271 | |||||||||||||
| Income (loss) before income taxes | 3,081 | (6,012 | ) | 27,683 | (23,207 | ) | ||||||||||
| Income taxes (benefit) (e) | 1,353 | (136 | ) | 3,217 | 8,928 | |||||||||||
| Net income (loss) | $ | 1,728 | $ | (5,876 | ) | $ | 24,466 | $ | (32,135 | ) | ||||||
| Earnings (loss) per share: | ||||||||||||||||
| Basic | $ | 0.05 | $ | (0.18 | ) | $ | 0.75 | $ | (0.99 | ) | ||||||
| Diluted | $ | 0.05 | $ | (0.18 | ) | $ | 0.75 | $ | (0.99 | ) | ||||||
| Shares used to compute earnings (loss) per share: | ||||||||||||||||
| Basic | 32,856 | 32,614 | 32,762 | 32,578 | ||||||||||||
| Diluted | 32,900 | 32,614 | 32,775 | 32,578 | ||||||||||||
| Tredegar Corporation | ||||||||||||||||
| Net Sales and Operating Profit by Segment | ||||||||||||||||
| (In Thousands) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three Months Ended | Year Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Net Sales | ||||||||||||||||
| PE Films | $ | 79,672 | $ | 93,291 | $ | 331,146 | $ | 385,550 | ||||||||
| Flexible Packaging Films | 27,140 | 27,993 | 108,028 | 105,332 | ||||||||||||
| Aluminum Extrusions | 90,111 | 88,797 | 360,098 | 375,457 | ||||||||||||
| Total net sales | 196,923 | 210,081 | 799,272 | 866,339 | ||||||||||||
| Add back freight | 7,849 | 6,908 | 29,069 | 29,838 | ||||||||||||
| Sales as shown in the Consolidated Statements of Income | $ | 204,772 | $ | 216,989 | $ | 828,341 | $ | 896,177 | ||||||||
| Operating Profit | ||||||||||||||||
| PE Films: | ||||||||||||||||
| Ongoing operations | $ | 2,748 | $ | 12,426 | $ | 26,312 | $ | 48,275 | ||||||||
| Plant shutdowns, asset impairments, restructurings and other (a) | (924 | ) | (2,129 | ) | (4,602 | ) | (4,180 | ) | ||||||||
| Flexible Packaging Films: | ||||||||||||||||
| Ongoing operations | 591 | 3,660 | 1,774 | 5,453 | ||||||||||||
| Plant shutdowns, asset impairments, restructurings and other (a) | (214 | ) | — | (214 | ) | (185 | ) | |||||||||
| Goodwill impairment charge (b) | — | — | — | (44,465 | ) | |||||||||||
| Aluminum Extrusions: | ||||||||||||||||
| Ongoing operations | 10,008 | 9,569 | 37,794 | 30,432 | ||||||||||||
| Plant shutdowns, asset impairments, restructurings and other (a) | (1,582 | ) | (344 | ) | (741 | ) | (708 | ) | ||||||||
| Total | 10,627 | 23,182 | 60,323 | 34,622 | ||||||||||||
| Interest income | 103 | 47 | 261 | 294 | ||||||||||||
| Interest expense | 888 | 823 | 3,806 | 3,502 | ||||||||||||
| Gain (loss) on investment accounted for under fair value method (c) | 1,800 | (20,500 | ) | 1,600 | (20,500 | ) | ||||||||||
| Unrealized loss on investment property (d) | 1,032 | — | 1,032 | — | ||||||||||||
| Stock option-based compensation costs | 32 | (88 | ) | 56 | 483 | |||||||||||
| Corporate expenses, net (a) | 7,497 | 8,006 | 29,607 | 33,638 | ||||||||||||
| Income (loss) before income taxes | 3,081 | (6,012 | ) | 27,683 | (23,207 | ) | ||||||||||
| Income taxes (benefit) (e) | 1,353 | (136 | ) | 3,217 | 8,928 | |||||||||||
| Net income (loss) | $ | 1,728 | $ | (5,876 | ) | $ | 24,466 | $ | (32,135 | ) | ||||||
| Tredegar Corporation | |||||||
| Condensed Consolidated Balance Sheets | |||||||
| (In Thousands) | |||||||
| (Unaudited) | |||||||
| December 31, 2016 | December 31, 2015 | ||||||
| Assets | |||||||
| Cash & cash equivalents | $ | 29,511 | $ | 44,156 | |||
| Accounts & other receivables, net | 97,388 | 94,217 | |||||
| Income taxes recoverable | 7,518 | 360 | |||||
| Inventories | 66,069 | 65,325 | |||||
| Prepaid expenses & other | 7,738 | 6,946 | |||||
| Total current assets | 208,224 | 211,004 | |||||
| Property, plant & equipment, net | 260,725 | 231,315 | |||||
| Goodwill & other intangibles, net | 151,423 | 153,072 | |||||
| Other assets | 30,790 | 27,869 | |||||
| Total assets | $ | 651,162 | $ | 623,260 | |||
| Liabilities and Shareholders’ Equity | |||||||
| Accounts payable | $ | 81,342 | $ | 84,148 | |||
| Accrued expenses | 38,647 | 33,653 | |||||
| Total current liabilities | 119,989 | 117,801 | |||||
| Long-term debt | 95,000 | 104,000 | |||||
| Deferred income taxes | 21,110 | 18,656 | |||||
| Other noncurrent liabilities | 104,280 | 110,055 | |||||
| Shareholders’ equity | 310,783 | 272,748 | |||||
| Total liabilities and shareholders’ equity | $ | 651,162 | $ | 623,260 | |||
| Tredegar Corporation | ||||||||
| Condensed Consolidated Statement of Cash Flows | ||||||||
| (In Thousands) | ||||||||
| (Unaudited) | ||||||||
| Year Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | 24,466 | $ | (32,135 | ) | |||
| Adjustments for noncash items: | ||||||||
| Depreciation | 28,494 | 30,909 | ||||||
| Amortization of intangibles | 3,978 | 4,073 | ||||||
| Goodwill impairment charge | — | 44,465 | ||||||
| Deferred income taxes | (3,689 | ) | (10,523 | ) | ||||
| Accrued pension income and post-retirement benefits | 11,047 | 12,521 | ||||||
| (Gain) loss on investment accounted for under the fair value method | (1,600 | ) | 20,500 | |||||
| Loss on asset impairments and divestitures | 1,436 | 403 | ||||||
| Net gain on sale of assets | (220 | ) | (11 | ) | ||||
| Gain from insurance recoveries | (1,634 | ) | — | |||||
| Changes in assets and liabilities: | ||||||||
| Accounts and other receivables | 92 | 9,180 | ||||||
| Inventories | 1,127 | 1,137 | ||||||
| Income taxes recoverable/payable | (7,061 | ) | (1,849 | ) | ||||
| Prepaid expenses and other | (1,914 | ) | (1,256 | ) | ||||
| Accounts payable and accrued expenses | 161 | (2,455 | ) | |||||
| Pension and postretirement benefit plan contributions | (8,061 | ) | (2,709 | ) | ||||
| Other, net | 2,250 | 2,006 | ||||||
| Net cash provided by operating activities | 48,872 | 74,256 | ||||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | (45,457 | ) | (32,831 | ) | ||||
| Insurance proceeds from cast house explosion | 1,156 | — | ||||||
| Proceeds from the sale of assets and other | 2,308 | 1,416 | ||||||
| Net cash used in investing activities | (41,993 | ) | (31,415 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Borrowings | 96,750 | 107,000 | ||||||
| Debt principal payments | (105,750 | ) | (140,250 | ) | ||||
| Dividends paid | (14,456 | ) | (13,725 | ) | ||||
| Debt financing costs | (2,606 | ) | (78 | ) | ||||
| Proceeds from exercise of stock options and other | 2,313 | 2,858 | ||||||
| Net cash used in financing activities | (23,749 | ) | (44,195 | ) | ||||
| Effect of exchange rate changes on cash | 2,225 | (4,546 | ) | |||||
| Decrease in cash and cash equivalents | (14,645 | ) | (5,900 | ) | ||||
| Cash and cash equivalents at beginning of period | 44,156 | 50,056 | ||||||
| Cash and cash equivalents at end of period | $ | 29,511 | $ | 44,156 | ||||
|
Notes to the Financial Tables |
||||
|
(Unaudited) |
||||
| (a) | Losses associated with plant shutdowns, asset impairments, restructurings and other items for continuing operations in the fourth quarter and full year of 2016 and 2015 detailed below are shown in the statement 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 in the fourth quarter of 2016 include: | ||||
|
• |
Net pretax charges of $0.7 million related to the explosion that occurred in the second quarter of 2016 at the aluminum extrusions manufacturing facility in Newnan, Georgia, which consists of excess production costs for which recovery from insurance is not assured of $0.6 million (included in “Cost of goods sold” in the condensed consolidated statements of income) and 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 severance and other employee-related costs of $0.3 million, accelerated depreciation of $0.3 million (included in “Cost of goods sold” in the condensed consolidated statements of income) and other facility consolidation-related expenses of $0.2 million (included in “Cost of goods sold” in the condensed consolidated statements of income); | |||
|
• |
Pretax charges of $0.6 million associated with the acquisition of Futura Industries by Bonnell Aluminum (included in “Selling, R&D and general expenses” in the condensed consolidated statements of income); | |||
|
• |
Pretax charges of $0.5 million related to expected future environmental costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the condensed consolidated statements of income); | |||
|
• |
Pretax charges of $0.3 million related to the settlement of contingencies associated with the application of prior period Brazilian value-added tax credits in Flexible Packaging Films (included in “Cost of goods sold” in the condensed consolidated statements of income); | |||
|
• |
Pretax charges of $0.2 million associated with asset impairments in PE Films; | |||
|
• |
Net pretax gain of $0.1 million related to contractual indemnifications associated with the anticipated settlement of a Terphane pre-acquisition contingency (included in “Other income (expense), net” in the condensed consolidated statements of income); and | |||
|
• |
Net pretax gain of $0.1 million, associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana, which includes a pretax gain of $0.2 million related to the sale of the property, partially offset by pretax charges of $0.1 million associated with the shutdown of this facility. | |||
| Plant shutdowns, asset impairments, restructurings and other charges in 2016 include: | ||||
|
• |
Net pretax income of $0.4 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 recognition of a gain of $1.9 million for a portion of the insurance recoveries approved by the insurer to begin the replacement of capital equipment, offset by the impairment of equipment damaged by the explosion of $0.3 million (net amount included in “Other income (expense), net” in the condensed consolidated statements of income) and other costs related to the explosion that are not recoverable from insurance of $0.6 million (included in “Selling, R&D and general expenses”) and excess production costs for which recovery from insurance is not assured of $0.6 million (included in “Cost of goods sold” in the condensed consolidated statements of income). | |||
|
• |
Pretax charges of $4.3 million associated with the consolidation of domestic PE Films’ manufacturing facilities, which consists of severance and other employee-related costs of $1.2 million, asset impairments of $0.4 million, accelerated depreciation of $0.6 million (included in “Cost of goods sold” in the condensed consolidated statements of income) and other facility consolidation-related expenses of $2.0 million ($1.6 million is included in “Cost of goods sold” in the condensed consolidated statements of income); | |||
|
• |
Pretax charges of $0.4 million associated with a business development project (included in “Selling, R&D and general expenses” in the condensed consolidated statements of income and “Corporate expenses, net” in the statement of net sales and operating profit by segment); | |||
|
• |
Pretax charges of $0.3 million for severance and other employee-related costs associated with restructurings in PE Films ($0.1 million) and Corporate ($0.2 million) (included in “Corporate expenses, net” in the statement of net sales and operating profit by segment); | |||
|
• |
Pretax charges of $0.6 million associated with the acquisition of Futura Industries by Bonnell Aluminum (included in “Selling, R&D and general expenses” in the condensed consolidated statements of income); | |||
|
• |
Pretax charges of $0.5 million related to expected future environmental costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the condensed consolidated statements of income); | |||
|
• |
Pretax charges of $0.3 million related to contingencies associated with the application of prior period Brazilian value-added tax credits in Flexible Packaging Films (included in “Cost of goods sold” in the condensed consolidated statements of income); | |||
|
• |
Pretax charges of $0.2 million associated with asset impairments in PE Films; | |||
|
• |
Net pretax gain of $0.1 million related to contractual indemnifications associated with the anticipated settlement of a Terphane pre-acquisition contingency (included in “Other income (expense), net” in the condensed consolidated statements of income); and | |||
|
• |
Net pretax charge of $0.1 million, associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana, which includes a pretax gain of $0.2 million related to the sale of the property, partially offset by pretax charges of $0.3 million associated with the shutdown of this facility. | |||
| Plant shutdowns, asset impairments, restructurings and other charges in the fourth quarter of 2015 include: | ||||
|
• |
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 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 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 items 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 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 aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the condensed consolidated statements of income). | |||
| (b) | Goodwill impairment charge of $44.5 million ($44.5 million after taxes) recognized in Flexible Packaging Films in the third quarter of 2015 upon completion of an impairment analysis performed as of September 30, 2015. This non-operating, non-cash charge, as computed under GAAP, resulted from continuing competitive pressures primarily related to ongoing unfavorable economic conditions in its primary market of Brazil and excess global capacity in the industry. | |||
| (c) | Unrealized gains on the Company’s investment in kaleo, Inc. (“kaléo”) of $1.8 million and $1.6 million were recognized in the fourth quarter of 2016 and for the full year 2016, respectively (included in “Other income (expense), net” in the condensed consolidated statements of income). The change in the estimated fair value of the Company’s holding in kaléo in the fourth quarter of 2016 and full-year 2016 are primarily related to favorable adjustments in the fair value for the passage of time, with the negotiated terms of the termination of sanofi-aventis U.S. LLC (“Sanofi’s”) exclusive rights license for Auvi-Q and Allerject in North America and the return of such rights to kaléo, and the announced reintroduction of the Auvi-Q product in the first quarter of 2017. | |||
|
An unrealized loss on the Company’s investment in kaléo of $20.5 million was recognized in the fourth quarter of 2015 and for the full year 2015 (included in “Other income (expense), net” in the condensed consolidated statements of income). In 2009, kaléo licensed exclusive rights to 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. Sanofi announced on October 28, 2015 a voluntary recall of all Auvi-Q and Allerject epinephrine injectors on the market. The unrealized loss in the fourth quarter and full year 2015 reflects the estimated adverse impact of this product recall. |
||||
| (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 $1.0 million in the fourth quarter of 2016. |
|||
| (e) | Income taxes in 2016 included the recognition of an additional valuation allowance of $0.3 million related to expected limitations on the utilization of assumed capital losses on certain investments. Income taxes in 2015 included the partial reversal of a valuation allowance of $0.5 million related to the expected limitations on the utilization of assumed capital losses on certain investments that were recognized in prior years. The 2016 low effective tax rate is primarily due to the $6.4 million tax benefit from excess foreign tax credits that are related to the repatriation of cash from Brazil. | |||
| (f) | Net debt is calculated as follows: | |||
| (in millions) | December 31, 2016 | December 31, 2015 | ||||
| Debt | $ | 95.0 | $ | 104.0 | ||
| Less: Cash and cash equivalents | 29.5 | 44.2 | ||||
| Net debt | $ | 65.5 | $ | 59.8 | ||
| 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 (loss) and earnings (loss) 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 (loss) and diluted earnings (loss) per share as reported under GAAP. Net income (loss) and earnings (loss) 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 (loss) or earnings (loss) per share from continuing operations 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 twelve months ended December 31, 2016 and 2015 are shown below in order to show the impact on the effective tax rate: |
| (in millions) | Pre-Tax |
Taxes Expense |
After-Tax |
Effective |
|||||||||||
| Three Months Ended December 31, 2016 | (a) | (b) | (b)/(a) | ||||||||||||
| Net income reported under GAAP | $ | 3.1 | $ | 1.4 | $ | 1.7 | 43.9 | % | |||||||
| Losses associated with plant shutdowns, asset impairments and restructurings | 0.8 | 0.3 | 0.5 | ||||||||||||
| Losses from sale of assets and other | 1.2 | — | 1.2 | ||||||||||||
| Net income from ongoing operations | $ | 5.1 | $ | 1.7 | $ | 3.4 | 31.4 | % | |||||||
| Three Months Ended December 31, 2015 | |||||||||||||||
| Net income (loss) reported under GAAP | $ | (6.0 | ) | $ | (0.1 | ) | $ | (5.9 | ) | 2.3 | % | ||||
| Losses associated with plant shutdowns, asset impairments and restructurings | 2.2 | 0.8 | 1.4 | ||||||||||||
| Losses from sale of assets and other | 21.9 | 6.4 | 15.5 | ||||||||||||
| Net income from ongoing operations | $ | 18.1 | $ | 7.1 | $ | 11.0 | 39.0 | % | |||||||
| Twelve Months Ended December 31, 2016 | |||||||||||||||
| Net income reported under GAAP | $ | 27.7 | $ | 3.2 | $ | 24.5 | 11.6 | % | |||||||
| Losses associated with plant shutdowns, asset impairments and restructurings | 4.9 | 1.8 | 3.1 | ||||||||||||
| (Gains) losses from sale of assets and other | 0.6 | 5.5 | (4.9 | ) | |||||||||||
| Net income from ongoing operations | $ | 33.2 | $ | 10.5 | $ | 22.7 | 31.6 | % | |||||||
| Twelve Months Ended December 31, 2015 | |||||||||||||||
| Net income (loss) reported under GAAP | $ | (23.2 | ) | $ | 8.9 | $ | (32.1 | ) | (38.5 | )% | |||||
| Losses associated with plant shutdowns, asset impairments and restructurings | 4.8 | 1.8 | 3.0 | ||||||||||||
| Losses from sale of assets and other | 25.8 | 8.1 | 17.7 | ||||||||||||
| Goodwill impairment charge | 44.5 | — | 44.5 | ||||||||||||
| Net income from ongoing operations | $ | 51.9 | $ | 18.8 | $ | 33.1 | 36.2 | % | |||||||
View source version on businesswire.com: http://www.businesswire.com/news/home/20170222006618/en/
Source:
Tredegar Corporation
Neill Bellamy, 804-330-1211
Fax: 804-330-1777
neill.bellamy@tredegar.com
