Tredegar Corporation (NYSE:TG, also the “Company” or “Tredegar”)
today reported second quarter financial results for the period
ended June 30, 2020.
Second quarter 2020 net income was $11.2 million ($0.33 per
share) compared with net income of $14.5 million ($0.44 per share)
in the second quarter of 2019. Net income from ongoing operations,
which excludes special items, was $14.1 million ($0.42 per share)
in the second quarter of 2020 and $11.7 million ($0.35 per share)
in the second quarter of 2019. 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 six months ended June 30, 2020 and 2019, is provided in
Note (a) of the Notes to the Financial Tables in this press
release.
Second Quarter Financial Results Highlights
- Earnings before interest, taxes, depreciation and amortization
("EBITDA") from ongoing operations for Aluminum Extrusions of $13.3
million was $5.3 million lower than the second quarter of 2019
- EBITDA from ongoing operations for PE Films of $15.3 million
was $4.2 million higher than the second quarter of 2019
- EBITDA from ongoing operations for Flexible Packaging Films of
$6.5 million was $3.6 million higher than the second quarter of
2019
John Steitz, Tredegar’s president and chief executive officer
said, “Overall financial results for the second quarter of 2020
were favorable despite COVID-19, which mainly had an adverse impact
on our aluminum extrusions business. While our surface protection,
flexible packaging and personal care businesses have performed well
under COVID-19 to date, its future impact is uncertain.”
Mr. Steitz continued, “Our top priority continues to be the
safety of our employees. Our balance sheet remains strong, with
cash exceeding debt at the end of the second quarter by $5.9
million for the first time since the acquisition of Terphane in
October of 2011.”
On a final note, Mr. Steitz commented, “I’d like to thank all of
our employees for their hard work and dedication during these
unprecedented times.”
THE IMPACT OF COVID-19
Essential Business and Employee Considerations
The Company’s priorities during the COVID-19 pandemic continue
to be to protect the health and safety of employees while keeping
its manufacturing sites open due to the essential nature of many of
its products. The Company’s businesses have been deemed “essential
services,” “critical manufacturers,” and “life sustaining
industries” under applicable state or national stay-at-home orders
and, therefore, remain operational as of the date of this
communication. Within the limitations imposed by the health and
safety procedures described below, the Company has continued to
manufacture the full range of products at its facilities, including
certain products that are components for end-uses that are
essential, critical or life sustaining such as: (i) polyester-based
materials for flexible food packaging, (ii) polyethylene-based film
and laminate materials for personal hygiene and packaging products,
(iii) aluminum extrusion parts for hospital beds, FEMA tents,
temporary hospital structures and medical equipment, (iv) materials
for face masks and face shields, and (v) polyethylene-based films
used to protect components of flat panel displays during
manufacturing and transportation processes, which are instrumental
to allowing employees to work from home.
The Company’s efforts to protect the health and well-being of
its employees from COVID-19 began at the Company’s Guangzhou, China
facility. Protocols developed at Guangzhou guided the Company's
COVID-19 related efforts at other facilities as the outbreak spread
beyond China. Those efforts continue to improve as COVID-19
informed work practices evolve and the Company responds to
recommended and mandated actions of government and health
authorities.
The Company has educated employees about COVID-19 symptoms and
hygiene best practices. It has adopted COVID-19 related pay and
sick leave policies that incentivize employees to stay home if they
feel ill or have been exposed to others with the illness. The
Company’s policies include taking an employee’s temperature before
entering production facilities; mandating handwashing; requiring
social distancing and, where social distancing is difficult,
requiring face coverings; streamlining onsite personnel to only
those required for production and distribution; strongly
encouraging and, where mandated, requiring remote work for all
those who can work from home; and disinfecting facilities. In the
U.S., the Company has educated employees on COVID-19-related
government benefits.
On April 1, 2020, the Company began providing a weekly dashboard
to its Board of Directors (the “Board”) highlighting the impacts of
COVID-19 on its employees, businesses and financial condition.
As of August 5, the Company was aware that 102 of its employees
have had confirmed cases of COVID-19 since the outbreak began, with
no fatalities and 81 of those employees having returned to work.
Additional employees have been absent or self-quarantined due to
COVID-19. Bonnell Aluminum is experiencing higher than normal
absenteeism which it attributes to COVID-19-related factors. Since
the last update provided in the Company’s first-quarter earnings
release as of May 6, 2020, no facilities have been fully shut down
and measures to disinfect facilities have not had a significant
impact on production.
Bonnell Aluminum continuously attempts to match its direct labor
with demand, including declining demand associated with the
pandemic. Since the last update provided in the Company’s
first-quarter earnings release as of May 6, 2020, Bonnell Aluminum
has recalled some of the 240 workers who were subject to layoffs
earlier in the year, as customers in the specialty and automotive
markets began to re-open.
Financial Considerations
The 2020 annual plan for Bonnell Aluminum (pre-COVID-19)
included sales volume of 201 million pounds and EBITDA from ongoing
operations of $65 million, versus 2019 sales volume of 208 million
pounds and EBITDA from ongoing operations of $65.7 million. Bonnell
Aluminum’s current projection for 2020, which accounts for the
pandemic that is highly uncertain, includes sales volume of 170
million pounds and EBITDA from ongoing operations of $42 million.
The latest projections assume no further downtime at Bonnell
Aluminum facilities and the collection of approximately 97% of
gross accounts receivable, which totaled approximately $57 million
at the end of the second quarter of 2020.
Approximately 58% of Bonnell Aluminum’s net sales in 2019 were
related to building and construction (“B&C”) markets
(non-residential B&C of 51% and residential B&C of 8%).
Much of the current sales volume associated with the B&C market
is related to contracts that existed at the start of COVID-19. Once
completed, the level of new contracts is highly uncertain. During
the economic downturn from 2007 to 2009 (also known as “The Great
Recession”), the Company estimates that the aluminum extrusion
industry demand peak-to-trough fell approximately 40% from 2006 to
2009, with sequential annual declines during this period of
approximately 13%, 13% and 20%, respectively.
Demand has remained strong under COVID-19 conditions for the
Company’s flexible food packaging films produced by Terphane and
the hygiene materials and medical apertured films produced by the
Personal Care component of PE Films. The Surface Protection
component of PE Films had record performance for EBITDA from
ongoing operations in the second quarter and first half of 2020,
but is expecting a slowdown for the second half of the year, based
on industry projections for products using flat panel displays and
anticipated customer inventory corrections. No significant issues
have arisen to-date on the collection of accounts receivable at
Terphane, Personal Care or Surface Protection.
Tredegar’s defined benefit pension plan, which was frozen at the
end of 2007, was underfunded on a GAAP basis by $100 million at
December 31, 2019, comprised of investments at fair value of $218
million and a projected benefit obligation (“PBO”) of $318 million.
GAAP accounting requires adjustment for changes in values of assets
and the PBO only at the end of each year, even though the value of
these amounts changes daily. The Company estimates COVID-19-related
changes to the values of pension plan assets and liabilities
resulted in an increase in the underfunding from $100 million to
$130 million at June 30, 2020.
Tredegar owns approximately 18% of kaléo, Inc. (“kaléo”), which
makes and sells an epinephrine delivery device under the name
AUVI-Q®. The Company accounts for its investment in kaléo on a fair
value basis. The Company’s estimate of the fair value of its
interest in kaléo at June 30, 2020 was $70.7 million ($58.4 million
after deferred income taxes), which represents an increase of $1.3
million ($0.9 million after deferred income taxes) and a decrease
of $24.8 million ($19.5 million after deferred income taxes) since
March 31, 2020 and December 31, 2019, respectively. The decline in
estimated fair value during the first six months of 2020 was
primarily due to: (i) lower expectations for 2020 EBITDA and net
cash flow associated with lower market demand for epinephrine
delivery devices resulting from COVID-19-related social distancing
guidelines, especially if such guidelines or restrictions impact
the peak back-to-school season, and (ii) a higher private company
liquidity discount. kaléo’s stock is not publicly traded. The
ultimate value of Tredegar’s ownership interest in kaléo could be
materially different from the $70.7 million estimated fair value
reflected in the Company’s financial statements at June 30,
2020.
Tredegar had debt (all under its revolving credit agreement) of
$34.0 million and cash of $39.9 million at June 30, 2020. The
revolving credit agreement allows borrowings of up to $500 million
and matures in June 2024. The Company believes that its most
restrictive covenant (computed quarterly) is the leverage ratio,
which permits maximum borrowings of up to 4x EBITDA, as defined
under the revolving credit agreement for the trailing four quarters
(“Credit EBITDA”). The Company had Credit EBITDA and a leverage
ratio (calculated in the “Liquidity and Capital Resources” section
of the Company’s Quarterly Report on the period ended June 30, 2020
("Form 10-Q")) of $97.1 million and 0.35x, respectively, at June
30, 2020. The Company’s current stress testing under a
COVID-19-driven recession indicates a low probability that a future
leverage ratio will exceed 4.0x, given the low leverage ratio that
exists today. The Company is focused on conserving cash and
borrowing capacity, has reduced its capital expenditures budget for
2020 from $47 million to $31 million and continues to optimize
working capital. The Company’s current quarterly dividend at 12
cents per share aggregates to quarterly dividend payments of
approximately $4 million. All decisions with respect to the
declaration and payment of dividends will be made by the Board
based upon earnings, financial condition, anticipated cash needs,
restrictions under the revolving credit agreement and other
relevant considerations.
OPERATIONS REVIEW
Aluminum Extrusions
Aluminum Extrusions, which is also referred to as Bonnell
Aluminum, produces high-quality, soft-alloy and medium-strength
aluminum extrusions primarily for the following markets: building
and construction, automotive, and specialty (which consists of
consumer durables, machinery and equipment, electrical and
distribution end-use products.).
A summary of second quarter operating results for Aluminum
Extrusions is provided below:
Three Months Ended
Favorable/
(Unfavorable)
% Change
Six Months Ended
Favorable/
(Unfavorable)
% Change
(In thousands, except percentages)
June 30,
June 30,
2020
2019
2020
2019
Sales volume (lbs)
43,807
53,127
(17.5)
%
91,124
106,839
(14.7)
%
Net sales
$
106,058
$
136,757
(22.4)
%
$
223,945
$
275,804
(18.8)
%
Ongoing operations:
EBITDA
$
13,279
$
18,600
(28.6)
%
$
24,956
$
34,767
(28.2)
%
Depreciation & amortization
$
(4,267)
$
(4,082)
(4.5)
%
$
(8,380)
$
(8,164)
2.6
%
EBIT*
$
9,012
$
14,518
(37.9)
%
$
16,576
$
26,603
(37.7)
%
Capital expenditures
$
1,355
$
4,420
$
2,929
$
8,787
* See the net sales and EBITDA from
ongoing operations by segment statements for a reconciliation of
this non-GAAP measure to GAAP.
Second Quarter 2020 Results vs. Second
Quarter 2019 Results
Net sales (sales less freight) in the second quarter of 2020
decreased versus 2019 primarily due to lower sales volume and the
pass-through of lower metal costs, partially offset by an increase
in average selling prices to cover higher operating costs. Sales
volume in the second quarter of 2020 decreased by 17.5% versus
2019. Sales volume in the specialty and automotive markets, which
represented approximately 32% and 9% of 2019 sales, respectively,
experienced double-digit declines for the period. Non-residential
building and construction shipments were relatively flat, but the
Company expects a decline in its shipments for this end market,
potentially beginning later this year as a result of
COVID-19-related reduced demand. See the “The Impact of COVID-19”
section for more information on business conditions and
projections.
EBITDA from ongoing operations in the second quarter of 2020
decreased by $5.3 million in comparison to the second quarter of
2019 due to lower volumes ($6.0 million) and higher labor and
employee-related costs ($1.0 million), partially offset by higher
pricing ($3.1 million). In addition, the timing of the flow through
under the first-in first-out ("FIFO") method of aluminum raw
material costs previously acquired at higher prices in a quickly
dropping commodity pricing environment resulted in a charge of $2.1
million in the second quarter of 2020 versus a charge of $0.4 in
the second quarter of 2019.
First Six Months 2020 Results vs. First
Six Months 2019 Results
Net sales in the first six months of 2020 decreased versus 2019
primarily due to lower sales volume and the pass-through of lower
metal costs, partially offset by an increase in average selling
prices to cover higher operating costs. Sales volume in the first
six months of 2020 decreased by 14.7% versus 2019.
EBITDA from ongoing operations in the first six months of 2020
decreased by $9.8 million in comparison to the first six months of
2019 due to lower volumes ($10.8 million) and higher labor and
employee-related costs ($1.6 million), partially offset by higher
pricing ($4.7 million). In addition, and consistent with second
quarter results, inventories accounted for under the FIFO method
resulted in a charge of $3.5 million in the first six months of
2020 versus a charge of $0.7 in the first six months of 2019.
Projected Capital Expenditures and
Depreciation & Amortization
Capital expenditures for Bonnell Aluminum are projected to be
$12 million in 2020, including the expected initial investment for
a multi-year project to migrate to a new division-wide enterprise
resource planning and manufacturing excellence system ($2 million,
which reflects a delay in activity as a result of COVID-19),
infrastructure upgrades at the Carthage, Tennessee and Newnan,
Georgia facilities ($2 million), and approximately $9 million
required to support continuity of current operations. Depreciation
expense is projected to be $14 million in 2020. Amortization
expense is projected to be $3 million in 2020.
PE Films
PE Films is composed of surface protection films, personal care
materials, polyethylene overwrap films and films for other markets.
A summary of second quarter operating results for PE Films is
provided below:
Three Months Ended
Favorable/
(Unfavorable)
% Change
Six Months Ended
Favorable/
(Unfavorable)
% Change
(In thousands, except percentages)
June 30,
June 30,
2020
2019
2020
2019
Sales volume (lbs)
25,818
25,476
1.3
%
53,346
51,322
3.9
%
Net sales
$
71,012
$
69,161
2.7
%
$
142,273
$
135,941
4.7
%
Ongoing operations:
EBITDA
$
15,319
$
11,160
37.3
%
$
29,507
$
17,703
66.7
%
Depreciation & amortization
$
(3,753)
$
(3,394)
10.6
%
$
(7,477)
$
(6,986)
7.0
%
EBIT*
$
11,566
$
7,766
48.9
%
$
22,030
$
10,717
105.6
%
Capital expenditures
$
2,110
$
5,654
$
4,525
$
12,358
* See the net sales and EBITDA from
ongoing operations by segment statements for a reconciliation of
this non-GAAP measure to GAAP.
Second Quarter 2020 Results vs. Second
Quarter 2019 Results
Net sales in the second quarter of 2020 increased versus 2019
due to higher sales in Surface Protection. Surface Protection sales
increased by $2.4 million while Personal Care sales decreased by
$1.7 million.
Net sales in Surface Protection increased due to higher volume.
As discussed further below, a possible customer product transition
in Surface Protection continues to be delayed. Net sales in
Personal Care decreased primarily due to unfavorable pricing. In
addition, net sales in Personal Care were adversely impacted by the
decline in the value of currencies for operations outside of the
U.S. relative to the U.S. Dollar.
EBITDA from ongoing operations in the second quarter of 2020
increased by $4.2 million versus the second quarter of 2019
primarily due to:
- A $0.7 million increase from Surface Protection, with the
second quarters of 2020 and 2019 being the two highest quarters on
record, primarily due to higher volume and product mix ($1.6
million), partially offset by lower productivity ($0.5 million) and
higher research and development ("R&D") and other expenses
($0.3 million); and
- A $2.5 million increase from Personal Care, primarily due to
favorable product mix ($1.2 million), lower freight costs ($0.7
million) and a benefit from the timing of resin cost pass-throughs
($1.3 million), partially offset by unfavorable net foreign
exchange impact ($0.5 million).
See the “The Impact of COVID-19” section for more
information.
Customer Product Transitions in Personal Care and Surface
Protection
The Company previously disclosed a significant customer product
transition for the Personal Care component of PE Films. Annual
sales for this product declined from approximately $70 million in
2018 to $30 million in 2019. The Company extended an arrangement
with this customer that is expected to generate sales of this
product at approximately 2019 levels through at least 2022.
Personal Care had approximately break-even EBITDA from ongoing
operations in 2019 as competitive pressures resulted in missed
sales and margin goals. Personal Care continues to focus on new
business development and cost reduction initiatives in an effort to
improve profitability.
The Surface Protection component of PE Films supports
manufacturers of optical and other specialty substrates used in
flat panel display products. These films are primarily used by
customers to protect components of displays in the manufacturing
and transportation processes and then discarded.
The Company previously reported the risk that a portion of its
film products used in surface protection applications will be made
obsolete by possible future customer product transitions to less
costly alternative processes or materials. These transitions
principally relate to one customer. The full transition continues
to encounter delays, resulting in higher than expected sales to
this customer in the last four quarters. The Company estimates that
during the next four quarters the adverse impact on EBITDA from
ongoing operations from this customer shift versus the last four
quarters ended June 30, 2020 could possibly be $14 million. To
offset the potential adverse impact, the Company is aggressively
pursuing and making progress generating sales from new surface
protection products, applications and customers.
First Six Months 2020 Results vs. First
Six Months 2019 Results
Net sales in the first six months of 2020 increased versus 2019
due to higher sales in Surface Protection. Surface Protection sales
increased by $10.9 million while Personal Care sales decreased by
$5.3 million.
Net sales in Surface Protection increased due to higher volume
and favorable mix. Net sales in Personal Care decreased as a result
of lower volume and unfavorable pricing. In addition, net sales in
Personal Care were adversely impacted by the decline in the value
of currencies for operations outside of the U.S. relative to the
U.S. Dollar.
EBITDA from ongoing operations in the first six months of 2020
increased by $11.8 million versus the first six months of 2019
primarily due to:
- A $6.1 million increase from Surface Protection, including
record performance for the first half of 2020, primarily due to
higher volume and mix (net favorable impact of $7.4 million),
partially offset by lower productivity ($1.0 million) and higher
R&D expense ($0.3 million); and
- A $5.1 million increase from Personal Care, primarily due to
favorable product mix ($1.3 million), the benefit of the timing of
resin cost pass-throughs ($2.3 million), production efficiencies
($0.7 million), and lower freight costs ($0.8 million), partially
offset by unfavorable pricing ($0.5 million).
Projected Capital Expenditures and
Depreciation & Amortization
Capital expenditures for PE Films are projected to be $13
million in 2020 including: $2 million to complete a scale-up line
in Surface Protection to improve development and speed to market
for new products; $2 million for other development projects; and $9
million for capital expenditures required to support continuity of
current operations. Depreciation expense is projected to be $15
million in 2020. There is no amortization expense for PE Films.
Flexible Packaging Films
Flexible Packaging Films, which is also referred to as Terphane,
produces polyester-based films for use in packaging applications
that have specialized properties, such as heat resistance,
strength, barrier protection and the ability to accept high-quality
print graphics. A summary of second quarter operating results for
Flexible Packaging Films is provided below:
Three Months Ended
Favorable/
(Unfavorable)
% Change
Six Months Ended
Favorable/
(Unfavorable)
% Change
(In thousands, except percentages)
June 30,
June 30,
2020
2019
2020
2019
Sales volume (lbs)
29,195
26,460
10.3
%
54,974
51,921
5.9
%
Net sales
$
34,104
$
33,443
2.0
%
$
64,678
$
67,062
(3.6)
%
Ongoing operations:
EBITDA
$
6,495
$
2,880
125.5
%
$
13,048
$
6,084
114.5
%
Depreciation & amortization
$
(436)
$
(363)
20.1
%
$
(864)
$
(707)
22.2
%
EBIT*
$
6,059
$
2,517
140.7
%
$
12,184
$
5,377
126.6
%
Capital expenditures
$
417
$
1,260
$
1,265
$
2,994
* See the net sales and EBITDA from
ongoing operations by segment statements for a reconciliation of
this non-GAAP measure to GAAP.
Second Quarter 2020 Results vs. Second
Quarter 2019 Results
Net sales in the second quarter of 2020 increased 2.0% compared
to the second quarter of 2019 primarily due to higher sales volume,
partially offset by lower selling prices from the pass-through of
lower resin costs.
Terphane’s EBITDA from ongoing operations in the second quarter
of 2020 increased by $3.6 million versus the second quarter of 2019
primarily due to:
- Lower raw material costs ($4.0 million), higher sales volume
($1.1 million) and the benefit from production efficiencies
resulting in lower variable costs ($0.7 million), partially offset
by lower selling prices ($2.6 million);
- Net favorable foreign currency translation of Real-denominated
operating costs ($0.6 million); and
- Foreign currency transaction losses of $0.3 million in 2020
versus losses of $0.1 million in 2019.
Terphane has experienced strong demand for food packaging
materials during the COVID-19 environment, with high demand in the
United States and Europe for value-added products. See the “The
Impact of COVID-19” section for more information.
First Six Months 2020 Results vs. First
Six Months 2019 Results
Net sales in the first six months of 2020 decreased 3.6%
compared to the first six months of 2019 primarily due to lower
selling prices from the pass-through of lower resin costs,
partially offset by higher sales volume.
Terphane’s EBITDA from ongoing operations in the first six
months of 2020 increased by $7.0 million versus the first six
months of 2019 primarily due to:
- Lower raw material costs ($9.2 million), higher sales volume
($1.2 million) and lower fixed costs ($0.4 million), partially
offset by lower selling prices ($4.8 million) and higher variable
costs ($0.3 million);
- Net favorable foreign currency translation of Real-denominated
costs ($0.9 million);
- Foreign currency transaction losses of $0.2 million in the
first six months of 2020 versus zero in 2019; and
- A benefit of $1.2 million in the first three months of 2020
resulting from the favorable settlement of a dispute related to
value-added taxes.
Projected Capital Expenditures and
Depreciation & Amortization
Capital expenditures for Flexible Packaging Films are projected
to be $6 million in 2020, including $1 million for new capacity for
value-added products and productivity projects and $5 million for
capital expenditures required to support continuity of current
operations. Depreciation expense is projected to be $1 million in
2020. Amortization expense is projected to be $0.4 million in
2020.
Corporate Expenses, Interest, Taxes & Other
Pension expense was $7.1 million in the first six months of
2020, versus $4.8 million in the first six months of 2019. The
impact on earnings from pension expense is reflected in “Corporate
expenses, net” in the net sales and EBITDA from ongoing operations
by segment table. Pension expense is projected to be $14 million in
2020, which is determined at the beginning of the year based on the
funded status of the Company’s defined benefit pension plan and
actuarial assumptions at that time. See the “The Impact of
COVID-19” section for the Company’s estimate of the funded status
of the pension plan at June 30, 2020. Corporate expenses, net,
increased in the first six months of 2020 versus 2019 primarily due
to higher consulting fees ($2.2 million) related to the
identification and remediation of previously disclosed material
weaknesses in the Company’s internal control over financial
reporting and business development activities.
Interest expense was $1.1 million in the first six months of
2020 in comparison to $2.5 million in the first six months of 2019,
primarily due to lower average debt levels.
The effective tax rate used to compute income tax expense from
continuing operations was 23.8% in the first six months of 2020,
compared to 19.8% in the first six months of 2019. 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 22.7% for the first six months of
2020 versus 22.2% in 2019 (see also Note (f) of the Notes to
Financial Tables). An explanation of differences between the
effective tax rate for income from continuing operations and the
U.S. federal statutory rate for 2020 and 2019 will be provided in
the Form 10-Q.
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 the Company uses the words “believe,”
“estimate,” “anticipate,” “appear to,” “expect,” “project,” “plan,”
“likely,” “may” and similar expressions, it does so to identify
forward-looking statements. Such statements are based on the
Company's 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 the Company's 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. In addition, the Company's current
projections for its businesses could be materially affected by the
highly uncertain impact of COVID-19. As a consequence, the
Company's results could differ significantly from its projections,
depending on, among other things, the duration of "shelter in
place" orders and the ultimate impact of the pandemic on employees,
supply chains, customers and the U.S. and world economies.
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 the
Company's business is highly dependent;
- inability to achieve sales to new customers to replace lost
business;
- inability to develop, efficiently manufacture and deliver new
products at competitive prices;
- failure of the Company's 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 the
Company's products;
- uncertain economic conditions in countries in which the Company
does 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 the Company's underfunded defined
benefit pension plan liability;
- an increase in the operating costs incurred by the Company's
business units, 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 the Company's manufacturing facilities;
- the impact of public health epidemics on employees, production
and the global economy, such as the coronavirus (COVID-19)
currently impacting the global economy;
- an information technology system failure or breach;
- volatility and uncertainty of the valuation of the Company's
investment in kaléo;
- the impact of the imposition of tariffs and sanctions on
imported aluminum ingot used by Bonnell Aluminum;
- the impact of new tariffs, duties or other trade restrictions
imposed as a result of rising trade tensions between the U.S. and
other countries;
- the termination of anti-dumping duties on products imported to
Brazil that compete with products produced by Flexible
Packaging;
- 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, 2019 and
Quarterly Report on Form 10-Q in the period ended March 31, 2020.
Readers are urged to review and consider carefully the disclosures
Tredegar makes in its filings with the SEC.
Tredegar does not undertake, and expressly disclaims any duty,
to update any forward-looking statement made in this press release
to reflect any change in management’s expectations or any change in
conditions, assumptions or circumstances on which such statements
are based, except as required by applicable law.
To the extent that the financial information portion of this
press release contains non-GAAP financial measures, it also
presents both the most directly comparable financial measures
calculated and presented in accordance with GAAP and a quantitative
reconciliation of the difference between any such non-GAAP measures
and such comparable GAAP financial measures. Reconciliations of
non-GAAP financial measures are provided in the Notes to the
Financial Tables included with this press release and can also be
found within “Presentations” in the “Investors” section of our
website, www.tredegar.com.
Tredegar uses its website as a channel of distribution of
material Company information. Financial information and other
material information regarding Tredegar is posted on and assembled
in the “Investors” section of its website.
Tredegar Corporation is a manufacturer of plastic films and
aluminum extrusions. A global company headquartered in Richmond,
Virginia, Tredegar had 2019 sales of $1.0 billion. With
approximately 3,000 employees, the Company operates manufacturing
facilities in North America, South America, Europe, and Asia.
Tredegar Corporation
Condensed Consolidated
Statements of Income
(In Thousands, Except
Per-Share Data)
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Sales
$
218,638
$
248,248
$
446,940
$
496,714
Other income (expense), net (c)(d)
(13)
7,096
(26,225)
24,206
218,625
255,344
420,715
520,920
Cost of goods sold (c)
161,820
192,581
337,131
393,235
Freight
7,464
8,887
16,044
17,907
Selling, R&D and general expenses
(c)
30,077
29,315
58,101
55,811
Amortization of intangibles
753
890
1,511
1,782
Pension and postretirement benefits
3,567
2,416
7,134
4,831
Interest expense
548
1,263
1,104
2,495
Asset impairments and costs associated
with exit and disposal activities, net of adjustments (c)
136
1,075
597
2,131
Goodwill impairment (e)
—
—
13,696
—
204,365
236,427
435,318
478,192
Income (loss) before income taxes
14,260
18,917
(14,603)
42,728
Income tax expense (benefit)
3,064
4,440
(3,477)
8,467
Net income (loss)
$
11,196
$
14,477
$
(11,126)
$
34,261
Earnings (loss) per share:
Basic
$
0.33
$
0.44
$
(0.33)
$
1.03
Diluted
$
0.33
$
0.44
$
(0.33)
$
1.03
Shares used to compute earnings (loss) per
share:
Basic
33,435
33,270
33,374
33,197
Diluted
33,436
33,278
33,374
33,203
Tredegar Corporation
Net Sales and EBITDA from
Ongoing Operations by Segment
(In Thousands)
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Net Sales
Aluminum Extrusions
$
106,058
$
136,757
$
223,945
$
275,804
PE Films
71,012
69,161
142,273
135,941
Flexible Packaging Films
34,104
33,443
64,678
67,062
Total net sales
211,174
239,361
430,896
478,807
Add back freight
7,464
8,887
16,044
17,907
Sales as shown in the Condensed
Consolidated Statements of Income
$
218,638
$
248,248
$
446,940
$
496,714
EBITDA from Ongoing Operations
Aluminum Extrusions:
Ongoing operations:
EBITDA (b)
$
13,279
$
18,600
$
24,956
$
34,767
Depreciation & amortization
(4,267)
(4,082)
(8,380)
(8,164)
EBIT (b)
9,012
14,518
16,576
26,603
Plant shutdowns, asset impairments,
restructurings and other (c)
(1,230)
(17)
(1,918)
(57)
Goodwill impairment (e)
—
—
(13,696)
—
PE Films:
Ongoing operations:
EBITDA (b)
15,319
11,160
29,507
17,703
Depreciation & amortization
(3,753)
(3,394)
(7,477)
(6,986)
EBIT (b)
11,566
7,766
22,030
10,717
Plant shutdowns, asset impairments,
restructurings and other (c)
(646)
(1,523)
(1,552)
(2,901)
Flexible Packaging Films:
Ongoing operations:
EBITDA (b)
6,495
2,880
13,048
6,084
Depreciation & amortization
(436)
(363)
(864)
(707)
EBIT (b)
6,059
2,517
12,184
5,377
Plant shutdowns, asset impairments,
restructurings and other (c)
(10)
—
(10)
—
Total
24,751
23,261
33,614
39,739
Interest income
24
48
76
107
Interest expense
548
1,263
1,104
2,495
Gain (loss) on investment in kaléo
accounted for under fair value method (d)
1,300
7,100
(24,800)
24,182
Stock option-based compensation costs
725
898
1,309
1,313
Corporate expenses, net (c)
10,542
9,331
21,080
17,492
Income (loss) before income taxes
14,260
18,917
(14,603)
42,728
Income tax expense (benefit)
3,064
4,440
(3,477)
8,467
Net income (loss)
$
11,196
$
14,477
$
(11,126)
$
34,261
Tredegar Corporation
Condensed Consolidated Balance
Sheets
(In Thousands)
(Unaudited)
June 30, 2020
December 31, 2019
Assets
Cash & cash equivalents
$
39,930
$
31,422
Accounts & other receivables, net
100,460
107,558
Income taxes recoverable
852
4,100
Inventories
85,218
81,380
Prepaid expenses & other
10,383
8,696
Total current assets
236,843
233,156
Property, plant & equipment, net
229,920
242,890
Right-of-use leased assets
17,879
19,220
Investment in kaléo (cost basis of
$7,500)
70,700
95,500
Identifiable intangible assets, net
20,766
22,636
Goodwill
67,708
81,404
Deferred income taxes
10,826
13,129
Other assets
4,165
4,733
Total assets
$
658,807
$
712,668
Liabilities and Shareholders’
Equity
Accounts payable
$
92,882
$
103,657
Accrued expenses
47,054
45,809
Lease liability, short-term
2,949
3,002
Income taxes payable
5,613
—
Total current liabilities
148,498
152,468
Lease liability, long-term
16,305
17,689
Long-term debt
34,000
42,000
Pension and other postretirement benefit
obligations, net
104,903
107,446
Deferred income taxes
—
11,019
Other noncurrent liabilities
4,227
5,297
Shareholders’ equity
350,874
376,749
Total liabilities and shareholders’
equity
$
658,807
$
712,668
Tredegar Corporation
Condensed Consolidated
Statements of Cash Flows
(In Thousands)
(Unaudited)
Six Months Ended June 30,
2020
2019
Cash flows from operating activities:
Net income (loss)
$
(11,126)
$
34,261
Adjustments for noncash items:
Depreciation
15,357
14,465
Amortization of intangibles
1,511
1,782
Reduction of right-of-use lease asset
1,402
1,270
Goodwill impairment
13,696
—
Deferred income taxes
(8,461)
5,339
Accrued pension income and post-retirement
benefits
7,134
4,831
(Gain) loss on investment accounted for
under the fair value method
24,800
(6,600)
Loss on asset impairments and
divestitures
—
522
Net gain on sale of assets
—
(11)
Changes in assets and liabilities:
Accounts and other receivables
2,303
8,471
Inventories
(8,515)
702
Income taxes recoverable/payable
8,799
3,860
Prepaid expenses and other
(1,912)
1,081
Accounts payable and accrued expenses
(6,936)
(566)
Lease liability
(1,496)
(1,306)
Pension and postretirement benefit plan
contributions
(2,130)
(3,648)
Other, net
1,636
4,043
Net cash provided by operating
activities
36,062
68,496
Cash flows from investing activities:
Capital expenditures
(8,806)
(24,251)
Proceeds from the sale of assets and
other
—
22
Net cash used in investing activities
(8,806)
(24,229)
Cash flows from financing activities:
Borrowings
25,000
30,000
Debt principal payments
(33,000)
(58,500)
Dividends paid
(8,025)
(7,320)
Debt financing costs
—
(1,757)
Repurchase of employee common stock for
tax withholdings
(586)
(854)
Net cash used in financing activities
(16,611)
(38,431)
Effect of exchange rate changes on
cash
(2,137)
(464)
Increase in cash and cash equivalents
8,508
5,372
Cash and cash equivalents at beginning of
period
31,422
34,397
Cash and cash equivalents at end of
period
$
39,930
$
39,769
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 as defined by GAAP. They exclude items that
management believes do not relate to Tredegar’s ongoing operations.
A reconciliation to net income and earnings per share from ongoing
operations for the three and six months ended June 30, 2020 and
2019 is shown below:
(in millions, except per share data)
Three Months
Ended June 30,
Six Months Ended
June 30,
2020
2019
2020
2019
Net income (loss) as reported under
GAAP
$
11.2
$
14.5
$
(11.1)
$
34.3
After-tax effects of:
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
—
1.1
0.3
2.0
(Gains) losses from sale of assets and
other:
(Gain) loss associated with the investment
in kaléo
(0.9)
(5.6)
19.5
(19.9)
Other
3.8
1.7
6.2
2.6
Goodwill impairment
—
—
10.5
—
Net income from ongoing operations
$
14.1
$
11.7
$
25.4
$
19.0
Earnings (loss) per share as reported
under GAAP (diluted)
$
0.33
$
0.44
$
(0.33)
$
1.03
After-tax effects per diluted share
of:
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
—
0.03
0.01
0.06
(Gains) losses from sale of assets and
other:
(Gain) loss associated with the investment
in kaléo
(0.03)
(0.17)
0.59
(0.60)
Other
0.12
0.05
0.17
0.08
Goodwill impairment
—
—
0.32
—
Earnings per share from ongoing operations
(diluted)
$
0.42
$
0.35
$
0.76
$
0.57
Reconciliations of the pre-tax and
post-tax balances attributed to net income are shown in Note
(f).
(b)
EBITDA (earnings before interest, taxes,
depreciation and amortization) from ongoing operations is the key
profitability metric used by the Company’s chief operating decision
maker to assess segment financial performance. For more business
segment information, see Note 11 in the Notes to Financial
Statements in the Form 10-Q.
EBIT (earnings before interest and taxes)
from ongoing operations is a non-GAAP financial measure included in
the accompanying tables and the reconciliation of segment financial
information to consolidated results for the Company in the net
sales and EBITDA from ongoing operations by segment statements. It
is not intended to represent the stand-alone results for Tredegar’s
ongoing operations under GAAP and should not be considered as an
alternative to net income as defined by GAAP. EBIT is a widely
understood and utilized metric that is meaningful to certain
investors. The Company believes that including this financial
metric in the reconciliation of management’s performance metric,
EBITDA from ongoing operations, provides useful information to
those investors that primarily utilize EBIT to analyze the
Company’s core operations.
(c)
Losses associated with plant shutdowns,
asset impairments, restructurings and other items for the three and
six months ended June 30, 2020 and 2019 detailed below are shown in
the statements of net sales and EBITDA from ongoing operations by
segment and are included in “Asset impairments and costs associated
with exit and disposal activities, net of adjustments” in the
condensed consolidated statements of income, unless otherwise
noted.
Three Months Ended
June 30, 2020
Six Months Ended
June 30, 2020
($ in millions)
Pre-Tax
Net of Tax
Pre-Tax
Net of Tax
Aluminum Extrusions:
(Gains) losses from sale of assets,
investment writedowns and other items:
Consulting expenses for ERP feasibility
study2
$
0.2
$
0.2
$
0.9
$
0.7
COVID-19-related expenses3
0.9
0.8
0.9
0.8
Total for Aluminum Extrusions
$
1.1
$
1.0
$
1.8
$
1.5
PE Films:
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings:
Consolidation of Personal Care
manufacturing facilities - U.S. and Europe:
Product qualifications1
$
—
$
—
$
0.1
$
0.1
Lake Zurich, Illinois plant shutdown and
transfer of production to new elastics lines in Terre Haute,
Indiana:
Severance
—
—
0.2
0.1
Recovery of assets1
(0.3)
(0.2)
(0.3)
(0.2)
Asset impairment
—
—
0.3
0.2
Accelerated depreciation1
0.1
—
0.1
—
Subtotal for PE Films
$
(0.2)
$
(0.2)
$
0.4
$
0.2
Losses from sale of assets, investment
writedowns and other items:
Estimated excess costs associated with
ramp-up of new product offerings and additional expenses related to
strategic capacity expansion projects1
0.4
0.3
0.8
0.6
COVID-19-related expenses3
0.3
0.3
0.3
0.3
Total for PE Films
$
0.5
$
0.4
$
1.5
$
1.1
Corporate:
Professional fees associated with:
remediation activities and other costs relating to the Company’s
material weaknesses in internal control over financial reporting;
business development activities; and implementation of new
accounting guidance2
$
2.8
$
2.1
$
5.1
$
4.0
Accelerated recognition of stock-based
compensation expense2
0.1
0.1
0.1
0.1
Write-down of investment in Harbinger
Capital Partners Special Situations Fund3
—
—
0.2
0.1
U.S. tax on foreign branch income4
—
—
—
(0.6)
Total for Corporate
$
2.9
$
2.2
$
5.4
$
3.6
1. Included in “Cost of goods sold” in the
condensed consolidated statements of income.
2. Included in “Selling, R&D and
general expenses” in the condensed consolidated statements of
income.
3. Included in “Other income (expense),
net” in the condensed consolidated statements of income.
4. Included in "Income tax expense
(benefit)" in the condensed consolidated statements of income.
Three Months Ended
June 30, 2019
Six Months Ended June
30, 2019
($ in millions)
Pre-Tax
Net of Tax
Pre-Tax
Net of Tax
PE Films:
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings:
Shanghai plant shutdown:
Asset-related expenses
$
0.3
$
0.3
$
0.4
$
0.5
Consolidation of Personal Care
manufacturing facilities - U.S. and Europe:
Severance
0.1
0.1
0.1
0.1
Asset impairment
0.1
0.1
0.1
0.1
Lake Zurich, Illinois plant shutdown and
transfer of production to new elastics lines in Terre Haute,
Indiana:
Severance
0.3
0.2
0.3
0.2
Asset impairment
0.2
0.2
0.2
0.2
Accelerated depreciation1
0.3
0.2
0.3
0.2
Other restructuring costs
0.1
0.1
0.5
0.4
Write-off of Personal Care production line
- Guangzhou, China facility
—
—
0.4
0.3
Subtotal for PE Films
$
1.4
$
1.2
$
2.3
$
2.0
Losses from sale of assets, investment
writedowns and other items:
Estimated excess costs associated with
ramp-up of new product offerings and additional expenses related to
strategic capacity expansion projects1
0.2
0.1
0.4
0.3
Total for PE Films
$
1.6
$
1.3
$
2.7
$
2.3
Corporate:
Professional fees associated with:
remediation activities and other costs relating to the Company’s
material weaknesses in internal control over financial reporting;
business development activities; and implementation of new
accounting guidance2
1.9
1.5
2.8
2.2
1. Included in “Cost of goods sold” in the
condensed consolidated statements of income.
2. Included in “Selling, R&D and
general expenses” in the condensed consolidated statements of
income.
(d)
A pre-tax gain on the Company’s investment
in kaléo of $1.3 million ($0.9 million after deferred income taxes)
was recognized in the second quarter of 2020, compared to a pre-tax
gain of $24.2 million ($19.9 million after taxes) in the first six
months of 2019, which included a $17.6 million dividend (included
in “Other income (expense), net” in the condensed consolidated
statements of income).
(e)
The operations of Aluminum Extrusions’s
Niles, Michigan and Elkhart, Indiana facilities (which were
acquired as “AACOA” in October 2012) have been severely impacted by
the COVID-19 pandemic, with over 80% of the aluminum extrusions
manufactured at these facilities sold to customers that make
consumer durable products, such as recreational boating and power
sports vehicles, as well as to customers serving building and
construction and automotive markets. In the first quarter of 2020,
a goodwill impairment charge of $13.7 million was recognized in
Aluminum Extrusions, which represented the entire amount of
goodwill associated with the acquisition of AACOA.
(f)
Tredegar’s presentation of net income from
ongoing operations is non-GAAP financial measure that excludes the
effects of gains or losses associated with plant shutdowns, asset
impairments and restructurings, gains or losses from the sale of
assets, goodwill impairment charges and other items (which includes
unrealized gains and losses for an investment accounted for under
the fair value method), which has been presented separately and
removed from net income as reported under GAAP. Net income from
ongoing operations is a key financial and analytical measures used
by management to gauge the operating performance of Tredegar’s
ongoing operations. It is not intended to represent the stand-alone
results for Tredegar’s ongoing operations under GAAP and should not
be considered as an alternative to net income as defined by GAAP.
It excludes items that we believe do not relate to Tredegar’s
ongoing operations.
Reconciliations of the pre-tax and post-tax balances
attributed to net income from ongoing operations for the three and
six months ended June 30, 2020 and 2019 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 June 30,
2020
(a)
(b)
(b)/(a)
Net income reported under GAAP
$
14.3
$
3.1
$
11.2
21.5
%
(Gains) losses from sale of assets and
other
3.4
0.5
2.9
Net income from ongoing operations
$
17.7
$
3.6
$
14.1
20.7
%
Three Months Ended June 30,
2019
Net income reported under GAAP
$
18.9
$
4.4
$
14.5
23.5
%
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
1.4
0.3
1.1
(Gains) losses from sale of assets and
other
(5.0)
(1.1)
(3.9)
Net income from ongoing operations
$
15.3
$
3.6
$
11.7
23.6
%
Six Months Ended June 30, 2020
Net income (loss) reported under GAAP
$
(14.6)
$
(3.5)
$
(11.1)
23.8
%
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
0.4
0.1
0.3
(Gains) losses from sale of assets and
other
33.3
7.6
25.7
Goodwill impairment
13.7
3.2
10.5
Net income from ongoing operations
$
32.8
$
7.4
$
25.4
22.7
%
Six Months Ended June 30, 2019
Net income (loss) reported under GAAP
$
42.7
$
8.5
$
34.3
19.8
%
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
2.4
0.4
2.0
(Gains) losses from sale of assets and
other
(20.8)
(3.5)
(17.3)
Net income from ongoing operations
$
24.4
$
5.4
$
19.0
22.2
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200806005239/en/
Tredegar Corporation Neill Bellamy, 804-330-1211
neill.bellamy@tredegar.com
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