UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended December 31, 20172023 |
OR
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to |
Commission File Number 1-10258
TREDEGAR CORPORATION
(Exact name of registrant as specified in its charter)
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| Virginia | | 54-1497771 |
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Virginia | | 54-1497771 |
(State or other jurisdiction
of incorporation or organization)
| | (I.R.S. Employer
Identification No.)
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1100 Boulders Parkway, Richmond, Virginia
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Richmond, | Virginia | | 23225 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: 804-330-1000
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading Symbol | Name of each exchange on which registered |
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Title of Each Class | | Name of Each Exchange on Which Registered |
| Common Stock | TG | New York Stock Exchange |
Preferred Stock Purchase Rights | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K ¨.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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| Large accelerated filer | | o | o | Accelerated filer | x | Smaller reporting company | | o |
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| Non-accelerated filer | | o(Do not check if a smaller reporting company) | | Emerging growth company | | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ¨
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
Aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 20172023 (the last business day of the registrant’s most recently completed second fiscal quarter): $391,348,943*$278,307,771*
Number of shares of Common Stock outstanding as of January 31, 2018: 33,014,831 (33,030,190 as of June 30, 2017)
March 8, 2024: 34,430,769 | | | | | |
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| * | In determining this figure, an aggregate of 7,283,5497,361,458 shares of Common Stock beneficially owned by Floyd D. Gottwald, Jr., John D. Gottwald, William M. Gottwald, and James T. Gottwald and the members of their immediate families has been excluded because the shares are deemed to be held by affiliates. The aggregate market value has been computed based on the closing price in the New York Stock Exchange on June 30, 2017.2023. |
Documents Incorporated By Reference
Portions of the Tredegar Corporation Proxy Statement for the 20182024 Annual Meeting of Shareholders (the “Proxy Statement”) are incorporated by reference into Part III of this Form 10-K.
Index to Annual Report on Form 10-K
Year Ended December 31, 20172023
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Part I | | | |
| Business | | | | |
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| Properties | 1C. | | | |
| Legal Proceedings | 2. | | | |
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| Selected Financial Data | | | | |
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*Items | 11, 13 and 14 and portions of Items 10 and 12 are incorporated by reference from the Proxy Statement. |
PART I
Item 1. BUSINESS
Description of Business
Tredegar Corporation (“Tredegar”), a Virginia corporation incorporated in 1988, is engaged, through its subsidiaries, in the manufacture of aluminum extrusions, polyethylene (“PE”) plastic films and polyester (“PET”) films and aluminum extrusions. The financial information related to Tredegar’s polyethylene plastic films, polyester films and aluminum extrusions segments and related geographical areas included in Note 5 of the Notes to Financial Statements is incorporated herein by reference.films. Unless the context requires otherwise, all references herein to “Tredegar,” “the Company,” “we,” “us” or “our” are to Tredegar Corporation and its consolidated subsidiaries.
The Company's reportable business segments are Aluminum Extrusions, PE Films and Flexible Packaging Films (also referred to as “Terphane”).
On September 1, 2023, the Company announced that it had entered into a definitive agreement to sell Terphane to Oben Group (the “Contingent Terphane Sale”). Completion of the sale is contingent upon the satisfaction of customary closing conditions, including the receipt of certain competition filing approvals by authorities in Brazil and Columbia. For more information see “Status of Current Corporate Strategic Initiatives - Agreement to Sell Terphane” in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K for the year ended December 31, 2023 (“Form 10-K”).
Aluminum Extrusions.Extrusions
PE Films
PE Films manufactures plastic films, elasticsAluminum Extrusions, also referred to as Bonnell Aluminum, produces high-quality, soft and laminate materials primarily utilized in personal care materials, surface protection films,medium strength alloyed aluminum extrusions, custom fabricated and specialtyfinished, for the building and optical lighting applications. These products are manufactured atconstruction, automotive and transportation, consumer durables goods, machinery and equipment, electrical and renewable energy, and distribution markets. Bonnell Aluminum has manufacturing facilities located in the United States (“U.S.”).
Aluminum Extrusions manufactures mill (unfinished), The Netherlands, Hungary, China, Brazilmachined, anodized and India. PE Filmspainted, and thermally improved aluminum extrusions for sale directly to fabricators and distributors. It also manufactures and sells branded product lines: Futura TransitionsTM by Bonnell Aluminum (flooring trims) and TSLOTSTM by Bonnell Aluminum (structural aluminum framing systems). Aluminum Extrusions competes in all of its marketsprimarily on the basis of product innovation, quality, service and price. Sales are made predominantly in the U.S. The end-use markets for Aluminum Extrusions are cyclical and seasonal in nature.
Personal Care. Tredegar’s Personal Care unit is a global supplierThe end-uses in each of apertured, elastic and embossed films, laminate materials, and polyethylene and polypropylene overwrap films for personal care markets, including:
Aluminum Extrusions’ primary market segments include: | | | | | | | | |
| Major Markets | | End-Uses |
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| Building & construction (“B&C”)- nonresidential | | Apertured filmCommercial windows and laminate materials for use as topsheet in feminine hygiene products, baby diapersdoors, curtain walls, storefronts and adult incontinence products (including materials sold under the ComfortAire™, ComfortFeel™entrances, automatic entry doors, walkway covers, ducts, louvers and FreshFeel™ brand names);vents, office wall panels, partitions and interior enclosures, acoustical walls and ceilings, point of purchase displays, pre-engineered structures, and flooring trims (Futura TransitionsTM by Bonnell Aluminum)
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•B&C - residential | | Elastic materials for use as components for baby diapers, adult incontinence products
Residential windows and feminine hygiene products (including components sold under the ExtraFlex™doors, shower and FlexAire™ brand names); |
| tub enclosures, railing and support systems, venetian blinds, and swimming pools |
•Automotive & transportation | | Automotive and light truck structural components, battery enclosures for electric vehicles, after-market automotive accessories, grills for heavy trucks, travel trailers and recreation vehicles |
| Consumer durables | | Office furniture, pleasure boats, refrigerators and freezers, appliances and sporting goods |
| Machinery & equipment | | Three-dimensional apertured film transfer layers for baby diapersMaterial handling equipment, conveyor systems, medical equipment, industrial fans and adult incontinence products sold under the AquiDry®aluminum framing systems (TSLOTSTM by Bonnell Aluminum)
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Distribution (metal service centers specializing in stock and AquiDry Plus™ brand names;release programs and custom fabrications to small manufacturers) | | Various custom profiles including storm shutters, pleasure boat accessories, theater set structures and various standard profiles (including rod, bar, tube and pipe) |
| Electrical & renewable energy | | Lighting fixtures, electronic apparatus, solar panel brackets and rigid and flexible conduits |
Thin-gauge films that are readily printable
Aluminum Extrusions’ net sales (sales less freight) by market segment for the years ended December 31, 2023, 2022 and convertible on conventional processing equipment for overwrap for bathroom tissue and paper towels; and
Polypropylene films for various industrial applications, including tape and automotive protection.2021 is shown below: | | | | | | | | | | | | | | | | | | | | |
% of Aluminum Extrusions Net Sales1 by Market Segment |
| | 2023 | | 2022 | | 2021 |
| B&C: | | | | | |
| Nonresidential | 56% | | 53% | | 50% |
| Residential | 8% | | 10% | | 10% |
| Automotive | 10% | | 8% | | 8% |
| Specialty: | | | | | |
| Consumer durables | 8% | | 10% | | 10% |
| Machinery & equipment | 9% | | 10% | | 8% |
| Electrical | 6% | | 4% | | 6% |
| Distribution | 3% | | 5% | | 8% |
| Total | 100% | | 100% | | 100% |
| 1. The Company uses net sales as its measure of revenues from external customers at the segment level. For more business segment information, see Note 13 “Business Segments” to the Consolidated Financial Statements included in Item 15. “Exhibits and Financial Statement Schedules” of this Form 10-K (“Item 15”). |
In 2017, 20162023, 2022 and 2015, personal care materials2021, Aluminum Extrusions net sales accounted for approximately 27%70%, 30%71% and 33%67% of Tredegar’s consolidated net sales, (sales less freight)respectively.
Open Orders. Overall open orders in Aluminum Extrusions were approximately $48.0 million, or 14 million pounds, at December 31, 2023 compared to approximately $136.0 million, or 41 million pounds, at December 31, 2022, a decrease of $88.0 million, or approximately 65%. This level is below the quarterly range of 21 to 27 million pounds in 2019 before pandemic-related disruptions that resulted in long lead times, driving a peak in open orders of approximately 100 million pounds during the first quarter of 2022. We believe that current open orders are below pre-pandemic levels due to higher interest rates, tighter lender requirements and the increase in remote working, which particularly impacts the non-residential B&C end-use market. In addition, data indicates that aluminum extrusion imports increased significantly in recent years, especially during the pandemic, and some of Aluminum Extrusions’ customers may have sourced, and continue to source, aluminum extrusions from continuing operations, respectively.producers outside the U.S. Sales volume for Aluminum Extrusions, which the Company believes is cyclical and seasonal in nature due to its end-use markets, was 138.5 million pounds in 2023, 174.7 million pounds in 2022 and 183.4 million pounds in 2021.
Surface Protection.Raw Materials. The primary raw materials used by Aluminum Extrusions consist of aluminum ingot, aluminum scrap and various alloys, which are purchased from domestic and foreign producers in open-market purchases and under annual contracts. Refer to Item 7A. "Quantitative and Qualitative Disclosures About Market Risk” of this Form 10-K (“Item 7A”) for additional information on aluminum price trends. Aluminum Extrusions believes that it has adequate supply agreements for aluminum raw materials in 2024.
PE Films
PE Films produces surface protection films, polyethylene overwrap films and films for other markets. Tredegar’s Surface Protection unit produces single- and multi-layer surface protection films sold under the UltraMask®UltraMask®, ForceField™, ForceField™ PEARL®, Pearl A™ and ForceField PEARL™Obsidian™ brand names. These films, which are manufactured at facilities in the U.S. and China, support manufacturers of optical and other specialty substrates used in high-technology applications, most notably protecting high-value components of flat panel and flexible displays used in televisions, monitors, notebooks, smart phones,smartphones, tablets, e-readers, and digital signage, semiconductors and automobiles during the manufacturing and transportation process. The Obsidian™ series of products is designed for usage in automotive applications. In 2017, 20162023, 2022 and 2015, surface protection films2021, PE Films accounted for approximately 11%, 11% and 10%, respectively,15% of Tredegar’s consolidated net sales, from continuing operations.respectively.
Bright View Technologies. Tredegar’s Bright View unit designs and manufactures a range of specialty film-based components that provide tailored functionality for the global engineered optics market. By leveraging multiple technology platforms, including film capabilities and its patented microstructure technology, Bright View offers high performance optical management solutions for a wide range of applications including LED illumination.
PE Films’ net sales by market segment over the last three years is shown below:
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| % of PE Films Net Sales by Market Segment * |
| | 2017 | | 2016 | | 2015 |
| Personal Care | 70% | | 72% | | 75% |
| Surface Protection | 28% | | 25% | | 23% |
| Bright View | 2% | | 3% | | 2% |
| Total | 100% | | 100% | | 100% |
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| * See previous discussion by market segment for comparison of net sales to the Company’s consolidated net sales for significant market segments for each of the years presented. |
Raw Materials. The primary raw materials used by PE Films in polyethylene and polypropylene films are low density, linear low density and high density polyethylene and polypropylene resins. These raw materials are obtained from domestic and foreign suppliers at competitive prices. Refer to Item 7A for additional information on resin price trends. PE Films believes that there will be an adequate supply of polyethylene and polypropylene resins in the foreseeable future.
Research and Development. Tredegar’s spending for research and development (“R&D”) activities in 2023, 2022 and 2021 was primarily related to PE Films. During the third quarter of 2023, the Company adopted a plan to close the PE Films also buys polypropylene-based nonwoven fabrics based on the resins previously noted and styrenic block copolymers, and it believes theretechnical center in Richmond, VA. Future R&D activities will be an adequate supply of these raw materialsperformed at the facility in Pottsville, PA. R&D spending by the PE Films was approximately $2.9 million, $5.3 million and $5.7 million in 2023, 2022 and 2021, respectively.
Customers. PE Films’ products are sold primarily in the foreseeable future.
Customers. PE Films sells to many branded product producers throughout the world,U.S. and Asia, with the top fivefour customers, collectively, comprising 68%, 69% and 73%87% of its net sales in 2017, 20162023 and 2015, respectively. Its largest88% in 2022 and 2021. No single PE Films customer is The Procter & Gamble Company (“P&G”). Net sales to P&G totaled $122 million in 2017, $129 million in 2016 and $164 million in 2015 (these amounts include film sold to third parties that converted the film into materials used with products manufactured by P&G).exceeds 10% of Tredegar’s consolidated net sales. For additional information, see “ItemItem 1A. Risk“Risk Factors” of this Form 10-K (“Item 1A”).
Flexible Packaging Films
Flexible Packaging Films is comprised of Terphane Holdings LLC (“Terphane”). Flexible Packaging Films produces PET-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. These differentiated, high-value films are primarily manufactured in Brazil and sold in Latin America and the U.S. under the Terphane®, Sealphane® and SealphaneEcophane® brand names. Major end uses include food packaging and industrial applications. In 2017, 2016 and 2015, Flexible Packaging Films accounted for approximately 12%, 14% and 12%, respectively, of Tredegar’s consolidated net sales from continuing operations. Flexible Packaging Films competes in all of its markets on the basis of product quality, service and price. In 2023, 2022 and 2021, Terphane accounted for approximately 19%, 19% and 18% of Tredegar’s consolidated net sales, respectively.
Raw Materials. The primary raw materials used by Flexible Packaging Films to produce polyester resins are purified terephthalic acid (“PTA”) and monoethylene glycol (“MEG”). Flexible Packaging Films also purchases additionalother polyester resins directly from suppliers. All of theseThese raw materials are obtained from domestic Brazilian suppliers and foreign suppliers at competitive prices. Terphane continues to monitor cost escalations to adjust selling prices as market dynamics permit and Flexible Packaging Films believes that there will be an adequate supply of polyester resins, as well as PTA and MEG in the foreseeable future.
Aluminum Extrusions
The William L. Bonnell Company, Inc., known in the industry as Bonnell Aluminum, and its operating divisions, AACOA, Inc. and Futura Industries Corporation (“Futura”) (together, “Aluminum Extrusions”), produce high-quality, soft-alloy and medium-strength aluminum extrusions primarily Refer to Item 7A for building and construction, automotive, consumer durables, machinery and equipment, electrical and distribution markets. Aluminum Extrusions manufactures mill (unfinished), anodized and painted (coated) and fabricated aluminum extrusions for sale directly to fabricators and distributors, and it competes primarilyadditional information on the basis of product quality, service and price. Futura designs and manufactures a wide range of extruded aluminum products for a number of industries and end markets, including branded flooring trims and aluminum framing systems (TSLOTSTM), as well as OEM (original equipment manufacturer) components for electronics, store fixture, transportation, medical, marine, retail, solar and other applications. Sales are made predominantly in the U.S.
On February 15, 2017, Bonnell Aluminum acquired Futura on a net debt-free basis for approximately $92 million ($87 million net of a $5 million refund expected in 2018 from an earnoutresin price adjustment mechanism). The acquisition was funded using Tredegar’s revolving credit agreement and treated as an asset purchase for U.S. federal income tax purposes. Futura, located in Clearfield, Utah, has a national sales presence and particular strength in the western U.S.
The end-uses in each of Aluminum Extrusions’ primary market segments include:
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Major Markets | | End-Uses |
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Building & construction - nonresidential | | Commercial windows and doors, curtain walls, storefronts and entrances, walkway covers, ducts, louvers and vents, office wall panels, partitions and interior enclosures, acoustical walls and ceilings, point of purchase displays, pre-engineered structures, and flooring trims |
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Building & construction - residential | | Shower and tub enclosures, railing and support systems, venetian blinds, swimming pools and storm shutters |
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Automotive | | Automotive and light truck structural components, spare parts, after-market automotive accessories, grills for heavy trucks, travel trailers and recreation vehicles |
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Consumer durables | | Furniture, pleasure boats, refrigerators and freezers, appliances and sporting goods |
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Machinery & equipment | | Material handling equipment, conveyors and conveying systems, medical equipment, and aluminum framing systems (TSLOTSTM)
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Distribution (metal service centers specializing in stock and release programs and custom fabrications to small manufacturers) | | Various custom profiles including storm shutters, pleasure boat accessories, theater set structures and various standard profiles (including rod, bar, tube and pipe) |
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Electrical | | Lighting fixtures, solar panels, electronic apparatus and rigid and flexible conduits |
Aluminum Extrusions’ net sales by market segment over the last three years is shown below:
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| % of Aluminum Extrusions Net Sales by Market Segment* |
| | 2017 | | 2016 | | 2015 |
| Building and construction: | | | | | |
| Nonresidential | 51% | | 59% | | 59% |
| Residential | 9% | | 6% | | 6% |
| Automotive | 8% | | 9% | | 8% |
| Specialty: | | | | | |
| Consumer durables | 12% | | 11% | | 11% |
| Machinery & equipment | 7% | | 6% | | 5% |
| Electrical | 7% | | 3% | | 6% |
| Distribution | 6% | | 6% | | 5% |
| | | | | | |
| Total | 100% | | 100% | | 100% |
| *Includes Futura as of its acquisition date of February 15, 2017. |
In 2017, 2016 and 2015, nonresidential building and construction accounted for approximately 26%, 27% and 26% of Tredegar’s consolidated net sales from continuing operations, respectively.
Raw Materials. The primary raw materials used by Aluminum Extrusions consist of aluminum ingot, aluminum scrap and various alloys, which are purchased from domestic and foreign producers in open-market purchases and under short-term contracts. Aluminum Extrusions believes that it has adequate long-term supply agreements for aluminum and other required raw materials and supplies in the foreseeable future.
trends.
General
Intellectual Property. Tredegar considers patents, licenses and trademarks to be significantmaterial to PE Films. As ofOn December 31, 2017,2023, PE Films held 266 issued37 patents (63 of which are issued in the(including 6 U.S.) patents), and 10866 registered trademarks (9 of which are issued in the(including 4 U.S.) registered trademarks). Flexible Packaging Films held 1 U.S. patent which was issued in the U.S. and 1317 registered trademarks (2 of which are(including 4 U.S. registered in the U.S.)trademarks). Aluminum Extrusions held no U.S. patents and 3 U.S. registered trademarks (alltrademarks. As of which are registered in the U.S.). TheseDecember 31, 2023, these patents havehad remaining terms ranging from 1of 0.5 to 2017 years. Tredegar also has licenses under patents owned by third parties.
Research and Development. Tredegar’s spending for research and development (“R&D”) activities in 2017, 2016 and 2015 was primarily related to PE Films. PE Films has technical centers in Durham, North Carolina; Richmond, Virginia; and Terre Haute, Indiana. Flexible Packaging has a technical center in Bloomfield, New York. R&D spending by the Company was approximately $18.3 million, $19.1 million and $16.2 million in 2017, 2016 and 2015, respectively.
Backlog. Backlogs are not material to the operations in PE Films or Flexible Packaging Films. Overall backlog for continuing operations in Aluminum Extrusions was approximately $46.2 million at December 31, 2017 compared to approximately $27.1 million at December 31, 2016, an increase of $19.1 million, or approximately 70%. Backlog at December 31, 2017 included $5.7 million for Futura. Net sales for Aluminum Extrusions, which the Company believes is cyclical in nature, was $466.8 million in 2017, $360.1 million in 2016 and $375.5 million in 2015. Net sales for Futura since it was acquired on February 15, 2017 were $71.0 million.
Government Regulation.The Company’s operations are subject to various local, state, federal and foreign government regulations, including environmental, privacy and anti-corruption and anti-bribery laws and regulations.
U.S. laws concerning the environment to which the Company’s domestic operations are or may be subject to include among others, the Clean Water Act, the Clean Air Act, the Resource Conservation and Recovery Act, the Occupational Safety and Health Act, the National Environmental Policy Act, the Toxic Substances Control Act, the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), regulations promulgated under these acts, and other federal, state or local laws or regulations governing environmental matters. Compliance with these laws is an important consideration because Tredegar uses hazardous materials in some of its operations, is a generator of hazardous waste, and wastewater from the Company’s operations is discharged to various types of wastewater management systems. Under CERCLA and other laws, Tredegar may be subject to financial exposure for costs associated with waste management and disposal, even if the Company fully complies with applicable environmental laws.
The U.S. Environmental Protection Agency has adopted regulations under the Clean Air Act relating to emissions of carbon dioxide and other greenhouse gases (“GHG”), including mandatory reporting and permitting requirements. Several of the Company’s manufacturing operations result in emissions of carbon dioxide or GHG and are subject to the current GHG regulations. The Company’s compliance with theseenvironmental regulations has yet to require significant expenditures. The cost of compliance with any future GHG legislation or regulations is not presently determinable, but Tredegar does not anticipate compliance to have a material adverse effect on its consolidated financial condition, results of operations and cash flows based on information currently available.
Tredegar is also subject to the governmental regulations in the countries where it conducts business.
At December 31, 2017, the Company believes that it was in substantial compliance with all applicablecapital expenditures; however, environmental laws, regulations and permits in the U.S. and other countries where it conducts business. Environmental standards tend to become more stringent over time. InTherefore, in order to maintain substantial compliancecomply with such standards,current or future environmental legislation or regulations, the Company may be requiredsubject to incur additional capital expenditures, operating expenses or other compliance costs, the amounts and timing of which are not presently determinable, but which could be significant, inincluding constructing new facilities or in modifying existing facilities. Furthermore,
Like environmental regulations, current or future privacy and anti-corruption and anti-bribery legislation or regulations may subject the Company to additional capital expenditures, operating expenses or other compliance costs, the amounts and timing of which are not presently determinable but could be significant. Any failure to comply with current or future laws and regulations, including environmental, privacy and anti-corruption and anti-bribery laws and regulations, could subject Tredegar to substantial penalties, fines, costs and expenses. For further discussion regarding certain environmental, privacy and anti-corruption and anti-bribery laws and regulations to which the Company is subject, see Item 1A below.
Human Capital Management.
Overview
Tredegar employed approximately 3,2001,900 people at December 31, 2017.2023 located in the U.S., Brazil, and Asia, of which 75% are located in the U.S. Approximately 15% of the Company’s employees are represented by labor unions located in the U.S. under various collective bargaining agreements with varying durations and expiration dates, none of which expire before 2025. All of Tredegar’s Brazilian employees are represented by a national labor union. Generally, the total number of employees of Tredegar does not significantly fluctuate throughout the year. However, acquisition or divestiture activity, or changes in the level of business activity may impact employee levels.
Health and Safety
Tredegar has continuously exceeded the industry standards for safety in each of its respective manufacturing sectors. The Company uses various forms of employee safety metrics to assess the health and safety performance of its Aluminum Extrusions, PE Films and Flexible Packaging operations, including employee safety data which is available on the Company’s website at www.tredegar.com/about-tredegar/our-broader-commitments/committed-to-our-employees/.
Additionally, Aluminum Extrusions has on-site health clinics at its Carthage and Clearfield facilities. These clinics allow Aluminum Extrusions to invest in its people, provide more personal and more thorough healthcare to employees, and enhance the employer-employee relationship. Collectively, the Carthage and Clearfield clinics serve over 600 employees.
Talent and Development
The Company believes its employees are its most valuable asset and are critical to the success of the Company. The Company seeks to retain employees by offering competitive wages, benefits and training opportunities. To assess and monitor employee retention and engagement, the Company surveys employees and takes actions to address areas of employee concern. The annual employee engagement survey results are presented to Tredegar’s Board of Directors (“Board”). Additionally, the objectives of our executive compensation programs are to attract, motivate and retain highly qualified executive officers. To accomplish these objectives, the Company relies on a pay strategy that emphasizes performance-based compensation through annual and long-term incentives. The Company believes that this pay strategy creates a strong link between pay and performance and aligns with our business strategy of generating strong operating results and shareholder value creation while controlling fixed costs.
The Company is committed to holistically supporting our employees both at work and in their communities by:
•Strictly following all applicable health, safety and non-discrimination laws in each country;
•Promoting the highest standards for employee health and safety through innovative programs; and
•Providing opportunities for community outreach and supporting programs that enhance the lives of children and families.
Inclusion and Diversity
Tredegar strictly complies with all applicable state, local and international laws governing nondiscrimination in employment in every location where Tredegar and its businesses have facilities to ensure healthy and positive working conditions. This applies to all terms and conditions of employment, including recruiting, hiring, job assignments, promotion, termination, layoff, recall, transfer, leaves of absence, compensation and training. All applicants and employees are treated with the same high level of respect regardless of their race, creed, color, religion, sex, sexual orientation, gender identity, age, pregnancy, national origin, ethnicity, political affiliation, union membership, marital status, citizenship status, veteran status, disability or other protected category. Employees who experience or witness discriminatory behavior are encouraged to report such behavior to their supervisor, Human Resources or Tredegar’s toll-free anonymous reporting hotline. Additionally, the Company spends significant resources in developing its employees. Among the five core principles of the “The Tredegar Way” that the Company uses to guide its organization, the “Leadership” principle is focused on building a team of motivated and engaged leaders at every level of the Company. Each business unit has identified specific action plans to promote the Leadership principle among its employees. Action plans include talent development, skills training, reinforcement of strong cultural values, and robust systems to ensure a safe working environment.
Information About Our Executive Officers. See Item 10. “Directors, Executive Officers and Corporate Governance” of this Form 10-K.
Available Information and Corporate Governance Documents. Tredegar’s Internetwebsite address is www.tredegar.com. The Company makes available, free of charge through its website, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). Information filed electronically with the SEC can be accessed on its website at www.sec.gov. In addition, the Company’s Corporate Governance Guidelines, Code of Conduct, and the
charters of the Audit, Executive Compensation, and Nominating and Governance Committees and Climate Change Risk Assessment and many other corporate policies are available on Tredegar’s website and are available in print without charge, to any shareholder upon request by contacting Tredegar’s Corporate Secretary at 1100 Boulders Parkway, Richmond, Virginia 23225. The information on or that can be accessed through the Company’s website is not, and shall not be deemed to be, a part of this Annual Report on Form 10-K for the year ended December 31, 2017 (“Form 10-K”) or incorporated into other filings it makes with the SEC.
Forward-looking and Cautionary Statements
Some of the information contained in this Form 10-K 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. Accordingly, you should not place undue reliance on these forward-looking statements. For risks and important factors that could cause actual results to differ from expectations, refer to the reports that Tredegar files with or furnishes the SEC from time-to-time, including the risks and important factors set forth in Item 1A. Readers are urged to review and consider carefully the disclosures Tredegar makes in the reports Tredegar files with or furnishes to the SEC. Tredegar does not undertake, and expressly disclaims any duty, to update any forward-looking statement 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.
Item 1A. RISK FACTORS
There are a number of risks and uncertainties that could have a material adverse effect on the Company’s businesses and its consolidated financial condition, results of operations or cash flows. The following risk factors should be considered, in addition to the other information included in this Form 10-K, when evaluating Tredegar and its businesses.
Risks Related to Tredegar’s Corporate Strategic Initiatives and Indebtedness
•The planned divestiture of Terphane to Oben Group is subject to a number of conditions beyond our control. On September 1, 2023, the Company announced that it had entered into a definitive agreement to sell Terphane to Oben Group. Completion of the sale is contingent upon the satisfaction of customary closing conditions, including the receipt of certain competition filing approvals by authorities in Brazil and Colombia. On October 27, 2023, the Company filed the requisite competition forms with the Administrative Council for Economic Defense (“CADE”) in Brazil, which the Company views as the primary competition authority regarding this matter. This filing followed a pre-filing phase for CADE’s initial review. CADE’s maximum deadline for completing its review is no later than November 18, 2024. The merger review regarding the transaction was cleared by the Colombian authority in early February 2024.
As usual, it cannot be predicted with certainty whether all of the required closing conditions will be satisfied, waived or if other uncertainties may arise. While the regulatory review process is ongoing and in line with the Company’s expectations, regulators could impose additional requirements or obligations as conditions for their approval, which may be burdensome. If such closing conditions are not met or additional obligations are imposed, the proposed sale may not be consummated, encounter delays, or experience other issues that are not currently anticipated.
•The Company’s failure to successfully transition to the reporting requirements for its asset-based revolving credit facility (“ABL Facility”), which matures on June 30, 2026, or an unexpected downturn in the markets could adversely impact the Company’s financial position and results of operations. On December 27, 2023, the Company entered into the ABL Facility, which provides the Company with $180 million senior secured asset-based revolving credit facility that will expire on June 30, 2026. The ABL Facility amended the Company’s existing $200 million revolving, secured credit facility that was cash flow-based. Availability under the ABL Facility is governed by a borrowing base, determined by the application of specified advance rates against eligible assets, including a portion of trade accounts receivable, inventory, cash and cash equivalents, owned real properties, and owned machinery and equipment.
A number of factors could affect the Company’s ability to successfully complete its transition from its prior cash flow-based revolving credit facility to the current asset-based facility. These factors include:
•Failure to establish processes associated with the ABL Facility’s reporting requirements, which are currently on a monthly basis but could change to a weekly cadence if at any time the borrowing availability falls below 10% of the maximum aggregate principal amount. Failure to timely report could result in an Event of Default (as defined in the ABL Facility), which if not waived, would permit the lenders, at their option, to accelerate all outstanding debt under the ABL Facility. Should the lenders elect to accelerate the debt under the ABL Facility,
a cross-default would be triggered under the Terphane Brazil Loan (as defined below in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K (“Item 7”)).
•Because the Company is currently subject to a Cash Dominion Period (as defined in Item 7), it is required to borrow cash to fund working capital, capital expenditures, business development activity, and other general corporate purposes, which limits its financial flexibility;
•Advances on accounts receivable and inventory are subject to change based on periodic commercial finance examinations and appraisals, and the real property, machinery and equipment values included in the borrowing base are subject to change based on periodic appraisals, which could reduce borrowing availability under the ABL Facility; and
•If a Material Adverse Effect (as defined in the ABL Facility) has occurred, the Company will not be able to continue to borrow under the ABL Facility.
In addition, a significant deterioration in the Company’s accounts receivable or inventory levels due to depressed economic conditions, weak consumer spending, turmoil in the credit markets or other factors, could restrict its ability to service its indebtedness or borrow additional funds.
Upon the earlier of March 31, 2025 or the date the Company receives the proceeds from the Contingent Terphane Sale (the “ABL Adjustment Date”), borrowing availability under the ABL Facility will be reduced from $180 million to $125 million. If the Contingent Terphane Sale is not completed by the ABL Adjustment Date, the Company may have to undertake alternative financing plans, subject to the limitations imposed by the ABL Facility, including limitations on its ability to:
•refinance or restructure its indebtedness;
•sell assets; and
•raise additional capital.
The Company may be unable to implement alternative financing plans on commercially reasonable terms or at all, and any such alternative financing plans might be insufficient to allow it to make principal and interest payments on its indebtedness required as a result of the ABL Adjustment Date and the reduction of borrowing availability under the ABL Facility to $125 million. The Company’s ability to restructure or refinance its indebtedness will depend on, among other things, its existing financial condition, projections of business conditions, sales, Credit EBITDA, net cash flow, net leverage and the condition of the capital markets at such time. Any refinancing of the Company’s indebtedness could be at higher interest rates and could require it to comply with additional covenants, which could further restrict the Company’s business operations.
Noncompliance with any of the covenants of the ABL Facility could result int an Event of Default, which if not cured or waived, would permit the lenders, at their option, to accelerate all outstanding debt under the ABL Facility.
Risks Related to All Tredegar’s Businesses
•Recent macroeconomic factors, including inflation, high interest rates, recession risks and other lagging effects of the COVID-19 pandemic, have caused downturns in key markets and created other commercial disruptions, which have and could further adversely impact our businesses.Products sold to key end-use markets, including the B&C and consumer electronics markets, represent a significant portion of our revenue. Because these markets are tied closely to overall economic performance, macroeconomic factors have and could further cause changes to demand for our products. These factors include: (i) inflation; (ii) high interest rates; (iii) recession risks; (iv) disruptions to supply chains; (v) other interruptions of international and regional commerce; and (vi) other lagging effects of the COVID-19 pandemic. Price erosion may occur as competitors become more aggressive in pricing practices. To the extent that these factors reduce demand for our products, our business, financial position, results of operations and cash flows could be adversely impacted.
•Tredegar’s performance is influenced by costs incurred by its operating companies, including the cost of raw materials and energy. These costs include the cost of aluminum (the raw material on which Aluminum Extrusions primarily depends), resin (the raw material on which PE Films primarily depends), PTA and MEG (the raw materials on which Flexible Packaging Films primarily depends), natural gas (the principal fuel necessary for Aluminum Extrusions’ plants to operate), electricity, diesel fuel and paint. Aluminum, resin and natural gas prices are volatile as shown in the charts in Item 7A. The Company attempts to mitigate the effects of increased costs through price increases and contractual pass-through provisions, but there are no assurances that higher prices can effectively be passed through to customers or that Tredegar will be able to offset fully or on a timely basis the effects of higher costs. Further, the Company’s cost control efforts may not be sufficient to offset any increases in raw materials, energy or other costs.
•Our failure to continue to attract, develop and retain certain key officers or employees could adversely affect our businesses. Our success depends upon the efforts and abilities of key personnel, many of whom are longstanding employees. The loss of any of these key personnel could deplete our institutional knowledge base and negatively affect our ability to efficiently operate our businesses. Certain roles have experienced high turnover in recent years, and we are experiencing an increasingly competitive labor market. Increased employee turnover could hinder our ability to execute our business strategy and adversely affect our business, financial condition, results of operations and cash flows.
•Disruptions at one of the Company’s major manufacturing facilities could negatively impact financial results. Tredegar believes it has implemented measures to minimize the risks of disruption at its facilities. However, a disruption could occur as a result of any number of events: an equipment failure with repairs requiring long lead times, labor stoppages or shortages, cybersecurity attacks, utility disruptions, constraints on the supply or delivery of critical raw materials, and severe weather conditions, including potential flooding at the Aluminum Extrusions facility located in Carthage, TN, which is located in a 50-year flood plain. A material disruption in one of the Company’s operating locations could negatively impact production and the Company’s consolidated financial condition, results of operations and cash flows.
Risks Related to Aluminum Extrusions
•Sales volume and profitability of Aluminum Extrusions is cyclical and seasonal and highly dependent on economic conditions of end-use markets in the U.S., particularly in the construction sector. Aluminum Extrusions’ end-use markets can be cyclical and subject to seasonal swings in volume. In addition, changes in architectural design, demographic, and/or remote work trends could negatively impact the overall commercial construction industry. Because of the capital-intensive nature and level of fixed costs inherent in the aluminum extrusions business, the percentage drop in earnings before interest, taxes, depreciation and amortization (“EBITDA”) from ongoing operations in a cyclical downturn will likely exceed the percentage drop in volume. In addition, during an economic slowdown, excess industry capacity often drives increased pricing pressure in many end-use markets as competitors seek to protect their position with key customers. Any benefits associated with cost reductions and productivity improvements may not be sufficient to offset the adverse effects on profitability from pricing and margin pressure and higher bad debts (including a greater chance of loss associated with customers defaulting on fixed-price forward sales contracts) that usually accompany a downturn.
•Unfairly traded imports of aluminum extrusions could injure or threaten with injury America’s domestic aluminum extrusions industry, which could have an adverse effect on the financial condition, results of operations and cash flows of Aluminum Extrusions.
1.Failure to prevent foreign competitors from evading anti-dumping and countervailing duties, or failure to reinstate the Aluminum Tariff on aluminum extrusions, could adversely impact Aluminum Extrusions. In 2018, the U.S. imposed tariffs of 10% on aluminum ingot and semi-finished aluminum imported into the U.S. from certain countries; however, in December 2020, the Department of Commerce (“DOC”) introduced a tariff exclusion process, granting applicants with tariff exclusions. In response to large and increasing volumes of unfairly traded imports of extrusions associated with these tariff exclusions, a coalition of U.S. domestic producers filed petitions with the DOC and U.S. International Trade Commission (“ITC”). In November 2023, the ITC found that there is a reasonable indication that the American aluminum extrusions industry is materially injured or threatened with injury due to imports from 14 countries, including China. The ITC’s preliminary determination found that subject import volumes were significant and increasing, and that with regard to pricing, subject imports predominantly undersold the domestic product by volume in each year of the period of investigation. On March 5, 2024, the DOC announced its preliminary finding that the governments of China, Indonesia, Mexico and Turkey unfairly subsidize their aluminum extrusion industries. The DOC calculated a range of affirmative preliminary countervailing duties from each country. A preliminary anti-dumping determination for these four countries and the 10 other countries included in the initial petition is expected in May 2024. The Company expects the final ITC vote to occur in late 2024. A failure by, or the inability of, U.S. trade officials to restore the import tariff in its full format could have an adverse effect on the businesses, financial condition, results of operations and cash flows of Aluminum Extrusions.
2.The duty-free importation of goods allowed under the United States-Mexico-Canada Agreement (“USMCA”), or other free trade agreements or duty-preference regimes, could result in lower demand for aluminum extrusions made in the U.S. As noted above, in March 2018, the U.S. imposed tariffs of 10% on aluminum ingot and semi-finished aluminum imported into the U.S. from certain countries, including countries from which Aluminum Extrusions has historically sourced aluminum products. In September 2019, the U.S., Canada and Mexico entered into the USMCA. As a result of the 10% tariffs on aluminum ingot imported to the U.S. and the duty-free importation of goods allowed under USMCA, aluminum extrusions made in Canada and Mexico that are able to take advantage of duty-preference programs upon importation into the United States are free of the
10% tariff and can now be imported into and sold in the U.S. at very competitive prices. This could result in lower demand for aluminum extrusions made in the U.S., which could negatively affect Aluminum Extrusions’ business, results of operations, financial condition and cash flows.
•The markets for Aluminum Extrusions’ products are highly competitive with product quality, service, delivery performance and price being the principal competitive factors. Aluminum Extrusions has approximately 1,100 customers that are in a variety of end-use markets within the broad categories of building and construction, distribution, automotive and other transportation, machinery and equipment, electrical and consumer durables. No single Aluminum Extrusions’ customer exceeds 4% of consolidated net sales. Future success and prospects depend on Aluminum Extrusions’ ability to provide superior service, high quality products, timely delivery and competitive pricing to retain existing customers and participate in overall industry cross-cycle growth. Failure in any of these areas could lead to a loss of customers, which could have an adverse effect on the business, financial condition, results of operations and cash flows of Aluminum Extrusions.
•The failure to successfully implement the new enterprise resource planning and manufacturing execution systems could adversely impact the Aluminum Extrusions business and results of operations. InJanuary 2022, Aluminum Extrusions commenced the implementation of new enterprise resource planning and manufacturing execution systems (“ERP/MES”) across all locations of the Aluminum Extrusions business. The implementation of these systems is a major undertaking from a financial, management, and personnel perspective. The implementations have been more difficult, time consuming and costly (approximately $21 million of spending to date) than expected. This project, which was expected to be completed in 2024, has been reorganized with an extended implementation period, due to the implementation of stringent spending measures to control financial leverage. As a result, the earliest “go-live” date for the new ERP/MES is 2025. There can be no assurance that these systems will be beneficial to the extent anticipated. Any additional disruptions, delays or deficiencies in the design and implementation of the new systems could adversely affect our financial position, results of operations and cash flows.
Risks Related to PE Films
•PE Films is highly dependent on sales associated with its top five customers, the largest of which is P&G.relatively few large customers. PE Films’ top fivefour customers comprised approximately 26%10%, 29%10% and 32%13% of Tredegar’s consolidated net sales in 2017, 20162023, 2022 and 2015, respectively, with net sales to P&G alone comprising approximately 13%, 16% and 19% in 2017, 2016 and 2015,2021, respectively. The loss or significant reduction of sales associated with one or more of these customers without replacement by new business could have a materialan adverse effect on the Company. Surface Protection sales have been adversely impacted by weak market demand and competitive pricing. Customer demand for electronics has continued to deteriorate since the third quarter of 2022, causing manufacturers in the supply chain to experience reduced capacity utilization and inventory corrections. Consequently, results of operations for PE Films have been adversely impacted by weak demand for Surface Protection products.
While PE Films is undertaking efforts to expand its customer base, there can be no assurance that such efforts will be successful, or that they will offset any loss of sales and profits associated with large customer declines.
•The failure of PE Films’ customers to achieve success or maintain market share could adversely impact PE Films’ sales and operating margins. PE Films’ plastic films are used in the production of various consumer products sold worldwide. Our customers’ ability to successfully develop, manufacture and market those products is integral to PE Films’ success. Cyclical downturns and changing consumer preferences, particularly those driven by changes in technology, may negatively affect businesses that use PE Films’ plastic film products, which could adversely affect sales and operating margins. Other factors that could adversely affect the business include by way of example, (i) failure by a key customer to achieve success or maintain share in markets in which they sell products containing PE Films’ materials, including as a result of customer preferences for products other than plastics, (ii) key customers using products developed by others that replace PE Films’ business with such customer,customers, (iii) delays in a key customer rolling out products utilizing new technologies developed by PE Films, and (iv) operational decisions by a key customer that result in component substitution, inventory reductions and similar changes. While PE Films is undertaking efforts to expand its customer base, there can be no assurance that such efforts will be successful, or that they will offset any delay or loss of sales and profits associated with these large customers.
In recent years, PE Films lost substantial sales volume due to product transitions and incurred other sales losses associated with various customers. PE Films anticipates a significant product transition after 2018 in the personal care operating segment of the PE Films reporting segment. PE Films currently estimates that this will adversely impact the annual sales of the business unit by $70 million sometime between 2019 and 2021. PE Films has been increasing its R&D spending (an increase of $6 million in 2017 versus 2014), expects to invest capital, and is accelerating sales and marketing efforts to capture growth and diversify its customer base and product offerings in personal care products, but there can be no assurance that such efforts will be successful or that they will offset any loss of business due to product transitions. The overall timing and net change in personal care’s revenues and profits and capital expenditures needed to support growth during this transition period are uncertain at this time.
PE Films also anticipates 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 customer product transitions to less costly alternative processes or materials. PE Films 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 $5 to $10 million. Given the technological and commercial complexity involved in bringing these alternative processes or materials to market, PE Films is very uncertain as to the timing and ultimate amount of the possible transitions. In response, the Company is aggressively pursuing new surface protection products, applications and customers, but there can be no assurance that such efforts will be successful or that they will offset any loss of business due to product transitions.
PE Films and its customers operate in highly competitive markets. PE Films competes on product innovation, quality, price and service, and its businesses and their customers operate in highly competitive markets. Global market conditions continue to exacerbate the Company’s exposure to margin compression due to competitive forces, especially as certain products move into the later stages of their product life cycles. In addition, the changing dynamics of consumer products retailing, including the impact of on-line retailers such as Amazon, is creating price and margin pressure on the customers of PE Films’ personal care business. While PE Films continually works to identify new business opportunities with new and existing customers, primarily through the development of new products with improved performance and/or cost characteristics, there can be no assurances that such efforts will be successful or that they will offset business lost from competitive dynamics or customer product transitions.
Failure of PE Films’ customers, who are subject to cyclical downturns, to achieve success or maintain market share could adversely impact PE Films’ sales and operating margins. PE Films’ plastic films serve as components for, or are used in the production of, various consumer products sold worldwide. A customer’s ability to successfully develop, manufacture and market those products is integral to PE Films’ success. Also, consumers of premium products made with or using PE Films’ components may shift to less premium or less expensive products, reducing the demand for PE Films’ plastic films. Cyclical downturns may negatively affect businesses that use PE Films’ plastic film products, which could adversely affect sales and operating margins.
•The Company’s inability to protect its intellectual property rights or its infringement of the intellectual property rights of others could have a materialan adverse impact on PE Films. PE Films operates in an industry where its significant customers and competitors have substantial intellectual property portfolios. The continued success of PE Films’ business depends on its ability not only to protect its own technologies and trade secrets, but also to develop and sell new products
that do not infringe upon existing patents or threaten existing customer relationships.patents. Intellectual property litigation is very costly and could result in substantial expense and diversions of Company resources, both of which could adversely affect its consolidated financial condition, results of operations and cash flows. In addition, there may be no effective legal recourse against infringement of the Company’s intellectual property by third parties, whether due to limitations on enforcement of rights in foreign jurisdictions or as a result of other factors.
•Rising trade tensions could cause an increase in the cost of PE Films’ products or otherwise negatively impact the Company. A portion of PE Film’s business involves imports to and from the U.S. and other countries where the
Company produces and sells its products. Trade tensions have been rising between the U.S. and other countries, particularly China. An unstable economic environmentincrease in tariffs and other trade barriers between the U.S. and China, or between the U.S. and other countries, could cause an increase in the cost of PE Films’ products or otherwise negatively impact the production and sale of the Company’s products in world markets.
•Further impairment of the Surface Protection reporting unit’s goodwill could have a disruptivenon-cash adverse impact on PE Films’ supply chain. Certain raw materials used in manufacturing PE Films’ products are sourced from single suppliers, and PE Filmsour results of operations. The Company assesses goodwill for impairment when events or circumstances indicate that the carrying value may not be able to quicklyrecoverable, or, inexpensively re-source from other suppliers.at a minimum, on an annual basis (December 1st of each year). The riskvaluation of damage or disruption to its supply chain may increase ifgoodwill depends on a variety of factors, including macroeconomic conditions, industry and when different suppliers consolidate their product portfolios, experiencemarket considerations, cost factors and overall financial distress or disruption of manufacturing operations. Failure to take adequate steps to effectively manage such events, which are intensified when a product is procured from a single supplier or location, could adversely affect PE Films’ consolidated financial condition, results of operations and cash flows,performance, as well as require additional resourcesCompany and reporting unit factors, and goodwill impairment valuations can be sensitive to restore its supply chain.
Our cost saving initiatives may not achieve the results we anticipate. PE Films has undertaken and will continue to undertake cost reduction initiatives to consolidate certain production, improve operating efficiencies and generate cost savings. PE Films cannot be certain that it will be able to complete these initiatives as planned or that the estimated operating efficiencies or cost savings fromassumptions associated with such activities will be fully realized or maintained over time. In addition, PE Films may not be successful in moving production to other facilities or timely qualifying new production equipment.factors. Failure to complete these initiativessuccessfully achieve projections could adversely affect PE Films’ financial condition, results of operations and cash flows.
result in future impairments.Risks Related to Flexible Packaging Films
•Overcapacity in Latin American polyester film production and a history of uncertain economic conditions in Brazil could adversely impact the financial condition, results of operations and cash flows of Flexible Packaging Films. Competition in Brazil, Terphane’s primary market, has been exacerbated by global overcapacity in the polyester industry generally, and by particularly acute overcapacity in Latin America. Additional PET capacity from a competitor in Latin America came on line in September 2017. These factors, plus a recent period of unfavorable economic and political conditions in Brazil, have resulted in significant competitive pricing pressures and U.S. Dollar equivalent margin compression.
For flexible packaging films produced in Brazil, variable conversion, fixed conversion and sales, general and administrative costs for operations in Brazil have been adversely impacted by inflation in Brazil that is higher than in the U.S. Flexible Packaging Films is exposed to additional foreign exchange translation risk because almost 90% of Flexible Packaging Films’ Brazilian sales are quoted or priced in U.S. Dollars while a large part of its Brazilian costs are quoted or priced in Brazilian Real. This mismatch, together with a variety of economic variables impacting currency exchange rates, causes volatility that could negatively or positively impact operating profit for Flexible Packaging Films.
Tredegar has attempted to mitigate these impacts through new product offerings, cost saving measures, a currency hedge entered into in 2017, and manufacturing efficiency initiatives, but these efforts to-date have not been sufficient to prevent a significant decline in the operating profit for Flexible Packaging Films since the acquisition of Terphane in October 2011 and continuing efforts may not be successful, which could further adversely impact Flexible Packaging Films’ financial condition, results of operations and cash flows.
Governmentalgovernmental failure to extend anti-dumping duties in Brazil on imported products or prevent competitors from circumventing such duties could adversely impact Flexible Packaging Films. In recent years, excess global capacity in the industry has led to increased competitive pressures from imports into Brazil. The Company believes that these conditions have shifted the competitive environment from a regional to a global landscape and have driven price convergence and lower product margins for Flexible Packaging Films. Favorable anti-dumping rulings or countervailing duties are in effect for products imported from China, Egypt, India, Mexico, UAE and Turkey. In January 2018, the Brazilian government opened new anti-dumping investigations for products imported fromUnited Arab Emirates, Peru and Bahrain. Competitors not currently subject to anti-dumping duties may choose to utilize their excess capacity by selling product in Brazil, which may result in pricing pressures that Flexible Packaging Films may not be able to offset with cost savings measures and/or manufacturing efficiency initiatives. There can be no assurance that efforts
In May 2021, the Brazilian authorities concluded the sunset review relating to imposethe anti-dumping constraints on productsprocess for polyester film imported to Brazil from PeruChina, India and Bahrain, orEgypt, and decided to extend duties beyond 2018 on productsfor another five years. However, due to its doubts that films would continue to be imported from certain otherChina and Egypt, the government immediately suspended the implementation of the tariffs for those countries willbut agreed that if in the future there were volumes imported from China or Egypt which were harming the Brazilian market, authorities may promptly reinstate tariffs. Importing from Egypt increased in Brazil during 2023; therefore, Terphane requested the application of anti-dumping tariffs for Egypt, which was accepted by the Brazilian Government. These tariffs went into effect starting in November 2023. For films imported from India, the Brazilian authorities also reviewed measures against countervailing duties and extended those for five years as well.
In February 2024, the Brazilian Government determined that the anti-dumping measures against Mexico and United Arab Emirates should be successful.
extended for a five-year period and anti-dumping measures against Turkey should be removed.
Aluminum Extrusions
Sales volume and profitability•A history of Aluminum Extrusions is cyclical and seasonal and highly dependent onuncertain economic conditions of end-use markets in the U.S., particularly in the construction sector. Aluminum Extrusions’ end-use markets can be cyclical and subject to seasonal swings in volume. Because of the capital intensive nature and level of fixed costs inherent in the aluminum extrusions business, the percentage drop in operating profits in a cyclical downturn will likely exceed the percentage drop in volume. In addition, during an economic slowdown, excess industry capacity often drives increased pricing pressure in many end-use markets as competitors protect their position with key customers. Any benefits associated with cost reductions and productivity improvements may not be sufficient to offset the adverse effects on profitability from pricing and margin pressure and higher bad debts (including a greater chance of loss associated with customers defaulting on fixed-price forward sales contracts) that usually accompany a downturn. In addition, higher energy costs can further reduce profits unless offset by price increases or cost reductions and productivity improvements.
Failure to prevent competitors from circumventing anti-dumping and countervailing duties, or a reduction in such duties,Brazil could adversely impact Aluminum Extrusions. As of April 2017, the antidumping duty and countervailing duty orders on aluminum extrusions from China will remain in place until the next five-year review of the orders. Chinese and other overseas manufacturers continue to try to circumvent the antidumping and countervailing orders to avoid duties. A failure by, or the inability of, U.S. trade officials to curtail efforts to circumvent these duties, or the potential reduction of applicable duties pursuant to annual reviews of the orders, could have a material adverse effect on the financial condition, results of operations and cash flows of Aluminum Extrusions.
The imposition of tariffs or duties on imported aluminum products could significantly increase the price of Aluminum Extrusions’ mainFlexible Packaging Films. For flexible packaging films produced in Brazil, selling prices and key raw material which could adversely impact demand for its products. On April 27, 2017, President Trump directedcosts are principally determined in U.S. Dollars and are impacted by local economic conditions and local and global competitive dynamics. Flexible Packaging Films is exposed to foreign exchange translation risk (its functional currency is the U.S. Department of Commerce (“DOC”) to begin an investigation under Section 232Brazilian Real) because almost 90% of the Trade Expansion Act regarding the effects on U.S. economicsales of Flexible Packaging Films business unit in Brazil (“Terphane Ltda.”) and national security of aluminum imports into the U.S. On January 19, 2018, the DOC formally submitted to President Trump the resultssubstantially all of its investigation, which included recommendationsrelated raw material costs are quoted or priced in U.S. Dollars while its variable conversion, fixed conversion and sales, general and administrative costs before depreciation & amortization (collectively “Terphane Ltda. Operating Costs”) are quoted or priced in Brazilian Real. This mismatch, together with a variety of economic variables impacting currency exchange rates, causes volatility that could negatively or positively impact EBITDA from ongoing operations for Flexible Packaging Films. While Flexible Packaging Films hedges this exposure on a short-term basis with foreign exchange forward rate contracts, the DOC thatexposure continues to exist beyond the President impose tariffs or quotas, or both, on imports intohedging periods.
Other Business Risks
•A failure in the U.S. of primary aluminum and semi-fabricated aluminum products. The President has 90 days to decide on any potential action based on the findings of the investigation. It is unknown at this time if the President will take any actionCompany’s information technology systems as a result of cybersecurity attacks or other causes could negatively affect Tredegar’s business. The Company depends on information technology (“IT”) to record and process customer orders, manufacture and ship products in a timely manner, secure its production processes and know-how, maintain the Section 232 investigation,financial accuracy of its business records and if action is taken, what the impactmaintain personally identifiable information of that action would be on Bonnell Aluminum. However, the Presidentits employees. An IT system failure due to computer viruses, internal or external security breaches, cybersecurity attacks or other malicious causes could impose tariffs or quotas on aluminum importsdisrupt our operations and prevent us from being able to process transactions with our customers, operate our manufacturing facilities and properly report transactions in a timely manner. Increased global IT security threats and cyber-crime pose a potential risk to the U.S. Bonnell Aluminumsecurity and availability of the Company’s IT systems, networks and services, including those that are managed, hosted, provided or used by third parties, as well as to the confidentiality, availability and integrity of the Company’s data. Additionally, increased cybersecurity risk arises due to certain employees working remotely. To date, interruptions of the Company’s IT systems have been infrequent, and Tredegar
has not experienced a material cybersecurity incident. A significant prolonged failure of or security breach of the IT systems, networks or service providers the Company relies upon, or a loss or disclosure of business or other major U.S. aluminum extruders are net importerssensitive information, or personally identifiable information, as a result of aluminum raw materials. If high tariffs are imposed on imported aluminum ingots purchased by Bonnell, then the aggregate cost of aluminum extrusions produced by Bonnell could rise significantly. Bonnell would expect to be able to pass through the higher aluminum costs to its customers. However, a higher cost for aluminum extrusionscybersecurity incident or other cause, could result in product substitutions in place of aluminum extrusions, which could materially and negatively affect Bonnell and other U.S. aluminum extrusion businesses and their results of operations. If tariffs were imposed on all primary aluminum imports into the U.S., then aluminum extruders located outside the U.S. who were not subject to similar tariffs in the country where they produced extrusions, could have a price advantage relative to U.S.-based aluminum extruders.
Competition from China could increase significantly if China is granted market economy status by the World Trade Organization. China has launched a formal complaint at the World Trade Organization challenging its non-market economy status, claiming that as of December 11, 2016, China’s transition period as a non-market economy under its Accession Protocolsubstantial costs to the World Trade Organization ended. China believes with respectCompany, damage to all Chinese-made products that it should receive market economy statusthe Company’s reputation, regulatory enforcement actions and the rights attendant to that status under World Trade Organization rules. The U.S. and the European Union have each rejected that interpretation. If China is granted market economy status, the extent to which the U.S. antidumping laws will be able to limit unfair trade practices from China will likely be limited because the U.S. government will be forced to utilize Chinese prices and costs that do not reflect market principles in antidumping duty investigations involving China, which would ultimately limit the level of antidumping duties applied to unfairly traded Chinese imports. The volume of unfairly traded imports of Chinese aluminum extrusions would likely increase as a result and this, in turn, would likely create substantial pricing pressure on Aluminum Extrusions’ productslawsuits and could have a material adverse effect onadversely affect the financial condition,Company’s business, results of operations, and cash flows of Aluminum Extrusions.
The markets for Aluminum Extrusions’ products are highly competitive with product quality, service, delivery performance and price being the principal competitive factors. Aluminum Extrusions has approximately 1,700 customers that are in a variety of end-use markets within the broad categories of building and construction, distribution, automotive and other transportation, machinery and equipment, electrical and consumer durables. No single customer exceeds 4% of Aluminum Extrusions’ net sales. Future success and prospects depend on Aluminum Extrusions’ ability to provide superior service, high quality products, timely delivery and competitive pricing to retain existing customers and participate in overall industry cross-cycle growth. Failure in any of these areas could lead to a loss of customers, which could have an adverse material effect on the financial condition results of operations andor cash flows of Aluminum Extrusions.
flows.Aluminum Extrusions may not have sufficient capacity to meet its growth targets and service all of its customers. Aluminum Extrusions’ ability to grow and service existing customers is closely tied to having sufficient capacity. In recent years, increased demand, primarily from the nonresidential building and construction sector, has substantially increased Aluminum Extrusions’ average capacity utilization.
General
Tredegar has an underfunded defined benefit (pension) plan. Tredegar sponsors a pension plan that covers certain hourly and salaried employees in the U.S. •The plan was substantially frozen to new participants in 2007, and frozen to benefit accruals for active participants in 2014. As of December 31, 2017, the plan was underfunded under U.S. generally accepted accounting principles (“GAAP”) measures by $91.8 million. Tredegar expects that it will be required to make a cash contribution of approximately $5.3 million to its underfunded pension plan in 2018, and may be required to make higher cash contributions in future periods depending on the level of interest rates and investment returns on plan assets.
An impairment of our identifiable intangible assets could have a material non-cash adverse impact on our results of operations. As of December 31, 2017, reporting units in PE Films and Aluminum Extrusions carried goodwill balances of $104 million and $24 million, respectively. PE Films’ goodwill balance was carried by its operating units, Personal Care Films and Surface Protection Films, at $47 million and $57 million, respectively. The Company assesses goodwill for impairment when events or circumstances indicate that the carrying value may not be recoverable, or, at a minimum, on an annual basis. The valuation of goodwill depends on a variety of factors, including the success in achieving the Company’s business goals, global market and economic conditions, earnings growth and expected cash flows, and goodwill impairment valuations can be sensitive to assumptions associated with such factors. Failure to successfully achieve projections could result in future impairments. Impairments to goodwill and identifiable intangible assets may also be caused by factors outside the Company’s control, such as increasing competitive pricing pressures, changes in foreign exchange rates, lower than expected sales and profit growth rates, and various other factors. Significant and unanticipated changes could require a non-cash charge for impairment in a future period, which may significantly affect the Company’s results of operations, in the period of such charge.
Noncompliance with any of the covenants in the Company’s $400 million revolving credit facility, which matures in March of 2021, could result in all debt under the agreement outstanding at such time becoming due and limiting its borrowing capacity, which could have a material adverse effect on consolidated financial condition and liquidity.cash flows have been and could be impacted by the macroeconomic effects of a pandemic.The credit agreement governingCOVID-19 pandemic had multiple adverse effects on the global economy, including short-term impacts affecting labor supply and causing supply chain disruptions which led to inflationary pressures. In addition, the pandemic resulted in certain after-shocks and structural shifts, which have adversely impacted Tredegar’s revolving credit facility contains restrictions and financial covenants that, if violated, could restrictmarkets.
In the Company’s operational and financial flexibility. Failure to comply with these covenants could result in an event of default, which if not cureda future pandemic, Tredegar’s businesses, our suppliers, contractors and third-party logistic providers could experience conditions similar to those associated with the COVID-19 pandemic, including facility closures, labor constraints, supply chain disruptions and other challenges. These challenges could impact our ability to maintain sufficient inventory and to accurately predict demand or waived, would result in all outstanding debt under the credit facility at such time becoming due,lead times, which could haveinhibit our ability to service customer demand. Additionally, a material adverse effect on the Company’s consolidated financial condition and liquidity.
future pandemic could heighten other risks described above.Tredegar’s performance is influenced by costs incurred by its operating companies, including, for example, the cost of raw materials and energy. These costs include, without limitation, the cost of resin (the raw material on which PE Films primarily depends), PTA and MEG (the raw materials on which Flexible Packaging Films primarily depends), aluminum (the raw material on which Aluminum Extrusions primarily depends), natural gas (the principal fuel necessary for Aluminum Extrusions’ plants to operate), electricity and diesel fuel. Resin, aluminum and natural gas prices are extremely volatile as shown in the charts in the Quantitative and Qualitative Disclosures section. The Company attempts to mitigate the effects of increased costs through price increases and contractual pass-through provisions, but there are no assurances that higher prices can effectively be passed through to customers or that Tredegar will be able to offset fully or on a timely basis the effects of higher raw material and energy costs through price increases or pass-through arrangements. Further, the Company’s cost control efforts may not be sufficient to offset any increases in raw material, energy or other costs.
Tredegar may not be able to successfully integrate strategic acquisitions. Acquisitions, including our recent acquisition of Futura, involve special risks, including, without limitation, meeting revenue, margin, working capital and capital expenditure expectations that substantially drive valuation, diversion of management’s time and attention from existing businesses, the potential assumption of unanticipated liabilities and contingencies and potential difficulties in integrating acquired businesses and achieving anticipated operational improvements. Acquired businesses may not achieve expected results.
•Tredegar is subject to variouscurrent and future governmental regulations, including environmental laws and regulations, and could become exposed to material liabilities and costs associated with such laws.regulation. The Company is subject to various environmental obligationsregulation by local, state, federal and could become subject to additional obligations in the future. Changes in environmentalforeign governmental authorities. New laws and regulations, or their application,changes to existing laws, including but not limited to, those relating to environmental matters (including global climate change and plastic products), and privacy matters, could subject Tredegar to significant additional capital expenditures, and operating expenses.expenses or other compliance costs. Moreover, future developments in federal, state, local and international environmental laws and regulations, including environmental laws, are difficult to predict. Environmental laws and privacy restrictions have become and are expected to continue to become increasingly strict. As a result, Tredegar expects to be subject to new environmental and privacy laws and regulations. However, any such changes are uncertain and, therefore, it is not possible for the Company to predict with certainty the amount of additional capital expenditures or operating expenses that could be necessary for compliance with respect to any such changes. See Government Regulation
The Company is subject to the U.S. Foreign Corrupt Practices Act, Brazilian anti-corruption laws and similar anti-bribery laws in “Item 1. Business”other jurisdictions, which generally prohibit companies and their intermediaries from making improper payments to foreign officials for a further discussionthe purpose of this risk factor.
Material disruptions at one of the Company’s major manufacturing facilities could negatively impact financial results. Tredegar believes its facilities are operated inobtaining or retaining business. Although we have policies and procedures designed to facilitate compliance with applicable localthese laws and regulations, our employees, contractors and that the Company has implemented measures to minimize the risksagents may take actions in violation of disruption at its facilities. Such a disruptionour policies. Any such violation, even if prohibited by our policies, could be a result of any number of events, including but not limited to: an equipment failure with repairs requiring long lead times, labor stoppages or shortages, utility disruptions, constraints on the supply or delivery of critical raw materials, and severe weather conditions. A material disruption in one of the Company’s operating locations could negatively impact production and its consolidated financial condition, results of operations and cash flows.
An information technology system failure may adversely affect the business. Tredegar relies on information technology systems to transact its business. An information technology system failure due to computer viruses, internal our business and/or external security breaches, cybersecurity attacks, power interruptions, hardware failures, fire, natural disasters, human error, or other causes could disrupt its operation and prevent it from being able to process transactions with its customers, operate its manufacturing facilities, and properly report transactions in a timely manner. A significant, protracted information technology system failure may adversely affect Tredegar’s results of operations, financial condition, or cash flows.
our reputation.An inability to renegotiate the Company’s collective bargaining agreements could adversely impact its consolidated financial condition, results of operations and cash flows. Some of the Company’s employees are represented by labor unions under various collective bargaining agreements with varying durations and expiration dates. Tredegar may not be able to satisfactorily renegotiate collective bargaining agreements when they expire, which could result in strikes or work stoppages or higher labor costs. In addition, existing collective bargaining agreements may not prevent a strike or work stoppage at the Company’s facilities in the future. Any such work stoppages (or potential work stoppages) could negatively impact Tredegar’s ability to manufacture its products and adversely affect its consolidated financial condition, results of operations and cash flows.
Tredegar’s valuation of its $7.5 million cost-basis investment in kaléo is volatile and uncertain. Tredegar uses the fair value method to account for its fully-diluted ownership interest of approximately 20% in kaleo, Inc. (“kaléo”), a privately held specialty pharmaceutical company. There is no active secondary market for buying or selling stock in kaléo. The Company’s fair value estimates can fluctuate materially between reporting periods, primarily due to variances in its performance versus expectations. Additionally, the estimated fair value of the Company’s investment in kaléo could decline. Kaléo’s first product, an epinephrine auto-injector, was licensed to sanofi-aventis U.S. LLC (“Sanofi”) in 2009. Sanofi commenced commercial sales in the first quarter of 2013. Kaléo subsequently developed and commenced commercial sales of its second product, a naloxone auto-injector, in the third quarter of 2014. In the fourth quarter of 2015, Sanofi announced a voluntary recall of the product and subsequently returned the rights tokaléo in 2016. Kaléo relaunched the epinephrine auto-injector in the U.S. in the first quarter of 2017. See Note 4 to the Notes to Financial Statements for more information.
| |
Item 1B. | UNRESOLVED STAFF COMMENTS |
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 1C. CYBERSECURITY
Tredegar’s business model depends on the efficiency and reliability of its information systems, networks, and essential assets, with a portion of these systems and networks being administered by third-party service providers. Tredegar’s Cybersecurity Program (the “Program”), which was designed utilizing a risk-based approach, was developed to not only prevent, identify, investigate, resolve, and mitigate potential cybersecurity vulnerabilities within Tredegar but also to enhance the information security posture of Tredegar’s operations involving third-party service providers.
Tredegar entrusts the third-party service providers with the responsibility to institute security measure protocols that are appropriately and proportionally tailored to the corresponding risks. Additionally, Tredegar also periodically conducts assessments of the third-party service providers’ security frameworks to verify the implementation of adequate security measures, to safeguard Tredegar against potential vulnerabilities.
The Program leverages a blend of automated systems, manual operations, and external evaluations to proactively identify and mitigate potential cybersecurity threats. Key components of the program include Tredegar’s Cybersecurity Incident Response Plan and Cyber Crisis Management Plan. These plans encompass a strategic approach that includes detection of threats, thorough analysis of cybersecurity incidents to determine whether timely notification to the Board of Directors is necessary, containment of incidents, eradication or mitigation of threats, recovery processes, and a comprehensive post-incident review.
To further strengthen its cybersecurity posture, Tredegar employs third-party consultants who work with the internal audit and information technology (“IT”) departments to assess Tredegar’s information security program and practices, including incident management, service continuity, and information security compliance programs, and identify areas for improvement.
The results of such an assessment are regularly presented to the Audit Committee. Notably, these assessments include periodic penetration tests, which allow Tredegar to identify vulnerabilities, refine procedures, and enhance its crisis management and recovery capabilities. The Program is also supported by an organizational structure, involving collaboration across various business sectors and an interdisciplinary Global Data Protection and Cybersecurity Oversight Team that meets regularly to identify information security risks and appropriate risk mitigation strategies. Additionally, because Tredegar recognizes the significant role that its employees play in information security, it provides annual formal information security training to all of its employees that covers critical topics such as phishing and email security best practices.
Tredegar’s IT Director has over 10 years of cybersecurity expertise, including a robust history of similar roles, cybersecurity certifications from EC-Council and ODU Global and holds a degree in Computer Science from Universidade Catolica de Pernambuco and an MBA in IT Management from Universidade Federal de Pernambuco. Our IT Director is responsible for overseeing the Program, including the prevention, mitigation, detection, and remediation of cybersecurity incidents. Tredegar’s IT Director also regularly collaborates closely with key management, including the Chief Financial Officer, General Counsel, Compliance Manager, and Human Resources Executive Director, to foster effective communication within Tredegar.
The Board is responsible for risk management, with specific oversight of cybersecurity risks being delegated to the Audit Committee. The Audit Committee receives updates from the IT Director at each of its quarterly meetings. These updates encompass an assessment of Tredegar’s cybersecurity risk profile, including the efficacy of Tredegar’s cybersecurity policies, procedures, strategies, and areas of emerging risk. Additionally, the Board receives annual, but often more frequent, updates on Tredegar’s cybersecurity systems.
Item 2. PROPERTIES
General
Most of the improved real property and the other assets used in the Company’s operations are owned. Certain of the owned property is subject to an encumbrance under the Company’s revolving credit facility (seeABL Facility. See Note 117 “Debt and Credit Agreements” to the Consolidated Financial Statements in the Notes to Financial StatementsItem 15 for more information). information.
Tredegar considers the manufacturing facilities, warehouses and other properties and assets that it owns or leases to be in generally good condition. Capacity utilization at its various manufacturing facilities can vary with product mix and normal fluctuations in sales levels. The Company believes that its Bonnell Aluminum, PE Films and Flexible Packaging Films manufacturing facilities have sufficient capacity to meet its current production requirements. Flexible Packaging Films is operating at capacity but has an idled line that it expects will be restarted in 2018. Bonnell Aluminum is operating at nearly full capacity utilization in its building and construction sector. Tredegar’s corporate headquarters, which is leased, is located at 1100 Boulders Parkway, Richmond, Virginia 23225.
The Company’s principal manufacturing plants and facilities as of December 31, 20172023 are listed below:
PE Films
| | | | | | | | | | | | | | |
| | | | |
| Locations in the U.S. | | Locations Outside the U.S. | | Principal Operations |
Lake Zurich, IllinoisCarthage, Tennessee
Clearfield, Utah (leased)
Elkhart, Indiana
Newnan, Georgia
Niles, Michigan
| | None | | Production of aluminum extrusions, fabrication and finishing |
PE Films
Durham, North Carolina (technical center and production facility) (leased)
| | | | | | | | | | | | | | |
| Locations in the U.S. | | Locations Outside the U.S. | | Principal Operations |
| Pottsville, Pennsylvania Richmond, Virginia (technical center) (leased)
Terre Haute, Indiana (technical center and production facility)
| | Guangzhou, China Kerkrade, The Netherlands
Pune, India
Rétság, Hungary
São Paulo, Brazil
Shanghai, China
| | Production of plastic films and laminate materials
|
Flexible Packaging Films
| | | | | | | | | | | | | | |
| | | | |
| Locations in the U.S. | | Locations Outside the U.S. | | Principal Operations |
Bloomfield, New York (technical center and production facility)
| | Cabo de Santo Agostinho, Brazil | | Production of polyesterPET-based films |
Aluminum Extrusions
|
| | | | |
Locations in the U.S. | | | | Principal Operations |
Carthage, Tennessee
Elkhart, Indiana
Newnan, Georgia
Niles, Michigan
Clearfield, Utah
| | | | Production of aluminum extrusions, fabrication and finishing |
None.Item 3. LEGAL PROCEEDINGS
The information required by this Item 3 is set forth in Note 16 "Contingencies" to the Consolidated Financial Statements in Item 15 and is hereby incorporated herein by reference.
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Item 4. | MINE SAFETY DISCLOSURES |
Item 4. MINE SAFETY DISCLOSURES
None.
PART II
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Item 5. | MARKET FOR TREDEGAR’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Prices of Common Stock and Shareholder DataItem 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Tredegar’s common stock is traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “TG”. There were 33,017,42234,430,769 shares of common stock held by 1,9511,559 shareholders of record on December 31, 2017.
The following table shows the reported high and low closing prices of Tredegar’s common stock by quarter for the past two years.
|
| | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| | High | | Low | | High | | Low |
| First quarter | $ | 25.00 |
| | $ | 16.50 |
| | $ | 16.01 |
| | $ | 11.68 |
|
| Second quarter | 17.65 |
| | 14.90 |
| | 17.37 |
| | 14.80 |
|
| Third quarter | 18.35 |
| | 14.85 |
| | 19.39 |
| | 16.30 |
|
| Fourth quarter | 20.20 |
| | 18.20 |
| | 25.55 |
| | 17.30 |
|
The closing price of Tredegar’s common stock on February 16, 2018 was $16.80.March 8, 2024.
Dividend Information
Prior to the third quarter of 2023, Tredegar has paid a regular cash dividend every quarter since becoming a public company in July 1989. DuringUnder the past three years,ABL Facility, the Company paid quarterly dividends as follows:is prohibited from making dividend payments during the fiscal quarters ending September 30, 2023 through December 31, 2024. See Note 7 “Debt and Credit Agreements” to the Consolidated Financial Statements in Item 15 for more information on the Company’s ABL Facility.
•11 cents per share in the last three quarters of 2015 and each of the quarters of 2016 and 2017;
•9 cents per share in the first quarter of 2015.
All decisions with respect to the declaration and payment of future dividends will be made by the Board of Directors in its sole discretion based upon earnings, financial condition, anticipated cash needs restrictions in the Company’s revolving credit facility and other such considerations as the Board deems relevant. See Note 11 of the Notes to Financial Statements for the restrictions on the payment of dividends contained in the Company’s revolving credit agreement related to aggregate dividends permitted.
Issuer Purchases of Equity Securities
On January 7, 2008, Tredegar announced that itsthe Board of Directors approved a share repurchase program whereby management is authorized at its discretion to purchase, in the open market or in privately negotiated transactions, up to 5 million shares of the Company’s outstanding common stock. The authorization has no time limit. Tredegar did not repurchase any shares in the open market or otherwise in 2017, 2016 and 20152023, 2022 or 2021 under this standing authorization. The maximum number of shares remaining under this standing authorization was 1,732,003 at December 31, 2017.2023. Under the ABL Facility, the Company is prohibited from making share repurchases during the fiscal quarters ending September 30, 2023 through December 31, 2024.
Comparative Tredegar Common Stock Performance Graph
The following graph compares cumulative total shareholder returns for Tredegar, the S&P SmallCap 600 Stock Index (an index comprised of companies with market capitalizations similar to Tredegar) and the Russell 2000 Index for the five years ended December 31, 2017.2023. Tredegar is part of both the S&P SmallCap 600 Index and Russell 2000 Index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Tredegar Corporation, the S&P SmallCap 600 Index, and the Russell 2000 Index
|
| |
*$100 invested on 12/31/1218 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2018
Copyright© 2023 Standard & Poor's, a division of S&P Global. All rights reserved.
Copyright© 2018 Copyright© 2023 Russell Investment Group. All rights reserved.
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Inquiries
Inquiries concerning stock transfers, dividends, dividend reinvestment, consolidating accounts, changes of address, or lost or stolen stock certificates should be directed to Computershare Investor Services, the transfer agent and registrar for the Company’s common stock:
Computershare Investor Services
P.O. Box 30170
College Station, TX 77842-3170
Phone: 800-622-6757
www.computershare.com/us/contact
All other inquiries should be directed to:
Tredegar Corporation
Investor Relations Department
1100 Boulders Parkway
Richmond, Virginia 23225
Phone: 855-330-1001
E-mail: invest@tredegar.com
Website: www.tredegar.com
Quarterly Information
Tredegar does not generate or distribute quarterly reports to its shareholders. Information on quarterly results can be obtained from the Company’s website. In addition, Tredegar files quarterly, annual and other information electronically with the SEC, which can be accessed on its website at www.sec.gov.
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Item 6. | SELECTED FINANCIAL DATA |
The tables that follow present certain selected financial and segment information for the five years ended December 31, 2017.
FIVE-YEAR SUMMARY
Tredegar Corporation and Subsidiaries
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31 | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| (In thousands, except per-share data) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Results of Operations (g): | | | | | | | | | | | | | | |
| Sales | $ | 961,330 |
| | | $ | 828,341 |
| | | $ | 896,177 |
| | | $ | 951,826 |
| | | $ | 959,346 |
| |
| Other income (expense), net | 51,713 |
| (a) | | 2,381 |
| (b) | | (20,113 | ) | (d) | | (6,697 | ) | (e) | | 1,776 |
| (f) |
| | 1,013,043 |
| | | 830,722 |
| | | 876,064 |
| | | 945,129 |
| | | 961,122 |
| |
| Cost of goods sold | 775,628 |
| (a) | | 668,626 |
| (b) | | 725,459 |
| (d) | | 778,113 |
| (e) | | 784,675 |
| (f) |
| Freight | 33,683 |
| | | 29,069 |
| | | 29,838 |
| | | 28,793 |
| | | 28,625 |
| |
| Selling, general & administrative expenses | 85,501 |
| (a) | | 75,754 |
| (b) | | 71,911 |
| (d) | | 69,526 |
| (e) | | 71,195 |
| (f) |
| Research and development expenses | 18,287 |
| | | 19,122 |
| | | 16,173 |
| | | 12,147 |
| | | 12,669 |
| |
| Amortization of identifiable intangibles | 6,198 |
| | | 3,978 |
| | | 4,073 |
| | | 5,395 |
| | | 6,744 |
| |
| Interest expense | 6,170 |
| | | 3,806 |
| | | 3,502 |
| | | 2,713 |
| | | 2,870 |
| |
| Asset impairments and costs associated with exit and disposal activities | 102,488 |
| (a) | | 2,684 |
| (b) | | 3,850 |
| (d) | | 3,026 |
| (e) | | 1,412 |
| (f) |
| Goodwill impairment charge | — |
| | | — |
| | | 44,465 |
| (c) | | — |
| | | — |
| |
| | 1,027,955 |
| | | 803,039 |
| | | 899,271 |
| | | 899,713 |
| | | 908,190 |
| |
| Income (loss) from continuing operations before income taxes | (14,912 | ) | | | 27,683 |
| | | (23,207 | ) | | | 45,416 |
| | | 52,932 |
| |
| Income tax expense (benefit) | (53,163 | ) | (a) | | 3,217 |
| (b) | | 8,928 |
| (d) | | 9,387 |
| (e) | | 16,995 |
| (f) |
| Income (loss) from continuing operations (g) | 38,251 |
| | | 24,466 |
| | | (32,135 | ) | | | 36,029 |
| | | 35,937 |
| |
| Income (loss) from discontinued operations, net of tax (g) | — |
| | | — |
| | | — |
| | | 850 |
| (g) | | (13,990 | ) | (g) |
| Net income (loss) | $ | 38,251 |
| | | $ | 24,466 |
| | | $ | (32,135 | ) | | | $ | 36,879 |
| | | $ | 21,947 |
| |
| Diluted earnings (loss) per share (g): | | | | | | | | | | | | | | |
| Continuing operations | $ | 1.16 |
| | | $ | 0.75 |
| | | $ | (0.99 | ) | | | $ | 1.11 |
| | | $ | 1.10 |
| |
| Discontinued operations | — |
| | | — |
| | | — |
| | | 0.02 |
| (g) | | (0.43 | ) | (g) |
| Net income (loss) | $ | 1.16 |
| | | $ | 0.75 |
| | | $ | (0.99 | ) | | | $ | 1.13 |
| | | $ | 0.67 |
| |
Refer to Notes to Financial Tables that follow these tables.
FIVE-YEAR SUMMARY
Tredegar Corporation and Subsidiaries
|
| | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31 | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | |
| (In thousands, except per-share data) | | | | | | | | | | |
| | | | | | | | | | | |
| Share Data: | | | | | | | | | | |
| Equity per share (l) | $ | 10.41 |
| | $ | 9.44 |
| | $ | 8.35 |
| | $ | 11.47 |
| | $ | 12.46 |
| |
| Cash dividends declared per share | $ | 0.44 |
| | $ | 0.44 |
| | $ | 0.42 |
| | $ | 0.34 |
| | $ | 0.28 |
| |
| Weighted average common shares outstanding during the period | 32,946 |
| | 32,762 |
| | 32,578 |
| | 32,302 |
| | 32,172 |
| |
| Shares used to compute diluted earnings (loss) per share during the period | 32,951 |
| | 32,775 |
| | 32,578 |
| | 32,554 |
| | 32,599 |
| |
| Shares outstanding at end of period | 33,017 |
| | 32,934 |
| | 32,682 |
| | 32,422 |
| | 32,305 |
| |
| Closing market price per share: | | | | | | | | | | |
| High | $ | 25.00 |
| | $ | 25.55 |
| | $ | 23.76 |
| | $ | 28.45 |
| | $ | 30.73 |
| |
| Low | $ | 14.85 |
| | $ | 11.68 |
| | $ | 12.63 |
| | $ | 16.76 |
| | $ | 21.06 |
| |
| End of year | $ | 19.20 |
| | $ | 24.00 |
| | $ | 13.62 |
| | $ | 22.49 |
| | $ | 28.81 |
| |
| Total return to shareholders (h) | (18.2 | )% | | 79.4 | % | | (37.6 | )% | | (20.8 | )% | | 42.5 | % | |
| Financial Position: | | | | | | | | | | |
| Total assets (k) | $ | 755,743 |
| | $ | 651,162 |
| | $ | 623,260 |
| | $ | 788,626 |
| | $ | 793,008 |
| |
| Cash and cash equivalents | $ | 36,491 |
| | $ | 29,511 |
| | $ | 44,156 |
| | $ | 50,056 |
| | $ | 52,617 |
| |
| Debt | $ | 152,000 |
| | $ | 95,000 |
| | $ | 104,000 |
| | $ | 137,250 |
| | $ | 139,000 |
| |
| Shareholders’ equity (net book value) | $ | 343,780 |
| | $ | 310,783 |
| | $ | 272,748 |
| | $ | 372,029 |
| | $ | 402,664 |
| |
| Equity market capitalization (i) | $ | 633,935 |
| | $ | 790,411 |
| | $ | 445,131 |
| | $ | 729,173 |
| | $ | 930,711 |
| |
Refer to Notes to Financial Tables that follow these tables.
SEGMENT TABLES
Tredegar Corporation and Subsidiaries
|
| | | | | | | | | | | | | | | | | | | |
| Net Sales (j) | | | | | | | | | |
| Years Ended December 31 | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| (In thousands) | | | | | | | | | |
| PE Films | $ | 352,459 |
| | $ | 331,146 |
| | $ | 385,550 |
| | $ | 464,339 |
| | $ | 495,386 |
|
| Flexible Packaging Films | 108,355 |
| | 108,028 |
| | 105,332 |
| | 114,348 |
| | 125,853 |
|
| Aluminum Extrusions | 466,833 |
| | 360,098 |
| | 375,457 |
| | 344,346 |
| | 309,482 |
|
| Total net sales | 927,647 |
| | 799,272 |
| | 866,339 |
| | 923,033 |
| | 930,721 |
|
| Add back freight | 33,683 |
| | 29,069 |
| | 29,838 |
| | 28,793 |
| | 28,625 |
|
| Sales as shown in Consolidated Statements of Income | $ | 961,330 |
| | $ | 828,341 |
| | $ | 896,177 |
| | $ | 951,826 |
| | $ | 959,346 |
|
| | | | | | | | | | |
| Identifiable Assets | | | | | | | | | |
| As of December 31 | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| (In thousands) | | | | | | | | | |
| PE Films | $ | 289,514 |
| | $ | 278,558 |
| | $ | 270,236 |
| | $ | 283,606 |
| | $ | 291,377 |
|
| Flexible Packaging Films | 49,915 |
| | 156,836 |
| | 146,253 |
| | 262,604 |
| | 265,496 |
|
| Aluminum Extrusions | 268,127 |
| | 147,639 |
| | 136,935 |
| | 143,328 |
| | 134,928 |
|
| Subtotal | 607,556 |
| �� | 583,033 |
| | 553,424 |
| | 689,538 |
| | 691,801 |
|
| General corporate | 111,696 |
| | 38,618 |
| | 25,680 |
| | 49,032 |
| | 48,590 |
|
| Cash and cash equivalents | 36,491 |
| | 29,511 |
| | 44,156 |
| | 50,056 |
| | 52,617 |
|
| Total | $ | 755,743 |
| | $ | 651,162 |
| | $ | 623,260 |
| | $ | 788,626 |
| | $ | 793,008 |
|
Refer to Notes to Financial Tables that follow these tables.
SEGMENT TABLES
Tredegar Corporation and Subsidiaries
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Profit | | | | | | | | | | | | | | |
| Years Ended December 31 | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| (In thousands) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| PE Films: | | | | | | | | | | | | | | |
| Ongoing operations | $ | 41,546 |
| | | $ | 26,312 |
| | | $ | 48,275 |
| | | $ | 60,971 |
| | | $ | 61,866 |
| |
| Plant shutdowns, asset impairments, restructurings and other | (4,905 | ) | (a) | | (4,602 | ) | (b) | | (4,180 | ) | (d) | | (12,236 | ) | (e) | | (671 | ) | (f) |
| Flexible Packaging Films: | | | | | | | | | | | | | | |
| Ongoing operations | (2,626 | ) | | | 1,774 |
| | | 5,453 |
| | | (2,917 | ) | | | 9,100 |
| |
| Plant shutdowns, asset impairments, restructurings and other | (89,398 | ) | (a) | | (214 | ) | (b) | | (185 | ) | (d) | | (591 | ) | (e) | | — |
| |
| Goodwill impairment charge | — |
| | | — |
| | | (44,465 | ) | (c) | | — |
| | | — |
| |
| Aluminum Extrusions: | | | | | | | | | | | | | | |
| Ongoing operations | 43,454 |
| | | 37,794 |
| | | 30,432 |
| | | 25,664 |
| | | 18,291 |
| |
| Plant shutdowns, asset impairments, restructurings and other | 321 |
| (a) | | (741 | ) | (b) | | (708 | ) | (d) | | (976 | ) | (e) | | (2,748 | ) | (f) |
| Total | (11,608 | ) | | | 60,323 |
| | | 34,622 |
| | | 69,915 |
| | | 85,838 |
| |
| Interest income | 209 |
| | | 261 |
| | | 294 |
| | | 588 |
| | | 594 |
| |
| Interest expense | 6,170 |
| | | 3,806 |
| | | 3,502 |
| | | 2,713 |
| | | 2,870 |
| |
| Gain (loss) on investment accounted for under the fair value method | 33,800 |
| (a) | | 1,600 |
| (b) | | (20,500 | ) | (d) | | 2,000 |
| (e) | | 3,400 |
| (f) |
| Gain on sale of investment property | — |
| | | — |
| | | — |
| | | 1,208 |
| (e) | | — |
| |
| Unrealized loss on investment property | — |
| | | 1,032 |
| (b) | | — |
| | | — |
| | | 1,018 |
| (e) |
| Stock option-based compensation expense | 264 |
| | | 56 |
| | | 483 |
| | | 1,272 |
| | | 1,155 |
| |
| Corporate expenses, net | 30,879 |
| (a) | | 29,607 |
| (b) | | 33,638 |
| (d) | | 24,310 |
| (e) | | 31,857 |
| (f) |
| Income (loss) from continuing operations before income taxes | (14,912 | ) | | | 27,683 |
| | | (23,207 | ) | | | 45,416 |
| | | 52,932 |
| |
| Income tax expense (benefit) | (53,163 | ) | (a) | | 3,217 |
| (b) | | 8,928 |
| (d) | | 9,387 |
| (e) | | 16,995 |
| (f) |
| Income (loss) from continuing operations | 38,251 |
| | | 24,466 |
| | | (32,135 | ) | | | 36,029 |
| | | 35,937 |
| |
| Income (loss) from discontinued operations, net of tax (g) | — |
| | | — |
| | | — |
| | | 850 |
| (g) | | (13,990 | ) | (g) |
| Net income (loss) | $ | 38,251 |
| | | $ | 24,466 |
| | | $ | (32,135 | ) | | | $ | 36,879 |
| | | $ | 21,947 |
| |
Refer to Notes to Financial Tables that follow these tables.
SEGMENT TABLES
Tredegar Corporation and Subsidiaries
|
| | | | | | | | | | | | | | | | | | | |
Depreciation and Amortization
| | | | | | | | | |
| Years Ended December 31 | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| (In thousands) | | | | | | | | | |
| PE Films | $ | 14,609 |
| | $ | 13,653 |
| | $ | 15,480 |
| | $ | 21,399 |
| | $ | 25,656 |
|
| Flexible Packaging Films | 10,443 |
| | 9,505 |
| | 9,697 |
| | 9,331 |
| | 9,676 |
|
| Aluminum Extrusions | 15,070 |
| | 9,173 |
| | 9,698 |
| | 9,974 |
| | 9,202 |
|
| Subtotal | 40,122 |
| | 32,331 |
| | 34,875 |
| | 40,704 |
| | 44,534 |
|
| General corporate | 155 |
| | 141 |
| | 107 |
| | 114 |
| | 121 |
|
| Total depreciation and amortization expense | $ | 40,277 |
| | $ | 32,472 |
| | $ | 34,982 |
| | $ | 40,818 |
| | $ | 44,655 |
|
| | | | | | | | | | |
| Capital Expenditures | | | | | | | | | |
| Years Ended December 31 | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| (In thousands) | | | | | | | | | |
| PE Films | $ | 15,029 |
| | $ | 25,759 |
| | $ | 21,218 |
| | $ | 17,000 |
| | $ | 15,615 |
|
| Flexible Packaging Films | 3,619 |
| | 3,391 |
| | 3,489 |
| | 21,806 |
| | 49,252 |
|
| Aluminum Extrusions | 25,653 |
| | 15,918 |
| | 8,124 |
| | 6,092 |
| | 14,742 |
|
| Subtotal | 44,301 |
| | 45,068 |
| | 32,831 |
| | 44,898 |
| | 79,609 |
|
| General corporate | 61 |
| | 389 |
| | — |
| | — |
| | 52 |
|
| Total capital expenditures | $ | 44,362 |
| | $ | 45,457 |
| | $ | 32,831 |
| | 44,898 |
| | 79,661 |
|
Refer to Notes to Financial Tables that follow these tables.
NOTES TO FINANCIAL TABLES
| |
(a) | Plant shutdowns, asset impairments, restructurings and other charges for 2017 include: income of $11.9 million related to the settlement of an escrow arrangement (included in “Other income (expense), net” in the consolidated statements of income); charges related to the impairment of assets of Flexible Packaging in the amount of $101 million; income of $5.6 million related to the explosion that occurred in the second quarter of 2016 at Bonnell’s aluminum extrusions manufacturing facility in Newnan, Georgia, which includes the recognition of a gain of $5.3 million for a portion of the insurance recoveries received from the insurer for the replacement of capital equipment, plus the recovery of excess production costs incurred in 2016 for which recovery from insurance carriers was not previously considered to be reasonably assured, net of other nonrecoverable costs, of $0.3 million ($0.4 million benefit included in “Cost of goods sold” in the consolidated statements of income and $0.1 million charge included in “Selling, general and administrative expenses” in the consolidated statements of income); charges of $4.1 million for estimated excess costs associated with the ramp-up of new product offerings (included in “Cost of goods sold” in the consolidated statements of income); charges of $1.9 million related to expected environmental costs at certain Aluminum Extrusions manufacturing facilities (included in “Cost of goods sold” in the consolidated statements of income); charges of $3.3 million related to the acquisition of Futura Industries Corporation ($1.7 million included in “Cost of goods sold” and $1.6 million included in “Selling, general and administrative expense” in the consolidated statements of income), offset by pretax income of $0.7 million related to the fair valuation of an earnout provision (included in “Other income (expense), net” in the condensed consolidated statements of income); charges of $0.8 million associated with the consolidation of domestic PE Films manufacturing facilities, which includes asset impairments of $0.1 million, accelerated depreciation of $0.3 million and other facility consolidation-related expenses of $0.5 million (included in “Cost of goods sold” in the consolidated statements of income) offset by income of $0.1 million related to a reduction of severance and other employee-related accrued costs; charges of $2.4 million associated with a business development project included in “Selling, general and administrative” in the consolidated statements of income); charge of $0.7 million for severance and other employee-related costs associated with restructurings in PE Films ($0.2 million), Aluminum Extrusions ($0.1 million) and Corporate ($0.4 million); charges of $0.3 million associated with asset impairments in PE Films; charge of $0.2 million associated with the settlement of customer claims and the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana. The unrealized gain of $33.8 million on the Company’s investment in kaléo is included in “Other income (expense), net” in the consolidated statements of income. |
| |
(b) | Plant shutdowns, asset impairments, restructurings and other charges for 2016 include income of $0.4 million related to the explosion that occurred in the second quarter of 2016 at Bonnell’s 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 consolidated statements of income) and other costs related to the explosion that are not recoverable from insurance of $0.6 million (included in “Selling, general and administrative”) and excess production costs for which recovery from insurance is not assured of $0.6 million (included in “Cost of goods sold” in the consolidated statements of income); charges of $4.3 million associated with the consolidation of domestic PE Films manufacturing facilities, which includes 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 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 consolidated statements of income); charges of $0.4 million associated with a business development project included in “Selling, general and administrative” in the consolidated statements of income); charge 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); charges of $0.6 million associated with the acquisition of Futura Industries Corporation (included in “Selling, general and administrative” in the consolidated statements of income); charges of $0.5 million related to expected future environmental costs at the Company’s aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statements of income); charges of $0.3 million related to the settlement of a tax dispute in the Flexible Packaging Films segment (included in “Cost of goods sold” in the consolidated statements of income); charges of $0.2 million associated with asset impairments in PE Films; gain of $0.1 million from the settlement of a Terphane pre-acquisition contingency (included in “Other income (expense), net” in the consolidated statements of income); charge of $0.1 million from the sale of the aluminum extrusions manufacturing facility in Kentland, Indiana at a pretax gain of $0.2 million, offset by pretax charges of $0.3 million associated with the shutdown of this facility. The unrealized gain of $1.6 million on the Company’s investment in kaléo is included in “Other income (expense), net” in the consolidated statements of income. |
| |
(c) | Results for 2015 included a 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. |
| |
(d) | Plant shutdowns, asset impairments, restructurings and other charges for 2015 include charges of $3.9 million (included in “Selling, general and administrative” in the consolidated statements of income) for severance and other employee-related costs associated with the resignation of the Company’s former chief executive and chief financial officers; 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 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 consolidated statements of income); charge of $2.2 million for severance and other employee-related costs associated with restructurings in PE Films ($2.0 million) ($0.4 million included in “Selling, general and administrative expense” in the consolidated statement of income), Flexible Packaging Films ($0.2 million), Aluminum Extrusions ($35,000) and Corporate ($26,000); charges of $1.0 million associated with a non-recurring business development project (included in “Cost of goods sold” in the consolidated statements of income); charges of $0.4 million associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana; and charges of $0.3 million related to expected future environmental costs at the Company’s aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statements of income). The unrealized loss of $20.5 million on the Company’s investment in kaléo is included in “Other income (expense), net” in the consolidated statements of income. |
| |
(e) | Plant shutdowns, asset impairments, restructurings and other for 2014 include a charge of $10.0 million (included in “Other income (expense), net” in the consolidated statements of income) associated with the one-time, lump sum license payment to 3M Company (“3M”) after the Company settled all litigation issues associated with a patent infringement complaint; charges of $2.3 million for severance and other employee-related costs in connection with restructurings in PE Films ($1.7 million), Flexible Packaging Films ($0.6 million) and Aluminum Extrusions ($31,000); charges of $0.9 million related to expected future environmental costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statement of income); charges of $0.7 million associated with the shutdown of the film products manufacturing facility in Red Springs, North Carolina, which includes severance and other employee-related costs of $0.4 million and asset impairment and other shutdown-related charges of $0.3 million; gain of $0.1 million related to the sale of previously shutdown film products manufacturing facility in LaGrange, Georgia (included in “Other income (expense), net” in the consolidated statements of income); and charges of $54,000 associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana. The unrealized gain of $2.0 million on the Company’s investment in kaléo; the unrealized loss of $0.8 million on the Company’s investment in Harbinger Capital Partners Special Situations Fund L.P. (“Harbinger”) and the gain of $1.2 million on sale on a portion the Company’s investment property in Alleghany and Bath County, Virginia in 2014 are included in “Other income (expense), net” in the consolidated statements of income. Income taxes from continuing operations in 2014 includes the recognition of a tax benefit for a portion of the Company’s capital loss carryforwards of $4.9 million. These capital loss carryforwards were previously offset by a valuation allowance associated with expected limitations on the utilization of these assumed capital losses. As a result of changes in the underlying basis of certain foreign subsidiaries, income taxes from continuing operations in 2014 also included an adjustment of $2.2 million to reverse previously accrued deferred income tax liabilities arising from foreign currency translation adjustments. |
| |
(f) | Plant shutdowns, asset impairments, restructurings and other for 2013 include a charge of $1.7 million related to expected future environmental costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statement of income); charges of $0.6 million associated with the shutdown of the Company’s aluminum extrusions manufacturing facility in Kentland, Indiana; charges of $0.5 million associated with the shutdown of the film products manufacturing facility in Red Springs, North Carolina, which includes severance and other employee-related costs of $0.3 million and asset impairment charges of $0.2 million; charges of $0.4 million for severance and other employee-related costs in connection with restructurings in Aluminum Extrusions ($0.3 million) and PE Films ($0.1 million); charges of $0.2 million for integration-related expenses and other nonrecurring transactions (included in “Selling, general and administrative expenses” in the consolidated statements of income) associated with the acquisition of AACOA, Inc. (“AACOA”) by Aluminum Extrusions; and a loss of $0.1 million related to the sale of previously impaired machinery and equipment at the Company’s film products manufacturing facility in Shanghai, China (included in “Other income (expense), net” in the consolidated statements of income). The unrealized gain of $3.4 million on the Company’s investment in kaléo, the unrealized loss of $0.4 million on the Company’s investment in Harbinger and the unrealized loss of $1.0 million on the Company’s investment property in Alleghany and Bath County, Virginia in 2013 are included in “Other income (expense), net” in the consolidated statements of income. Income taxes for 2013 include the recognition of an additional valuation allowance of $0.4 million related to the expected limitations on the utilization of assumed capital losses on certain investments. |
| |
(g) | On November 20, 2012, Tredegar sold its membership interests in Falling Springs, LLC. All historical results for this business have been reflected in discontinued operations. On February 12, 2008, Tredegar sold its aluminum extrusions business in Canada. All historical results for this business have been reflected as discontinued operations. In 2014, accruals for indemnifications under the purchase agreement were adjusted, resulting in income from discontinued operations of $0.9 million. In 2013, discontinued operations include after-tax charges of $14.0 million, to accrue for indemnifications under the purchase agreement related to environmental matters. |
| |
(h) | Total return to shareholders is defined as the change in stock price during the year plus dividends per share, divided by the stock price at the beginning of the year. |
| |
(i) | Equity market capitalization is the closing market price per share for the period multiplied by the shares outstanding at the end of the period. |
| |
(j) | Net sales represent gross sales less freight. Net sales is the measure used by the chief operating decision maker of each segment for purposes of assessing performance. |
| |
(k) | Total assets in 2015, 2016 and 2017 are not comparable to prior years due to the adoption of new FASB guidance associated with the classification of deferred income tax assets and liabilities. See Note 16 to the Notes to the Financial Statements for additional details.
|
| |
(l) | Equity per share is computed by dividing shareholders’ equity at year end by the shares outstanding at end of period. |
| |
Item 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-lookingThe following discussion and Cautionary Statements
Someanalysis of our financial condition and results of operations focuses on and is intended to clarify the results of our operations, certain changes in our financial position, liquidity, capital structure and business developments for the periods covered by the consolidated financial statements included in this Form 10-K. This discussion should be read in conjunction with, and is qualified by reference to, the other related information containedincluding, but not limited to, the audited consolidated financial statements (including the notes thereto) and the description of our business, all as set forth in this Form 10-K, may constitute “forward-looking statements” withinas well as the meaning ofrisk factors discussed above in Item 1A.
This section provides discussion and a year-to-year comparison for the “safe harbor” provisions ofyears ended December 31, 2023 and 2022.
Business Overview
General
Tredegar Corporation is an industrial manufacturer with three primary businesses: custom aluminum extrusions for the Private Securities Litigation Reform Act of 1995. When using the words “believe,” “estimate,” “anticipate,” “expect,” “project,” “likely,” “may”North American B&C, automotive and similar expressions, Tredegar does so to identify forward-looking statements. Such statements are based on then current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those addressedspecialty end-use markets through its Aluminum Extrusions segment; surface protection films for high-technology applications in the forward-looking statements. Itglobal electronics industry through its PE Films segment; and specialized polyester films primarily for the Latin American flexible packaging market through its Flexible Packaging Films segment. With approximately 1,900 employees, the Company operates manufacturing facilities in North America, South America, and Asia.
EBITDA from ongoing operations is possible that actualthe measure of segment profit and loss used by Tredegar’s chief operating decision maker (“CODM”) for purposes of assessing financial performance. The Company uses sales less freight (“net sales”) as its measure of revenues from external customers at the segment level. This measure is separately included in the financial information regularly provided to the CODM.
Earnings before interest and taxes (“EBIT”) from ongoing operations is a non-GAAP financial measure included in the reconciliation of segment financial information to consolidated results and financial condition may differ, possibly materially, fromfor the anticipatedCompany in Note 13 “Business Segments” to the Consolidated Financial Statements in Item 15. EBIT is not intended to represent the stand-alone results for Tredegar's ongoing operations under GAAP and financial condition indicated in or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these forward-looking statements. For risksbe considered as an alternative to net income (loss) as defined by GAAP. We believe that EBIT is a widely understood and important factorsutilized metric that could cause actual resultsis meaningful to differ from expectations, refer to the reportscertain investors and that Tredegar files with or furnishes the SEC from time-to-time, including the risks and important factors set forth in “Risk Factors” in Part I, Item 1A of this Form 10-K. Readers are urged to review and consider carefully the disclosures Tredegar makesfinancial metric in the reports Tredegar files with or furnishesreconciliation of management’s performance metric, EBITDA from ongoing operations, provides useful information to the SEC. Tredegar does not undertake, and expressly disclaims any duty,those investors that primarily utilize EBIT to update any forward-looking statement 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.
Executive Summary
General
Tredegar is a manufacturer of polyethylene (“PE”) plastic films, polyester films, and aluminum extrusions. Descriptions of allanalyze the Company’s businesses are provided in the Business section.core operations.
Sales were $961.3$704.8 million in 20172023 compared to $828.3$938.6 million in 2016.2022. Net income (loss) was $38.3$(105.9) million ($1.16(3.10) per diluted share) in 2017,2023, compared with $24.5net income (loss) of $28.5 million ($0.750.84 per diluted share) in 2016. In addition2022.
2023 Financial Results Highlights
•EBITDA from ongoing operations for Aluminum Extrusions of $38.0 million was $28.8 million lower than the year of 2022.
•EBITDA from ongoing operations for PE Films of $11.2 million was $0.7 million lower than the year of 2022.
•EBITDA from ongoing operations for Flexible Packaging Films of $4.4 million was $23.1 million lower than the year of 2022.
Gains and losses associated with exit and disposal activities, plant shutdowns, asset impairments, restructurings and other items are described in Results of Operations below.
Results of Operations
2023 versus 2022
The following table presents a bridge of consolidated net income (loss) from the year of 2022 to the resultsyear of ongoing operations,2023 with related management’s discussion and analysis below the 2017 results include:table.
| | | | | | | | |
| (In thousands) | | |
| Net income (loss) for the year ended December 31, 2022 | | $ | 28,455 | |
| Income tax expense (benefit) | | 4,389 | |
| Income (loss) before income taxes for the year ended December 31, 2022 | | 32,844 | |
| Change in income (loss) from increases (decreases) in the following items: | | |
| Sales | | (233,739) | |
| Other income (expense), net | | (3,156) | |
| Total | | (236,895) | |
| Change in income (loss) from (increases) decreases in the following items: | | |
| Cost of goods sold | | 164,932 | |
| Freight | | 8,049 | |
| Selling, general and administrative | | 2,583 | |
| Research and development | | 2,453 | |
| Interest expense | | (6,617) | |
| Pension settlement loss | | (92,291) | |
| Goodwill impairment | | (34,891) | |
| Other | | (197) | |
| Total | | 44,021 | |
| Income (loss) before income taxes for the year ended December 31, 2023 | | (160,030) | |
| Income tax expense (benefit) | | (54,125) | |
| Net income (loss) for the year ended December 31, 2023 | | $ | (105,905) | |
An unrealized after-tax gainSales in 2023 decreased by 24.9% compared with 2022. Net sales decreased 25.6% in Aluminum Extrusions primarily due to lower sales volume and the pass-through of lower metal costs. Net sales decreased 21.3% in PE Films primarily due to lower volume in Surface Protection, resulting from weak demand in the consumer electronics market and customer inventory corrections during 2023. Net sales decreased in Flexible Packaging Films by 24.9% primarily due to lower sales volume and lower margin that the Company believes are driven by excess global capacity and competition in Brazil from imports, partially offset by favorable product mix. For more information on changes in net sales and volume, see the Company’s investmentSegment Operations Review section below.
Other income (expense), net was $(2.1) million in kaléo of $24.02023 compared to $1.0 million ($0.73 per share)in 2022. The change in other income (expense), which is accounted for undernet was primarily due a $2.0 million charge to adjust the fair value method (see Note 4initial purchase price of the Notes to Financial Statements for more details);
An after-tax gain of $11.9 million ($0.36 per share) from the settlement of an escrow agreement related to the Terphane acquisition in 2011 (see Note 17 of the Notes to Financial Statements for more details);
An income tax benefit of $61.4 million ($1.86 per share) associated with the write-off of the stock basis of Terphane Limitada, Terphane’s Brazilian subsidiary, and Terphane’s U.S. subsidiary, Terphane Inc., computed at the 35% U.S. corporate federal income tax rate in effect in 2017 ($56.6 million ($1.72 per share) when reduced for the deductions applicable to the 21% U.S. corporate federal income tax rate effective in 2018 under the Tax Cuts and Jobs Act (the “TCJA”)) (see Note 17 of the Notes to Financial Statements for more details);
An income tax benefit from the adjustment of deferred income tax liabilitiesnonparticipating single premium group annuity contract as a result of the reductionroutine administrative process to transition the pension plan. Also, there was cash consideration of U.S. federal corporate income tax rates effective$0.3 million received in 2018 and other law changes of $4.4January 2023 compared to $1.4 million ($0.13 per share) (see Note 16received in May 2022 related to customary post-closing adjustments on the sale of the Notesinvestment in kaleo, Inc., which was sold in December 2021. See Note 9 “Other Income (Expense), net” to the Consolidated Financial Statements in Item 15 for additional information.
Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales (gross profit margin) was 11.2% in 2023 versus 14.9% in 2022.
•The gross profit margin in Aluminum Extrusions decreased primarily due to: lower volume; higher labor and employee-related costs; lower labor productivity in the first half of 2023; higher supply expense (including higher paint expense associated with a shift to more details)painted product throughout 2023 and inflationary costs for other supplies); and
An after-tax write-down higher freight rates; partially offset by higher pricing (primarily in the first quarter of 2023); lower utility costs; and favorable LIFO inventory adjustments in 2023 versus 2022. Additionally, the timing of the assetsflow through under the first-in first-out method of aluminum raw material costs passed through to customers, previously acquired at higher prices in a quickly changing commodity pricing environment, resulted in a charge of $1.1 million in 2023 versus a benefit of $0.1 million in 2022.
•The gross profit margin in PE Films increased primarily due to higher overwrap films contribution margin associated with higher volume and favorable mix, cost improvements and favorable LIFO inventory adjustments for both Surface
Protection and overwrap films in 2023 versus 2022, partially offset by lower contribution margin for Surface Protection associated with a market slowdown, customer inventory corrections for non-transitioning products and for previously disclosed customer product transitions.
•The gross profit margin in Flexible Packaging Films decreased primarily due to lower sales volume, lower selling prices from the pass-through of $87.2lower resin costs and margin pressures and higher fixed and variable costs, partially offset by lower raw material costs.
For more information on changes in operating costs and expenses, see the Segment Operations Review section below.
As a percentage of sales, selling, general and administrative (“SG&A”) and R&D expenses were 11.3% in 2023 compared with 9.1% in 2022. While SG&A and R&D expenses decreased 3.3% and 39.5% year-over-year, sales decreased $233.7 million ($2.65 per share) (see Note 17or 24.9% compared with the prior year period. Lower SG&A spending was primarily due to lower employee-related compensation and lower stock-based compensation, partially offset by higher professional fees associated with business development activities.
For more information on changes in interest expense, see the “Corporate Expenses, Interest and Other” section of the NotesSegment Operations Review section below.
During 2023, the Company settled the pension plan, which resulted in a pre-tax pension settlement loss in the consolidated results of operation of $92.3 million. On November 3, 2023, the pension plan termination and settlement process was completed, and the Company’s relevant pension plan obligation was transferred to Massachusetts Mutual Life Insurance Company. See Note 8 “Retirement Plans and Other Postretirement Benefits” to the Consolidated Financial Statements in Item 15 for more details).
information.OtherDuring 2023, a non-cash partial goodwill impairment of $34.9 million was recognized, see Note 1 “Nature of Operations and Summary of Significant Accounting Policies” to the Consolidated Financial Statements in Item 15 for more information.
The effective tax rate used to compute income taxes for the year of 2023 was 33.8%, compared to 13.4% in 2022. The increase in the effective tax rate is primarily due to tax benefits previously recorded in other comprehensive income (loss) that were released as a result of the pension plan termination, partially offset by a reduction in Brazilian tax incentives as a percentage of income. The stranded taxes released with the termination of the pension plan represent the effect of the change in federal and state tax rates on pension-related deferred tax items initially recorded in other comprehensive income. The related stranded taxes were released in full in 2023. See Note 12 “Income Taxes” to the Consolidated Financial Statements in Item 15 for additional information.
Pre-tax gains and losses associated with plant shutdowns, asset impairments, and restructurings and gains and losses on the sale of assets, and other items in 2023 detailed below are describedshown in Note 17the statements of the Notes to Financial Statements. Netnet sales (sales less freight) and operating profitEBITDA from ongoing operations are the measures of sales and operating profit used by the chief operating decision maker of each segment for purposes of assessing performance. See the table in Note 5 of13 “Business Segments” to the Notes toConsolidated Financial Statements for a presentation of Tredegar’s net salesin Item 15 and operating profit by segment for the years ended December 31, 2017are included in “Asset impairments and 2016.
PE Films
A summary of operating results for PE Films is provided below:
|
| | | | | | | | | | |
| (In thousands, except percentages) | Year Ended December 31 | | Favorable/ (Unfavorable) |
| 2017 | | 2016 | | % Change |
| Sales volume (lbs) | 138,999 |
| | 139,020 |
| | — | % |
| Net sales | $ | 352,459 |
| | $ | 331,146 |
| | 6.4 | % |
| Operating profit from ongoing operations | $ | 41,546 |
| | $ | 26,312 |
| | 57.9 | % |
Net sales in 2017 increased by $21.3 million versus 2016 primarily due to:
Higher sales from surface protection films ($15.1 million), primarily due to higher volume and a favorable sales mix; and
Higher volume for acquisition distribution layer materials and overwrap products, and a favorable sales mix in personal care materials ($12.0 million), partially offset by volume reductions from the winding down of known lost business in personal care that was substantially completed by the end of 2016 ($6.2 million).
Operating profit from ongoing operations in 2017 increased by $15.2 million versus 2016 primarily due to:
Higher contribution to profits from surface protection films ($12.3 million), primarily due to higher volume, a favorable sales mix, and production efficiencies;
Higher contribution to profits from personal care materials, primarily due to improved volume, production efficiencies and favorable pricing ($7.3 million), partially offset by known lost business ($2.1 million);
A benefit for inventories accounted for under the LIFO method of $1.1 million in 2017 versus a charge of $0.9 million in 2016; and
Higher net general, selling and plant expenses ($7.3 million), primarilycosts associated with strategic hiresexit and an increase in employee incentive costs, partially offset by realized cost savingsdisposal activities, net of $3.1 million associated with the North American facility consolidation.
The North American facility consolidation was completed in the third quarter of 2017, with expected annualized savings, excluding depreciation expense, of approximately $6 million. Total pretax cash expenditures for this multi-year project were $16.0 million, which included $11.2 million of capital expenditures.
The surface protection operating segment of PE Films supports manufacturers of optical and other specialty substrates used in flat panel display products. These films are primarily used by customers to protect components of displays in the manufacturing and transportation process and then discarded.
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 $5 to $10 million. Given the technological and commercial complexity involved in bringing these alternative processes or materials to market, the Company is very uncertain as to the timing and ultimate amount of the possible transitions. In response, the Company is aggressively pursuing new surface protection products, applications and customers.
The Company continues to anticipate a significant product transition after 2018 in the personal care operating segment of PE Films. The Company currently estimates that this will adversely impact the annual sales of the business unit by $70 million sometime between 2019 and 2021. The Company has been increasing its research and development spending (an increase of approximately $6 million in 2017 versus 2014), expects to invest capital, and is accelerating sales and marketing efforts to capture growth and diversify its customer base and product offerings in personal care products. The overall timing and net change in personal care’s revenues and profits and the capital expenditures needed to support growth during this transition period are uncertain at this time. The loss of this business without replacement with new business could trigger impairment of personal care’s long-lived assets and goodwill; see Impairment and Useful Lives of Long-lived Assets and Goodwill in the Critical Accounting Policies section for more information.
Restructuring
In July 2015, the Company began a consolidation of its domestic production for PE Films by restructuring the operations in its manufacturing facility in Lake Zurich, Illinois. This restructuring was completed in the third quarter of 2017, with expected annualized savings excluding depreciation expenses of $6.0 million. Total expenses associated with the restructuring were $0.8 million in 2017 (included in “Cost of goods sold”adjustments” in the consolidated statements of income)income, unless otherwise noted.
| | | | | | | | | | | | | | | | | |
| ($ in millions) | Q1 | Q2 | Q3 | Q4 | 2023 |
| Aluminum Extrusions: | | | | | |
| (Gains) losses associated with plant shutdowns, asset impairments and restructurings: | | | | | |
| Other restructuring costs - severance | $ | — | | $ | — | | $ | 0.1 | | $ | — | | $ | 0.1 | |
| (Gains) losses from sale of assets, investment writedowns and other items: | | | | | |
Consulting expenses for ERP/MES project1 | — | | — | | 1.2 | | 0.6 | | 1.8 | |
Storm damage to the Newnan, Georgia plant1 | 0.6 | | (0.2) | | 0.1 | | — | | 0.5 | |
Legal fees associated with the Aluminum Extruders Trade Case1 | — | | — | | — | | 0.5 | | 0.5 | |
| Total for Aluminum Extrusions | $ | 0.6 | | $ | (0.2) | | $ | 1.4 | | $ | 1.1 | | $ | 2.9 | |
| PE Films: | | | | | |
| (Gains) losses associated with plant shutdowns, asset impairments and restructurings: | | | | | |
Impairment of Richmond, Virginia Technical Center assets3 | $ | — | | $ | — | | $ | 3.4 | | $ | 0.1 | | $ | 3.5 | |
Richmond, Virginia Technical Center closure expenses, including severance3 | — | | — | | 1.2 | | 0.1 | | 1.3 | |
Richmond, Virginia Technical Center accelerated depreciation3 | — | | — | | — | | 0.3 | | 0.3 | |
Richmond, Virginia Technical Center lease modification3 | — | | — | | — | | (0.1) | | (0.1) | |
Goodwill impairment3 | — | | 15.4 | | 19.5 | | — | | 34.9 | |
| Total for PE Films | $ | — | | $ | 15.4 | | $ | 24.1 | | $ | 0.4 | | $ | 39.9 | |
| Flexible Packaging Films: | | | | | |
| (Gains) losses associated with plant shutdowns, asset impairments and restructurings: | | | | | |
| Other restructuring costs - severance | $ | 0.1 | | $ | — | | $ | — | | $ | — | | $ | 0.1 | |
| Total for Flexible Packaging Films | $ | 0.1 | | $ | — | | $ | — | | $ | — | | $ | 0.1 | |
| Corporate: | | | | | |
| (Gain) losses from sale of assets, investment writedowns and other items: | | | | | |
Professional fees associated with business development activities1 | $ | 0.2 | | $ | 1.5 | | $ | 2.9 | | $ | 0.7 | | $ | 5.3 | |
Professional fees associated with remediation activities related to internal control over financial reporting1 | 0.5 | | 0.5 | | 0.2 | | 0.8 | | 2.0 | |
Write-down of investment in Harbinger Capital Partners Special Situations Fund2 | — | | 0.2 | | — | | — | | 0.2 | |
Group annuity contract premium expense2 | — | | — | | — | | 2.0 | | 2.0 | |
Net periodic benefit cost for the frozen defined benefit pension plan in process of termination4 | 3.4 | | 3.4 | | 3.1 | | 0.9 | | 10.8 | |
Pension settlement loss4 | — | | — | | 25.6 | | 66.7 | | 92.3 | |
| Total for Corporate | $ | 4.1 | | $ | 5.6 | | $ | 31.8 | | $ | 71.1 | | $ | 112.6 | |
1.Included in “Selling, R&D and general expenses” in the consolidated statements of income. 2.Included in “Other income (expense), net” in the consolidated statements of income. 3.For more information, see the "PE Films" section below. 4. For more information, see the "Status of Current Corporate Strategic Initiatives" section below and Note 4 “Retirement Plans and Other Postretirement Benefits to the Consolidated Financial Statements in Item 15. |
Average total debt outstanding and interest rates were as follows:
| | | | | | | | | | | |
| (In millions, except percentages) | 2023 | | 2022 |
| Floating-rate debt with interest charged on a rollover basis plus a credit spread: | | | |
| Average total outstanding debt balance | $ | 152.3 | | | $ | 114.5 | |
| Average interest rate | 7.2 | % | | 3.5 | % |
Segment Operations Review
Aluminum Extrusions
A summary of results for Aluminum Extrusions is provided below:
| | | | | | | | | | | | | | | | | |
| Year Ended | | Favorable/ |
| (In thousands, except percentages) | December 31, | | (Unfavorable) |
| 2023 | | 2022 | | % Change |
| Sales volume (lbs) | 138,451 | | | 174,670 | | | (20.7) | % |
| Net sales | $ | 474,803 | | | $ | 637,872 | | | (25.6) | % |
| Ongoing operations: | | | | | |
| EBITDA | $ | 37,976 | | | $ | 66,800 | | | (43.1) | % |
| Depreciation & amortization | (17,927) | | | (17,414) | | | (2.9) | % |
| EBIT | $ | 20,049 | | | $ | 49,386 | | | (59.4) | % |
| Capital expenditures | $ | 20,339 | | | $ | 23,664 | | | |
Net sales in 2023 decreased 25.6% versus 2022 primarily due to lower sales volume and the total expenses for the project since inception were $7.3 million. Cash expenditures for the North American facility consolidation project were $1.9pass-through of lower metal costs.
EBITDA from ongoing operations decreased $28.8 million in 2017, which includes capital expenditures2023 versus 2022, primarily due to:
•Lower volume ($29.6 million), higher labor and employee-related costs ($4.5 million), lower labor productivity in the first half of 2023 ($0.9 million), higher supply expense, including higher paint expense associated with a shift to more painted product throughout 2023 and inflationary costs for other supplies ($1.2 million), higher freight rates ($0.8 million) and higher SG&A expenses ($1.5 million); partially offset by higher pricing, primarily in the first quarter of 2023 ($4.0 million), and lower utility costs ($2.3 million);
•The timing of the flow-through under the FIFO method of aluminum raw material costs passed through to customers, previously acquired at higher prices in a quickly changing commodity pricing environment, resulted in a charge of $1.1 million in 2023 versus a benefit of $0.1 million. Total cash expendituresmillion in 2022; and
•Inventories accounted for under the project since inception were $16.0last in, first out (“LIFO”)method resulted in a benefit of $1.2 million which includes $11.2in 2023 versus a charge of $2.9 million in 2022. In addition, the Company recorded an unfavorable out-of-period adjustment of $0.6 million related to inventory and accrued labor costs in the third quarter and fourth quarters of 2022.
Aluminum Extrusions believes that it has adequate supply agreements for capital expenditures. Additional cash paymentsaluminum raw materials in 2024. See discussion of quantitative and qualitative disclosures about market risk in Item 7A in this Form 10-K for remaining accrued costs of approximately $0.5 million are expected to be paid within the next 12 months.additional information on aluminum price trends.
Projected Capital Expenditures and Depreciation & Amortization
Capital expenditures in PE Films were $15.0 million in 2017 compared to $25.8 million in 2016. Capital expendituresfor Bonnell Aluminum are projected to be $53$9 million in 2018, including: North American capacity expansion for elastics products in personal care ($25 million); new capacity and upgrades for next generation products in surface protection ($9 million); other growth and strategic projects ($9 million); and approximately $102024, including $4 million for routineproductivity projects and $5 million for capital expenditures required to support continuity of operations. Depreciation expense was $14.5 millionThe projected spending reflects stringent spending measures that the Company has implemented to control its financial leverage (see the Liquidity and Capital Resources section for more information). The multi-year implementation of the new ERP/MES has been reorganized with an extended implementation period. As a result, the earliest “go-live” date for the new ERP/MES is 2025. The ERP/MES project commenced in 2017 and $13.5 million in 2016.2022, with spending to-date of approximately $21 million. Depreciation expense is projected to be $16 million in 2018.2024. Amortization expense is projected to be $2 million in 2024.
PE Films
A summary of operating results for Flexible PackagingPE Films is provided below:
| | | | | | | | | | | | | | | | | |
| Year Ended | | Favorable/ |
| (In thousands, except percentages) | December 31, | | (Unfavorable) |
| 2023 | | 2022 | | % Change |
| Sales volume (lbs) | 29,355 | | | 32,873 | | | (10.7) | % |
| Net sales | $ | 76,763 | | | $ | 97,571 | | | (21.3) | % |
| Ongoing operations: | | | | | |
| EBITDA | $ | 11,217 | | | $ | 11,949 | | | (6.1) | % |
| Depreciation & amortization | (6,522) | | | (6,280) | | | (3.9) | % |
| EBIT | $ | 4,695 | | | $ | 5,669 | | | (17.2) | % |
| Capital expenditures | $ | 1,772 | | | $ | 3,289 | | | |
|
| | | | | | | | | | |
| (In thousands, except percentages) | Year Ended December 31 | | Favorable/ (Unfavorable) |
| 2017 | | 2016 | | % Change |
| Sales volume (lbs) | 89,325 |
| | 89,706 |
| | (0.4 | )% |
| Net sales | $ | 108,355 |
| | $ | 108,028 |
| | 0.3 | % |
| Operating profit (loss) from ongoing operations | $ | (2,626 | ) | | $ | 1,774 |
| | n/a |
|
Net sales and salesin 2023 decreased 21.3% versus 2022, primarily due to lower volume in 2017 were relatively flat compared to 2016,Surface Protection, resulting from weak demand in the consumer electronics market and adversely impacted by production issues due to intermittent power outages at Terphane’s Cabo de Santo Agostinho, Brazil plantcustomer inventory corrections during the third quarter.2023. Sales volume in 2023 for surface protection films declined 22% and increased 2% for overwrap films versus 2022.
Terphane had an operating lossEBITDA from ongoing operations in 2017 of $2.62023 decreased $0.7 million versus an operating profit from ongoing operations in 2016 of $1.8 million. The resulting unfavorable change of $4.4 million for the period was2022 primarily due to:
•A $5.7 million decrease from Surface Protection:
◦Lower production, primarily due to numerous intermittent power outages during the third quartercontribution margin for non-transitioning products associated with a market slowdown and customer inventory corrections ($0.511.1 million), and lower average sales pricefor previously disclosed customer product transitions ($1.60.7 million), partially offset by a favorable sales mixpricing ($1.50.5 million), operating efficiencies ($2.6 million) and cost improvements ($3.2 million);
Higher raw material costs of $1.8 million in 2017 that could not be passed through to customers due to competitive pressures versus a benefit from lower raw material costs of $1.2 million in 2016;
Foreign currency transaction losses primarily◦The pass-through lag associated with U.S. Dollar denominated export salesresin costs ($0.3 million charge in Brazil of $0.2 million in 2017 versus foreign currency transaction losses of $3.5 million in 2016;
Higher costs and expenses of $3.2 million primarily related to the adverse impact of high inflation in Brazil and the appreciation by approximately 9% of the average exchange rate for the Brazilian Real relative to the U.S. Dollar; and
Higher depreciation and amortization costs ($0.9 million).
Terphane Asset Impairment Loss and Worthless Stock Deduction
The Company acquired Terphane in October 2011, and since that time Terphane’s selling prices, margins and overall performance have been adversely impacted by excess industry capacity, particularly in Latin America, and by a period of poor economic conditions in Brazil. Moreover, significant additional capacity came on-line late in the third quarter of 2017 from a competitor in Latin America. As a result, Terphane has struggled with profitability and incurred operating losses from ongoing operations in two of the last five years, including an operating loss of $2.6 million in 2017. Terphane’s quarterly financial results have been volatile, and the Company expects continued uncertainty and volatility until industry capacity utilization and the competitive dynamics in Latin America improve. Furthermore, while industry economics are suffering with excess
capacity, Terphane is currently operating at full capacity utilization and needs to spend approximately $1.8 million (including capital expenditures of $1 million and project expenses of $0.8 million) in 2018 to re-start an idled production line to participate in expected market growth and defend its market share.
During the fourth quarter of 2017, in conjunction with annual business planning as well as valuation activities and other efforts, the Company determined that the carrying value of Terphane’s remaining long-lived assets were impaired (Terphane’s goodwill was written off in 2015). Accordingly, the Company wrote down these assets based on an enterprise valuation for all of Terphane of approximately $30 million. This write-down resulted in a non-cash asset impairment loss recognized during the fourth quarter of 2017 of $101 million ($87 million after non-cash tax benefits).
Also during the fourth quarter of 2017, as a result of the valuation activities referred to above, the Company claimed an ordinary loss for U.S. federal and state income tax purposes of $153 million for the write-off of the stock basis of Terphane Limitada (Terphane’s Brazilian subsidiary). The Terphane Limitada worthless stock deduction resulted in an overall reduction of Tredegar’s U.S. income tax liability of approximately $49 million. Approximately $36 million of the benefit is expected to be realized in cash in 2018 with the balance of $13 million expected to be realized in cash mostly in 2019. The full net tax benefit expected from the Terphane Limitada worthless stock deduction of $49 million was accrued during the fourth quarter of 2017 and reflected as a reduction to Tredegar’s consolidated income tax expense. During the second quarter of 2017, the Company recognized a worthless stock deduction for Terphane, Inc. (Terphane’s U.S. subsidiary), which resulted in an income tax benefit recognized of $8.1 million.
Capital Expenditures, Depreciation & Amortization
Capital expenditures in Flexible Packaging were $3.6 million in 2017 compared to $3.4 million in 2016. Capital expenditures are projected to be $5 million in 2018, including approximately $1 million to re-start the idled production line referred to above and $4 million for routine items required to support operations. Depreciation expense was $7.5 million in 2017 and $6.7 million in 2016. Depreciation expense is projected to be $1 million in 2018. Amortization expense was $3.0 million in 2017 and $2.8 million in 2016, and is projected to be $0.5 million in 2018. Depreciation and amortization expense projections for 2018 are significantly lower than 2017 actual amounts due to the write-down of Terphane’s long-lived assets during the fourth quarter of 2017.
Aluminum Extrusions
A summary of operating results for Aluminum Extrusions, including the results of Futura Industries Corporation (“Futura”) (except sales volume) since its date of acquisition, is provided below:
|
| | | | | | | | | | |
| (In thousands, except percentages) | Year Ended December 31 | | Favorable/ (Unfavorable) |
| 2017 | | 2016 | | % Change |
| Sales volume (lbs)* | 176,269 |
| | 172,986 |
| | 1.9 | % |
| Net sales | $ | 466,833 |
| | $ | 360,098 |
| | 29.6 | % |
| Operating profit from ongoing operations | $ | 43,454 |
| | $ | 37,794 |
| | 15.0 | % |
| *Excludes sales volume for Futura, which was acquired on February 15, 2017. |
Net sales in 2017 increased versus 2016 primarily due to the addition of Futura. Futura contributed net sales of $71.0 million in 2017. Excluding the impact of Futura, net sales improved due to higher sales volume, improved product mix, and an increase in average selling prices primarily due to the pass-through to customers of higher market-driven raw material costs.
Volume on an organic basis (which excludes the impact of the Futura acquisition) in 2017 increased by 1.9% versus 2016. Higher volume in specialty and automotive & light truck markets were the primary drivers.
Operating profit in 2017 increased by $5.7 million versus 2016. Excluding the favorable profit impact of Futura ($8.2 million), operating profit decreased $2.5 million, primarily due to:
Higher volume and inflation-related sales prices ($7.3 million benefit);
Increased operating costs, including utilities and employee-related expenses and higher depreciation ($3.9 million);
Higher costs associated with the startup of the new press at the Niles, Michigan plant, resulting from disruptions to normal plant production ($4.3 million); and
A charge for inventories accounted for under the LIFO method of $1.3 million in 20172023 versus a benefit of $0.5 million in 2016.2022);
Cast House Explosion◦A foreign currency transaction gain of $0.2 million in 2023 versus a gain of $0.8 million in 2022; and
On June 29, 2016,◦Inventories accounted for under the Bonnell Aluminum plantLIFO method resulted in Newnan, Georgia suffered an explosiona benefit of $1.0 million in 2023 versus a charge of $0.1 million in 2022.
•A $5.0 million increase from overwrap films primarily due:
◦Higher contribution margin associated with higher volume and favorable mix ($1.3 million), cost improvements ($3.1 million) and lower SG&A ($0.4 million);
◦The pass-through lag associated with resin costs (a charge of $0.2 million in 2023 versus a benefit of $0.4 million in 2022); and
◦Inventories accounted for under the casting department, causing significant damageLIFO method resulted in a benefit of $0.3 million in 2023 versus a charge of $0.4 million in 2022.
In August 2023, the Company adopted a plan to close the cast housePE Films technical center in Richmond, VA and reduce its efforts to develop and sell films supporting the semiconductor market. Future research and development activities for PE Films will be performed at the facility in Pottsville, PA. PE Films continues to have new business opportunities primarily relating to surface protection films that protect components of flat panel and flexible displays. The Company anticipates all activities to cease at the PE Films technical center in Richmond, VA, by the end of the first quarter of 2024. The Company recognized total expense incurred through December 31, 2023 associated with exit activities of $1.3 million for: (i) severance and related equipment. Thecosts ($0.9 million) and (ii) building closure costs ($0.4 million). In addition, the Company completedrecognized a non-cash asset impairment ($3.5 million), accelerated depreciation ($0.3 million) and a gain on the processlease modification ($0.1 million). Net annual cash savings of replacing the damaged casting equipment, and the cast house resumed production$3.4 million are anticipated, which began in the third quarter of 2017. Bonnell Aluminum has various forms of insurance to cover losses associated with this type of event.
During 2017, Bonnell incurred $5.6 million of additional operational expenses as a result of the explosion; $5.5 million of this amount has been fully offset by insurance recoveries. Also, $0.6 million of additional operational expenses incurred in 2016 that were previously considered not reasonably assured of being covered by insurance recoveries were recovered. Each of these amounts is recorded in “Plant shutdowns, asset impairments, restructurings and other” in the Operating Profit table in Note 5 of the Notes to Financial Statements and in “Cost of goods sold” in the Consolidated Statements of Income. In the fourth quarter of 2017, all remaining insurance claims associated with this matter were settled, and a gain on involuntary conversion of the old cast house of $5.3 million was recorded in “Other income (expense), net” in the Consolidated Statements of Income and in “Plant shutdowns, asset impairments, restructurings and other” in the Operating Profit table in Note 5 of the Notes to Financial Statements.2023.
Projected Capital Expenditures and Depreciation & Amortization
Capital expenditures for Aluminum Extrusions were $25.7PE Films are projected to be $2 million in 2017 compared to $15.9 million in 2016. Capital expenditures in 2017 included: $8 million to complete the extrusions capacity expansion project at the Niles, Michigan, manufacturing facility; expenditures to repair the damage caused by the cast house explosion net of related insurance recoveries (facility upgrades of $2 million); $52024, including $1 million for routineproductivity projects and $1 million for capital expenditures required to support legacy operations; and $2 million to support the operationscontinuity of Futura. Projections of capital expenditures for Bonnell Aluminum of $15 million in 2018 include approximately $7 million for infrastructure upgrades and to expand fabrication and machining capabilities, and approximately $8 million for routine items required to supportcurrent operations. Depreciation expense was $11.9 million in 2017, which included $2.9 million from the addition of Futura, compared to $8.1 million in 2016, and is projected to be $13$6 million in 2018.2024. There is no amortization expense for PE Films.
Flexible Packaging Films
A summary of results for Flexible Packaging Films is provided below:
| | | | | | | | | | | | | | | | | |
| Year Ended | | Favorable/
(Unfavorable)
% Change |
| (In thousands, except percentages) | December 31, | |
| 2023 | | 2022 | |
| Sales volume (lbs) | 88,536 | | | 106,685 | | | (17.0) | % |
| Net sales | $ | 126,326 | | | $ | 168,139 | | | (24.9) | % |
| Ongoing operations: | | | | | |
| EBITDA | $ | 4,383 | | | $ | 27,452 | | | (84.0) | % |
| Depreciation & amortization | (2,865) | | | (2,444) | | | (17.2) | % |
| EBIT | $ | 1,518 | | | $ | 25,008 | | | (93.9) | % |
| Capital expenditures | $ | 4,323 | | | $ | 8,151 | | | |
Net sales in 2023 decreased 24.9% compared to 2022, primarily due to lower sales volume and lower margin that the Company believes were driven by excess global capacity and competition in Brazil from imports, partially offset by favorable product mix.
EBITDA from ongoing operations in 2023 decreased by $23.1 million versus 2022, primarily due to:
•Lower selling prices from the pass-through of lower resin costs and margin pressures ($17.6 million), lower sales volume ($9.7 million), higher fixed costs ($1.0 million, primarily due to under absorption from lower production volumes) and higher variable costs ($1.3 million, including higher costs resulting from quality issues), partially offset by lower raw material costs ($5.9 million) and lower SG&A expenses ($2.3 million);
•Foreign currency transaction losses ($0.3 million) in 2023 compared to foreign currency transaction losses ($0.2 million) in 2022; and
•Net unfavorable foreign currency translation of Real-denominated operating costs ($1.4 million) in 2023 versus 2022.
Projected Capital Expenditures and Depreciation & Amortization expense was $3.1
Capital expenditures are projected to be $4 million in 2017, which included $2.1 million from the addition2024, for capital expenditures required to support continuity of Futura, and $1.0 million in 2016, andcurrent operations. Depreciation expense is projected to be $3 million in 2018.
Futura Acquisition
On February 15, 2017, Bonnell Aluminum acquired Futura on a net debt-free basis for approximately $92 million. The amount actually funded in cash at the transaction date was approximately $87 million, which was net of preliminary closing adjustments for working capital and seller transaction-related obligations assumed and subsequently paid by Bonnell Aluminum. In addition, the Company will2024. Amortization expense is projected to be refunded $5$0.1 million in the first half of 2018 since Futura did not meet certain performance requirements for the 2017 fiscal year. The acquisition, which was funded using Tredegar’s revolving credit facility, is being treated as an asset purchase for U.S. federal income tax purposes. For more information, see “Aluminum Extrusions” in the Business section.2024.
Corporate Expenses, Interest and Income TaxesOther
Pension expense was $10.1Corporate expenses, net in 2023 decreased by $1.8 million in 2017, a favorable change of $0.8 million from 2016. Most of the impact on earnings fromcompared to 2022, primarily due to lower pension expense is reflected in “Corporate expenses, net” in the Operating Profit table in Note 5 of the Notes to Financial Statements. Pension expense is projected to be $10.2 million in 2018. Corporate expenses, net, for ongoing operations increased in 2017 versus 2016 primarily due to higher stock-based employee benefit costs and incentive accruals, partially offset by lower pension expense. In addition, corporate expenses included aggregate charges for business development, environmental, severance, and other special items of $3.9 million in 2017 and $1.6 million in 2016.
Interest expense increased to $6.2 million in 2017 from $3.8 million in 2016, primarily due to higher average debt levels from the acquisition of Futura. Interest expense in 2016 included the write off of $0.2 million in unamortized loan fees from the Company’s revolving credit agreement that was refinanced in the first quarter of 2016.
During 2017, the Company recognized a consolidated income tax benefit of $53.2 million based on a pretax loss of $14.9 million. During 2016, the Company recognized a consolidated income tax expense of $3.2 million based on pretax income of $27.7 million. Information on the significant differences between the effective tax rate for income and the U.S. federal statutory rate for 2017 and 2016 are further detailed in the effective income tax rate reconciliation provided in Note 16 of the Notes to Financial Statements.
The U.S. government enacted the TCJA in December 2017, which, among other impacts, reduces the U.S. federal corporate income tax rate from 35% to 21% beginning in 2018. In the fourth quarter of 2017, the Company recognized a non-cash deferred income tax benefit of $4.4 million for the decrease of its net deferred income tax liabilities, resulting from the 14% tax rate reduction and other applicable tax law changes. No deemed repatriation tax was recorded on unrepatriated earnings of the Company’s foreign subsidiaries as the Company’s foreign subsidiaries have no net cumulative unremitted earnings due to historical repatriation. The Company expects that its effective tax rate for ongoing operations in 2018 will drop to 22% as a result of the TCJA, but howpension plan termination completed in 2023 ($3.7 million), lower accruals for employee-related compensation ($2.1 million) and lower stock-based compensation ($1.4 million), partially offset by higher professional fees associated with business development activities ($3.2 million) and a charge to adjust the TCJA will impactinitial purchase price of the overall competitive dynamicsnonparticipating single premium group annuity contract as a result of the routine administrative process to transition the pension plan ($2.0 million).
Interest expense was $11.6 million in 2023 in comparison to $5.0 million in 2022, primarily due to higher weighted average total debt outstanding, higher interest rates and the write-off of $1.1 million of deferred financing fees.
Status of Current Corporate Strategic Initiatives
The status of current corporate strategic initiatives is as follows:
Agreement to Sell Terphane
On September 1, 2023, the Company announced that it had entered into a definitive agreement to sell Terphane to Oben Group (the “Contingent Terphane Sale”). Completion of the sale is contingent upon the satisfaction of customary closing conditions, including the receipt of certain competition filing approvals by authorities in Brazil and Colombia. On October 27, 2023, the Company filed the requisite competition forms with the Administrative Council for Economic Defense (“CADE”) in Brazil. The regulatory review process is ongoing and in line with the Company’s businesses and marketsexpectations. CADE’s maximum deadline for completing its review is uncertain.no later than November 18, 2024. The merger review regarding the transaction was cleared by the Colombian authority in early February 2024.
Total debt was $152.0 million at December 31, 2017, compared to $95.0 million at December 31, 2016. Net debt (debt in excess of cash and cash equivalents) was $115.5 million at December 31, 2017, compared to $65.5 million at December 31, 2016. The increase in net debt during 2017 includes the acquisition of Futura on February 15, 2017. Net debt is calculated as follows:
|
| | | | | | | | |
| (In millions) | | December 31, 2017 | | December 31, 2016 |
| Debt | | $ | 152.0 |
| | $ | 95.0 |
|
| Less: Cash and cash equivalents | | 36.5 |
| | 29.5 |
|
| Net debt | | $ | 115.5 |
| | $ | 65.5 |
|
Net debt, a financial measure that is not calculated or presented in accordance with GAAP, is not intended to represent debt as defined by GAAP, but is utilized by management in evaluating financial leverage and equity valuation. The Company believes that investors also may find net debt helpful for the same purposes. Consolidated net capitalization and other credit measures are provided in the Financial Condition section.
Critical Accounting Policies
In the ordinary course of business, the Company makes a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of financial statements in conformity with GAAP. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company believes the following discussion addresses its critical accounting policies. These policies require management to exercise judgments that are often difficult, subjective and complex due to the necessity of estimating the effect of matters that are inherently uncertain.
Impairment and Useful Lives of Long-lived Identifiable Assets and Goodwill
The Company assesses its long-lived identifiable assets for impairment when events or circumstances indicate that their carrying value may not be recoverable from future cash flows. Any necessary impairment charges are recorded when the Company does not believe the carrying value of the long-lived asset(s) will be recoverable. Tredegar also reassesses the useful lives of its long-lived assets based on changes in the business and technologies.
The Company assesses goodwill for impairment when events or circumstances indicate that the carrying value may not be recoverable, or, at a minimum, on an annual basis (December 1st of each year). As of December 31, 2017, reporting units2023, the Company has reported results for Terphane as a continuing operation, given the early stage of the approval process by authorities. If the Contingent Terphane Sale transaction is completed, the Company expects to realize after-tax cash proceeds of $85 million after deducting projected Brazil withholding taxes, escrow funds, U.S. capital
gains taxes and transaction costs. Actual after-tax net proceeds may differ from this estimate due to possible changes in deductions and the Company's tax situation during the potentially lengthy interim period to the closing date.
Pension Plan Termination
On September 27, 2023, the Company borrowed $30 million under the Prior Credit Agreement (as defined below) in anticipation of the final funding expected for terminating its defined benefit pension plan obligation. OnOctober 31, 2023, the Company used this cash to contribute $27.7 million to fully fund the pension plan with the amount necessary to purchase from Massachusetts Mutual Life Insurance Company a nonparticipating single premium group annuity contract for $157.5 million, subject to final premium adjustments. On November 3, 2023, the pension plan termination and settlement process was completed, and the Company’s relevant pension plan obligation was transferred to Massachusetts Mutual Life Insurance Company. This completed the pension plan termination process that began in February 2022. During 2023, the Company recognized a pre-tax pension settlement loss of $92.3 million.
Liquidity and Capital Resources
The Company continuously focuses on working capital management. Measures such as days sales outstanding (“DSO”), days inventory outstanding (“DIO”) and days payables outstanding (“DPO”) are used to evaluate changes in working capital. Changes in operating assets and liabilities from December 31, 2022 to December 31, 2023 are summarized below.
•Accounts and other receivables decreased $16.6 million or 19.6%.
◦Accounts and other receivables in Aluminum Extrusions decreased $15.4 million primarily due to lower sales volume and the pass-through of lower metal costs. DSO (computed using trailing 12 months net sales and a rolling 12-month average of accounts and other receivables balances) was approximately 45.1 days in 2023 and 48.7 days in 2022.
◦Accounts and other receivables in PE Films increased $0.6 million primarily due to higher sales volume in overwrap films, partially offset by lower sales volume in Surface Protection. DSO was approximately 26.3 days in 2023 and Aluminum Extrusions carried goodwill balances. Goodwill of the PE Films operating units, Personal Care30.3 days in 2022.
◦Accounts and Surface Protection,other receivables in the amounts of $46.8 million and $57.3 million, respectively, was tested for impairment at the annual testing date, with the estimated fair value of these reporting units exceeding the carrying value of their net assets by approximately 15% and +100%, respectively, at December 1, 2017.
All goodwill associated with Flexible Packaging Films decreased $1.9 million primarily due to lower sales. DSO was impairedapproximately 38.1 days in 2023 and 41.1 days in 2022.
•Inventories decreased $45.7 million or 35.8%.
◦Inventories in Aluminum Extrusions decreased $24.1 million primarily due to decreased raw material levels which align to lower demand and strict working capital targets, partially offset by a LIFO inventory benefit of $1.2 million in 2023 versus a charge of $2.9 million in 2022. DIO (computed using trailing 12 months costs of goods sold calculated on a FIFO basis and a rolling 12-month average of inventory balances calculated on the third quarterFIFO basis) was approximately 51.6 days in 2023 and 53.6 days in 2022.
◦Inventories in PE Films decreased $1.9 million due to lower raw materials costs, partially offset by a LIFO inventory benefit of 2015. In 2017,$1.3 million in 2023 versus a charge of $0.5 million in 2022. The DIO was approximately 57.2 days in 2023 and 66.8 days in 2022.
◦Inventories in Flexible Packaging Films’ recordedFilms decreased $19.7 million primarily due to lower raw material purchases, lower work-in-process and finished goods levels as a chargeresult of lower sales volume. DIO of approximately 117.7 days in 2023 was higher compared to 108.0 days for 2022 due to the lower 12-month average of costs of goods sold as a result of lower sales volume and lower margin that the Company believes are driven by excess global capacity and competition in Brazil from imports.
•Net property, plant and equipment decreased by $3.0 million or 1.6% primarily due to depreciation expense ($25.8 million) and the impairment of assets infrom the amount of $101 million. As part of this write-down, trade names, customer relationships and proprietary technology were impaired by $4.0 million, $9.4 million and $4.1 million, respectively, reducing their values to $2.4 million, $0.8 million and $0.4 million, respectively. The remaining partclosure of the write-down wasRichmond, VA technical center ($3.5 million), partially offset by capital expenditures ($25.6 million).
•Identifiable intangible assets, net decreased by $1.8 million or 15.7% primarily due to amortization expense.
•Deferred income tax assets increased $11.1 million or 80.1% primarily due to an increase in net operating loss, tax credit and interest limitation carryforwards. Deferred tax liabilities related to property, plantintangible amortization and equipment.depreciation decreased $11.8 million while deferred taxes assets related to pension, employee benefits and inventory decreased $10.6 million. See Terphane Asset Impairment LossNote 12 “Income Taxes” to the Consolidated Financial Statements in Item 15 for additional information.
•Accounts payable decreased by $19.9 million or 17.3%.
◦Accounts payable in Aluminum Extrusions decreased $15.7 million, primarily due to lower raw material purchases to align with demand and Worthless Stock Deductionstrict working capital targets. DPO (computed using trailing 12 months costs of goods sold calculated on a FIFO basis and a rolling 12-month average of accounts payable balances) was approximately 49.8 days in 2023 and 64.2 days in 2022.
◦Accounts payable in PE Films remained relatively flat. DPO of approximately 43.4 days in 2023 was lower compared to 51.0 days for 2022 due to lower raw materials associated with overwrap films.
◦Accounts payable in Flexible Packaging Films decreased $3.9 million, primarily due to lower raw material purchases, lower work-in-process, and finished goods levels as a result of lower sales volume. DPO was approximately 61.7 days in 2023 and 72.4 days in 2022.
Net cash provided by operating activities was $24.0 million in 2023 compared to net cash used in operating activities of $20.8 million in 2022. The change in operating activities is primarily due to pension plan contributions of $27.7 million in 2023 compared to $50 million in 2022 and improved working capital due to factors discussed earlier in this section relating to accounts and other receivables, inventories and accounts payable.
Net cash used in investing activities was $26.2 million in 2023 compared to $35.5 million in 2022. The change in investing activities is primarily due to lower capital expenditure spending ($10.4 million).
Net cash used in financing activities was $4.5 million in 2023 compared to net cash provided by financing activities of $45.4 million in 2022. The change in financing activities is primarily due to lower net borrowings ($55.6 million) under the ABL Facility and the Prior Credit Agreement and Terphane Brazil Loan (defined below), higher deferred financing costs ($2.8 million), partially offset by lower dividends paid in 2023 ($8.1 million).
At December 31, 2023, Tredegar had cash, cash equivalents and restricted cash of $13.5 million, including funds held in locations outside the U.S. of $9.8 million.
Debt and Credit Agreements
ABL Facility
On August 3, 2023, the Company entered into Amendment No. 2 to the Second Amended and Restated Credit Agreement (collectively the “Prior Credit Agreement”), which amended the financial covenants and decreased aggregate borrowings from $375 million to $200 million.
On December 27, 2023, the Company entered into Amendment No. 3 (the “ABL Facility”) to the Prior Credit Agreement, which provides the Company with $180 million senior secured asset-based revolving credit facility that will expire on June 30, 2026. The ABL Facility is secured by substantially all assets of the Company and its domestic subsidiaries, including equity in certain material first-tier foreign subsidiaries. Availability for borrowings under the ABL Facility is governed by a borrowing base, determined by the application of specified advance rates against eligible assets, including a portion of trade accounts receivable, inventory, cash and cash equivalents, owned real properties, and owned machinery and equipment. Upon the earlier of March 31, 2025 or the date the Company receives the proceeds from the sale of Terphane (the “ABL Adjustment Date”), the $180 million ABL Facility will be reduced to $125 million. As of December 31, 2023, availability under the ABL Facility was $22.9 million, after reducing the availability by the aggregate outstanding borrowings of $126.3 million, standby letters of credit of $13.1 million and the Minimum Liquidity (as defined in the Executive Summary section for more details.ABL Facility) financial covenant.
GoodwillUnder the terms of the Aluminum Extrusions operating unitsABL Facility, certain domestic bank accounts are associated withsubject to blocked account agreements, each of which contains a springing feature whereby the October 2012 acquisitionlenders may exercise control over those accounts during a cash dominion period (any such period, a “Cash Dominion Period”). A Cash Dominion Period was implemented on the date of AACOAthe closing of the ABL Facility and will remain in effect at all times prior to the February 2017 acquisitionABL Adjustment Date. After the ABL Adjustment Date, a Cash Dominion Period goes into effect if availability under the ABL Facility falls below 12.5% or an Event of Futura.Default (as defined in the ABL Facility) occurs. The estimated fair valueCompany would then be subject to the Cash Dominion Period until the Event of AACOA and Futura exceededDefault is waived or ABL Facility availability is above 12.5% of the carrying value of their net assets by approximately 61% and 42%, respectively, at December 1, 2017. Goodwill$125 million aggregate commitment for AACOA and Futura totaled $13.7 million and $10.4 million, respectively, at December 31, 2017.30 consecutive days. Receipts that have not yet been applied to the ABL Facility are classified as restricted cash in the Company’s consolidated balance sheets.
The financial covenants in the ABL Facility, which are reported to lenders on a monthly basis, include:
In assessing•Until the recoverability of goodwill and long-lived identifiable assets,ABL Adjustment Date, the Company primarily estimates fair value using discounted cash flow analysis and comparative enterprise value-to-EBITDA (earnings before interest, taxes, depreciation and amortization) multiples. These calculations require managementis required to make assumptions regarding estimated future cash flows, discount rates and other factors to determine if an impairment exists. If these estimates or their related assumptions changemaintain (i) minimum Credit EBITDA (as defined in the future,ABL Facility), as of the Company mayend of each fiscal month for the 12-month period then ended (presented below) and (ii) a Minimum Liquidity (as defined in the ABL Facility) of $10.0 million.
| | | | | |
| Minimum Credit EBITDA (In thousands) |
| December 2023 | $ | 21,070 | |
| January 2024 | 21,110 | |
| February 2024 | 18,750 | |
| March 2024 | 16,640 | |
| April 2024 | 19,780 | |
| May 2024 | 19,660 | |
| June 2024 | 19,450 | |
| July 2024 | 21,860 | |
| August 2024 | 22,830 | |
| September 2024 | 25,370 | |
| October 2024 | 26,070 | |
| November 2024 | 27,640 | |
| December 2024 | 29,640 | |
| January 2025 | 29,740 | |
| February 2025 | 29,850 | |
| March 2025 | $ | 29,980 | |
•Following the ABL Adjustment Date, the foregoing financial covenants will cease to exist and will be required to record additional impairment charges.replaced with a minimum fixed charge coverage ratio of 1.00:1.00 that will be triggered in the event that availability is less than 10% of $125 million commitment amount and continuing thereafter until availability is greater than 10% of the $125 million commitment amount for 30 consecutive days.
The computation of Credit EBITDA, as defined in the ABL Facility, is presented below.
| | | | | |
Computations of Credit EBITDA (as defined in the ABL Facility) as of and for the Twelve Months Ended December 31, 2023 * |
| Computations of Credit EBITDA for the twelve months ended December 31, 2023 (in thousands): |
| Net income (loss) | $ | (105,905) | |
| Plus: | |
| After-tax losses related to discontinued operations | — | |
| Total income tax expense for continuing operations | — | |
| Interest expense | 11,607 | |
| Depreciation and amortization expense for continuing operations | 27,683 | |
| All non-cash losses and expenses, plus cash losses and expenses not to exceed $10,000, for continuing operations that are classified as unusual, extraordinary or which are related to plant shutdowns, asset impairments and/or restructurings (cash-related of $8,749) | 139,860 | |
| Charges related to stock option grants and awards accounted for under the fair value-based method | 231 | |
| Losses related to the application of the equity method of accounting | — | |
| Losses related to adjustments in the estimated fair value of assets accounted for under the fair value method of accounting | — | |
| Fees, costs and expenses incurred in connection with the amendment process | — | |
| Terphane sale transaction costs in an amount not to exceed $10,000 | 5,038 | |
| Minus: | |
| After-tax income related to discontinued operations | — | |
| Total income tax benefits for continuing operations | (54,125) | |
| Interest income | (522) | |
| All non-cash gains and income, plus cash gains and income in excess of $10,000, for continuing operations that are classified as unusual, extraordinary or which are related to plant shutdowns, asset impairments and/or restructurings | (100) | |
| Income related to changes in estimates for stock option grants and awards accounted for under the fair value-based method | — | |
| Income related to the application of the equity method of accounting | — | |
| Income related to adjustments in the estimated fair value of assets accounted for under the fair value method of accounting | (262) | |
| Plus cash dividends declared on investments in an amount not to exceed $10,000 for such period | — | |
| Plus or minus, as applicable, pro forma EBITDA adjustments associated with acquisitions and asset dispositions | — | |
| Plus or minus, as applicable, pro forma EBITDA adjustments to pension expense associated with the early payment of pension obligations | 10,664 | |
| Credit EBITDA | $ | 34,169 | |
*Credit EBITDA is not intended to represent net income (loss) or cash flow from operations as defined by GAAP and should not be considered as an alternative to either net income (loss) or to cash flow. |
The computation of the ABL Facility availability and Minimum Liquidity covenant, as defined in the ABL Facility, is presented below.
| | | | | |
| Year Ended |
| (In thousands, except percentages) | December 31, |
| 2023 |
| Maximum aggregate principal | $ | 180,000 | |
| |
| Maximum borrowing limit per the Borrowing base as defined in the ABL Facility (includes eligible domestic cash and cash equivalents of $3,846) | $ | 172,286 | |
| ABL Facility outstanding debt (matures on June 30, 2026) | 126,322 | |
| Outstanding standby letters of credit | 13,080 | |
| ABL Facility availability | $ | 32,884 | |
| Minimum Liquidity covenant | 10,000 | |
| ABL Facility availability in excess of Minimum Liquidity covenant | $ | 22,884 | |
In addition to the impairmentfinancial covenants, the ABL Facility contains restrictive covenants, including covenants that restrict the Company’s ability to pay dividends and repurchase shares of Terphane’sits common stock.
As of December 31, 2023, the Company was in compliance with all debt covenants.
Terphane Brazil Loan
On October 26, 2023, Terphane Ltda., the Company’s wholly owned subsidiary in Brazil, borrowed $20 million secured by certain of its assets based(“Terphane Brazil Loan”). This U.S. Dollar borrowing matures on October 30, 2028. The Company expects that the Terphane Brazil Loan will be repaid (and collateral released) upon assessments performedthe closing of the Contingent Terphane Sale. On October 26, 2023, the Company borrowed $20 million from Terphane Brazil (the “Intercompany Loan”) at the same interest rate as the Terphane Brazil Loan, thereby transferring the funds to the recoverability of other long-lived identifiable assets,U.S. The Company will repay the Company recorded an asset impairment loss for continuing operations of $1.2 million, $0.6 million and $0.2 millionIntercompany Loan in 2017, 2016 and 2015, respectively.
Investment Accounted for Underconjunction with the Fair Value Method
In August 2007 and December 2008, Tredegar made an aggregate investment of $7.5 million in kaléo (formerly Intelliject, Inc.), a privately held specialty pharmaceutical company. This investment is accounted for under the fair value method. At the timeclosing of the initial investment,Contingent Terphane Sale.
For more information on the Company electedABL Facility and the fair value option of accounting since its investment objectives were similarTerphane Brazil Loan, see Note 7 “Debt and Credit Agreements” to those of venture capitalists, which typically do not have controlling financial interests (venture capital funds generally use the fair value method to account for their investment portfolios). At December 31, 2017, Tredegar’s ownership interest was approximately 20% on a fully diluted basis.Consolidated Financial Statements in Item 15.
The Company discloses the level within the fair value hierarchy in which fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3). On the dates of its investments, Tredegar believes that the amount it paidexisting borrowing availability, current cash balances and cash flow from operations will be sufficient to satisfy short term material cash requirements related to working capital, capital expenditure, and debt repayments for its ownership interest and liquidation preferences was based on Level 2 inputs, including investments by other investors. Subsequent to the last round of financing, and untilat least the next round12 months. In the longer term, liquidity will depend on many factors, including the results of financing,operations, the timing and extent of capital expenditures, changes in operating plans, or other events that would cause the Company believes fair value estimates are based upon Level 3 inputs since there is no secondary market for Tredegar’s ownership interest. Accordingly, after the latestto seek additional financing and until the next round of financing or any other significant financial transaction, fair value estimates will primarily be based on assumptions relating to meeting cash flow projections and discounting of these factors for the high degree of risk. Adjustments to the estimated fair value of this investment will be made in the period upon which such changes can be quantified.
At December 31, 2017 and 2016, the fair value of the Company’s investment in kaléo (also the carrying value, which is separately stated in the consolidated balance sheets) was estimated at $54.0 million and $20.2 million, respectively. The weighted average cost of capital used in the fair market valuation of the Company’s interest in kaléo was 45% at both December 31, 2017 and 2016. Ultimately, the true value of the Company’s ownership interest in kaléo will be determined if and when a liquidity event occurs, and the ultimate value could be materially different from the $54.0 million estimated fair value at December 31, 2017. The fair market valuation of Tredegar’s interest in kaléo is sensitive to changes in the weighted average cost of capital used to discount cash flow projections for the high degree of risk and wide range of possible outcomes. At December 31, 2017, the effect of a 500 basis point decrease in the weighted average cost of capital assumption would have further increased the fair value of the Company’s interest in kaléo by approximately $11 million, and a 500 basis point increase in the weighted average cost of capital assumption would have decreased the fair value of the Company’s interest by approximately $10 million. See Note 4 of the Notes to Financial Statements for more information.
Pension Benefits
Tredegar sponsors noncontributory defined benefit (pension) plans in its continuing operations that have resulted in varying amounts of net pension income or expense, as developed from actuarial valuations. Inherent in these valuations are key assumptions including discount rates, expected return on plan assets and rate of future compensation increases. The Company is required to consider current market conditions, including changes in interest rates and plan asset investment returns, in determining these assumptions. Actuarial assumptions may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These differences may result in a significant impact to the amount of net pension income or expense recorded in future periods. In addition, the completion of the Contingent Terphane Sale would provide additional liquidity.
Material Cash Requirements for Known Contractual and Other Obligations
The discount rate is used to determine the present value of future payments. The discount rate is the single rate that, when applied to expected benefit payments, provides a present value equal to the present value of expected benefit payments determined by using the AA-rated bond yield curve. In general, the pension liability increases as the discount rate decreasesCompany’s material cash requirements from known contractual and vice versa. The weighted average discount rate utilized was 3.72%, 4.29% and 4.55% at the end of 2017, 2016 and 2015, respectively, with changes between periods due to changes in market interest rates. Pay for active participants of the plan was frozenother obligations as of December 31, 2007. 2023 were as follows:
Debt and interest payments
As of JanuaryDecember 31, 2018,2023, the plan no longer accrued benefitsCompany had outstanding debt from the ABL Facility of $126.3 million with contractual payments due in June 2026. Estimated future interest payments associated with crediting employees for service, thereby freezing all future benefitsthe ABL Facility total $28.6 million, with $11.5 million payable within the next 12 months.
As of December 31, 2023, Terphane Ltda., the Company’s wholly owned subsidiary in Brazil, had outstanding debt of $20.0 million under the plan.Terphane Brazil Loan. Estimated future interest payments associated with the Terphane Brazil Loan total $7.9 million, with $2.3 million payable within the next 12 months.
Capital expenditure commitments
A lower expected return on plan assets increases the amount of expenseSee “Projected Capital Expenditures and vice versa. DecreasesDepreciation & Amortization” within “Segment Operations Overview” above in the level of actual plan assets will also serve to increase the amount of pension expense. The total return on plan assets, which is primarily affected by the change in fair value of plan assets, current year contributions and current year payments to participants, was approximately 11.6%, 7.9% and (1.8)% in 2017, 2016 and 2015, respectively. The expected long-term return on plan assets relating to continuing operations, which is estimated by asset class and generally based on inflation-adjusted historical returns, volatilities, risk premiums and managed asset premiums, was 6.50%, 7.00% and 7.50% in 2017, 2016 and 2015, respectively. The Company anticipates that its expected long-term return on plan assets will be 6.50%this Item 7 for 2018. See Note 13 of the Notes to Financial Statements for more information on expected long-term return on plan assets and asset mix.
See the Executive Summary for further discussion regarding the financial impact of the Company’s pension plans.planned investment in capital expenditures in 2024, of which $1.2 million are contractual commitments that existed as of December 31, 2023.
Income TaxesOperating Leases
On a quarterly basis, Tredegar reviews its judgments regarding uncertain tax positionsThe Company enters into various operating leases primarily for real estate, office equipment and vehicles. See Note 4 “Leases” to the likelihood that the benefitsConsolidated Financial Statements in Item 15 for additional information.
Uncertain Tax Positions
As of a deferred income tax asset will be realized. As circumstances change, the Company reflects in earnings any adjustments to unrecognized benefits for uncertain tax positions and valuation allowances for deferred income tax assets.
For financial reporting purposes,December 31, 2023, unrecognized tax benefits on uncertain tax positions were $2.0 million, $3.3 million and $4.0 million as of December 31, 2017, 2016 and 2015, respectively.$0.7 million. Tax payments resulting from the successful challenge by the taxing authority on uncertain tax positions taken by Tredegar would possibly result in the payment of interest and penalties. Accordingly, the Company also accrues for possibleestimated interest and penalties of $0.2 million if tax payments were made as a result of a successful challenge by the taxing authority on uncertain tax positions. The balance of accrued interest and penalties on deductions taken relatingDue to uncertain tax positions was $0.1 million, $0.1 million and $0.4 million at December 31, 2017, 2016 and 2015, respectively ($0.1 million, $0.1 million and $0.2 million, respectively, net of corresponding U.S. federal and state income tax benefits). Accruals for possible interest and penalties on uncertain tax positions are reflecteduncertainties in income tax expense for financial reporting purposes.
Tredegar, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction, various states and jurisdictions outside the U.S. With few exceptions, Tredegar is no longer subject to U.S. federal, state or non-U.S. income tax examinations by tax authorities for years before 2014.
As of December 31, 2017 and 2016, valuation allowances relating to deferred income tax assets were $28.5 million and $12.7 million, respectively. For more information on deferred income tax assets and liabilities, see Note 16 of the Notes to Financial Statements.
Recently Issued Accounting Standards
Refer to the section Recently Issued Accounting Statements in Note 1 of the Notes to Financial Statements for information concerning the effect of recently issued accounting pronouncements.
Results of Continuing Operations
2017 versus 2016
Revenues. Sales in 2017 increased by 16.1% compared with 2016 due to higher sales in all segments and, in particular, from the acquisition of Futura by Aluminum Extrusions in February 2017. Net sales increased 6.4% in PE Films primarily due to increased volume and favorable sales mix for surface protection films, acquisition distribution layer materials and overwrap products. Net sales were relatively flat in Flexible Packaging Films (0.3% increase). Net sales increased 29.6% in Aluminum Extrusions primarily due to the acquisition of Futura, higher sales volume, improved product mix, and an increase in average selling prices primarily due to the pass-through to customers of higher market-driven raw material costs. For more information on changes in net sales and volume, see the Executive Summary.
Operating Costs and Expenses. Consolidated gross profit margin (sales minus cost of goods sold and freight as a percentage of sales) was 15.8% in 2017 and 15.8% in 2016. The gross profit margin in PE Films increased due to higher revenue, as discussed above, the realized cost savings of a restructuring completed in 2017, productivity efficiencies in surface protection films and personal care, and a favorable LIFO inventory adjustment. The gross profit margin in Flexible Packaging Films decreased primarily as a result of lower production primarily due to numerous intermittent power outages at Terphane’s Cabo, Brazil plant, during the third quarter, higher raw material and other costs related to adverse impact of high inflation in Brazil, partially offset by lower foreign currency transaction losses in 2017 versus 2016. The gross profit margin in Aluminum Extrusions increased slightly due to higher sales volume and improved product mix noted above, partially offset by increased operating costs, disruptions to normal plant production associated with the startup of a new press at the Niles, Michigan plant and an unfavorable LIFO adjustment. Consolidated gross profit as a percentage of sales was positively impacted by lower
pension expense in 2017 compared to 2016. Most of the impact related to pension expense is not allocated to the Company’s business segments.
For more information on changes in operating costs and expenses, see the Executive Summary.
Selling, General and Administrative. As a percentage of sales, selling, general and administrative and R&D expenses were 10.8% in 2017, which decreased from 11.5% in 2016. The decrease in selling, general and administrative and R&D expenses as a percentage of sales can be primarily attributed to higher sales as a result of the acquisition of Futura.
Plant shutdowns, asset impairments, restructurings and other. Plant shutdowns, asset impairments, restructurings and other items in 2017 are shown in the segment operating profit table in Note 5 and are described in detail in Note 17 of the Notes to Financial Statements. A discussion of unrealized gains and losses on investments can also be found in Note 4 of the Notes to Financial Statements.
Interest Income and Expense. Interest income, which is included in “Other income (expense), net” in the consolidated statements of income, was $0.2 million in 2017 and $0.3 million in 2016.
Interest expense, which is net of amounts capitalized and included in property, plant and equipment ($0.4 million and $0.3 million capitalized in 2017 and 2016, respectively), was $6.2 million in 2017, compared to $3.8 million for 2016. In February 2017, the Company borrowed $87 million under its revolving credit agreement to fund the acquisition of Futura. Interest expense in 2016 included the write-off of $0.2 million in unamortized loan fees from Tredegar’s revolving credit facility that was refinanced in the first quarter of 2016. Average debt outstanding and interest rates were as follows:
|
| | | | | | | |
| (In millions, except percentages) | 2017 | | 2016 |
| Floating-rate debt with interest charged on a rollover | | | |
| basis at one-month LIBOR plus a credit spread: | | | |
| Average outstanding debt balance | $ | 175.0 |
| | $ | 103.5 |
|
| Average interest rate | 3.0 | % | | 2.3 | % |
| Fixed-rate and other debt: | | | |
| Average outstanding debt balance | $ | — |
| | $ | — |
|
| Average interest rate | n/a |
| | n/a |
|
| Total debt: | | | |
| Average outstanding debt balance | $ | 175.0 |
| | $ | 103.5 |
|
| Average interest rate | 3.0 | % | | 2.3 | % |
Identifiable Assets. A summary of identifiable assets for the year ended December 31, 2017 versus 2016 is provided below:
|
| | | | | | | | | | | |
| (In thousands) | Year Ended
December 31 | | |
| | 2017 | | 2016 | | Variance |
| PE Films | $ | 289,514 |
| | $ | 278,558 |
| | $ | 10,956 |
|
| Flexible Packaging Films | 49,915 |
| | 156,836 |
| | (106,921 | ) |
| Aluminum Extrusions | 268,127 |
| | 147,639 |
| | 120,488 |
|
| Subtotal | 607,556 |
| | 583,033 |
| | 24,523 |
|
| General corporate | 111,696 |
| | 38,618 |
| | 73,078 |
|
| Cash and cash equivalents | 36,491 |
| | 29,511 |
| | 6,980 |
|
| Total | $ | 755,743 |
| | $ | 651,162 |
| | $ | 104,581 |
|
Identifiable assets in PE Films increased at December 31, 2017 from December 31, 2016 primarily due to higher property, plant and equipment balances as a result of higher current year capital expenditures. Identifiable assets in Flexible Packaging Films decreased at December 31, 2017 from December 31, 2016 due to the impairment of assets recognized during the fourth quarter of 2017. For more information on the impairment, see the Flexible Packaging Films section of the Executive Summary. Identifiable assets in Aluminum Extrusions increased at December 31, 2017 from December 31, 2016 primarily due to the acquisition of Futura and higher property, plant and equipment balances as a result of current year capital expenditures, higher accounts receivable balances due to the timing of collections and higher inventory balances. Identifiable assets in
General corporate increased at December 31, 2017 from December 31, 2016 due to an increase in income taxes recoverable and an increase in the value of the Company’s investment in kaléo.
2016 versus 2015
Revenues. Sales in 2016 decreased by 7.6% compared with 2015 due to lower sales by PE Films and Aluminum Extrusions, partially offset by higher sales by Flexible Packaging Films. Net sales decreased 14.1% in PE Films primarily due to lower volume from lost sales, product transitions and adverse market demand for certain products. Net sales increased 2.6% in Flexible Packaging Films from higher volume partially due to the increase of end-use applications for flexible packaging films in the Latin American market, partially offset by competitive pricing pressures and the pass-through to customers of lower raw material costs. Net sales decreased 4.1% in Aluminum Extrusions primarily due to a decrease in average selling prices driven mainly by lower aluminum costs, partially offset by higher sales volume in the automotive market.
Operating Costs and Expenses. Consolidated gross profit margin (sales minus cost of goods sold and freight as a percentage of sales) was 15.8% in 2016 and 15.7% in 2015. The gross profit margin in PE Films decreased due to lower revenue, as discussed above, an unfavorable lag in the pass-through of average resin costs, productivity inefficiencies in surface protection films and an unfavorable LIFO inventory adjustment. The gross profit margin in Flexible Packaging Films increased primarily as a result of higher sales volume, as discussed above, operating efficiencies and lower other costs and expenses, partially offset by net refunds in 2015 of export duties paid. The gross profit margin in Aluminum Extrusions increased primarily as a result of higher volume, production efficiencies, improved management of freight logistics and lower utility costs. Consolidated gross profit as a percentage of sales was positively impacted by lower pension expenses in 2016 compared to 2015. Most of the impact related to pension expense is not allocated to the Company’s business segments.
Selling, General and Administrative. As a percentage of sales, selling, general and administrative and R&D expenses were 11.5% in 2016, which increased from 9.8% in 2015. The increase in selling, general and administrative and R&D expenses as a percentage of sales can be primarily attributed to the higher R&D expenses.
Plant shutdowns, asset impairments, restructurings and other. Plant shutdowns, asset impairments, restructurings and other items in 2016 are shown in the segment operating profit table in Note 5 and are described in detail in Note 17 of the Notes to Financial Statements. A discussion of unrealized gains and losses on investments can also be found in Note 4 of the Notes to Financial Statements.
Interest Income and Expense. Interest income, which is included in “Other income (expense), net” in the consolidated statements of income, was $0.3 million in both 2016 and 2015.
Interest expense, which is net of amounts capitalized and included in property, plant and equipment ($0.3 million and $0.4 million capitalized in 2016 and 2015, respectively), was $3.8 million in 2016, compared to $3.5 million for 2015. Interest expense in 2016 included the write-off of $0.2 million in unamortized loan fees from Tredegar’s revolving credit facility that was refinanced, in the first quarter of 2016. Average debt outstanding and interest rates were as follows:
|
| | | | | | | |
| (In millions, except percentages) | 2016 | | 2015 |
| Floating-rate debt with interest charged on a rollover | | | |
| basis at one-month LIBOR plus a credit spread: | | | |
| Average outstanding debt balance | $ | 103.5 |
| | $ | 135.1 |
|
| Average interest rate | 2.3 | % | | 2.0 | % |
| Fixed-rate and other debt: | | | |
| Average outstanding debt balance | $ | — |
| | $ | — |
|
| Average interest rate | n/a |
| | n/a |
|
| Total debt: | | | |
| Average outstanding debt balance | $ | 103.5 |
| | $ | 135.1 |
|
| Average interest rate | 2.3 | % | | 2.0 | % |
Identifiable Assets. A summary of identifiable assets for the year ended December 31, 2016 versus 2015 is provided below:
|
| | | | | | | | | | | |
| (In thousands) | Year Ended
December 31 | | |
| | 2016 | | 2015 | | Variance |
| PE Films | $ | 278,558 |
| | $ | 270,236 |
| | $ | 8,322 |
|
| Flexible Packaging Films | 156,836 |
| | 146,253 |
| | 10,583 |
|
| Aluminum Extrusions | 147,639 |
| | 136,935 |
| | 10,704 |
|
| Subtotal | 583,033 |
| | 553,424 |
| | 29,609 |
|
| General corporate | 38,618 |
| | 25,680 |
| | 12,938 |
|
| Cash and cash equivalents | 29,511 |
| | 44,156 |
| | (14,645 | ) |
| Total | $ | 651,162 |
| | $ | 623,260 |
| | $ | 27,902 |
|
Identifiable assets in PE Films increased at December 31, 2016 from December 31, 2015 primarily due to higher property, plant and equipment balances as a result of higher current year capital expenditures. Identifiable assets in Flexible Packaging Films increased at December 31, 2016 from December 31, 2015 primarily due to higher property, plant and equipment balances as a result of changes in the value of the U.S. Dollar relative to foreign currencies, partially offset by depreciation and amortization. Identifiable assets in Aluminum Extrusions increased at December 31, 2016 from December 31, 2015 primarily due to higher property, plant and equipment balances as a result of current year capital expenditures, higher accounts receivable balances due topotential tax audits, the timing of collections and higher inventory balances. Identifiable assets in General Corporate increased at December 31, 2016 from December 31, 2015 due to an increase in income taxes recoverable, deferred financing fees from the refinancingresolution of the revolving credit facility, and an increase in the value of the Company’s investment in kaléo.
Segment Analysis. A summary of operating results for 2016 versus 2015 for each of the Company’s reporting segmentsthese positions is shown below.
PE Films
A summary of operating results for PE Films is provided below:
|
| | | | | | | | | | |
| (In thousands, except percentages) | Year Ended December 31 | | Favorable/ (Unfavorable) |
| 2016 | | 2015 | | % Change |
| Sales volume (pounds) | 139,020 |
| | 160,283 |
| | (13.3 | )% |
| Net sales | $ | 331,146 |
| | $ | 385,550 |
| | (14.1 | )% |
| Operating profit from ongoing operations | $ | 26,312 |
| | $ | 48,275 |
| | (45.5 | )% |
Net sales in 2016 decreased by $54.4 million versus 2015 primarily due to:
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) thatuncertain. Therefore, the Company believes is primarily the resultunable to make a reasonably reliable estimate 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).
Sales volume in 2016 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 table below summarizes the pro forma operating profit from ongoing operations for 2016 and 2015, had the impact of the lost business been fully realized:
|
| | | | |
| | Year 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 had not been fully eliminated were $8.9 million and $38.5 million in 2016 and 2015, respectively.
Net of the impact of known lost business, pro forma estimated operating profit from ongoing operations in 2016 decreased by $11.6 million versus 2015 primarily due to:
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 the Lake 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 $25.8 million in 2016 compared to $21.2 million in 2015. Depreciation expense was $13.5 million in 2016 and $15.4 million in 2015. Amortization expense was $0.1 million in 2016 and $0.1 million in 2015.
Flexible Packaging Films
A summary of operating results for Flexible Packaging Films, which excludes the 2015 goodwill impairment charge, is provided below:
|
| | | | | | | | | | |
| (In thousands, except percentages) | Year Ended December 31 | | Favorable/ (Unfavorable) |
| 2016 | | 2015 | | % Change |
| Sales volume (pounds) | 89,706 |
| | 82,347 |
| | 8.9 | % |
| Net sales | $ | 108,028 |
| | $ | 105,332 |
| | 2.6 | % |
| Operating profit from ongoing operations | $ | 1,774 |
| | $ | 5,453 |
| | (67.5 | )% |
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 $3.7 million in 2016 versus 2015 primarily due to:
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 in Brazil;
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 were $3.4 million in 2016 compared to $3.5 million in 2015. Depreciation expense was $6.7 million in 2016 and $6.8 million in 2015. Amortization expense was $2.8 million in 2016 and $2.9 million in 2015.
During the third quarter of 2015, the Company performed a goodwill impairment assessment related to Terphane. This review was undertaken as a result of the continued competitive pressures related to ongoing unfavorable economic conditions in Terphane’s primary market of Brazil, and excess global industry capacity. The assessment resulted in a full write-off of the goodwill of $44.5 million associated with the acquisition of Terphane.
Aluminum Extrusions
A summary of operating results for Aluminum Extrusions is provided below:
|
| | | | | | | | | | |
| (In thousands, except percentages) | Year Ended December 31 | | Favorable/ (Unfavorable) |
| 2016 | | 2015 | | % Change |
| Sales volume (pounds) | 172,986 |
| | 170,045 |
| | 1.7 | % |
| Net sales | $ | 360,098 |
| | $ | 375,457 |
| | (4.1 | )% |
| Operating profit from ongoing operations | $ | 37,794 |
| | $ | 30,432 |
| | 24.2 | % |
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 $4.7 million on sales in 2016 versus 2015. Lower average selling prices, which had an unfavorable impact on net sales of $20.8 million, can be primarily attributed to a decrease in average aluminum market prices.
Operating profit from ongoing operations in 2016 increased in comparison to 2015 by $7.4 million, as a result of:
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
During 2016, Bonnell Aluminum recognized a gain of $1.9 million for insurance recoveries to-date associated with assets destroyed or damaged in the cast house explosion (included in “Other income (expense), net” in the Consolidated Statements of Income - see Note 17 of the Notes to Financial Statements for additional details). The Company also incurred $5.0 million of additional expenses during 2016, $4.3 million of which had been fully offset by insurance recoveries (netted in “Cost of goods sold” in the Consolidated Statements of Income and in “Plant shutdowns, asset impairments, restructurings and other” in the Operating Profit table in Note 5 of the Notes to Financial Statements). The remaining $0.7 million in 2016 of additional expenses for which recovery from insurance was not assured was included in “Cost of goods sold” in the Consolidated Statements of Income.
Capital Expenditures and Depreciation & Amortization
Capital expenditures for Aluminum Extrusions were $15.9 million in 2016 compared to $8.1 million in 2015. Capital expenditures in 2016 included approximately $5 million for routine capital expenditures required to support operations and $9 million of a total of $18 million to add extrusions capacity at the Niles, Michigan, manufacturing facility. Depreciation expense was $8.1 million in 2016 compared to $8.7 million in 2015. Amortization expense was $1.0 million in 2016 and $1.0 million in 2015.
Financial Condition
Assets and Liabilities
Tredegar’s management continues to focus on improving working capital management. Measures such as days sales outstanding (“DSO”), days inventory outstanding (“DIO”) and days payables outstanding (“DPO”) are used by the Company to evaluate changes in working capital. Significant changes in assets and liabilities from December 31, 2016 to December 31, 2017 are summarized below:
Accounts and other receivables increased $22.7 million (23.4%).
Accounts and other receivables in PE Films increased by $2.1 million due mainly to the timing of cash receipts and collections. DSO (computed using trailing 12 months net sales and a rolling 12-month average of accounts and other receivables balances) was approximately 48.4 days in 2017 and 45.7 days in 2016.
Accounts and other receivables in Flexible Packaging Films increased by $0.3 million primarily due to the impact of the change in the value of the U.S. Dollar relative to the Brazilian real. DSO was approximately 53.2 days in 2017 and 51.8 days in 2016.
Accounts and other receivables in Aluminum Extrusions increased by $20.6 million primarily due to the acquisition of Futura in February 2017, which added $10.0 million, higher sales and the timing of cash receipts. DSO was approximately 43.3 days in 2017 and 43.3 days in 2016.
Inventories increased $20.8 million (31.5%).
Inventories in PE Films increased by $3.9 million primarily due to increased production to accommodate higher demand and the timing of raw material purchases. DIO (computed using trailing 12 months costs of goods sold calculated on a first-in, first-out basis and a rolling 12-month average of inventory balances calculated on the first-in, first-out basis) was approximately 55.0 days in 2017 and 52.2 days in 2016.
Inventories in Flexible Packaging Films increased by $1.3 million primarily due to the impact of the change in the value of the U.S. Dollar relative to the Brazilian real. DIO was approximately 70.1 days in 2017 and 77.0 days in 2016.
Inventories in Aluminum Extrusions increased by $15.6 million primarily due to the addition of balances from the acquisition of Futura, which added $9.7 million, the restart of the Newnan, Georgia cast house and the timing of purchases. DIO was approximately 32.6 days in 2017 and 26.5 days in 2016.
Net property, plant and equipment decreased $37.6 million (14.4%) due primarily to the property and equipment added from the acquisition of Futura of $32.7 million and capital expenditures of $44.4 million, more than offset by the impairment of assets at Terphane ($83.1 million) and depreciation of $34.1 million.
Identifiable intangible assets increased by $7.0 million (20.7%) primarily due to balances added from the acquisition of Futura of $30.7 million, partially offset by the write-down of identifiable intangibles at Terphane in the amount of $17.5 million and amortization expense of $6.2 million.
Goodwill increased by $10.4 million (8.8%) due to balances added from the acquisition of Futura.
Accounts payable increased by $27.0 million (33.3%).
Accounts payable in PE Films increased by $6.1 million primarily due to the normal volatility associated with the timing of payments at the end of the year. DPO (computed using trailingbeyond 12 months costs of goods sold calculated on a first-in, first-out basis and a rolling 12-month average of accounts payable balances) was approximately 40.6 days in 2017 and 38.5 days in 2016.
Accounts payable in Flexible Packaging Films increased by $2.5 million, duemonths. See Note 12 “Income Taxes” to the timing of payments and the impact of the changeConsolidated Financial Statements in the U.S. Dollar value of currenciesItem 15 for operations outside the U.S. DPO was approximately 42.8 days in 2017 and 39.5 days in 2016.additional information.
Accounts payable in Aluminum Extrusions increased by $18.3 million, primarily due to the addition of balances from the acquisition of Futura, which added $4.3 million, negotiation of favorable payment terms and the normal volatility associated with the timing of payments. DPO was approximately 48.0 days in 2017 and 45.4 days in 2016.Off-Balance Sheet Arrangements
Accrued expenses increased by $3.8 million (9.8%) from December 31, 2016 due to the addition of balances from the acquisition of Futura, which added $2.1 million, higher employee benefit accruals, and higher stock-based compensation obligations.
Net noncurrent deferred income tax assets in excess of noncurrent deferred income tax liabilities increased by $35.0 million primarily due to numerous changes between years in the balance of the components shown in the December 31, 2017 and 2016 schedule of deferred income tax assets and liabilities provided in Note 16 of the Notes to Financial Statements. The Company has no material off-balance sheet arrangements that have had a current income tax receivable of $32.1 million at December 31, 2017 comparedor are reasonably likely to $7.5 million at December 31, 2016. The change is primarily due to timing of tax payments and anticipated refunds of net operating losses and tax credits available for carryback to prior years.
On March 1, 2016, the Company entered into a new five-year, $400 million secured revolving credit agreement that expires on March 1, 2021 (“revolving credit agreement”). Net capitalization and indebtedness as defined under the revolving credit agreement as of December 31, 2017 were as follows:
|
| | | |
| Net Capitalization and Indebtedness as of December 31, 2017 |
(In thousands) |
| Net capitalization: | |
| Cash and cash equivalents | $ | 36,491 |
|
| Debt: | |
| $400 million revolving credit agreement maturing March 1, 2021 | 152,000 |
|
| Other debt | — |
|
| Total debt | 152,000 |
|
| Debt net of cash and cash equivalents | 115,509 |
|
| Shareholders’ equity | 343,780 |
|
| Net capitalization | $ | 459,289 |
|
| Indebtedness as defined in revolving credit agreement: | |
| Total debt | $ | 152,000 |
|
| Face value of letters of credit | 2,685 |
|
| Capital lease | 144 |
|
| Other | 250 |
|
| Indebtedness | $ | 155,079 |
|
The credit spread and commitment fees charged on the unused amount under our revolving credit agreement at various indebtedness-to-adjusted EBITDA levels are as follows:
|
| | | | | |
| Pricing Under Revolving Credit Agreement (Basis Points) |
| Indebtedness-to-Adjusted EBITDA Ratio | Credit Spread Over LIBOR | | Commitment Fee |
| > 3.5x but <= 4.0x | 250 |
| | 45 |
|
| > 3.0x but <= 3.5x | 225 |
| | 40 |
|
| > 2.0x but <= 3.0x | 200 |
| | 35 |
|
| > 1.0x but <= 2.0x | 175 |
| | 30 |
|
| <= 1.0x | 150 |
| | 25 |
|
At December 31, 2017, the interest rate on debt under the revolving credit agreement existing at that date was priced at one-month LIBOR plus the applicable credit spread of 175 basis points. Under the revolving credit agreement, borrowings are permitted up to $400 million, and approximately $248 million was available to borrow at December 31, 2017, based upon the most restrictive covenant within the revolving credit agreement.
As of December 31, 2017, Tredegar was in compliance with all financial covenants outlined in its revolving credit agreement. Noncompliance with any of the debt covenants may have a material adversecurrent or future effect on its financial condition, or liquiditychanges in the event such noncompliance cannot be cured or should the Company be unable to obtain a waiver from the lenders. Renegotiation of the covenant(s) through an amendment to the revolving credit agreement may effectively cure the noncompliance, but may have an effect on financial condition, revenues or expenses, results of operations, liquidity, depending upon how the amended covenant is renegotiated.
The computations of adjusted EBITDA, adjusted EBIT, the leverage ratio and interest coverage ratio as defined in the revolving credit agreement are presented below along with the related most restrictive covenants. Adjusted EBITDA and adjusted EBIT as defined in the revolving credit agreement are not intended to represent net incomecapital expenditures or cash flow from operations as defined by GAAP and should not be considered as either an alternative to net income or to cash flow.capital resources.
|
| | | |
Computations of Adjusted EBITDA, Adjusted EBIT, Leverage Ratio and Interest Coverage Ratio as Defined in the Revolving Credit Agreement Along with Related Most Restrictive Covenants
|
As of and for the Twelve Months Ended December 31, 2017 (In thousands)
|
| Computations of adjusted EBITDA and adjusted EBIT as defined in revolving credit agreement for the twelve months ended December 31, 2017: |
| Net income | $ | 38,251 |
|
| Plus: | |
| After-tax losses related to discontinued operations | — |
|
| Total income tax expense for continuing operations | — |
|
| Interest expense | 6,170 |
|
| Depreciation and amortization expense for continuing operations | 40,277 |
|
| All non-cash losses and expenses, plus cash losses and expenses not to exceed $10,000, for continuing operations that are classified as unusual, extraordinary or which are related to plant shutdowns, asset impairments and/or restructurings (cash-related of $10,000) | 113,254 |
|
| Charges related to stock option grants and awards accounted for under the fair value-based method | 264 |
|
| Losses related to the application of the equity method of accounting | — |
|
| Losses related to adjustments in the estimated fair value of assets accounted for under the fair value method of accounting | — |
|
| Minus: | |
| After-tax income related to discontinued operations | — |
|
| Total income tax benefits for continuing operations | (53,163 | ) |
| Interest income | (209 | ) |
| All non-cash gains and income, plus cash gains and income in excess of $10,000, for continuing operations that are classified as unusual, extraordinary or which are related to plant shutdowns, asset impairments and/or restructurings | (7,867 | ) |
| Income related to changes in estimates for stock option grants and awards accounted for under the fair value-based method | — |
|
| Income related to the application of the equity method of accounting | — |
|
| Income related to adjustments in the estimated fair value of assets accounted for under the fair value method of accounting | (33,800 | ) |
| Plus cash dividends declared on investments accounted for under the equity method of accounting | — |
|
| Plus or minus, as applicable, pro forma EBITDA adjustments associated with acquisitions and asset dispositions | 547 |
|
| Adjusted EBITDA as defined in revolving credit agreement | 103,724 |
|
| Less: Depreciation and amortization expense for continuing operations (including pro forma for acquisitions and asset dispositions) | (40,953 | ) |
| Adjusted EBIT as defined in revolving credit agreement | $ | 62,771 |
|
| Computations of leverage and interest coverage ratios as defined in revolving credit agreement at December 31, 2017: |
| Leverage ratio (indebtedness-to-adjusted EBITDA) | 1.50x |
|
| Interest coverage ratio (adjusted EBIT-to-interest expense) | 10.17x |
|
| Most restrictive covenants as defined in revolving credit agreement: | |
| Maximum permitted aggregate amount of dividends that can be paid by Tredegar during the term of the revolving credit agreement ($100,000 plus 50% of net income generated for each quarter beginning January 1, 2016) | $ | 140,323 |
|
| Maximum leverage ratio permitted | 4.00x |
|
| Minimum interest coverage ratio permitted | 2.50x |
|
Tredegar is obligated to make future payments under various contracts as set forth below:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
| (In millions) | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Remainder | | Total |
| Debt: | | | | | | | | | | | | | |
| Principal payments | $ | — |
| | $ | — |
| | $ | — |
| | $ | 152.0 |
| | $ | — |
| | $ | — |
| | $ | 152.0 |
|
| Estimated interest expense | 5.2 |
| | 5.2 |
| | 5.2 |
| | 0.9 |
| | — |
| | — |
| | 16.5 |
|
Estimated contributions required: (1) | | | | | | | | | | | | | |
| Defined benefit plans | 5.3 |
| | 5.3 |
| | 5.0 |
| | 5.3 |
| | 5.9 |
| | 11.3 |
| | 38.1 |
|
| Other postretirement benefits | 0.5 |
| | 0.5 |
| | 0.5 |
| | 0.5 |
| | 0.5 |
| | 2.4 |
| | 4.9 |
|
| Capital expenditure commitments | 4.6 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4.6 |
|
| Leases | 3.7 |
| | 3.5 |
| | 3.3 |
| | 2.8 |
| | 2.0 |
| | 3.1 |
| | 18.4 |
|
Estimated obligations relating to uncertain tax positions (2) | — |
| | — |
| | — |
| | — |
| | — |
| | 2.0 |
| | 2.0 |
|
Other (3) | 3.0 |
| | 2.1 |
| | — |
| | — |
| | — |
| | — |
| | 5.1 |
|
| Total | $ | 22.3 |
| | $ | 16.6 |
| | $ | 14.0 |
| | $ | 161.5 |
| | $ | 8.4 |
| | $ | 18.8 |
| | $ | 241.6 |
|
| |
(1) | Estimated minimum required contributions for defined benefit plans and benefit payments for other postretirement plans are based on actuarial estimates using current assumptions for discount rates, long-term rate of return on plan assets, rate of compensation increases and health care cost trends. The expected defined benefit plan contribution estimates for 2018 through 2027 were determined under provisions of the Pension Protection Act of 2006 using the preliminary assumptions chosen by Tredegar for the 2018 plan year. Tredegar has determined that it is not practicable to present defined benefit contributions and other postretirement benefit payments beyond 2027. |
| |
(2) | Amounts for which reasonable estimates about the timing of payments cannot be made are included in the remainder column. |
| |
(3) | Includes contractual severance and other miscellaneous contractual arrangements. |
From time to time, the Company enters into transactions with third parties in connection with the sale of assets or businesses in which it agrees to indemnify the buyers or third parties involved in the transaction, or the sellers or third parties involved in the transaction agree to indemnify Tredegar, for certain liabilities or risks related to the assets or business. Also, in the ordinary course of business, the Company may enter into agreements with third parties for the sale of goods or services that may contain indemnification provisions. In the event that an indemnification claim is asserted, liability for indemnification would be subject to an assessment of the underlying facts and circumstances under the terms of the applicable agreement. Further, any indemnification payments may be limited or barred by a monetary cap, a time limitation, or a deductible or basket. For these reasons, the Company is unable to estimate the maximum potential amount of the potential future liability under the indemnity provisions of these agreements. Tredegar does, however, accrue for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable and the amount is reasonably estimable. The Company discloses contingent liabilities if the probability of loss is reasonably possible and material.
At December 31, 2017, Tredegar had
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Certain accounting policies, as described below, are considered "critical accounting policies" because they are particularly dependent on estimates made by management about matters that are inherently uncertain and could have a material impact on the Company’s consolidated financial statements. Estimates and judgments are based on historical experience, forecasted events and various other assumptions that management believes are reasonable under the circumstances. Actual results could differ significantly from those estimates under different assumptions and conditions. A summary of all of our significant accounting policies is included in Note 1 “Nature of Operations and Summary of Significant Accounting Policies” to the Consolidated Financial Statements in Item 15.
Impairment of Goodwill
The Company assesses goodwill for impairment when events or circumstances indicate that the carrying value may not be recoverable, or, at a minimum, on an annual basis (December 1st of each year). When assessing goodwill for impairment, accounting guidance allows the Company to first perform a qualitative assessment (“Step 0 analysis”), which evaluates certain qualitative factors, including macroeconomic conditions, industry and market considerations, cost factors and overall financial performance, as well as company and reporting unit factors. If the Company's Step 0 analysis indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company would perform a quantitative impairment test (“Step 1 analysis”).
During 2023, uncertainty about the timing of a recovery in the consumer electronics market persisted, and manufacturers in the supply chain for consumer electronics continued to experience reduced capacity utilization and inventory corrections. In light of the limited visibility on the timing of a recovery and the expected adverse future impact to the Surface Protection business, coupled with a cautious outlook on new product development opportunities, the Company performed a Step 1 goodwill impairment analysis, as of June 30, 2023 and September 30, 2023, of the Surface Protection component of PE Films. The analyses concluded that the fair value of Surface Protection was less than its carrying value, thus a non-cash partial goodwill impairment of $34.9 million ($27.0 million after deferred income tax benefits) was recognized during 2023.
The Company estimated the fair value of Surface Protection by: (i) computing an estimated enterprise value (“EV”) utilizing the discounted cash flow method (the “DCF Method”), (ii) applying adjustments for any surplus or deficient working capital, (iii) adding cash and cash equivalents, and (iv) subtracting interest-bearing debt. The DCF Method was used, incorporating Surface Protection’s latest projections, which reflect updated expected market recovery levels, feasibility of $36.5 million, including funds held in locations outside the U.S. of $32.7 million. Tredegar’s policy is to accrue U.S. federal income taxes on unremitted earnings of all foreign subsidiaries where required. However, due to changes in the taxation of dividends under TCJA, Tredegar will only record U.S. federal income taxes on unremitted earnings of its foreign subsidiaries where Tredegar cannot take steps to eliminate any potential tax on future distributions from its foreign subsidiaries. Prior to the second quarter of 2016, deferred U.S. federal income taxes had not been recorded for the undistributed earnings for Terphane Limitada because the Company had intended to permanently reinvest these earnings. Due to concerns about the current politicallaunching new product applications, competitive pricing and economic conditions in Brazil, Terphane Limitada began making cash distributions to the Company. During 2016, Terphane Limitada paid dividends totaling $13.3 million to the Company. Because of the accumulation of significant losses related to foreign currency translations at Terphane Limitada, there were no unrecorded deferred income tax liabilitiesflows associated with the U.S. federal income taxes and foreign withholding taxes on Terphane Limitada’s undistributed earnings as of December 31, 2017 and December 31, 2016.
The Company believes that existing borrowing availability, current cash balances and cash flow from operations will be sufficient to satisfy working capital, capital expenditure and dividend requirements for at least the next twelve months.
Shareholders’ Equity
At December 31, 2017, Tredegar had 33,017,422 shares of common stock outstanding and a total market capitalization of $633.9 million, compared with 32,933,807 shares of common stock outstanding and a total market capitalization of $790.4 million at December 31, 2016.
Tredegar did not repurchase any shares on the open market in 2017, 2016 or 2015 under its approved share repurchase program.
Cash Flows
The discussion in this section supplements the information presented in the Consolidated Statements of Cash Flows.
Cash provided by operating activities was $88.2 million in 2017 compared with $48.9 million in 2016. The increase is due primarily to higher operating profit from ongoing operations ($16.5 million), higher non-cash charges for depreciation and amortization expense included in operating profit ($7.8 million), lower income tax payments ($6.2 million), cash received from a settlement of an escrow agreement associated with the acquisition of Terphane in October 2011 ($11.9 million) and lower contributions to fund pension and postretirement benefit plans ($2.2 million), partially offset by higher interest payments from higher debt levels ($2.7 million).
Cash used in investing activities was $125.6 million in 2017 compared with $42.0 million in 2016. Cash used in investing activities in 2017 primarily represents the acquisition of Futura in 2017 for $87.1 million (which includes the net settlement of post-closing adjustments of $0.1 million) and capital expenditures of $44.4 million, which compares to $45.5 million in 2016.
Net cash flow provided by financing activities was $43.2 million in 2017, which is primarily due to net borrowings under the revolving credit facility to fund the acquisition of Futura and the payment of regular quarterly dividends aggregating for the year to $14.5 million ($0.44 per share annually), partially offset by the proceeds from the exercise of stock options and other financing activities of $0.7 million. Cash used in financing activities was $23.7 million in 2016, primarily used for net debt repayments of $9.0 million, regular quarterly dividends aggregating for the year to $14.5 million ($0.44 per share annually) and debt financing costs related to the refinancing of the credit agreement of $2.6 million, partially offset by the proceeds from the exercise of stock options and other financing activities of $2.3 million.
Quantitative and Qualitative Disclosures about Market Risk
Tredegar has exposure to the volatility of interest rates, polyethylene, polypropylene and polyester resin prices, PTA and MEG prices, aluminum ingot and scrap prices, energy prices, foreign currencies and emerging markets. See the Assets and Liabilities section regarding interest rate exposures related to borrowings under the revolving credit agreement.
Changes in polyethylene resin prices, and the timing of those changes, could have a significant impact on profit margins in PE Films. Changes in polyester resin, PTA and MEG prices, and the timing of those changes, could have a significant impact on profit margins in Flexible Packaging Films. Profit margins in Aluminum Extrusions are sensitive to fluctuations in aluminum ingot and scrap pricesproduction efficiencies, as well as natural gas prices (natural gas is the principal energy source used to operate its casting furnaces). There is no assuranceconsideration of the Company’s ability to pass through higher raw materialcost savings and energy costs to its customers.
See the Executive Summary and the Results of Continuing Operations sections for discussion regarding the impact of the lag in the pass-through of resin price changes.
The volatility of average quarterly prices of low density polyethylene resin in the U.S. (a primary raw material for PE Films products) is shown in the chart below:
|
|
Source: Quarterly averages computed by Tredegar using monthly data provided by IHS, Inc. In January 2015, IHS reflected a 21 cents per pound non-market adjustment based on their estimate ofKey financial assumptions utilized to determine the growth of discounts in prior periods. The 4th quarter 2014 average rate of $1.09 per pound is shown on a pro forma basis as if the non-market adjustment was made in the fourth quarter of 2014. |
Polyethylene resin prices in Europe, Asia and South America have exhibited similar long-term trends. The price of resin is driven by several factors, including supply and demand and the price of oil, ethylene and natural gas. To address fluctuating resin prices, PE Films has index-based pass-through raw material cost agreements for the majority of its business. However, under certain agreements, changes in resin prices are not passed through for an average period of 90 days (see the Executive Summary and the Results of Continuing Operations sections for more information). Pricing on the remainder of the business is based upon raw material costs and supply/demand dynamics within the markets in which the Company operates.
Polyester resins, MEG and PTA used by Flexible Packaging Films in Brazil are primarily purchased domestically, with other sources available, mostly from Asia and the U.S. Given the nature of these products as commodities, pricing is derived from Asian pricing indexes. The volatility of the average quarterly prices for polyester fibers in Asia, which is representative of polyester resin (a primary raw material for polyester film products) prices, is shown in the chart below:
|
|
Source: Quarterly averages computed by Tredegar using monthly data from CMAI Global Index data.
|
The volatility of average quarterly prices of PTA and MEG in Asia (raw materials used in the production of polyester resins produced by Flexible Packaging Films) is shown in the chart below:
|
|
Source: Quarterly averages computed by Tredegar using monthly data from CMAI Global Index data. |
In the normal course of business, Aluminum Extrusions enters into fixed-price forward sales contracts with certain customers for the sale of fixed quantities of aluminum extrusions at scheduled intervals. In order to hedge its exposure to aluminum price volatility (see the chart below) under these fixed-price arrangements, which generally have a duration of not more than 12 months, the Company enters into a combination of forward purchase commitments and futures contracts to acquire or hedge aluminum, based on the scheduled deliveries. See Note 9 of the Notes to Financial Statements for more information. The volatility of quarterly average aluminum prices is shown in the chart below:
|
|
Source: Quarterly averages computed by Tredegar using daily Midwest average prices provided by Platts. |
From time-to-time, Aluminum Extrusions hedges a portion of its exposure to natural gas price volatility by entering into fixed-price forward purchase contracts with its natural gas suppliers. The Company estimates that, in an unhedged situation, every $1 per mmBtu per month change in the market price of natural gas has an $102,000 impact on the continuing monthly operating profit for U.S. operations in Aluminum Extrusions. There is an energy surcharge for Aluminum Extrusions in the U.S. that is applied when the previous quarter’s NYMEX natural gas average settlement price is in excess of $8.85 per mmBtu.
The volatility of quarterly average natural gas prices is shown in the chart below:
|
|
Source: Quarterly averages computed by Tredegar using monthly NYMEX settlement prices. |
Tredegar sells to customers in foreign markets through its foreign operations and through exports from U.S. plants. The percentage of sales and total assets for manufacturing operations related to foreign markets for 2017, 2016 and 2015 are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Tredegar Corporation—Continuing Operations Percentage of Net Sales and Total Assets Related to Foreign Markets |
| | 2017 | | 2016 | | 2015 |
| | % of Total | | % Total Assets - Foreign Oper- ations * | | % of Total | | % Total Assets - Foreign Oper- ations * | | % of Total | | % Total Assets - Foreign Oper- ations * |
| | Net Sales * | | | Net Sales * | | | Net Sales * | |
| | Exports From U.S. | | Foreign Oper- ations | | | Exports From U.S. | | Foreign Oper- ations | | | Exports From U.S. | | Foreign Oper- ations | |
| Canada | 5 |
| | — |
| | — |
| | 6 |
| | — |
| | — |
| | 5 |
| | — |
| | — |
|
| Europe | 1 |
| | 9 |
| | 6 |
| | 1 |
| | 10 |
| | 6 |
| | 1 |
| | 10 |
| | 5 |
|
| Latin America** | 2 |
| | 9 |
| | 7 |
| | — |
| | 11 |
| | 21 |
| | — |
| | 10 |
| | 20 |
|
| Asia | 9 |
| | 2 |
| | 5 |
| | 9 |
| | 3 |
| | 6 |
| | 9 |
| | 3 |
| | 7 |
|
| Total % exposure to foreign markets | 17 |
| | 20 |
| | 18 |
| | 16 |
| | 24 |
| | 33 |
| | 15 |
| | 23 |
| | 32 |
|
|
| |
* | The percentages for foreign markets are relative to Tredegar’s consolidated net sales and total assets from continuing operations. |
** | In 2017, Flexible Packaging Films’ recorded a charge for the impairment of assets in the amount of $101 million. See Terphane Asset Impairment Loss and Worthless Stock Deduction in Flexible Packaging Films in the Executive Summary section for more details.
|
Tredegar attempts to match the pricing and cost of its products in the same currency and generally views the volatility of foreign currencies and emerging markets, and the corresponding impact on earnings and cash flow, as part of the overall risk of operating in a global environment (for additional information, see trends for the Euro, Brazilian Real and Chinese Yuan in the charts on the following page). Exports from the U.S. are generally denominated in U.S. Dollars. The Company’s foreign currency exposure on income from continuing foreign operations relates to the Euro, the Chinese Yuan, the Hungarian Forint, the Brazilian Real and the Indian Rupee.
PE Films is generally able to match the currency of its sales and costs for its product lines. For flexible packaging films produced in Brazil, selling prices and key raw material costs are principally determined in U.S. Dollars and are impacted by local economic conditions. Competition in Brazil, Terphane’s primary market, has been exacerbated by global overcapacity in the polyester industry generally, and by particularly acute overcapacity in Latin America. Additional PET capacity from a competitor in Latin America came on line in September 2017. These factors have resulted in significant competitive pricing pressures and U.S. Dollar equivalent margin compression. Moreover, variable conversion, fixed conversion and sales, general
and administrative costs for operations in Brazil have been adversely impacted by inflation in Brazil that is higher than in the U.S. Flexible Packaging Films is exposed to additional foreign exchange translation risk (its functional currency is the Brazilian Real) because almost 90% of Flexible Packaging Films’ Brazilian sales are quoted or priced in U.S. Dollars while a large majority of its Brazilian costs are quoted or priced in Brazilian Real. This mismatch, together with a variety of economic variables impacting currency exchange rates, causes volatility that could negatively or positively impact operating profit for Flexible Packaging Films.
The Company's earnings are exposed to foreign currency exchange risk primarily through the translation of the financial statements of subsidiaries that have a functional currency other than the U.S. Dollar. The Company estimates that the net mismatch translation exposure between Terphane’s U.S. Dollar quoted or priced sales and underlying Brazilian Real quoted or priced operating costs (excluding depreciation and amortization) is annual net costs of R$95 million (approximately $30 million annually in equivalent U.S. Dollars or $2.5 million per month). On September 29, 2017, the Flexible Packaging Films business unit in Brazil (“Terphane Limitada”) entered into 15 monthly foreign exchange average forward rate contracts to purchase Brazilian Real (“R$”) and sell U.S. Dollars covering the period from October 2017 through December 2018. These agreements hedge half of the Company’s exposure at monthly average forward rates ranging on an approximately linear increasing basis from R$3.164 for each U.S. Dollar in October 2017 to R$3.3148 in December 2018. For example, if in December 2018 the actual average rate was R$3.000 for each U.S. Dollar, then Terphane Limitada would have a settlement gain on its forward contract of R$393,500, which would help offset the estimated translation loss on the net mismatch exposure of R$787,000 for December 2018. The opposite would occur if the actual average rate were greater than the forward rate. These foreign currency exchange contracts have been designated and qualify as cash flow hedges of Terphane Limitada's forecasted sales to customers quoted or priced in U.S. Dollars over that period. By changing the currency risk associated with these U.S. Dollar sales, the derivatives have the effect of offsetting operating costs quoted or priced in Brazilian Real and decreasing the net exposure to Brazilian Real in the consolidated statements of income. The aggregate notional amount of open foreign exchange contracts at December 31, 2017 was $15.0 million (R$48.8 million). The net fair value of the 12 open forward contracts wasreporting unit include revenue growth projections and a negative $0.6 millionweighted average cost of capital assumption. At September 30, 2023, the effect of a ten percent decrease in the revenue growth projections and a one percent increase to the weighted average cost of capital assumption would further decrease the fair value of the reporting unit’s fair value by approximately $1 million. Further impairment to the Surface Protection reporting unit’s goodwill may be caused by factors outside the Company’s control, such as of December 31, 2017.
Tredegarincreasing competitive pricing pressures, weak consumer electronic market demand, lower than expected sales and profit growth rates, and various other factors. Given the uncertain demand for Surface Protections products, it is reasonably possible that the cash flow estimates that theused in deriving such fair value measurements may change in the valuefuture.
As of foreign currencies relative toDecember 1, 2023, the U.S. Dollar on PE Films had a favorable impact on operating profit from ongoing operationsCompany’s reporting units with goodwill were Surface Protection in PE Films and Futura in Aluminum Extrusions. Both of $0.3these reporting units have separately identifiable operating net assets (operating assets including goodwill and identifiable intangible assets net of operating liabilities). The Company's Step 0 analysis of these reporting units concluded that it is more likely than not that the fair value of each reporting unit was greater than its carrying value. Therefore, the Step 1 quantitative goodwill impairment tests for these reporting units were not necessary. The Surface Protection and Futura reporting units had goodwill in the amounts of $22.4 million and $13.3 million, respectively, at December 31, 2023. See Note 1 “Nature of Operations and Summary of Significant Accounting Policies” to the Consolidated Financial Statements in 2017 comparedItem 15 for additional information on the analysis of goodwill impairment.
Income Taxes
Current tax liabilities and assets are recognized for the estimated taxes payable or refundable, respectively, on the tax returns for the current year. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to 2016reverse. Accordingly, accounting for income taxes represents the Company’s best estimate of various events and transactions. Tax laws are often complex and may be subject to differing interpretations by the taxpayer and the relevant governmental taxing authorities. In establishing a provision for income tax expense, Tredegar must make judgments and interpretations about the application of tax laws. The Company must also make estimates about when in the future certain items will affect taxable income in the various taxing jurisdictions.
A valuation allowance is recorded in the period when the Company determines that it is more likely than not that all or a portion of deferred income tax assets may not be realized. The establishment and removal of a valuation allowance requires the Company to consider all positive and negative evidence and make a judgmental decision regarding the amount of valuation allowance required as of a reporting date.
Tredegar may be required to change its provision for income taxes when estimates used in determining valuation allowances on deferred tax assets significantly change, or when new information indicates the need for adjustment in valuation allowances. Additionally, future events, such as changes in tax laws, tax regulations, or interpretations of such laws or regulations, could have an unfavorable impact on operating profit from ongoing operations of $0.3 million in 2016 compared with 2015.
Trendsthe provision for income tax and the Euro are showneffective tax rate. Any such changes could significantly affect the amounts reported in the chart below:
|
|
Source: Quarterly averages computed by Tredegar using daily closing data provided by Bloomberg. |
Trends for the Brazilian Real and Chinese Yuan are shownfinancial statements in the chart below:year these changes occur.
|
|
Source: Quarterly averages computed by Tredegar using daily closing data provided by Bloomberg. |
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Tredegar has exposure to the volatility of interest rates, polyethylene and polypropylene resin prices, PTA and MEG prices, aluminum ingot and scrap prices, energy prices, foreign currencies and emerging markets. See Liquidity and Capital Resources regarding interest rate exposures related to borrowings under the ABL Facility.
Profit margins in Aluminum Extrusions are sensitive to fluctuations in aluminum ingot and scrap prices as well as natural gas prices (natural gas is the principal energy source used to operate its casting furnaces). Changes in polyethylene resin prices and the timing of those changes could have a significant impact on profit margins in PE Films. Changes in polyester resin, PTA and MEG prices, and the timing of those changes, could have a significant impact on profit margins in Flexible Packaging Films. There is no assurance of the Company’s ability to pass through higher raw material and energy costs to its customers.
The purchase price of raw materials fluctuates on a monthly basis; therefore, Aluminum Extrusions pricing policies generally allow the Company to pass the underlying index cost of aluminum and certain alloys through to the vast majority of our customers so that we remain substantially neutral to metal pricing. In the normal course of business, Aluminum Extrusions enters into fixed-price forward sales contracts with certain customers for the sale of fixed quantities of aluminum extrusions at scheduled intervals. In order to hedge its exposure to aluminum price volatility (see the chart below) under these fixed-price arrangements, which generally have a duration of not more than 12 months, the Company enters into a combination of forward purchase commitments and futures contracts to acquire or hedge aluminum, based on the scheduled deliveries. See Note 10 “Derivatives” to the Consolidated Financial Statements in Item 15 for additional information.
The volatility of quarterly average aluminum prices is shown in the chart below.
| | |
Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKSource: Quarterly averages computed by the Company using daily Midwest average prices provided by Platts. |
The volatility of quarterly average natural gas prices is shown in the chart below.
| | |
| Source: Quarterly averages computed by Tredegar using monthly NYMEX settlement prices. |
The volatility of average quarterly prices of polyethylene resin in the U.S. (a primary raw material for PE Films products) is shown in the chart below:
| | |
| Source: Quarterly averages computed by Tredegar using monthly data provided by IHS, Inc. In February 2020, IHS reflected a 32 cents per pound non-market adjustment based on their estimate of the growth of discounts in prior periods. The 4th quarter 2019 average rate of $0.51 per pound is shown on a pro forma basis as if the non-market adjustment was made in the fourth quarter of 2019. In January 2023, IHS reflected a 41 cents per pound non-market adjustment based on their estimate of the growth of discounts in the prior periods. The 4th quarter 2022 average rate of $0.60 per pound is shown on a pro forma basis as if the non-market adjustment was made in the fourth quarter of 2022. |
The price of resin is driven by several factors, including supply and demand and the price of oil, ethylene and natural gas. Selling prices to customers are set considering numerous factors, including the expected volatility of resin prices. In certain situations, PE Films has index-based pass-through raw material cost arrangements with customers. However, under certain agreements, changes in resin prices are not passed through for a period of 90 days or more. In response to unprecedented cost increases and supply issues for polyethylene and polypropylene resin, Tredegar Surface Protection implemented a quarterly resin cost pass-through mechanism, effective July 1, 2021, for all products and customers not previously covered by such arrangements. Pricing on the remainder of the business is based upon raw material costs and supply/demand dynamics within the markets in which the Company competes.
Polyester resins, MEG and PTA used in flexible packaging films produced in Brazil are primarily purchased domestically, with other sources available mostly from Asia and the U.S. Given the nature of these products as commodities, pricing is derived from Asian pricing indexes. The volatility of the average quarterly prices for polyester fibers in Asia, which is representative of polyester resin (a primary raw material for Flexible Packaging Films) pricing trends, is shown in the chart below:
| | |
| Source: Quarterly averages computed by Tredegar using monthly data from CMAI Global Index data. |
The volatility of average quarterly prices of PTA and MEG in Asia (raw materials used in the production of polyester resins produced by Flexible Packaging Films) is shown in the chart below:
| | |
| Source: Quarterly averages computed by Tredegar using monthly data from CMAI Global Index data. |
The Company sells to customers in foreign markets through its foreign operations and through exports from U.S. plants. The percentage of sales and total assets for manufacturing operations related to foreign markets for 2023, 2022 and 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tredegar Corporation
Percentage of Consolidated Net Sales and Total Assets Related to Foreign Markets |
| | 2023 | | 2022 | | 2021 |
| | % of Total | | % Total
Assets - Foreign Operations | | % of Total | | % Total
Assets - Foreign
Operations | | % of Total | | % Total
Assets -Foreign
Operations |
| | Net Sales | | | Net Sales | | | Net Sales | |
| | Exports
From
U.S. | | Foreign Operations | | | Exports
From
U.S. | | Foreign Operations | | | Exports
From
U.S. | | Foreign Operations | |
| Canada | 2 | | | — | | | — | | | 2 | | | — | | | — | | | 2 | | | — | | | — | |
| Europe | — | | | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | | — | |
| Latin America | 1 | | | 13 | | | 15 | | | 1 | | | 13 | | | 13 | | | 1 | | | 12 | | | 10 | |
| Asia | 4 | | | — | | | 2 | | | 5 | | | — | | | 2 | | | 7 | | | — | | | 3 | |
| Total | 7 | | | 13 | | | 17 | | | 8 | | | 13 | | | 15 | | | 11 | | | 12 | | | 13 | |
Tredegar attempts to match the pricing and cost of its products in the same currency and generally views the volatility of foreign currencies and the corresponding impact on earnings and cash flow as part of the overall risk of operating in a global environment (for additional information, see trends for the Brazilian Real and Chinese Yuan in the charts on the following page). Exports from the U.S. are generally denominated in U.S. Dollars. The Company’s foreign currency exposure on income from continuing foreign operations relates to the Chinese Yuan and the Brazilian Real.
PE Films is generally able to match the currency of its sales and costs for its product lines. For flexible packaging films produced in Brazil, selling prices and key raw material costs are principally determined in U.S. Dollars and are impacted by local economic conditions and local and global competitive dynamics. Flexible Packaging Films is exposed to foreign exchange translation risk (its functional currency is the Brazilian Real) because almost 90% of the sales of Terphane Ltda. and substantially all of its related raw material costs are quoted or priced in U.S. Dollars while its variable conversion, fixed conversion and sales, general and administrative costs before depreciation and amortization (collectively “Terphane Ltda. Operating Costs”) are quoted or priced in Brazilian Real. This mismatch, together with a variety of economic variables impacting currency exchange rates, causes volatility that could negatively or positively impact EBITDA from ongoing operations for Flexible Packaging Films.
The Company estimates annual net costs of R$139 million for the net mismatch translation exposure between Terphane Ltda.’s U.S. Dollar quoted or priced sales and raw material costs and underlying Brazilian Real quoted or priced Terphane Ltda. Operating Costs. Terphane Ltda. has outstanding foreign exchange average forward rate contracts to purchase Brazilian Real and sell U.S. Dollars to hedge its exposure. See discussionNote 10 “Derivatives” to the Consolidated Financial Statements in Item 15 for more information on outstanding hedging contracts and this hedging program.
Tredegar estimates that the change in the value of Quantitativeforeign currencies relative to the U.S. Dollar on PE Films had an unfavorable impact on EBITDA from ongoing operations in PE Films of $0.6 million in 2023 compared to 2022.
Trends for the Brazilian Real and Qualitative Disclosures about Market RiskChinese Yuan are shown in Management’s Discussion and Analysis of Financial Condition and Results of Operations.the chart below:
| | |
| Source: Quarterly averages computed by Tredegar using daily closing data provided by Bloomberg. |
| |
Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
See the Index to Financial StatementsItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is set forth in Item 15 and Supplementary Data for references to the report of the independent registered public accounting firm, the consolidated financial statements and selected quarterly financial data.is hereby incorporated herein by reference.
| |
Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
| |
Item 9A. | CONTROLS AND PROCEDURES |
Item 9A.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
PursuantIn connection with the preparation of this Form 10-K, pursuant to Rule 13a-15(b) under the Securities Exchange Act Tredegarof 1934, as amended (the “Exchange Act”), the Company carried out an evaluation with the participation of its management, including its principalChief Executive Officer (principal executive officerofficer) and principalChief Financial Officer (principal financial officer,officer), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2023.
Based on the endevaluation of the period covered by this report. Based upon that evaluation, the principal executive officer and principal financial officer concluded that the Company’sour disclosure controls and procedures are effective to ensureas of December 31, 2023, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, information required to be disclosed by Tredegar in the reports that it files or submits under the Exchange Act, is recorded, processed, summarizedas of such date, our disclosure controls and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
procedures were effective.
Management’s Report on Internal Control Overover Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in RuleRules 13a-15(f) and 15d-15(f) under the Exchange Act. Tredegar’sThe Company’s internal control over financial reporting is a process designed by or under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, and overseen by the Board of Directors, to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements for external purposes in accordance with U.S. generally accepted accounting principlesGAAP and includes policies and procedures that:
•Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of ourthe Company’s assets;
•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles,GAAP, and that ourthe Company’s receipts and expenditures are being made only in accordance with the authorization of ourits management and directors; and
•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of ourthe Company’s assets that could have a material effect on the consolidated financial statements.
Internal control over financial reporting includes the controls themselves, monitoring (including internal auditing practices) and actions taken to correct deficiencies as identified.
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of the Company’s consolidated financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of ourthe Company’s internal control over financial reporting based onusing the frameworkcriteria in Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”(the “2013 COSO Framework”). In conducting its assessment of the effectiveness of our internal controls over financial reporting, management excluded its acquisition of Futura Industries Corporation, which was acquired by Tredegar on
February 15, 2017, and is included in Tredegar’s 2017 consolidated financial statements and constituted 7% of consolidated total assets and 8% of consolidated total sales for the year then ended. Based on this evaluation undermanagement’s assessment, the framework in Internal Control — Integrated Framework 2013, Tredegar’s managementCompany’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s internal control over financial reporting was effective as of December 31, 2017.2023.
The effectiveness of Tredegar’sthe Company’s internal control over financial reporting as of December 31, 20172023, has been audited by PricewaterhouseCoopersKPMG LLP, an independent registered public accounting firm, as stated in their report, which is included in Item 15.15 “Exhibits and Financial Statement Schedules”.
Remediation of Previously Disclosed Material Weaknesses
As previously disclosed under “Item 9a – Controls and Procedures” in our annual report on Form 10-K for the period ended December 31, 2022, the Company did not sufficiently attract, develop, and retain competent resources to fulfill internal control responsibilities and did not have an effective information and communication process that identified and assessed the source of and controls necessary to ensure the reliability of information used in financial reporting.As a consequence of these material weaknesses, the Company did not effectively design, implement and operate process-level controls across its financial reporting processes.A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
During the year ended December 31, 2023, the Company, with the oversight of the Audit Committee of our Board of Directors, continued to design and implement measures pursuant to management’s overall internal controls over financial reporting remediation plan and also completed testing of the design and operating effectiveness of all remediated controls. The remediation efforts to date included the following:
•Performed walkthroughs of the Company’s financial reporting processes including identifying all information used within the Company’s control environment;
•Completed a comprehensive review of, and update to, the documentation of relevant processes with respect to the Company’s internal control over financial reporting;
•Developed internal control remediation plans to enhance controls for deficiencies associated with the material weaknesses above, including an assessment of personnel skills and experience related to the design and operation of internal control activities;
•Implemented all new and revised internal controls to address the previously identified deficiencies associated with the material weaknesses above;
•Expanded the internal control compliance department with personnel who have appropriate internal control experience and identified resources for control owner positions that had previously experienced turnover; and
•Executed a targeted training program to educate control owners on the requirements of internal control activities, including maintaining adequate documentary evidence for internal control activities.
Based on management’s evaluation of the effectiveness of the Company’s internal controls as of December 31, 2023, including newly remediated controls, management concluded that the Company’s internal control over financial reporting framework was effectively designed and operated effectively for a sufficient period of time to enable us to conclude that all previously identified material weaknesses have been remediated as of December 31, 2023.
Changes in Internal Control Over Financial Reporting
ThereExcept as noted above with respect to the completion of the steps in the remediation plan, there has been no change in Tredegar’sthe Company’s internal control over financial reporting during the quarteryear ended December 31, 2017,2023, that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
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Item 9B. | OTHER INFORMATION |
Item 9B. OTHER INFORMATION
None.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
PART III
| |
Item 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information concerning directors and persons nominated to become directors of Tredegar to be included in the Proxy Statement under the headings “Proposal 1: Election of Directors” and “Tredegar’s Board of Directors” is incorporated herein by reference.
The information concerning corporate governance to be included in the Proxy Statement under the headings “Board Meetings, Meetings of Non-ManagementIndependent Directors and the Board Committees” and “Corporate Governance” is incorporated herein by reference.
The information to be included in the Proxy Statement under the heading “Section 16(a) Beneficial Ownership Reporting Compliance”Governance and Risk Oversight” is incorporated herein by reference.
Set forth below are the names, ages and titles of the Company’s executive officers:
| | | | | | | | | | | | | | |
| Name | | Age | | Title |
| John M. Steitz | | 65 | | | | |
Name | | Age | | Title |
John D. Gottwald | | 63 |
| | President and Chief Executive Officer |
| D. Andrew Edwards | | 65 | | 59 |
| Executive Vice President and Chief Financial Officer |
Michael J. SchewelKevin C. Donnelly | | 49 | | 64 |
| Vice President, General Counsel and Corporate Secretary |
John D. Gottwald. M. Steitz. Mr. GottwaldSteitz was elected President and Chief Executive Officer on August 18, 2015. From June 26, 2015 until August 17, 2015, he served as interim President and Chief Executive Officer.effective March 19, 2019. He previously served as the Company’s President and Chief Executive Officer of Addivant Corporation, a leading global supplier of antioxidants, intermediates, inhibitors, modifiers, UV stabilizers and other additives to the plastic and rubber industries, from March 1, 20062015 until January 31, 2010,2019, as President and as the Company’s ChairmanChief Operating Officer of the BoardPQ Corporation, a leading worldwide producer of specialty inorganic performance chemicals and catalysts, from September 2001October 2013 until February 2008. Mr. Gottwald also servedMarch 2015, as the Company’s President and Chief Executive Officer of Avantor Performance Materials, a global supplier of ultra-high-purity life sciences materials with strict regulatory and performance specifications, from July 1989September 2012 through September 2013, as President and Chief Operating Officer of Albemarle Corporation, a global specialty chemicals company, from March 2012 through August 2012, and as Chief Operating Officer and Executive Vice President of Albemarle from April 2007 until September 2001.March 2012.
D. Andrew Edwards.Mr. Edwards was electednamed Executive Vice President and Chief Financial Officer effective August 6, 2020. Mr. Edwards served as Vice President and Chief Financial Officer from July 20, 2015.2015 until August 2020. He previously served as the Chief Financial Officer of United Sporting Companies, Inc., a wholesale distributor of outdoor sporting goods, from February 2013 until July 2015 and as Vice President, Controller and Chief Accounting Officer of Owens & Minor, Inc., a distributor of acute medical products, from April 2010 to February 2013 and as Acting Chief Financial Officer of Owens & Minor, Inc. from March 2012 to February 2013. Mr. Edwards also served as Vice President, Finance, of Owens & Minor, Inc. from December 2009 until April 2010. Mr. Edwards previously served as the Company’s Vice President, Chief Financial Officer and Treasurer from August 2003 to December 2009 and as the Company’s Vice President, Finance from November 1998 to August 2003. Mr. Edwards also served as the Company’s Treasurer from May 1997 to December 2009 and as the Company’s Controller from October 1992 until July 2000.
Michael J. SchewelKevin C. Donnelly. Mr. SchewelDonnelly was elected Vice President, General Counsel and Corporate Secretary effective May 9, 2016.January 1, 2021. He was previously partner with the law firm of McGuire Woods, LLP from 1986 until May 2016, except for four years from 2002 until 2006 when hejoined Tredegar in 2010 and served as Secretaryits Associate General Counsel from 2013 to 2020. Prior to joining Tredegar, Mr. Donnelly was an associate at Hunton & Williams LLP (now Hunton Andrews Kurth LLP). He received a B.A. degree from the University of CommerceRichmond and Trade fora J.D. from the CommonwealthUniversity of Virginia.
Tredegar has adopted a Code of Conduct that applies to all of its directors, officers and employees (including its chief executive officer, chief financial officer and principal accounting officer) and has posted the Code of Conduct on its website. All amendments to or waivers from any provision of the Company’s Code of Conduct applicable to the chief executive officer, chief financial officer and principal accounting officer will be disclosed on the Company’s website. The Company’s internet address is www.tredegar.com.
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Item 11. | EXECUTIVE COMPENSATION |
Item 11. EXECUTIVE COMPENSATION
The information to be included in the Proxy Statement under the headings “Compensation of Directors,” “Board Meetings, Meetings of Non-Management Directors and Board Committees—Executive Compensation Committee Interlocks and Insider Participation,” “Compensation Discussion and Analysis,” “Executive Compensation Committee Report” and “Compensation of Executive Officers” is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED STOCKHOLDER MATTERS
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Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED STOCKHOLDER MATTERS
|
The information to be included in the Proxy Statement under the heading “Stock Ownership”“Equity Compensation Plan Information” is incorporated herein by reference. The following table summarizes information with respect to equity compensation plans under which securities are authorized for issuance as of December 31, 2017.
|
| | | | | | | | | | |
| | | Column (a) | | Column (b) | | Column (c) |
| Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights* | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans, Excluding Securities Reflected in Column (a)** |
| Equity compensation plans approved by security holders | 987,329 |
| | $ | 19.75 |
| | 1,704,554 |
|
| Equity compensation plans not approved by security holders | — |
| | — |
| | — |
|
| Total | 987,329 |
| | $ | 19.75 |
| | 1,704,554 |
|
| |
* | Includes performance stock units that give the holder the right to receive shares of Tredegar common stock upon the satisfaction of certain performance criteria. |
** Due to an administrative error, the number of securities remaining available for future issuance under equity compensation plans, excluding securities reflected in column (a), was overstated in Item 12 of Tredegar’s Annual Report on Form 10-K for the years ended December 31, 2014, 2015 and 2016. The correct amounts as of December 31, 2014, 2015 and 2016 were 2,099,239; 2,025,091; and 1,898,592, respectively.
| |
Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information to be included in the Proxy Statement under the headings “Certain Relationships and Related Transactions”,Transactions,” “Tredegar’s Board of Directors” and “Board Meetings, Meetings of Non-ManagementIndependent Directors and Board Committees” is incorporated herein by reference.
| |
Item 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Our independent registered public accounting firm is KPMG LLP, Richmond, Virginia, Audit Firm ID: 185.
The following is incorporated herein by reference:
•Information on accounting fees and services to be included in the Proxy Statement under the heading “Audit and Non-Audit Fees;” and
•Information on the Audit Committee’s procedures for pre-approving certain audit and non-audit services to be included in the Proxy Statement under the heading “Board Meetings, Meetings of Non-Management Directors and Board Committees—Audit Committee Matters.”
PART IV
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Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
| |
(a) | List of documents filed as a part of the report: |
Tredegar CorporationItem 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Index to Financial Statements and Supplementary Data | | | | | | | | |
| (a) | List of documents filed as a part of the report: | |
| (1) | Financial statements: | |
| Tredegar Corporation |
| Index to Financial Statements and Supplementary Data |
| | Page |
| Auditors’ Opinions: | |
| | |
| | |
| Financial Statements: | |
| | |
| | |
| | |
| | |
| | |
| | |
| (2) | Financial statement schedules: | |
| None | |
| (3) | | |
| | |
|
| |
| Page |
Report of Independent Registered Public Accounting Firm | |
Financial Statements: | |
Consolidated Balance Sheets as of December 31, 2017 and 2016 | |
Consolidated Statements of Income for the Years Ended December 31, 2017, 2016 and 2015 | |
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2017, 2016 and 2015 | |
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015 | |
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2017, 2016 and 2015 | |
Notes to Financial Statements | |
| |
(2) | Financial statement schedules: |
None.
See Exhibit Index on pages 95-97.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors and Shareholders of
Tredegar Corporation:
OpinionsOpinion on the Consolidated Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Tredegar Corporation and its subsidiaries (the Company) as of December 31, 20172023 and 2016, and2022, the related consolidated statements of income (loss), comprehensive income (loss), cash flows, and shareholders’ equity for each of the three years in the three-year period ended December 31, 2017, including2023, and the related notes (collectively, referred to as the “consolidatedconsolidated financial statements”)statements). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172023 and 2016,2022, and the results of its operations and its cash flows for each of the three years in the three-year period ended December 31, 20172023, in conformity with accounting principlesU.S. generally accepted accounting principles.
We also have audited, in accordance with the United Statesstandards of America. Also in our opinion, the Public Company maintained, in all material respects, effectiveAccounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effectiveCommittee of Sponsoring Organizations of the Treadway Commission, and our report dated March 15, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting, andreporting.
Basis for its assessmentOpinion
These consolidated financial statements are the responsibility of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting under Item 9A.Company’s management. Our responsibility is to express opinionsan opinion on the Company’sthese consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
fraud. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill impairment in the Surface Protection reporting unit
As discussed in Notes 1 and 5 to the consolidated financial statements, the Company’s goodwill balance as of December 31, 2023 was $35.7 million, including $22.4 million related to the Surface Protection reporting unit, within the PE Films reportable segment. The Company assesses goodwill for impairment when events or circumstances indicate that the carrying value may not be recoverable, or, at a minimum, on an annual basis (December 1st of each year). During the three months ended June 30, 2023 and September 30, 2023, events and circumstances indicated that the Surface Protection reporting unit might be impaired. The Company performed quantitative impairment tests of the Surface Protection reporting unit as of June 30, 2023 and September 30, 2023, and concluded that an impairment existed as of June 30, 2023 and September 30, 2023. Management estimated the fair value of the Surface Protection reporting unit utilizing the discounted cash flow method.
We identified the assessment of goodwill impairment of the Surface Protection reporting unit as a critical audit matter. The estimation of fair value of the reporting unit is complex and includes estimation uncertainties that required a higher level of subjective auditor judgment. Specifically, the revenue growth projections used in the discounted cash flow method required subjective and challenging auditor judgment as they represented subjective determinations of market and economic conditions. Additionally, the audit effort associated with the discount rate and the revenue growth projections required specialized skills
and knowledge. Changes to those assumptions could have had a significant effect on the Company’s estimate of the fair value of the reporting unit.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s goodwill impairment assessment process, including controls over the selection of the discount rate and development of the revenue growth projections. We assessed the revenue growth projections by considering correspondence with customers, as well as the underlying business strategies and growth plans of the Company. We also evaluated the revenue growth projections by comparing them to third-party market data and to historical actual results. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:
•evaluating the Company’s discount rate by comparing it to a discount rate that was independently developed using publicly available third-party market data for comparable entities
•evaluating the Company’s revenue growth projections by comparing them to projections that were independently developed using external market and industry data.
/s/ KPMG LLP
We have served as the Company’s auditor since 2018.
Richmond, Virginia
March 15, 2024
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Tredegar Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited Tredegar Corporation and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of income (loss), comprehensive income (loss), cash flows, and shareholders’ equity for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements), and our report dated March 15, 2024 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our auditsaudit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provideaudit provides a reasonable basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Futura Industries Corporation (“Futura”) from its assessment of internal control over financial reporting as of December 31, 2017 because it was acquired by the Company in a purchase business combination during 2017. We have also excluded Futura from our audit of internal control over financial reporting. Futura is a wholly-owned subsidiary whose total assets and total sales excluded from management’s assessment and our audit of internal control over financial reporting represent 7% and 8%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2017.
opinion.
Definition and Limitations of Internal Control overOver Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i)(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii)(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii)(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopersKPMG LLP
Richmond, Virginia
February 21, 2018March 15, 2024
We have served as the Company’s auditor since 1989.
CONSOLIDATED BALANCE SHEETS
Tredegar Corporation and Subsidiaries
| | | December 31 | | 2017 | | 2016 | | December 31 |
| 2023 | | | 2023 | | 2022 |
| (In thousands, except share data) | (In thousands, except share data) | | | |
| Assets | Assets | | | |
| Assets | |
| Assets | |
| Assets | |
| Assets | |
| Assets | |
| Assets | |
| Assets | |
| Assets | |
| Current assets: | |
| Current assets: | |
| Current assets: | Current assets: | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 36,491 |
| | $ | 29,511 |
|
| Accounts and other receivables, net of allowance for doubtful accounts and sales returns of $3,304 in 2017 and $3,102 in 2016 | 120,135 |
| | 97,388 |
|
| Cash and cash equivalents | |
| Cash and cash equivalents | |
| Restricted cash | |
| Accounts and other receivables, net | |
| Income taxes recoverable | Income taxes recoverable | 32,080 |
| | 7,518 |
|
| Inventories | Inventories | 86,907 |
| | 66,069 |
|
| Prepaid expenses and other | Prepaid expenses and other | 8,224 |
| | 7,738 |
|
| | Total current assets | |
| Total current assets | |
| Total current assets | Total current assets | 283,837 |
| | 208,224 |
|
| Property, plant and equipment, at cost: | Property, plant and equipment, at cost: | | | |
| Land and land improvements | |
| Land and land improvements | |
| Land and land improvements | Land and land improvements | 8,723 |
| | 11,294 |
|
| Buildings | Buildings | 101,271 |
| | 126,064 |
|
| Machinery and equipment | Machinery and equipment | 660,898 |
| | 660,272 |
|
| Total property, plant and equipment | Total property, plant and equipment | 770,892 |
| | 797,630 |
|
| Less accumulated depreciation | (547,801 | ) | | (536,905 | ) |
| Less: accumulated depreciation | |
| Net property, plant and equipment | Net property, plant and equipment | 223,091 |
| | 260,725 |
|
| Investment in kaléo (cost basis of $7,500) | 54,000 |
| | 20,200 |
|
| Right-of-use leased assets | |
| Identifiable intangible assets, net | Identifiable intangible assets, net | 40,552 |
| | 33,601 |
|
| Goodwill | Goodwill | 128,208 |
| | 117,822 |
|
| Deferred income tax assets | Deferred income tax assets | 16,636 |
| | 584 |
|
| Other assets | Other assets | 9,419 |
| | 10,006 |
|
| Total assets | Total assets | $ | 755,743 |
| | $ | 651,162 |
|
| Liabilities and Shareholders’ Equity | Liabilities and Shareholders’ Equity | | | |
| Current liabilities: | Current liabilities: | | | |
| Current liabilities: | |
| Current liabilities: | |
| Accounts payable | |
| Accounts payable | |
| Accounts payable | Accounts payable | $ | 108,391 |
| | $ | 81,342 |
|
| Accrued expenses | Accrued expenses | 42,433 |
| | 38,647 |
|
| Lease liability, short-term | |
| ABL revolving facility (matures on June 30, 2026) | |
| Income taxes payable | |
| | Total current liabilities | Total current liabilities | 150,824 |
| | 119,989 |
|
| Total current liabilities | |
| Total current liabilities | |
| Lease liability, long-term | |
| Long-term debt | Long-term debt | 152,000 |
| | 95,000 |
|
Pension and other postretirement benefit obligations, net
| Pension and other postretirement benefit obligations, net
| 98,837 |
| | 95,370 |
|
| Deferred income tax liabilities | 2,123 |
| | 21,110 |
|
| Other noncurrent liabilities | 8,179 |
| | 8,910 |
|
| | Other non-current liabilities | |
| Other non-current liabilities | |
| Other non-current liabilities | |
| Total liabilities | Total liabilities | 411,963 |
| | 340,379 |
|
| Commitments and contingencies (Notes 15 and 18) |
| |
|
| Contingencies (Note 16) | | Contingencies (Note 16) | | | |
| Shareholders’ equity: | Shareholders’ equity: | | | |
| Common stock (no par value): | | | |
| Authorized 150,000,000 shares; | | | |
| Issued and outstanding—33,017,422 shares in 2017 and 32,933,807 in 2016 (including restricted stock) | 34,747 |
| | 32,007 |
|
| Common stock held in trust for savings restoration plan (71,309 shares in 2017 and 69,622 in 2016) | (1,528 | ) | | (1,497 | ) |
| Common stock, no par value (authorized 150,000,000 shares, issued and outstanding— 34,408,638 shares at December 31, 2023 and 34,000,642 at December 31, 2022) | |
| Common stock, no par value (authorized 150,000,000 shares, issued and outstanding— 34,408,638 shares at December 31, 2023 and 34,000,642 at December 31, 2022) | |
| Common stock, no par value (authorized 150,000,000 shares, issued and outstanding— 34,408,638 shares at December 31, 2023 and 34,000,642 at December 31, 2022) | |
| Common stock held in trust for savings restoration plan (118,543 shares at December 31, 2023 and 113,316 at December 31, 2022) | |
| Accumulated other comprehensive income (loss): | Accumulated other comprehensive income (loss): | | | |
| Foreign currency translation adjustment | |
| Foreign currency translation adjustment | |
| Foreign currency translation adjustment | Foreign currency translation adjustment | (86,178 | ) | | (93,970 | ) |
| Gain (loss) on derivative financial instruments | Gain (loss) on derivative financial instruments | 459 |
| | 863 |
|
| Pension and other postretirement benefit adjustments | Pension and other postretirement benefit adjustments | (90,950 | ) | | (90,127 | ) |
| Retained earnings | Retained earnings | 487,230 |
| | 463,507 |
|
| Total shareholders’ equity | Total shareholders’ equity | 343,780 |
| | 310,783 |
|
| Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 755,743 |
| | $ | 651,162 |
|
| | | | | |
See accompanying notes to financial statements.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Tredegar Corporation and Subsidiaries
| | | Years Ended December 31 | | 2017 | | 2016 | | 2015 | | Years Ended December 31 |
| (In thousands, except per-share data) | | | | | |
| 2023 | | | 2023 | | 2022 | | 2021 |
| (In thousands, except share data) | |
| Revenues and other: | |
| Revenues and other: | |
| Revenues and other: | |
| Revenues and other: | |
| Revenues and other: | |
| Revenues and other: | |
| Revenues and other: | |
| Revenues and other: | |
| Revenues and other: | |
| Revenues and other: | |
| Revenues and other: | |
| Revenues and other: | |
| Revenues and other: | |
| Revenues and other: | |
| Revenues and other: | Revenues and other: | | | | | |
| Sales | Sales | $ | 961,330 |
| | $ | 828,341 |
| | $ | 896,177 |
|
| Sales | |
| Sales | |
| Other income (expense), net | Other income (expense), net | 51,713 |
| | 2,381 |
| | (20,113 | ) |
| | 1,013,043 |
| | 830,722 |
| | 876,064 |
|
| 702,678 | |
| Costs and expenses: | Costs and expenses: | | | | | |
| Cost of goods sold | |
| Cost of goods sold | |
| Cost of goods sold | Cost of goods sold | 775,628 |
| | 668,626 |
| | 725,459 |
|
| Freight | Freight | 33,683 |
| | 29,069 |
| | 29,838 |
|
| Selling, general and administrative | Selling, general and administrative | 85,501 |
| | 75,754 |
| | 71,911 |
|
| Research and development | Research and development | 18,287 |
| | 19,122 |
| | 16,173 |
|
| Amortization of identifiable intangibles | Amortization of identifiable intangibles | 6,198 |
| | 3,978 |
| | 4,073 |
|
| Pension and postretirement benefits | |
| Interest expense | Interest expense | 6,170 |
| | 3,806 |
| | 3,502 |
|
| Asset impairments and costs associated with exit and disposal activities | 102,488 |
| | 2,684 |
| | 3,850 |
|
| Goodwill impairment charge | — |
| | — |
| | 44,465 |
|
| Asset impairments and costs associated with exit and disposal activities, net of adjustments | |
| Pension settlement loss | |
| Goodwill impairment | |
| Total | Total | 1,027,955 |
| | 803,039 |
| | 899,271 |
|
| Income (loss) before income taxes | Income (loss) before income taxes | (14,912 | ) | | 27,683 |
| | (23,207 | ) |
| Income tax expense (benefit) | Income tax expense (benefit) | (53,163 | ) | | 3,217 |
| | 8,928 |
|
| | Net income (loss) | |
| | Net income (loss) | |
| | Net income (loss) | Net income (loss) | $ | 38,251 |
| | $ | 24,466 |
| | $ | (32,135 | ) |
| | | | | | | |
| Earnings (loss) per share: | Earnings (loss) per share: | | | | | |
| Earnings (loss) per share: | |
| Earnings (loss) per share: | |
| Basic | |
| Basic | |
| Basic | |
| | Diluted | |
| | Diluted | |
| | Diluted | |
| | Shares used to compute earnings (loss) per share: | |
| | Shares used to compute earnings (loss) per share: | |
| | Shares used to compute earnings (loss) per share: | |
| Basic | |
| Basic | |
| Basic | Basic | $ | 1.16 |
| | $ | 0.75 |
| | $ | (0.99 | ) | 34,133 | | 33,806 | | 33,563 |
| Diluted | Diluted | $ | 1.16 |
| | $ | 0.75 |
| | $ | (0.99 | ) | Diluted | 34,133 | | 33,826 | | 33,670 |
See accompanying notes to financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Tredegar Corporation and Subsidiaries
| | | Years Ended December 31 | | 2017 | | 2016 | | 2015 | | Years Ended December 31 |
| (In thousands, except per-share data) | | | | | |
| 2023 | | | 2023 | | 2022 | | 2021 |
| (In thousands) | |
| Net income (loss) | |
| Net income (loss) | |
| Net income (loss) | |
| Net income (loss) | |
| Net income (loss) | |
| Net income (loss) | |
| Net income (loss) | |
| Net income (loss) | |
| Net income (loss) | |
| Net income (loss) | |
| Net income (loss) | |
| Net income (loss) | |
| Net income (loss) | |
| Net income (loss) | |
| Net income (loss) | Net income (loss) | $ | 38,251 |
| | $ | 24,466 |
| | $ | (32,135 | ) |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | | | | |
| Unrealized foreign currency translation adjustment (net of tax benefit of $371 in 2017, tax benefit of $729 in 2016 and tax benefit of $890 in 2015) | 7,792 |
| | 18,837 |
| | (65,537 | ) |
| Derivative financial instruments adjustment (net of tax of $111 in 2017, net of tax of $727 in 2016 and tax benefit of $550 in 2015) | (404 | ) | | 1,236 |
| | (1,029 | ) |
| Unrealized foreign currency translation adjustment (net of tax expense of $469 in 2023, net of tax expense of $290 in 2022 and net of tax benefit of $365 in 2021) | |
| Unrealized foreign currency translation adjustment (net of tax expense of $469 in 2023, net of tax expense of $290 in 2022 and net of tax benefit of $365 in 2021) | |
| Unrealized foreign currency translation adjustment (net of tax expense of $469 in 2023, net of tax expense of $290 in 2022 and net of tax benefit of $365 in 2021) | |
| Derivative financial instruments adjustment (net of tax expense of $933 in 2023, net of tax benefit of $336 in 2022 and net of tax benefit of $351 in 2021) | |
| Pension & other postretirement benefit adjustments: | Pension & other postretirement benefit adjustments: | | | | | |
| Net gains (losses) and prior service costs (net of tax benefit of $2,518 in 2017, tax benefit of $1,874 in 2016 and tax benefit of $226 in 2015) | (8,634 | ) | | (3,288 | ) | | (2,176 | ) |
| Amortization of prior service costs and net gains or losses (net of tax of $4,234 in 2017, tax of $4,398 in 2016 and tax of $5,823 in 2015) | 7,811 |
| | 8,700 |
| | 10,218 |
|
| Recognition in earnings of actuarial loss for pension settlement (net of tax expense of $41,294) | |
| Recognition in earnings of actuarial loss for pension settlement (net of tax expense of $41,294) | |
| Recognition in earnings of actuarial loss for pension settlement (net of tax expense of $41,294) | |
| Net gains (losses) and prior service costs (net of tax expense of $422 in 2023, net of tax benefit of $1,400 in 2022 and net of tax expense of $5,212 in 2021) | |
| Amortization of prior service costs and net gains or losses (net of tax expense of $1,968 in 2023, net of tax expense of $2,965 in 2022 and net of tax expense of $3,676 in 2021) | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | 6,565 |
| | 25,485 |
| | (58,524 | ) |
| Comprehensive income (loss) | Comprehensive income (loss) | $ | 44,816 |
| | $ | 49,951 |
| | $ | (90,659 | ) |
See accompanying notes to financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Tredegar Corporation and Subsidiaries
| | | Years Ended December 31 | | 2017 | | 2016 | | 2015 | | Years Ended December 31 |
| 2023 | | | 2023 | | 2022 | | 2021 |
| (In thousands) | (In thousands) | | | | | | (In thousands) | |
| Cash flows from operating activities: | Cash flows from operating activities: | | | | | |
| Net income (loss) | Net income (loss) | $ | 38,251 |
| | $ | 24,466 |
| | $ | (32,135 | ) |
| Net income (loss) | |
| Net income (loss) | |
| Adjustments for noncash items: | Adjustments for noncash items: | | | | | |
| Depreciation | Depreciation | 34,079 |
| | 28,494 |
| | 30,909 |
|
| Depreciation | |
| Depreciation | |
| Amortization of identifiable intangibles | Amortization of identifiable intangibles | 6,198 |
| | 3,978 |
| | 4,073 |
|
| Goodwill impairment charge | — |
| | — |
| | 44,465 |
|
| Goodwill impairment | |
| Reduction of right-of-use lease asset | |
| Deferred income taxes | Deferred income taxes | (36,414 | ) | | (3,689 | ) | | (10,523 | ) |
| Accrued pension and postretirement benefits | Accrued pension and postretirement benefits | 10,193 |
| | 11,047 |
| | 12,521 |
|
| (Gain) loss on investment in kaléo accounted for under the fair value method | (33,800 | ) | | (1,600 | ) | | 20,500 |
|
| Loss on asset impairments | 101,282 |
| | 1,436 |
| | 403 |
|
| (Gain) loss on sale of assets | 553 |
| | (220 | ) | | (11 | ) |
| Gain from insurance recoveries | (5,261 | ) | | (1,634 | ) | | — |
|
| Pension settlement loss | |
| Stock-based compensation expense | |
| Gain on investment in kaléo | |
| Impairment of Richmond, Virginia Technical Center assets | |
| Changes in assets and liabilities: | Changes in assets and liabilities: | | | | | |
| Accounts and other receivables | |
| Accounts and other receivables | |
| Accounts and other receivables | Accounts and other receivables | (10,566 | ) | | 92 |
| | 9,180 |
|
| Inventories | Inventories | (9,128 | ) | | 1,127 |
| | 1,137 |
|
| Income taxes recoverable/payable | Income taxes recoverable/payable | (24,449 | ) | | (7,061 | ) | | (1,849 | ) |
| Prepaid expenses and other | Prepaid expenses and other | (784 | ) | | (1,914 | ) | | (1,256 | ) |
| Accounts payable and accrued expenses | Accounts payable and accrued expenses | 21,123 |
| | 161 |
| | (2,455 | ) |
| Lease liability | |
| Pension and postretirement benefit plan contributions | Pension and postretirement benefit plan contributions | (5,829 | ) | | (8,061 | ) | | (2,709 | ) |
| Other, net | Other, net | 2,767 |
| | 2,250 |
| | 2,006 |
|
| Net cash provided by operating activities | 88,215 |
| | 48,872 |
| | 74,256 |
|
| Net cash provided by (used in) operating activities | |
| Cash flows from investing activities: | Cash flows from investing activities: | | | | | |
| Capital expenditures | Capital expenditures | (44,362 | ) | | (45,457 | ) | | (32,831 | ) |
| Acquisitions, net of cash acquired | (87,110 | ) | | — |
| | — |
|
| Insurance proceeds from cast house explosion | 5,739 |
| | 1,156 |
| | — |
|
| Capital expenditures | |
| Capital expenditures | |
| Proceeds from the sale of kaléo | |
| | Proceeds from the sale of assets and other | Proceeds from the sale of assets and other | 129 |
| | 2,308 |
| | 1,416 |
|
| Net cash used in investing activities | (125,604 | ) | | (41,993 | ) | | (31,415 | ) |
| Proceeds from the sale of assets and other | |
| Proceeds from the sale of assets and other | |
| Net cash provided by (used in) investing activities | |
| Cash flows from financing activities: | Cash flows from financing activities: | | | | | |
| Borrowings | |
| Borrowings | |
| Borrowings | Borrowings | 190,750 |
| | 96,750 |
| | 107,000 |
|
| Debt principal payments | Debt principal payments | (133,750 | ) | | (105,750 | ) | | (140,250 | ) |
| Dividends paid | Dividends paid | (14,532 | ) | | (14,456 | ) | | (13,725 | ) |
| Debt financing costs | Debt financing costs | — |
| | (2,606 | ) | | (78 | ) |
| Proceeds from exercise of stock options and other | 695 |
| | 2,313 |
| | 2,858 |
|
| Net cash provided by (used) in financing activities | 43,163 |
| | (23,749 | ) | | (44,195 | ) |
| Other | |
| Net cash provided by (used in) financing activities: | |
| Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | 1,206 |
| | 2,225 |
| | (4,546 | ) |
| Increase (decrease) in cash and cash equivalents | 6,980 |
| | (14,645 | ) | | (5,900 | ) |
| Cash and cash equivalents at beginning of period | 29,511 |
| | 44,156 |
| | 50,056 |
|
| Cash and cash equivalents at end of period | $ | 36,491 |
| | $ | 29,511 |
| | $ | 44,156 |
|
| Increase (decrease) in cash, cash equivalents and restricted cash | |
| Cash, cash equivalents and restricted cash at beginning of period | |
| Cash, cash equivalents and restricted cash at end of period | |
| Supplemental cash flow information: | Supplemental cash flow information: | | | | | |
| Interest payments | Interest payments | $ | 5,808 |
| | $ | 3,074 |
| | $ | 3,508 |
|
| Income tax payments (refunds), net | $ | 9,193 |
| | $ | 15,406 |
| | $ | 20,118 |
|
| Interest payments | |
| Interest payments | |
| Income tax payments, net | |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Tredegar Corporation and Subsidiaries
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated Other Comprehensive Income (Loss) | | |
| | Common Stock | | Retained Earnings | | Trust for Savings Restora-tion Plan | | Foreign Currency Trans-lation | | Gain (Loss) on Derivative Financial Instruments | | Pension & Other Post- retirement Benefit Adjust. | | Total Share- holders’ Equity |
| (In thousands, except share and per-share data) | Shares | | Amount | | | | | | |
| Balance at January 1, 2015 | 32,422,082 |
| | $ | 24,364 |
| | $ | 499,300 |
| | $ | (1,440 | ) | | $ | (47,270 | ) | | $ | 656 |
| | $ | (103,581 | ) | | $ | 372,029 |
|
| Net loss | — |
| | — |
| | (32,135 | ) | | — |
| | — |
| | — |
| | — |
| | (32,135 | ) |
| Foreign currency translation adjustment (net of tax benefit of $890) | — |
| | — |
| | — |
| | — |
| | (65,537 | ) | | — |
| | — |
| | (65,537 | ) |
| Derivative financial instruments adjustment (net of tax benefit of $550) | — |
| | — |
| | — |
| | — |
| | — |
| | (1,029 | ) | | — |
| | (1,029 | ) |
| Net gains or losses and prior service costs (net of tax benefit of $226) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (2,176 | ) | | (2,176 | ) |
| Amortization of prior service costs and net gains or losses (net of tax of $5,823) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,218 |
| | 10,218 |
|
| Cash dividends declared ($0.42 per share) | — |
| | — |
| | (13,725 | ) | | — |
| | — |
| | — |
| | — |
| | (13,725 | ) |
| Stock-based compensation expense | 118,440 |
| | 3,435 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,435 |
|
| Issued upon exercise of stock options (including related income tax of $302) & other | 141,640 |
| | 1,668 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,668 |
|
| Shareholder Rights Plan redemption | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Tredegar common stock purchased by trust for savings restoration plan | — |
| | — |
| | 27 |
| | (27 | ) | | — |
| | — |
| | — |
| | — |
|
| Balance at December 31, 2015 | 32,682,162 |
| | 29,467 |
| | 453,467 |
| | (1,467 | ) | | (112,807 | ) | | (373 | ) | | (95,539 | ) | | 272,748 |
|
| Net income | — |
| | — |
| | 24,466 |
| | — |
| | — |
| | — |
| | — |
| | 24,466 |
|
| Foreign currency translation adjustment (net of tax benefit of $729) | — |
| | — |
| | — |
| | — |
| | 18,837 |
| | — |
| | — |
| | 18,837 |
|
| Derivative financial instruments adjustment (net of tax of $727) | — |
| | — |
| | — |
| | — |
| | — |
| | 1,236 |
| | — |
| | 1,236 |
|
| Net gains or losses and prior service costs (net of tax benefit of $1,874) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3,288 | ) | | (3,288 | ) |
| Amortization of prior service costs and net gains or losses (net of tax of $4,398) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 8,700 |
| | 8,700 |
|
| Cash dividends declared ($0.44 per share) | — |
| | — |
| | (14,456 | ) | | | | | | | | | | (14,456 | ) |
| Stock-based compensation expense | 127,169 |
| | 1,461 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,461 |
|
| Issued upon exercise of stock options (including related income tax of $1,109) & other | 124,476 |
| | 1,079 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,079 |
|
| Tredegar common stock purchased by trust for savings restoration plan | — |
| | — |
| | 30 |
| | (30 | ) | | — |
| | — |
| | — |
| | — |
|
| Balance at December 31, 2016 | 32,933,807 |
| | 32,007 |
| | 463,507 |
| | (1,497 | ) | | (93,970 | ) | | 863 |
| | (90,127 | ) | | 310,783 |
|
| Net income | — |
| | — |
| | 38,251 |
| | — |
| | — |
| | — |
| | — |
| | 38,251 |
|
| Foreign currency translation adjustment (net of tax benefit of $371) | — |
| | — |
| | — |
| | — |
| | 7,792 |
| | — |
| | — |
| | 7,792 |
|
| Derivative financial instruments adjustment (net of tax of $111) | — |
| | — |
| | — |
| | — |
| | — |
| | (404 | ) | | — |
| | (404 | ) |
| Net gains or losses and prior service costs (net of tax benefit of $2,518) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (8,634 | ) | | (8,634 | ) |
| Amortization of prior service costs and net gains or losses (net of tax of $4,234) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 7,811 |
| | 7,811 |
|
| Cash dividends declared ($0.44 per share) | — |
| | — |
| | (14,532 | ) | | — |
| | — |
| | — |
| | — |
| | (14,532 | ) |
| Stock-based compensation expense | 49,475 |
| | 2,018 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,018 |
|
| Issued upon exercise of stock options & other | 34,140 |
| | 695 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 695 |
|
| Cumulative effect adjustment for adoption of stock-based compensation accounting guidance | — |
| | 27 |
| | (27 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Tredegar common stock purchased by trust for savings restoration plan | — |
| | — |
| | 31 |
| | (31 | ) | | — |
| | — |
| | — |
| | — |
|
| Balance at December 31, 2017 | 33,017,422 |
| | $ | 34,747 |
| | $ | 487,230 |
| | $ | (1,528 | ) | | $ | (86,178 | ) | | $ | 459 |
| | $ | (90,950 | ) | | $ | 343,780 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Retained
Earnings | | Trust for Savings Restoration Plan | | Accumulated Other Comprehensive Income (Loss) | | Total Shareholders’ Equity |
| (In thousands, except share and per-share data) | Shares | | Amount | | | | |
| Balance at January 1, 2021 | 33,457,176 | | | $ | 50,066 | | | $ | 239,480 | | | $ | (2,087) | | | $ | (178,404) | | | $ | 109,055 | |
| Net income (loss) | — | | | — | | | 57,826 | | | — | | | — | | | 57,826 | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (1,643) | | | (1,643) | |
| Derivative financial instruments adjustment | — | | | — | | | — | | | — | | | (1,363) | | | (1,363) | |
| Net gains or (losses) and prior service costs | — | | | — | | | — | | | — | | | 18,720 | | | 18,720 | |
| Amortization of prior service costs and net gains or losses | — | | | — | | | — | | | — | | | 13,186 | | | 13,186 | |
| Cash dividends declared ($0.48 per share) | — | | | — | | | (16,167) | | | — | | | — | | | (16,167) | |
| Stock-based compensation expense | 229,014 | | | 4,783 | | | — | | | — | | | — | | | 4,783 | |
| Repurchase of employee common stock for tax withholdings | (17,266) | | | (590) | | | — | | | — | | | — | | | (590) | |
| Issued upon exercise of stock options | 67,705 | | | 915 | | | — | | | — | | | — | | | 915 | |
| Tredegar common stock purchased by trust for savings restoration plan | — | | | — | | | 48 | | | (48) | | | — | | | — | |
| Balance at December 31, 2021 | 33,736,629 | | | 55,174 | | | 281,187 | | | (2,135) | | | (149,504) | | | 184,722 | |
| Net income (loss) | — | | | — | | | 28,455 | | | — | | | — | | | 28,455 | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (287) | | | (287) | |
| Derivative financial instruments adjustment | — | | | — | | | — | | | — | | | (3,381) | | | (3,381) | |
| Net gains or (losses) and prior service costs | — | | | — | | | — | | | — | | | (5,064) | | | (5,064) | |
| Amortization of prior service costs and net gains or losses | — | | | — | | | — | | | — | | | 10,641 | | | 10,641 | |
| Cash dividends declared ($0.50 per share) | — | | | — | | | (16,974) | | | — | | | — | | | (16,974) | |
| Stock-based compensation expense | 294,764 | | | 4,046 | | | — | | | — | | | — | | | 4,046 | |
| Repurchase of employee common stock for tax withholdings | (30,751) | | | (396) | | | — | | | — | | | — | | | (396) | |
| | | | | | | | | | | |
| Tredegar common stock purchased by trust for savings restoration plan | — | | | — | | | 53 | | | (53) | | | — | | | — | |
| Balance at December 31, 2022 | 34,000,642 | | | 58,824 | | | 292,721 | | | (2,188) | | | (147,595) | | | 201,762 | |
| Net income (loss) | — | | | — | | | (105,905) | | | — | | | — | | | (105,905) | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | 3,042 | | | 3,042 | |
| Derivative financial instruments adjustment | — | | | — | | | — | | | — | | | 3,281 | | | 3,281 | |
| Net gains or (losses) and prior service costs | — | | | — | | | — | | | — | | | 1,513 | | | 1,513 | |
| Amortization of prior service costs and net gains or losses | — | | | — | | | — | | | — | | | 7,065 | | | 7,065 | |
| Recognition in earnings of net actuarial loss for pension settlement | — | | | — | | | — | | | — | | | 50,997 | | | 50,997 | |
| Cash dividends declared ($0.26 per share) | — | | | — | | | (8,884) | | | — | | | — | | | (8,884) | |
| Stock-based compensation expense | 407,996 | | | 3,036 | | | — | | | — | | | — | | | 3,036 | |
| | | | | | | | | | | |
| Repurchase of employee common stock for tax withholdings | — | | | (254) | | | — | | | — | | | — | | | (254) | |
| Tredegar common stock purchased by trust for savings restoration plan | — | | | — | | | 45 | | | (45) | | | — | | | — | |
| Balance at December 31, 2023 | 34,408,638 | | | $ | 61,606 | | | $ | 177,977 | | | $ | (2,233) | | | $ | (81,697) | | | $ | 155,653 | |
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
Tredegar Corporation and Subsidiaries
| |
1 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Organization and 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations. Tredegar Corporation and subsidiaries (collectively “Tredegar,” “the Company,” “we,” “us” or “our”) are primarily engagedis an industrial manufacturer with three primary businesses: custom aluminum extrusions for the North American building & construction, automotive and specialty end-use markets; surface protection films for high-technology applications in the manufacture ofglobal electronics industry and polyethylene overwrap films polyesterused for bathroom tissue and paper towels; and polyester-based films for use in packaging applications that have specialized properties primarily for the Latin American and aluminum extrusions, whichthe United States (“U.S.”) flexible packaging markets. The Company’s business segments are reported for business segment purposes under PE Films, Flexible Packaging Films (also referred to as Terphane) and Aluminum Extrusions (also referred to as Bonnell Aluminum), respectively.PE Films, and Flexible Packaging Films (also referred to as Terphane). More information on the Company’s business segments is provided in Note 5. See Notes 1013.
On September 1, 2023, the Company announced that it had entered into a definitive agreement to sell Terphane to Oben Group (the “Contingent Terphane Sale”). Completion of the sale is contingent upon the satisfaction of customary closing conditions, including the receipt of certain competition filing approvals by authorities in Brazil and 17Colombia. On October 27, 2023, the Company filed the requisite competition forms with the Administrative Council for Economic Defense (“CADE”) in Brazil. The regulatory review process is ongoing and in line with the Company’s expectations. CADE’s maximum deadline for completing its review is no later than November 18, 2024. The merger review regarding restructurings.the transaction was cleared by the Colombian authority in early February 2024.
Basis of Presentation.Presentation and Principles of Consolidation. The consolidated financial statements include the accounts and operations of Tredegarthe Company and all of its majority-owned subsidiaries.have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Intercompany accountsbalances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”) requires Tredegar to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
Certain amounts for the prior years have been reclassified to conform to current year presentation.
Fiscal Year End. The Company operates on a calendar fiscal year except for the Aluminum Extrusions segment, which operates on a 52/53-week fiscal year basis. References to Aluminum Extrusions for 2017, 20162023, 2022 and 20152021 relate to the 53-week fiscal years ended December 31, 2023 and 52-week fiscal years ended December 24, 2017,25, 2022 and December 26, 2016 and December 27, 2015,2021, respectively. The Company does not believe the impact of reporting the results of this segment as stated abovein this manner is material to the consolidated financial results. The Company may fund or receive cash from the Aluminum Extrusions segment based on Aluminum Extrusion’s cash flows from operations during the intervening period from Aluminum Extrusion’s fiscal year end to the Company’s calendar year end. There was no intercompany funding with Aluminum Extrusions between December 25, 2022 and December 31, 2022.
Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and disclosure of contingent assets and liabilities (if any). On an ongoing basis, the Company evaluates its estimates, including those related to provisions for transaction and credit losses, income taxes, pension, and the valuation of goodwill and intangible assets, among others. Tredegar bases its estimates on historical experience and various other assumptions which the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.
Foreign Currency Translation. The financial statements of subsidiaries located outside the U.S., where the local currency is the functional currency, are translated into U.S. Dollars using exchange rates in effect at the period end for assets and liabilities and average exchange rates during each reporting period for results of operations. Adjustments resulting from the translation of these financial statements are reflected as a separate component of shareholders’ equity. There are no operating subsidiaries located outside the U.S. where the U.S. Dollar is the functional currency.
Transaction and remeasurement gains or losses included in income were gains of $0.2 million, losses of $0.8 million, $3.6$0.4 million and $4.0losses of $0.5 million in 2017, 20162023, 2022 and 2015,2021, respectively. These amounts do not include the effects between reporting periods that exchange rate changes have on income of the locations outside the U.S. that result from translation into U.S. Dollars.
Cash, Cash Equivalents and Restricted cash.Cash, Equivalents. Cash and cash equivalents and restricted cash consist of cash on hand in excess of daily operating requirements and highly liquid investments with original maturities of three months or less. At December 31, 20172023 and 2016,2022, Tredegar had cash, and cash equivalents and restricted cash of $36.5$13.5 million and $29.5$19.2 million, respectively, including funds held in locations outside the U.S. of $32.7$9.8 million and $23.8$10.3 million, respectively.
The Company’s policy permits investment of excess cash in marketable securities that have the highest credit ratings and maturities of less than one year. The primary objectives of the policy are safety of principal and liquidity.
The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the consolidated statements of cash flows:
| | | | | | | | | | | |
| December 31, | | December 31, |
| (In thousands) | 2023 | | 2022 |
| Cash and cash equivalents | $ | 9,660 | | | $ | 19,232 | |
| Restricted cash | 3,795 | | | — | |
| Total cash, cash equivalents and restricted cash | $ | 13,455 | | | $ | 19,232 | |
Restricted cash as of December 31, 2023 consists of $3.4 million of receipts that have not yet been applied to the ABL Facility (defined below). See Note 7 for additional information.
Accounts and Other Receivables.Receivables, net. Accounts receivablereceivables are stated at the amount invoiced to customers less allowances for doubtful accounts and sales returns.accounts. Accounts receivablereceivables are non-interest bearing and arise from the sale of productproducts to customers under typical industry trade terms. Notes receivablereceivables are not significant.immaterial. Past due amounts are determined based on established terms and charged-off when deemed uncollectible. The allowance for doubtful accounts is determined based on an assessment of probable losses taking into account past due amounts, customer credit profile, historical experience and current economic conditions. For receivables that do not have a specific allowance, the loss rate is computed by segment to apply to the remaining receivables balance, using each segment’s historic loss rate. Other receivables include value-added taxes related to certain foreign subsidiaries and other miscellaneous receivables due within one year. For certain customers, the Company has arrangements in place with financial institutions whereby certain customer receivables are sold to the financial institution at a discount and without recourse. Upon sale, the associated receivable is unrecognized, and the discount is recognized. For more information on accounts and other receivables, net, see Note 2.
Inventories. Inventories are stated at the lower of cost or market, with cost determined onusing the last-in, first-outlast in, first out (“LIFO”) basis,method, the weighted average cost or the first-in, first-out basis.first in, first out (“FIFO”) method. Cost elements included in work-in-process and finished goods inventories are raw materials, direct labor and manufacturing overhead. Finished goods, work-in-process, raw materials and supplies, stores and other inventory are reviewed to determine if inventory quantities are in excess of forecasted usage or if they have become obsolete.
Property, Plant and Equipment. Accounts include costs of assets constructed or purchased, related delivery and installation costs and interest incurred on significant capital projects during their construction periods. Expenditures for renewals and betterments also are capitalized, but expenditures for repairs and maintenance are expensed as incurred. The cost and
accumulated depreciation applicable to assets retired or sold are removed from the respective accounts, and gains or losses thereon are included in income.
Capital expenditures for property, plant and equipment include capitalized interest. Capitalized interest included in capital expenditures for property, plant and equipment was $0.4 million, $0.3 million and $0.4 million in 2017, 2016 and 2015, respectively.
immaterial. Depreciation is computed primarily by the straight-line method based on the estimated useful lives of the assets that except for isolated exceptions,generally range from 5 to 40 years for buildings and land improvements and 2 to 20 years for machinery and equipment.
Investments in Private Entities with Less Than or Equal to 50% Voting Ownership Interest. The Company accounts for its investments in private entities where its voting ownership is less than or equal to 50% based on the facts and circumstances surrounding the investment.
For those investments measured at fair value, GAAP requires disclosure of the level within the fair value hierarchy in which fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3).
Goodwill and Identifiable Intangibles. The excess of the purchase price over the fair value of identifiable net assets of acquired companies is allocated to goodwill. The Company assesses goodwill for impairment when events or circumstances indicate that the carrying value may not be recoverable, or, at a minimum, on an annual basis (December 1st of each year). When assessing goodwill for impairment, accounting guidance allows the Company to first perform a qualitative assessment (“Step 0 analysis”), which evaluates certain qualitative factors, including macroeconomic conditions, industry and market considerations, cost factors and overall financial performance, as well as company and reporting unit factors. If the Company's Step 0 analysis indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company would perform a quantitative impairment test (“Step 1 analysis”).
During 2023, uncertainty about the timing of a recovery in the consumer electronics market persisted, and manufacturers in the supply chain for consumer electronics continued to experience reduced capacity utilization and inventory corrections. In light of the limited visibility on the timing of a recovery and the expected adverse future impact to the Surface Protection business, coupled with a cautious outlook on new product development opportunities, the Company performed a Step 1 goodwill impairment analysis, as of June 30, 2023 and September 30, 2023, of the Surface Protection component of PE Films. The analyses concluded that the fair value of Surface Protection was less than its carrying value, thus a non-cash partial goodwill impairment of $34.9 million ($27.0 million after deferred income tax benefits) was recognized during 2023.
The Company estimated the fair value of Surface Protection by: (i) computing an estimated enterprise value (“EV”) utilizing the discounted cash flow method (the “DCF Method”), (ii) applying adjustments for any surplus or deficient working capital, (iii) adding cash and cash equivalents, and (iv) subtracting interest-bearing debt. The DCF Method was used, incorporating Surface Protection’s latest projections, which reflect updated expected market recovery levels, feasibility of
launching new product applications, competitive pricing and cash flows associated with production efficiencies, as well as consideration of cost savings and inventory corrections.
As of December 1, 2023, the Company’s significant operatingreporting units with goodwill were Surface Protection in PE Films include Personal Care and Surface Protection. There are three operating unitsFutura in Aluminum Extrusions: Bonnell Aluminum, AACOA and Futura. EachExtrusions. Both of these reporting units hashave separately identifiable operating net assets (operating assets including goodwill and identifiable intangible assets net of operating liabilities).
The Company recorded a goodwill impairment chargeCompany's Step 0 analysis of $44.5 million ($44.5 million after taxes) to write off the goodwill associated with Flexible Packaging Films in the third quarter of 2015. See Note 8for additional details.
The Company estimatesthese reporting units concluded that it is more likely than not that the fair value of each reporting unit was greater than its carrying value. Therefore, the Step 1 quantitative goodwill impairment tests for these reporting units using discounted cash flow analysiswere not necessary. The Surface Protection and comparative enterprise value-to-EBITDA (earnings before interest, taxes, depreciation and amortization) multiples. Goodwill of the PE Films operatingFutura reporting units Personal Care and Surface Protection,had goodwill in the amounts of $46.8$22.4 million and $57.3 million, respectively, was tested for impairment at the annual testing date, with the estimated fair value of these reporting units exceeding the carrying value of their net assets by approximately 15% and +100%, respectively, at December 1, 2017. The goodwill of the Aluminum Extrusions reporting unit was tested for impairment at the annual testing date. The goodwill in Aluminum Extrusions is associated with the October 2012 acquisition of AACOA, Inc. (“AACOA”) and the February 2017 acquisition of Futura Industries Corporation (“Futura”). The estimated fair value of AACOA and Futura exceeded the carrying value of their net assets by approximately 61% and 42%, respectively, at December 1, 2017. Goodwill for AACOA and Futura totaled $13.7 million and $10.4$13.3 million, respectively, at December 31, 2017.
Indefinite-lived identifiable intangible assets are assessed for impairment when events or circumstances indicate that the carrying value may not be recoverable, or, at a minimum, on an annual basis (December 1st of each year). The Company estimates the fair value of its trade names using a relief-from-royalty method that relies upon a corresponding discounted cash flow analysis.2023.
For AACOA and Futura, the indefinite-lived identifiable intangible assets for each were tested for impairment at the annual testing date, with the estimated fair value substantially exceeding the carrying value of the net assets for each.
Basedmore information on a valuation analysis conducted in the fourth quarter of 2017, Terphane recorded an impairment of its assets. Indefinite-lived trade names for Terphane were written down by $4.0 million to $2.4 million and were assigned estimated useful lives of 5 to 13 years. Also, Terphane recorded a reduction of the carrying value of definite-lived identifiable intangible assets in the amount of $14.0 million.
Additional disclosure of Tredegar goodwill and identifiable intangible assets and the impairments recorded in 2017 are included inintangibles, see Note 8.5.
Impairment of Long-Lived Assets. The Company reviews long-lived assets for possible impairment when events indicate that an impairment may exist. For assets that are held and used in operations, if events indicate that an asset may be impaired, the Company estimates the future unlevered pre-tax cash flows expected to result from the use of the asset and its eventual disposition. Assets are grouped for this purpose at the lowest level for which there are identifiable and independent cash flows.
If the sum of these undiscounted pre-tax cash flows is less than the carrying amount of the asset group, an impairment loss is calculated. Measurement of the impairment loss is the amount by which the carrying amount exceeds the estimated fair value of the asset group.
During the fourth quarter of 2017, in conjunction with annual business planning as well as valuation activities (including the use of discounted cash flow and comparative enterprise value-to-EBITDA multiple methods) and other efforts, the Company determined that the carrying value of Terphane’s remaining long-lived assets were impaired. Accordingly, the Company wrote down these assets based on an enterprise valuation for all of Terphane of approximately $30 million. This write-down resulted in a non-cash asset impairment loss recognized during the fourth quarter of 2017 of $101 million ($87 million after non-cash tax benefits). See Note 17 for more information on this impairment.
Assets that are held for sale are reported at the lower of their carrying amount or estimated fair value less cost to sell, with an impairment loss recognized for any write-down required.
As of December 31, 2023 and 2022, no events, other than the Richmond Technical Center assets that went held for sale in the third quarter of 2023, were identified that indicated long-lived assets may be impaired.
Pension Costs and Postretirement Benefit Costs Other than Pensions. Pension costs and postretirement benefit costs other than pensions arehave been accrued over the period employees provideprovided service to Tredegar. Liabilities and expenses for pension plans and other postretirement benefits are determined using actuarial methodologies and incorporate significant assumptions, including the rate used to discount the future estimated liability, the long-term rate of return on plan assets, and several assumptions relating to the employee workforce. The Company recognizes the funded status of its pension and other postretirement plans in the accompanying consolidated balance sheets. Tredegar’s policy ishas been to fund its pension plans at amounts not less than the minimum requirements of the Employee Retirement Income Security Act (“ERISA”) of 1974 and to fund postretirement benefits other than pensions when claims are incurred.
In February 2022, Tredegar announced the initiation of a process to terminate and settle its frozen defined benefit pension plan through lump sum distributions and the purchase of annuity contracts. On November 3, 2023, the pension plan termination and settlement process for the Company was completed. For more information, see Note 8.
Revenue Recognition. Revenue The Company’s revenue is primarily generated from the sale of finished products which is shown net of estimatedto customers. Those sales returnspredominantly contain a single performance obligation and allowances,revenue is recognized at the point in time when title has passed to the customer, the pricecontrol of the product is transferred to customers, along with the title, risk of loss and rewards of ownership. Depending on the arrangement with the customer, these criteria are met either at the time the product is shipped or when the product is made available or delivered to the destination specified in the agreement with the customer.
Sales revenue is recognized in an amount that reflects the consideration the Company expects to be entitled to in exchange for that finished product. The Company offers various discounts, rebates and allowances to customers, (collectively, “allowances”), all of which are considered when determining the transaction price. Certain allowances are fixed and determinable at the time of sale and collectability is reasonably assured. are recorded at the time of sale as a reduction to revenues. Other allowances can vary depending on future outcomes such as sales returns and customer sales volume, thus representing variable consideration.
Amounts billed to customers related to freight have beenare classified as sales inrevenue and the accompanying consolidated statements of income. The cost of freight has beenis classified as a separate line in the accompanying consolidated statements of income. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction between Tredegar and its customers (such as value-added taxes) are accounted for on a net basis and therefore excluded from revenues. See Note 13 for disaggregation of revenue by segment and type. See Note 2 for a table showing accounts and other receivables, net of allowance for bad debts.
Revenue expected to be recognized in any future period related to remaining performance obligations, excluding i) revenue pertaining to contracts that have an original expected duration of one year or less, ii) contracts where revenue is recognized as invoiced and iii) variable consideration related to unsatisfied performance obligations, is not expected to materially impact the Company’s financial results.
Research &and Development (“R&D”) Costs. R&D costs are expensed as incurred and include primarily salaries, wages, employee benefits, equipment depreciation, facility costs and the cost of materials consumed relating to R&D efforts. R&D costs include a reasonable allocation of indirect costs.
In August 2023, the Company adopted a plan to close the PE Films technical center in Richmond, VA and reduce its efforts to develop and sell films supporting the semiconductor market. Future research and development activities for PE Films will be performed at the facility in Pottsville, PA. PE Films continues to have new business opportunities primarily relating to surface protection films that protect components of flat panel and flexible displays. The Company anticipates all activities to cease at the PE Films technical center in Richmond, VA, by the end of the first quarter of 2024. The Company recognized total expense incurred through December 31, 2023 associated with exit activities of $1.3 million for: (i) severance and related costs ($0.9 million) and (ii) building closure costs ($0.4 million). In addition, the Company recognized a non-cash asset impairment ($3.5 million), accelerated depreciation ($0.3 million) and a gain on the lease modification ($0.1 million).
A reconciliation of the beginning and ending balances of accrued expense associated with exit and disposal activities and charges associated with asset impairments reported as "Asset impairments and costs associated with exit and disposal activities, net of adjustments" in the consolidated statements of income for the year ended December 31, 2023 is shown below.
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Severance | | Asset impairment | | Other | | Total |
| Balance at January 1, 2023 | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Richmond Technical Center | 895 | | | 3,454 | | | 628 | | | 4,977 | |
| Charges | 895 | | | 3,454 | | | 628 | | | 4,977 | |
| Cash Spend | 510 | | | — | | | 312 | | | 822 | |
| Charges against assets | — | | | 3,454 | | | 188 | | | 3,642 | |
| Balance at December 31, 2023 | $ | 385 | | | $ | — | | | $ | 128 | | | $ | 513 | |
Leases. At inception, the Company determines if an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease. The Company has elected to not record short-term leases with an original lease term of one year or less in the consolidated balance sheet. To the extent such leases contain renewal options that the Company intends to exercise, the related Right-of-Use (“ROU”) asset and lease liability are included in the consolidated balance sheet. Some of the Company’s lease arrangements contain lease components (e.g., minimum rent payments) and non-lease components (e.g., maintenance, labor charges, etc.). The Company generally accounts for the lease and non-lease components as a single lease component.
Certain of the Company’s lease agreements include rental payments that are adjusted periodically for an index or rate. The leases are initially measured using the projected payments adjusted for the index or rate in effect at the commencement date. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Operating leases are included in “Right-of-use lease assets”, “Lease liabilities - short-term” and “Lease liabilities - long-term” on the consolidated balance sheets. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates, adjusted for term and geographic location using country-based swap rates. As a result of the Company’s review of new and existing lease contracts, there were no instances where the Company could readily determine a rate implicit in the lease.
Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease expense is recognized in the period in which the obligation for those payments is incurred. Depending upon the specific use of the ROU asset, lease expense is included in the “Cost of goods sold”, “Freight”, “Selling, general and administrative”, and “Research and development” line items on the consolidated statements of income. Lease income is not material to the results of operations for the years ended December 31, 2023 and 2022, respectively. Additional disclosure regarding Tredegar’s leases is included in Note 4.
Income Taxes. Income taxes are recognized during the period in which transactions enter into the determination of income for financial reporting purposes, with deferred income taxes being provided at enacted statutory tax rates on the differences between the financial reporting and tax bases of assets and liabilities (see Note 16)12). Tredegar’s policy is to accrue U.S. federal income taxes to the extent required under GAAP on unremitted earnings of all foreign subsidiaries where required. However, due to changes in the taxation of dividends under the Tax Cuts and Jobs Act (the “TCJA”) enacted by the U.S. government on December 22, 2017, Tredegar will only recordrecords U.S. federal income taxes on unremitted earnings of its foreign subsidiaries where Tredegar cannot take steps to eliminate any potential tax on future distributions from its foreign subsidiaries. Prior to the second quarter of 2016, deferred U.S. federal income taxes had not been recorded for the undistributed earnings for Terphane Limitada because the Company had intended to permanently reinvest these earnings. Due to concerns about the current political and economic conditions in Brazil, Terphane Limitada began making cash distributions to the Company. During 2016, Terphane Limitada paid dividends totaling $13.3 million to the Company. Because of the accumulation of significant losses related to foreign currency translations at Terphane Limitada, there were no unrecorded deferred income tax liabilities associated with the U.S. federal income taxes and foreign withholding taxes on Terphane Limitada’s undistributed earnings as of December 31, 20172023 and December 31, 2016.2022.
A valuation allowance is recorded in the period when the Company determines that it is more likely than not that all or a portion of deferred income tax assets may not be realized. The establishment and removal of a valuation allowance requires the Company to consider all positive and negative evidence and make a judgmental decision regarding the amount of valuation allowance required as of a reporting date. The benefit of an uncertain tax position is included in the accompanying financial statements when the Company determines that it is more likely than not that the position will be sustained, based on the
technical merits of the position, if the taxing authority examines the position and the dispute is litigated. This determination is made on the basis of all the facts, circumstances and information available as of the reporting date.
Earnings Per Share. Basic earnings per share is computed using the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed using the weighted average common and potentially dilutive common equivalent shares outstanding, determined as follows:
| | | | 2017 | | 2016 | | 2015 |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Weighted average shares outstanding used to compute basic earnings per share | 32,945,961 |
| | 32,761,793 |
| | 32,578,116 |
|
| Incremental shares attributable to stock options and restricted stock | 5,327 |
| | 13,279 |
| | — |
|
| Shares used to compute diluted earnings per share | 32,951,288 |
| | 32,775,072 |
| | 32,578,116 |
|
Incremental shares attributable to stock options and restricted stock are computed under the treasury stock method using the average market price during the related period. The Company had a net loss in 2015,for the year ended December 31, 2023, so there is no dilutive impact for such shares. If the Company had reported net income in 2015,for the year ended December 31, 2023, average out-of-the-money options to purchase shares that would have beenwere excluded from the calculation of incremental shares attributable to stock options and restricted stock were 881,513.would have been 2,925,091. The average out-of-the-money options to purchase shares that were excluded from the calculation of incremental shares attributable to stock options and restricted stock were 397,669 in 20172,760,983 and 128,200 in 2016.1,582,222 for the years ended December 31, 2022 and 2021, respectively.
Stock-Based Employee Compensation Plans. Compensation expense is recorded onThe cost of all share-based awards based upon itspayments is recognized using the calculated fair value at the grant date, or the date of any later modification, over the requisite service period usingunder the graded-vesting method. The fair value of stock option awards was estimated as of the grant date using the Black-Scholes options-pricing model. The fair value of restricted stock awards was estimated as of the grant date using the closing stock price on that date.See Note 11 for additional information.
The assumptions used in this model for valuing Tredegar stock options granted in 2017 (no grants in 2015 and 2016) were as follows:
|
| | | |
| | 2017 |
| Dividend yield | 1.9 | % |
| Weighted average volatility percentage | 38.3 | % |
| Weighted average risk-free interest rate | 1.8 | % |
| Holding period (years): | |
| Officers | 5 |
|
| Management | 5 |
|
| Weighted average exercise price at date of grant (also weighted average market price at date of grant): | |
| Officers | $ | 15.65 |
|
| Management | 15.65 |
|
The dividend yield is the actual dividend yield on Tredegar’s common stock at the date of grant, which the Company believes is a reasonable estimate of the expected yield during the holding period. The expected volatility is based on the historical volatility of Tredegar’s common stock using a sequential period of historical data equal to the expected holding period of the option. The Company has no reason to believe that future volatility for this period is likely to differ from the past. The assumed risk-free interest rate is based on observed interest rates (zero coupon U.S. Treasury debt securities) appropriate for the expected holding period.
In March 2016, the FASB issued amended guidance (ASU 2016-09) to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted the new guidance in the first quarter of 2017. Under the new guidance, excess tax benefits related to equity compensation were recognized in income tax expense (benefit) in the consolidated statements of income rather than in accumulated other comprehensive income in the consolidated balance sheets and were applied on a prospective basis. If these amounts had been included in the consolidated statements of income in previous years, net income would have been reduced by $1.1 million in 2016, and the net loss would have increased $0.3 million in 2015. Changes to the statements of cash flows related to the classification of excess tax benefits and employee taxes paid for share-based payment arrangements were implemented on a retrospective basis. In addition, the updated guidance allows the Company to make an accounting policy election to account for forfeitures as they occur. Previously, the Company was required to estimate forfeitures at the grant date, accounting for estimated forfeitures over the requisite service period.
Tredegar stock options granted during 2017 (no grants in 2015 and 2016), and related estimated fair value at the date of grant, are as follows:
|
| | | |
| | 2017 |
| Stock options granted (number of shares): | |
| Officers | 151,992 |
|
| Management | 57,559 |
|
| Total | 209,551 |
|
| Estimated weighted average fair value of options per share at date of grant: | |
| Officers | $ | 4.69 |
|
| Management | 4.69 |
|
| Total estimated fair value of stock options granted (in thousands) | $ | 983 |
|
Additional disclosure of Tredegar stock options is included in Note 12.
Financial Instruments. Tredegar uses derivative financial instruments for the purpose of hedging aluminum price volatility and currency exchange rate exposures that exist as part of transactions associated with ongoing business operations. The Company’s derivative financial instruments are designated as and qualify as cash flow hedges and are recognized in the accompanying balance sheet at fair value. A change in the fair value of the derivative that is highly effective and that is designated and qualifies as a cash flow hedge is recorded in other comprehensive income. Gains and losses reported in other comprehensive income (loss) are reclassified to earnings in the periods in which earnings are affected by the variability of cash flows of the hedged transaction. Such gains and losses are reported onin the same line as the underlying hedged item, and the cash flows related to financial instruments are classified in the consolidated statements of cash flows in a manner consistent with those of the transactions being hedged. Any hedge ineffectiveness (which represents the amount by which the changes in the fair value of the derivative exceed the variability in the cash flows of the forecasted transaction) is recorded in current period earnings. The amount of gains and losses recognized for hedge ineffectiveness were not material in 2017, 2016 and 2015.
The Company’s policy requires that it formally document all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Company also uses regression analysis, unless the hedge qualifies for other methods of assessing effectiveness, to formally assessesassess (both at the hedge’s inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the fair value or cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not (or has ceased to be) highly effective as a hedge, the Company discontinues hedge accounting prospectively.
As a policy, Tredegar does not engage in speculative or leveraged transactions, nor does it hold or issue financial instruments for trading purposes. Additional disclosure of the utilization of derivative hedging instruments is included in Note 9.10.
Comprehensive Income (Loss). Comprehensive income (loss) is defined as net income or loss as adjusted by other comprehensive income or loss items. Other comprehensive income (loss) includes changes in foreign currency translation adjustments,adjustments; unrealized gains and losses on derivative financial instruments,instruments; prior service costs and net gains or losses from pension and other postretirement benefit plans arising during the periodperiod; and amortization of these prior service costs and net gain or loss adjustments,adjustments; and during the period, realized net actuarial loss for pension settlement all recorded net of deferred income taxes.
The following table summarizes the after-tax changes in accumulated other comprehensive income (loss) for the year ended December 31, 2017:by component are summarized as follows:
|
| | | | | | | | | | | | | | | |
| (In thousands) | Foreign currency translation adjustment | | Gain (loss) on derivative financial instruments | | Pension and other post-retirement benefit adjustments | | Total |
| Beginning balance, January 1, 2017 | $ | (93,970 | ) | | $ | 863 |
| | $ | (90,127 | ) | | $ | (183,234 | ) |
| Other comprehensive income (loss) before reclassifications | 7,792 |
| | 538 |
| | (8,634 | ) | | (304 | ) |
| Amounts reclassified from accumulated other comprehensive income (loss) | — |
| | (942 | ) | | 7,811 |
| | 6,869 |
|
| Net other comprehensive income (loss) - current period | 7,792 |
| | (404 | ) | | (823 | ) | | 6,565 |
|
| Ending balance, December 31, 2017 | $ | (86,178 | ) | | $ | 459 |
| | $ | (90,950 | ) | | $ | (176,669 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Foreign Currency Translation | | Gain (Loss) on Derivative Financial Instruments | | Pension & Other Postretirement Benefit Adjust | | Total Accumulated Other Comprehensive Income (Loss) |
| Balance at January 1, 2021 | $ | (84,149) | | | $ | 2,264 | | | $ | (96,519) | | | $ | (178,404) | |
| Other comprehensive income (loss) | (2,008) | | | 3,800 | | | 23,932 | | | 25,724 | |
| Income tax (expense) benefit | 365 | | | (842) | | | (5,212) | | | (5,689) | |
| Other comprehensive income (loss), net of tax | (1,643) | | | 2,958 | | | 18,720 | | | 20,035 | |
| Reclassification adjustment to net income (loss) | — | | | (5,513) | | | 16,862 | | | 11,349 | |
| Income tax (expense) benefit | — | | | 1,192 | | | (3,676) | | | (2,484) | |
| Reclassification adjustment to net income (loss), net of tax | — | | | (4,321) | | | 13,186 | | | 8,865 | |
| Other comprehensive income (loss), net of tax | (1,643) | | | (1,363) | | | 31,906 | | | 28,900 | |
| Balance at December 31, 2021 | (85,792) | | | 901 | | | (64,613) | | | (149,504) | |
| Other comprehensive income (loss) | 3 | | | (1,256) | | | (6,464) | | | (7,717) | |
| Income tax (expense) benefit | (290) | | | (374) | | | 1,400 | | | 736 | |
| Other comprehensive income (loss), net of tax | (287) | | | (1,630) | | | (5,064) | | | (6,981) | |
| Reclassification adjustment to net income (loss) | — | | | (2,461) | | | 13,606 | | | 11,145 | |
| Income tax (expense) benefit | — | | | 710 | | | (2,965) | | | (2,255) | |
| Reclassification adjustment to net income (loss), net of tax | — | | | (1,751) | | | 10,641 | | | 8,890 | |
| Other comprehensive income (loss), net of tax | (287) | | | (3,381) | | | 5,577 | | | 1,909 | |
| Balance at December 31, 2022 | (86,079) | | | (2,480) | | | (59,036) | | | (147,595) | |
| Other comprehensive income (loss) | 3,511 | | | 11,794 | | | 1,935 | | | 17,240 | |
| Income tax (expense) benefit | (469) | | | (2,977) | | | (422) | | | (3,868) | |
| Other comprehensive income (loss), net of tax | 3,042 | | | 8,817 | | | 1,513 | | | 13,372 | |
| Reclassification adjustment to net income (loss) | — | | | (7,580) | | | 101,323 | | | 93,743 | |
| Income tax (expense) benefit | — | | | 2,044 | | | (43,261) | | | (41,217) | |
| Reclassification adjustment to net income (loss), net of tax | — | | | (5,536) | | | 58,062 | | | 52,526 | |
| Other comprehensive income (loss), net of tax | 3,042 | | | 3,281 | | | 59,575 | | | 65,898 | |
| Balance at December 31, 2023 | $ | (83,037) | | | $ | 801 | | | $ | 539 | | | $ | (81,697) | |
The following table summarizes the after-tax changes in accumulated other comprehensive income (loss) for the year ended December 31, 2016:
|
| | | | | | | | | | | | | | | |
| (In thousands) | Foreign currency translation adjustment | | Gain (loss) on derivative financial instruments | | Pension and other post-retirement benefit adjustments | | Total |
| Beginning balance, January 1, 2016 | $ | (112,807 | ) | | $ | (373 | ) | | $ | (95,539 | ) | | $ | (208,719 | ) |
| Other comprehensive income (loss) before reclassifications | 18,837 |
| | 247 |
| | (3,288 | ) | | 15,796 |
|
| Amounts reclassified from accumulated other comprehensive income (loss) | — |
| | 989 |
| | 8,700 |
| | 9,689 |
|
| Net other comprehensive income (loss) - current period | 18,837 |
| | 1,236 |
| | 5,412 |
| | 25,485 |
|
| Ending balance, December 31, 2016 | $ | (93,970 | ) | | $ | 863 |
| | $ | (90,127 | ) | | $ | (183,234 | ) |
Reclassifications of balancesamounts reclassified out of accumulated other comprehensive income (loss) intorelated to pension and other postretirement benefits are included in the computation of net income during 2017 are summarized as follows:periodic pension costs, see Note 8 for additional details.
|
| | | | | |
| (In thousands) | Amount reclassified from other comprehensive income (loss) | | Location of gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (loss) |
| Gain (loss) on derivative financial instruments: | | | |
| Aluminum future contracts, before taxes | $ | 1,210 |
| | Cost of goods sold |
| Foreign currency forward contracts, before taxes | 62 |
| | Cost of goods sold |
| Foreign currency forward contracts, before taxes | (43 | ) | | Selling, general and administrative |
| Total, before taxes | 1,229 |
| | |
| Income tax expense (benefit) | 287 |
| | Income taxes |
| Total, net of tax | $ | 942 |
| | |
| Amortization of pension and other post-retirement benefits: | | | |
| Actuarial gain (loss) and prior service costs, before taxes | $ | (12,045 | ) | | (a) |
| Income tax expense (benefit) | (4,234 | ) | | Income taxes |
| Total, net of tax | $ | (7,811 | ) | | |
| | | | |
| (a) This component of accumulated other comprehensive income is included in the computation of net periodic pension cost (see Note 13 for additional detail). |
Reclassifications of balances out of accumulated other comprehensive income (loss) into net income during 2016 are summarized as follows:
|
| | | | | |
| (In thousands) | Amount reclassified from other comprehensive income (loss) | | Location of gain (loss) reclassified from accumulated other comprehensive income (loss) to net income |
| Gain (loss) on derivative financial instruments: | | | |
| Aluminum future contracts, before taxes | $ | (1,630 | ) | | Cost of goods sold |
| Foreign currency forward contracts, before taxes | 62 |
| | Cost of goods sold |
| Total, before taxes | (1,568 | ) | | |
| Income tax expense (benefit) | (579 | ) | | Income taxes |
| Total, net of tax | $ | (989 | ) | | |
| Amortization of pension and other post-retirement benefits: | | | |
| Actuarial gain (loss) and prior service costs, before taxes | $ | (13,098 | ) | | (a) |
| Income tax expense (benefit) | (4,398 | ) | | Income taxes |
| Total, net of tax | $ | (8,700 | ) | | |
| | | | |
| (a) This component of accumulated other comprehensive income is included in the computation of net periodic pension cost (see Note 13 for additional detail). |
Reclassifications of balances out of accumulated other comprehensive income (loss) into net income during 2015 are summarized as follows:
|
| | | | | |
| (In thousands) | Amount reclassified from other comprehensive income (loss) | | Location of gain (loss) reclassified from accumulated other comprehensive income (loss) to net income |
| Gain (loss) on derivative financial instruments: | | | |
| Aluminum future contracts, before taxes | $ | (3,538 | ) | | Cost of goods sold |
| Foreign currency forward contracts, before taxes | 62 |
| | Cost of goods sold |
| Total, before taxes | (3,476 | ) | | |
| Income tax expense (benefit) | (1,284 | ) | | Income taxes |
| Total, net of tax | $ | (2,192 | ) | | |
| Amortization of pension and other post-retirement benefits: | | | |
| Actuarial gain (loss) and prior service costs, before taxes | $ | (16,041 | ) | | (a) |
| Income tax expense (benefit) | (5,823 | ) | | Income taxes |
| Total, net of tax | $ | (10,218 | ) | | |
| | | | |
| (a) This component of accumulated other comprehensive income is included in the computation of net periodic pension cost (see Note 13 for additional detail). |
Recently Issued Accounting Standards. Standards.
New accounting pronouncements adopted in 2023:
In May 2014,July 2023, the Financial Accounting StandardsStandard Board (“FASB”) and Internationalissued Accounting Standards BoardUpdated ("ASU") 2023-03 to amend various Securities and Exchange Commission (“IASB”SEC”) issued their converged standard on revenue recognition. The revised revenue standard contains principles that an entity will applyparagraphs in the Accounting Standards Codification (“ASC”) to directprimarily reflect the measurementissuance of revenueSEC Staff Accounting Bulletin No. 120. ASU No. 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and timing of when it is recognized. The core principle of the guidance is that the recognition of revenue should depict the transfer of promised goods or servicesCompensation—Stock Compensation (Topic 718): Amendments to customers in an amount that reflects the considerationSEC Paragraphs Pursuant to which an entity expects to be entitled in exchange for those goods and services. To achieve that core principle, an entity will utilize a principle-based five-step approach model. The converged standard also includes more robust disclosure requirements which will require entities to provide sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In March 2016, amended guidance was issued regarding clarifying the implementation guidance on principal versus agent considerations and in April 2016, clarifying guidance was issued relating to identifying performance obligations and licensing implementation. The effective date of this revised standard is for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The converged standard can be adopted using a full retrospective method or a modified retrospective method, which applies the new guidance to contracts that are not completedSEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the adoption date without adjusting prior reporting periods. The Company has completed its assessmentMarch 24, 2022 Emerging Issues Task Force ("EITF") Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock.” ASU 2023-03 amends the impact of this standard. The Company used a teamASC for SEC updates pursuant to analyze the impact of the standard, and the related guidance issued, across all revenue streams and to evaluate the impact of the new standard on revenue contracts. This team reviewed current accounting policies and practices, identifying potential differences that would result from applying the requirements under the new standard. The Company will adopt this new standard in the first quarter of 2018 using the modified retrospective method of adoption, and the adoption will not have a material impact on the timing or amount of revenue recognized in the Company’s consolidated financial statements, although there will be expanded disclosures.
In July 2015, the FASB issued new guidance for the measurement of inventories. Inventories within the scope of the revised guidance should be measuredSEC Staff Accounting Bulletin No. 120; SEC Staff Announcement at the lowerMarch 24, 2022 EITF Meeting; and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of costRegulation S-X: Income or net realizable value. The previous guidance dictated that inventory should be measured at the lower of cost or market, with market being either replacement cost, net realizable value or net realizable value less an approximation of normal profit margin. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposalLoss Applicable to Common Stock. These updates were immediately effective and transportation. Subsequent measurement is unchanged for inventories measured using LIFO or the retail inventory method. The Company adopted the new guidance prospectively in the first quarter of 2017, and the adoption of this guidance did not have a material impact on the Company’sCompany's consolidated financial statements.
Accounting standards not yet adopted:
In January 2016,October 2023, the FASB issued amended guidance associated with accounting for equity investments measured at fair value. The amended guidance requires all equity investmentsASU 2023-06 to be measured at fair value with changesamend various paragraphs in the fair value recognized through net income (other than those accounted for underASC to primarily reflect the issuance of SEC Staff Bulletin No. 33-10532. ASU 2023-06 will impact various disclosure areas, including the statement of cash flows, accounting changes and error corrections, earnings per share, debt, equity, methodderivatives, and transfers of accounting or those that result in consolidation of the investee or those without a readily determinable fair value).financial assets. The amended guidance also requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this update eliminateASU 2023-06 will be effective on the date the related disclosures are removed from Regulation S-X or Regulation S-K by the SEC and will no longer be effective if the SEC has not removed the applicable disclosure requirement by June 30, 2027. Early adoption is not permitted. The Company does not expect a material impact from the adoption of this standard on our consolidated financial statements and related disclosures.
In November 2023, the FASB issued ASU 2023-07 to discloseimprove reportable segment disclosure and requirements, primarily through the fair valueenhanced disclosures about significant segment expenses. ASU 2023-07 expands public entities’ segment disclosures by requiring disclosure of financial instruments measured at amortized costsignificant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. All disclosure requirements of ASU 2023-07 are required for entities that are not public business entities and
the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. The amended guidancewith a single reportable segment. This ASU is effective for fiscal years beginning after December 31, 2017, including the15, 2023 and interim periods within those fiscal years. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption of the update. Early adoption is permitted under limited, specific circumstances. The adoption of the amended guidance is not expected to have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued a revised standard on lease accounting. Lessees will need to recognize virtually all of their leases on the balance sheet, by recording a right-of-use asset and lease liability. The revised standard requires additional analysis of the components of a transaction to determine if a right-of-use asset is embedded in the transaction that needs to be treated as a lease. Substantial additional disclosures are also required by the revised standard. The revised standard is effective for fiscal yearsperiod beginning after December 31, 2018, including the interim periods within those fiscal years. The revised standard should be adopted using a modified retrospective approach,15, 2024, with early adoption permitted. The Company has a processamendments in placethis ASU are to analyze the impact of the standard, and the related guidance issued, on all leases throughout the Company. This process includes reviewing all active leases with terms greater than 12 months, which are currently being identified. The Company has also started evaluating the new requirements for tracking and cost recovery of these leases. The Company expects to complete its evaluations of the impacts of the accounting and disclosure requirements on its business processes, controls and systems by the second half of 2018.
In October 2016, the FASB issued guidance that requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and should be applied on a modified retrospective basis through a cumulative-effect adjustment directlyretrospectively to retained earnings at the beginning of the period of adoption. Early adoption is permittedall prior periods presented in the first interim period of an annual reporting period for which financial statements have not been issued. The Company has evaluated the impact of adopting this guidance and does not expect there to be a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued guidance to assist with evaluating when a set of transferred assets and activities (collectively, the "set") is a business and provides a screen to determine when a set is not a business. Under the new guidance, when substantially all of the fair value of gross assets acquired (or disposed of) is concentrated in a single identifiable asset, or group of similar assets, the assets acquired would not represent a business. Also, to be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to produce outputs. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and should be applied on a prospective basis to any transactions occurring within the period of adoption. Early adoption is permitted for interim or annual periods for which the financial statements have not been issued. The Company has not elected early adoption of this guidance and will apply the new guidance beginning in the first quarter of 2018.
In January 2017, the FASB issued amended guidance that eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the amendments in the new guidance, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The new standard is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for annual or interim goodwill impairment testing performed after January 1, 2017. The Company has not elected early adoption and does not expect any impact on the Company’s consolidated financial statements.
In March 2017, the FASB issued final guidance on the presentation of net periodic pension and postretirement benefit cost (net benefit cost). Currently, net benefit cost is reported as an employee cost within operating income. This new guidance requires the bifurcation of net periodic pension and postretirement benefit costs. Service cost will be part of operating income (and is the only piece eligible to be capitalized). All other components will be shown outside of operations. The new standard is effective for annual and interim periods in fiscal years beginning after December 15, 2017, and should be applied on a retrospective basis, except for the amendments related to capitalization of benefit cost, which should be applied on a prospective basis. The Company is currently evaluating the amended guidance but does not expect there to be an impact of adopting this guidancestandard on the Company’sour consolidated financial statements.statements and related disclosures.
In August 2017,December 2023, the FASB issued amended guidance onASU 2023-09 to improve the accountingincome tax disclosures related to the rate reconciliation and income taxes paid information and to improve the effectiveness of income tax disclosures. The amendments in this ASU will require the Company to disclose specified additional information in its income tax rate reconciliation and provide additional information for hedging activities. The amended guidance makes more hedging strategies qualify for hedge accounting. After initial qualification, the amended guidance permits a qualitative effectiveness assessment for certain hedges instead ofreconciling items that meet a quantitative test, ifthreshold. ASU 2023-09 will also require the company can reasonably support an
expectation of effectiveness throughout the term of the hedge. The amended guidanceCompany to disaggregate its income taxes paid disclosure by federal, state and foreign taxes, with further disaggregation required for significant individual jurisdictions. This ASU is effective for annual and interim periods beginning after January 1, 2019, but may be adopted immediately. TheDecember 15, 2024, early adoption should be on a cumulative effect basis and applied prospectively.is permitted. The Company is currently evaluating the amended guidance but does not expect there to be an impact of adopting this guidancestandard on the Company’s consolidated financial statements.
On February 15, 2017, Bonnell Aluminum acquired 100% of the stock of Futura on a net debt-free basis for approximately $92 million (the “Initial Purchase Price”). The amount actually funded in cash at the transaction date was approximately $87.0 million (the “Initial Cash Funding”), which was the Initial Purchase Price net of preliminary closing adjustments for working capital and seller transaction-related obligations assumed and subsequently paid by Bonnell Aluminum. The acquisition, which was funded using Tredegar’s revolving credit facility, was treated as an asset purchase for U.S. federal income tax purposes. Tredegar expects to receive a $5 million refund in 2018 from an earnout price adjustment mechanism discussed further below.
Futura, headquartered in Clearfield, Utah, with a national sales presence and particular strength in the western U.S., designs and manufactures a wide range of extruded aluminum products, including branded flooring trims and TSLOTSTM, as well as OEM (original equipment manufacturer) components for truck grills, solar panels, fitness equipment and other applications. As a result of this transaction, Futura is now a wholly-owned subsidiary of the William L. Bonnell Company, Inc. (which is a wholly-owned subsidiary of Tredegar) and operates as a division of Bonnell Aluminum, and its results of operations are included in Tredegar’sour consolidated financial statements from the date of acquisition.
Under the terms of the transaction, $5 million of the Initial Cash Funding was placed in escrow (the “Earnout Escrow”) and will be returned to Bonnell Aluminum because Futura did not achieve a targeted EBITDA level (as defined in the Stock Purchase Agreement) for the last eleven months of the fiscal year ended December 2017. At the acquisition date, the Company performed a probability weighted assessment in order to determine the fair value of this contingent asset. The assessment estimated a fair value of $4.3 million, which would be returned to Bonnell Aluminum in early 2018, and accordingly, a receivable of $4.3 million (“Initial Earnout Receivable”) was recorded by Bonnell Aluminum. In the second quarter of 2017, the Company updated its valuation of this contingent asset, which resulted in a fair value of $5.0 million. The receivable was increased to $5.0 million, and $0.7 million was recognized as income in the second quarter of 2017 in Other income (expense), net in the Consolidated Statements of Income.
The net purchase price for financial reporting purposes was set at approximately $82.9 million (the “Adjusted Net Purchase Price”), which was the Initial Cash Funding less the Initial Earnout Receivable and the net settlement of certain post-closing adjustments of $0.1 million paid to the seller during the second quarter of 2017. Adjustments to the purchase price were made retrospectively as if the accounting had been completed on the acquisition date. Based upon management’s valuation of the fair value of tangible and identifiable intangible assets acquired (net of cash acquired) and liabilities assumed, the allocation of the Adjusted Net Purchase Price is as follows:
|
| | | |
| (In thousands) | |
| Accounts receivable | $ | 6,680 |
|
| Inventories | 10,342 |
|
| Prepaid expenses and other current assets | 240 |
|
| Property, plant & equipment | 32,662 |
|
| Identifiable intangible assets: | |
| Customer relationships | 24,000 |
|
| Trade names | 6,700 |
|
| Trade payables & accrued expenses | (8,135 | ) |
| Total identifiable net assets | 72,489 |
|
| Adjusted Net Purchase Price | 82,860 |
|
| Goodwill | $ | 10,371 |
|
The goodwill and identifiable intangible asset balances associated with this acquisition will be deductible for tax purposes on a straight-line basis over a period of approximately 15 years. For financial reporting purposes, customer relationships are being amortized over 12 years and trade names are being amortized over 13 years. Goodwill is not subject to amortization for financial reporting purposes. Customer relationships were valued using the excess earnings approach. Trade
names were valued using a relief-from-royalty approach. The Company does not anticipate marketing Futura’s products under a different brand in light of its strong name recognition and competitive advantage in its target markets.
For 2017, Tredegar’s consolidated results of operations and its Aluminum Extrusions business segment included the following Futura results for the 10.5 months owned: sales of $71.0 million, operating profit from ongoing operations of $8.2 million, depreciation and amortization of $5.0 million, and capital expenditures of $2.5 million.
The following unaudited supplemental pro forma data presents Tredegar’s consolidated sales, net income and related earnings per share as if the acquisitiondisclosures.
2. ACCOUNTS AND OTHER RECEIVABLES
As of Futura had been consummated at the beginning of 2016, and is not necessarily indicative of the Company’s financial performance if the acquisition had actually been consummated as of that date, or of future performance. The supplemental unaudited pro forma measures for the years ended December 31, 20172023 and 2016 are presented below:
|
| | | | | | | |
| Tredegar Pro Forma Results with Futura Acquisition | |
| (In thousands, except per-share data) | 2017 | | 2016 |
| Sales | $ | 968,340 |
| | $ | 904,877 |
|
| Net income | $ | 37,974 |
| | $ | 27,805 |
|
| Earnings per share: | | | |
| Basic | $ | 1.15 |
| | $ | 0.85 |
|
| Diluted | $ | 1.15 |
| | $ | 0.85 |
|
Futura’s pre-acquisition results for the period from January 1 to February 14, 2017,2022, accounts receivable and therefore the pro forma information for 2017 presented above, were adversely impacted by significant disruptions to manufacturing operations and sales caused by the renovation of its anodizing line. The actual accretion to Tredegar’s diluted earnings per share from Futura since the acquisition date was 12 cents per share for 2017.
The Company’s pro formaother receivables, net, income was computed for the periods shown as: (i) the Company’s reported net income, plus (ii) Futura’s historical pre-acquisition period earnings before interest, taxes, depreciation and amortization and excluding one-time purchase accounting and transaction-related expenses, minus (iii) the pro forma pre-acquisition period depreciation and amortization for Futura under purchase accounting for the Company, minus (iv) the pro forma pre-acquisition period interest expense for the Company applied at an annual rate of 3.0% to the $87.0 million Initial Cash Funding, minus (v) the pro forma pre-acquisition period income taxes applied at a rate of 39.1% to the pro forma pre-acquisition earnings before income taxes computed from items (ii) through (iv).
| |
3 | OTHER INCOME (EXPENSE), NET |
Other income (expense), net consists ofinclude the following:
|
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Gain (loss) on investment in kaléo accounted for under fair value method | $ | 33,800 |
| | $ | 1,600 |
| | $ | (20,500 | ) |
| Gain associated with the settlement of an escrow agreement related to Terphane, acquired in October 2011 | 11,856 |
| | — |
| | — |
|
| Gain from insurance recoveries | 5,261 |
| | 1,902 |
| | — |
|
| Unrealized loss on investment property | — |
| | (1,032 | ) | | — |
|
| Other | 796 |
| | (89 | ) | | 387 |
|
| Total | $ | 51,713 |
| | $ | 2,381 |
| | $ | (20,113 | ) |
See Note 17 for more details on the items broken out separately in the table above.
In August 2007 and December 2008, Tredegar made an aggregate investment of $7.5 million in kaleo, Inc. (“kaléo”), a privately held specialty pharmaceutical company dedicated to building innovative solutions for serious and life-threatening medical conditions. The mission of kaléo is to provide products that empower patients to confidently take control of their medical conditions. Tredegar owns Series A-3 Preferred Stock and Series B Preferred Stock in kaléo that, taken together, represents on a fully-diluted basis an approximate 20% interest in kaléo. Tredegar accounts for its investment in kaléo under the fair value method. At the time of the initial investment, the Company elected the fair value option of accounting since its investment objectives were similar to those of venture capitalists, which typically do not have controlling financial interests.
At December 31, 2017 and 2016, the estimated fair value of the Company’s investment (also the carrying value, which is separately stated in the consolidated balance sheets) was $54.0 million and $20.2 million, respectively. The Company recognized an unrealized gain on its investment in kaléo of $33.8 million ($24.0 million after taxes) and $1.6 million ($1.2 million after taxes) in 2017 and 2016, respectively.
The change in the estimated fair value of the Company’s holding in kaléo in 2017 primarily related to recent favorable operating results and projections. Kaléo’s stock is not publicly traded. In addition, kaléo had not completed a full year of operations since the re-launch of its Auvi-Q® product which occurred during the first quarter of 2017. The valuation estimate in this situation is based on projection assumptions or Level 3 inputs that have a wide range of possible outcomes. Consequently, the present value of kaléo’s projected future cash flows is determined at a discount rate of 45% for their high degree of risk. Ultimately, the true value of the Company’s ownership interest in kaléo will be determined if and when a liquidity event occurs, and the ultimate value could be materially different from the $54.0 million estimated fair value reflected in the Company’s financial statements at December 31, 2017.
The Company recognized an unrealized loss of $20.5 million ($15.7 million after taxes) in 2015 that primarily related to a voluntary recall of the epinephrine auto-injectors that were on the market which was announced on October 28, 2015 by sanofi-aventis U.S. LLC to whom kaléo had licensed exclusive rights to commercialize the epinephrine auto-injectors at that time. Kaléo relaunched the epinephrine auto-injector in the U.S. in the first quarter of 2017.
Unrealized gains (losses) associated with this investment are included in “Other income (expense), net” in the consolidated statements of income and separately stated in the segment operating profit table in Note 5. Subsequent to its most recent investment (December 15, 2008), and until the next round of financing, the Company believes fair value estimates are based upon Level 3 inputs since there is no secondary market for its ownership interest. Accordingly, until the next round of financing or any other significant financial transaction, value estimates will primarily be based on assumptions related to meeting cash flow projections and discounting of these factors for their high degree of risk. If kaléo does not meet its projected cash flows or related risks are unfavorable versus the most recent valuation, or a new round of financing or other significant financial transaction indicates a lower enterprise value, then the Company’s estimate of the fair value of its ownership interest in kaléo is likely to decline. Adjustments to the estimated fair value of this investment will be made in the period upon which such changes can be quantified.
In addition to the impact on valuation of the possible changes in assumptions, Level 3 inputs and projections from changes in business conditions, the fair market valuation of Tredegar’s interest in kaléo is sensitive to changes in the weighted average cost of capital used to discount cash flow projections for the high degree of risk associated with a wide range of possible outcomes. The weighted average cost of capital used in the fair market valuation of the Company’s interest in kaléo was 45% at both December 31, 2017 and 2016. At December 31, 2017, the effect of a 500 basis point decrease in the weighted average cost of capital assumption would have further increased the fair value of Tredegar’s interest in kaléo by approximately $11 million, and a 500 basis point increase in the weighted average cost of capital assumption would have decreased the fair value of the Company’s interest by approximately $10 million.
On April 2, 2007, Tredegar invested $10.0 million in Harbinger Capital Partners Special Situations Fund, L.P. (the “Harbinger Fund”), a private investment fund that is subject to limitations on withdrawal. There is no secondary market for interests in the fund. The Company’s investment in the Harbinger Fund, which represents less than 1% of its total partnership capital, is accounted for under the cost method. There were no unrealized gains or losses on the Company’s investment in the Harbinger Fund in 2017, 2016 and 2015. The December 31, 2017 and 2016 carrying values in the consolidated balance sheets (included in “Other assets and deferred charges”) were $1.7 million and $1.7 million, respectively. The carrying value at December 31, 2017 reflected Tredegar’s cost basis in its investment in Harbinger, net of total withdrawal proceeds received and unrealized losses. Withdrawal proceeds were $0.1 million in 2015 (none in 2017 and 2016). The timing and amount of future installments of withdrawal proceeds was not known as of December 31, 2017. There were no realized gains or losses associated with the investment in the Harbinger Fund in 2017, 2016 and 2015. Gains on the Company’s investment in the Harbinger Fund, if any, will be recognized when the amounts expected to be collected from withdrawal from the investment are known, which will likely be when cash in excess of the remaining carrying value is received. Losses will be recognized if management believes it is probable that future withdrawal proceeds will not exceed the remaining carrying value.
Tredegar has investment property in Alleghany and Bath counties, Virginia. In 2016, the Company recorded an unrealized loss on this investment property of $1.0 million ($0.7 million after taxes) as a reduction in the estimated fair value of the investment that is not expected to be temporary. The Company’s carrying value in this investment property (included in “Other assets and deferred charges” on the consolidated balance sheets) was $1.6 million at December 31, 2017 and $1.6 million at December 31, 2016.
The Company's business segments are PE Films, Flexible Packaging Films and Aluminum Extrusions. PE Films is comprised of the following operating segments: personal care materials, surface protection films, and LED lighting products. Flexible Packaging Films is comprised of the Company’s polyester films business, Terphane Holdings LLC (“Terphane”), which was acquired by Tredegar in October 2011. Aluminum Extrusions, which includes Bonnell Aluminum and its operating divisions, AACOA and Futura, produces high-quality, soft-alloy and medium-strength aluminum extrusions primarily for the following markets: building and construction, automotive, and specialty, which consists of consumer durables, machinery and equipment, electrical and distribution end-use products.
Information by business segment and geographic area for the last three years is provided below. There were no accounting transactions between segments and no allocations to segments. Net sales (sales less freight) and operating profit from ongoing operations are the measures of sales and operating profit used by the chief operating decision maker (Tredegar’s President and Chief Executive Officer) for purposes of assessing performance. PE Films’ net sales to The Procter & Gamble Company (“P&G”) totaled $122.4 million in 2017, $129.1 million in 2016 and $163.9 million in 2015. These amounts include plastic film sold to others that convert the film into materials used with products manufactured by P&G. | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 |
| Customer receivables | $ | 67,183 | | | $ | 83,667 | |
| Other receivables | 3,056 | | | 3,874 | |
| Total accounts and other receivables | 70,239 | | | 87,541 | |
| Less: Allowance for bad debts | (2,301) | | | (2,997) | |
| Total accounts and other receivables, net | $ | 67,938 | | | $ | 84,544 | |
|
| | | | | | | | | | | | |
| Net Sales |
| (In thousands) | | 2017 | | 2016 | | 2015 |
| PE Films | $ | 352,459 |
| | $ | 331,146 |
| | $ | 385,550 |
|
| Flexible Packaging Films | 108,355 |
| | 108,028 |
| | 105,332 |
|
| Aluminum Extrusions | 466,833 |
| | 360,098 |
| | 375,457 |
|
| Total net sales | 927,647 |
| | 799,272 |
| | 866,339 |
|
| Add back freight | 33,683 |
| | 29,069 |
| | 29,838 |
|
| Sales as shown in consolidated statements of income | $ | 961,330 |
| | $ | 828,341 |
| | $ | 896,177 |
|
|
| | | | | | | | | | | | |
| Operating Profit |
| (In thousands) | | 2017 | | 2016 | | 2015 |
| PE Films: | | | | | |
| Ongoing operations | $ | 41,546 |
| | $ | 26,312 |
| | $ | 48,275 |
|
| Plant shutdowns, asset impairments, restructurings and other (a) | (4,905 | ) | | (4,602 | ) | | (4,180 | ) |
| Flexible Packaging Films: | | | | | |
| Ongoing operations | (2,626 | ) | | 1,774 |
| | 5,453 |
|
| Plant shutdowns, asset impairments, restructurings and other (a) | (89,398 | ) | | (214 | ) | | (185 | ) |
| Goodwill impairment charge | — |
| | — |
| | (44,465 | ) |
| Aluminum Extrusions: | | | | | |
| Ongoing operations | 43,454 |
| | 37,794 |
| | 30,432 |
|
| Plant shutdowns, asset impairments, restructurings and other (a) | 321 |
| | (741 | ) | | (708 | ) |
| Total | (11,608 | ) | | 60,323 |
| | 34,622 |
|
| Interest income | 209 |
| | 261 |
| | 294 |
|
| Interest expense | 6,170 |
| | 3,806 |
| | 3,502 |
|
| Gain (loss) on investment in kaléo accounted for under the fair value method (a) | 33,800 |
| | 1,600 |
| | (20,500 | ) |
| Unrealized loss on investment property (a) | — |
| | 1,032 |
| | — |
|
| Stock option-based compensation expense | 264 |
| | 56 |
| | 483 |
|
| Corporate expenses, net (a) | 30,879 |
| | 29,607 |
| | 33,638 |
|
| Income (loss) before income taxes | (14,912 | ) | | 27,683 |
| | (23,207 | ) |
| Income tax expense (benefit) (a) | (53,163 | ) | | 3,217 |
| | 8,928 |
|
| Net income (loss) | $ | 38,251 |
| | $ | 24,466 |
| | $ | (32,135 | ) |
|
| | | | | | | | |
| Identifiable Assets |
| (In thousands) | | 2017 | | 2016 |
| PE Films | $ | 289,514 |
| | $ | 278,558 |
|
| Flexible Packaging Films | 49,915 |
| | 156,836 |
|
| Aluminum Extrusions | 268,127 |
| | 147,639 |
|
| Subtotal | 607,556 |
| | 583,033 |
|
| General corporate (b) | 111,696 |
| | 38,618 |
|
| Cash and cash equivalents (d) | 36,491 |
| | 29,511 |
|
| Total | $ | 755,743 |
| | $ | 651,162 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Depreciation and Amortization | | Capital Expenditures |
| (In thousands) | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| PE Films | $ | 14,609 |
| | $ | 13,653 |
| | $ | 15,480 |
| | $ | 15,029 |
| | $ | 25,759 |
| | $ | 21,218 |
|
| Flexible Packaging Films | 10,443 |
| | 9,505 |
| | 9,697 |
| | 3,619 |
| | 3,391 |
| | 3,489 |
|
| Aluminum Extrusions | 15,070 |
| | 9,173 |
| | 9,698 |
| | 25,653 |
| | 15,918 |
| | 8,124 |
|
| Subtotal | 40,122 |
| | 32,331 |
| | 34,875 |
| | 44,301 |
| | 45,068 |
| | 32,831 |
|
| General corporate | 155 |
| | 141 |
| | 107 |
| | 61 |
| | 389 |
| | — |
|
| Total | $ | 40,277 |
| | $ | 32,472 |
| | $ | 34,982 |
| | $ | 44,362 |
| | $ | 45,457 |
| | $ | 32,831 |
|
See footnotes following the tables.
|
| | | | | | | | | | | | |
| Net Sales by Geographic Area (d) |
| (In thousands) | | 2017 | | 2016 | | 2015 |
| United States | $ | 584,066 |
| | $ | 475,734 |
| | $ | 528,881 |
|
| Exports from the United States to: | | | | | |
| Asia | 84,846 |
| | 73,220 |
| | 75,383 |
|
| Canada | 46,505 |
| | 45,683 |
| | 45,290 |
|
| Europe | 8,505 |
| | 7,348 |
| | 9,809 |
|
| Latin America | 15,199 |
| | 5,561 |
| | 3,464 |
|
| Operations outside the United States: | | | | | |
| Brazil | 87,155 |
| | 90,571 |
| | 89,829 |
|
| The Netherlands | 54,380 |
| | 54,352 |
| | 53,211 |
|
| Hungary | 24,727 |
| | 24,207 |
| | 32,612 |
|
| China | 12,199 |
| | 14,390 |
| | 18,919 |
|
| India | 10,065 |
| | 8,206 |
| | 8,941 |
|
| Total (c) | $ | 927,647 |
| | $ | 799,272 |
| | $ | 866,339 |
|
|
| | | | | | | | | | | | | | | | |
| | | Identifiable Assets by Geographic Area (d) | | Property, Plant & Equipment, Net by Geographic Area (d) |
| (In thousands) | | 2017 | | 2016 | | 2017 | | 2016 |
| United States (b) | $ | 475,844 |
| | $ | 367,406 |
| | $ | 156,054 |
| | $ | 118,661 |
|
| Operations outside the United States: | | | | | | | |
| Brazil | 49,536 |
| | 139,163 |
| | 13,396 |
| | 91,553 |
|
| China | 28,833 |
| | 29,751 |
| | 23,273 |
| | 23,759 |
|
| Hungary | 28,573 |
| | 20,610 |
| | 18,230 |
| | 15,117 |
|
| The Netherlands | 17,423 |
| | 19,484 |
| | 6,423 |
| | 5,784 |
|
| India | 7,347 |
| | 6,619 |
| | 4,628 |
| | 4,670 |
|
| General corporate (b) | 111,696 |
| | 38,618 |
| | 1,087 |
| | 1,181 |
|
| Cash and cash equivalents (d) | 36,491 |
| | 29,511 |
| | n/a |
| | n/a |
|
| Total | $ | 755,743 |
| | $ | 651,162 |
| | $ | 223,091 |
| | $ | 260,725 |
|
|
| | | | | | | | | | | | |
| Net Sales by Product Group |
| (In thousands) | | 2017 | | 2016 | | 2015 |
| PE Films: | | | | | |
| Personal care materials | $ | 246,416 |
| | $ | 238,213 |
| | $ | 287,768 |
|
| Surface protection films | 99,079 |
| | 84,013 |
| | 90,197 |
|
| LED lighting products & other films | 6,964 |
| | 8,920 |
| | 7,585 |
|
| Subtotal | 352,459 |
| | 331,146 |
| | 385,550 |
|
| Flexible Packaging Films | 108,355 |
| | 108,028 |
| | 105,332 |
|
| Aluminum Extrusions: | | | | | |
| Nonresidential building & construction | 239,713 |
| | 212,863 |
| | 221,363 |
|
| Consumer durables | 54,126 |
| | 39,293 |
| | 41,835 |
|
| Automotive | 38,261 |
| | 34,700 |
| | 30,250 |
|
| Machinery & equipment | 33,450 |
| | 20,872 |
| | 18,102 |
|
| Distribution | 30,202 |
| | 20,506 |
| | 18,659 |
|
| Residential building & construction | 40,354 |
| | 20,252 |
| | 22,737 |
|
| Electrical | 30,727 |
| | 11,612 |
| | 22,511 |
|
| Subtotal | 466,833 |
| | 360,098 |
| | 375,457 |
|
| Total | $ | 927,647 |
| | $ | 799,272 |
| | $ | 866,339 |
|
See footnotes following the tables and a reconciliation of net sales to sales as shown in the Consolidated Statements of Income in the first table of this Note 5.
| |
(a) | See Notes 1, 3, 4 and 17 for more information on losses associated with plant shutdowns, asset impairments and restructurings, unusual items, gains or losses from sale of assets, gains or losses on an investment accounted for under the fair value method and other items. |
| |
(b) | The balance sheets include the funded status of each of the Company’s defined benefit pension and other postretirement plans. The funded status of the Company’s defined benefit pension plan was a net liability of $91.8 million and $88.6 million as of December 31, 2017 and 2016, respectively. See Note 13 for more information on the Company’s pension and other postretirement plans. |
| |
(c) | The difference between total consolidated sales as reported in the consolidated statements of income and segment, geographic and product group net sales reported in this note is freight of $33.7 million in 2017, $29.1 million in 2016 and $29.8 million in 2015. |
| |
(d) | Information on exports and foreign operations are provided on the previous page. Cash and cash equivalents includes funds held in locations outside the U.S. of $32.7 million and $23.8 million at December 31, 2017 and 2016, respectively. Export sales relate almost entirely to PE Films. Operations outside the U.S. in The Netherlands, Hungary, China and India also relate to PE Films. Operations in Brazil are primarily related to Flexible Packaging Films, but also include PE Films operations. Sales from locations in The Netherlands and Hungary are primarily to customers located in Europe. Sales from locations in China (Guangzhou and Shanghai) are primarily to customers located in China, but also include other customers in Asia. |
| |
6 | ACCOUNTS AND OTHER RECEIVABLES |
Accounts and other receivables consist of the following:
|
| | | | | | | | |
| (In thousands) | | 2017 | | 2016 |
| Trade, less allowance for doubtful accounts and sales returns of $3,304 in 2017 and $3,102 in 2016 | $ | 110,252 |
| | $ | 91,109 |
|
| Other | 9,883 |
| | 6,279 |
|
| Total | $ | 120,135 |
| | $ | 97,388 |
|
A reconciliation of the beginning and ending balances of the allowance for doubtful accounts and sales returns for the three years ended December 31, 20172023 is as follows:
| | | | | | | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Balance, beginning of year | $ | 2,997 | | | $ | 1,736 | | | $ | 2,797 | |
| Charges to expense | 882 | | | 1,926 | | | 1,440 | |
| Recoveries | 102 | | | 2 | | | 35 | |
| Write-offs and settlements | (1,734) | | | (639) | | | (1,246) | |
| Foreign exchange and other | 54 | | | (28) | | | (1,290) | |
| Balance, end of year | $ | 2,301 | | | $ | 2,997 | | | $ | 1,736 | |
3. INVENTORIES
|
| | | | | | | | | | | | |
| (In thousands) | | 2017 | | 2016 | | 2015 |
| Balance, beginning of year | $ | 3,102 |
| | $ | 3,746 |
| | $ | 2,610 |
|
| Charges to expense | 2,369 |
| | 1,410 |
| | 3,387 |
|
| Recoveries | (857 | ) | | (32 | ) | | (7 | ) |
| Write-offs and settlements | (1,322 | ) | | (2,167 | ) | | (1,970 | ) |
| Foreign exchange and other | 12 |
| | 145 |
| | (274 | ) |
| Balance, end of year | $ | 3,304 |
| | $ | 3,102 |
| | $ | 3,746 |
|
Inventories consist of the following:
| | | (In thousands) | | 2017 | | 2016 | (In thousands) | 2023 | | 2022 |
| Finished goods | Finished goods | $ | 20,281 |
| | $ | 16,215 |
|
| Work-in-process | Work-in-process | 11,958 |
| | 8,590 |
|
| Raw materials | Raw materials | 35,909 |
| | 23,733 |
|
| Stores, supplies and other | Stores, supplies and other | 18,759 |
| | 17,531 |
|
| Total | Total | $ | 86,907 |
| | $ | 66,069 |
|
Inventories stated on the LIFO basis amounted to $21.9$7.2 million at December 31, 20172023 and $16.4$25.3 million at December 31, 2016,2022, which were below replacement costs by $15.9$13.2 million at December 31, 20172023 and $15.3$15.6 million at December 31, 2016. During 2017,2022. Inventories stated on the weighted average cost basis were $45.3 million and $62.9 million at December 31, 2023 and 2022, respectively, while inventories stated on the FIFO method amounted to $29.6 million and $39.5 million at December 31, 2023 and 2022, respectively.
4. LEASES
Tredegar has various operating lease agreements with remaining terms up to 9 years, including leases of real estate, office equipment and vehicles. As of December 31, 2023 and 2022, the Company had no finance lease agreements. Some leases include options to purchase the leased asset, terminate the agreement or extend the term of the agreement for one or more years. These options are included in the lease term when it is reasonably certain PE Films inventories accountedthat the option will be exercised.
The following table presents a maturity analysis of the Company’s operating leases as of December 31, 2023:
| | | | | | | | | |
| (In thousands) | | | |
| Future Lease Payments | |
| 2024 | | $ | 2,635 | | |
| 2025 | | 2,458 | | |
| 2026 | | 2,078 | | |
| 2027 | | 1,786 | | |
| 2028 | | 1,557 | | |
| Thereafter | | 4,600 | | |
| Total undiscounted operating lease payments | | 15,114 | | |
| Less: Imputed interest | | 2,065 | | |
| Present value of operating lease liabilities | | $ | 13,049 | | |
The following table summarizes lease costs, related cash flow and other information for on a LIFO basis declined, which resulted in cost of goods sold being stated at below currentthe years ended December 31, 2023 and 2022. These costs by $1.5 million.
are primarily related to long-term operating leases, but also include amounts for variable leases and short-term leases.
| | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 |
| Operating lease expense | $ | 2,882 | | | $ | 2,718 | |
| | | |
| | | |
| | | |
| | | |
| Other Information: | | | |
| Weighted-average remaining lease term for operating leases | 7 years | | 8 years |
| Weighted-average discount rate for operating leases | 4.46 | % | | 4.27 | % |
| |
8 | GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS |
The components
5. GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
A reconciliation of goodwill at December 31, 2023 and 2022 is as follows:
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Aluminum Extrusions(a) | | PE Films(a) | | Total |
| Net carrying value of goodwill at December 31, 2021 | | $ | 13,270 | | | $ | 57,338 | | | $ | 70,608 | |
| | | | | | |
| Net carrying value of goodwill at December 31, 2022 | | 13,270 | | | 57,338 | | | 70,608 | |
| Goodwill impairment | | — | | | (34,891) | | | (34,891) | |
| Net carrying value of goodwill at December 31, 2023 | | $ | 13,270 | | | $ | 22,447 | | | $ | 35,717 | |
| (a) The goodwill of Aluminum Extrusions and PE Films is carried by the Futura and Surface Protection reporting units, respectively. |
A reconciliation of identifiable intangibles at December 31, 20172023 and 2016, and related amortization periods for continuing operations are as follows:
|
| | | | | | | | | | |
| (In thousands) | | 2017 | | 2016 | | Amortization Periods |
| Goodwill | $ | 128,208 |
| | $ | 117,822 |
| | Not amortized |
Identifiable intangible assets:(a) | | | | | |
| Customer relationships (cost basis of $29,647 in 2017 and $26,021 in 2016) | 25,444 |
| | 14,844 |
| | 10-12 years |
| Proprietary technology (cost basis of $6,203 in 2017 and $17,366 in 2016) | 1,700 |
| | 7,582 |
| | Not more than 15 years |
| Trade names (cost basis of $13,887 in 2017 and $11,175 in 2016) | 13,408 |
| | 11,175 |
| | 5 - 13 years(b) |
| Total carrying value of identifiable intangibles | 40,552 |
| | 33,601 |
| | |
| Total carrying value of goodwill and identifiable intangible assets | $ | 168,760 |
| | $ | 151,423 |
| | |
(a) Identifiable intangibles also includes non-compete agreements, which have been fully amortized. These identifiable intangible assets, which have a cost basis of $1.9 million, were previously amortized over 2 years.
(b) Includes $4.8 million of trade names with an indefinite life.
A reconciliation of the beginning and ending balance of goodwill for each of the two years in the period ended December 31, 20172022 is as follows:
|
| | | | | | | | | | | | |
| (In thousands) | | PE Films | | Aluminum Extrusions | | Total |
| Net carrying value of goodwill at January 1, 2016 | $ | 104,143 |
| | $ | 13,696 |
| | $ | 117,839 |
|
| Increase (decrease) due to foreign currency translation | (17 | ) | | — |
| | (17 | ) |
| Net carrying value of goodwill at December 31, 2016 | 104,126 |
| | 13,696 |
| | 117,822 |
|
| Acquisitions | — |
| | 10,370 |
| | 10,370 |
|
| Increase (decrease) due to foreign currency translation | 16 |
| | — |
| | 16 |
|
| Net carrying value of goodwill at December 31, 2017 | $ | 104,142 |
| | $ | 24,066 |
| | $ | 128,208 |
|
The goodwill at PE Films is carried by the personal care division and the surface protection division in the amounts of $46.8 million and $57.3 million, respectively, as of December 31, 2017. The goodwill at Aluminum Extrusions is carried by its AACOA division and Futura division (which was acquired on February 15, 2017) in the amounts of $13.7 million and $10.4 million, respectively, as of December 31, 2017.
A reconciliation of the beginning and ending balance of identifiable intangibles for each of the two years in the period ended December 31, 2017 is as follows:
|
| | | | | | | | | | | | | | | | | |
| (In thousands) | Customer Relationships | | Proprietary Technology | | Trade Names | | Total |
| PE Films: | | | | | | | |
| | Net carrying value at January 1, 2016 | $ | — |
| | $ | 1,073 |
| | $ | — |
| | $ | 1,073 |
|
| | | Amortization expense | — |
| | (114 | ) | | — |
| | (114 | ) |
| | Net carrying value at December 31, 2016 | — |
| | 959 |
| | — |
| | 959 |
|
| | | Amortization expense | — |
| | (114 | ) | | — |
| | (114 | ) |
| | Net carrying value at December 31, 2017 | $ | — |
| | $ | 845 |
| | $ | — |
| | $ | 845 |
|
| | | | | | | | | | |
| Flexible Packaging Films: | | | | | | | |
| | Net carrying value at January 1, 2016 | $ | 12,380 |
| | $ | 6,362 |
| | $ | 5,776 |
| | $ | 24,518 |
|
| | | Amortization expense | (1,700 | ) | | (1,131 | ) | | — |
| | (2,831 | ) |
| | | Increase (decrease) due to foreign currency translation | 1,404 |
| | 343 |
| | 599 |
| | 2,346 |
|
| | Net carrying value at December 31, 2016 | 12,084 |
| | 5,574 |
| | 6,375 |
| | 24,033 |
|
| | | Amortization expense | (1,793 | ) | | (1,161 | ) | | — |
| | (2,954 | ) |
| | | Increase (decrease) due to foreign currency translation | (16 | ) | | (2 | ) | | (33 | ) | | (51 | ) |
| | | Impairment loss | (9,444 | ) | | (4,051 | ) | | (4,005 | ) | | (17,500 | ) |
| | Net carrying value at December 31, 2017 | $ | 831 |
| | $ | 360 |
| | $ | 2,337 |
| | $ | 3,528 |
|
| | | | | | | | | | |
| Aluminum Extrusions: | | | | | | | |
| | Net carrying value at January 1, 2016 | $ | 3,240 |
| | $ | 1,602 |
| | $ | 4,800 |
| | $ | 9,642 |
|
| | | Amortization expense | (480 | ) | | (553 | ) | | — |
| | (1,033 | ) |
| | Net carrying value at December 31, 2016 | 2,760 |
| | 1,049 |
| | 4,800 |
| | 8,609 |
|
| | | Additions related to acquisition of Futura | 24,000 |
| | — |
| | 6,700 |
| | 30,700 |
|
| | | Amortization expense | (2,147 | ) | | (554 | ) | | (429 | ) | | (3,130 | ) |
| | Net carrying value at December 31, 2017 | $ | 24,613 |
| | $ | 495 |
| | $ | 11,071 |
| | $ | 36,179 |
|
| | | | | | | | | | |
| Total net carrying value of identifiable intangibles at December 31, 2017 | $ | 25,444 |
| | $ | 1,700 |
| | $ | 13,408 |
| | $ | 40,552 |
|
During the fourth quarter of 2017, in conjunction with annual business planning as well as valuation activities and other efforts, the Company determined that the carrying value of Terphane’s remaining long-lived assets were impaired (Terphane’s goodwill was written off in 2015). Accordingly, the Company wrote down these assets based on an enterprise valuation for all of Terphane of approximately $30 million. This write-down resulted in a non-cash asset impairment loss recognized during the fourth quarter of 2017 of $101 million ($87 million after non-cash tax benefits). As part of this write-down, customer relationships, proprietary technology and trade names were impaired by $9.4 million, $4.1 million and $4.0 million, respectively, reducing their values to $0.8 million, $0.4 million and $2.4 million, respectively. The remaining part of this write-down was related to property, plant and equipment. Also, Terphane’s trade names were assigned estimated useful lives of 5 to 13 years, a change from the previous designation of an indefinite life. | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Customer Relationships | | Proprietary Technology | | Trade Names | | Total | |
| Gross carrying value at December 31, 2022 | $ | 26,549 | | | $ | 3,726 | | | $ | 13,394 | | | $ | 43,669 | | |
| Accumulated amortization | (15,467) | | | (3,672) | | | (12,840) | | | (31,979) | | |
| Net carrying value at December 31, 2022 | $ | 11,082 | | | $ | 54 | | | $ | 554 | | | $ | 11,690 | | |
| | | | | | | | |
| Gross carrying value at December 31, 2023 | $ | 26,575 | | | $ | 3,732 | | | $ | 13,460 | | | $ | 43,767 | | |
| Accumulated amortization | (17,270) | | | (3,687) | | | (12,959) | | | (33,916) | | |
| Net carrying value at December 31, 2023 | $ | 9,305 | | | $ | 45 | | | $ | 501 | | | $ | 9,851 | | |
Amortization expense for continuing operations over the next five years is expected to be as $1.9 million per year.
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
| | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 |
| Payrolls, related taxes and medical and other benefits | 6,261 | | | 5,916 | |
| Vacation | 2,602 | | | 3,502 | |
| Workers’ compensation and disabilities | 2,178 | | | 2,051 | |
| Group annuity contract premium liability | 2,000 | | | — | |
| Customer rebates | 1,891 | | | 1,154 | |
| Environmental liabilities | 1,563 | | | 1,627 | |
| Accrued utilities | 1,321 | | | 2,099 | |
| Accrued interest | 1,236 | | | 407 | |
| Incentive compensation | 612 | | | 6,103 | |
| Derivative contract liability | 483 | | | 3,260 | |
| Accrued freight | 440 | | | 2,298 | |
| Other | 3,855 | | | 3,186 | |
| Total | $ | 24,442 | | | $ | 31,603 | |
7. DEBT AND CREDIT AGREEMENTS
ABL Facility
On August 3, 2023, the Company entered into Amendment No. 2 to the Second Amended and Restated Credit Agreement (collectively the “Prior Credit Agreement”), which amended the financial covenants and decreased aggregate borrowings from $375 million to $200 million.
On December 27, 2023, the Company entered into Amendment No. 3 (the “ABL Facility”) to the Prior Credit Agreement, which provides the Company with $180 million senior secured asset-based revolving credit facility that will expire on June 30, 2026. The ABL Facility is secured by substantially all assets of the Company and its domestic subsidiaries, including equity in certain material first-tier foreign subsidiaries. Availability for borrowings under the ABL Facility is governed by a borrowing base, determined by the application of specified advance rates against eligible assets, including a portion of trade accounts receivable, inventory, cash and cash equivalents, owned real properties, and owned machinery and equipment. Upon the earlier of March 31, 2025 or the date the Company receives the proceeds from the sale of Terphane (the “ABL Adjustment Date”), the $180 million ABL Facility will be reduced to $125 million. As of December 31, 2023, availability under the ABL Facility was $22.9 million, after reducing the availability by the aggregate outstanding borrowings of $126.3 million, standby letters of credit of $13.1 million, and the Minimum Liquidity (as defined in the ABL Facility) financial covenant. The Company incurred $2.6 million of debt issuance costs in conjunction with the ABL Facility, which are being amortized on a straight-line basis over the remaining term of the ABL Facility.
Outstanding borrowings accrue interest at the rates elected by the Company depending on the type of loan and denomination of such borrowing. With respect to revolving loans denominated in U.S. Dollars, the Company may elect interest rates at:
•Alternate Base Rate (“ABR”) plus 2.50% before the ABL Adjustment Date and the applicable ABR Spread (as defined in the ABL Facility) after the ABL Adjustment Date are determined in accordance with an excess availability-based pricing grid. ABR is defined, in part, as the greater of (a) the Prime Rate in effect on such day, (b) the Federal Reserve Bank of New York Rate in effect on such day plus ½ of 1% and (c) the Adjusted Term SOFR Rate (defined below) for a one-month period plus 1%; or
•The Adjusted Term SOFR Rate plus 3.50% before the ABL Adjustment Date and the applicable Term Benchmark Spread (as defined in the ABL Facility) are determined in accordance with an excess availability-based pricing grid after the ABL Adjustment Date. Adjusted Term SOFR Rate is defined as the Term SOFR Rate plus 0.10%, subject to an initial Floor (as defined in the ABL Facility) of 0%.
Interest rate indices for select non-U.S. dollar borrowings, including borrowings denominated in Euro, Pounds Sterling, Swiss Francs and Japanese Yen, remain consistent with the terms of the Prior Credit Agreement.
Based upon the quarterly average of daily availability under the ABL Facility, the interest rate pricing grid applicable after the ABL Adjustment Date will be as follows:
| | | | | | | | | | | |
| Pricing under the ABL Facility (Basis Points) |
| Quarter Average of Daily Availability | Term Benchmark
Spread | ABR
Spread | Commitment
Fee* |
| > 66% of $125 million aggregate commitment | 225.0 | | 125.0 | | 40.0 | |
| ≤ 66% but > 33% of $125 million aggregate commitment | 250.0 | | 150.0 | | 40.0 | |
| ≤ 33% of $125 million aggregate commitment | 275.0 | | 175.0 | | 40.0 | |
*The Commitment Fee before the ABL Adjustment Date and after the ABL Adjustment Date remain the same as reflected in this table. |
Under the terms of the ABL Facility, certain domestic bank accounts are subject to blocked account agreements, each of which contains a springing feature whereby the lenders may exercise control over those accounts during a cash dominion period (any such period, a “Cash Dominion Period”). A Cash Dominion Period was implemented on the date of the closing of the ABL Facility and will remain in effect at all times prior to the ABL Adjustment Date. After the ABL Adjustment Date, a Cash Dominion Period goes into effect if availability under the ABL Facility falls below 12.5% or an Event of Default (as defined in the ABL Facility) occurs. The Company would then be subject to the Cash Dominion Period until the Event of Default is waived or ABL Facility availability is above 12.5% of the $125 million aggregate commitment for 30 consecutive days. Receipts that have not yet been applied to the ABL Facility are classified as restricted cash in the Company’s consolidated balance sheets.
|
| | | |
| Year | Amount (In thousands) |
| 2018 | $ | 3,985 |
|
| 2019 | 3,585 |
|
| 2020 | 3,585 |
|
| 2021 | 3,585 |
|
| 2022 | 3,460 |
|
The financial covenants in the ABL Facility, which are reported to lenders on a monthly basis, include:
•Until the ABL Adjustment Date, the Company is required to maintain (i) minimum Credit EBITDA (as defined in the ABL Facility), as of the end of each fiscal month for the 12-month period then ended (presented below) and (ii) a Minimum Liquidity (as defined in the ABL Facility) of $10.0 million.
| | | | | |
| Minimum Credit EBITDA (In thousands) |
9December 2023 | FINANCIAL INSTRUMENTS$ | 21,070 | |
| January 2024 | 21,110 | |
| February 2024 | 18,750 | |
| March 2024 | 16,640 | |
| April 2024 | 19,780 | |
| May 2024 | 19,660 | |
| June 2024 | 19,450 | |
| July 2024 | 21,860 | |
| August 2024 | 22,830 | |
| September 2024 | 25,370 | |
| October 2024 | 26,070 | |
| November 2024 | 27,640 | |
| December 2024 | 29,640 | |
| January 2025 | 29,740 | |
| February 2025 | 29,850 | |
| March 2025 | $ | 29,980 | |
•Following the ABL Adjustment Date, the foregoing financial covenants will cease to exist and will be replaced with a minimum fixed charge coverage ratio of 1.00:1.00 that will be triggered in the event that availability is less than 10% of $125 million commitment amount and continuing thereafter until availability is greater than 10% of the $125 million commitment amount for 30 consecutive days.
In addition to the financial covenants, the ABL Facility contains restrictive covenants, including covenants that restrict the Company’s ability to pay dividends and repurchase shares of its common stock.
If at any time the availability under the ABL facility is less than 10% (but on and after the ABL Adjustment Date, 20%) of the maximum aggregate principal amount in effect at such time or an Event of Default occurs, the Company’s current monthly reporting requirements to lenders changes to a weekly cadence until the Event of Default is waived, cured or the availability under the ABL facility is above 10% (but on and after the ABL Adjustment Date, 20%) of the maximum aggregate principal amount for 30 consecutive days.
The ABL Facility has customary representations and warranties including, as a condition to each borrowing, that all such representations and warranties are true and correct in all material respects (including a representation that no Material
Adverse Effect (as defined in the ABL Facility) has occurred since December 31, 2022). In the event that the Company cannot certify that all conditions to the borrowing have been met, the lenders can restrict the Company’s future borrowings under the ABL Facility. Because a Cash Dominion Period is currently in effect and the Company is required to represent that no Material Adverse Effect has occurred as a condition to borrowing, the outstanding debt under the ABL Facility (all contractual payments due on June 30, 2026) is classified as a current liability in the consolidated balance sheets.
In accordance with the ABL Facility, the lenders have been provided with the Company’s financial statements, covenant compliance certificates and projections to facilitate their ongoing assessment of the Company. Accordingly, the Company believes the likelihood that lenders would exercise the subjective acceleration clause whereby prohibiting future borrowings is remote. As of December 31, 2023, the Company was in compliance with all debt covenants.
Terphane Brazil Loan
On October 26, 2023, Flexible Packaging Film's business unit in Brazil (“Terphane Ltda.”), the Company’s wholly owned subsidiary in Brazil, borrowed $20 million secured by certain of its assets (“Terphane Brazil Loan”). This U.S. Dollar borrowing matures on October 30, 2028, with interest payable quarterly at an annual floating interest rate of the Secured Overnight Financing Rate (“SOFR”) plus 5.99%. The SOFR rate was 5.36% as of December 31, 2023. Quarterly principal payments of $1.7 million begin starting in year 3 of the loan. There are no prepayment penalties. The Company expects that the Terphane Brazil Loan will be repaid (and collateral released) upon the closing of the Contingent Terphane Sale. On October 26, 2023, the Company borrowed $20 million from Terphane Brazil (the “Intercompany Loan”) at the same interest rate as the Terphane Brazil Loan, thereby transferring the funds to the U.S. The Company will repay the Intercompany Loan in conjunction with the closing of the Contingent Terphane Sale.
8. RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS
Tredegar sponsored a noncontributory defined benefit (pension) plan covering certain current and former U.S. employees. The plan for salaried and hourly employees was based on a formula using the participant’s years of service and compensation or using the participant’s years of service and a dollar amount. The plan is closed to new participants and pay for active plan participants for benefit calculations was frozen as of December 31, 2007. As of January 31, 2018, the plan no longer accrued benefits associated with crediting employees for service, thereby freezing all future benefits under the plan. On February 10, 2022, Tredegar announced the initiation of a process to terminate and settle its frozen defined benefit pension plan through lump sum distributions and the purchase of annuity contracts. In connection therewith, on February 9, 2022, the Company contributed $50 million to the pension plan.
During the third quarter of 2023, the Company remeasured the pension plan, which resulted in a pre-tax pension settlement loss in the consolidated results of operation of $25.6 million. The remeasurement of the pension benefit obligation and plan assets was triggered by $64.5 million of lump sum distributions from the pension plan assets which exceeded the pension plan's service and interest cost.
On September 27, 2023, the Company borrowed $30 million under the Prior Credit Agreement in anticipation of the final funding expected for terminating its defined benefit pension plan obligation. OnOctober 31, 2023, the Company used this cash to contribute $27.7 million to fully fund the pension plan with the amount necessary to purchase from Massachusetts Mutual Life Insurance Company a nonparticipating single premium group annuity contract for $157.5 million. On November 3, 2023, the pension plan termination and settlement process was completed, and the Company’s relevant pension plan obligation was transferred to Massachusetts Mutual Life Insurance Company. This completed the pension plan termination process that began in February 2022. As a result of the routine administrative process to transition the pension plan, the Company recognized a $2.0 million charge to adjust the initial purchase price of the nonparticipating single premium group annuity contract. During the fourth quarter of 2023, the Company recognized a pre-tax pension settlement loss of $66.7 million.
Tredegar also has a non-qualified supplemental pension plan covering certain employees. Effective December 31, 2005, further participation in this plan was terminated and benefit accruals for existing participants were frozen. The plan was designed to restore all or a part of the pension benefits that would have been payable to designated participants from the principal pension plans if it were not for limitations imposed by income tax regulations. The projected benefit obligation relating to this unfunded plan was $1.6 million and $1.7 million at December 31, 2023 and December 31, 2022, respectively. Pension expense recognized for this plan was $0.1 million in 2023, 2022 and 2021. This information has been included in the pension benefit tables below.
In addition to providing pension benefits, the Company provides postretirement life insurance and health care benefits for certain groups of employees. Tredegar and retirees share in the cost of postretirement health care benefits, with employees hired on or before January 1, 1993, receiving a fixed subsidy to cover a portion of their health care premiums. The Company eliminated prescription drug coverage for Medicare-eligible retirees as of January 1, 2006. Consequently, Tredegar is not eligible for any federal subsidies.
The following tables reconcile the changes in benefit obligations and plan assets in 2023 and 2022, and reconcile the funded status to prepaid or accrued cost at December 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | | Other Post-
Retirement Benefits |
| (In thousands) | 2023 | | 2022 | | | 2023 | | 2022 |
| Change in benefit obligation: | | | | | | | | |
| Benefit obligation, beginning of year | $ | 248,114 | | | $ | 316,169 | | | | $ | 5,726 | | | $ | 7,370 | |
| Service cost | — | | | — | | | | 10 | | | 18 | |
| Interest cost | 9,623 | | | 8,945 | | | | 288 | | | 207 | |
| Effect of actuarial (gains) losses related to the following: | | | | | | | | |
| Discount rate change | (10,751) | | | (61,519) | | | | 99 | | | (1,483) | |
| | | | | | | | |
| Other | (6,459) | | | 1,513 | | | | 12 | | | 90 | |
| Plan participant contributions | — | | | — | | | | 490 | | | 554 | |
| Benefits paid | (16,957) | | | (16,994) | | | | (913) | | | (1,030) | |
| Settlement payments and annuity purchase | (221,970) | | | — | | | | — | | | — | |
| Benefit obligation, end of year | $ | 1,600 | | | $ | 248,114 | | | | $ | 5,712 | | | $ | 5,726 | |
| Change in plan assets: | | | | | | | | |
| Plan assets at fair value, beginning of year | $ | 218,119 | | | $ | 244,612 | | | | $ | — | | | $ | — | |
| Actual return on plan assets | (7,053) | | | (59,683) | | | | — | | | — | |
| Employer contributions | 27,861 | | | 50,184 | | | | 423 | | | 476 | |
| Plan participant contributions | — | | | — | | | | 490 | | | 554 | |
| Benefits paid | (16,957) | | | (16,994) | | | | (913) | | | (1,030) | |
| Settlement payments and annuity purchase | (221,970) | | | — | | | | — | | | — | |
| Plan assets at fair value, end of year | $ | — | | | $ | 218,119 | | | | $ | — | | | $ | — | |
| Funded status of the plans | $ | (1,600) | | | $ | (29,995) | | | | $ | (5,712) | | | $ | (5,726) | |
| Amounts recognized in the consolidated balance sheets: | | | | | | | | |
| Accrued expenses (current) | $ | 180 | | | $ | 180 | | | | $ | 489 | | | $ | 489 | |
| Pension and other postretirement benefit obligations, net | 1,420 | | | 29,815 | | | | 5,223 | | | 5,237 | |
| Net amount recognized | $ | 1,600 | | | $ | 29,995 | | | | $ | 5,712 | | | $ | 5,726 | |
The following table sets forth the assumptions used in accounting for the pension and other post-retirement benefits, and the components of net periodic benefit cost:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | | Other Post-
Retirement Benefits |
| (In thousands, except percentages) | 2023 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2021 |
| Weighted-average assumptions used to determine benefit obligations: | | | | | | | | | | | | |
| Discount rate | 4.89 | % | | 5.07 | % | | 2.90 | % | | | 4.98 | % | | 5.17 | % | | 2.86 | % |
| Expected long-term return on plan assets | n/a | | 4.99 | % | | 3.05 | % | | | n/a | | n/a | | n/a |
| Weighted-average assumptions used to determine net periodic benefit cost: | | | | | | | | | | | | |
Discount rate(a) | 5.07%/5.37% | | 2.90 | % | | 2.57 | % | | | 5.17 | % | | 2.86 | % | | 2.54 | % |
| Expected long-term return on plan assets | n/a | | 3.05 | % | | 5.00 | % | | | n/a | | n/a | | n/a |
| Components of net periodic benefit cost: | | | | | | | | | | | | |
| Service cost | $ | — | | | $ | — | | | $ | — | | | | $ | 10 | | | $ | 18 | | | $ | 21 | |
| Interest cost | 9,623 | | | 8,945 | | | 8,398 | | | | 288 | | | 207 | | | 195 | |
| Expected return on plan assets | (8,109) | | | (8,174) | | | (11,316) | | | | — | | | — | | | — | |
| Amortization of prior service costs and gains or losses | 9,245 | | | 13,746 | | | 17,003 | | | | (213) | | | (140) | | | (141) | |
| Net periodic benefit cost | $ | 10,759 | | | $ | 14,517 | | | $ | 14,085 | | | | $ | 85 | | | $ | 85 | | | $ | 75 | |
| Pension settlement loss | 92,291 | | | — | | | — | | | | — | | | — | | | — | |
| Total benefit cost | $ | 103,050 | | | $ | 14,517 | | | $ | 14,085 | | | | $ | 85 | | | $ | 85 | | | $ | 75 | |
| (a) Prior to the pension lump sum distributions in August 2023, a discount rate of 5.07% was used to determine the net periodic benefit cost. Subsequent to August 2023, a discount rate of 5.37% was used to determine the net periodic benefit cost until the Company purchased a nonparticipating single premium group annuity contract in October 2023. |
Net periodic benefit cost is determined using assumptions at the beginning of each year. Funded status is determined using assumptions at the end of each year. The amount of the accumulated benefit obligation is the same as the projected benefit obligation. At December 31, 2023, the effect of a 1% change in the health care cost trend rate assumptions would not impact the post-retirement obligation.
Expected benefit payments over the next five years and in the aggregate for 2028—2032 are as follows:
| | | | | | | | | | | |
| (In thousands) | Pension Benefits | | Other Post-
Retirement
Benefits |
| 2024 | $ | 180 | | | $ | 481 | |
| 2025 | 172 | | | 470 | |
| 2026 | 165 | | | 456 | |
| 2027 | 157 | | | 445 | |
| 2028 | 148 | | | 433 | |
| 2028—2032 | 620 | | | 1,998 | |
The pre-tax amounts recorded in 2023, 2022 and 2021 in accumulated other comprehensive income (loss) consist of:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Post-Retirement Benefits |
| (In thousands) | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Net actuarial (gain) loss | $ | 415 | | | $ | 103,998 | | | $ | 109,893 | | | $ | (1,250) | | | $ | (1,574) | | | $ | (320) | |
The amounts in accumulated other comprehensive income, before related deferred income taxes, which are expected to be recognized as components of net periodic cost during 2024 are approximately $0.1 million of benefit for other post-retirement plans.
There were no plan assets as of December 31, 2023. The percentage composition of assets held by the pension plan at December 31, 2022 was as follows:
| | | | | |
| % Composition of Plan Assets
at December 31, |
| 2022 |
| Pension plan: | |
| Fixed income mutual fund | 13.9 | % |
| Private equity and hedge funds | 4.8 | |
| Collective investment trust | 69.9 | |
| Cash and cash equivalents | 11.4 | |
| Total | 100.0 | % |
Following the announcement to terminate and settle the pension plan in 2022, the Company contributed $50 million to the pension plan and implemented (through consultation with its investment advisors) a liability-matching bond portfolio investment strategy (including a derivative overlay) that hedged the estimated settlement funding gap, which was approximately $24 million (before plan administration costs) at that time. The overall objective of this hedging program was to minimize the volatility of the estimated settlement funding gap such that, as applicable interest rates moved up or down causing a decrease or increase in the estimated value of the settlement liability, the value of the matching bond portfolio and derivative overlay decreased or increased by a similar amount. Accordingly, the expected long-term rate return of 3.05% used in 2022 and 4.99% used in 2023 contemplated the liability-driven investment strategy.
A lower expected return on plan assets increased the amount of expense and vice versa. Decreases in the level of actual plan assets would also serve to increase the amount of pension expense. The total return on plan assets (net of fees and plan expenses), which was primarily affected by the change in fair value of plan assets, current year contributions and current year payments to participants, was approximately negative 15.1% in 2022 and positive 10.4% in 2021.
Estimates of the fair value of assets held by the Company’s pension plan were provided by unaffiliated third parties. Investments in collective investment trusts, private equity, hedge funds and certain international equity securities were measured at net asset value, which was a practical expedient for measuring fair value. These assets were therefore excluded from the fair value hierarchy for each of the year presented. At December 31, 2022, the pension plan assets are categorized by level within the fair value measurement hierarchy as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Total | | Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| Balances at December 31, 2022 | | | | | | | |
Cash and cash equivalents(a) | $ | 24,796 | | | $ | 24,796 | | | $ | — | | | $ | — | |
| Fixed income mutual fund | 30,284 | | | 30,284 | | | — | | | — | |
Private equity and hedge funds(b) | 10,250 | | | — | | | — | | | 10,250 | |
| Total plan assets at fair value | $ | 65,330 | | | $ | 55,080 | | | $ | — | | | $ | 10,250 | |
| Investments measured at net asset value: | | | | | | | |
Collective investment trust(c) | 152,389 | | | | | | | |
| Private equity and hedge funds | 141 | | | | | | | |
| Total investments measured at net asset value | $ | 152,530 | | | | | | | |
| Securities sold and interest receivable | 259 | | | | | | | |
| Total plan assets, December 31, 2022 | $ | 218,119 | | | | | | | |
(a) This category represents investments in cash and cash equivalents, which includes: 1.) cash held in the plan used for investments in U.S. Treasury futures which were entered into to minimize the volatility of the estimated settlement funding gap; and 2.) short term money market fund in which the amortized cost approximates fair value. These investments were highly liquid and therefore were classified as Level 1 securities. (b) Represents the estimated fair market value of the Company’s ownership in private equity and hedge funds which were probable of being sold for an amount different from the net asset value per share in connection with the expected termination of the pension plan. (c) The collective investment trust contains liability hedging fixed income investments and were valued at the net asset value of the collective investment trust. The net asset value was used as a practical expedient to estimate fair value. The net asset value was based on the fair value of the underlying investments held by the fund less its liabilities. (d) Represents investments in certain commodity funds measured using quoted market prices. |
9. OTHER INCOME (EXPENSE), NET
Other income (expense), net consists of the following:
| | | | | | | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 | | 2021 |
Gain on investment in kaléo(a) | $ | 262 | | | $ | 1,406 | | | $ | 12,780 | |
| One-time tax credit in Brazil for unemployment/social security insurance non-income taxes resulting from a favorable decision by Brazil’s Supreme Court regarding the calculation of such tax | — | | | — | | | 8,486 | |
COVID-19-related expenses(b) | (9) | | | (350) | | | (624) | |
Group annuity contract premium expense(c) | (2,000) | | | — | | | — | |
| Other | (400) | | | (47) | | | (377) | |
| Total | $ | (2,147) | | | $ | 1,009 | | | $ | 20,265 | |
(a) In January 2023 and May 2022, additional cash consideration of $0.3 million and $1.4 million, respectively was received related to customary post-closing adjustments. The gain in 2021 includes a $0.3 million dividend received from kaléo in the first quarter of 2021. (b) Costs associated with operating under COVID-19 conditions include employee overtime expenses associated with absenteeism, personal protective equipment supplies and facility maintenance. (c) See Note 8 for more information. |
On December 27, 2021, the Company completed the sale of its investment interests in kaleo, Inc. (“kaléo”) (Series A-3 Preferred Stock, Series B Preferred Stock and common stock) that, taken together, represented on a fully diluted basis an approximate 18% interest in kaléo. Tredegar received closing cash proceeds of $47.1 million.
In May 2021, the Brazil Supreme Court ruled in a leading case related to the amount of Brazilian value-added tax to exclude from the calculation of unemployment/social security insurance non-income taxes (“PIS/COFINS”). As a result, in the second quarter of 2021, the Company recorded a pre-tax gain of $8.5 million for certain excess PIS/COFINS paid from 2003 to 2021, that included applicable interest, which the Company applied to required Brazilian federal tax payments during 2021. The pre-tax gain was recorded in “Other income (expense), net” in the consolidated statements of income.
10. DERIVATIVES
Tredegar uses derivative financial instruments for the purpose of hedging margin exposure from fixed-price forward sales contracts in Aluminum Extrusions and exposure from currency volatility that exist as part of ongoing business operations (primarily in Flexible Packaging Films). These derivative financial instruments are designated as and qualify as cash flow hedges and are recognized in the consolidated balance sheet at fair value. The fair value of derivative instruments recorded on the consolidated balance sheets areis based upon Level 2 inputs. If individual derivative instruments with the same counterparty can be settled on a net basis, the Company records the corresponding derivative fair values as a net asset or net liability.
In the normal course of business, Aluminum Extrusions enters into fixed-price forward sales contracts with certain customers for the future sale of fixed quantities of aluminum extrusions at scheduled intervals. In order to hedge margin exposure created from the fixing of future sales prices relative to volatile raw material (aluminum) costs, Aluminum Extrusions enters into a combination of forward purchase commitments and futures contracts to acquire or hedge aluminum, based on the scheduled purchases for the firm sales commitments. The fixed-price firm sales commitments and related hedging instruments generally have durations of not more than 12 months, and the notional amount of aluminum futures contracts that hedged future purchases of aluminum to meet fixed-price forward sales contract obligations was $8.2$7.7 million (8.0(5.6 million pounds of aluminum) at December 31, 20172023 and $8.0$30.7 million (9.6(20.3 million pounds of aluminum) at December 31, 2016.2022.
The table below summarizes the location and gross amounts of aluminum derivative contract fair values (Level 2) in the consolidated balance sheets as of December 31, 20172023 and 2016:2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 | | December 31, 2022 |
| (In thousands) | Balance Sheet
Account | | Fair
Value | | Balance Sheet
Account | | Fair
Value |
| Derivatives Designated as Hedging Instruments | | | | | | | |
Asset derivatives:
Aluminum futures contracts | Prepaid expenses & other | | $ | — | | | Prepaid expenses & other | | $ | 48 | |
Liability derivatives:
Aluminum futures contracts | Accrued expenses | | (483) | | | Accrued expenses | | (3,260) | |
| Aluminum futures contracts | Other non-current liabilities | | (9) | | | Other non-current liabilities | | (369) | |
| Net asset (liability) | | | $ | (492) | | | | | $ | (3,581) | |
|
| | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| (In thousands) | Balance Sheet Account | | Fair Value | | Balance Sheet Account | | Fair Value |
| Derivatives Designated as Hedging Instruments | | | | | | | |
Asset derivatives: Aluminum futures contracts | Prepaid expenses and other | | $ | 578 |
| | Prepaid expenses and other | | $ | 308 |
|
Liability derivatives:
| | | | | | | |
Aluminum futures contracts | Prepaid expenses and other | | (16 | ) | | Prepaid expenses and other | | (37 | ) |
| | | | | | | | |
| Derivatives Not Designated as Hedging Instruments | | | | | | | |
Asset derivatives: Aluminum futures contracts | Prepaid expenses and other | | $ | — |
| | Prepaid expenses and other | | $ | — |
|
Liability derivatives: Aluminum futures contracts | Prepaid expenses and other | | — |
| | Prepaid expenses and other | | — |
|
| Net asset (liability) | | | $ | 562 |
| | | | $ | 271 |
|
In the event that a counterparty to an aluminum fixed-price forward sales contract chooses not to take delivery of its aluminum extrusions, the customer is contractually obligated to compensate Aluminum Extrusions for any losses on the related aluminum futures and/or forward contracts through the date of cancellation.
The table below summarizes the location and gross amounts of foreign currency forward contract fair values (Level 2) in the consolidated balance sheets as of December 31, 2017 and 2016:
|
| | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| (In thousands) | Balance Sheet Account | | Fair Value | | Balance Sheet Account | | Fair Value |
| Derivatives Designated as Hedging Instruments | | | | | | | |
Asset derivatives: Foreign currency forward contracts | Accrued Expenses | | $ | — |
| | Accrued Expenses | | $ | — |
|
Liability derivatives: Foreign currency forward contracts | Accrued Expenses | | (558 | ) | | Accrued Expenses | | — |
|
| | | | | | | | |
| Derivatives Not Designated as Hedging Instruments | | | | | | | |
Asset derivatives: Foreign currency forward contracts | Accrued Expenses | | $ | — |
| | Accrued Expenses | | $ | — |
|
Liability derivatives: Foreign currency forward contracts | Accrued Expenses | | — |
| | Accrued Expenses | | — |
|
| Net asset (liability) | | | $ | (558 | ) | | | | $ | — |
|
The Company's earnings reported in U.S. Dollars are exposed to foreign currency translationexchange risk primarily through the translation of the financial statements of subsidiaries that have a functional currency other than the U.S. Dollar. On September 29, 2017,The Company estimates that the Flexible Packaging Films business unitnet mismatch translation exposure for the Terphane Ltda. of its sales and raw materials quoted or priced in Brazil (“U.S. Dollars and its variable conversion, fixed conversion and sales, general and administrative costs (before depreciation and amortization) quoted or priced in Brazilian Real is annual net costs of R$139 million Brazilian Real ("R$").
Terphane Limitada”) entered into 15 monthlyLtda. has the following outstanding foreign exchange average forward rate contracts to purchase Brazilian Real (“R$”) and sell U.S. Dollars covering the period from October 2017 through December 2018. Dollars:
| | | | | | | | | | | | | | |
| USD Notional Amount (000s) | Average Forward Rate Contracted on USD/BRL | R$ Equivalent Amount (000s) | Applicable Month | Estimated % of Terphane Ltda. R$ Operating Cost Exposure Hedged |
| $1,784 | 5.2993 | R$9,454 | Jan-24 | 82% |
| $1,766 | 5.3188 | R$9,393 | Feb-24 | 81% |
| $1,781 | 5.3346 | R$9,501 | Mar-24 | 82% |
| $1,827 | 5.3373 | R$9,751 | Apr-24 | 84% |
| $1,798 | 5.3588 | R$9,635 | May-24 | 83% |
| $1,812 | 5.3708 | R$9,732 | Jun-24 | 84% |
| $1,804 | 5.3848 | R$9,714 | Jul-24 | 84% |
| $1,806 | 5.4014 | R$9,755 | Aug-24 | 84% |
| $1,857 | 5.4107 | R$10,048 | Sep-24 | 87% |
| $1,851 | 5.4225 | R$10,037 | Oct-24 | 87% |
| $1,837 | 5.4403 | R$9,994 | Nov-24 | 86% |
| $1,801 | 5.4580 | R$9,830 | Dec-24 | 85% |
| $21,724 | 5.3786 | R$116,844 | | 84% |
These foreign currency exchange contracts have been designated as and qualify as cash flow hedges of Terphane Limitada'sLtda.’s forecasted sales to customers quoted or priced in U.S. Dollars over that period. By changing the currency risk associated with these U.S. Dollar sales, the derivatives have the effect of offsetting operating costs quoted or priced in Brazilian Real and decreasing the net exposure to Brazilian Real in the Company’s consolidated statements of income.
The aggregate notional amounttable below summarizes the location and gross amounts of open foreign exchange contracts atcurrency forward contract fair values (Level 2) in the consolidated balance sheets as of December 31, 2017 was $15.0 million (R$48.8 million).2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 | | December 31, 2022 |
| (In thousands) | Balance Sheet
Account | | Fair
Value | | Balance Sheet
Account | | Fair
Value |
| Derivatives Designated as Hedging Instruments | | | | | | | |
Asset derivatives:
Foreign currency forward contracts | Prepaid expenses and other | | $ | 2,050 | | | Prepaid expenses and other | | $ | 781 | |
| Foreign currency forward contracts | Other non-current assets | | 146 | | | Other non-current assets | | 33 | |
| | | | | | | |
Liability derivatives:
Foreign currency forward contracts | Other non-current liabilities | | — | | | Other non-current liabilities | | (3) | |
| Net asset (liability) | | | $ | 2,196 | | | | | $ | 811 | |
These derivative contracts involve elements of market risk that are not reflected on the consolidated balance sheet, including the risk of dealing with counterparties and their ability to meet the terms of the contracts. The counterparties to the Company’sany forward purchase commitments are major aluminum brokers and suppliers, and the counterparties to any aluminum futures contracts are major financial institutions. Fixed-price forward sales contracts are only made available to the best and most credit-worthycreditworthy customers. The counterparties to Tredegar’sthe Company’s foreign currency forwardcash flow hedge contracts are major financial institutions.
The pretaxpre-tax effect on net income (loss) and other comprehensive income (loss) of derivative instruments classified as cash flow hedges and described in the previous paragraphs for years ended December 31, 2017, 2016,2023, 2022, and 20152021 is summarized in the tables below:
| | | | | | | | | | | | | | | | | |
| (In thousands) | Cash Flow Derivative Hedges |
| | Aluminum Futures Contracts |
| Years Ended December 31, | 2023 | | 2022 | | 2021 |
| Amount of pre-tax gain (loss) recognized in other comprehensive income | $ | 7,598 | | | $ | (4,525) | | | $ | 6,215 | |
| Location of gain (loss) reclassified from accumulated other comprehensive income into net income (effective portion) | Cost of
goods sold | | Cost of
goods sold | | Cost of
goods sold |
| Amount of pre-tax gain (loss) reclassified from accumulated other comprehensive income to net income (effective portion) | $ | 4,508 | | | $ | 1,022 | | | $ | 5,787 | |
| | | (In thousands) | Cash Flow Derivative Hedges | (In thousands) | Cash Flow Derivative Hedges |
| | Aluminum Futures Contracts | | Foreign Currency Forward Contracts |
| Years Ended December 31, | 2017 | | 2016 | | 2015 | Years Ended December 31, | 2023 | | 2022 | | 2021 |
| Amount of pre-tax gain (loss) recognized in other comprehensive income | $ | 1,501 |
| | $ | 394 |
| | $ | (5,055 | ) |
| Location of gain (loss) reclassified from accumulated other comprehensive income into net income (effective portion) | Cost of goods sold |
| | Cost of
goods sold |
| | Cost of
goods sold |
| Location of gain (loss) reclassified from accumulated other comprehensive income into net income (effective portion) | Cost of
goods sold | Selling, general & admin | | Cost of
goods sold | Selling, general & admin | | Cost of
goods sold | Selling, general & admin |
| Amount of pre-tax gain (loss) reclassified from accumulated other comprehensive income to net income (effective portion) | $ | 1,210 |
| | $ | (1,630 | ) | | $ | (3,538 | ) |
|
| | | | | | | | | | | | | | |
| (In thousands) | Cash Flow Derivative Hedges |
| | Foreign Currency Forward Contracts |
| Years Ended December 31, | 2017 | | 2016 | | 2015 |
| Amount of pre-tax gain (loss) recognized in other comprehensive income | $ | — |
| $ | (561 | ) | | $ | — |
| | $ | — |
|
| Location of gain (loss) reclassified from accumulated other comprehensive income into net income (effective portion) | Cost of
goods sold | Selling, general & admin | | Cost of
goods sold | | Cost of
goods sold |
| Amount of pre-tax gain (loss) reclassified from accumulated other comprehensive income to net income (effective portion) | $ | 62 |
| $ | (43 | ) | | $ | 62 |
| | $ | 62 |
|
Gains and losses on the ineffective portion of derivative instruments or derivative instruments that were not designated as hedging instruments were not material in 2017, 2016 and 2015. For the years ended December 31, 2017, 2016 and 2015, unrealized net losses from hedges that were discontinued were not material. As of December 31, 2017,2023, the Company expected $0.4expects $0.8 million of unrealized after-tax net gains on aluminum and foreign currency derivative instrumentscontracts reported in accumulated other comprehensive income (loss) to be reclassified to earnings within the next 12 months.
Accrued expenses consist of For the following:
|
| | | | | | | |
| (In thousands) | 2017 | | 2016 |
| Vacation | $ | 8,575 |
| | $ | 8,254 |
|
| Incentive compensation | 7,958 |
| | 5,530 |
|
| Payrolls, related taxes and medical and other benefits | 6,034 |
| | 5,519 |
|
| Workers’ compensation and disabilities | 3,746 |
| | 3,732 |
|
| Environmental liabilities (current) | 3,110 |
| | 2,100 |
|
| Accrued utilities | 2,177 |
| | 2,126 |
|
| Customer rebates | 1,929 |
| | 842 |
|
| Accrued freight | 1,581 |
| | 1,612 |
|
| Accrued severance | 783 |
| | 1,976 |
|
| Derivative contract liability | 558 |
| | — |
|
| Other | 5,982 |
| | 6,956 |
|
| Total | $ | 42,433 |
| | $ | 38,647 |
|
A reconciliation of the beginning and ending balances of accrued expenses associated with asset impairments and costs related to exit and disposal activities for each of the three years in the period ended December 31, 2017 is as follows:2023, 2022 and 2021, net gains or losses realized, from previously unrealized net gains or losses on hedges that had been discontinued, were not material.
|
| | | | | | | | | | | | | | | |
| (In thousands) | Severance(a) | | Asset Impairments(b) | | Other(c) | | Total |
| Balance at January 1, 2015 | $ | 246 |
| | $ | — |
| | $ | 201 |
| | $ | 447 |
|
| For the year ended December 31, 2015: | | | | | | | |
| Charges | 2,568 |
| | 403 |
| | 879 |
| | 3,850 |
|
| Cash spend | (1,352 | ) | | — |
| | (675 | ) | | (2,027 | ) |
| Charges against assets | — |
| | (403 | ) | | — |
| | (403 | ) |
| Balance at December 31, 2015 | 1,462 |
| | — |
| | 405 |
| | 1,867 |
|
| For the year ended December 31, 2016: | | | | | | | |
| Charges | 1,535 |
| | 603 |
| | 546 |
| | 2,684 |
|
| Cash spend | (1,143 | ) | | — |
| | (397 | ) | | (1,540 | ) |
| Charges against assets | — |
| | (603 | ) | | — |
| | (603 | ) |
| Balance at December 31, 2016 | 1,854 |
| | — |
| | 554 |
| | 2,408 |
|
| For the year ended December 31, 2017: | | | | | | | |
| Charges | 589 |
| | 101,595 |
| | 304 |
| | 102,488 |
|
| Cash spend | (1,816 | ) | | — |
| | (382 | ) | | (2,198 | ) |
| Charges against assets | — |
| | (101,595 | ) | | — |
| | (101,595 | ) |
| Balance at December 31, 2017 | $ | 627 |
| | $ | — |
| | $ | 476 |
| | $ | 1,103 |
|
(a) Severance primarily includes severance payments associated with the consolidation of North American PE Films manufacturing facilities. (b) Asset impairments in 2017 primarily related to the Flexible Packaging Films’ impairment of $101 million. (c) Other primarily includes other shutdown-related costs associated with the shutdown and sale of the Company’s aluminum extrusions manufacturing facility in Kentland, Indiana. |
See Note 17 for more information on plant shutdowns, asset impairments and restructuringsAs of continuing operations.
| |
11 | DEBT AND CREDIT AGREEMENTS |
On March 1, 2016, Tredegar entered into a $400 million five-year, secured revolving credit facility (“Credit Agreement”), with an option to increase that amount by $50 million. The Credit Agreement replaced the Company’s previous $350 million five-year, unsecured revolving credit facility that was due to expire on April 17, 2017. In connection with the refinancing,December 31, 2023, the Company borrowed $107 million underhad one stock-based compensation plan that permits the Credit Agreement, which was used, together withgrants of stock options, stock appreciation rights (“SARs”), stock, restricted stock, and stock unit awards. Awards available cash on hand, to repay all indebtedness under the previous revolving credit facility.
Borrowings under the Credit Agreement bear an interest rate of LIBOR plus a credit spread and commitment fees charged on the unused amount under the Credit Agreement at various indebtedness-to-adjusted EBITDA levels as follows:
|
| | | | | | |
| Pricing Under Credit Revolving Agreement (Basis Points) |
| Indebtedness-to-Adjusted EBITDA Ratio | Credit Spread Over LIBOR | | Commitment Fee |
| > 3.5x but <= 4.0x | 250 |
| | 45 |
|
| > 3.0x but <= 3.5x | 225 |
| | 40 |
|
| > 2.0x but <= 3.0x | 200 |
| | 35 |
|
| > 1.0x but <= 2.0x | 175 |
| | 30 |
|
| <= 1.0x | 150 |
| | 25 |
|
At December 31, 2017, the interest cost on debt borrowed under the Credit Agreement was priced at one-month LIBOR plus the applicable credit spread of 175 basis points.
The most restrictive covenants in the Credit Agreement include:
Maximum indebtedness-to-adjusted EBITDA (“Leverage Ratio:) of 4.00x;
Minimum adjusted EBIT-to-interest expense of 2.50x; and
Maximum aggregate distributions to shareholders over the term of the Credit Agreement of $100 million plus, beginning with the fiscal quarter ended March 31, 2016, 50% of net income and, at a Leverage Ratio of equal to or greater than 3.00x, a limitation on such payments for the succeeding quarter at the greater of (i) $4 million and (ii) 50% of consolidated net income for the most recent fiscal quarter, and, at a Leverage Ratio of equal to or greater than 3.50x, the prevention of such payments for the succeeding quarter unless the fixed charge coverage ratio is equal to or greater than 1.20x.
The Credit Agreement is secured by substantially all of the Company’s and its domestic subsidiaries’ assets, including equity in certain material first-tier foreign subsidiaries.
At December 31, 2017, based upon the most restrictive covenant within the Credit Agreement, available credit under the Credit Agreement was approximately $248 million. Total debt due and outstandinggrant totaled 342,709 shares at December 31, 2017 is summarized below:
|
| | | | | | | | | | | |
Debt Due and Outstanding at December 31, 2017 (In thousands) |
| Year Due | Credit Agreement | | Other | | Total Debt Due |
| 2018 | $ | — |
| | $ | — |
| | $ | — |
|
| 2019 | — |
| | — |
| | — |
|
| 2020 | — |
| | — |
| | — |
|
| 2021 | 152,000 |
| | — |
| | 152,000 |
|
| 2022 | — |
| | — |
| | — |
|
| Total | $ | 152,000 |
| | $ | — |
| | $ | 152,000 |
|
Tredegar believes that it was in compliance with all of its debt covenants as of December 31, 2017. Noncompliance with any of the debt covenants may have a material adverse effect on financial condition or liquidity in the event such noncompliance cannot be cured or should the Company be unable to obtain a waiver from the lenders. Renegotiation of the covenant through an amendment to the Credit Agreement may effectively cure the noncompliance, but may have an effect on financial condition or liquidity depending upon how the covenant is renegotiated.
| |
12 | STOCK OPTION AND STOCK AWARD PLANS |
Tredegar has one equity incentive plan under which stock2023. Stock options may be granted to purchase a specified number of shares of common stock at a price no lower than the fair market value on the date of grant and for a term not to exceed 10 years. EmployeeStock options granted from 2012 to 2014 vested over a four-year period, with a quarter ofby the options granted vesting on each year on the grant date anniversary. Two stock option grants were madeCompany in 2017, with one cliff vesting2021 vest after two2 years and the other cliff vestinghave a 7-year life or vest after three years. 3 years and have a 5-year life. Stock options exercisable totaled 3,019,333 and 2,719,919 shares at December 31, 2023 and 2022, respectively.
A summary of stock options outstanding at December 31, 2023, 2022 and 2021, and changes during those years, is presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Option Exercise Price/Share |
| | Number of
Options | | Range | | Weighted
Average |
| Outstanding at January 1, 2021 | 2,827,438 | | | $ | 10.75 | | | to | | $ | 22.49 | | | $ | 13.55 | |
| Granted | 388,822 | | | 16.37 | | | to | | 16.37 | | | 16.37 | |
| Forfeited and expired | (22,611) | | | 14.47 | | | to | | 19.64 | | | 18.14 | |
| Exercised | (67,705) | | | 10.75 | | | to | | 17.29 | | | 13.51 | |
| Outstanding at December 31, 2021 | 3,125,944 | | | 10.75 | | | to | | 22.49 | | | 13.82 | |
| | | | | | | | | |
| Forfeited and expired | (17,203) | | | 14.47 | | | to | | 19.64 | | | 15.33 | |
| | | | | | | | | |
| Outstanding at December 31, 2022 | 3,108,741 | | | 10.75 | | | to | | 22.49 | | | 13.81 | |
| | | | | | | | | |
| Forfeited and expired | (89,408) | | | 13.78 | | | to | | 19.64 | | | 19.60 | |
| | | | | | | | | |
| Outstanding at December 31, 2023 | 3,019,333 | | | $ | 10.75 | | | to | | $ | 22.49 | | | $ | 13.64 | |
No stock options were granted in 20152023 nor 2022. The assumptions used in the Black-Scholes options-pricing model for valuing Tredegar stock options originally granted in 2021, and 2016. the related estimated fair values at the date of grant, were as follows:
| | | | | |
| 2021 |
| Dividend yield | 2.6 | % |
| Weighted average volatility percentage | 48.3 | % |
| Weighted average risk-free interest rate | 0.9 | % |
| Holding period (years) | 5 |
| Weighted average exercise price at date of grant (also weighted average market price at date of grant) | $ | 16.37 | |
| Estimated weighted average fair value of options per share at date of grant | $ | 5.57 | |
| Total estimated fair value of stock options granted (in thousands) | $ | 2,165 | |
The option plan also permitsdividend yield is the actual dividend yield on Tredegar’s common stock at the date of grant, which the Company believes is a reasonable estimate of the expected yield during the holding period. The expected volatility is based on the historical volatility of Tredegar’s common stock using a sequential period of historical data equal to the expected holding period of the option. The Company has no reason to believe that future volatility for this period is likely to differ from the past. The assumed risk-free interest rate is based on observed interest rates for U.S. Treasury debt securities appropriate for the expected holding period.
The following table summarizes additional information about stock options outstanding and exercisable at December 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Options Outstanding at December 31, 2023 | | Options Exercisable at December 31, 2023 |
| | | | | | | | | Weighted Average | | Aggregate Intrinsic Value | | | | | | Aggregate Intrinsic Value |
Range of
Exercise Prices | | Shares | | Remaining Contractual Life | | Exercise
Price | | | Shares | | Weighted Average Exercise Price | |
| $ | 10.75 | | | to | | $ | 16.37 | | | 2,939,509 | | | 1.9 years | | $ | 13.47 | | | $ | — | | | 2,939,509 | | | $ | 13.47 | | | $ | — | |
| 17.29 | | | to | | 25.94 | | | 79,824 | | | 0.2 years | | 19.90 | | | — | | | 79,824 | | | 19.90 | | | — | |
| Total | | 3,019,333 | | | 1.9 years | | $ | 13.64 | | | $ | — | | | 3,019,333 | | | $ | 13.64 | | | $ | — | |
The total intrinsic value of stock appreciation rights (“SARs”),options exercised was $0.2 million in 2021. There were no stock restrictedoptions exercised in 2023 and 2022. The grant-date fair value of stock option-based awards vested in 2023, 2022 and 2021 was $2.2 million, $5.4 million, and $3.5 million, respectively. As of December 31, 2023, there was no unrecognized compensation cost related to stock unit awards and incentiveoption-based awards.
Restricted stock grants ordinarily vest three years from the date of grant based upon continued employment. The fair value of restricted stock awards is estimated as of the grant date using the closing stock price on that date. Stock unit awards vest upon the achievement of certain performance targets. No SARs have been granted since 1992 and none are currently outstanding.
A summary of stock options outstanding at December 31, 2017, 2016 and 2015, and changes during those years, is presented below:
|
| | | | | | | | | | | | | | | | |
| | | | Option Exercise Price/Share |
| Number of Options | | Range | | Weighted Average |
| Outstanding at January 1, 2015 | 1,164,120 |
| | $ | 14.06 |
| | to | | $ | 30.01 |
| | $ | 19.59 |
|
| Granted | — |
| | — |
| | to | | — |
| | — |
|
| Forfeited and expired | (60,207 | ) | | 17.13 |
| | to | | 30.01 |
| | 22.30 |
|
| Exercised | (222,400 | ) | | 14.06 |
| | to | | 19.84 |
| | 16.34 |
|
| Outstanding at December 31, 2015 | 881,513 |
| | 17.13 |
| | to | | 30.01 |
| | 20.22 |
|
| Granted | — |
| | — |
| | to | | — |
| | — |
|
| Forfeited and expired | (246,394 | ) | | 17.13 |
| | to | | 30.01 |
| | 18.90 |
|
| Exercised | (134,200 | ) | | 17.13 |
| | to | | 19.84 |
| | 17.23 |
|
| Outstanding at December 31, 2016 | 500,919 |
| | 17.13 |
| | to | | 30.01 |
| | 21.67 |
|
| Granted | 209,551 |
| | 15.65 |
| | to | | 15.65 |
| | 15.65 |
|
| Forfeited and expired | (60,685 | ) | | 17.13 |
| | to | | 30.01 |
| | 21.42 |
|
| Exercised | (41,265 | ) | | 19.84 |
| | to | | 19.84 |
| | 19.84 |
|
| Outstanding at December 31, 2017 | 608,520 |
| | $ | 15.65 |
| | to | | $ | 24.84 |
| | $ | 19.75 |
|
The following table summarizes additional information about stock options outstanding and exercisable at December 31, 2017:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Options Outstanding at December 31, 2017 | | Options Exercisable at December 31, 2017 |
| | | | | | | | | Weighted Average | | Aggregate Intrinsic Value (In thousands) | | | | | | Aggregate Intrinsic Value
(In thousands) |
Range of Exercise Prices | | Shares | | Remaining Contractual Life (Years) | | Exercise Price | | | Shares | | Weighted Average Exercise Price | |
| $ | — |
| | to | | $ | 15.00 |
| | — |
| | 0.0 | | $ | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
|
| 15.01 |
| | to | | 17.50 |
| | 209,551 |
| | 6.4 | | 15.65 |
| | 743,906 |
| | — |
| | — |
| | — |
|
| 17.51 |
| | to | | 20.00 |
| | 171,460 |
| | 2.2 | | 19.58 |
| | 429 |
| | 171,460 |
| | 19.58 |
| | 429 |
|
| 20.01 |
| | to | | 25.00 |
| | 227,509 |
| | 5.6 | | 23.64 |
| | — |
| | 214,198 |
| | 23.71 |
| | — |
|
| Total | | 608,520 |
| | 4.9 | | $ | 19.75 |
| | $ | 744,335 |
| | 385,658 |
| | $ | 21.88 |
| | $ | 429 |
|
During 2015, the Board of Directors approved the accelerated vesting of stock options and restricted stock for several Tredegar executives who left the Company. Compensation expense recognized in 2015 for accelerated stock option vestings (0.4 million shares) and accelerated restricted stock vestings (0.1 million shares) totaled $0.4 million and $1.0 million, respectively.
The following table summarizes additional information about unvested restricted stock outstanding at December 31, 2017, 20162023, 2022 and 2015:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Unvested Restricted Stock | | Maximum Unvested Restricted Stock Units Issuable Upon Satisfaction of Certain Performance Criteria |
| | Number
of Shares | | Weighted Avg. Grant Date Fair Value/Share | | Grant Date
Fair Value
(In thousands) | | Number
of Shares | | Weighted Avg. Grant Date Fair Value/Share | | Grant Date
Fair Value
(In thousands) |
| Outstanding at January 1, 2021 | 234,979 | | | $ | 16.68 | | | $ | 3,919 | | | 112,502 | | | $ | 21.82 | | | $ | 2,455 | |
| Granted | 200,073 | | | 15.63 | | | 3,127 | | | 14,669 | | | 15.24 | | | 224 | |
| Vested | (87,636) | | | 15.78 | | | (1,383) | | | (73,930) | | | 17.17 | | | (1,269) | |
| Forfeited | (11,616) | | | 16.38 | | | (190) | | | (2,523) | | | 17.63 | | | (44) | |
| Outstanding at December 31, 2021 | 335,800 | | | 16.30 | | | 5,473 | | | 50,718 | | | 17.63 | | | 1,366 | |
| Granted | 301,969 | | | 11.88 | | | 3,587 | | | — | | | — | | | — | |
| Vested | (144,317) | | | 15.10 | | | (2,179) | | | — | | | — | | | — | |
| Forfeited | (18,474) | | | 14.94 | | | (276) | | | (50,718) | | | 17.63 | | | 1,366 | |
| Outstanding at December 31, 2022 | 474,978 | | | 13.82 | | | 6,564 | | | — | | | — | | | — | |
| Granted | 454,623 | | | 7.67 | | | 3,487 | | | — | | | — | | | — | |
| Vested | (167,077) | | | 11.29 | | | (1,886) | | | — | | | — | | | — | |
| Forfeited | (26,445) | | | 11.60 | | | (307) | | | — | | | — | | | — | |
| Outstanding at December 31, 2023 | 736,079 | | | $ | 10.68 | | | $ | 7,861 | | | — | | | $ | — | | | $ | — | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Unvested Restricted Stock | | Maximum Unvested Restricted Stock Units Issuable Upon Satisfaction of Certain Performance Criteria |
| | Number of Shares | | Weighted Avg. Grant Date Fair Value/Share | | Grant Date Fair Value (In thousands) | | Number of Shares | | Weighted Avg. Grant Date Fair Value/Share | | Grant Date Fair Value (In thousands) |
| Outstanding at January 1, 2015 | 188,058 |
| | $ | 22.48 |
| | $ | 4,227 |
| | 129,713 |
| | $ | 24.99 |
| | $ | 3,241 |
|
| Granted | 147,666 |
| | 18.87 |
| | 2,786 |
| | 144,582 |
| | 18.47 |
| | 2,670 |
|
| Vested | (174,145 | ) | | 20.57 |
| | (3,582 | ) | | — |
| | — |
| | — |
|
| Forfeited | (29,226 | ) | | 21.42 |
| | (626 | ) | | (107,167 | ) | | 20.78 |
| | (2,227 | ) |
| Outstanding at December 31, 2015 | 132,353 |
| | 21.19 |
| | 2,805 |
| | 167,128 |
| | 22.04 |
| | 3,684 |
|
| Granted | 144,546 |
| | 13.47 |
| | 1,947 |
| | 136,986 |
| | 11.34 |
| | 1,553 |
|
| Vested | (52,167 | ) | | 21.56 |
| | (1,125 | ) | | — |
| | — |
| | — |
|
| Forfeited | (17,377 | ) | | 18.97 |
| | (330 | ) | | (65,685 | ) | | 20.24 |
| | (1,329 | ) |
| Outstanding at December 31, 2016 | 207,355 |
| | 15.90 |
| | 3,297 |
| | 238,429 |
| | 16.39 |
| | 3,908 |
|
| Granted | 107,362 |
| | 18.29 |
| | 1,964 |
| | 46,205 |
| | 17.38 |
| | 803 |
|
| Vested | (50,154 | ) | | 19.72 |
| | (989 | ) | | — |
| | — |
| | — |
|
| Forfeited | (57,887 | ) | | 16.16 |
| | (935 | ) | | (112,501 | ) | | 17.73 |
| | (1,995 | ) |
| Outstanding at December 31, 2017 | 206,676 |
| | $ | 16.15 |
| | $ | 3,337 |
| | 172,133 |
| | $ | 15.78 |
| | $ | 2,716 |
|
The total intrinsic value of stock options exercised was $0.2 million in 2017, $0.2 million in 2016 and $1.0 million in 2015. The grant-date fair value of stock option-based awards vested was $0.4 million in 2017, $0.4 million in 2016 and $1.9 million in 2015. As of December 31, 2017, there was2023, the unrecognized compensation cost of $0.6 million related to stock option-based awards and $2.2 million related to non-vested restricted stock and other stock-based awards.awards was $3.6 million. This cost is expected to be recognized over the remaining weighted average period of 1.65 years for stock option-based awards and 1.3 years for non-vested restricted stock and other stock-based awards.1.9 years.
Stock options exercisable totaled 385,658 at December 31, 2017 and 453,067 shares at December 31, 2016. Stock options available for grant totaled 1,704,554 shares at December 31, 2017.
| |
13 | RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS |
Tredegar sponsors noncontributory defined benefit (pension) plans covering certain current and former employees. The plans for salaried and hourly employees currently in effect are based on a formula using the participant’s years of service and compensation or using the participant’s years of service and a dollar amount. The plan is closed to new participants, and pay for active participants of the plan was frozen as of December 31, 2007. As of January 31, 2018, the plan no longer accrued benefits associated with crediting employees for service, thereby freezing all future benefits under the plan.
In addition to providing pension benefits,SARs granted by the Company provides postretirement life insurance and health care benefits for certain groups of employees. Tredegar and retirees share in the cost of postretirement health care benefits, with employees hired on or before January 1, 1993, receiving a fixed subsidy to cover a portion of their health care premiums. The Company eliminated prescription drug coverage for Medicare-eligible retirees as of January 1, 2006. Consequently, Tredegar is not eligible for any federal subsidies.
The following tables reconcile the changes in benefit obligations and plan assets in 2017 and 2016, and reconcile the funded status to prepaid or accrued cost at December 31, 2017 and 2016:
|
| | | | | | | | | | | | | | | | | |
| | Pension Benefits | | | Other Post- Retirement Benefits |
| (In thousands) | 2017 | | 2016 | | | 2017 | | 2016 |
| Change in benefit obligation: | | | | | | | | |
| Benefit obligation, beginning of year | $ | 303,126 |
| | $ | 303,852 |
| | | $ | 7,436 |
| | $ | 7,745 |
|
| Service cost | 194 |
| | 231 |
| | | 33 |
| | 38 |
|
| Interest cost | 12,575 |
| | 13,323 |
| | | 301 |
| | 337 |
|
| Effect of actuarial (gains) losses related to the following: | | | | | | | | |
| Discount rate change | 21,055 |
| | 9,296 |
| | | 471 |
| | 210 |
|
| Retirement rate assumptions and mortality table adjustments | (2,145 | ) | | (5,537 | ) | | | 15 |
| | (433 | ) |
| Other | (1,921 | ) | | (3,025 | ) | | | (245 | ) | | (131 | ) |
| Plan participant contributions | — |
| | — |
| | | 646 |
| | 634 |
|
| Benefits paid | (14,761 | ) | | (15,014 | ) | | | (953 | ) | | (964 | ) |
| Benefit obligation, end of year | $ | 318,123 |
| | $ | 303,126 |
| | | $ | 7,704 |
| | $ | 7,436 |
|
| Change in plan assets: | | | | | | | | |
| Plan assets at fair value, beginning of year | $ | 214,559 |
| | $ | 210,642 |
| | | $ | — |
| | $ | — |
|
| Actual return on plan assets | 21,034 |
| | 11,199 |
| | | — |
| | — |
|
| Employer contributions | 5,522 |
| | 7,732 |
| | | 307 |
| | 330 |
|
| Plan participant contributions | — |
| | — |
| | | 646 |
| | 634 |
|
| Benefits paid | (14,761 | ) | | (15,014 | ) | | | (953 | ) | | (964 | ) |
| Plan assets at fair value, end of year | $ | 226,354 |
| | $ | 214,559 |
| | | $ | — |
| | $ | — |
|
| Funded status of the plans | $ | (91,769 | ) | | $ | (88,567 | ) | | | $ | (7,704 | ) | | $ | (7,436 | ) |
| Amounts recognized in the consolidated balance sheets: | | | | | | | | |
| Accrued expenses (current) | $ | 182 |
| | $ | 182 |
| | | $ | 457 |
| | $ | 453 |
|
| Pension and other postretirement benefit obligations, net | 91,587 |
| | 88,385 |
| | | 7,247 |
| | 6,983 |
|
| Net amount recognized | $ | 91,769 |
| | $ | 88,567 |
| | | $ | 7,704 |
| | $ | 7,436 |
|
Assumptions used for financial reporting purposes to compute net benefit income or cost and benefit obligations for continuing operations, and the components of net periodic benefit income or cost for continuing operations, are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | | Other Post- Retirement Benefits |
| (In thousands, except percentages) | 2017 | | 2016 | | 2015 | | | 2017 | | 2016 | | 2015 |
| Weighted-average assumptions used to determine benefit obligations: | | | | | | | | | | | | |
| Discount rate | 3.72 | % | | 4.29 | % | | 4.55 | % | | | 3.69 | % | | 4.24 | % | | 4.49 | % |
| Expected long-term return on plan assets | 6.50 | % | | 6.50 | % | | 7.00 | % | | | n/a |
| | n/a |
| | n/a |
|
| Weighted-average assumptions used to determine net periodic benefit cost: | | | | | | | | | | | | |
| Discount rate | 4.29 | % | | 4.55 | % | | 4.17 | % | | | 4.24 | % | | 4.49 | % | | 4.11 | % |
| Expected long-term return on plan assets | 6.50 | % | | 7.00 | % | | 7.50 | % | | | n/a |
| | n/a |
| | n/a |
|
| Components of net periodic benefit cost: | | | | | | | | | | | | |
| Service cost | $ | 194 |
| | $ | 231 |
| | $ | 530 |
| | | $ | 33 |
| | $ | 38 |
| | $ | 44 |
|
| Interest cost | 12,575 |
| | 13,323 |
| | 13,217 |
| | | 301 |
| | 337 |
| | 325 |
|
| Expected return on plan assets | (14,955 | ) | | (15,980 | ) | | (17,636 | ) | | | — |
| | — |
| | — |
|
| Amortization of prior service costs and gains or losses | 12,320 |
| | 13,312 |
| | 16,190 |
| | | (275 | ) | | (214 | ) | | (194 | ) |
| Settlement/curtailment | — |
| | — |
| | 45 |
| | | — |
| | — |
| | — |
|
| Net periodic benefit cost | $ | 10,134 |
| | $ | 10,886 |
| | $ | 12,346 |
| | | $ | 59 |
| | $ | 161 |
| | $ | 175 |
|
Net benefit income or cost is determined using assumptions at the beginning of each year. Funded status is determined using assumptions at the end of each year. The amount of the accumulated benefit obligation is the same as the projected benefit obligation. At December 31, 2017, the effect of a 1% change in the health care cost trend rate assumptions would not impact the post-retirement obligation.
Expected benefit payments for continuing operations over the next five2021 vest after 2 years and have a 7-year life. There were no SARs granted in the aggregate for 2023-20272023 or 2022. SARs may be settled in cash upon exercise and therefore are classified as follows:
|
| | | | | | | |
| (In thousands) | Pension Benefits | | Other Post- Retirement Benefits |
| 2018 | $ | 16,378 |
| | $ | 457 |
|
| 2019 | 16,916 |
| | 461 |
|
| 2020 | 17,403 |
| | 462 |
|
| 2021 | 17,762 |
| | 466 |
|
| 2022 | 18,075 |
| | 469 |
|
| 2023—2027 | 92,799 |
| | 2,299 |
|
Amounts recorded in 2017, 2016liabilities and 2015 in accumulated other comprehensive income, before related deferred income taxes, consist of:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension | | Other Post-Retirement |
| (In thousands) | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Prior service cost (benefit) | $ | 5 |
| | $ | 10 |
| | $ | 18 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Net actuarial (gain) loss | 144,377 |
| | 145,782 |
| | 153,570 |
| | (1,238 | ) | | (1,756 | ) | | (1,616 | ) |
Pension expense is expected to be $10.2 million in 2018. The amounts in accumulated other comprehensive income, before related deferred income taxes, that are expected to be recognized as components of net periodic benefit or cost during 2018 are as follows:
|
| | | | | | | |
| (In thousands) | Pension | | Other Post- Retirement |
| Prior service cost (benefit) | $ | 5 |
| | $ | — |
|
| Net actuarial (gain) loss | 13,706 |
| | (218 | ) |
The percentage composition of assets held by pension plans for continuing operations at December 31, 2017, 2016 and 2015 are as follows:
|
| | | | | | | | |
| | % Composition of Plan Assets at December 31, |
| | 2017 | | 2016 | | 2015 |
| Pension plans related to continuing operations: | | | | | |
| Fixed income securities | 7.7 | % | | 8.0 | % | | 12.8 | % |
| Large/mid-capitalization equity securities | 19.0 |
| | 14.7 |
| | 13.8 |
|
| Small-capitalization equity securities | 6.4 |
| | 5.3 |
| | 4.0 |
|
| International and emerging market equity securities | 15.1 |
| | 11.5 |
| | 10.9 |
|
| Total equity securities | 40.5 |
| | 31.5 |
| | 28.7 |
|
| Private equity and hedge funds | 44.6 |
| | 48.4 |
| | 52.4 |
|
| Other assets | 7.2 |
| | 12.1 |
| | 6.1 |
|
| Total for continuing operations | 100.0 | % | | 100.0 | % | | 100.0 | % |
Tredegar’s targeted allocation percentage for pension plan assets and the expected long-term rate of return on assets used to determine its benefit obligation at December 31, 2017, are as follows:
|
| | | | | |
| | Target % Composition of Plan Assets * | | Expected Long-term Return % |
| Pension plans related to continuing operations: | | | |
| Fixed income securities | 12.0 | % | | 2.1 | % |
| Large/mid-capitalization equity securities | 19.0 |
| | 8.3 |
|
| Small-capitalization equity securities | 6.0 |
| | 9.6 |
|
| International and emerging market equity securities | 15.0 |
| | 8.6 |
|
| Total equity securities | 40.0 |
| | 8.6 |
|
| Private equity and hedge funds | 48.0 |
| | 5.9 |
|
| Total for continuing operations | 100.0 | % | | 6.5 | % |
* Target percentages for the composition of plan assets represents a neutral position within the approved range of allocations for such assets.
|
Expected long-term returns are estimated by asset class and generally are based on inflation-adjusted historical returns, volatilities, risk premiums and managed asset premiums. The portfolio of fixed income securities is structured with maturities that generally match estimated benefit payments over the next 1-2 years. The other assets category is primarily comprised of cash and contracts with insurance companies. The Company’s primary investment objective is to maximize total return with a strong emphasis on the preservation of capital, and it believes that over the long-term a diversified portfolio of fixed income securities, equity securities, hedge funds and private equity funds has a better risk-return profile than fixed income securities alone. The average remaining duration of benefit payments for the pension plans is about 11.3 years. The Company expects its required contributions to be approximately $5.3 million in 2018.
Estimates of the fair value of assets held by the Company’s pension plan are provided by unaffiliated third parties. Investments in private equity and hedge funds and certain fixed income securities by the Company’s pension plan are measured at NAV, which is a practical expedient for measuring fair value. These assets are therefore excluded from the fair value hierarchy for each of the years presented. At December 31, 2017 and 2016, the pension plan assets are categorized by level within the fair value measurement hierarchy as follows:
|
| | | | | | | | | | | | | | | | |
| (In thousands) | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Balances at December 31, 2017 | | | | | | | |
| Large/mid-capitalization equity securities | $ | 42,920 |
| | $ | 42,920 |
| | $ | — |
| | $ | — |
|
| Small-capitalization equity securities | 14,477 |
| | 14,477 |
| | — |
| | — |
|
| International and emerging market equity securities | 34,153 |
| | 16,409 |
| | 17,744 |
| | — |
|
| Fixed income securities | 17,513 |
| | 5,374 |
| | 12,139 |
| | — |
|
| Other assets | 5,822 |
| | 5,822 |
| | — |
| | — |
|
| Total plan assets at fair value | $ | 114,885 |
| | $ | 85,002 |
| | $ | 29,883 |
| | $ | — |
|
| Private equity and hedge funds | 100,974 |
| | | | | | |
| Contracts with insurance companies | 10,495 |
| | | | | | |
| Total plan assets, December 31, 2017 | $ | 226,354 |
| | | | | | |
| Balances at December 31, 2016 | | | | | | | |
| Large/mid-capitalization equity securities | $ | 31,549 |
| | $ | 31,549 |
| | $ | — |
| | $ | — |
|
| Small-capitalization equity securities | 11,389 |
| | 11,389 |
| | — |
| | — |
|
| International and emerging market equity securities | 24,710 |
| | 11,410 |
| | 13,300 |
| | — |
|
| Fixed income securities | 17,213 |
| | 4,441 |
| | 12,772 |
| | — |
|
| Other assets | 15,853 |
| | 15,853 |
| | — |
| | — |
|
| Total plan assets at fair value | $ | 100,714 |
| | $ | 74,642 |
| | $ | 26,072 |
| | $ | — |
|
| Private equity and hedge funds | 103,686 |
| | | | | | |
| Contracts with insurance companies | 10,158 |
| | | | | | |
| Total plan assets, December 31, 2016 | $ | 214,558 |
| | | | | | |
Tredegar also has a non-qualified supplemental pension plan covering certain employees. Effective December 31, 2005, further participation in this plan was terminated and benefit accruals for existing participants were frozen. The plan was designed to restore all or a part of the pension benefits that would have been payable to designated participants from the principal pension plans if it were not for limitations imposed by income tax regulations. The projected benefit obligation relating to this unfunded plan was $2.2 million at December 31, 2017 and $2.2 million at December 31, 2016. Pension expense recognized for this plan was $0.1 million in 2017, $0.1 million in 2016 and $0.1 million in 2015. This information has been included in the preceding pension benefit tables.
Approximately 70 employees at the Company’s film products manufacturing facility in Kerkrade, The Netherlands are covered by a collective bargaining agreement that includes participation in a multi-employer pension plan. Pension expense recognized for participation in this plan, which is equal to required contributions, was $0.4 million in 2017, $0.4 million in 2016 and $0.4 million in 2015. This information has been excluded from the preceding pension benefit tables.
Tredegar has a savings plan that allows eligible employees to voluntarily contribute a percentage of their compensation, up to Internal Revenue Service (“IRS”) limitations. The provisions of the savings plan provided the following benefits for salaried and certain hourly employees:
The Company makes matching contributions to the savings plan of $1 for every $1 an employee contributes per pay period up to a maximum of 5% of eligible compensation.
The savings plan includes immediate vesting of matching contributions and automatic enrollment at 3% of eligible compensation unless the employee opts out or elects a different percentage.
The Company also has a non-qualified plan that restores matching benefits for employees suspended from the savings plan due to certain limitations imposed by income tax regulations (“restoration plan”). Charges recognized for these plans were $3.5 million in 2017, $3.2 million in 2016 and $3.0 million in 2015. The Company’s liability under the restoration plan was $1.3 million at December 31, 2017 (consisting of 65,548 phantom shares of common stock) and $1.6 million at December 31, 2016 (consisting of 67,013 phantom shares of common stock) and valued at the closing market price on those dates.
The Tredegar Corporation Benefits Plan Trust (the “Trust”) purchased 7,200 shares of the Company’s common stock in 1998 for $0.2 million and 46,671 shares of its common stock in 1997 for $1.0 million, as a partial hedge against the phantom shares held in the restoration plan. There have been no shares purchased since 1998 except for re-invested dividends. The cost of the shares held by the Trust is shown as a reduction to shareholders’ equityaccrued expenses in the consolidated balance sheets.sheet. The fair value of these liability awards is remeasured at each reporting period until the date of settlement. Increases and decreases in stock-based compensation expense are recognized over the vesting period, or immediately, for vested awards.
A summary of SARs outstanding at December 31, 2023, 2022 and 2021, and changes during those years, is presented below: | |
15 | RENTAL EXPENSE AND CONTRACTUAL COMMITMENTS |
Rental expense for continuing operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Exercise Price/Share |
| | Number of
SARs | | Range | | Weighted
Average |
| Outstanding at January 1, 2021 | 376,440 | | | $ | 10.75 | | | to | | $ | 19.64 | | | $ | 11.64 | |
| Granted | 164,464 | | | 16.37 | | | to | | 16.37 | | | 16.37 | |
| Forfeited and expired | (10,043) | | | 10.75 | | | to | | 16.37 | | | 13.01 | |
| Exercised | (9,260) | | | 10.75 | | | to | | 15.25 | | | 13.87 | |
| Outstanding at December 31, 2021 | 521,601 | | | 10.75 | | | to | | 16.37 | | | 13.55 | |
| | | | | | | | | |
| Forfeited and expired | (22,914) | | | 10.75 | | | to | | 16.37 | | | 14.83 | |
| | | | | | | | | |
| Outstanding at December 31, 2022 | 498,687 | | | 10.75 | | | to | | 16.37 | | | 13.49 | |
| | | | | | | | | |
| Forfeited and expired | (53,969) | | | 10.75 | | | to | | 16.37 | | | 12.78 | |
| | | | | | | | | |
| Outstanding at December 31, 2023 | 444,718 | | | $ | 10.75 | | | to | | $ | 16.37 | | | $ | 13.57 | |
The grant-date fair value of SARs awards vested in 2022 and 2021 was $4.4$0.5 million in 2017, $2.9 million in 2016 and $3.6 million in 2015. Rental commitments under all noncancellable leases (including $0.1 million, for capital leases) for continuing operations asrespectively. The grant-date fair value of SARs awards vested in 2023 was immaterial. As of December 31, 2017, are as follows:
|
| | | | |
| (In thousands) | |
| 2018 | $ | 3,657 |
|
| 2019 | 3,532 |
|
| 2020 | 3,314 |
|
| 2021 | 2,826 |
|
| 2022 | 1,991 |
|
| Remainder | 3,109 |
|
| Total minimum lease payments | $ | 18,429 |
|
Contractual obligations for plant construction and purchases of real property and equipment amounted to $4.6 million at December 31, 2017.
The TCJA makes broad and complex changes to the U.S. tax code, including, but not limited to: (i) reducing the U.S. federal corporate income tax rate from 35 percent to 21 percent; (ii) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (iii) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (iv) creating new taxes on certain foreign earnings; (v) eliminating certain deductions; and (vi) providing the option to full expensing of qualified property.
The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under Accounting Standards Codification No. 740 (“ASC 740”). In accordance with SAB 118, a company must reflect the income tax effects of a company’s accounting for those tax effects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain tax effects of the TCJA is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a reasonable estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax law that were in effect immediately before the enactment of the TCJA.
The TCJA is complex and its impact may materially differ from the Company’s estimates, due to, among other things, changes in the Company’s assumptions, implementation guidance that may be issued from the IRS and related interpretations and clarifications of tax law relevant for the completion of the Company’s 2017 tax return filings. The Company expects to complete its assessment of these items during 2018, and any adjustments to the provisional amounts initially recorded, will be included as an adjustment to income tax expense or benefit in the period the amounts are determined, in accordance with SAB 118.
Item (i) above has been completed and resulted in a non-cash deferred income tax benefit in the fourth quarter of 2017 of $3.9 million to adjust applicable deferred income tax assets and liabilities for the change in the U.S. federal corporate income tax rate. Income tax accruals on U.S. income in future periods will apply the new 21% rate. While item (ii) has not been completed, the Company has not accrued any deemed repatriation taxes on unrepatriated earnings of its foreign subsidiaries,
since its preliminary assessment indicates that such foreign subsidiaries have2023, there was no net cumulative unremitted earnings due to historical repatriation. The remaining TCJA summary items (iii through vi) relate to 2018 and beyond.
The application of the new Global Intangible Low Taxed Income (“GILTI”) tax rules to the Company, which is part of item (iv), is not complete. The rules are complex, and under GAAP the Company is allowed to make a policy choice of either: (a) treating taxes due on future U.S. inclusions in taxable incomeunrecognized compensation cost related to GILTI as current period expense when incurred (the “period cost method”), or (b) factoring such amounts into a company’s measurement of its deferred income taxes (the “deferred method”). The selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on the Company’s analysis of its global income to determine whether it expects to have future U.S. inclusions in taxable income related to GILTI, and, if so, what the impact is expected to be. Consequently, the Company has not been able to complete this analysis at this time and is not able to reasonably estimate the effect of this provision of the TCJA. Accordingly, the Company has not made any adjustments related to potential GILTI tax in its financial statements and has not made a policy decision regarding whether to record deferred income taxes on GILTI.SARs.
12. INCOME TAXES
Income (loss) before income taxes and income tax expense (benefit) are as follows:
|
| | | | | | | | | | | | |
| (In thousands) | | 2017 | | 2016 | | 2015 |
| Income (loss) before income taxes: | | | | | |
| Domestic | $ | 67,549 |
| | $ | 26,284 |
| | $ | (9,116 | ) |
| Foreign | (82,461 | ) | | 1,399 |
| | (14,091 | ) |
| Total | $ | (14,912 | ) | | $ | 27,683 |
| | $ | (23,207 | ) |
| Current income tax expense (benefit): | | | | | |
| Federal | $ | (20,560 | ) | | $ | 4,302 |
| | $ | 12,693 |
|
| State | 800 |
| | (709 | ) | | 973 |
|
| Foreign | 3,247 |
| | 3,255 |
| | 6,064 |
|
| Total | (16,513 | ) | | 6,848 |
| | 19,730 |
|
| Deferred income tax expense (benefit): | | | | | |
| Federal | (23,302 | ) | | (2,505 | ) | | (9,419 | ) |
| State | (949 | ) | | 1,396 |
| | (1,035 | ) |
| Foreign | (12,399 | ) | | (2,522 | ) | | (348 | ) |
| Total | (36,650 | ) | | (3,631 | ) | | (10,802 | ) |
| Total income tax expense (benefit) | $ | (53,163 | ) | | $ | 3,217 |
| | $ | 8,928 |
|
| | | | | | | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Income (loss) before income taxes: | | | | | |
| Domestic | $ | (175,510) | | | $ | 3,259 | | | $ | 22,774 | |
| Foreign | 15,480 | | | 29,585 | | | 44,336 | |
| Total | $ | (160,030) | | | $ | 32,844 | | | $ | 67,110 | |
| Current income tax expense (benefit): | | | | | |
| Federal | $ | 19 | | | $ | 2 | | | $ | 1,232 | |
| State | — | | | 772 | | | 764 | |
| Foreign | 1,954 | | | 3,071 | | | 13,521 | |
| Total | 1,973 | | | 3,845 | | | 15,517 | |
| Deferred income tax expense (benefit): | | | | | |
| Federal | (57,220) | | | 24 | | | (7,862) | |
| State | (280) | | | (537) | | | 125 | |
| Foreign | 1,402 | | | 1,057 | | | 1,504 | |
| Total | (56,098) | | | 544 | | | (6,233) | |
| Total income tax expense (benefit) | $ | (54,125) | | | $ | 4,389 | | | $ | 9,284 | |
The significant differences between the U.S. federal statutory rate and the effective income tax rate for continuing operations are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| (In thousands, except percentages) | Amount | % | | Amount | % | | Amount | % |
| Income tax expense (benefit) at federal statutory rate | $ | (33,622) | | 21.0 | | | $ | 6,882 | | 21.0 | | | $ | 14,116 | | 21.0 | |
| Stranded taxes released with termination of pension | (21,912) | | 13.7 | | | — | | — | | | — | | — | |
| Changes in estimates related to prior year tax provision | (1,322) | | 0.8 | | | (175) | | (0.5) | | | (383) | | (0.6) | |
| Brazilian tax incentive | (876) | | 0.5 | | | (3,873) | | (11.8) | | | (7,019) | | (10.4) | |
| Research and development tax credit | (766) | | 0.5 | | | (1,489) | | (4.5) | | | (928) | | (1.4) | |
| Tax on Prodepe tax incentive | (488) | | 0.3 | | | (1,024) | | (3.1) | | | 2,858 | | 4.3 | |
| State taxes, net of federal income tax benefit | (437) | | 0.3 | | | 48 | | 0.1 | | | 933 | | 1.4 | |
| Foreign currency translation variation on intercompany loans | — | | — | | | — | | — | | | 1,374 | | 2.0 | |
| Dividend received deduction net of foreign withholding tax | — | | — | | | — | | — | | | (109) | | (0.2) | |
| Foreign derived intangible income deduction | — | | — | | | (763) | | (2.3) | | | — | | — | |
| Tax contingency accruals and tax settlements | 1 | | — | | | 88 | | 0.3 | | | 202 | | 0.3 | |
| Changes in federal valuation allowance | 237 | | (0.1) | | | — | | — | | | (5,415) | | (8.1) | |
| Non-deductible other | 594 | | (0.4) | | | 381 | | 1.2 | | | 1,053 | | 1.6 | |
| Foreign rate differences | 1,746 | | (1.1) | | | 2,924 | | 8.9 | | | 8,269 | | 12.3 | |
| U.S. tax on foreign branch income | 2,720 | | (1.7) | | | 1,390 | | 4.1 | | | (5,667) | | (8.4) | |
| Income tax expense (benefit) at effective income tax rate | $ | (54,125) | | 33.8 | | | $ | 4,389 | | 13.4 | | | $ | 9,284 | | 13.8 | |
|
| | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| (In thousands, except percentages) | Amount |
| % |
| | Amount |
| % |
| | Amount |
| % |
|
| Income tax expense (benefit) at federal statutory rate | $ | (5,219 | ) | 35.0 |
| | $ | 9,689 |
| 35.0 |
| | $ | (8,122 | ) | 35.0 |
|
| Worthless stock deductions | (61,413 | ) | 411.9 |
| | — |
| — |
| | — |
| — |
|
| Impact of U.S. Tax Cuts and Jobs Act | (4,433 | ) | 29.7 |
| | — |
| — |
| | — |
| — |
|
| Settlement of Terphane acquisition escrow | (4,200 | ) | 28.2 |
| | — |
| — |
| | — |
| — |
|
| Increase in value of kaléo investment held abroad | (2,326 | ) | 15.6 |
| | (197 | ) | (0.7 | ) | | 2,523 |
| (10.9 | ) |
| Tax contingency accruals and tax settlements | (420 | ) | 2.8 |
| | 104 |
| 0.4 |
| | 716 |
| (3.1 | ) |
| Research and development tax credit | (375 | ) | 2.5 |
| | (550 | ) | (2.0 | ) | | (350 | ) | 1.5 |
|
| Brazilian tax incentive | — |
| — |
| | — |
| — |
| | (120 | ) | 0.5 |
|
| Unremitted earnings from foreign operations | — |
| — |
| | (256 | ) | (0.9 | ) | | (502 | ) | 2.2 |
|
| Domestic Production Activities Deduction | — |
| — |
| | (735 | ) | (2.7 | ) | | (840 | ) | 3.6 |
|
| Remitted earnings from foreign operations | — |
| — |
| | (6,574 | ) | (23.7 | ) | | (18 | ) | 0.1 |
|
| Valuation allowance for capital loss carryforwards | 83 |
| (0.6 | ) | | 267 |
| 1.0 |
| | (311 | ) | 1.3 |
|
| Non-deductible goodwill and asset impairment loss | 228 |
| (1.5 | ) | | 13 |
| — |
| | 15,798 |
| (68.1 | ) |
| Changes in estimates related to prior year tax provision | 320 |
| (2.1 | ) | | 330 |
| 1.2 |
| | 489 |
| (2.1 | ) |
| Non-deductible expenses | 633 |
| (4.2 | ) | | 396 |
| 1.4 |
| | 448 |
| (1.9 | ) |
| State taxes, net of federal income tax benefit | 656 |
| (4.4 | ) | | 647 |
| 2.3 |
| | (67 | ) | 0.3 |
|
| Foreign rate differences | 2,546 |
| (17.1 | ) | | 499 |
| 1.8 |
| | (719 | ) | 3.1 |
|
| Valuation allowance due to foreign losses and impairments | 20,757 |
| (139.3 | ) | | (416 | ) | (1.5 | ) | | 3 |
| — |
|
| Income tax expense (benefit) at effective income tax rate | $ | (53,163 | ) | 356.5 |
| | $ | 3,217 |
| 11.6 |
| | $ | 8,928 |
| (38.5 | ) |
During 2017,Provision (benefit) for income taxes for the Company completed a planyear ended December 31, 2023 was $(54.1) million compared to liquidate$4.4 million for the year ended December 31, 2022. The effective tax purposes one of its domestic subsidiaries, which allowed itrates for the years ended December 31, 2023 and 2022 were 33.8% and 13.4%, respectively. The change in effective tax rate is primarily attributed to claim antax benefits previously recorded in other comprehensive income tax benefit on the write-off of the stock basis of Terphane, Inc. (Terphane’s U.S. affiliate) on its 2017 U.S. federal income tax return. The Company recorded an income tax benefit during the second quarter of 2017 of $8.1 million related to this worthless stock deduction, net of valuation allowances and accrual for uncertain tax positions. Also, during the fourth quarter of 2017,(loss) that were released as a result of valuation activities and other efforts, the Company claimed an ordinary loss for U.S.pension plan termination, partially offset by a reduction in Brazilian tax incentives as a percentage of income. The stranded taxes released with the termination of the pension plan represent the effect of the change in federal and state tax rates on pension-related deferred tax items initially recorded in other comprehensive income. The related stranded taxes were released in full in 2023.
The effective tax rate in 2022 was impacted by a large discrete benefit recorded in the first quarter of 2022, resulting from the implementation of new U.S. tax regulations associated with foreign tax credits published by the U.S. Treasury and Internal Revenue Service (“IRS”) on January 4, 2022. These regulations overhauled various components of the foreign tax credit regime including the determination of creditable foreign taxes and limit the amount of foreign taxes that are creditable against U.S. income taxes. As the result of these regulations, future Brazilian income tax purposes of $153 million forunder Brazil tax law in place at that time
would have been deductible, but not creditable, in the write-offU.S. The accounting rules require a reduction of the stock basisU.S. deferred tax liability previously established related to anticipated future income from Brazil. The IRS released guidance in 2023 that provides temporary relief for tax years after 2021 from the regulations published by the U.S. Treasury and Internal Revenue Service on January 4, 2022. As a result of the IRS guidance released in 2023, the reduction in the first quarter of 2022 of the U.S. deferred tax liability previously established related to anticipated future income from Brazil was reversed in 2023.
The effective tax rate in 2021 was impacted by the strong earnings of Terphane Limitada (Terphane’s Brazilian entity). The fullLtda, which are included in Tredegar’s U.S. consolidated tax benefit accrued forreturn and, the Terphane Limitada worthless stock deduction at the 35% U.S. corporate income tax rate applicable for 2017 was approximately $54 million. This benefit was reduced by $4.8 million in conjunction with the TCJA for the portionimpact of the deduction that is expected to be applied to income generated after 2017 wherelocal statutory tax rates of Tredegar’s foreign subsidiaries being higher than the newcurrent U.S. federal corporate income tax rate of 21% is applicable. The significant foreign rate difference for 2017 is primarily due to, the difference between Hungary’s incomebenefit of tax rate of 9%incentives in Brazil and the U.S. federal corporate income tax raterelease of 35%.the valuation allowance for capital loss carryforwards.
Tredegar accrues U.S. federal income taxes on unremitted earnings of all foreign subsidiaries where required. However, due to changes in the taxation of dividends under TCJA,However; Tredegar will only record U.S. federal income taxes on unremitted earnings of its foreign subsidiaries where Tredegar cannot take steps to eliminate any potential tax on future distributions from its foreign subsidiaries. Prior to the second quarter of 2016, deferred U.S. federal income taxes had not been recorded for the undistributed earnings for Terphane Limitada. because the Company had intended to permanently reinvest these earnings. Due to concerns about the political and economic conditions in Brazil, Terphane Limitada began making cash distributions to the Company in 2016. During the second quarter of 2016, Terphane Limitada paid a dividend of $10.7 million to the Company. During the second quarter of 2017, the Company recognized a net tax benefit of $0.4 million associated with additional U.S. tax related to this repatriation of cash from Brazil offset by the reversal of related tax contingencies. Because of the accumulation of significant losses related to foreign currency translations at Terphane Limitada,Ltda., there were no deferred income tax liabilities associated with the U.S. federal income taxes and foreign withholding taxes on Terphane Limitada’sLtda.’s undistributed earnings as of and December 31, 20172023 and 2016.
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. In 2016, the difference between the federal statutory rate and the effective tax rate is primarily driven by the $6.4 million tax benefit from excess foreign tax credits related to the repatriation of cash from Brazil discussed above.
2022.
The Brazilian federal statutory income tax rate is a composite of 34.0% (25.0% of income tax and 9.0% of social contribution on income). Terphane’s manufacturing facility in Brazil is the beneficiary of certain income tax incentives that allow for a reduction in the statutory Brazilian federal income tax rate levied on the operating profit of its products. These incentives produce a current tax rate of 15.25% for Terphane (6.25% of income tax and 9.0% social contribution on income). The incentives have beenwere originally granted for a 10-year period which has a commencement date ofcommencing January 1, 2015 and will expireexpiring at the end of 2024. Terphane Brazil has been granted an additional three years of tax incentives through the end of 2027. The benefit from the tax incentives was immaterial$0.9 million, $3.9 million and $7.0 million in 2017, 20162023, 2022 and 2015.2021, respectively.
Deferred income tax liabilitiesassets and deferred income tax assetsliabilities at December 31, 20172023 and 2016,2022, are as follows:
| | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 |
| Deferred income tax assets: | | | |
| Pension and other postretirement obligations | $ | — | | | $ | 7,535 | |
| Employee benefits | 5,821 | | | 7,558 | |
| Basis difference in capital assets | 2,131 | | | 2,098 | |
| Inventory | 2,643 | | | 3,952 | |
| Asset write-offs, divestitures and environmental accruals | 1,025 | | | 1,075 | |
| U.S. federal and state NOL and credit carryforwards | 33,247 | | | 24,914 | |
| Capitalized R&D expenditures | 6,543 | | | 4,874 | |
| Other | 2,364 | | | 1,220 | |
| Lease liabilities | 2,711 | | | 3,328 | |
| Interest expense limitation | 2,592 | | | — | |
| Foreign currency translation gain adjustment | 591 | | | 1,224 | |
| Deferred income tax assets before valuation allowance | 59,668 | | | 57,778 | |
| Less: Valuation allowance | 15,078 | | | 13,807 | |
| Total deferred income tax assets | 44,590 | | | 43,971 | |
| Deferred income tax liabilities: | | | |
| Goodwill and identifiable intangibles | $ | 3,392 | | | $ | 10,533 | |
| Property, plant and equipment | 10,330 | | | 14,950 | |
| Foregone tax credits on foreign branch income | 1,880 | | | 719 | |
| | | |
| | | |
| Right-of-use leased assets | 2,409 | | | 3,147 | |
| Other | 1,545 | | | 722 | |
| Total deferred income tax liabilities | 19,556 | | | 30,071 | |
| Net deferred income tax assets (liabilities) | $ | 25,034 | | | $ | 13,900 | |
| Amounts recognized in the consolidated balance sheets: | | | |
| Deferred income tax assets (noncurrent) | $ | 25,034 | | | $ | 13,900 | |
| Deferred income tax liabilities (noncurrent) | — | | | — | |
| Net deferred income tax assets (liabilities) | $ | 25,034 | | | $ | 13,900 | |
|
| | | | | | | |
| (In thousands) | 2017 | | 2016 |
| Deferred income tax liabilities: | | | |
| Amortization of goodwill and identifiable intangibles | $ | 22,739 |
| | $ | 43,546 |
|
| Depreciation | — |
| | 24,178 |
|
| Foreign currency translation gain adjustment | 433 |
| | 1,424 |
|
| Excess of carrying value over tax basis of investment in kaléo | 8,602 |
| | 4,131 |
|
| Derivative financial instruments | 167 |
| | 493 |
|
| Total deferred income tax liabilities | 31,941 |
| | 73,772 |
|
| Deferred income tax assets: | | | |
| Depreciation | 4,917 |
| | — |
|
| Pensions | 19,626 |
| | 30,733 |
|
| Employee benefits | 6,842 |
| | 10,262 |
|
| Excess capital losses | 4,695 |
| | 11,726 |
|
| Inventory | 2,884 |
| | 3,622 |
|
| Asset write-offs, divestitures and environmental accruals | 1,754 |
| | 2,515 |
|
| Tax benefit on U.S. federal, state and foreign NOL and credit carryforwards | 33,384 |
| | 4,921 |
|
| Timing adjustment for unrecognized tax benefits on uncertain tax positions, including portion relating to interest and penalties | 184 |
| | 395 |
|
| Allowance for doubtful accounts | 406 |
| | 198 |
|
| Other | 261 |
| | 1,568 |
|
| Deferred income tax assets before valuation allowance | 74,953 |
| | 65,940 |
|
| Less: Valuation allowance | 28,499 |
| | 12,694 |
|
| Total deferred income tax assets | 46,454 |
| | 53,246 |
|
| Net deferred income tax (assets) liabilities | $ | (14,513 | ) | | $ | 20,526 |
|
| Amounts recognized in the consolidated balance sheets: | | | |
| Deferred income tax assets (noncurrent) | $ | 16,636 |
| | $ | 584 |
|
| Deferred income tax liabilities (noncurrent) | 2,123 |
| | 21,110 |
|
| Net deferred income tax assets (liabilities) | $ | 14,513 |
| | $ | (20,526 | ) |
Except as noted below, the Company believes that it is more likely than not that future taxable income will exceed future tax-deductible amounts thereby resulting in the realization of deferred income tax assets.assets the Company had U.S. federal and state tax credits of $16.7 million, net operating loss carryforwards of $16.5 million and a deferred interest limitation of $2.6 million at December 31, 2023. The Company has estimated grosshad U.S. federal state and foreignstate tax credits of $15.3 million and net operating loss carryforwards of $33.4 million and $4.9$9.6 million at December 31, 2017 and 2016, respectively. The U.S. federal tax credits will expire in between 2026 and 2037.2022. The U.S. federal net operating loss carryforwardsand deferred interest limitation can be carried forward indefinitely. The U.S. federal foreign tax credits will expire in 2037. The majority ofbetween 2027-2033 and the foreign net operating loss carryforwards do not expire.U.S. federal research and development tax credits will expire by 2044. The U.S. state carryforwards expire at different points over the next 10 to 20 years.
Valuation allowances of $8.5$12.9 million, $1.5$10.3 million and $1.5$9.4 million at December 31, 2017, 20162023, 2022 and 2015,2021, respectively, are recorded against the tax benefit on U.S. federal state and foreignstate tax credits and net operating loss carryforwards generated by certain foreign and domestic subsidiaries that may not be recoverable in the carryforward period. The valuation allowance for excessunrealized capital losses from investments and other related items was $4.4 million, $11.2 million and $10.9$0.7 million at December 31, 2017, 20162022 and 2015. The current year balance decreased primarily due to the expiration of a portion of the capital loss carryforwards and the enacted reduction in the U.S. federal corporate income tax rate.2021. The amount of the deferred income tax asset considered realizable, however, could be adjusted in the near term if estimates of the fair value of certain investments during the carryforwardcarry-forward period change. Tredegar continues to evaluate opportunities to utilize capital loss carryforwards prior to their expiration at various dates in the future.
As circumstances and events warrant, allowances will be reversed when it is more likely than not that future taxable income will exceed deductible amounts, thereby resulting in the realization of deferred income tax assets. The valuation allowance for asset impairments in foreign jurisdictions where the Company believes it is more likely than not that the deferred income tax asset will not be realized was $15.6Valuation allowances of $2.2 million, $2.8 million and $2.5 million at December 31, 20172023, 2022 and $0.9 million at December 31, 2015 (none in 2016).2021, respectively, were recorded against certain deferred state tax assets.
A reconciliation of the Company’s unrecognized uncertain tax positions since January 1, 2015,2021, is shown below: |
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| (In thousands) | | 2017 | | 2016 | | 2015 |
| Balance at beginning of period | $ | 3,315 |
| | $ | 4,049 |
| | $ | 3,255 |
|
| Increase (decrease) due to tax positions taken in: | | | | | |
| Current period | 27 |
| | 1,151 |
| | 518 |
|
| Prior period | (532 | ) | | 43 |
| | 326 |
|
| Increase (decrease) due to settlements with taxing authorities | (51 | ) | | (1,706 | ) | | — |
|
| Reductions due to lapse of statute of limitations | (797 | ) | | (222 | ) | | (50 | ) |
| Balance at end of period | $ | 1,962 |
| | $ | 3,315 |
| | $ | 4,049 |
|
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Balance at beginning of period | $ | 628 | | | $ | 648 | | | $ | 628 | |
| Increase (decrease) due to tax positions taken in: | | | | | |
| Current period | 25 | | | 2 | | | — | |
| Prior period | 23 | | | 44 | | | 40 | |
| Reductions due to lapse of statute of limitations | (17) | | | (66) | | | (20) | |
| Balance at end of period | $ | 659 | | | $ | 628 | | | $ | 648 | |
Additional information related to unrecognized uncertain tax positions since January 1, 20152021 is summarized below:
| | | | | Years Ended December 31, | | Years Ended December 31, |
| (In thousands) | | 2017 | | 2016 | | 2015 | (In thousands) | 2023 | | 2022 | | 2021 |
| Gross unrecognized tax benefits on uncertain tax positions (reflected in current income tax and other noncurrent liability accounts in the balance sheet) | $ | 1,962 |
| | $ | 3,315 |
| | $ | 4,049 |
|
Gross unrecognized tax benefits on uncertain tax positions (reflected in current income tax, other noncurrent liability accounts, or deferred tax assets in the balance sheet) | |
| Deferred income tax assets related to unrecognized tax benefits on uncertain tax positions (reflected in deferred income tax accounts in the balance sheet) | Deferred income tax assets related to unrecognized tax benefits on uncertain tax positions (reflected in deferred income tax accounts in the balance sheet) | (153 | ) | | (345 | ) | | (858 | ) |
| Net unrecognized tax benefits on uncertain tax positions, which would impact the effective tax rate if recognized | Net unrecognized tax benefits on uncertain tax positions, which would impact the effective tax rate if recognized | 1,809 |
| | 2,970 |
| | 3,191 |
|
| Interest and penalties accrued on deductions taken relating to uncertain tax positions (approximately $(1), $(262) and $90 reflected in income tax expense in the income statement in 2017, 2016 and 2015, respectively, with the balance shown in current income tax and other noncurrent liability accounts in the balance sheet) | 136 |
| | 135 |
| | 397 |
|
| Interest and penalties accrued on deductions taken relating to uncertain tax positions (approximately $20, $16 and $26 reflected in income tax expense in the income statement in 2023, 2022 and 2021, respectively, with the balance shown in current income tax and other noncurrent liability accounts in the balance sheet) | |
| Related deferred income tax assets recognized on interest and penalties | Related deferred income tax assets recognized on interest and penalties | (32 | ) | | (49 | ) | | (148 | ) |
| Interest and penalties accrued on uncertain tax positions net of related deferred income tax benefits, which would impact the effective tax rate if recognized | Interest and penalties accrued on uncertain tax positions net of related deferred income tax benefits, which would impact the effective tax rate if recognized | 104 |
| | 86 |
| | 249 |
|
| Total net unrecognized tax benefits on uncertain tax positions reflected in the balance sheet, which would impact the effective tax rate if recognized | Total net unrecognized tax benefits on uncertain tax positions reflected in the balance sheet, which would impact the effective tax rate if recognized | $ | 1,913 |
| | $ | 3,056 |
| | $ | 3,440 |
|
Tredegar, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction, various states and jurisdictions outside the U.S. With few exceptions, Tredegar is no longer subject to U.S. federal, state or non-U.S. income tax examinations by tax authorities for years before 2014.2020. The Company anticipates that it is reasonably possible that Federal and state income tax audits or statutes may settle or close within the next 12 months which couldand are not expected to result in the recognition of up to approximately $0.8 million of the balance ofa material change in unrecognized tax positions, including any payments that may be made.
68
| |
17 | LOSSES ASSOCIATED WITH PLANT SHUTDOWNS, ASSET IMPAIRMENTS AND RESTRUCTURINGS, UNUSUAL ITEMS, GAINS FROM SALE OF ASSETS AND OTHER ITEMS |
Losses
13. BUSINESS SEGMENTS
The Company's business segments are Aluminum Extrusions, PE Films and Flexible Packaging Films. Aluminum Extrusions, also referred to as Bonnell Aluminum, produces high-quality, soft and medium strength alloyed aluminum extrusions, custom fabricated and finished, for the building and construction, automotive and transportation, consumer durables goods, machinery and equipment, electrical and renewable energy, and distribution markets. PE Films produces surface protection films, polyethylene overwrap films and films for other markets. Flexible Packaging Films 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.
The Company’s reportable segments are based on its method of internal reporting, which is generally segregated by differences in products. Accounting standards for presentation of segments require an approach based on the way the Company organizes the segments for making operating decisions and how the chief operating decision maker (“CODM”) assesses performance. EBITDA from ongoing operations is the key profitability measure used by the CODM (Tredegar’s President and Chief Executive Officer) for purposes of assessing financial performance. The Company uses sales less freight (“net sales”) as its measure of revenues from external customers at the segment level. This measure is separately included in the financial information regularly provided to the CODM. Earnings before interest and taxes ("EBIT") from ongoing operations is a non-GAAP financial measure included in the reconciliation of segment financial information to consolidated results for the Company below.
Information by business segment and geographic area for the last three years is provided in the segment tables below. There were no accounting transactions between segments and no allocations to segments.
| | | | | | | | | | | | | | | | | |
| Net Sales |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Aluminum Extrusions | $ | 474,803 | | | $ | 637,872 | | | $ | 539,325 | |
| PE Films | 76,763 | | | 97,571 | | | 118,920 | |
| Flexible Packaging Films | 126,326 | | | 168,139 | | | 139,978 | |
| Total net sales | 677,892 | | | 903,582 | | | 798,223 | |
| Add back freight | 26,933 | | | 34,982 | | | 28,232 | |
| Sales as shown in consolidated statements of income (loss) | $ | 704,825 | | | $ | 938,564 | | | $ | 826,455 | |
Refer to Notes to Financial Tables that follow these tables.
| | | | | | | | | | | | | | | | | |
| EBITDA from Ongoing Operations |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Aluminum Extrusions: | | | | | |
| Ongoing operations: | | | | | |
| EBITDA | $ | 37,976 | | | $ | 66,800 | | | $ | 55,948 | |
| Depreciation & amortization | (17,927) | | | (17,414) | | | (16,272) | |
| EBIT | 20,049 | | | 49,386 | | | 39,676 | |
| Plant shutdowns, asset impairments, restructurings and other (a) | (3,557) | | | (310) | | | 3,237 | |
| | | | | |
| PE Films: | | | | | |
| Ongoing operations: | | | | | |
| EBITDA | 11,217 | | | 11,949 | | | 27,694 | |
| Depreciation & amortization | (6,522) | | | (6,280) | | | (6,263) | |
| EBIT | 4,695 | | | 5,669 | | | 21,431 | |
| Plant shutdowns, asset impairments, restructurings and other (a) | (4,972) | | | (646) | | | (371) | |
| Goodwill impairment | (34,891) | | | — | | | — | |
| Flexible Packaging Films: | | | | | |
| Ongoing operations: | | | | | |
| EBITDA | 4,383 | | | 27,452 | | | 31,684 | |
| Depreciation & amortization | (2,865) | | | (2,444) | | | (1,988) | |
| EBIT | 1,518 | | | 25,008 | | | 29,696 | |
| Plant shutdowns, asset impairments, restructurings and other (a) | (113) | | | (91) | | | 8,439 | |
| Total | (17,271) | | | 79,016 | | | 102,108 | |
| Interest income | 522 | | | 57 | | | 73 | |
| Interest expense | 11,607 | | | 4,990 | | | 3,386 | |
| Gain on investment in kaléo (a) | 262 | | | 1,406 | | | 12,780 | |
| Stock option-based compensation expense | 231 | | | 1,424 | | | 2,495 | |
| Pension settlement loss | 92,291 | | | — | | | — | |
| Corporate expenses, net (a) | 39,414 | | | 41,221 | | | 41,970 | |
| Income (loss) before income taxes | (160,030) | | | 32,844 | | | 67,110 | |
| Income tax expense (benefit) (a) | (54,125) | | | 4,389 | | | 9,284 | |
| | | | | |
| | | | | |
| Net income (loss) | $ | (105,905) | | | $ | 28,455 | | | $ | 57,826 | |
Refer to Notes to Financial Tables that follow these tables.
| | | | | | | | | | | |
| Identifiable Assets |
| (In thousands) | 2023 | | 2022 |
| Aluminum Extrusions | $ | 255,756 | | | $ | 293,308 | |
| PE Films | 56,536 | | | 102,431 | |
| Flexible Packaging Films | 84,062 | | | 103,448 | |
| Subtotal | 396,354 | | | 499,187 | |
| General corporate | 36,652 | | | 23,674 | |
| Cash, cash equivalents and restricted cash (b) | 13,455 | | | 19,232 | |
| | | |
| Total | $ | 446,461 | | | $ | 542,093 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Depreciation and Amortization | | Capital Expenditures |
| (In thousands) | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Aluminum Extrusions | $ | 17,927 | | | $ | 17,414 | | | $ | 15,326 | | | $ | 20,339 | | | $ | 23,664 | | | $ | 18,914 | |
| PE Films | 6,522 | | | 6,280 | | | 6,263 | | | 1,772 | | | 3,289 | | | 2,997 | |
| Flexible Packaging Films | 2,865 | | | 2,444 | | | 1,988 | | | 4,323 | | | 8,151 | | | 5,603 | |
| Subtotal | 27,314 | | | 26,138 | | | 23,577 | | | 26,434 | | | 35,104 | | | 27,514 | |
| General corporate (d) | 369 | | | 264 | | | 207 | | | 12 | | | 1,771 | | | (153) | |
| | | | | | | | | | | |
| Total | $ | 27,683 | | | $ | 26,402 | | | $ | 23,784 | | | $ | 26,446 | | | $ | 36,875 | | | $ | 27,361 | |
| | | | | | | | | | | | | | | | | |
| Net Sales by Geographic Area (c) |
| (In thousands) | 2023 | | 2022 | | 2021 |
| United States | $ | 537,818 | | | $ | 717,049 | | | $ | 614,987 | |
| Exports from the United States to: | | | | | |
| Asia | 26,239 | | | 41,995 | | | 59,242 | |
| Canada | 15,597 | | | 15,264 | | | 17,776 | |
| Europe | 1,905 | | | 3,885 | | | 4,489 | |
| Latin America | 6,704 | | | 6,867 | | | 4,937 | |
| Operations outside the United States: | | | | | |
| Brazil | 89,077 | | | 117,896 | | | 96,792 | |
| Asia | 552 | | | 626 | | | — | |
| Total | $ | 677,892 | | | $ | 903,582 | | | $ | 798,223 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Identifiable Assets
by Geographic Area (c) | | Property, Plant & Equipment,
Net by Geographic Area (c) |
| (In thousands) | 2023 | | 2022 | | 2023 | | 2022 |
| United States | $ | 320,604 | | | $ | 413,512 | | | $ | 143,729 | | | $ | 146,437 | |
| Operations outside the United States: | | | | | | | |
| Brazil | 65,495 | | | 72,725 | | | 28,121 | | | 25,385 | |
| China | 10,255 | | | 12,950 | | | 9,361 | | | 11,903 | |
| General corporate | 36,652 | | | 23,674 | | | 2,244 | | | 2,686 | |
| Cash, cash equivalents and restricted cash (b) | 13,455 | | | 19,232 | | | n/a | | n/a |
| | | | | | | |
| Total | $ | 446,461 | | | $ | 542,093 | | | $ | 183,455 | | | $ | 186,411 | |
Refer to Notes to Financial Tables that follow these tables.
The Company’s facilities in Pottsville, PA (“PV”) and Guangzhou, China (“GZ”) have a tolling arrangement whereby certain surface protection films are manufactured in GZ for a fee with raw materials supplied from PV that are then shipped by GZ directly to customers principally in the Asian market but paid by customers directly to PV.Amounts associated with this intercompany tolling arrangement are reported in the table above as export sales from the U.S. to Asia, and include net sales of $15.9 million in 2023, $20.1 million in 2022 and $32.7 million in 2021.
| | | | | | | | | | | | | | | | | |
| Net Sales by Product Group |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Aluminum Extrusions: | | | | | |
| Nonresidential building & construction | $ | 264,780 | | | $ | 338,981 | | | $ | 269,252 | |
| Consumer durables | 38,897 | | | 62,541 | | | 53,578 | |
| Automotive | 48,046 | | | 51,286 | | | 43,256 | |
| Machinery & equipment | 43,759 | | | 63,326 | | | 42,721 | |
| Distribution | 14,331 | | | 29,732 | | | 45,639 | |
| Residential building & construction | 38,388 | | | 64,268 | | | 52,236 | |
| Electrical | 26,602 | | | 27,738 | | | 32,643 | |
| Subtotal | 474,803 | | | 637,872 | | | 539,325 | |
| PE Films: | | | | | |
| Surface protection films | 47,463 | | | 68,140 | | | 88,436 | |
| Packaging | 29,300 | | | 29,431 | | | 30,484 | |
| | | | | |
| Subtotal | 76,763 | | | 97,571 | | | 118,920 | |
| Flexible Packaging Films | 126,326 | | | 168,139 | | | 139,978 | |
| Total | $ | 677,892 | | | $ | 903,582 | | | $ | 798,223 | |
(a)See Notes 1, 5, 9 and 12 for more information on losses associated with plant shutdowns, asset impairments and restructurings, unusual items, gains or losses from sale of assets, gains or losses on an investment accounted for under the fair value method and other chargesitems.
(b)Cash, cash equivalents and restricted cash includes funds held in 2017 (as shownlocations outside the U.S. of $9.8 million and $10.3 million at December 31, 2023 and 2022, respectively.
(c)Export sales relate mostly to PE Films. Operations in the segment operating profit table in Note 5) totaled $94.0 million ($79.2 million after taxes),Brazil relate to Flexible Packaging Films.
(d)Corporate depreciation and unless otherwise noted below,amortization are also included in “Asset impairmentscorporate expenses, net, on the EBITDA from ongoing operations table above.
14. SAVINGS PLAN
Tredegar has a savings plan that allows eligible employees to voluntarily contribute a percentage of their compensation, up to IRS limitations. Charges recognized for the savings plan were $4.0 million in 2023, $3.9 million in 2022 and costs associated with exit$3.3 million in 2021. The provisions of the savings plan provided the following benefits for salaried and disposal activities”certain hourly employees:
•The Company makes matching contributions to the savings plan of $1 for every $1 an employee contributes per pay period up to a maximum of 5% of eligible compensation.
•The savings plan includes immediate vesting of matching contributions and automatic enrollment at 3% of eligible compensation unless the employee opts out or elects a different percentage.
The Company also has a non-qualified plan that restores matching benefits for employees suspended from the savings plan due to certain limitations imposed by income tax regulations (“restoration plan”). The Company’s liability under the restoration plan was $0.4 million at December 31, 2023 (consisting of 79,124 phantom shares of common stock) and $0.7 million at December 31, 2022 (consisting of 70,266 phantom shares of common stock) and valued at the closing market price on those dates. Charges recognized for the restoration plan were immaterial for the years 2023, 2022 and 2021.
The Tredegar Corporation Benefits Plan Trust (the “Trust”) purchased 7,200 shares of the Company’s common stock in 1998 for $0.2 million and 46,671 shares of its common stock in 1997 for $1.0 million. There have been no shares purchased since 1998 except for re-invested dividends. The cost of the shares held by the Trust is shown as a reduction to shareholders’ equity in the consolidated statementsbalance sheets.
15. SUPPLY CHAIN FINANCING
The Company has supply chain finance service agreements with third-party financial institutions to provide platforms that facilitate the ability of income. Results in 2017 included:
A fourth quarter charge of $101.3 million ($87.2 million after taxes) relatedparticipating suppliers to the impairment of assets at Flexible Packaging Films. During the fourth quarter of 2017, in conjunction with annual business planning as well as valuation activities and other efforts,finance payment obligations from the Company determined thatwith the carrying valuethird-party financial institution. The Company’s obligations to its suppliers, including amounts due and scheduled payment dates, are not affected by suppliers’ decisions to finance amounts under the supply chain finance agreements. As of Terphane’s remaining long-lived assets were impaired (Terphane’s goodwill was written off in 2015). Accordingly, the Company wrote down these assets based on an enterprise valuation for all of Terphane of approximately $30 million;
Second quarter income of $11.9 million ($11.9 million after taxes) related to the settlement of an escrow arrangement established upon the acquisition of Terphane Holdings, LLC in 2011 (included in “Other income (expense), net” in the consolidated statements of income). In settling the escrow arrangement, the Company assumed the risk of the claims (and associated legal fees) against which the escrow previously secured the Company. While the ultimate amount of such claims is unknown, the Company believes that it is reasonably possible that it could be liable for some portion of these claims,December 31, 2023 and currently estimates the amount of such future claims at approximately $3.5 million;
First quarter charges of $3.3 million ($2.0 million after taxes) related to the acquisition of Futura, i) associated with accounting adjustments of $1.7 million made to the value of inventory sold by Aluminum Extrusions after its acquisition of Futura (included in “Cost of goods sold” in the consolidated statements of income), ii) acquisition costs of $1.52022, $15.8 million and iii) integration costs of $0.1$25.9 million, (included in “Selling, general and administrative expenses” in the consolidated statements of income), offset in the second quarter by pretax income of $0.7 million ($0.5 million after taxes) related to the fair valuation of an earnout provision (included in “Other income (expense), net” in the consolidated statements of income);
Quarterly charges related to estimated excess costs associated with the ramp-up of new product offerings and additional expenses related to strategic capacity expansion projects by PE Films of $1.4 million ($1.3 million after taxes), $0.9 million ($0.8 million after taxes), $0.6 million ($0.5 million after taxes) and $0.6 million ($0.6 million after taxes) for the first, second, third and fourth quarter, respectively, and by Aluminum Extrusions of $0.3 million ($0.2 million after taxes), $0.1 million (less than $0.1 million after taxes) and $0.1 million (less than $0.1 million after taxes) for the first, second, and third quarters, respectively (included in “Cost of goods sold” in the consolidated statements of income);
A third quarter charge of $0.2 million ($0.1 million after taxes) associated with the consolidation of domestic PE Films’ manufacturing facilities for other facility consolidation-related expenses, a second quarter charge of $0.3 million ($0.2 million after taxes), which includes accelerated depreciation of $0.1 million (included in “Cost of goods sold” in the consolidated statements of income) and other facility consolidation-related expenses of $0.2 million ($0.1 million is included in “Cost of goods sold” in the consolidated statements of income), offset by a reversal of severance and other employee-related costs of $0.3 million ($0.2 million after taxes) and a first quarter charge of $0.7 million ($0.4 million after taxes), which includes severance and other employee-related costs of $0.2 million, asset impairments of $0.1 million, accelerated depreciation of $0.1 million (included in “Cost of goods sold” in the consolidated statements of income) and other facility consolidation-related expenses of $0.3 million ($0.2 million is included in “Cost of goods sold” in the consolidated statements of income);
Fourth quarter net gain of $5.1 million ($3.2 million after taxes), 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 on the involuntary conversion of an asset of $5.3 million for insurance proceeds used for the replacement of capital equipment (included in “Other income (expense), net” in the consolidated statements of income), partially offset by excess production costs of $0.2 million ($0.1 million after taxes) (included in “Cost of goods sold” in the consolidated statements of income); a second quarter net gain on the expected recovery of excess production costs of $0.9 million ($0.6 million after taxes) incurred in prior periods for which recovery from insurance carriers was not previously considered to be reasonably assured (included in “Cost of goods sold” in the consolidated statements of income); and a first quarter net loss of $0.4 million ($0.2 million after taxes), which includes $0.3 million for other costs for which recovery from insurance carriers was not considered to be reasonably assured (reversed in the second quarter) and legal and consulting fees of $0.1 million (included in “Selling, general and administrative expenses” in the consolidated statements of income);
A fourth quarter charge of $1.5 million ($1.0 million after taxes) and a first quarter charge of $0.4 million ($0.2 million after taxes) related to expected future environmental costs at the aluminum extrusions manufacturing facilities in Carthage, Tennessee and Newnan, Georgia (included in “Cost of goods sold” in the consolidated statements of income);
A fourth quarter charge of $0.8 million ($0.5 million after taxes) at Corporate related to expected future environmental costs at various shutdown facilities (included in “Cost of goods sold” in the consolidated statements of income);
A fourth quarter charge of $1.3 million ($0.8 million after taxes), a third quarter charge of $0.2 million ($0.1 million after taxes), a second quarter charge of $0.6 million ($0.4 million after taxes), and a first quarter charge of $0.3 million ($0.2 million after taxes), associated with business development projects (included in “Selling, general and administrative expense” in the consolidated statements of income and “Corporate expenses, net” in the statement of net sales and operating profit by segment);
A fourth quarter charge of $0.1 million (less than $0.1 million after taxes) and a third quarter charge of $0.1 million (less than $0.1 million after taxes) for severance and other employee-related costs associated with restructurings in PE Films, and a fourth quarter charge of $0.1 million ($0.1 million after taxes) for severance and other employee-related costs associated with restructurings in Aluminum Extrusions and a fourth quarter charge of $0.1 million ($0.1 million after taxes) and a first quarter charge of $0.3 million ($0.2 million after taxes) for severance and other employee-related costs associated with restructurings in Corporate (included in “Corporate expenses, net” in the statement of net sales and operating profit by segment);
Fourth quarter charges of $0.4 million ($0.2 million after taxes) for professional fees associated with the Terphane Limitada worthless stock deduction and impairment of assets of Flexible Packaging Films;
A fourth quarter charge of $0.3 million ($0.3 million after taxes) associated with asset impairments at PE Films’ Hungary facility; and
A third quarter charge of $0.2 million ($0.1 million after taxes) associated with the settlement of customer claims and other costs related to the previously shutdown aluminum extrusions manufacturing facility in Kentland, Indiana.
Results in 2017 include a net unrealized gain on the Company’s investment in kaléo (included in “Other income (expense), net” in the consolidated statements of income) of $33.8 million ($24.0 million after taxes). See Note 4 for additional information on investments.
Total expenses associated with the North American facility consolidation project were $0.8 million ($0.5 million after taxes) in 2017 (included in “Cost of goods sold” in the consolidated statements of income) and the total expenses for the project since inception were $7.3 million. Cash expenditures for the restructuring were $1.9 million in 2017, which includes capital expenditures of $0.1 million. Total cash expenditures since project inception were $16.0 million, which includes $11.2 million for capital expenditures. Additional cash payments for remaining accrued costs of approximately $0.5 million are expected to be paid within the next 12 months.
Losses associated with plant shutdowns, asset impairments, restructurings and other charges for continuing operations in 2016 (as shown in the segment operating profit table in Note 5) totaled $6.1 million ($3.9 million after taxes), and unless otherwise noted below, are also included in “Asset impairments and costs associated with exit and disposal activities” in the consolidated statements of income. Results in 2016 included:
Fourth quarter net loss $0.7 million ($0.4 million after taxes), 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 ($0.4 million after taxes) (included in “Cost of goods sold” in the consolidated statements of income) and legal and consulting fees of $0.1 million ($0.1 million after taxes) (included in “Selling, general and administrative expenses” in the consolidated statements of income), third quarter net income of $1.7 million ($1.1 million after taxes), which includes the recognition of a gain of $1.9 million ($1.2 million after taxes) 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 ($0.2 million after taxes) (net amount included in “Other income (expense), net” in the consolidated statements of income), and the reversal of an accrual for other costs related to the explosion not recoverable from insurance of $0.1 million ($0.0 million after taxes) (included in “Selling, general and administrative expenses” in the consolidated statements of income), and second quarter net loss of $0.6 million ($0.4 million after taxes) for other costs related to the explosion not recoverable from insurance (included in “Selling, general and administrative expenses” in the consolidated statements of income);
Quarterly charges associated with the consolidation of domestic PE Films’ manufacturing facilities, which includes categories of expenses shown in the table below (Accelerated depreciation and a portion of Other facility consolidation-related costs as noted in the table below are included in “Cost of goods sold” in the consolidated statements of income):
|
| | | | | | | | | | | | | | | | | | | | |
| | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | 2016 |
| ($ in millions) | BT | AT | BT | AT | BT | AT | BT | AT | BT | AT |
| Severance | 0.3 |
| 0.2 |
| 0.4 |
| 0.2 |
| 0.3 |
| 0.2 |
| 0.3 |
| 0.2 |
| 1.2 |
| 0.8 |
|
| Asset impairments | 0.3 |
| 0.2 |
| 0.1 |
| 0.1 |
| 0.1 |
| — |
| — |
| — |
| 0.4 |
| 0.3 |
|
| Accelerated depreciation | 0.1 |
| 0.1 |
| 0.1 |
| 0.1 |
| 0.1 |
| 0.1 |
| 0.3 |
| 0.2 |
| 0.6 |
| 0.4 |
|
| Other facility consolidation-related costs | 0.5 |
| 0.3 |
| 0.8 |
| 0.5 |
| 0.6 |
| 0.4 |
| 0.2 |
| 0.1 |
| 2.0 |
| 1.3 |
|
| Total | 1.1 |
| 0.7 |
| 1.3 |
| 0.9 |
| 1.1 |
| 0.7 |
| 0.8 |
| 0.5 |
| 4.3 |
| 2.8 |
|
| | | | | | | | | | | |
| Other facility consolidation-related costs included in “Cost of goods sold” in the consolidated statements of income | 0.4 |
| 0.2 |
| 0.7 |
| 0.4 |
| 0.4 |
| 0.2 |
| 0.2 |
| 0.1 |
| 1.6 |
| 1.0 |
|
| Note: BT = before taxes; AT = after taxes |
A fourth quarter charge of $0.6 million ($0.4 million after taxes) associated with the acquisition of Futura by Bonnell Aluminum (included in “Selling, general and administrative expenses” in the consolidated statements of income);
A fourth quarter charge of $0.5 million ($0.3 million after taxes) related to expected future environmental costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statements of income);
A first quarter charge of $0.4 million ($0.2 million after taxes) associated with a non-recurring business development project (included in “Selling, general and administrative expense” in the consolidated statements of income and “Corporate expenses, net” in the statement of net sales and operating profit by segment);
A third quarter charge of $0.3 million ($0.2 million after taxes) for severance and other employee-related costs associated with restructurings in PE Films ($0.1 million) ($0.1 million after taxes) and Corporate ($0.2 million) ($0.1 million after taxes) (included in “Corporate expenses, net” in the statement of net sales and operating profit by segment);
A fourth quarter charge of $0.3 million ($0.2 million after taxes) 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 consolidated statements of income);
A fourth quarter charge of $0.2 million ($0.1 million after taxes) associated with asset impairments in PE Films;
A fourth quarter gain of $0.1 million ($0.0 million after taxes) related to contractual indemnifications associated with the anticipated settlement of a Terphane pre-acquisition contingency (included in “Other income (expense), net” in the consolidated statements of income); and
A fourth quarter gain of $0.1 million ($0.1 million after taxes) associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana, which includes a pretax gain of $0.2 million ($0.1 million after taxes) related to the sale of the property, partially offset by pretax charges of $0.1 million ($0.0 million after taxes) associated with the shutdown of this facility and a third quarter charge of $0.3 million ($0.2 million after taxes) associated with shutdown costs.
Results in 2016 include a net unrealized gain on the Company’s investment in kaléo (included in “Other income (expense), net” in the consolidated statements of income) of $1.6 million ($1.2 million after taxes). The Company recorded an unrealized loss on its investment property in Alleghany and Bath Counties, Virginia (included in “Other income (expense), net” in the consolidated statements of income) of $1.0 million ($0.7 million after taxes) in the fourth quarter of 2016. See Note 4 for additional information on investments.
Losses associated with plant shutdowns, asset impairments, restructurings and other charges for continuing operations in 2015 (as shown in the segment operating profit table in Note 5) totaled $10.1 million ($6.4 million after taxes), and unless otherwise noted below, are also included in “Asset impairments and costs associated with exit and disposal activities” in the consolidated statements of income. Results in 2015 included:
A second quarter charge of $3.9 million ($2.5 million after taxes) for severance and other employee-related costs associated with the resignation of the Company’s former chief executive and chiefaccounts payable were financed by participating suppliers through third-party financial officers (included in “Selling, general and administrative expense” in the consolidated statements of income and “Corporate expenses, net” in the statement of net sales and operating profit by segment);institutions.
A fourth quarter chargereconciliation of $1.0 million ($0.6 million after taxes)the beginning and a third quarter chargeending balances of $1.2 million ($0.7 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” insupply chain financing for the consolidated statements of income) and other facility consolidation-related expenses of $0.6 million ($0.1 millionyear ended December 31, 2023 is included in “Cost of goods sold” in the consolidated statements of income);as follows:
A fourth quarter charge of $1.1 million ($0.7 million after taxes) in PE Films ($0.4 million included in “Selling, general and administrative expense” in the consolidated statement of income), a third quarter charge of $0.9 million ($0.6 million after taxes) in PE Films ($0.9 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), and a second quarter charge of $0.3 million ($0.2 million taxes) in Flexible Packaging Films ($0.3 million) and PE Films ($7,000) for severance and other employee-related costs, and a first quarter reversal of previously accrued severance and other employee related costs of $67,000 ($43,000 after taxes) in Flexible Packaging Films, all associated with restructurings;
A fourth quarter charge of $1.0 million ($0.6 million after taxes) associated with a business development project (included in “Selling, general and administrative expense” in the consolidated statement of income and “Corporate expenses, net” in the statement of net sales and operating profit by segment);
A fourth quarter charge of $31,000 ($19,000 after taxes), a third quarter charge of $0.3 million ($0.2 million after taxes), a second quarter charge of $18,000 ($11,000 after taxes) and a first quarter charge of $15,000 ($9,000 after taxes) associated with the previously shutdown aluminum extrusions manufacturing facility in Kentland, Indiana; and
A fourth quarter charge of $0.3 million ($0.2 million after taxes) related to expected future environmental costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statements of income).
Results in 2015 include a net unrealized gain on the Company’s investment in kaléo (included in “Other income (expense), net” in the consolidated statements of income) of $20.5 million ($15.7 million after taxes). See Note 4 for additional information on investments.
| | | | | |
| (In thousands) | 2023 |
18Balance, beginning of year | CONTINGENCIES$ | 25,927 | |
| New obligations entered | 79,630 | |
| Less payments made | (90,365) | |
| Foreign exchange | 588 | |
| Balance, end of year | $ | 15,780 | |
16. CONTINGENCIES
Tredegar is involved in various stages of investigation and remediation relating to environmental matters at certain current and former plant locations. Where the Company has determined the nature and scope of any required environmental remediation activity, estimates of cleanup costs have been obtained and accrued. As efforts continue to maintain compliance with applicable environmental laws and regulations, additional contingencies may be identified.identified continue. If additional contingencies are identified in the future, the Company’s practice is to determine at that time the nature and scope of those contingencies, obtain and accrue estimates of the cost of remediation, and perform remediation. TheWhile the Company does not believebelieves it is currently adequately accrued for known environmental issues, it is possible that additionalunexpected future costs that could arise from those activities will have a material adverse effect on its financial position. However, those costsfor known or unknown environmental issues could have a material adverse effect on its financial condition, results of operations and cash flows at that time.
The Company is involved in various other legal actions arising in the normal course of business. After taking into consideration the relevant information, the Company believes that it has sufficiently accrued for probable losses and that the actions will not have a material adverse effect on its financial position. However, the resolution of the actions in a future period could have a material adverse effect on quarterly or annual operating results at that time.
From time to time, the Company enters into transactions with third parties in connection with the sale of assets or businesses in which it agrees to indemnify the buyers or third parties involved in the transaction, or in which the sellers or third parties involved in the transaction agree to indemnify Tredegar, for certain liabilities or risks related to the assets or business. Also, in the ordinary course of its business, the Company may enter into agreements with third parties for the sale of goods or services that may contain indemnification provisions. In the event that an indemnification claim is asserted, liability for indemnification would be subject to an assessment of the underlying facts and circumstances under the terms of the applicable agreement. Further, any indemnification payments may be limited or barred by a monetary cap, a time limitation, or a deductible or basket. For these reasons, Tredegar is unable to estimate the maximum amount of the potential future liability under the indemnity provisions of these agreements. The Company does, however, accrue for losses for any known contingent
liability, including those that may arise from indemnification provisions, when future payment is probable and the amount is reasonably estimable. The Company discloses contingent liabilities if the probability of loss is reasonably possible and considered to be material.
In 2011, Tredegar was notified by U.S. Customs and Border Protection (“U.S. Customs”) that certain film products exported by Terphane Limitada to the U.S. since November 6, 2008 could be subject to duties associated with an anti-dumping duty order on imported polyester films from Brazil. The Company contested the applicability of these anti-dumping duties to the films exported by Terphane Limitada, and a request was filed with the U.S. Department of Commerce (“Commerce”) for clarification about whether the film products at issue are within the scope of the anti-dumping duty order. On January 8, 2013, Commerce issued a scope ruling confirming that the films are not subject to the order, provided that Terphane Limitada can establish to the satisfaction of U.S. Customs that the performance enhancing layer on those films is greater than 0.00001 inches thick. The films at issue are manufactured to specifications that exceed that threshold. On February 6, 2013, certain U.S. producers of PET film filed a summons with the U.S. Court of International Trade to appeal the scope ruling from Commerce. In December 2014, the U.S. International Trade Commission voted to revoke the anti-dumping duty order on imported PET films from Brazil. The revocation, as a result of the vote by the U.S. International Trade Commission, was effective as of November 2013. On February 20, 2015, certain U.S. producers of PET films filed a summons with the U.S. Court of International Trade to appeal the determination by the U.S. International Trade Commission. The Court granted a motion by the plaintiffs to stay the appeal of the revocation decision pending the resolution of the scope appeal. On June 8, 2017, the U.S. Court of International Trade remanded the scope determination to Commerce for re-consideration of certain scope issues. On October 20, 2017, Commerce filed its Remand Redetermination Results with the U.S. Court of International Trade, and again found that Terphane Limitada’s films are outside of the scope of the anti-dumping duty order. Commerce’s decision will now be reviewed by the U.S. Court of International Trade.
| |
19 | SELECTED QUARTERLY FINANCIAL DATA |
Tredegar Corporation and Subsidiaries
(In Thousands, Except Per-Share Amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| For the year ended December 31, 2017 | | | | | | | |
| Sales | $ | 221,026 |
| | $ | 247,347 |
| | $ | 247,121 |
| | $ | 245,836 |
|
| Gross profit | 30,872 |
| | 42,063 |
| | 42,107 |
| | 36,979 |
|
| Net income (loss) | $ | 3,703 |
| | $ | 44,204 |
| | $ | 8,274 |
| | $ | (17,929 | ) |
| Earnings (loss) per share: | | | | | | | |
| Basic | $ | 0.11 |
| | $ | 1.34 |
| | $ | 0.25 |
| | $ | (0.54 | ) |
| Diluted | $ | 0.11 |
| | $ | 1.34 |
| | $ | 0.25 |
| | $ | (0.54 | ) |
| Shares used to compute earnings (loss) per share: | | | | | | | |
| Basic | 32,920 |
| | 32,961 |
| | 32,954 |
| | 32,948 |
|
| Diluted | 32,957 |
| | 33,051 |
| | 32,954 |
| | 32,948 |
|
| For the year ended December 31, 2016 | | | | | | | |
| Sales | $ | 207,333 |
| | $ | 208,533 |
| | $ | 207,702 |
| | $ | 204,772 |
|
| Gross profit | 37,279 |
| | 31,637 |
| | 33,927 |
| | 27,801 |
|
| Net income | $ | 7,281 |
| | $ | 3,408 |
| | $ | 12,048 |
| | $ | 1,728 |
|
| Earnings per share: | | | | | | | |
| Basic | $ | 0.22 |
| | $ | 0.10 |
| | $ | 0.37 |
| | $ | 0.05 |
|
| Diluted | $ | 0.22 |
| | $ | 0.10 |
| | $ | 0.37 |
| | $ | 0.05 |
|
| Shares used to compute earnings per share: | | | | | | | |
| Basic | 32,654 |
| | 32,716 |
| | 32,818 |
| | 32,856 |
|
| Diluted | 32,654 |
| | 32,716 |
| | 32,818 |
| | 32,900 |
|
Item 16. FORM 10-K SUMMARY
Not Applicable.
EXHIBIT INDEX
| | | | | |
| 2.1 | |
2.1 | Stock Purchase Agreement, made as of October 1, 2012, by and among The William L. Bonnell Company, Inc., AACOA, Inc., the shareholders of AACOA, Inc., and Daniel G. Formsma, as the representative of the shareholders of AACOA, Inc. (filed as Exhibit 2.1 to Tredegar Corporation’s (“Tredegar’s”) Current Report on Form 8-K (File No. 1-10258), filed on October 3, 2012, and incorporated herein by reference). (Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Tredegar agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted exhibit or schedule upon request) |
| |
2.2 | Membership Interest PurchaseSale Agreement, dated as of October 14, 2011,September 1, 2023, by and among Packfilm US LLC, Film Trading Importacao e Representacao Ltda., Terphane LLC, Terphane Limitada, Tredegar Film Products (Latin America), Inc., Terphane Acquisition Corporation II, TAC Holdings, LLC, Gaucho Holdings B.V.Tredegar Investments LLC, Tredegar Corporation and Tredegar Film Products Corporation (filed as Exhibit 2.1 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on October 19, 2011, and incorporated herein by reference). (Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Tredegar agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted exhibit or schedule upon request) |
| |
2.3 | Stock Purchase Agreement, dated as of February 1, 2017, by and among Futura Industries Corporation, Futura Corporation, Susan D. Johnson, The Susan D. Johnson Trust, Ken Wells, The William L. Bonnell Company, Inc., and, in his capacity as Sellers’ Representative, Brent F. LloydOben Holding Group S.A.C. (filed as Exhibit 2.1 of Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on February 2, 2017,September 5, 2023, and incorporated herein by reference). (Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Tredegar agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted exhibit or schedule upon request.) |
| 3.1 | |
3.1 | |
| 3.1.1 | |
3.1.1 | |
| 3.1.2 | |
3.1.2 | |
| 3.1.3 | |
3.1.3 | |
| 3.2 | |
3.2 | |
| 3.3 | |
| 4.1 | Form |
| |
4.210.1 | Second Amended and Restated Credit Agreement, dated as of March 1, 2016,June 29, 2022, among Tredegar, Corporation, as borrower, the lenders named therein, JPMorgan Chase Bank N.A., as administrative agent, SunTrust Bank, Citizens Bank of PennsylvaniaN.A and PNC Bank, National Association, as co-syndication agents, and Bank of America, N.A., U.S. Bank National Association BMO Harris Bank, N.A., Bank of America, N.A. and Wells Fargo Bank, National Association, as co-documentation agents, and the other lenders party thereto (filed as Exhibit 4.1 to Tredegar’sTredegar's Current Report on Form 8-K (File No. 1-10258), filed on March 3, 2016,June 30, 2022, and incorporated herein by reference).
|
| |
4.2.110.1.1 | Second Amended and Restated Guaranty, dated as of March 1, 2016,June 29, 2022, by and among the subsidiaries of Tredegar Corporation listed on the signature pages thereto in favor of JPMorgan Chase Bank, N.A., as administrative agent, for the ratable benefit of the Holders of Guaranteed Obligations (as defined therein) (filed as Exhibit 4.2 to Tredegar's Current Report on Form 8-K (File No. 1-10258), filed on June 30, 2022, and incorporated herein by reference) |
| 10.1.2 | |
| 10.1.3 | Amendment No. 1 to Second Amended and Restated Credit Agreement, dated as of November 29, 2022, among Tredegar Corporation, as borrower, the lenders named therein, JPMorgan Chase Bank, N.A., as administrative agent, Citizens Bank, N.A. and PNC Bank, National Association, as co-syndication agents, and Bank of America, N.A., U.S. Bank National Association and Wells Fargo Bank, National Association, as co-documentation agents, and the other lenders party thereto (filed as Exhibit 10.1 of Tredegar's Second Quarter 2023 Form 10-Q (File No. 1-10258), filed on August 9, 2023, and incorporated herein by reference). |
| 10.1.4 | Amendment No. 2 to Second Amended and Restated Credit Agreement, dated as of August 3, 2023, among Tredegar Corporation, as borrower, the lenders named therein, JPMorgan Chase Bank, N.A., as administrative agent, Citizens Bank, N.A. and PNC Bank, National Association, as co-syndication agents, and Bank of America, N.A., U.S. Bank National Association and Wells Fargo Bank, National Association, as co-documentation agents, and the other lenders party thereto (filed as Exhibit 10.2 of Tredegar's Second Quarter 2023 Form 10-Q (File No. 1-10258), filed on August 9, 2023, and incorporated herein by reference). |
| 10.1.5 | Amendment No. 3, dated December 27, 2023, to the Second Amended and Restated Credit Agreement, dated June 29, 2022, by and among Tredegar Corporation, as borrower, certain of Tredegar Corporation’s material domestic subsidiaries, as guarantors, the lenders named therein, JPMorgan Chase Bank, N.A., as administrative agent, Citizens Bank, N.A. and PNC Bank, National Association, as co-syndication agents, and Bank of America, N.A., U.S. Bank National Association and Wells Fargo Bank, National Association, as co-documentation agents (filed as Exhibit 4.1 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on March 3, 2016,December 28, 2023, and incorporated herein by reference).
|
| |
4.2.210.1.6 | Third Amended and Restated Pledge and Security Agreement, dated as of March 1, 2016,December 27, 2023, by and among Tredegar Corporation and the subsidiaries of Tredegar Corporation listed on the signature pages thereto and JPMorgan Chase Bank, N.A., as administrative agent, for the ratable benefit of the Secured Parties (as defined therein) (filed(filed as Exhibit 4.34.1 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on March 3, 2016,December 28, 2023, and incorporated herein by reference).
|
|
| |
*10.2 | Employee Benefits Agreement, dated as of June 1, 1989, between Tredegar and Ethyl Corporation (filed as Exhibit 10.2 to Tredegar’s Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2004, and incorporated herein by reference) |
| 10.4 | |
10.3 | |
| 10.5 | |
10.4 | |
| *10.6 | |
*10.5 | |
| *10.6.1 | |
*10.5.1 | |
| *10.7 | |
*10.6 | |
| *10.7.1 | |
*10.6.1 | |
| *10.8 | |
*10.7 | |
| *10.9 | |
*10.8 | |
| *10.10 | |
*10.9 | |
| *10.11 | |
*10.10 | |
| *10.12 | |
10.11*10.13 | Agreement, dated |
| *10.14 | |
| *10.15 | |
| *10.16 | |
| *10.17 | |
*10.12 | |
| *10.18 | |
*10.13 | |
| 10.19 | |
*10.14 | Severance |
| |
*10.14.1 | First Amendment to Severance Agreement with D. Andrew Edwards, dated February 25, 2016 (filed as Exhibit 10.3 to Tredegar’s10.1 of Tredegar's Current Report on Form 8-K (File No. 1-10258), filed on March 1, 2016,November 6, 2023, and incorporated herein by reference). |
| |
*10.15 | Severance Agreement with Michael J. Schewel, dated May 9, 2016 (filed as Exhibit 10.16 to Tredegar’s Annual Report on Form 10-K/A (File No. 1-10258) for the year ended December 31, 2016, and incorporated herein by reference) |
| |
| +21 | |
| |
+23.123 | |
| |
| +31.1 | |
| |
| | | | | |
| |
| +31.2 | |
| |
| +32.1 | |
| |
| +32.2 | |
| +97 | |
| +101 | XBRL Instance Document and Related Items |
| +104 | Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101) |
| | | | | |
| * | |
* | Denotes compensatory plans or arrangements or management contracts. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | | | | |
| | TREDEGAR CORPORATION
(Registrant) |
| | | | |
| Dated: | March 15, 2024 | TREDEGAR CORPORATION
(Registrant)
|
| By | | | | |
Dated: | February 21, 2018 | By | | /s/ John D. GottwaldM. Steitz |
| | | | | | | John D. GottwaldM. Steitz |
| | | | | | | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 21, 2018.
| | | | | | | | | | | |
| Signature | | Title |
| | | |
| /s/ | John M. Steitz | | |
Signature | | Title |
| | | |
/s/ | John D. Gottwald | | President, Chief Executive Officer and Director |
| (John D. Gottwald)M. Steitz) | | (Principal Executive Officer) |
| | | |
| /s/ | D. Andrew Edwards | | Executive Vice President and Chief Financial Officer |
| (D. Andrew Edwards) | | (Principal Financial Officer) |
| | | |
| /s/ | Frasier W. Brickhouse, II | | Corporate Treasurer and Controller |
| (Frasier W. Brickhouse, II) | | (Principal Accounting Officer) |
| | | |
| /s/ | William M. GottwaldGregory A. Pratt | | Chairman of the Board of Directors |
| (Gregory A. Pratt) | | (William M. Gottwald) | |
| | | |
| /s/ | George C. Freeman, III | | Director |
| (George C. Freeman, III) | | |
| | | |
| /s/ | Kenneth R. Newsome | | Director |
| (Kenneth R. Newsome) | | |
| | | |
| /s/ | Gregory A. Pratt | | Director |
| (Gregory A. Pratt) | | |
| | | |
/s/ | Thomas G. Snead, Jr. | | Director |
| (Thomas G. Snead, Jr.) | | |
| | | |
| /s/ | John M. Steitz | | Director |
| (John M. Steitz) | | |
| | | |
/s/ | Carl E. Tack, III | | Director |
| (Carl E. Tack, III) | | |
| | | |
| | | |
| | | |
