Tredegar Corporation
Annual Report 2011

Plain-text annual report

Growth Excellence Innovation Leadership 2011 AnnuAl RepoRt Financial Highlights Financial Summary Years ended December 31 Net Sales2 ($ Millions) (In thousands, except per-share data) Net Income and Diluted Earnings Per Share net income (loss) as reported under generally accepted accounting principles (GAAp) After-tax effects of: (Gains) losses associated with plant shutdowns, asset impairments and restructurings (Gains) losses from sale of assets and other 779 535 723 520 Income from ongoing operations1 633 455 Diluted earnings (loss) per share as reported under GAAp After-tax effects per diluted share of: 200 240 400 600 500 178 (Gains) losses associated with plant shutdowns, asset impairments and restructurings (Gains) losses from sale of assets and other 4 3 300 800 700 200 ’11 Diluted earnings per share from ongoing operations1 ’09 ’10 100 0 Ongoing Operations Film products: net sales2 ongoing operating profit Adjusted eBItDA3 Depreciation and amortization Capital expenditures Aluminum extrusions: net sales2 ongoing operating profit Ongoing Operating Prof it Adjusted eBItDA3 ($ Millions) Depreciation and amortization Capital expenditures other: 63 net sales2 63 71 ongoing operating profit 63 Adjusted eBItDA3 Depreciation and amortization 800 Capital expenditures 700 Financial Position and Other Data 600 (6) (4) Cash and cash equivalents ’10 ’09 Debt outstanding 300 Shareholders’ equity 200 Annualized dividends per share Shares outstanding at end of period Shares used to compute diluted earnings (loss) per share Closing Market Price Per Share High low end of year total return to shareholders4 633 455 58 64 178 ’11 ’09 (3) (4) 3 400 500 100 -10 10 20 30 60 50 70 80 40 0 0 Net Sales2 ($ Millions) 723 520 200 779 535 240 4 3 ’10 ’11 2011 2010 $ 29,244 Net Sales2 ($ Millions) 1,637 (2,294) 723 $ 28,587 520 .91 $ 633 455 $ 27,027 863 1,043 779 $ 28,933 535 $ .05 (.07) 200 .89 3 240 $ 178 $ ’09 ’10 ’11 .83 .03 .03 .89 4 $ 535,193 63,420 99,010 35,590 12,895 $ 520,445 71,184 104,949 33,765 15,664 240,392 3,457 11,790 8,333 2,697 199,639 (4,154) 4,900 9,054 4,339 Ongoing Operating Prof it ($ Millions) 58 64 ’09 3,524 (2,835) 63 (2,098) 71 737 212 2,579 (4,173) (3,478) 63 695 63 179 (4) (4) 68,939 125,000 (6) 397,001 ’10 .18 32,057 32,213 73,191 3 450 417,546 (3) ’11 .16 31,883 32,572 $ 23.00 13.92 22.22 15.6% $ 20.19 14.93 19.38 23.5% See appendix for footnotes. Adjusted EBITDA3 (Excludes Corporate Overhead) ($ Millions) Net Sales2 ($ Millions) Ongoing Operating Prof it ($ Millions) Adjusted EBITDA3 (Excludes Corporate Overhead) ($ Millions) 106 105 723 520 109 99 779 535 5 (4) 240 ’11 4 200 ’10 3 12 (2) 58 64 120 100 80 60 40 20 (6) 0 80 70 60 50 40 30 20 1 98 97 633 455 178 ’09 10 0 -10 ’09 ’10 ’11 -20 ’09 ’10 63 71 63 63 106 105 109 99 98 97 (4) (4) 3 (3) ’11 1 ’09 ’10 5 (4) 12 (2) ’11 Films Aluminum Other Films Aluminum Other See appendix for footnotes. Ongoing Operating Prof it ($ Millions) 58 64 63 71 63 63 (4) (4) 3 (3) ’09 ’10 ’11 60 (6) 120 100 80 40 20 0 -20 Adjusted EBITDA3 (Excludes Corporate Overhead) ($ Millions) 106 105 109 99 98 97 1 5 (4) ’09 ’10 ’11 12 (2) Films Aluminum Other Adjusted EBITDA3 (Excludes Corporate Overhead) ($ Millions) 106 105 109 99 98 97 1 5 (4) ’09 ’10 ’11 12 (2) Films Aluminum Other 800 700 600 500 400 300 200 100 0 80 70 60 50 40 30 20 10 0 -10 120 100 800 80 700 600 60 500 40 400 20 300 0 200 -20 100 0 80 70 60 50 40 30 20 10 0 -10 120 100 80 60 40 20 0 -20 Corporate Headquarters Manufacturing Plants (Film Products) Manufacturing Plants (Aluminum Extrusions) Reflecting Our Brand Through Our Mission Tredegar is committed to unleashing the full potential of our employees around the world so as to create value for all of our stakeholders. 2011 Annual Report p 1 Dear Shareholders, The end of one year and the start of another provide the impetus for reflection. What went well and what didn’t? What can we do better? How were we surprised and why? What did we learn from our successes and from our mis- takes? What new trends are emerging in our key markets? How can we best take advantage of those trends? Is our strategy working? At Tredegar, these are familiar questions. And it’s true, we do reflect upon these questions as the year closes, but they are not questions asked just once a year. As part of our drive for operational excellence, innovation and leadership, these are our everyday questions. So, how should you, as a shareholder, think about these ques- tions as you consider Tredegar’s overall performance in 2011? If you’re interested in my assessment, the short answer is that 2011 was a challenging year for Tredegar, with mixed financial results, encouraging progress in executing on our strategy and vision, and plenty of valuable learning. Tredegar’s financial performance for the year varied across our businesses. Tredegar’s 2011 consolidated income from ongoing operations,* including results from Terphane Holdings (acquired in late October 2011), was $28.6 million, which was $0.3 million lower than 2010. Cash provided by operating activities was very strong at $72 million. The results of Bonnell Aluminum, our aluminum extrusion business, showed strong year-over-year improvement. The performance of Tredegar Film Products, our largest business, was disappoint- ing with declines in volume and operating profit versus 2010 performance. Falling Springs, our mitigation banking business, experienced impressive year-over-year earnings growth. One of our success stories in 2011 was Bonnell’s perfor- mance. While the commercial construction industry, Bonnell’s key market, continued to suffer in 2011, Bonnell experienced almost 14% volume growth fueled by the success of a number of its existing customers and its new customer generation efforts. The rigorous efforts by their employees to reduce costs and improve efficiency augmented the operating leverage it realized with the improved volume. Bonnell’s growth efforts coupled with its strong operating performance resulted in a $7.7 million improvement in profitability, earning $3.5 million in operat- ing profit compared to a $4.2 million operating loss in 2010. Consistent with Tredegar’s overall vision, Bonnell’s strategy is centered on profitable growth. We recently announced our decision to close the Kentland, Indiana plant, a plant that is heavily reliant on the residential construction market. Our Kentland employees pushed themselves to overcome the significant hurdles created by the severe drop in residential construction, Kentland’s key market. Unfortunately, the efforts of our employees across the Bonnell organization to return Kentland to profitability were not enough to mitigate the prolonged and severe impact of the decline in residen- tial construction. Consequently, the difficult decision was made to shift our resources to markets that can provide Bonnell with an opportunity for profitable growth. We faced our share of surprises in 2011. The external environ- ment proved to be rather tough in a couple of Films’ key markets. Most significantly, we experienced a substantial volume drop in our surface protection business, which had been a bright spot in 2010, due to the downturn in con- sumer spending on higher end LCD televisions. Overall, Film Products (excluding Terphane Holdings) experienced a 7.7% decline in volume, which translated into a 15% reduction in operating profit. Despite the negative market dynamics, Tredegar’s films busi- ness was still able to generate significant cash from operat- ing activities. The quick actions of Film Products’ leadership and the strong performance of our employees, with a keen focus on reducing costs and managing working capital, contributed substantially to their impressive cash flow. Film Products results were also affected by delays in com- mercializing strategic new products slated for 2011. And, as part of our drive for continuous improvement, we have asked “Why?” The answers have translated into changes in p 2 “ AS WE HAVE ASKED OURSELVES WHAT IS WORKINg WELL AND WHAT ISN’T, WE CONTINUE TO BELIEVE THAT OUR VISION, VALUES AND STRATEgIES ARE SOUND AND SUPPORT OUR DRIVE FOR OPERATIONAL ExCELLENCE, INNOVATION AND LEADERSHIP. ” Film Products’ processes and organizational structure. We believe the changes will drive improved execution in this area and move us closer to becoming an organization centered on operational excellence and innovation. Business development, both organic and through acquisi- tion, continues to play an important role in our growth strat- egy. Film Products’ acquisition of Terphane Holdings last October was an important step in implementing our strat- egy. The addition of this producer of polyester film for the flexible packaging market expands Film Products’ technol- ogy and product portfolio, adds diversity to its customer and market base and strengthens its presence in Brazil and the rest of Latin America. As pleased as I am that we were successful in completing this acquisition, I’m just as delighted in the discipline and teamwork demonstrated by Tredegar’s employees throughout the acquisition process. Our employees applied rigor and objectivity in evaluating the opportunity. And, throughout the process, we tapped into the skills and knowledge of Tredegar employees across businesses, functions and geographies. The integration of Terphane is being implemented with the same degree of care and thought, balancing the sharing of best practices with the day-to-day needs of the businesses. There is a strong cultural fit and I’m impressed with how quickly and naturally the employees from the businesses are working together. The Terphane acquisition was a visible sign of Tredegar’s progress in executing its strategy. During the last year, there were other, less visible, activities as well. As part of Bonnell Aluminum’s overall growth strategy, it developed key insights into several new markets. A number of these opportunities are being actively pursued by Bonnell. Also important, the knowledge gained by evaluating and ruling out certain mar- kets is helping Bonnell to sharpen its growth strategy. In addition to Film Products and Bonnell, our other businesses continue to pursue organic growth as well. Bright View broadened its product offerings in LED and fluorescent lighting, its key market. And the strong collaboration between Bright View’s and Films Products’ developers opened up additional market opportunities (which also prompted the decision to fold Bright View into Films Products at the beginning of 2012). Falling Springs has identified and is developing new product offerings, such as nutrient credits, for the environmentally oriented mitigation banking market. In last year’s annual report, we rolled out Tredegar’s new vision statement: Inspiring confidence by delivering long-term value to all of our stakeholders by growing profitably in our target markets, passionately pursuing operational excellence, inno- vation and leadership, promoting global citizenship, and embracing the talents of all our people. As we have asked ourselves what is working well and what isn’t, we continue to believe that our vision, values and strat- egies are sound and support our drive for operational excel- lence, innovation and leadership. As I look ahead to 2012, I believe the external environment will continue to be challenging. I also believe that the successes and challenges of 2011 have made Tredegar’s employees bet- ter prepared to respond to the difficulties and opportunities that we will face. Encouraging and supporting our employees as they ask and answer the everyday questions will continue to be an important part of unleashing their talent. My letter is not complete without expressing my deep appreciation for our customers. Thank you for your business and thank you for continuing to challenge us to be better. And to Tredegar’s employees, thank you for your continued hard work and commitment. Your efforts ARE inspiring as you continue to transform our company into a strong global organization, creating new opportunities for us all and deliv- ering on Tredegar’s vision. Sincerely, Nancy M. Taylor President and Chief Executive Officer * See appendix for footnote 1. 2011 Annual Report p 3 Films Terphane Acquisition • Tredegar Film Products acquired Terphane Holdings LLC (“Terphane”) in October 2011. • Terphane is a leading manufacturer of specialty polyester films with operations in Brazil and the U.S. • Terphane produces films primarily used in the food packaging and industrial markets. • Polyester (PET) films are uniquely suited for the growing flexible packaging market. p 4 2011 Annual Report growth Tredegar Film Products has a wide range of capabilities in polyethylene, elastics and PET films for use in the Personal Care, Electronic Displays, Packaging, Food, Industrial, Building Materials, Healthcare, Lighting and other Specialty Films markets. With a global footprint and local supply capabilities, we are well positioned to capitalize on the demand for high performance con- sumer products and packaging. Our Personal Care business is poised for growth by offer- ing innovative products that are tailored to the needs of our customers in mature and emerging markets. Our Surface Protection business continues to provide high value-added protection films to the electronics and dis- play industry, including the rapidly growing Tablet and Smartphone markets. Our footprint in Latin America and Asia allows us to rapidly supply and support growth in these key strategic regions. Excellence, Innovation and Leadership Our growth strategy is driven by our commitment to continuously support our customers’ innovations while embracing operational excellence. With a global R&D structure and strategically located operations, we are committed to working with our customers and suppli- ers on solutions tailored to meet market needs. The addition of Terphane and Bright View Technologies to Film Products will strengthen our position as a top global leader in the plastic films industry and enhance our extensive capabilities to bring exciting innovation to the markets we serve. Innovation, quality, service and long-term perspective are all key elements of delivering “Layers of Confidence.” Film Products Net Sales by Region ($535 million in 2011) 9% 17% 51% 9% 23% 17% 51% North America Europe Asia Latin America 23% ($535 million in 2011) North America Europe 6% 13% 33% Asia Film Products Net Sales by Major Product Category ($535 million in 2011) ($535 million in 2011) Latin America 22% 26% Feminine Hygiene Baby Diaper Packaging & Specialty Surface Protection Adult Incontinence 6% 13% 33% 22% 26% Feminine Hygiene Baby Diaper Packaging & Specialty Surface Protection Adult Incontinence In addition to producing multiple components of personal care products, Film Products makes a variety of films used in packaging and specialty markets throughout the world. Electronic Displays • Personal Care • Flexible Packaging • Building Materials • Healthcare p 5 Aluminum Extrusions Aluminum Extrusions Volume by End Market (108 million pounds in 2011) (108 million pounds in 2011) 2% 2%2% 6% 6% 12% 70% Building & Construction, Nonresidential Building & Construction, Residential Transportation Distribution Electrical Consumer Durables Machinery & Equipment Experience with Confidence As one of North America’s leading manufacturers of custom aluminum extrusions serving a variety of end- use markets, Bonnell Aluminum understands the value of being recognized for its experience and confidence in providing customers with products and services that are both innovative and competitive. While the industry is still recovering from one of the most severe economic downturns in its history, Bonnell Aluminum’s strong lead- ership, continuous innovation, and the pursuit of opera- tional excellence contributed to positive earnings in 2011. Experience with Confidence™ Differentiation is key when operating in a highly competitive market environment. Bonnell Aluminum has demonstrated time and again its strong drive to overcome challenging situations—and last year was no exception! While expanding the concept of inno vation into the areas of best practices, lean manufac turing, process improvements and waste reductions, Experience with Confidence™ character izes the results achieved during a time of tumultuous eco- nomic volatility. With a reputation for customized solutions in building and construction and a variety of other end-use markets, Bonnell offers a large range of capabilities that allow its customers to set themselves apart from their competition. p 6 Building and Construction • Transportation • Consumer Durables • Electrical • Machinery & Equipment • Distribution Tredegar Locations CoRpoRAte HeADquARteRS Richmond, Virginia Division Headquarters Richmond, Virginia technical Centers Bloomfield, new York Cabo de Santo Agostinho, Brazil morrisville, north Carolina Richmond, Virginia terre Haute, Indiana FIlm pRoDuCtS manufacturing plants Domestic Bloomfield, new York lake Zurich, Illinois morrisville, north Carolina pottsville, pennsylvania Red Springs, north Carolina terre Haute, Indiana International Cabo de Santo Agostinho, Brazil Guangzhou, China Kerkrade, the netherlands pune, India Rétság, Hungary São paulo, Brazil Shanghai, China Bonnell AlumInum Division Headquarters newnan, Georgia manufacturing plants Carthage, tennessee Kentland, Indiana* newnan, Georgia FAllInG SpRInGS Division Headquarters Richmond, Virginia *scheduled to be closed in 2012 Corporate Information Corporate Officers and Operating Company Management nancy m. taylor President and Chief Executive Officer Duncan A. Crowdis President, The William L. Bonnell Company and Corporate Vice President A. Brent King Vice President, General Counsel and Corporate Secretary monica moretti President, Tredegar Film Products and Corporate Vice President Kevin A. o’leary Vice President, Chief Financial Officer and Treasurer larry J. Scott Vice President, Audit Directors R. Gregory Williams2, 4, 6 Chairman of the Board tredegar Corporation President CCA Financial Services, llC Austin Brockenbrough, III2, 4, 5, 6 Managing Director and President lowe, Brockenbrough & Company, Inc. Donald t. Cowles2, 3, 5, 6 Retired Reynolds metals Company George C. Freeman, III2, 6 President universal Corporation John D. Gottwald1 Retired tredegar Corporation William m. Gottwald1 Vice Chairman tredegar Corporation Retired Albemarle Corporation Richard l. morrill3, 4, 5, 6 President the teagle Foundation Chancellor university of Richmond George A. newbill1, 3, 6 Retired Albemarle Corporation thomas G. Slater, Jr. Partner Hunton & Williams llp Shareholder Information Annual Meeting the annual meeting of share- holders of tredegar Corporation will be held on may 16, 2012, beginning at 9:00 Am eDt at Jepson Alumni Center, university of Richmond, in Richmond, Virginia. Formal notices of the annual meeting, proxies and proxy statements will be mailed to shareholders on or about April 4. Corporate Headquarters 1100 Boulders parkway Richmond, Virginia 23225 phone: 804-330-1000 Website: www.tredegar.com Number of Employees Approximately 2,200 Counsel Hunton & Williams llp Richmond, Virginia Independent Auditors pricewaterhouseCoopers llp Richmond, Virginia Stock Listing new York Stock exchange ticker Symbol: tG Transfer Agent and Registrar Computershare Investor Services Canton, massachusetts 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 250 Royall Street Canton, massachusetts 02021 phone: 800-622-6757 (uS, Canada, puerto Rico) 781-575-4735 (International) e-mail: web.queries@computershare.com Website: www.computershare.com/investor nancy m. taylor1 President and Chief Executive Officer tredegar Corporation 1) Executive Committee 2) Audit Committee 3) Executive Compensation Committee 4) Nominating and Governance Committee 5) Investment Policy and Related Person Transactions Committee 6) Independent Director All other inquiries should be directed to: tredegar Corporation Investor Relations Department 1100 Boulders parkway Richmond, Virginia 23225 phone: 800-411-7441 or 804-330-1044 e-mail: invest@tredegar.com Website: www.tredegar.com Experience with Confidence Tredegar Film Products Bonnell Aluminum Falling Springs Manufactures plastic films, specialty polyester films, elastics, and laminate materials primarily for the Personal Care, Electronic Displays, Packaging, Food, Industrial, Building Materials, Healthcare, Lighting, and other Specialty Films markets. Among the top global leaders in the plastic films industry, Tredegar Film Products has a global R&D structure and locations throughout North America, Europe, Asia, and South America. Tredegar provides local support and innova- tive solutions to accommodate our customers’ needs. Manufactures custom aluminum extrusions for the North American market. As a premier extruder for more than half of a century, Bonnell’s extruded aluminum profiles have been one of the prominent compo- nents in many product innovations and applications in the building and construction and industrial sectors. Through a commitment to customer excellence, Bonnell Aluminum’s pro- duction facilities serve many of North America’s largest and most respected manufacturing companies with design solutions and unmatched extrusion capabilities and services. Develops, owns, and operates miti- gation banks for the purpose of selling compensatory mitigation credits to those who need to offset their environmental impacts required by various federal and state regu- lations. In short, we restore critical habitat to protect and enhance water quality and biodiversity throughout Virginia and several other states. Our work offsets the negative impacts that other land disturbance projects like roads and buildings often have in our com- munities. In conjunction with our partners, we oversee the entitlement, design, construction, compliance and sales of these important restora- tion projects. Experience with Confidence Tredegar Corporation 1100 Boulders parkway Richmond, Virginia 23225 www.tredegar.com 

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