2013
AnnuAl
RepoRt
InvestIng for
growth
TREDEgAR AT A glANcE
MAjoR PRoDucTS
PRiMARy END-MARkETS
cuSToMERS
kEy
coMPETiToRS
Film Products
• Personal Care Materials: Apertured,
• Feminine hygiene products, baby diapers and
adult incontinence products
• Global and regional con-
sumer care producers
• Clopay, Nordenia,
Aplix, Pantex
• High-value components of flat panel displays,
including liquid crystal display (“LCD”) televi-
sions, monitors, notebooks, smartphones,
tablets, e-readers and digital signage
• Major manufacturers
of flat panel display
components
• Toray, Sekesui,
Hitachi
• Perishable and non-perishable food packag-
• Major food packaging
converters and producers
• DuPont Teijin,
Toray Plastics
America, Mitsubishi
ing; non-food packaging and industrial
applications
• Overwrap for bathroom tissue and paper
towels; medical devices; automotive and
industrial applications
• Global and regional
• Bemis, Berry
consumer care producers
Plastics
• Lighting, signage, durable goods, automotive
• Global and regional
and construction applications
leaders in LED lighting
• Luminit, Fusion
Optix, DuPont
breath able, elastic and embossed films
and laminate materials for personal
care markets
• Surface Protection Films: Single and
multi-layer surface protection films
for high technology applications during
the manufacturing and transportation
process
• Flexible Packaging Films: Specialized
polyester (“PET”) films for use in packag-
ing applications
• Polyethylene Overwrap and
Polypropylene Films: Films for use
in thin-gauge packaging and other
applications
• Films for Other Markets: Films com-
bining multiple technology platforms
for application-specific functionality,
including optical management
Aluminum Extrusions
• Custom aluminum extrusion profiles
• Nonresidential Construction: Doors, win-
• Glazing contractors and
• Sapa North
fabricators
America
supplied in various finishing and value-
added service options including mill
(unfinished), anodized, painted, fabricated,
machined, cut-to-length, assembled,
custom packed and labeled for:
dows, pre-engineered structures, wall panels,
partitions and interior enclosures, ducts,
louvers and vents, curtain wall (commercial/
architectural/monumental), store fronts and
entrances, walkway covers
• Nonresidential and residential
• Residential Construction: Shower and tub
• Kaiser Aluminum
• Western
Extrusions Corp.
• Keymark
Aluminum Corp.
construction
• Automotive
• Consumer durables
• Machinery and equipment
• Electrical
• Distribution
enclosures, storm shutters
• Automotive and Transportation: Automobile/
light truck structural components, recreational
vehicles, trim parts, after-market accessories
• Tier suppliers to Automotive
OEMs
• Consumer Durables: Commercial refrigera-
• Consumer durables,
machinery and equipment,
electrical OEMs
tors and freezers, office and institutional furni-
ture, major appliances, swimming pools,
pleasure boats, recreational motorized
water craft
• Machinery and Equipment: Material han-
dling equipment, linear motion and conveyor
systems, modular framing (commercial and
industrial), hospital and patient care equipment
• Electrical: Commercial and industrial LED
lighting housings and heatsinks, solar panels,
rigid and flexible conduit
• Distribution: Metal service centers
• Metal service centers
2010
With deep manufacturing roots,
Tredegar began executing a
focused strategy to accelerate
profitable growth while
reducing customer and market
concentration in its core film
products and aluminum
extrusions businesses.
“
Our STraTegy iS
yielding real
reSulTS
2013
Since 2010, we have made strategic acquisitions,
invested in new capacity and introduced new
products to strengthen our competitive position in
key markets that offer significant long-term growth
opportunities. Our leadership in our core markets
and strong relationships with customers have
allowed Tredegar to create the foundation to
succeed and deliver value to our shareholders.
”
COrpOraTe HigHligHTS
2010
2011
• Opened Pune, India facility to manufacture films for the expanding
• Acquired Terphane, a market-leading manufacturer of plastic
personal care market
films for the Latin American flexible packaging market
• Acquired Bright View Technologies, a manufacturer of highly-
• Increased quarterly dividend by 13%
advanced optical management products
• Returned more than $40 million to shareholders through stock
buybacks and dividends
2013
2012
• Acquired AACOA, a premier North American manufacturer of
aluminum and finishing services
• Closed Kentland, Indiana aluminum extrusions facility that served
the residential construction market to increase focus on higher-
value opportunities
• Laid the foundation for growth by expanding production capacity
and product offerings for film products in key emerging markets,
including China and Brazil
• Introduced key new products in Film Products to serve the global
baby-care, adult incontinence and electronic display markets
• Committed resources for growth in the automotive extrusions
market in North America
• Divested non-core asset, Falling Springs LLC, an environmental
• Integrated AACOA acquisition, significantly reducing Bonnell’s
mitigation banking business
concentration in construction market
• Returned more than $30MM to shareholders through special
• Increased quarterly dividend for third time since 2010, representing
and quarterly dividends
a 75% increase
• Since 2010 our focused strategy has yielded higher sales and
earnings per share and improved customer and market
diversification
1
Tredegar Corporation • 2013 AnnuAl RepoRt
Dear ShareholDerS,
countries provides attractive growth
rates for adult incontinence prod-
ucts. The demand for electronic
hand-held devices continues to
expand, and we are well situated
to support our surface protection
films customers as the quality
requirements for display screens
are raised. While there is currently
a global over supply of flexible pack-
aging films, the demand for these
products is growing. We expect
to benefit as that supply/demand
cycle rebalances over the next few
years. The expectation for greater
energy efficiency in lighting has
accelerated the adoption rate for
leD lighting and other efficient
technologies, which is providing
momentum for our optical man-
agement products.
Bonnell aluminum, our aluminum
extrusion business, is well-positioned
for growth as well. It has expanded
its capability to serve the automo-
tive industry’s growing demand for
aluminum as automakers look for
substitute materials to meet higher
fuel efficiency requirements.
Through the aaCoa acquisition,
we strengthened Bonnell’s position
in several end-use markets outside
of nonresidential building and con-
struction, and broadened its value-
added capabilities. our expertise
in nonresidential construction is
as keen as ever, and the continuing,
albeit slow, recovery in that market
provides additional opportunity.
We have been executing our strat-
egy and our results have improved.
From 2010 to 2013, net sales*
increased 29% to $931 million and
the combined operating profit
from ongoing operations* for Film
Products and Bonnell aluminum
2
increased 43% to $89.3 million.
over the same period, earnings per
share from ongoing operations*
increased by 31% to $1.15 per share,
and cash from operating activities
exceeded $70 million in each of the
last three years. our results are not
just financial. We have reduced
both our market and customer
concentration, achieved record
results in our safety performance,
reduced product development cycle
times and made meaningful pro-
ductivity gains.
our balance sheet has remained
strong as we’ve made strategic
investments in our businesses and
returned capital to our sharehold-
ers through share repurchases,
regular dividend increases and a
special dividend.
our strategy is yielding
real results…
Four years ago, our goal was to
implement a strategy that would
enhance shareholder value and
improve our financial results to
benefit all of our stakeholders. We
believe we are doing just that. In
2013, Film Products and Bonnell
each experienced year-over-year
growth in net sales and operating
profit from ongoing operations.
Both businesses continued to make
progress on their growth initiatives.
Film Products has introduced new
product platforms and made stra-
tegic investments in new capacity
to serve markets where there is
growing demand for our products.
last year, Film Products gained
traction with its new personal care
product offerings, and the net sales
for our surface protec tion films hit
record levels. Bonnell is accelerat-
ing its penetration into new markets
“Where are we going and
when will we get there?”
Four years ago, Tredegar embarked
upon a strategy to enhance
shareholder value by focusing
on our manufacturing strengths,
market leadership and innovation
capabilities. Successfully execu-
ting this strategy will transform
Tredegar into a larger, more diver-
sified, more profitable manufactur-
ing company. We are excited about
our progress and confident that
we are on the path of continued
success.
Since launching our strategy, we
have made three acquisitions,
invested in additional capacity and
capabilities, and introduced new
products in our key markets. These
investments have strengthened
Tredegar’s leadership position in
our core markets and have allowed
us to expand into new markets
with attractive growth trends.
While the continuing global eco-
nomic malaise has created chal-
lenges, we are well-positioned
in growing markets. In our Film
Products business, demand for per-
sonal care products in the emerg-
ing markets continues to increase.
The aging population in developed
*See appendix for footnotes
Tredegar Corporation • 2013 AnnuAl RepoRt
“These investments have strengthened Tredegar’s
leadership position in our core markets and have allowed us
to expand into new markets with attractive growth trends.”
through its investment in a new
press to serve the automotive mar-
ket and capitalizing on the AACOA
acquisition.
…but we are not there yet.
2013 presented both of our busi-
nesses with challenges. In Film
Products, our flexible packaging
business faced a weakening Brazilian
economy and the impact of the
downside in the global cycle for
flexible packaging. In certain prod-
uct areas, operational inefficiencies
negatively impacted operating
margins and our productivity gains
weren’t always sufficient to offset
pricing pressure. Bonnell’s market
segments within nonresidential
building and construction were
flat in 2013, and it experienced an
unfavorable shift in product mix.
On a consolidated basis, Tredegar’s
2013 income from ongoing opera-
tions* was $37.3 million, down
slightly from 2012 as we experi-
enced headwinds that resulted in
a five-cent per share drop in our
2013 earnings from 2012. Pension
expense increased by $5.6MM, or
$0.11 per share. In addition, we
incurred corporate expenses of
$1.4 million that were unrelated
to our normal operations. Our
expectation is to deliver to our
shareholders year-over-year earn-
ings improvement, and we didn’t
achieve that in 2013.
We have invested for growth, and
we intend to deliver on that invest-
ment. We know that we have our
work cut out for us in 2014. The
global economy remains bumpy at
best. That difficult dynamic, coupled
with the previously announced loss
of certain North American baby
diaper elastics volumes, present
challenges for our Film Products
business. In spite of the challenges,
we expect Film Products to achieve
volume growth by leveraging our
new products and capacity expan-
sions and build further on the
foundation for growth beyond the
next year.
For Bonnell, our new press for the
automotive market is creating a
well-defined opportunity for vol-
ume growth in the near term and
Bonnell is energized to achieve
growth across all of its markets.
Given the tough environment head-
ing into 2014, we are executing
against aggressive targets for pro-
ductivity gains and cost reductions
across the whole of Tredegar.
Where are we going and
when will we get there?
We are successfully executing our
strategy to create shareholder value
by achieving customer and market
diversification, delivering volume
growth, and realizing a favorable
return on invested capital. By
2016, we expect volume growth
of approx imately 5% compound
annual growth rate* and a return
on invested capital* of 11%. Our
2016 targets build on the founda-
tional strengths of our business,
and we expect our strategy to con-
tinue to deliver improved results
beyond 2016.
In last year’s letter, I described
Tredegar as the tale of two com-
panies and wrote that I expected,
in a year’s time, we would be closer
to our goal of becoming the tale of
one company, a company that is
delivering on its promises of opera-
tional excellence, leadership and
innovation. There is no doubt that
3
the last year has brought us closer
to that goal and we will be closer
still one year from now. I am confi-
dent that our strategy will keep
us on the path to success. We are
building a stronger, more sustain-
able growth engine for Tredegar.
To our shareholders, thank you
for your investment and trust.
We know that both are precious.
To our customers, we appreciate
your continued business and strive
to delight you every day.
To our employees, thank you for
your commitment, engagement and
achievement. Your willingness to
go the extra mile for our custom-
ers and our Company is inspiring.
To our Board of Directors, thank
you for your unfailing dedication to
create value for our shareholders.
In May, Austin Brockenbrough III
will retire from Tredegar’s Board
after 21 years of devoted service.
Austin has been steadfast in his
duty to serve the best interests of
shareholders. Tredegar has bene-
fited from Austin’s many talents,
not the least of which is his nose
for business. He is defined by his
high integrity and commitment to
do the right thing. Austin is a man
of character, and his energy, busi-
ness savvy, and wisdom will be
missed.
Sincerely,
Nancy M. Taylor
President and Chief Executive Officer
InvesTIng for
growTh
FilM prOduCTS
“
We are growing in our core markets by
leveraging our leadership, technology and
global footprint to delight customers.
Mary Jane Hellyar
president, Tredegar Film products
”
COre STrengTHS
grOWTH STraTegieS
• Global footprint, producing to the highest quality
• Expand product portfolio and geographic reach to
standards, with local supply and service capabilities
in north america, South america, asia, and europe
benefit from growing consumer demand in emerging
markets
• Innovative portfolio of industry-leading products,
• Continue to lead in technology, state-of-the-art
with broad capabilities in high-performance plastic
films, elastics and laminate material technologies
quality and customer service to serve the electronic
display market
• Leadership positions in attractive core markets and
strong long-term relationships with global market-
leading customers
• Introduce new products to exploit growth that is
driven by demographic trends and technology
adoption
• Positive market dynamics and growth trends in
multiple end-use markets driving global demand
• Relentless focus on operational excellence to delight
our customers as their preferred supplier
4
Tredegar Corporation • 2013 AnnuAl RepoRt
5%
20%
FilM prOduCTS
net Sales by Region
($521MM Net Sales in 2010)
51%
($621MM Net Sales in 2013)
5%
20%
24%
51%
North America
Europe
Asia
Latin America
3%
12%
24%
North America
Europe
Asia
Latin America
16%
32%
3%
12%
32%
16%
6%
net Sales by Major product Category
6%
31%
Personal Care–Feminine Hygiene
Personal Care–Baby Diaper
Personal Care–Adult Incontinence
Flexible Packaging
Surface Protection
Overwrap Films
Films for Other Markets
15%
20%
18%
19%
44%
30%
19%
North America
Europe
Asia
Latin America
9%
2%
20%
4%
Personal Care–Feminine Hygiene
Personal Care–Baby Diaper
Personal Care–Adult Incontinence
Flexible Packaging
Surface Protection
Overwrap Films
Films for Other Markets
31%
Personal Care–Feminine Hygiene
Personal Care–Baby Diaper
Personal Care–Adult Incontinence
Flexible Packaging
Surface Protection
Overwrap Films
Films for Other Markets
reCenT HigHligHTS
Key MarKeT driverS
• Strong new product introductions are driving growth:
high-performance elastics, ultra-high-quality surface
protection films, and highly reflective films for the
lighting market
• Capacity expansion in Brazil, China, and India for
local supply of personal care, surface protection, and
flexible packaging films
• Growth for personal care products occurring in
emerging markets as middle class expands and new
users enter the market
• Demographic changes with aging baby-boomers
consuming retail adult incontinence products,
particularly in developed markets
• Electronics and display market expanding with strong
• Full integration of Terphane acquisition and
growth in tablet and smartphone segments
appointment of strong leadership to drive returns
• Implementation of Tredegar First Class, an aggressive
process aimed at driving manufacturing excellence
• Rapid adoption of LED lighting and emphasis on energy
efficiency driving global growth for optical manage-
ment products
• Packaging innovation together with economic
development driving increased flexible packaging
demand in latin america
5
InvesTIng for
growTh
BOn nell
in 2014 we will grow Bonnell’s leadership position in
our core markets and broaden our capabilities to serve
the needs of new and exciting growth segments.
BrOOK HaMilTOn
president, Bonnell aluminum
”
“
COre STrengTHS
grOWTH STraTegieS
• Industry-leading position in North American extrusions
• Expand into the automotive market with the new
market with four u.S. manufacturing facilities
extrusion line in newnan, georgia
• Market-focused manufacturing operations and world-
class capabilities in extrusion, fabrication, painting
and anodizing services
• Leverage the Bonnell/AACOA synergies including
capabilities, served markets, and geographical
footprint
• Highly skilled workforce committed to meet the needs
• Apply Lean Six Sigma methodologies across the
of customers with complex, customized, service-
intensive requirements
business to further improve process and product
consistency, and customer satisfaction
• Leadership position in core markets and strong long-
• Leverage existing press size range and fabrication
term relationships with diverse customer base
capabilities
• All facilities registered with certified quality manage-
ment system organizations, including automotive
standards at the newnan facility
6
Tredegar Corporation • 2013 AnnuAl RepoRt
aluMinuM exTruSiOnS
Volume by end Market—2010 and 2013
(95MM pounds in 2010)
(144MM pounds in 2013)
2%5%1%
8%
2%
14%
2%5%1%
8%
68%
2%
14%
68%
Building & Construction (nonresidential)
Building & Construction (residential)
Consumer Durables
Transportation
Machinery & Equipment
Distribution
Electrical
Building & Construction (nonresidential)
Building & Construction (residential)
Consumer Durables
Transportation
Machinery & Equipment
Distribution
Electrical
4% 4%
7%
6%
12%
7%
60%
Building & Construction (nonresidential)
Building & Construction (residential)
Consumer Durables
Transportation
Machinery & Equipment
Distribution
Electrical
reCenT HigHligHTS
Key MarKeT driverS
• Benefitted from capacity and efficiency improvements
• Nonresidential building and construction recovery
resulting from the Bonnell/aaCOa synergies
opportunities
• Initiated successful launch into automotive, including
the award of multi-year customer contract
commitments
• Growing aluminum content in vehicles, driven by
CaFe (corporate average fuel economy) standards
• Growth in industrial and specialty markets such as
• Broadened the company’s presence in markets outside
consumer durables and machinery
of the construction segment
• Continued the expansion into fabrication with multi-
year customer commitments
7
1000
800
600
400
200
0
NET SALES2
($ Millions)
857
612
931
621
776
536
240
’11
245
’12
310
’13
1000
800
600
400
200
0
NET SALES2
100
($ Millions)
857
60
612
40
80
20
0
245
’12
931
621
310
’13
776
536
240
’11
Tredegar Corporation • 2013 AnnuAl RepoRt
ONGOING OPERATING PROFIT
2
($ Millions)
79
70
9
’12
62
59
3
’11
89
71
18
’13
FI Na NcI a l hI ghlI gh tS
ONGOING OPERATING PROFIT
($ Millions)
2
ADJUSTED EBITDA3
($ Millions)
1
3
9
1
2
6
7
5
8
2
1
6
6
7
7
6
3
5
2
S
E
L
A
S
T
E
N
)
s
n
o
i
l
l
i
M
$
(
0
1
3
3
1
’
5
4
2
2
1
’
0
4
2
1
1
’
2
T
I
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O
R
P
G
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T
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R
E
P
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I
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s
n
o
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l
i
M
$
(
9
8
1
7
8
1
3
1
’
9
7
0
7
9
2
1
’
2
6
9
5
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M
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(
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1
6
0
1
1000
6
800
2
1
9
0
1
600
400
8
0
1
200
6
9
0
8
2
3
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1
2
1
’
2
1
1
1
’
s
m
l
i
F
i
m
u
n
m
u
A
l
NET SALES2
($ Millions)
100
857
612
80
60
40
20
245
0
’12
931
621
310
’13
776
536
240
’11
150
79
70
120
90
60
30
0
9
’12
89
71
18
’13
62
59
3
’11
0
0
0
1
0
0
8
0
0
6
0
0
4
0
0
2
0
0
0
1
0
8
0
6
0
4
0
2
0
0
5
1
0
2
1
0
9
0
6
0
3
0
Financial Summary
Years Ended December 31
(In thousands, except per-share data)
NEt INcomE aND EarNINgS PEr SharE
Net income (loss) as reported under generally accepted accounting
principles (gaaP)
after-tax effects of:
100
80
60
40
20
0
150
120
90
60
30
0
ONGOING OPERATING PROFIT
($ Millions)
(gains) losses associated with plant shutdowns, asset impairments
and restructurings
(gains) losses from sale of assets and other
2
ADJUSTED EBITDA3
($ Millions)
89
Income from ongoing operations1
71
79
70
150
Earnings (loss) per share as reported under gaaP (diluted)
62
134
after-tax effects per diluted share of:
59
106
(gains) losses associated with plant shutdowns, asset impairments
and restructurings
(gains) losses from sale of assets and other
108
96
126
109
120
90
28
’13
Films
0
30
60
9
17
12
18
’12
’12
’11
’13
Aluminum
3
Earnings per share from ongoing operations1 (diluted)
’11
oNgoINg oPEratIoNS
Film Products:
Net sales2
ongoing operating profit2
adjusted EBItDa3
Depreciation and amortization
capital expenditures
aluminum Extrusions:
Net sales2
ongoing operating profit2
adjusted EBItDa3
Depreciation and amortization
capital expenditures
FINaNcIal PoSItIoN aND othEr Data
cash and cash equivalents
Debt outstanding
Shareholders’ equity
134
cash dividends declared per share4
106
108
Shares outstanding at end of period
96
Shares used to compute diluted earnings (loss) per share
cloSINg markEt PrIcE PEr SharE
high
low
12
End of year
’11
total return to shareholders5
ADJUSTED EBITDA3
($ Millions)
126
109
’13
’12
28
17
See appendix for footnotes.
Aluminum
Films
8
126
109
134
106
108
96
12
’11
17
’12
28
’13
Aluminum
Films
2013
2012
$ 35,937
$ 43,185
894
501
3,194
(7,854)
$ 37,332
$ 38,525
$
1.10
$
1.34
.03
.02
.10
(.24)
$
1.15
$
1.20
$ 621,239
70,966
106,298
35,332
64,867
$ 611,877
69,950
109,152
39,202
30,484
309,482
18,291
27,493
9,202
14,742
52,617
139,000
402,664
.28
32,305
32,599
245,465
9,037
16,585
9,984
2,332
48,822
128,000
372,252
.96
32,069
32,193
$ 30.73
21.06
28.81
$ 26.29
13.49
20.42
42.5%
(3.8)%
2013
Form 10-K
Table of Contents
Business
Risk Factors
Properties
Market for Tredegar’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Controls and Procedures
Directors, Executive Officers and Corporate Governance
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Exhibits and Financial Statement Schedules
Financial Statements and Supplementary Data
Also see our comments on Forward-looking and Cautionary Statements on page 18.
1–5
5–9
9
10–11
12–17
18–37
37
37–38
38–39
39
40
40–79
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
FORM 10-K
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
OR
Commission File Number 1-10258
TREDEGAR CORPORATION
(Exact name of registrant as specified in its charter)
Virginia
(State or other jurisdiction
of incorporation or organization)
1100 Boulders Parkway,
Richmond, Virginia
(Address of principal executive offices)
54-1497771
(I.R.S. Employer
Identification No.)
23225
(Zip Code)
Registrant’s telephone number, including area code: 804-330-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock
Preferred Stock Purchase Rights
Name of Each Exchange on Which Registered
New York Stock Exchange
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
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
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
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
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, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
Aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of June 28, 2013 (the last business day of the registrant’s most
recently completed second fiscal quarter): $701,242,824*
Number of shares of Common Stock outstanding as of January 31, 2014: 32,305,145 (32,267,003 as of June 30, 2013)
*
In determining this figure, an aggregate of 4,981,290 shares of Common Stock beneficially owned by John D. Gottwald, William M. Gottwald and the members of their immediate families
has been excluded because the shares are deemed to be held by affiliates. Effective September 2013, Common Stock beneficially owned Floyd D. Gottwald, Jr. was also included in the
affiliate group. The aggregate market value has been computed based on the closing price in the New York Stock Exchange Composite Transactions on June 28, 2013.
Documents Incorporated By Reference
Portions of the Tredegar Corporation Proxy Statement for the 2014 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, 2013
Business
Part I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Legal Proceedings
Item 3.
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Tredegar’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance*
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits and Financial Statement Schedules
*Items
11, 13 and 14 and portions of Items 10 and 12 are incorporated by reference from the Proxy Statement.
Page
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5-9
9
9
9
10
10-12
12-17
18-37
37
37
37
37-38
38
38
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39
39
40
Item 1.
BUSINESS
Description of Business
PART I
Tredegar Corporation (“Tredegar”), a Virginia corporation incorporated in 1988, is engaged, through its subsidiaries, in
the manufacture of plastic films and aluminum extrusions. The financial information related to Tredegar’s film products and
aluminum extrusions segments and related geographical areas included in Note 5 to the Notes to Financial Statements is
incorporated herein by reference. Unless the context requires otherwise, all references herein to “Tredegar,” “we,” “us” or
“our” are to Tredegar Corporation and its consolidated subsidiaries.
Film Products
Tredegar Film Products Corporation and its subsidiaries (together, “Film Products”) manufacture plastic films, elastics
and laminate materials primarily for personal care products and surface protection and packaging applications. These products
are manufactured at facilities in the United States (“U.S.”), The Netherlands, Hungary, China, Brazil and India. In October
2011, Film Products acquired Terphane Holdings LLC (“Terphane”), further expanding our films business in Latin America and
the U.S. Film Products competes in all of its markets on the basis of product innovation, quality, price and service.
Personal Care Materials. Film Products is one of the largest global suppliers of apertured, breathable, elastic and embossed
films, and laminate materials for personal care markets, including:
•
•
•
Apertured film and laminate materials for use as topsheet in feminine hygiene products, baby diapers and adult
incontinence products (including materials sold under the SoftQuilt™, ComfortQuilt™, ComfortAire™, ComfortFeel™,
SoftAire™ and FreshFeel™ brand names);
Breathable, embossed and elastic materials for use as components for baby diapers, adult incontinence products and
feminine hygiene products (including elastic components sold under the ExtraFlex™, FabriFlex™, StretchTab™, FlexAire™
and FlexFeel™ brand names); and
Absorbent transfer layers for baby diapers and adult incontinence products sold under the AquiDry®, AquiDry Plus™ and
AquiSoft™ brand names.
In 2013, 2012 and 2011, personal care materials accounted for approximately 36%, 38% and 45% of Tredegar’s
consolidated net sales (sales less freight) from continuing operations, respectively.
Flexible Packaging Films. Film Products produces specialized polyester (“PET”) 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 sold in Latin America and the U.S. under the Terphane® and
Sealphane® brand names. Major end uses include food packaging and industrial applications. Flexible packaging films
accounted for approximately 14% and 16% of Tredegar’s consolidated net sales from continuing operations in 2013 and 2012,
respectively. Tredegar did not offer these films until the fourth quarter of 2011, so flexible packaging films only accounted for
approximately 4% of consolidated net sales from continuing operations in 2011.
Surface Protection Films. Film Products produces single- and multi-layer surface protection films sold under the UltraMask®,
ForceField™ and ForceField PEARL™ brand names. These films are used in high-technology applications, most notably
protecting high-value components of flat panel displays used in televisions, monitors, notebooks, smart phones, tablets, e-
readers and digital signage, during the manufacturing and transportation process. In 2013, 2012 and 2011, surface protection
films accounted for approximately 10%, 8% and 9% of Tredegar’s consolidated net sales from continuing operations,
respectively.
Polyethylene Overwrap & Polypropylene Films. Film Products produces various types of polyethylene and polypropylene
overwrap films. Applications for polyethylene films include an emphasis on packaging for paper products. These products
provide our customers with thin-gauge films that are readily printable and convertible on conventional processing equipment.
Film Products also manufactures polypropylene films for packaging applications. Major end uses for polyethylene and
polypropylene films include overwrap for bathroom tissue and paper towels as well as retort pouches.
Films for Other Markets. Film Products also makes a variety of specialty films and film-based products that provide tailored
functionality for the illumination market as well as various other markets. By leveraging the combination of film capabilities
and our patented microstructure technology, we are able to offer optical management products for a wide range of applications,
including lighting, signage and durable goods.
1
The operations of Bright View Technologies Corporation (“Bright View”) were incorporated into Film Products effective
January 1, 2012 to better leverage efforts to produce films for new market segments. Bright View is a developer and producer
of high-value microstructure-based optical films for the LED (light-emitting diode) and fluorescent lighting markets.
Raw Materials. The primary raw materials used by Film Products are low density, linear low density and high density
polyethylene and polypropylene resins, Purified Terephthalic Acid (“PTA”) and Monoethylene Glycol (“MEG”), which are
obtained from domestic and foreign suppliers at competitive prices. Beginning in 2014, in addition to purchasing PTA and
MEG to produce polyester resins used in our flexible packaging films, we will be increasing our purchasing of polyester resins
directly from suppliers. We believe there will be an adequate supply of these raw materials in the foreseeable future. Film
Products also buys polypropylene-based nonwoven fabrics based on the resins previously noted and styrenic block copolymers,
and we believe there will be an adequate supply of these raw materials in the foreseeable future.
Customers. Film Products sells to many branded product producers throughout the world. Its largest customer is The Procter &
Gamble Company (“P&G”). Net sales to P&G totaled $262 million in 2013, $264 million in 2012 and $280 million in 2011
(these amounts include film sold to third parties that converted the film into materials used with products manufactured by
P&G).
P&G and Tredegar have a successful long-term relationship based on cooperation, product innovation and continuous
process improvement. For additional information on the relationship with P&G, see “Item 1A. Risk Factors” beginning on
page 5.
Aluminum Extrusions
The William L. Bonnell Company, Inc. and its subsidiaries (together, “Aluminum Extrusions”), which is known as
Bonnell Aluminum in the marketplace, produce high-quality, soft-alloy and medium-strength aluminum extrusions primarily
for building and construction, distribution, transportation, electrical, consumer durables and machinery and equipment markets.
Aluminum Extrusions manufactures mill (unfinished), anodized (coated) and painted and fabricated aluminum extrusions for
sale directly to fabricators and distributors, and it competes primarily on the basis of product quality, service and price. Sales
are made primarily in the U.S.
On October 1, 2012, Aluminum Extrusions acquired AACOA, Inc. (“AACOA”). AACOA produces aluminum extrusions
and provides anodizing services to customers in the consumer durables, machinery and equipment and transportation markets.
Our acquisition of AACOA allows us to add fabrication capabilities to Aluminum Extrusions’ current array of products and
services while providing AACOA with large press capabilities and enhanced geographic sales coverage in a variety of end-use
markets.
2
The primary end-uses in each of Aluminum Extrusions’ primary market segments include:
Major Markets
End-Uses
Building & construction - nonresidential
Building & construction - residential
Consumer durables
Machinery & equipment
Automotive & other transportation
Electrical
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 bus shelters
Shower and tub enclosures, railing and support systems,
venetian blinds, swimming pools and storm shutters
Office and institutional furniture, pleasure boats, serving
carts and refrigerators and freezers,
Material handling equipment, conveyors and conveying
systems, industrial erector sets, hospital patient lifts and
office equipment
Automotive and light truck structural components, spare
parts, after-market automotive accessories, travel trailers
and recreation vehicles
Lighting fixtures (LED housings and heat sinks), solar
panels, electronic apparatus and rigid and flexible conduits
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, theatre set structures and various standard
profiles (including rod, bar, tube and pipe)
Aluminum Extrusions’ sales volume from continuing operations by market segment over the last three years is shown
below:
% of Aluminum Extrusions Sales Volume
by Market Segment (Continuing Operations) *
2013
2012
2011
Building and construction:
Nonresidential
Residential
Consumer durables
Machinery & equipment
Transportation
Distribution
Electrical
Total
*
60%
7%
12%
7%
6%
4%
4%
70%
9%
5%
4%
5%
5%
2%
70%
12%
2%
2%
6%
6%
2%
100%
100%
100%
Includes sales volumes for AACOA subsequent to our acquisition on October 1,
2012.
In 2013, 2012 and 2011, nonresidential building and construction accounted for approximately 19%, 19% and 21% of
Tredegar’s consolidated net sales (sales less freight) 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. We believe that we have adequate long-term supply agreements for aluminum and other required raw materials and
supplies in the foreseeable future.
3
Other
Our operations previously included an additional segment, Other, comprised of the start-up operations of Bright View and
Falling Springs, LLC (“Falling Springs”). As previously noted, the operations of Bright View were incorporated into Film
Products effective January 1, 2012 to better leverage efforts to produce films for new market segments. Prior year balances for
Bright View have been reclassified to Film Products to conform with the current presentation.
Falling Springs develops, owns and operates multiple mitigation banks. Through the establishment of perpetual
easements to restore, enhance and preserve wetlands, streams or other protected environmental resources, these mitigation
banks create saleable credits that are used by the purchaser of credits to offset the negative environmental impacts from private
and public development projects. On November 20, 2012, we sold our membership interests in Falling Springs to Arc
Ventures, LC, a Virginia limited liability company affiliated with John D. Gottwald, a member of Tredegar’s Board of
Directors, for cash and stock proceeds of $16.6 million. The corresponding loss on sale of $3.1 million and the results of
operations related to Falling Springs have been classified as discontinued operations for all periods presented. With the sale of
Falling Springs, there is no longer an Other segment to report.
General
Intellectual Property. We consider patents, licenses and trademarks to be significant to Film Products. We routinely apply for
patents on significant developments in these businesses. As of December 31, 2013, Film Products held 305 issued patents (106
of which are issued in the U.S.) and 121 trademarks (12 of which are issued in the U.S.). Aluminum Extrusions held one U.S.
patent and three U.S. trademark registrations. Our patents have remaining terms ranging from 1 to 20 years. We also have
licenses under patents owned by third parties.
Research and Development. Tredegar’s spending for research and development (“R&D”) activities in 2013, 2012 and 2011
was primarily related to Film Products. As of December 31, 2013, Film Products has technical centers in Bloomfield, New
York; Morrisville, North Carolina; Richmond, Virginia; and Terre Haute, Indiana. R&D spending was approximately $12.7
million in 2013, $13.2 million in 2012 and $13.2 million in 2011.
Backlog. Backlogs are not material to our operations in Film Products. Overall backlog for continuing operations in Aluminum
Extrusions at December 31, 2013 increased by approximately 6% compared with December 31, 2012. Volume for Aluminum
Extrusions, which we believe is cyclical in nature, was 143.7 million pounds in 2013, 114.8 million pounds in 2012 and 108.0
million pounds in 2011.
Government Regulation. U.S. laws concerning the environment to which our domestic operations are or may be subject
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”), all as amended, regulations promulgated under these
acts, and any other federal, state or local laws or regulations governing environmental matters. Compliance with these laws is
an important consideration for us because we use hazardous materials in some of our operations, we are a generator of
hazardous waste, and wastewater from our operations is discharged to various types of wastewater management systems.
Under CERCLA and other laws, we may be subject to financial exposure for costs associated with waste management and
disposal, even if we fully comply 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. Additional
regulations are anticipated. Several of our manufacturing operations result in emissions or GHG and are subject to the current
GHG regulations. Our compliance with these regulations has yet to require significant expenditures. The cost of compliance
with any future GHG legislation or regulations is not presently determinable, but we do not anticipate compliance to have a
material adverse effect on our financial condition or results of operations based on information currently available.
Tredegar is also subject to the governmental regulations in the countries where we conduct business.
At December 31, 2013, we believe that we were in substantial compliance with all applicable environmental laws,
regulations and permits in the U.S. and other countries where we conduct business. Environmental standards tend to become
more stringent over time. In order to maintain substantial compliance with such standards, we may be required to incur
additional expenditures, the amounts and timing of which are not presently determinable but which could be significant, in
constructing new facilities or in modifying existing facilities. Furthermore, our failure to comply with current or future laws
and regulations could subject us to substantial penalties, fines, costs and expenses.
Employees. Tredegar employed approximately 2,700 people at December 31, 2013.
4
Available Information and Corporate Governance Documents. Our Internet address is www.tredegar.com. We make
available, free of charge through our website, our 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, 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, our Corporate Governance Guidelines, Code of Conduct and the charters of our Audit,
Executive Compensation and Nominating and Governance Committees are available on our 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 our website is not, and shall not be deemed to
be, a part of this report or incorporated into other filings we make with the SEC.
Item 1A. RISK FACTORS
There are a number of risks and uncertainties that could have a material adverse effect on the operating results of our
businesses and our consolidated financial condition and liquidity. The following risk factors should be considered, in addition
to the other information included in this Annual Report on Form 10-K for the year ended December 31, 2013 (“Form 10-K”),
when evaluating Tredegar and our businesses:
General
•
•
•
•
Our performance is influenced by costs incurred by our operating companies, including, for example, the cost of raw
materials and energy. These costs include, without limitation, the cost of resin, PTA and MEG (the raw materials on
which Film Products 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 on pages 32-33. We attempt 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 our customers or that we 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, our
cost control efforts may not be sufficient to offset any additional future declines in revenue or increases in raw material,
energy or other costs.
Tredegar and its customers operate in highly competitive markets. Tredegar and its businesses compete on product
innovation, quality, price and service, and our businesses and their customers operate in highly competitive markets.
Global market conditions continue to exacerbate our exposure to margin compression due to competitive forces,
especially as certain products move into the later stages of their product life cycles. We attempt to mitigate the effects of
this trend through the introduction of new products, cost saving measures and manufacturing efficiency initiatives, but
these efforts may not be sufficient to offset the impact of margin compression as a result of competitive pressure.
Tredegar may not be able to successfully execute its acquisition strategy. New acquisitions, such as our October 2011
acquisition of Terphane and our October 2012 acquisition of AACOA, can provide meaningful opportunities to grow our
business and improve profitability. Acquired businesses may not achieve expected levels of revenue, profit or
productivity, or otherwise perform as we expect. Acquisitions involve special risks, including, without limitation,
diversion of management’s time and attention from our existing businesses, the potential assumption of unanticipated
liabilities and contingencies and potential difficulties in integrating acquired businesses and achieving anticipated
operational improvements. While our strategy is to acquire businesses that will improve our competitiveness and
profitability, acquisitions may not be successful or accretive to earnings.
Our noncompliance with any of the covenants in our $350 million credit facility could result in all debt under the
agreement outstanding at such time becoming due and limiting our borrowing capacity, which could have a material
adverse effect on our financial condition and liquidity. The credit agreement governing our revolving credit facility
contains restrictions and financial covenants that could restrict our operational and financial flexibility. Our failure to
comply with these covenants could result in an event of default, which if not cured or waived, would result in all
outstanding debt under the credit facility at such time becoming due, which could have a material adverse effect on our
financial condition and liquidity. Renegotiation of the covenant(s) through an amendment to our revolving credit facility
may effectively cure the noncompliance, but may have a negative effect on our consolidated financial condition or
liquidity depending upon how the amended covenant is renegotiated.
5
•
•
•
•
•
Our failure to continue to attract, develop and retain certain key officers or employees could adversely affect our
businesses. We depend on our senior executive officers and other key personnel to run our businesses. The loss of any of
these officers or other key personnel could have a material adverse effect on our operations. Competition for qualified
employees among companies that rely heavily on engineering and technology is intense, and the loss of qualified
employees or an inability to attract, retain and motivate highly skilled employees required for the operation and expansion
of our businesses could hinder our ability to improve manufacturing operations, conduct research activities successfully
and develop marketable products.
Tredegar is subject to increased credit risk that is inherent with economic uncertainty and efforts to increase market
share as we attempt to broaden our customer base. In the event of the deterioration of operating cash flows or
diminished borrowing capacity of our customers, the collection of trade receivable balances may be delayed or deemed
unlikely. The operations of our customers for Aluminum Extrusions generally follow the cycles within the economy,
resulting in greater credit risk from diminished operating cash flows and higher bankruptcy rates when the economy is
deteriorating or in recession. In addition, Film Products’ credit risk exposure could increase as efforts to expand its
business may lead to a broader, more diverse customer base.
Tredegar is subject to various environmental laws and regulations and could become exposed to material liabilities
and costs associated with such laws. We are subject to various environmental obligations and could become subject to
additional obligations in the future. In the case of known potential liabilities, it is management’s judgment that the
resolution of ongoing and/or pending environmental remediation obligations is not expected to have a material adverse
effect on our consolidated financial condition or liquidity. In any given period(s), however, it is possible such obligations
or matters could have a material adverse effect on the results of operations. Changes in environmental laws and
regulations, or their application, including, but not limited to, those relating to global climate change, could subject us to
significant additional capital expenditures and operating expenses. Moreover, future developments in federal, state, local
and international environmental laws and regulations are difficult to predict. Environmental laws have become and are
expected to continue to become increasingly strict. As a result, we will be subject to new environmental laws and
regulations. However, any such changes are uncertain and, therefore, it is not possible for us 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.
Tredegar could be required to make additional cash contributions to its defined benefit (pension) plan. We sponsor a
pension plan that covers certain hourly and salaried employees in the U.S. Recent economic trends have resulted in a
significant reduction in interest rates and plan asset investment returns. Cash contribution requirements for the pension
plan are sensitive to changes in these market factors. We expect that we will be required to make a cash contribution of
approximately $0.2 million to our underfunded pension plan in 2014, and we may be required to make additional cash
contributions in future periods if current trends in interest rates continue, volatility in investment returns on plan assets
persist or if our plan asset investment returns lag market performance.
An information technology system failure may adversely affect our business. We rely on information technology
systems to transact our businesses. An information technology system failure due to computer viruses, internal or
external security breaches, power interruptions, hardware failures, fire, natural disasters, human error, or other causes
could disrupt our operations and prevent us from being able to process transactions with our customers, operate our
manufacturing facilities, and properly report those transactions in a timely manner. A significant, protracted information
technology system failure may result in a material adverse effect on our financial condition, results of operations, or cash
flows.
• Material disruptions at one of our major manufacturing facilities could negatively impact our financial results. We
believe our facilities are operated in compliance with applicable local laws and regulations and that we have implemented
measures to minimize the risks of disruption at our facilities. A material disruption in one of our operating locations
could negatively impact production and our financial results. Such a disruption 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.
•
An inability to renegotiate one of our collective bargaining agreements could adversely affect our financial results.
Some of our 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 our facilities in the future. Any such work stoppages
(or potential work stoppages) could negatively impact our ability to manufacture our products and adversely affect results
of operations.
6
•
Our investments (primarily $7.5 million of investments in kaléo and a $2.8 million net investment in Harbinger) have
high risk. The value of our investment in a specialty pharmaceutical company, kaleo, Inc. (“kaléo”), which was formerly
known as Intelliject, Inc., can fluctuate, primarily as a result of kaléo's ability to meet its developmental and
commercialization milestones within an anticipated time frame. Commercial sales of kaléo's first licensed product
commenced in the first quarter of 2013. As kaléo continues to invest in its product pipeline, it may require additional
rounds of financing to have the opportunity to complete product pipeline development and bring its technology to market,
which may never occur. The estimated fair value of our investment was $37.1 million at December 31, 2013.
Harbinger Capital Partners Special Situations Fund, L.P. (“Harbinger Fund”) is a private investment fund, and an
investment in the fund involves risk and is subject to limitations on withdrawal. The amount of future installments of
withdrawal proceeds is uncertain, and the timing of such payments is not known.
There is no secondary market for selling our interests in either investment. As a result, we may be required to bear the
risk of our investment in kaléo and the Harbinger Fund for an indefinite period of time.
Film Products
•
•
•
•
Film Products is highly dependent on sales associated with one customer, P&G. P&G comprised approximately 28%
of Tredegar’s consolidated net sales from continuing operations in 2013, 31% in 2012 and 36% in 2011. The loss or
significant reduction of sales associated with P&G could have a material adverse effect on our business. Other P&G-
related factors that could adversely affect our business include, by way of example, (i) failure by P&G to achieve success
or maintain share in markets in which P&G sells products containing our materials, (ii) operational decisions by P&G that
result in component substitution, inventory reductions and similar changes, (iii) delays in P&G rolling out products
utilizing new technologies developed by us and (iv) P&G rolling out products utilizing technologies developed by others
that replace our business with P&G. While we have undertaken efforts to expand our 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
P&G.
P&G has informed us that we will lose certain babycare elastic laminate volumes by the middle of 2014 as it consolidates
suppliers for its North American product needs. Net sales to P&G associated with these plastic films were $51 million in
2013, or approximately 19% of our net sales to P&G. While we continue our efforts to expand our customer base in order
to create long-term growth and profitability by (1) actively competing for new business with various customers across our
full product portfolio, (2) expanding capacity in emerging markets, (3) introducing new products and/or improvements to
existing applications, and (4) investigating opportunities to diversify our customer and product offerings through
additional acquisitions, there is no assurance that these efforts to expand our customer base and mitigate this or any future
loss of sales and profits from P&G will be successful.
Growth of Film Products depends on our ability to develop and deliver new products at competitive prices. Personal
care materials, surface protection films and polyethylene overwrap and polypropylene films are now being made with a
variety of new materials and the overall cycle for new product introduction has accelerated. While we have substantial
technological resources, there can be no assurance that our new products can be brought to market successfully, or if
brought to market successfully, at the same level of profitability and market share of replaced films. A shift in customer
preferences away from our technologies, our inability to develop and deliver new profitable products, or delayed
acceptance of our new products in domestic or foreign markets, could have a material adverse effect on our business,
results of operations and cash flows. In the long term, growth will depend on our ability to provide innovative products at
a price that meets our customers’ needs.
Failure of our customers, who are subject to cyclical downturns, to achieve success or maintain market share could
adversely impact our sales and operating margins. Our products serve as components for various consumer products
sold worldwide. Our customers’ ability to successfully develop, manufacture and market their products is integral to our
success. In addition, many of our customers are in industries that are cyclical in nature and sensitive to changes in
general economic conditions. Downturns in the businesses that use our products can adversely affect our sales and
operating margins.
Continued growth in Film Products’ sale of protective film products is not assured. A shift in our customers’ preference
to new or different products or new technology that displaces the need for protective films that currently utilize our
surface protection applications could have a material adverse effect on our sales of protective films. Surface protection
films accounted for approximately 10%, 8% and 9% of Tredegar’s consolidated net sales from continuing operations in
2013, 2012 and 2011, respectively. Unanticipated changes in the demand for our customers’ products, a decline in the
rate of growth for flat panel displays or improvements in the durability of flat panel displays could have a material
adverse effect on protective film sales.
7
•
•
•
•
Our substantial international operations subject us to risks of doing business in countries outside the U.S., which
could adversely affect our business, financial condition and results of operations. Risks inherent in international
operations include the following, by way of example: changes in general economic conditions or governmental policies,
potential difficulty enforcing agreements and intellectual property rights, modifications in foreign tax laws and incentives,
staffing and managing widespread operations and the challenges of complying with a wide variety of laws and
regulations, restrictions on international trade or investment, restrictions on the repatriation of income, fluctuations in
exchange rates, imposition of additional taxes on our income generated outside the U.S., nationalization of private
enterprises and unexpected adverse changes in international laws and regulatory requirements. In addition, while
expanding operations into emerging foreign markets provides greater opportunities for growth, there are certain operating
risks, as previously noted.
Our inability to protect our intellectual property rights or our infringement of the intellectual property rights of others
could have a material adverse impact on Film Products. Film Products operates in an industry where our significant
customers and competitors have substantial intellectual property portfolios. The continued success of this business
depends on our ability not only to protect our 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. Intellectual property
litigation is very costly and could result in substantial expense and diversions of our resources, both of which could
adversely affect our businesses and financial condition and results. In addition, there may be no effective legal recourse
against infringement of our intellectual property by third parties, whether due to limitations on enforcement of rights in
foreign jurisdictions or as a result of other factors. An unfavorable outcome in any intellectual property litigation or
similar proceeding could have a material adverse effect on the financial condition and results of operations in Film
Products.
U.S. and global economic conditions could have an adverse effect on the operating results of some or all of our
operations. As Films Products expands its business into new products and geographic regions, operating results and our
financial condition could become more sensitive to changes in macroeconomic conditions, including fluctuations in
exchange rates. Sales associated with new products and regions tend to more closely follow the cycles within the
economy. Cost reductions and productivity improvements may not be sufficient to offset the adverse effects on
profitability from lower customer demand in an economic downturn. Therefore, as such product offerings become a
greater part of the film products business, our operating results and financial condition may be adversely impacted by
seasonal slowdowns, cyclical downturns in the economy or changes in foreign currency rates.
An unstable economic environment could have a disruptive impact on our supply chain. Certain raw materials used in
manufacturing our products are sourced from single suppliers, and we may not be able to quickly or inexpensively re-
source from other suppliers. The risk of damage or disruption to our supply chain has been exacerbated as different
suppliers have consolidated their product portfolios or experienced financial distress. 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 our business and results of operations, as well as require additional resources to restore our supply chain.
Aluminum Extrusions
•
•
Sales volume and profitability of Aluminum Extrusions is cyclical and highly dependent on economic conditions of
end-use markets in the U.S., particularly in the construction sector. Our end-use markets can be subject to seasonal
slowdowns. Because of the high degree of operating leverage inherent in our operations (generally constant fixed costs
until full capacity utilization is achieved), the percentage drop in operating profits in a cyclical downturn will likely
exceed the percentage drop in volume. 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 defaults on fixed-price forward sales contracts with our customers) 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.
Although our sales volumes have improved in recent years, there is uncertainty surrounding the extent and timing of a full
recovery in the building and construction sector. Therefore, the extent and timing of the recovery of sales volumes and
profits for Aluminum Extrusions is uncertain, especially since there can be a lag in the recovery of its end-use markets in
comparison to the overall economic recovery.
The markets for our products are highly competitive with product quality, service, delivery performance and price
being the principal competitive factors. Aluminum Extrusions has approximately 1,500 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 3% of
Aluminum Extrusions’ net sales. Due to the diverse customer mix across many end-use markets, we believe the industry
8
generally tracks the real growth of the overall economy. Future success and prospects depend on our ability to retain
existing customers and participate in overall industry cross-cycle growth.
During improving economic conditions, excess industry capacity is absorbed and pricing pressure becomes less of a
factor in many of our end-use markets. Conversely, 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. Because the
business is susceptible to these changing economic conditions, Aluminum Extrusions targets complex, customized,
service-intensive business with more challenging requirements in order to differentiate itself from competitors that focus
on higher volume, standard extrusion applications.
In the past, imports into the U.S., primarily from China, represented an increasing portion of the U.S. aluminum extrusion
market. However, following an affirmative determination by the U.S. International Trade Commission in April 2011 that
dumped and subsidized imports of aluminum extrusion from China are a cause of material injury to the domestic industry,
the U.S. Department of Commerce has applied duties to these imported products. As a result, aluminum extrusion
imports from China have decreased significantly. While the risk to the domestic industry has been abated for the time
being, efforts continue to address the challenges and circumvention issues that remain.
Item 1B.
UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
General
Most of the improved real property and the other assets used in our operations are owned, and none of the owned property
is subject to an encumbrance that is material to our consolidated operations. We consider the manufacturing facilities,
warehouses and other properties and assets owned or leased by us to be in generally good condition. Capacity utilization at our
various manufacturing facilities can vary with product mix and normal fluctuations in sales levels. We believe that our
manufacturing facilities have sufficient capacity to meet our current production requirements. Our corporate headquarters,
which is leased, is located at 1100 Boulders Parkway, Richmond, Virginia 23225.
Our principal plants and facilities are listed below:
Film Products
Locations in the U.S.
Locations Outside the U.S.
Principal Operations
Bloomfield, New York (technical center
Cabo de Santo Agostinho, Brazil
Production of plastic films and
and production facility)
Lake Zurich, Illinois
Morrisville, North Carolina (technical
center and production facility)
(leased)
Pottsville, Pennsylvania
Red Springs, North Carolina (leased)
(to be closed in 2014)
Richmond, Virginia (technical center)
(leased)
Terre Haute, Indiana (technical center
and production facility)
Aluminum Extrusions
Locations in the U.S.
Carthage, Tennessee
Elkhart, Indiana
Newnan, Georgia
Niles, Michigan
Guangzhou, China
Kerkrade, The Netherlands
Pune, India
Rétság, Hungary
São Paulo, Brazil
Shanghai, China
laminate materials
Principal Operations
Production of aluminum
extrusions, fabrication and
finishing
Item 3.
LEGAL PROCEEDINGS
None.
9
Item 4.
MINE SAFETY DISCLOSURES
None.
PART II
Item 5.
MARKET FOR TREDEGAR’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Prices of Common Stock and Shareholder Data
Our common stock is traded on the New York Stock Exchange (“NYSE”) under the ticker symbol TG. We have no
preferred stock outstanding. There were 32,305,145 shares of common stock held by 1,962 shareholders of record on
December 31, 2013.
The following table shows the reported high and low closing prices of our common stock by quarter for the past two
years.
First quarter
Second quarter
Third quarter
Fourth quarter
2013
2012
High
Low
High
Low
$
30.70
$
21.06
$
26.29
$
30.16
30.73
29.74
24.23
22.22
23.86
20.51
18.95
20.42
19.13
13.49
13.50
16.54
The closing price of our common stock on February 21, 2014 was $23.62.
Dividend Information
We have paid a dividend every quarter since becoming a public company in July 1989. We paid a quarterly dividend of 7
cents per share in 2013. We paid quarterly dividends of 4 1/2 cents per share in the first two quarters of 2012 and 6 cents per
share in the final two quarters of 2012. We also paid a one-time dividend of 75 cents per share to all shareholders in December
2012. We paid a quarterly dividend of 4 1/2 cents per share in 2011.
All decisions with respect to the declaration and payment of dividends will be made by the Board of Directors in its sole
discretion based upon earnings, financial condition, anticipated cash needs, restrictions in our revolving credit agreement and
other such considerations as the Board deems relevant. See Note 11 beginning on page 63 for the restrictions contained in our
revolving credit agreement related to minimum shareholders’ equity required and aggregate dividends permitted.
Issuer Purchases of Equity Securities
On January 7, 2008, we announced that our 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 Tredegar’s outstanding common stock. The authorization has no time limit. We did not repurchase any shares
in the open market or otherwise in 2013, 2012 or 2011 under this standing authorization.
We received 209,576 shares in 2012 at a price of $17.70 per share as consideration from Arc Ventures, LC in connection
with our divestiture of Falling Springs. Shares received from the sale of Falling Springs do not represent shares repurchased
under the current approved program.
Comparative Tredegar Common Stock Performance
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, 2013. Tredegar is part of both the S&P SmallCap 600 Index and Russell 2000 Index.
10
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Tredegar Corporation, the S&P SmallCap 600 Index, and the Russell 2000 Index
*$100 invested on 12/31/08 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
Copyright© 2014 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
Copyright© 2014 Russell Investment Group. All rights reserved.
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 our
common stock:
Computershare Investor Services
P.O. Box 30170
College Station, TX 77842-3170
Phone: 800-622-6757
www.computershare.com/investor/Contact
All other inquiries should be directed to:
Tredegar Corporation
Investor Relations Department
1100 Boulders Parkway
Richmond, Virginia 23225
Phone: 800-411-7441
E-mail: invest@tredegar.com
Website: www.tredegar.com
Quarterly Information
We do not generate or distribute quarterly reports to shareholders. Information on quarterly results can be obtained from
our website. In addition, we file quarterly, annual and other information electronically with the SEC, which can be accessed on
its website at www.sec.gov.
11
Item 6.
SELECTED FINANCIAL DATA
The tables that follow on pages 12-17 present certain selected financial and segment information for the five years ended December 31, 2013.
FIVE-YEAR SUMMARY
Tredegar Corporation and Subsidiaries
Years Ended December 31
(In Thousands, Except Per-Share Data)
Results of Operations (a):
Sales
Other income (expense), net
Cost of goods sold
Freight
Selling, general & administrative expenses
Research and development expenses
1
2
Amortization of intangibles
Interest expense
Asset impairments and costs associated with exit and disposal
activities
Goodwill impairment charge
Income from continuing operations before income taxes
Income taxes
Income (loss) from continuing operations (a)
Discontinued operations, net of tax (a)
Net income (loss)
Diluted earnings (loss) per share (a):
Continuing operations
Discontinued operations
Net income (loss)
Refer to notes to financial tables on page 17.
2013
2012
2011
2010
2009
$ 959,346
$ 882,188
$ 794,420
$ 738,200
$ 648,613
1,776 (c)
18,119 (d)
3,213 (e)
(1,182) (f)
8,464 (g)
900,307
797,633
737,018
657,077
712,660 (d)
654,087 (e)
594,987 (f)
516,933 (g)
961,122
784,675 (c)
28,625
71,195 (c)
12,669
6,744
2,870
1,412 (c)
—
908,190
52,932
16,995 (c)
35,937
(13,990) (a)
21,947
1.10
(0.43) (a)
0.67
$
$
$
16,085
60,481
11,856
120
783
2,950 (g)
30,559 (b)
639,767
17,310
24,846
18,488
73,717 (d)
67,808 (e)
13,162
5,806
3,590
13,219
1,399
1,926
17,812
67,729
13,625
466
1,136
5,022 (d)
1,917 (e)
773 (f)
—
838,803
61,504
18,319 (d)
43,185
(14,934) (a)
28,251
1.34
(0.46) (a)
0.88
—
758,844
38,789
10,244 (e)
28,545
(3,690) (a)
24,855
0.89
(0.12) (a)
0.77
$
$
$
$
$
$
—
696,528
40,490
13,649 (f)
18,663 (g)
26,841
(1,353)
186 (a)
—
$
$
$
27,027
0.82
0.01 (a)
0.83
$
$
$
(1,353)
(0.04)
—
(0.04)
FIVE-YEAR SUMMARY
Tredegar Corporation and Subsidiaries
Years Ended December 31
(In Thousands, Except Per-Share Data)
Share Data:
Equity per share
Cash dividends declared per share
Weighted average common shares outstanding during the period
Shares used to compute diluted earnings (loss) per share during the period
Shares outstanding at end of period
Closing market price per share:
High
Low
End of year
Total return to shareholders (h)
Financial Position:
Total assets
Cash and cash equivalents
1
3
Debt
Shareholders’ equity (net book value)
Equity market capitalization (i)
Refer to notes to financial tables on page 17.
2013
2012
2011
2010
2009
12.46
0.28
32,172
32,599
32,305
$
$
$
11.61
$
12.38
$
13.10
$
12.66
0.96
(k)
32,032
32,193
32,069
0.18
31,932
32,213
32,057
23.00
13.92
22.22
0.16
32,292
32,572
31,883
20.19
14.93
19.38
$
0.16
33,861
33,861
33,888
$
18.68
12.79
15.82
(12.1)%
30.73
21.06
28.81
$
$
26.29
13.49
20.42
$
42.5%
(3.8)%
15.6%
23.5%
$ 793,008
$ 783,165
$ 780,610
$ 580,342
$ 596,279
52,617
139,000
402,664
930,711
48,822
128,000
372,252
654,857
68,939
125,000
396,907
712,307
73,191
450
417,546
617,893
90,663
1,163
429,072
536,108
SEGMENT TABLES
Tredegar Corporation and Subsidiaries
Net Sales (j)
(In Thousands)
Film Products
Aluminum Extrusions
Total net sales
Add back freight
2013
2012
2011
2010
2009
$
621,239
$
611,877
$
535,540
$
520,749
$
455,007
309,482
930,721
28,625
245,465
857,342
24,846
240,392
775,932
18,488
199,639
720,388
17,812
177,521
632,528
16,085
Sales as shown in Consolidated Statements of Income
$
959,346
$
882,188
$
794,420
$
738,200
$
648,613
Identifiable Assets
(In Thousands)
Film Products
Aluminum Extrusions
AFBS (formerly Therics)
1
4
Subtotal
General corporate
Cash and cash equivalents
Identifiable assets from continuing operations
Discontinued operations (a):
Total
Refer to notes to financial tables on page 17.
2013
2012
2011
2010
2009
$
556,873
$
551,842
$
574,571
$
368,853
$
371,639
134,928
129,279
—
—
78,661
—
81,731
583
82,429
1,147
691,801
681,121
653,232
451,167
455,215
48,590
52,617
793,008
—
53,222
48,822
783,165
—
40,917
68,939
763,088
17,522
41,833
73,191
566,191
14,151
50,401
90,663
596,279
—
$
793,008
$
783,165
$
780,610
$
580,342
$
596,279
Plant shutdowns, asset impairments, restructurings and other
(671) (c)
(109) (d)
$
70,966
$
69,950
$
SEGMENT TABLES
Tredegar Corporation and Subsidiaries
Operating Profit
(In Thousands)
Film Products:
Ongoing operations
Aluminum Extrusions:
Ongoing operations
Plant shutdowns, asset impairments, restructurings and other
Goodwill impairment charge
AFBS (formerly Therics):
Gain on sale of investments in Theken Spine and Therics, LLC
Total
Interest income
Interest expense
1
5
Gain on sale of corporate assets
Gain (loss) on investment accounted for under the fair value method
Unrealized loss on investment property
Stock option-based compensation costs
Corporate expenses, net
Income from continuing operations before income taxes
Income taxes
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax (a)
Net income (loss)
Refer to notes to financial tables on page 17.
2013
2012
2011
2010
2009
59,493
(6,807) (e)
$
66,718
$
64,379
(758) (f)
(1,846) (g)
3,457
(4,154)
(6,494)
9,037
(5,427) (d)
—
58 (e)
—
—
—
493 (f)
(639) (g)
—
—
(30,559) (b)
1,968 (g)
73,451
56,201
62,299
26,809
418
3,590
—
1,023
1,926
—
709
1,136
—
806
783
404
16,100 (d)
1,600 (e)
(2,200) (f)
5,100 (g)
—
—
1,432
1,940
23,443 (d)
16,169 (e)
—
2,064
17,118
—
1,692
13,334 (g)
61,504
38,789
40,490
17,310
18,319 (d)
10,244 (e)
13,649 (f)
18,663 (g)
43,185
28,545
26,841
(1,353)
18,291
(2,748) (c)
—
—
85,838
594
2,870
—
3,400 (c)
1,018 (c)
1,155
31,857 (c)
52,932
16,995 (c)
35,937
(13,990) (a)
21,947
(14,934) (a)
28,251
$
$
$
(3,690) (a)
24,855
186
— (a)
$
27,027
$
(1,353)
SEGMENT TABLES
Tredegar Corporation and Subsidiaries
Depreciation and Amortization
(In Thousands)
Film Products
Aluminum Extrusions
Subtotal
General corporate
Total continuing operations
Discontinued operations (a):
Total
Capital Expenditures
1
6
(In Thousands)
Film Products
Aluminum Extrusions
Subtotal
General corporate
Capital expenditures for continuing operations
Discontinued operations (a):
Total capital expenditures
Refer to notes to financial tables on page 17.
2013
2012
2011
2010
2009
$
35,332
$
39,202
$
36,315
$
34,448
$
32,360
9,202
44,534
121
44,655
—
9,984
49,186
73
49,259
10
8,333
44,648
75
44,723
12
9,054
43,502
74
43,576
12
7,566
39,926
71
39,997
—
$
44,655
$
49,269
$
44,735
$
43,588
$
39,997
2013
2012
2011
2010
2009
$
64,867
$
30,484
$
13,107
$
15,839
$
14,742
79,609
52
79,661
—
2,332
32,816
436
33,252
—
2,697
15,804
76
15,880
—
4,339
20,178
236
20,414
4
$
79,661
$
33,252
$
15,880
20,418
11,487
22,530
34,017
125
34,142
—
34,142
NOTES TO FINANCIAL TABLES
(a) On November 20, 2012, we sold our membership interests in Falling Springs. All historical results for this business have been reflected in discontinued operations. In 2012, discontinued operations also includes an after-tax loss of $2.0 million
from the sale of Falling Springs in addition to operating results through the closing date. On February 12, 2008, we sold our aluminum extrusions business in Canada. All historical results for this business have been reflected as discontinued
operations. In 2013, 2012 and 2011, discontinued operations include after-tax charges of $(14.0) million, $(13.4) million and $(4.4) million respectively, to accrue for indemnifications under the purchase agreement related to environmental
matters.
(b) A goodwill impairment charge of $30.6 million ($30.6 million after taxes) was recognized in Aluminum Extrusions upon completion of an impairment analysis performed as of March 31, 2009. The non-cash charge resulted from the estimated
adverse impact on the business unit’s fair value of possible future losses and the uncertainty of the amount and timing of an economic recovery.
(c) 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 our 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 Film Products ($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 by Aluminum Extrusions; and a loss of $0.1 million related to the sale of previously impaired machinery and equipment at our
film products manufacturing facility in Shanghai, China (included in “Other income (expense), net” in the consolidated statements of income). The unrealized gain on our investment in kaléo of $3.4 million, the unrealized loss on our investment
in Harbinger of $0.4 million and the unrealized loss on our investment property in Alleghany and Bath County, Virginia of $1.0 million 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.
(d) Plant shutdowns, asset impairments, restructurings and other for 2012 include a net charge of $3.6 million associated with the shutdown of our aluminum extrusions manufacturing facility in Kentland, Indiana, which included accelerated
depreciation for property and equipment of $2.4 million (included in “Cost of goods sold” in the consolidated statement of income), severance and other employee-related costs of $1.2 million and other shutdown-related charges of $2.3 million,
partially offset by adjustments to inventories accounted for under the last-in, first-out method of $1.5 million (included in “Cost of goods sold” in the consolidated statements of income) and gains of $0.8 million (included in “Other income
(expense), net” in the consolidated statements of income); a gain of $1.3 million in Film Products (included in “Other income (expense), net” in the consolidated statements of income) associated with an insurance recovery on idle equipment that
was destroyed in a fire at an outside warehouse; charges of $1.3 million for acquisition-related expenses (included in “Selling, general and administrative expenses in the consolidated statements of income) associated with the acquisition of
AACOA by Aluminum Extrusions; charges of $1.1 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 Terphane by Film Products; gain of $1.1 million (included in “Other income (expense), net” in the consolidated statements of income) on the sale of a previously shutdown film products manufacturing facility in LaGrange,
Georgia; losses of $0.8 million for asset impairments associated with a previously shutdown film products manufacturing facility in LaGrange, Georgia; charges of $0.5 million for severance and other employee-related costs in connection with
restructurings in Film Products ($0.3 million) and Aluminum Extrusions ($0.2 million); charges of $0.2 million for asset impairments in Film Products; 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 by Aluminum Extrusions; charges of $0.1 million associated with purchase accounting adjustments
made to the value of inventory sold by Aluminum Extrusions after its acquisition of AACOA; and a charge of $0.1 million (included in “Costs of goods sold” in the consolidated statements of income) 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). The unrealized gain on our investment in kaléo of $16.1 million and the unrealized loss on
our investment in Harbinger of $1.1 million in 2012 are included in “Other income (expense), net” in the consolidated statements of income. Income taxes for 2012 include the recognition of an additional valuation allowance of $1.3 million
related to the expected limitations on the utilization of assumed capital losses on certain investments.
(e) Plant shutdowns, asset impairments, restructurings and other for 2011 include charges of $4.8 million for acquisition-related expenses (included in “Selling, general and administrative expenses” in the consolidated statements of income)
1
7
associated with the acquisition of Terphane by Film Products; charges of $1.4 million for asset impairments in Films Products; a gain of $1.0 million on the disposition of our film products business in Roccamontepiano, Italy (included in “Other
income (expense), net” in the consolidated statements of income), which includes the recognition of previously unrecognized foreign currency translation gains of $4.3 million that were associated with the business; charges of $0.7 million
associated with purchase accounting adjustments made to the value of inventory sold by Films Products after its purchase of Terphane (included in “Cost of goods sold” in the consolidated statements of income); charges of $0.5 million for
severance and other employee related costs in connection with restructurings in Film Products; charges of $0.4 million for integration-related expenses (included in “Selling, general and administrative expenses” in the consolidated statements of
income) associated with the acquisition of Terphane by Film Products; and gains of $0.1 million associated with Aluminum Extrusions for timing differences between the recognition of realized losses on aluminum futures contracts and related
revenues from the delayed fulfillment by customers of fixed-price forward purchase commitments (included in “Cost of goods sold” in the consolidated statements of income). The unrealized gain on our investment in kaléo of $1.6 million and
the unrealized loss on our investment in Harbinger of $0.6 million in 2011 are included in “Other income (expense), net” in the consolidated statements of income.
(f) Plant shutdowns, asset impairments, restructurings and other for 2010 include gains of $0.9 million associated with Aluminum Extrusions for timing differences between the recognition of realized losses on aluminum futures contracts and related
revenues from the delayed fulfillment by customers of fixed-price forward purchase commitments (included in “Cost of goods sold” in the consolidated statements of income); asset impairment charges of $0.6 million related to Films Products; a
charge of $0.4 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 statements of income); charges of $0.2 million for
severance and other employee-related costs in connection with restructurings in Film Products; a gain of $0.1 million on the sale of previously impaired equipment (included in “Other income (loss), net” in the consolidated statements of income)
at the film products manufacturing facility in Pottsville, Pennsylvania; and losses of $0.1 million on the disposal of equipment (included in “Other income (expense), net” in the consolidated statements of income) from a previously shutdown film
products manufacturing facility in LaGrange, Georgia. The unrealized loss on our investment in kaléo of $2.2 million in 2010 is included in “Other income (expense), net” in the consolidated statements of income. Income taxes in 2010 include
the recognition of an additional valuation allowance of $0.2 million related to the expected limitations on the utilization of assumed capital losses on certain investments.
(g) Plant shutdowns, asset impairments, restructurings and other for 2009 include a charge of $2.1 million for severance and other employee related costs in connection with restructurings for Film Products ($1.3 million), Aluminum Extrusions ($0.4
million) and corporate headquarters ($0.4 million, included in “Corporate expenses, net” in the operating profit by segment table); an asset impairment charge of $1.0 million in Films Products; losses of $1.0 million associated with Aluminum
Extrusions for timing differences between the recognition of realized losses on aluminum futures contracts and related revenues from the delayed fulfillment by customers of fixed-price forward purchase commitments (included in “Cost of goods
sold” in the consolidated statements of income); a gain of $0.6 million related to the sale of land at our aluminum extrusions facility in Newnan, Georgia (included in “Other income (expense), net” in the consolidated statements of income); a
gain of $0.3 million on the sale of equipment (included in “Other income (expense), net” in the consolidated statements of income) from a previously shutdown film products manufacturing facility in LaGrange, Georgia; a gain of $0.2 million on
the sale of a previously shutdown aluminum extrusions manufacturing facility in El Campo, Texas (included in “Other income (expense), net” in the consolidated statements of income); a gain of $0.1 million related to the reversal to income of
certain inventory impairment accruals in Film Products; and a net charge of $0.1 million (included in “Costs of goods sold” in the consolidated statements of income) related to adjustments of future environmental costs expected to be incurred by
Aluminum Extrusions. The gain from the write-up of an investment accounted for under the fair value method of $5.1 million in 2009 is included in “Other income (expense), net” in the consolidated statements of income. The gain on sale of
investments in Theken Spine and Therics, LLC, which is also included in “Other income (expense), net” in the consolidated statements of income, includes the receipt of a contractual earn-out payment of $1.8 million and a post-closing
contractual adjustment of $0.2 million. AFBS Inc. (formerly Therics, Inc.) received these investments in 2005, when substantially all of the assets of AFBS, Inc., a wholly-owned subsidiary of Tredegar, were sold or assigned to a newly created
limited liability company, Therics, LLC, controlled and managed by an individual not affiliated with Tredegar. Income taxes in 2009 include the recognition of an additional valuation allowance of $2.1 million related to the expected limitations
on the utilization of assumed capital losses on certain investments.
(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) In addition to quarterly dividends of 4 1/2 cents per share in the first and second quarters and 6 cents per share in the third and fourth quarters of 2012, there was a special one-time dividend of 75 cents per share paid to shareholders in December
2012.
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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 we use the words “believe,”
“estimate,” “anticipate,” “expect,” “project,” “likely,” “may” and similar expressions, we do so to identify forward-looking
statements. Such statements are based on our then current expectations and are subject to a number of risks and uncertainties
that could cause actual results to differ materially from those addressed in the forward-looking statements. It is possible that
our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition
indicated in these forward-looking statements. For risks and important factors that could cause actual results to differ from
expectations, refer to the reports that we file with or provide to 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 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.
General
Executive Summary
Tredegar is a manufacturer of plastic films and aluminum extrusions. Descriptions of all of our businesses are provided on
pages 1-9.
Sales from continuing operations were $959.3 million in 2013 compared to $882.2 million in 2012. Income from
continuing operations was $35.9 million ($1.10 per diluted share) in 2013, compared with $43.2 million ($1.34 per diluted
share) in 2012. Losses associated with plant shutdowns, assets impairments and restructurings and gains and losses on the sale
of assets, gains or losses on investments accounted for under the fair value method and other items are described in results of
continuing operations beginning on page 23. The business segment review begins on page 35.
Film Products
A summary of operating results for Film Products is provided below:
(In thousands, except percentages)
Sales volume (pounds)
Net sales
Operating profit from ongoing operations
$
$
Year Ended
December 31
2013
2012
270,463
621,239
70,966
$
$
270,265
611,877
69,950
Favorable/
(Unfavorable)
% Change
0.1%
1.5%
1.5%
Net sales for 2013 increased in comparison to 2012, primarily due to higher volumes, improved product mix and a
favorable change in the U.S. dollar value of currencies for operations outside the U.S., partially offset by the negative impact of
lower average selling prices. Higher sales volumes and improved product mix in Film Products had a favorable impact of
approximately $14.5 million in 2013 compared to 2012. Higher volumes in surface protection films and personal care
materials were partially offset by lower volumes in flexible packaging films, polyethylene overwrap films and films for other
markets. The estimated change in average selling prices, net of cost pass-throughs, had an unfavorable impact on net sales of
$6.6 million. Average selling prices decreased primarily due to competitive pressures in flexible packaging and polyethylene
overwrap films, partially offset by the favorable impact of the contractual pass-through of certain costs, such as higher average
resin prices. The change in the U.S. dollar value of currencies for operations outside the U.S. had a favorable impact on net
sales of approximately $1.7 million in 2013 compared to 2012.
Operating profit from ongoing operations in 2013 increased in comparison to 2012. Higher sales volumes and a more
favorable product mix in surface protection films and personal care materials, partially offset by the negative impact from
lower volumes in flexible packaging films, had a favorable impact of approximately $10.3 million in 2013 compared to 2012.
Price reductions that were not fully offset by related productivity gains had an estimated unfavorable impact of $10.0 million.
Pricing pressures were primarily driven by global supply and demand dynamics in flexible packaging films. Higher production
18
costs and operational inefficiencies further reduced current year operating profit from ongoing operations by approximately
$7.1 million. Increased production expenditures were primarily associated with flexible packaging films due to its spending to
increase productivity on an existing production line, inflation and staffing for our new production line to expand capacity in
Brazil. Selling, general and administrative expenses decreased by approximately $2.3 million in 2013, primarily as a result of
lower depreciation and the timing of legal expenses.
The change in the U.S. dollar value of currencies for operations outside the U.S. had a favorable impact of
approximately $7.0 million in 2013 compared to 2012. The estimated impact on operating profit from ongoing operations of
the quarterly lag in the pass-through of average resin costs was approximately a negative $2.1 million in 2013 compared to a
negative $0.5 million in 2012. The net impact on operating profit from ongoing operations for adjustments related to
inventories accounted for under LIFO was a negative $0.3 million in 2013 compared to 2012.
P&G has informed us that we will lose certain babycare elastic laminate volumes due to P&G’s plans to consolidate
suppliers for its North American product needs. Net sales for this domestic product line were $50.9 million in 2013, and we
expect that sales volumes for the elastic laminates sold to P&G will be fully eliminated by the middle of 2014. The total impact
of the loss of this business with P&G on operating results will not be fully realized until 2015, and when realized, it is expected
to negatively impact operating profit from ongoing operations on an annual basis by approximately $9 million, based upon
operating results for the last twelve months ended. P&G remains an important customer to Film Products, and we do not
expect the loss of the elastic laminate volumes to impact other business or initiatives underway with P&G. The loss of this
business will result in the shutdown of our film products’ manufacturing facility in Red Springs, North Carolina, a leased
facility that is dedicated solely to this product line. We estimate that charges to be incurred related to the shutdown of our Red
Springs manufacturing facility, which primarily consist of severance and other employee-related costs, will be approximately
$1.3 million.
We will continue to produce elastic films and laminates used in baby diapers and adult incontinence for a variety of
customers worldwide, and we are well positioned to capitalize on new growth opportunities for these materials. In addition, we
are executing a strategy to position our Film Products business to more aggressively leverage its full product portfolio to
compete for new business with new and existing customers, expand capacity in the emerging markets, develop new products
with P&G and other customers, and achieve new cost savings and production efficiencies. We anticipate that our efforts to
facilitate growth and drive cost savings in Film Products will offset the loss of this business with P&G by 2015. For additional
information, see “Item 1A. Risk Factors” beginning on page 5.
As we execute on our strategy to build long-term value, we continue to focus on managing the dynamics within our
control. In 2014, we expect to implement company-wide cost savings that will partially mitigate the impact of lower babycare
elastic laminate volumes and continued market weakness in flexible packaging films. In addition to cost reduction efforts, we
expect to continue to invest in projects that will facilitate profitable growth.
Capital expenditures in Film Products were $64.9 million in 2013 compared to $30.5 million in 2012, which included
approximately $41.0 million in capital expenditures for a project that will expand our capacity at the manufacturing facility in
Cabo de Santo Agostinho, Brazil. The additional capacity from the project is expected to be available by the end of the second
quarter of 2014, and it will primarily serve flexible packaging films customers in Latin America. Film Products currently
estimates that capital expenditures will be approximately $50 million in 2014, which includes approximately $15 million for
routine capital expenditures required to support operations. Depreciation expense was $30.4 million in 2013 and $33.9 million
in 2012, and is projected to be approximately $31 million in 2014. Amortization expense was $4.9 million in 2013 and $5.3
million in 2012, and is projected to be approximately $4.0 million in 2014.
Aluminum Extrusions
A summary of operating results for Aluminum Extrusions is provided below:
(In thousands, except percentages)
Sales volume (pounds)
Net sales
Operating profit from ongoing operations
Year Ended
December 31
2013
143,684
309,482
18,291
$
$
2012
114,845
245,465
9,037
Favorable/
(Unfavorable)
% Change
25.1%
26.1%
102.4%
$
$
19
Net sales in 2013 increased versus 2012 primarily due to the addition of AACOA, Inc. (“AACOA”), which was acquired
on October 1, 2012. Net sales associated with AACOA were $88.1 million in 2013 compared to $19.5 million subsequent to
the acquisition in 2012. Excluding the impact of our acquisition of AACOA and the shutdown of our manufacturing facility in
Kentland, Indiana, volume was relatively flat in 2013. More than half of the volume that was produced at our Kentland
manufacturing facility has been transferred to our remaining facilities.
Operating profit from ongoing operations increased in 2013 versus 2012, primarily as a result of the addition of AACOA
and cost savings associated with the 2012 shutdown of our Kentland manufacturing facility. The impact on operating profit
from ongoing operations directly attributable to the acquisition of AACOA, including synergies, was approximately $4.8
million in 2013. Aluminum Extrusions closed its manufacturing facility in Kentland, Indiana in August 2012. The plant,
whose core market was residential construction, previously employed 146 people. Charges associated with the Kentland
shutdown were $0.6 million in 2013, which were primarily comprised of environmental assessments, estimated remediation
costs and other miscellaneous plant shutdown charges. Estimated cash expenditures for shutdown-related activities that are
expected to be recognized in 2014 are approximately $0.2 million. The shutdown of our Kentland manufacturing facility had a
favorable impact on operating profit from ongoing operations of approximately $2.3 million in 2013 compared to 2012 and
$2.5 million in 2012 compared to 2011. The combined estimated favorable impact on segment operating profit from ongoing
operations from the closure of Kentland is consistent with previously disclosed full year estimates of approximately
$4-5 million.
In addition to the favorable impact of the addition of AACOA and cost savings associated with the 2012 shutdown of our
Kentland manufacturing facility, lower supplies and maintenance-related expenditures in 2013, which had a favorable impact
on operating profit from ongoing operations of approximately $0.7 million, were offset by construction-related expenses
associated with the new automotive press project at our manufacturing facility in Newnan, Georgia of $0.6 million. The
remaining increase in operating profit from ongoing operations can be attributed to favorable pricing on value-added services,
partially offset by an unfavorable sales mix and higher production costs.
Capital expenditures for Bonnell Aluminum were $14.7 million in 2013 compared with $2.3 million in 2012. Current
year capital expenditures include approximately $11.5 million in capital expenditures for a previously announced project that
will expand the capacity at our manufacturing facility in Newnan, Georgia. This additional capacity will serve the automotive
industry. Capital expenditures are projected to be approximately $10 million in 2014, which includes approximately $5 million
for routine capital expenditures required to support operations. Depreciation expense was $7.4 million in 2013 compared with
$9.5 million in 2012, and is projected to be approximately $9 million in 2014. Higher depreciation expense in 2012 is
primarily related to approximately $2.4 million in accelerated depreciation on property, plant and equipment at the Kentland
manufacturing facility. Amortization expense was $1.8 million in 2013 and $0.5 million in 2012, and is projected to be
approximately $1.6 million in 2014.
Other
The Other segment was previously comprised of Bright View and Falling Springs, LLC (“Falling Springs”). Falling
Springs develops, owns and operates multiple mitigation banks. As previously noted, the operations of Bright View were
incorporated into Film Products in 2012, and all prior year balances for Bright View have been reclassified to Film Products to
conform with the current year presentation.
On November 20, 2012, Tredegar Real Estate Holdings, Inc., a wholly-owned subsidiary of Tredegar, sold its
membership interests in Falling Springs to Arc Ventures, LC for cash and stock proceeds totaling $16.6 million. Arc Ventures,
LC is a Virginia limited liability company affiliated with John D. Gottwald, a member of our Board of Directors. The purchase
price paid to Tredegar was comprised of cash of $12.8 million and 209,576 shares of common stock of Tredegar owned by Arc
Ventures, LC. The corresponding loss on sale of $3.1 million, which includes transaction-related expenses of $0.5 million, and
the results of operations related to Falling Springs have been classified as discontinued operations for all periods presented.
Corporate Expenses, Interest and Income Taxes
Pension expense was $13.7 million in 2013, an unfavorable change of $5.6 million from pension expense recognized in
2012. Most of the change is reflected in “Corporate expenses, net” in the segment operating profit table presented on page 15.
We contributed approximately $5.2 million to our pension plans in 2013. Minimum required contributions to our pension plans
in 2014 are expected to be $0.2 million. Pension expense is estimated to be $7.5 million in 2014. Corporate expenses, net
increased in 2013 in comparison to 2012 primarily due to the increase in pension expenses noted above and the timing of
certain non-recurring corporate expenditures. In 2013, corporate expenses, net included $1.4 million in additional expenses
related to responding to a Schedule 13D filed with the SEC by certain shareholders. Corporate expenses, net also included an
20
unrealized loss on our investment in the Harbinger Capital Partners Special Situations Fund, L.P. (“Harbinger Fund”) of $0.4
million in 2013 and $1.1 million in 2012.
Interest expense, which includes the amortization of debt issue costs, was $2.9 million in 2013 in comparison to $3.6
million in 2012 as a result of decrease in the average interest rate on borrowings under our revolving credit facility.
The effective income tax rate from continuing operations was 32.1% in 2013 compared with 29.8% in 2012. The
effective tax rate used to compute income taxes from continuing operations increased in 2013 compared to 2012 due to a
reduction in the benefit from foreign tax incentives. Significant differences between the effective tax rate for continuing
operations and the U.S. federal statutory rate for 2013 and 2012 are further detailed in the effective income tax rate
reconciliation provided in Note 17 beginning on page 72.
Our net debt balance (total debt of $139.0 million in excess of cash and cash equivalents of $52.6 million) at
December 31, 2013 was $86.4 million, compared to a net debt balance (total debt of $128.0 million in excess of cash and cash
equivalents of $48.8 million) at December 31, 2012 of $79.2 million. Net debt, a financial measure that is not calculated or
presented in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), is not intended to represent debt as
defined by U.S. GAAP, but is utilized by management in evaluating financial leverage and equity valuation. We believe 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 beginning on page 27.
Critical Accounting Policies
In the ordinary course of business, we make 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 U.S. GAAP. Actual results could
differ significantly from those estimates under different assumptions and conditions. We believe the following discussion
addresses our 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
We assess our 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 we do not believe
the carrying value of the long-lived asset will be recoverable. We also reassess the useful lives of our long-lived assets based
on changes in our business and technologies.
We assess 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). Our reporting units in Film Products include, but are not
limited to, Polyethylene and Polypropylene Films and PET Films. As of December 31, 2013, each of the previously identified
reporting units in Film Products was carrying a goodwill balance. We have two reporting units in Aluminum Extrusions,
AACOA and Bonnell. All goodwill in Aluminum Extrusions is associated with the AACOA reporting unit.
In assessing the recoverability of goodwill and long-lived identifiable assets, we estimate fair value using discounted cash
flow analysis and comparative enterprise value-to-EBITDA (earnings before interest, taxes, depreciation and amortization)
multiples. These calculations require us 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 change in the future, we may be
required to record additional impairment charges.
Based upon assessments performed as to the recoverability of long-lived identifiable assets, we recorded asset impairment
losses for continuing operations of $1.0 million in 2012 and $1.4 million in 2011 (none in 2013).
Investment Accounted for Under the Fair Value Method
In August 2007 and December 2008, we 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
time of our initial investment, we elected the fair value option over the equity method of accounting since our investment
objectives were similar 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, 2013, our
ownership interest was approximately 20% on a fully diluted basis.
We disclose 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
21
observable inputs (Level 2), and significant unobservable inputs (Level 3). On the dates of our investments, we believe that the
amount we paid for our ownership interest and liquidation preferences was based on Level 2 inputs, including investments by
other investors. Subsequent to the last round of financing, and until the next round of financing, we believe fair value estimates
are based upon Level 3 inputs since there is no secondary market for our ownership interest. Accordingly, after the latest
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 product development and commercialization milestones, cash flow projections
(projections of development and commercialization milestone payments, sales, costs, expenses, capital expenditures and
working capital investment) and discounting of these factors for the high degree of risk.
At December 31, 2013 and 2012, the fair value of our investment (the carrying value included in “Other assets and
deferred charges” in our consolidated balance sheet) was $37.1 million and $33.7 million, respectively. The fair market
valuation of our 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 meeting development and commercialization milestones as anticipated.
At December 31, 2013, the effect of a 500 basis point decrease in the weighted average cost of capital assumption would have
further increased the fair value of our interest in kaléo by approximately $5 million, and a 500 basis point increase in the
weighted average cost of capital assumption would have decreased the fair value of our interest by approximately $5 million.
Any future changes in the estimated fair value of our ownership interest will likely be attributed to a new round of financing, a
merger or initial public offering or adjustments to the timing or magnitude of cash flows associated with development and
commercialization milestones. Adjustments to the estimated fair value of our investment will be made in the period upon
which such changes can be quantified.
Pension Benefits
We sponsor noncontributory defined benefit (pension) plans in our 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. We are
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.
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, our liability increases as the discount rate decreases and vice
versa. The weighted average discount rate utilized was 4.99% at the end of 2013, 4.21% at the end of 2012 and 4.95% at the
end of 2011, with changes between periods due to changes in market interest rates. Based on plan changes announced in 2006,
pay for active participants of the plan was frozen as of December 31, 2007. Beginning in the first quarter of 2014, with the
exception of plan participants at two of our U.S. manufacturing facilities, the plan will no longer accrue benefits associated
with crediting employees for service, thereby freezing all future benefits under the plan. A lower expected return on plan assets
increases the amount of expense and vice versa. Decreases in the level of actual plan assets will also serve to increase the
amount of pension expense. The total return on our 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 11.2% in 2013, 8.9% in 2012 and a negative
5.1% in 2011. Our 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
7.75% in 2013, 8.0% in 2012 and 8.25% from 2009 to 2011. We anticipate that our expected long-term return on plan assets
will be 7.75% for 2014. See page 69 for more information on expected long-term return on plan assets and asset mix.
See the executive summary beginning on page 18 for further discussion regarding the financial impact of our pension
plans.
Income Taxes
On a quarterly basis, we review our judgments regarding uncertain tax positions and the likelihood that the benefits of a
deferred tax asset will be realized. As circumstances change, we reflect in earnings any adjustments to unrecognized benefits
for uncertain tax positions and valuation allowances for deferred tax assets.
For financial reporting purposes, we had unrecognized tax benefits on uncertain tax positions of $2.2 million, $0.9 million
and $1.0 million as of December 31, 2013, 2012 and 2011, respectively. Tax payments resulting from the successful challenge
by the taxing authority on uncertain tax positions taken by us would possibly result in the payment of interest and penalties.
Accordingly, we also accrue for possible interest and penalties on uncertain tax positions. The balance of accrued interest and
22
penalties on deductions taken relating to uncertain tax positions was approximately $0.2 million, $60,000 and $0.4 million at
December 31, 2013, 2012 and 2011, respectively ($96,000, $37,000 and $0.2 million, respectively, net of corresponding federal
and state income tax benefits). Accruals for possible interest and penalties on uncertain tax positions are reflected in income
tax expense for financial reporting purposes.
Tredegar and its subsidiaries file income tax returns in the U.S., various states, and jurisdictions outside the U.S. With
few exceptions, Tredegar and its subsidiaries are no longer subject to U.S. federal or state income tax examinations by tax
authorities for years before 2010.
As of December 31, 2013 and 2012, we had valuation allowances relating to deferred tax assets of $20.0 million and
$18.6 million, respectively. For more information on deferred income tax assets and liabilities, see Note 17 of the notes to
financial statements beginning on page 72.
Recently Issued Accounting Standards
In February 2013, the Financial Accounting Standards Board (“FASB”) issued updated guidance to address the
recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the
total amount under the arrangement is fixed at the reporting date. Under the new guidance, an entity would measure its
obligation from a joint and several liability arrangement as the sum of the amount the entity agreed with its co-obligors that it
will pay, and any additional amount the entity expects to pay on behalf of its co-obligors. The standard is effective for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2013. Early application is permitted, and we
do not expect the guidance to impact us.
In March 2013, the FASB issued updated guidance related to foreign currency matters. The updated guidance attempts to
resolve the diversity in practice about the release of the cumulative translation adjustment into net income when a parent either
sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group
of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas
mineral rights) within a foreign entity. In addition, the amended guidance attempts to resolve the diversity in practice for the
treatment of business combinations achieved in stages involving a foreign entity. The guidance is effective for the first annual
period beginning after December 15, 2013, and we do expect the guidance to impact us.
In July 2013, the FASB issued new guidance regarding the presentation of an unrecognized tax benefit when a net
operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The new guidance requires an unrecognized
tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward,
a similar tax loss, or a tax credit carryforward, unless certain exceptions are met. The amendments are effective prospectively
for fiscal and interim periods beginning after December 15, 2013. We are still assessing the applicability of this guidance in
future periods.
Results of Continuing Operations
2013 versus 2012
Revenues. Sales in 2013 increased by 8.7% compared with 2012 due to higher sales in both Film Products and Aluminum
Extrusions. Net sales (sales less freight) increased 1.5% in Film Products primarily due to higher volumes, improved product
mix and a favorable change in the U.S. dollar value of currencies for operations outside the U.S., partially offset by the negative
impact of lower average selling prices. Net sales increased 26.1% in Aluminum Extrusions primarily due to the impact of the
acquisition of AACOA, which was acquired on October 1, 2012. For more information on net sales and volume, see the
executive summary beginning on page 18.
Operating Costs and Expenses. Consolidated gross profit as a percentage of sales was 15.2% in 2013 and 16.4% in 2012.
Gross profit as a percentage of sales was negatively impacted by higher pension expenses in 2013 compared to 2012. The
gross profit margin in Film Products, which does not include higher pension expenses, decreased primarily due to competitive
pricing pressures, the negative impact of the estimated impact of the quarterly lag in the pass-through of average resin costs,
higher production costs and operational inefficiencies in flexible packaging films, partially offset by a more favorable sales
mix. Gross profit margin in Aluminum Extrusions, which does not include higher pension expenses, increased due to more
favorable pricing on value-added services, the impact of the acquisition of AACOA and lower fixed costs from the shutdown of
our manufacturing facility in Kentland, Indiana, partially offset by higher maintenance and production costs. For more
information on operating costs and expenses, see the executive summary beginning on page 18.
23
As a percentage of sales, selling, general and administrative and R&D expenses were 8.7% in 2013, which decreased
from 9.8% in 2012. The decrease in selling, general and administrative and R&D expenses as a percentage of sales can be
primarily attributed to lower depreciation and acquisition-related expenses and the timing of certain legal and administrative
expenses.
Losses associated with plant shutdowns, asset impairments, restructurings and other charges in 2013 totaled $3.4 million
($2.2 million after taxes) and included:
• A fourth quarter charge of $1.5 million ($0.9 million after taxes), a third quarter charge of $0.1 million ($62,000
after taxes) and a second quarter charge of $85,000 ($53,000 after taxes) related to expected future environmental
costs at our aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in
the consolidated statements of income);
• A third quarter charge of $45,000 ($28,000 after taxes), a second quarter charge of $0.4 million ($0.2 million after
taxes) and a first quarter charge of $0.2 million ($94,000 after taxes) associated with the shutdown of the
aluminum extrusions manufacturing facility in Kentland, Indiana;
• A fourth quarter charge of $0.3 million ($0.2 million after taxes) and a third quarter charge of $0.2 million
($83,000 after taxes) 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 impairments
of $0.2 million;
• A fourth quarter charge of $0.3 million ($0.2 million after taxes) in Aluminum Extrusions and a first quarter
charge of $0.1 million ($67,000 after taxes) in Film Products associated with severance and other employee
related costs in connection with restructurings;
• A second quarter charge of $90,000 ($54,000 after taxes) and a first quarter charge of $0.1 million ($63,000 after
taxes) for integration-related expenses and other non-recurring transactions (included in “Selling, general and
administrative expenses” in the consolidated statements of income) associated with the acquisition of AACOA by
Aluminum Extrusions; and
• A second quarter loss of $91,000 ($91,000 after taxes) related to the sale of previously impaired machinery and
equipment at our film products manufacturing facility in Shanghai, China (included in “Other income (expense),
net” in the consolidated statements of income).
On February 12, 2008, we sold our aluminum extrusions business in Canada for approximately $25.0 million to an
affiliate of H.I.G. Capital. All historical results for this business have been reflected as discontinued operations. In 2013, an
accrual of $14.0 million ($14.0 million after taxes) was made for indemnifications under the purchase agreement related to
environmental matters.
Results in 2013 include an unrealized gain on our investment in kaléo (included in “Other income (expense), net” in the
consolidated statements of income) of $3.4 million ($2.2 million after taxes; see further discussion beginning on page 21). An
unrealized loss on our investment in the Harbinger Fund (included in “Other income (expense), net” in the consolidated
statements of income and “Corporate expenses, net” in the statement of net sales and operating profit by segment) of $0.4
million ($0.3 million after taxes) was recorded in 2013 as a result of a reduction in the fair value of our investment that is not
expected to be temporary. We also recorded an unrealized loss on our investment property in Alleghany and Bath County,
Virginia of $1.0 million ($0.6 million after taxes) in the second quarter of 2013 as a result of a reduction in the estimated fair
value of our investment that is not expected to be temporary. For more information on costs and expenses, see the executive
summary beginning on page 18.
Interest Income and Expense. Interest income, which is included in “Other income (expense), net” in the consolidated
statements of income, was $0.6 million in 2013, compared to $0.4 million in 2012. Our policy permits investment of excess
cash in marketable securities that have the highest credit ratings and maturities of less than one year with the primary objectives
being safety of principal and liquidity.
24
Interest expense, which includes the amortization of debt issue costs, was $2.9 million in 2013, compared to $3.6 million
for 2012. Interest expense was lower in the current year as a result of a decrease in the average interest rate on borrowings
under our revolving credit facility. Average debt outstanding and interest rates were as follows:
(In Millions)
2013
2012
Floating-rate debt with interest charged on a rollover
basis at one-month LIBOR plus a credit spread:
Average outstanding debt balance
Average interest rate
Fixed-rate and other debt:
Average outstanding debt balance
Average interest rate
Total debt:
Average outstanding debt balance
Average interest rate
$
$
$
133.5
$
112.1
1.9%
2.1%
— $
n/a
—
n/a
133.5
$
112.1
1.9%
2.1%
Income Taxes. The effective income tax rate from continuing operations was 32.1% in 2013 compared with 29.8% in 2012.
The effective tax rate used to compute income taxes from continuing operations increased in 2013 compared to 2012 due to a
reduction in the benefit from foreign tax incentives. Factors impacting our effective tax rate for 2013 and 2012 are further
detailed in the effective income tax rate reconciliation provided in Note 17 beginning on page 72.
2012 versus 2011
Revenues. Sales in 2012 increased by 11.0% compared with 2011 due to higher sales in both Film Products and Aluminum
Extrusions. Net sales increased 14.3% in Film Products primarily due to the acquisition of Terphane, partially offset by lower
volumes in the remaining product lines, the unfavorable change in the U.S. dollar value of currencies for operations outside the
U.S. and a decrease in average selling prices. Net sales increased 2.1% in Aluminum Extrusions primarily due to the
acquisition of AACOA, partially offset by a decrease in average selling prices driven by lower aluminum prices and lower
volumes resulting from the shutdown of the Kentland manufacturing facility.
Operating Costs and Expenses. Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales
were 16.4% in 2012 and 15.3% in 2011. The gross profit margin in Film Products was relatively flat primarily due to the
favorable impact of the acquisition of Terphane and a reduction in impact of the lag in the pass-through of higher resin costs,
offset by lower volumes and margin compression, primarily in personal care materials. Gross profit margin in Aluminum
Extrusions increased primarily as a result of improved profitability from the shutdown of our Kentland manufacturing facility,
better pricing and lower energy costs.
As a percentage of sales, selling, general and administrative and R&D expenses were 9.8% in 2012, which decreased
from 10.2% in 2011. The decrease in selling, general and administrative and R&D expenses as a percentage of sales can be
attributed to higher sales and lower acquisition-related expenditures in 2012. Acquisition-related expenses were $2.0 million in
2012 compared to $4.8 million in 2011.
Losses associated with plant shutdowns, asset impairments, restructurings and other charges in 2012 totaled $5.5 million
($3.6 million loss after taxes) and included:
•
•
A fourth quarter charge of $0.9 million ($0.5 million after taxes), a third quarter charge of $0.8 million ($0.5
million after taxes), a second quarter charge of $1.0 million ($0.7 million after taxes) and a first quarter charge of
$0.9 million ($0.5 million after taxes) associated with the shutdown of the aluminum extrusions manufacturing
facility in Kentland, Indiana, which includes accelerated depreciation for property, plant and equipment of $2.4
million (included in “Cost of goods sold” in the consolidated statements of income), severance and other
employee related expenses of $1.2 million and other shutdown-related charges of $2.3 million, partially offset by
adjustments to inventories accounted for under the LIFO method of $1.5 million (included in “Cost of goods
sold” in the consolidated statements of income) and gains on the sale of equipment of $0.8 million (included in
“Other income (expense), net” in the consolidated statements of income);
A fourth quarter gain of $1.3 million ($0.7 million after taxes) in Film Products (included in “Other income
(expense), net” in the consolidated statements of income) associated with an insurance recovery on idle
equipment that was destroyed in a fire at an outside warehouse;
25
•
•
•
•
•
•
•
•
•
A fourth quarter charge of $0.9 million ($0.6 million after taxes) and a third quarter charge of $0.3 million ($0.2
million after taxes) for acquisition-related expenses (included in “Selling, general and administrative expenses”
in the consolidated statements of income) associated with the acquisition of AACOA by Aluminum Extrusions
(see discussion below for further detail);
A fourth quarter charge of $0.1 million ($0.1 million after taxes), a third quarter charge of $0.1 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) for integration-related expenses (included in “Selling, general and
administrative expenses” in the consolidated statements of income) associated with the Film Products acquisition
of Terphane;
A fourth quarter gain of $1.1 million ($0.6 million after taxes) related to the sale of a previously shutdown film
products manufacturing facility in LaGrange, Georgia;
A second quarter charge of $0.8 million ($0.5 million after taxes) for asset impairments associated with a
previously shutdown film products manufacturing facility in LaGrange, Georgia;
A fourth quarter charge of $0.2 million ($0.1 million after taxes) and a second quarter charge of $0.1 million
($46,000 after taxes) in Film Products and a first quarter charge of $0.2 million ($0.1 million after taxes) in
Aluminum Extrusions for severance and other employee-related costs in connection with restructurings;
A fourth quarter charge of $0.2 million ($0.2 million after taxes) for asset impairments in Film Products;
A fourth quarter charge of $0.2 million ($0.1 million after taxes) for integration-related expenses (included in
“Selling, general and administrative expenses” in the consolidated statements of income) associated with the
Aluminum Extrusions’ acquisition of AACOA;
A fourth quarter charge of $0.1 million ($0.1 million after taxes) associated with purchase accounting
adjustments made to the value of inventory sold by Aluminum Extrusions after its acquisition of AACOA
(included in “Cost of goods sold” in the consolidated statements of income); and
A fourth quarter charge of $0.1 million ($49,000 after taxes) related to expected future environmental costs at
our aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the
consolidated statements of income).
Business combination accounting principles under U.S. GAAP require that we adjust the inventory acquired in the
acquisition of AACOA to fair value at the date of acquisition. In particular, finished goods inventory acquired was adjusted to
reflect the cost of manufacturing plus a portion of the expected profit margin. The acquired inventory was sold in the fourth
quarter of 2012. We believe that the adjustment included in “Cost of goods sold” in the fourth quarter of 2012 should be
removed by investors as a means to determine profit and margins from ongoing operations, which reflect the operating trends
of the acquired business.
As previously noted, on November 20, 2012, we sold Falling Springs to Arc Ventures, LC. The corresponding loss on
sale of $3.1 million ($2.0 million after taxes), which includes transaction-related expenses of $0.5 million, and the results of
operations related to Falling Springs (net income of $0.5 million in 2012) have been classified as discontinued operations.
In 2012, an accrual of $13.4 million ($13.4 million after taxes) was made for indemnifications under the purchase
agreement associated with the 2008 sale of our aluminum extrusions business in Canada. These contractual indemnifications
were related to environmental matters associated with our former aluminum extrusions operations in Canada.
Results in 2012 include an unrealized gain on our investment in kaléo of $16.1 million ($10.2 million after taxes; see
further discussion beginning on page 21). An unrealized loss on our investment in the Harbinger Fund of $1.1 million ($0.7
million after taxes) was recorded in 2012 as a result of a reduction in the fair value of our investment that is not expected to be
temporary.
Interest Income and Expense. Interest income, which is included in “Other income (expense), net” in the consolidated
statements of income, was $0.4 million in 2012, compared to $1.0 million in 2011. Our policy permits investment of excess
cash in marketable securities that have the highest credit ratings and maturities of less than one year with the primary objectives
being safety of principal and liquidity.
Interest expense, which includes the amortization of debt issue costs, was $3.6 million in 2012, compared to $1.9 million
for 2011. In October 2011, we borrowed $125 million under our revolving credit agreement to help fund the acquisition of
Terphane. In October 2012, we borrowed an additional $51 million under our revolving credit facility to fund the acquisition of
AACOA.
26
Average debt outstanding and interest rates were as follows:
(In Millions)
Floating-rate debt with interest charged on a rollover
basis at one-month LIBOR plus a credit spread:
Average outstanding debt balance
Average interest rate
Fixed-rate and other debt:
Average outstanding debt balance
Average interest rate
Total debt:
Average outstanding debt balance
Average interest rate
2012
2011
$
$
$
112.1
$
2.1%
— $
n/a
112.1
$
2.1%
23.6
2.3%
0.3
4.3%
23.9
2.3%
Income Taxes. The effective income tax rate from continuing operations was 29.8% in 2012 compared with 26.4% in 2011.
Income taxes from continuing operations in 2012 primarily reflect the benefit of current year foreign tax incentives. Income
taxes for continuing operations in 2011 reflect the recognition of estimated tax benefits from the divestiture of the film products
business in Italy, partially offset by nondeductible acquisition-related expenses associated with the acquisition of Terphane by
Film Products. Factors impacting our effective tax rate for 2012 and 2011 are further detailed in the effective income tax rate
reconciliation provided in Note 17 beginning on page 72.
Assets and Liabilities
Financial Condition
Significant changes in assets and liabilities from continuing operations from December 31, 2012 to December 31, 2013
are summarized below:
•
Accounts and other receivables decreased $1.6 million (1.5%).
•
•
•
Accounts and other receivables in Film Products increased by $0.2 million due mainly to the timing of cash receipts.
Accounts and other receivables in Aluminum Extrusions decreased by $1.5 million primarily due to the timing of
cash receipts.
Other receivables in corporate decreased by approximately $0.3 million due to the payment of contractual amounts
due from Arc Ventures, LC from the sale of Falling Springs.
•
Inventories decreased $4.0 million (5.4%).
•
•
•
•
•
Inventories in Film Products decreased by approximately $5.3 million primarily due to the timing of shipments.
Inventories in Aluminum Extrusions increased by approximately $1.3 million in preparation for the utilization of
new capacity at our manufacturing facility in Newnan, Georgia and the timing of inventory purchases at our other
aluminum extrusion manufacturing facilities.
Net property, plant and equipment increased $29.1 million (11.5%) due primarily to capital expenditures of $79.7 million,
partially offset by depreciation of $37.9 million, and a change in the value of the U.S. dollar relative to foreign currencies
(a decrease of approximately $11.8 million).
Goodwill and other intangibles decreased by $14.3 million (6.0%) primarily due to amortization expense of $6.7 million
and a change in the value of the U.S. dollar relative to the Brazilian Real.
Accounts payable increased by $0.7 million (0.9%).
•
•
•
Accounts payable in Film Products decreased by $6.8 million primarily due to the timing of payments.
Accounts payable in Aluminum Extrusions increased by $7.3 million, primarily due to higher inventory balances
and the timing of payments.
Accounts payable in corporate increased by $0.2 million due to the normal volatility associated with the timing of
payments.
•
Accrued expenses decreased by $0.4 million (0.8%) from December 31, 2012.
27
•
•
Other noncurrent liabilities decreased by $42.1 million (43.1%) due primarily to the change in the funded status of our
defined benefit plans. As of December 31, 2013, the funded status of our defined benefit pension plan was a net liability
of $42.5 million compared with $83.3 million as of December 31, 2012, and the liability associated with our other post-
employment benefits plan was $7.9 million as of December 31, 2013 compared to $8.9 million as of December 31, 2012.
Net deferred income tax liabilities in excess of assets increased by $10.0 million primarily due to numerous changes
between years in the balance of the components shown in the December 31, 2013 and 2012 schedule of deferred income
tax assets and liabilities provided in Note 17 beginning on page 72. Income taxes recoverable/payable was a receivable of
$2.9 million at December 31, 2012 compared to a payable of $0.1 million at December 31, 2013. The change is
primarily due to the timing of tax payments.
Net capitalization and indebtedness as defined under our revolving credit agreement as of December 31, 2013 were as
follows:
Net Capitalization and Indebtedness as of December 31, 2013
(In Thousands)
Net capitalization:
Cash and cash equivalents
Debt:
$350 million revolving credit agreement maturing April 23, 2017
Other debt
Total debt
Debt net of cash and cash equivalents
Shareholders’ equity
Net capitalization
Indebtedness as defined in revolving credit agreement:
Total debt
Face value of letters of credit
Other
Indebtedness
$
52,617
139,000
—
139,000
86,383
402,664
489,047
139,000
2,683
189
141,872
$
$
$
Under the revolving credit agreement, borrowings are permitted up to $350 million, and approximately $165 million was
available to borrow at December 31, 2013 based on the most restrictive covenants. The credit spread and commitment fees
charged on the unused amount under the 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
> 2.0x but <= 3.0x
> 1.0x but <=2.0x
<= 1.0x
Credit Spread
Over LIBOR
Commitment
Fee
200
175
150
35
30
25
At December 31, 2013, the interest rate on debt borrowed under the revolving credit agreement was priced at one-month
LIBOR plus the applicable credit spread of 175 basis points. Market exposure related to changes in one-month LIBOR
(assuming that the applicable credit spread remains at 175 basis points) would not be material to our consolidated financial
results.
As of December 31, 2013, we are in compliance with all financial covenants outlined in our revolving credit agreement.
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 we be unable to obtain a waiver from the lenders. Renegotiation of
the covenant(s) 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 amended covenant is renegotiated.
The computations of adjusted EBITDA, adjusted EBIT, the leverage ratio and interest coverage ratio as defined in the
credit agreement are presented below along with the related most restrictive covenants. Adjusted EBITDA and adjusted EBIT
28
as defined in the credit agreement are not intended to represent net income or cash flow from operations as defined by U.S.
GAAP and should not be considered as either an alternative to net income or to cash flow.
Computations of Adjusted EBITDA, Adjusted EBIT, Leverage Ratio and Interest Coverage Ratio as Defined in the Credit
Agreement Along with Related Most Restrictive Covenants
As of and for the Twelve Months Ended December 31, 2013 (In Thousands)
Computations of adjusted EBITDA and adjusted EBIT as defined in revolving credit agreement for the twelve months ended
December 31, 2013:
Net income
Plus:
After-tax losses related to discontinued operations
Total income tax expense for continuing operations
Interest expense
Depreciation and amortization expense for continuing operations
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 $2,949)
Charges related to stock option grants and awards accounted for under the fair value-based method
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
Interest income
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
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
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
Adjusted EBITDA as defined in revolving credit agreement
Less: Depreciation and amortization expense for continuing operations (including pro forma for acquisitions
and asset dispositions)
Adjusted EBIT as defined in revolving credit agreement
Shareholders’ equity at December 31, 2013 as defined in revolving credit agreement
$
21,947
13,990
16,995
2,870
44,655
4,679
1,155
—
—
—
—
(594)
—
—
—
(3,400)
—
—
102,297
(44,655)
57,642
$
$ 383,841
Computations of leverage and interest coverage ratios as defined in revolving credit agreement at December 31, 2013:
Leverage ratio (indebtedness-to-adjusted EBITDA)
Interest coverage ratio (adjusted EBIT-to-interest expense)
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 beginning January 1, 2012)
Minimum adjusted shareholders’ equity permitted ($320,000 plus 50% of net income generated, to the
extent positive, beginning January 1, 2012)
Maximum leverage ratio permitted:
Minimum interest coverage ratio permitted
29
1.39x
20.08x
$ 125,099
$ 345,099
3.00x
2.50x
We are obligated to make future payments under various contracts as set forth below:
(In Millions)
Debt:
2014
2015
2016
2017
2018
Remainder
Total
Payments Due by Period
Principal payments
$
— $
— $
— $
139.0
$
— $
— $
139.0
Estimated interest expense
Estimated contributions required (1) :
Defined benefit plans
Other postretirement benefits
Capital expenditure commitments
Operating leases
Utility contracts
Estimated obligations relating to
uncertain tax positions (2)
Other (3)
Total
2.7
0.2
0.5
14.5
2.2
4.4
—
4.2
2.7
9.0
0.5
—
1.5
—
—
1.8
2.7
7.7
0.5
—
1.4
—
—
—
0.8
6.2
0.5
—
1.4
—
—
—
—
5.0
0.5
—
1.3
—
—
—
$
28.7
$
15.5
$
12.3
$
147.9
$
6.8
$
—
2.5
5.3
—
—
—
1.7
—
9.5
8.9
30.6
7.8
14.5
7.8
4.4
1.7
6.0
$
220.7
(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 2014 through 2023 were determined under
provisions of the Pension Protection Act of 2006 using the preliminary assumptions chosen by Tredegar for the 2014 plan year.
Tredegar has determined that it is not practicable to present defined benefit contributions and other postretirement benefit payments
beyond 2023.
(2) Amounts for which reasonable estimates about the timing of payments cannot be made are included in the remainder column.
(3)
Includes contractual severance, the expected contingent earnout from our purchase of the assets of Bright View, and other
miscellaneous contractual arrangements.
From time to time, we enter into transactions with third parties in connection with the sale of assets or businesses in
which we agree to indemnify the buyers or third parties involved in the transaction, or the sellers or third parties involved in the
transaction agree to indemnify us, for certain liabilities or risks related to the assets or business. Also, in the ordinary course of
our business, we 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, we are unable to estimate the maximum potential amount of the potential future liability under the indemnity
provisions of these agreements. We do, 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. We disclose
contingent liabilities if the probability of loss is reasonably possible and material.
At December 31, 2013, we had cash and cash equivalents of $52.6 million, including funds held in locations outside the
U.S. of $38.6 million. We accrue U.S. federal income taxes on unremitted earnings of all foreign subsidiaries except Terphane
Ltda. (a subsidiary of Film Products). Deferred U.S. federal income taxes have not been provided on the undistributed earnings
for Terphane Ltda. because of our intent to permanently reinvest these earnings. We have not recorded a deferred liability of
approximately $7.1 million related to the U.S. federal income taxes and foreign withholding taxes on approximately $36.0
million of undistributed earnings indefinitely invested outside the U.S. at December 31, 2013. We believe that existing
borrowing availability, our current cash balances and our cash flow from operations will be sufficient to satisfy our working
capital, capital expenditure and dividend requirements for the foreseeable future.
Shareholders’ Equity
At December 31, 2013, we had 32,305,145 shares of common stock outstanding and a total market capitalization of
$930.7 million, compared with 32,069,370 shares of common stock outstanding and a total market capitalization of $654.9
million at December 31, 2012.
We received 209,576 shares in 2012 at a price of $17.70 per share as consideration from Arc Ventures, LC in connection
with our divestiture of Falling Springs.
30
We did not repurchase any shares on the open market in 2013, 2012 or 2011 under our approved share repurchase
program.
Cash Flows
The discussion in this section supplements the information presented in the consolidated statements of cash flows on page
45. Cash flows for discontinued operations have not been separately disclosed in the consolidated statements of cash flows.
Cash provided by operating activities was $76.7 million in 2013 compared with $82.6 million in 2012. The decrease is
due primarily to normal volatility of working capital components (see the assets and liabilities section beginning on page 27 for
discussion of changes in working capital).
Cash used in investing activities was $77.6 million in 2013 compared with $75.6 million in 2012. Cash used in investing
activities in 2013 primarily includes capital expenditures of $79.7 million. Cash used in investing activities in 2012 primarily
includes the acquisition of AACOA ($54.6 million) and capital expenditures ($33.3 million), partially offset by net cash
proceeds received from the sale of Falling Springs ($12.1 million).
Net cash flow provided by financing activities was $5.3 million in 2013, which is primarily due to the net borrowings on
our revolving credit facility of $11.0 million and the proceeds from the exercise of stock options and other financing activities
of approximately $3.3 million, partially offset by the payment of regular quarterly dividends of $9.0 million (28 cents per
share).
Cash provided by operating activities was $82.6 million in 2012 compared with $71.8 million in 2011. The increase is
due primarily to normal volatility of working capital components.
Cash used in investing activities was $75.6 million in 2012 compared with $195.2 million in 2011. Cash used in
investing activities in 2012 primarily includes the acquisition of AACOA ($54.6 million) and capital expenditures ($33.3
million), partially offset by net cash proceeds received from the sale of Falling Springs ($12.1 million). Cash used in investing
activities in 2011 primarily includes the purchase of Terphane ($181.0 million) and capital expenditures ($15.9 million).
Net cash flow used in financing activities was $26.7 million in 2012, which is primarily due to the one-time dividend of
$24.0 million in December 2012 and the payment of regular quarterly dividends of $6.8 million (4 1/2 cents per share per
quarter in the first and second quarters and 6 cents per share in the third and fourth quarters). Net borrowings against our
revolving credit facility were $3.0 million in 2012.
Quantitative and Qualitative Disclosures about Market Risk
Tredegar has exposure to the volatility of interest rates, polyethylene and polypropylene resin prices, Terephtalic Acid
(“PTA”) and Monoethylene Glycol (“MEG”) prices, aluminum ingot and scrap prices, energy prices, foreign currencies and
emerging markets. See the assets and liabilities section beginning on page 27 regarding interest rate exposures related to
borrowings under the revolving credit agreement.
Changes in resin, PTA and MEG prices, and the timing of those changes, could have a significant impact on profit
margins in Film Products. 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 our casting furnaces). There is no
assurance of our ability to pass through higher raw material and energy costs to our customers.
31
See the executive summary beginning on page 18 and the business segment review beginning on page 35 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 Film Products) is shown in the chart below:
Source: Quarterly averages computed by Tredegar using monthly data provided by Chemical Data Inc. ("CDI"). In January 2010, CDI reflected a 15 cents per pound non-
market adjustment based on their estimate of the growth of discounts over the 2005 to 2009 period. The 4th quarter 2009 average rate of 61 cents per pound is shown on a pro
forma basis as if the non-market adjustment was made in October 2009.
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,
Film Products 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
on page 18 and the business segment review on page 35 for more information). Pricing on the remainder of our business is
based upon raw material costs and supply/demand dynamics within the markets that we compete.
The volatility of average quarterly prices of PTA and MEG (raw materials for Film Products) is shown in the chart below:
Source: Quarterly averages computed by Tredegar using monthly NYMEX settlement prices.
32
In the normal course of business, we enter 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 our 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, we
enter into a combination of forward purchase commitments and futures contracts to acquire or hedge aluminum, based on the
scheduled deliveries. See Note 9 beginning on page 61 for more information. The volatility of quarterly average aluminum
prices is shown in the chart below:
Source: Quarterly averages computed by Tredegar using monthly NYMEX settlement prices.
In Aluminum Extrusions, we hedge from time-to-time a portion of our exposure to natural gas price volatility by entering
into fixed-price forward purchase contracts with our natural gas suppliers. We estimate that, in an unhedged situation, every $1
per mmBtu per month change in the market price of natural gas has an $80,000 impact on the continuing monthly operating
profit for our U.S. operations in Aluminum Extrusions. We have an energy surcharge for our aluminum extrusions business 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.
33
We sell to customers in foreign markets through our foreign operations and through exports from U.S. plants. The
percentage of sales and total assets for continuing operations related to foreign markets for 2013, 2012 and 2011 are as follows:
Tredegar Corporation—Continuing Operations
Percentage of Net Sales and Total Assets Related to Foreign Markets
2013
% of Total
Net Sales *
Exports
From
U.S.
Foreign
Oper-
ations
Canada
Europe
Latin America
Asia
Total % exposure to foreign
markets
5
1
—
9
15
—
12
12
4
28
2012
% of Total
Net Sales *
Exports
From
U.S.
Foreign
Oper-
ations
5
1
—
7
13
—
13
14
4
31
% Total
Assets -
Foreign
Oper-
ations *
—
6
24
4
34
2011
% of Total
Net Sales *
Exports
From
U.S.
Foreign
Oper-
ations
% Total
Assets -
Foreign
Oper-
ations *
—
7
23
4
6
1
1
7
34
15
% Total
Assets -
Foreign
Oper-
ations *
—
7
24
4
35
—
16
6
4
26
*
The percentages for foreign markets are relative to Tredegar’s consolidated net sales and total assets from continuing operations.
We attempt to match the pricing and cost of our products in the same currency and generally view the volatility of foreign
currencies (see trends for the Euro, Brazilian Real and Chinese Yuan in the chart below) and emerging markets, and the
corresponding impact on earnings and cash flow, as part of the overall risk of operating in a global environment. Exports from
the U.S. are generally denominated in U.S. Dollars. Our 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.
For flexible packaging films produced in Brazil, we price our products in U.S. Dollars, and key raw materials are also
priced in U.S. Dollars. However, certain production costs, such as conversion costs and other fixed costs, are priced in
Brazilian Real, which exposes our operating margins to some currency exposure. In general, when the U.S. Dollar is
strengthening versus the Brazilian Real, operating results will benefit from relatively lower costs, and when the U.S. Dollar is
weakening versus the Brazilian Real, operating results will be negatively impacted from relatively higher costs. We are
primarily able to match the currency of our sales and costs for the remaining product lines within Film Products.
We estimate that the change in value of foreign currencies relative to the U.S. Dollar had a favorable impact on operating
profit from ongoing operations of approximately $7.0 million in 2013 compared to 2012, an unfavorable impact on operating
profit from ongoing operations of approximately $1.4 million in 2012 compared with 2011, a favorable impact of
approximately $1.8 million in 2011 compared with 2010.
Trends for the Euro are shown in the chart below:
Source: Quarterly averages computed by Tredegar using daily closing data provided by Bloomberg.
34
Trends for the Brazilian Real and Chinese Yuan are shown in the chart below:
Source: Quarterly averages computed by Tredegar using daily closing data provided by Bloomberg.
Business Segment Review
Net sales and operating profit from ongoing operations are the measures of sales and operating profit used by the chief
operating decision maker for purposes of assessing performance.
Film Products
Net Sales. See the executive summary beginning on page 18 for the discussion of net sales (sales less freight) in Film Products
in 2013 compared with 2012.
In Film Products, net sales were $611.9 million in 2012, an increase of 14.3% from $535.5 million in 2011. Volume
increased to 270.3 million pounds in 2012 from 218.7 million pounds in 2011. Net sales in 2012 increased compared to 2011
primarily due to the acquisition of Terphane. Net sales for Terphane were $138.0 million in 2012 compared to $28.3 million in
2011. Higher net sales from the addition of Terphane were primarily offset by lower volumes in the other product lines of
approximately $18.7 million, the unfavorable change in the U.S. dollar value of currencies for operations outside the U.S. of
approximately $10.1 million and a decrease in average selling prices of approximately $4.6 million. Lower net sales volumes
are primarily related to lower volumes for personal care materials and polyethylene overwrap films, partially offset by
improved performance in surface protection films in the fourth quarter of 2012. The decrease in the average selling prices in
2012 compared to 2011 can be primarily attributed to pricing pressures.
Operating Profit. See the executive summary beginning on page 18 for the discussion of operating profit in Film
Products in 2013 compared with 2012.
Operating profit from ongoing operations was $70.0 million in 2012, an increase of 17.6% compared with $59.5 million
in 2011. Operating profit from ongoing operations primarily due to the acquisition of Terphane, partially offset by lower
volumes and compressed margins for personal care materials and the unfavorable impact of the change in the U.S. dollar value
of currencies outside the U.S. The impact on operating profit from ongoing operations directly attributable to the acquisition of
Terphane was $19.1 million in 2012, which includes amortization expense of $5.1 million. In 2011, operating profit from
ongoing operations attributed to the addition of Terphane was approximately $3.0 million, which included $0.9 million in one-
time reimbursements for custom duties and $0.9 million of amortization expense. Excluding the impact of the acquisition of
Terphane, lower volumes in Film Products had an unfavorable impact of approximately $4.8 million in 2012 compared to 2011.
Lower volumes in personal care materials were partially mitigated by higher sales volumes for surface protection films. The
change in the U.S. dollar value of currencies for operations outside the U.S. had an unfavorable impact of approximately $1.4
35
million in 2012 compared to 2011. The estimated impact on operating profit from ongoing operations of the quarterly lag in
the pass-through of average resin costs was approximately a negative $0.5 million in 2012 compared to a negative $0.8 million
in 2011.
Identifiable Assets. Identifiable assets in Film Products increased to $556.9 million at December 31, 2013, from $551.8 million
at December 31, 2012, primarily due to higher property, plant and equipment balances as a result of higher current year capital
expenditures, partially offset by lower intangible asset balances, primarily due to current year amortization expense and the
change in the U.S. dollar value of currencies for operations outside the U.S., and a reduction in inventory balances. Identifiable
assets in Film Products decreased to $551.8 million at December 31, 2012, from $574.6 million at December 31, 2011, due
primarily to the depreciation of property, plant and equipment and amortization of identifiable intangible assets, partially offset
by current year capital expenditures.
Depreciation, Amortization and Capital Expenditures. Depreciation and amortization expense for Film Products was $35.3
million in 2013, $39.2 million in 2012 and $36.3 million in 2011. Depreciation and amortization expense decreased in 2013
compared to 2012 as certain assets became fully depreciated. The increase in depreciation and amortization in 2012 compared
with 2011 is primarily related to the acquisition of Terphane ($10.2 million in 2012 compared to $2.1 million in 2011), partially
offset by lower depreciation expense as certain assets became fully depreciated. We estimate depreciation and amortization
expense for Film Products will be approximately $35 million in 2014.
Capital expenditures totaled $64.9 million in 2013, $30.5 million in 2012 and $13.1 million in 2011. Capital expenditures
in 2013 and 2012 include approximately $41 million and $20 million, respectively, for the project to expand capacity at our
manufacturing facility in Cabo de Santo Agosthino, Brazil. Capital expenditures in 2011 primarily included the normal
replacement of machinery and equipment. Capital expenditures in 2014 are estimated to be approximately $50 million, which
includes approximately $15 million for routine capital expenditures required to support operations. Capital expenditure in 2014
also includes capacity expansion projects in China, Brazil and India.
Aluminum Extrusions (Continuing Operations)
Net Sales and Operating Profit. See the executive summary beginning on page 18 for the discussion of net sales (sales less
freight) and operating profit from ongoing operations of Aluminum Extrusions in 2013 compared with 2012.
Net sales in Aluminum Extrusions were $245.5 million in 2012, an increase of 2.1% from $240.4 million in 2011. The
increase in net sales can be primarily attributed to the acquisition of AACOA, partially offset by a decrease in average selling
prices driven by lower aluminum prices and lower volume resulting from the shutdown of the Kentland facility. AACOA,
which was acquired on October 1, 2012, had net sales of $19.5 million in the fourth quarter of 2012. Excluding the impact of
the acquisition of AACOA and the Kentland plant shutdown, sales volume in 2012 increased 0.6% in comparison to 2011.
Operating profit from ongoing operations was $9.0 million in 2012, a positive change of $5.5 million from operating
profit from ongoing operations of $3.5 million in 2011. Operating profit from ongoing operations increased primarily due to
improved profitability from the shutdown of our Kentland manufacturing facility, more favorable pricing, lower energy costs
and the acquisition of AACOA. AACOA had operating profit from ongoing operations of approximately $0.8 million for the
fourth quarter of 2012, which included amortization expense of $0.5 million.
Identifiable Assets. Identifiable assets in Aluminum Extrusions were $134.9 million at December 31, 2013, $129.3 million at
December 31, 2012 and $78.7 million at December 31, 2011. Identifiable assets increased in 2013 compared to 2012 primarily
due to higher property, plant and equipment balances as a result of higher current year capital expenditures. The increase in
identifiable assets between December 31, 2011 and December 31, 2012 can be primarily attributed to the acquisition of
AACOA.
Depreciation, Amortization and Capital Expenditures. Depreciation and amortization for Aluminum Extrusions was $9.2
million in 2013, $10.0 million in 2012 and $8.3 million in 2011. Depreciation expense decreased in 2013 primarily due to
accelerated depreciation on property, plant and equipment at the Kentland manufacturing facility of approximately $2.4 million
in 2012. The increase in 2012 compared to 2011 is primarily attributed to accelerated depreciation on property, plant and
equipment associated with shutdown of the Kentland manufacturing facility and impact of the acquisition of AACOA ($1.0
million in additional depreciation and amortization expense in the fourth quarter of 2012), partially offset by certain assets
becoming fully depreciated and lower than normal capital expenditures in 2012, 2011 and the second half of 2010. We estimate
depreciation and amortization expense for Aluminum Extrusions to be approximately $11 million in 2014.
Capital expenditures totaled $14.7 million in 2013, $2.3 million in 2012 and $2.7 million in 2011. Capital expenditures in
2013 include approximately $11.5 million in capital expenditures for a previously announced project that will expand capacity
36
at our manufacturing facility in Newnan, Georgia. Capital expenditures are estimated to be approximately $10 million in 2014,
which includes approximately $5 million for routine capital expenditures required to support operations.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See discussion of “Quantitative and Qualitative Disclosures about Market Risk” beginning on page 31 in Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the index on page 41 for references to the report of the independent registered public accounting firm, the
consolidated financial statements and selected quarterly financial data.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out
an evaluation, with the participation of our management, including our principal executive officer and principal financial
officer, of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange
Act) as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal
financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported,
within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to
our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Rule 13a-15(f) under the Exchange Act. Tredegar’s internal control over financial reporting is designed
to provide reasonable assurance to Tredegar’s management and board of directors regarding the reliability of financial reporting
and the preparation and fair presentation of published financial statements in accordance with U.S. generally accepted
accounting principles 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 our 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, and that our receipts and expenditures are being made
only in accordance with authorization of our management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
our 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 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.
37
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (1992 framework). Based on their evaluation under the framework in Internal Control — Integrated Framework,
our management concluded that our internal control over financial reporting was effective as of December 31, 2013.
The effectiveness of our internal control over financial reporting as of December 31, 2013 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included on
page 41.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended December 31, 2013,
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. OTHER INFORMATION
None.
PART III
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information concerning directors and persons nominated to become directors of Tredegar to be included in our Proxy
Statement under the headings “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-Management 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” is incorporated herein by reference.
Set forth below are the names, ages and titles of our executive officers:
Name
Nancy M. Taylor
Mary Jane Hellyar
A. Brent King
Kevin A. O’Leary
Age
Title
54 President and Chief Executive Officer
60 President, Tredegar Film Products Corporation and Corporate Vice President
45 Vice President, General Counsel and Corporate Secretary
55 Vice President, Chief Financial Officer and Treasurer
Nancy M. Taylor. Ms. Taylor was elected President and Chief Executive Officer effective February 1, 2010. Prior to
February 1, 2010, Ms. Taylor was President of Tredegar Film Products Corporation and Executive Vice President. She was
elected Executive Vice President effective January 1, 2009. She was elected President of Tredegar Film Products Corporation
effective April 5, 2005. She was elected Senior Vice President effective November 1, 2004. Ms. Taylor served as Senior Vice
President, Strategy and Special Projects from November 1, 2004 until April 5, 2005.
Mary Jane Hellyar. Ms. Hellyar was elected Vice President of the Company and President of Tredegar Film Products
Corporation on September 24, 2012. Ms. Hellyar served as Chief Executive Officer of TechnoCorp Energy OLED from
September 2009 until returning to retirement in September 2010. She served as President of Eastman Kodak Company’s Film
Photofinishing and Entertainment Group from September 2005 until retiring from Kodak in June 2009.
A. Brent King. Mr. King was elected Vice President, General Counsel and Corporate Secretary on October 20, 2008, the date
that he joined Tredegar. From October 2005 until October 2008, he served as General Counsel at Hilb Rogal & Hobbs
Company. Mr. King was Vice President and Assistant Secretary for Hilb Rogal & Hobbs Company from October 2001 to
October 2008. He served as Associate General Counsel for Hilb Rogal & Hobbs Company from October 2001 to October
2005.
38
Kevin A. O’Leary. Mr. O’Leary was elected Vice President, Chief Financial Officer and Treasurer effective December 11,
2009. He was appointed Vice President, Finance, of Tredegar Film Products Corporation, effective January 1, 2009 until
December 11, 2009 and served as Director, Finance, of Tredegar Film Products Corporation from October 2008 until January
2009. Mr. O’Leary previously served as Vice President, Finance—Mergers and Acquisitions of the Avery Dennison Retail
Information Services Group (“Avery Dennison RIS”), a division of Avery Dennison Corporation from March 2007 through
August 2008. He served as General Manager of the Printer Systems division of Avery Dennison RIS from February 2006
through February 2007 and as Director, Finance, of Avery Dennison RIS from August 2004 through January 2006.
We have adopted a Code of Conduct that applies to all of our directors, officers and employees (including our chief
executive officer, chief financial officer and principal accounting officer) and have posted the Code of Conduct on our website.
All amendments to or waivers from any provision of our Code of Conduct applicable to the chief executive officer, chief
financial officer and principal accounting officer will be disclosed on our website. Our Internet address is www.tredegar.com.
The information on or that can be accessed through our website is not, and shall not be deemed to be, a part of this report or
incorporated into other filings we make with the SEC.
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 AND
RELATED STOCKHOLDER MATTERS
The information to be included in the Proxy Statement under the heading “Stock Ownership” 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, 2013.
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Column (a)
Column (b)
Column (c)
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)
1,336,950
—
1,336,950
$
$
19.06
—
19.06
2,361,926
—
2,361,926
*
Includes performance stock units that give the holder the right to receive shares of Tredegar common stock upon the satisfaction of
certain performance criteria.
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”, “Tredegar’s Board of Directors” and “Board Meetings, Meetings of Non-Management Directors and Board
Committees” is incorporated herein by reference.
Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The following is incorporated herein by reference:
•
•
Information on accounting fees and services to be included in the Proxy Statement under the heading “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.”
39
PART IV
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
List of documents filed as a part of the report:
(1)
Financial statements:
Tredegar Corporation
Index to Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Financial Statements:
Consolidated Balance Sheets as of December 31, 2013 and 2012
Consolidated Statements of Income for the Years Ended December 31, 2013,
2012 and 2011
Consolidated Statements of Comprehensive Income (Loss) for the Years
Ended December 31, 2013, 2012 and 2011
Consolidated Statements of Cash Flows for the Years Ended December 31,
2013, 2012 and 2011
Consolidated Statements of Shareholders’ Equity for the Years Ended
December 31, 2013, 2012 and 2011
Notes to Financial Statements
(2)
Financial statement schedules:
None.
(3)
Exhibits:
See Exhibit Index on pages 81-83.
Page
41
42
43
44
45
46
47-79
40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Tredegar Corporation:
In our opinion, the accompanying consolidated balance sheets and related consolidated statements of income, comprehensive
income, cash flows and shareholders’ equity, present fairly, in all material respects, the financial position of Tredegar
Corporation and its subsidiaries (the “Company”) at December 31, 2013 and 2012, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control -
Integrated Framework 1992 issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
The Company's management is responsible for these financial statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
“Management’s Report on Internal Control Over Financial Reporting” appearing under Item 9A. Our responsibility is to
express opinions on these financial statements and on the Company’s internal control over financial reporting based on our
integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. 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 audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
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) 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) 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) 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/ PricewaterhouseCoopers LLP
Richmond, Virginia
February 28, 2014
41
CONSOLIDATED BALANCE SHEETS
Tredegar Corporation and Subsidiaries
December 31
(In Thousands, Except Share Data)
Assets
Current assets:
Cash and cash equivalents
Accounts and other receivables, net of allowance for doubtful accounts and sales returns
of $3,327 in 2013 and $3,552 in 2012
Income taxes recoverable
Inventories
Deferred income taxes
Prepaid expenses and other
Total current assets
Property, plant and equipment, at cost:
Land and land improvements
Buildings
Machinery and equipment
Total property, plant and equipment
Less accumulated depreciation
Net property, plant and equipment
Goodwill and other intangibles
Other assets and deferred charges
Total assets
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses
Income taxes payable
Total current liabilities
Long-term debt
Deferred income taxes
Other noncurrent liabilities
Total liabilities
Commitments and contingencies (Notes 3, 16 and 19)
Shareholders’ equity:
Common stock (no par value):
Authorized 150,000,000 shares;
Issued and outstanding—32,305,145 shares in 2013 and 32,069,370 in 2012
(including restricted stock)
Common stock held in trust for savings restoration plan (65,332 shares in 2013 and
64,654 in 2012)
Accumulated other comprehensive income (loss):
Foreign currency translation adjustment
Gain (loss) on derivative financial instruments
Pension and other postretirement benefit adjustments
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to financial statements.
42
2013
2012
$
52,617
$
48,822
99,246
—
70,663
5,628
6,353
234,507
12,093
109,125
677,621
798,839
516,279
282,560
226,300
49,641
793,008
82,795
42,158
114
125,067
139,000
70,795
55,482
390,344
$
$
100,798
2,886
74,670
5,614
6,780
239,570
12,537
110,961
625,655
749,153
495,736
253,417
240,619
49,559
783,165
82,067
42,514
—
124,581
128,000
60,773
97,559
410,913
20,641
15,195
(1,418)
(1,401)
(19,205)
765
(71,848)
473,729
402,664
793,008
$
131
993
(103,471)
460,805
372,252
783,165
$
$
$
CONSOLIDATED STATEMENTS OF INCOME
Tredegar Corporation and Subsidiaries
Years Ended December 31
(In Thousands, Except Per-Share Data)
Revenues and other:
Sales
Other income (expense), net
Costs and expenses:
Cost of goods sold
Freight
Selling, general and administrative
Research and development
Amortization of intangibles
Interest expense
Asset impairments and costs associated with exit and disposal
activities
Total
Income from continuing operations before income taxes
Income taxes
Income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Earnings (loss) per share:
Basic:
Continuing operations
Discontinued operations
Net income
Diluted:
Continuing operations
Discontinued operations
Net income
See accompanying notes to financial statements.
2013
2012
2011
$
959,346
$
882,188
$
794,420
1,776
961,122
18,119
900,307
3,213
797,633
784,675
712,660
654,087
28,625
71,195
12,669
6,744
2,870
1,412
908,190
52,932
16,995
35,937
(13,990)
21,947
1.12
(0.44)
0.68
1.10
(0.43)
0.67
$
$
$
$
$
24,846
73,717
13,162
5,806
3,590
5,022
838,803
61,504
18,319
43,185
(14,934)
28,251
1.35
(0.47)
0.88
1.34
(0.46)
0.88
$
$
$
$
$
18,488
67,808
13,219
1,399
1,926
1,917
758,844
38,789
10,244
28,545
(3,690)
24,855
0.89
(0.12)
0.77
0.89
(0.12)
0.77
$
$
$
$
$
43
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Tredegar Corporation and Subsidiaries
Years Ended December 31
(In Thousands, Except Per-Share Data)
Net income
Other comprehensive income (loss):
Foreign currency translation adjustment:
Unrealized foreign currency translation adjustment (net of tax of
$233 in 2013 and $897 in 2012 and tax benefit of $505 in 2011)
Reclassification adjustment of foreign currency translation gain
included in income (net of tax of $1,497 in 2011)
Derivative financial instruments adjustment (net of tax benefit of $133
in 2013, tax of $818 in 2012 and tax benefit of $423 in 2011)
Pension & other post-retirement benefit adjustments
Net gains (losses) and prior service costs (net of tax of $13,231 in
2013 and tax benefit of $11,145 in 2012 and $20,032 in 2011)
Amortization of prior service costs and net gains or losses (net of
tax of $5,398 in 2013, $3,749 in 2012 and $2,232 in 2011)
Other comprehensive income (loss)
Comprehensive income (loss)
See accompanying notes to financial statements.
2013
2012
2011
$
21,947
$
28,251
$
24,855
(19,336)
(11,562)
(9,098)
—
—
(2,781)
(228)
1,399
(686)
22,203
(19,285)
(34,664)
9,420
12,059
$
34,006
$
6,486
(22,962)
5,289
$
3,863
(43,366)
(18,511)
44
CONSOLIDATED STATEMENTS OF CASH FLOWS
Tredegar Corporation and Subsidiaries
Years Ended December 31
(In Thousands)
Cash flows from operating activities:
Net income
Adjustments for noncash items:
Depreciation
Amortization of intangibles
Deferred income taxes
Accrued pension and postretirement benefits
(Gain) loss on an investment accounted for under the fair value
method
Loss on asset impairments
(Gain) loss on sale of assets
Changes in assets and liabilities, net of effects of acquisitions and
divestitures:
Accounts and notes receivables
Inventories
Income taxes recoverable
Prepaid expenses and other
Accounts payable and accrued expenses
Other, net
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Acquisitions, net of cash acquired
Net proceeds from the sale of Fallings Springs, LLC
Proceeds from the sale of assets and other
Net cash used in investing activities
Cash flows from financing activities:
Borrowings
Debt principal payments and financing costs
Dividends paid
Proceeds from exercise of stock options and other
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow information:
Interest payments
Income tax payments (refunds), net
See accompanying notes to financial statements.
$
$
45
2013
2012
2011
$
21,947
$
28,251
$
24,855
37,911
6,744
(5,268)
13,911
(3,400)
1,639
—
(1,763)
1,727
3,063
(651)
3,043
(2,188)
76,715
(79,661)
561
306
1,190
(77,604)
87,000
(76,000)
(9,040)
3,317
5,277
(593)
3,795
48,822
52,617
2,583
19,480
$
$
43,463
5,806
(762)
8,311
(16,100)
2,185
1,219
9,454
(9,913)
3,193
1,883
9,105
(3,509)
82,586
(33,252)
(57,936)
12,071
3,557
(75,560)
93,250
(91,604)
(30,782)
2,400
(26,736)
(407)
(20,117)
68,939
48,822
2,992
14,721
$
$
43,336
1,399
2,108
2,481
(1,600)
1,376
(653)
(4,737)
2,410
(1,254)
(271)
(282)
2,597
71,765
(15,880)
(180,975)
—
1,622
(195,233)
125,000
(89)
(5,761)
1,242
120,392
(1,176)
(4,252)
73,191
68,939
1,966
8,594
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Tredegar Corporation and Subsidiaries
Stock-based compensation expense
119,698
2,897
(In Thousands, Except Share and Per-Share Data)
Balance January 1, 2011
Net income
Foreign currency translation adjustment (net of tax
benefit of $2,002)
Derivative financial instruments adjustment (net of
tax benefit of $423)
Net gains or losses and prior service costs (net of tax
benefit of $20,032)
Amortization of prior service costs and net gains or
losses (net of tax of $2,232)
Cash dividends declared ($.18 per share)
Issued upon exercise of stock options (including
related income tax benefit of $76) & other
Tredegar common stock purchased by trust for
savings restoration plan
Balance December 31, 2011
Net income
Foreign currency translation adjustment (net of tax of
$897)
Derivative financial instruments adjustment (net of
tax of $818)
Net gains or losses and prior service costs (net of tax
benefit of $11,145)
Amortization of prior service costs and net gains or
losses (net of tax of $3,749)
Cash dividends declared ($.96 per share)
Tredegar common stock purchased by trust for
savings restoration plan
Balance December 31, 2012
Net income
Foreign currency translation adjustment (net of tax of
$233)
Derivative financial instruments adjustment (net of
tax benefit of $133)
Net gains or losses and prior service costs (net of tax
of $13,231)
Amortization of prior service costs and net gains or
losses (net of tax of $5,398)
Cash dividends declared ($.28 per share)
Issued upon exercise of stock options (including
related income tax benefit of $188) & other
Tredegar common stock purchased by trust for
savings restoration plan
Balance December 31, 2013
See accompanying notes to financial statements.
Accumulated Other Comprehensive Income (Loss)
Common Stock
Shares
Amount
Retained
Earnings
Trust for
Savings
Restora-
tion Plan
Foreign
Currency
Trans-
lation
31,883,173
$ 10,724
$ 444,173
$ (1,332) $
23,572
Gain
(Loss) on
Derivative
Financial
Instruments
280
$
Pension &
Other Post-
retirement
Benefit
Adjust.
Total
Share-
holders’
Equity
$ (59,871) $ 417,546
32,057,281
14,357
463,278
(1,343)
11,693
(406)
(90,672)
396,907
—
—
—
—
—
—
—
—
—
—
—
—
54,410
—
736
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
163,650
2,874
—
24,855
—
—
—
—
(5,761)
—
—
11
—
—
—
—
—
—
—
—
(11)
—
(11,879)
—
—
—
—
—
—
—
—
—
(686)
—
—
—
—
—
—
—
—
—
24,855
(11,879)
(686)
(34,664)
(34,664)
3,863
—
—
—
—
3,863
(5,761)
2,897
736
—
28,251
—
—
—
—
(30,782)
—
—
—
58
—
—
—
—
—
—
—
—
(58)
21,947
—
—
—
—
(9,040)
—
—
17
—
—
—
—
—
—
—
—
(17)
—
(11,562)
—
—
—
—
—
—
—
131
—
(19,336)
—
—
—
—
—
—
—
—
—
1,399
—
—
—
—
—
—
993
—
—
(228)
—
—
—
—
—
—
—
—
—
28,251
(11,562)
1,399
(19,285)
(19,285)
6,486
6,486
(30,782)
2,516
2,031
(3,709)
—
—
—
—
—
(103,471)
372,252
—
—
—
21,947
(19,336)
(228)
22,203
22,203
9,420
—
—
—
—
9,420
(9,040)
2,572
2,874
—
32,069,370
15,195
460,805
(1,401)
32,305,145
$ 20,641
$ 473,729
$ (1,418) $ (19,205) $
765
$ (71,848) $ 402,664
46
Stock-based compensation expense
78,299
2,516
Issued upon exercise of stock options (including
related income tax benefit of $144) & other
143,366
Shares received from the sale of Falling Springs, LLC
(209,576)
2,031
(3,709)
Stock-based compensation expense
72,125
2,572
NOTES TO FINANCIAL STATEMENTS
Tredegar Corporation and Subsidiaries
1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations. Tredegar Corporation and subsidiaries (collectively “Tredegar,” “we,” “us” or “our”)
are primarily engaged in the manufacture of plastic films and aluminum extrusions. See Notes 10 and 18 regarding
restructurings and Note 3 regarding discontinued operations.
Basis of Presentation. The consolidated financial statements include the accounts and operations of Tredegar and all of its
majority-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. On February 12,
2008, we sold our aluminum extrusions business in Canada, and on November 20, 2012, we sold our mitigation banking
business, Falling Springs, LLC (“Falling Springs”). All historical results for these businesses have been reflected as
discontinued operations in these financial statements; however, cash flows for discontinued operations have not been separately
disclosed in the consolidated statements of cash flows. See Note 3 regarding discontinued operations.
The preparation of financial statements in conformity with United States (“U.S.”) generally accepted accounting
principles (“U.S. GAAP”) requires us 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.
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. We have no 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 not material in 2013, 2012 and 2011. These
amounts do not include the effects between reporting periods that exchange rate changes have on income of our locations
outside the U.S. that result from translation into U.S. Dollars.
Cash and Cash Equivalents. Cash and cash equivalents 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, 2013 and 2012, Tredegar had cash
and cash equivalents of $52.6 million and $48.8 million, respectively, including funds held in locations outside the U.S. of
$38.6 million and $28.6 million, respectively.
Our 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.
Accounts and Other Receivables. Accounts receivable are stated at the amount invoiced to customers less allowances for
doubtful accounts and sales returns. Accounts receivable are non-interest bearing and arise from the sale of product to
customers under typical industry trade terms. Notes receivable are not significant. Past due amounts are determined based on
established terms and charged-off when deemed uncollectible. The allowance for doubtful accounts is determined based on our
assessment of probable losses taking into account past due amounts, customer credit profile, historical experience and current
economic conditions. Other receivables include value-added taxes related to certain foreign subsidiaries and other
miscellaneous receivables due within one year.
Inventories. Inventories are stated at the lower of cost or market, with cost determined on the last-in, first-out (“LIFO”) basis,
the weighted average cost or the first-in, first-out basis. Cost elements included in work-in-process and finished goods
inventories are raw materials, direct labor and manufacturing overhead.
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 were not material in 2013, 2012 and 2011.
47
Depreciation is computed primarily by the straight-line method based on the estimated useful lives of the assets, which
except for certain isolated exceptions, range from 10 to 30 years for buildings and land improvements and 2 to 17 years for
machinery and equipment. The average depreciation period for machinery and equipment is approximately 10 years in Film
Products and for the continuing operations of Aluminum Extrusions.
Investments in Private Entities with Less Than or Equal to 50% Voting Ownership Interest. We account for our investments
in private entities where our voting ownership is less than or equal to 50% based on the facts and circumstances surrounding the
investment. We are required to account for investments under the consolidation method in situations where we are the primary
beneficiary of a variable interest entity. The primary beneficiary is the party that has a controlling financial interest in a
variable interest entity. We are deemed to have a controlling financial interest if we have (i) the power to direct activities of the
variable interest entity that most significantly impact its economic performance and (ii) the obligation to absorb losses or the
right to receive benefits from the variable interest entity that could potentially be significant to its operations.
If we are not deemed to be the primary beneficiary in an investment in a variable interest entity then we select either:
(i) the fair value method or (ii) either (a) the cost method if we do not have significant influence over operating and financial
policies of the investee or (b) the equity method if we do have significant influence.
For those investments measured at fair value, U.S. 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 Other Intangibles. The excess of the purchase price over the fair value of identifiable net assets of acquired
companies is allocated to goodwill. We assess 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). Our significant reporting units
in Film Products include Polyethylene and Polypropylene Films and PET Films. We have two reporting units in Aluminum
Extrusions, Bonnell Aluminum and AACOA. Each of our reporting units has separately identifiable operating net assets
(operating assets including goodwill and intangible assets net of operating liabilities).
All goodwill in Aluminum Extrusions is associated with the AACOA reporting unit. Based on the severity of the
economic downturn and its impact on the sales volumes of our aluminum extrusions business, the resulting operating loss in the
first quarter of 2009, possible future losses and the uncertainty in the amount and timing of an economic recovery, a goodwill
impairment charge of $30.6 million ($30.6 million after taxes), which represented the entire goodwill balance in the Bonnell
Aluminum reporting unit, was recognized in 2009.
We estimate the fair value of our reporting units using discounted cash flow analysis and comparative enterprise value-to-
EBITDA (earnings before interest, taxes, depreciation and amortization) multiples. The goodwill of Polyethylene and
Polypropylene Films reporting unit was tested for impairment at the annual testing date, with the estimated fair value of this
reporting unit substantially exceeding the carrying value of its net assets. The goodwill of PET Films reporting unit was also
tested for impairment at December 1, 2013, with the estimated fair value of this reporting unit exceeding the carrying value of
its net assets by approximately 37%. The goodwill of AACOA is associated with the October 2012 acquisition of AACOA, Inc.
(“AACOA”), and estimated fair value of this reporting unit exceeded the carrying value of its net assets by approximately 22%
at December 1, 2013.
Impairment of Long-Lived Assets. We review 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, we
estimate 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, 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.
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.
Pension Costs and Postretirement Benefit Costs Other than Pensions. Pension costs and postretirement benefit costs other
than pensions are accrued over the period employees provide 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. We recognize the funded status of our pension and other postretirement plans
in the accompanying consolidated balance sheets. Our policy is to fund our pension plans at amounts not less than the
48
minimum requirements of the Employee Retirement Income Security Act (“ERISA”) of 1974 and to fund postretirement
benefits other than pensions when claims are incurred.
Revenue Recognition. Revenue from the sale of products, which is shown net of estimated sales returns and allowances, is
recognized when title has passed to the customer, the price of the product is fixed and determinable, and collectability is
reasonably assured. Amounts billed to customers related to freight have been classified as sales in the accompanying
consolidated statements of income. The cost of freight has been 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.
Research & 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.
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 17). Deferred U.S. federal income taxes have
not been recorded for the undistributed earnings for Terphane Ltda. (a subsidiary of Film Products) because of our intent to
permanently reinvest these earnings. We have not recorded a deferred liability of approximately $7.1 million related to the U.S.
federal income taxes and foreign withholding taxes on approximately $36.0 million of undistributed earnings indefinitely
invested outside the U.S. at December 31, 2013. We accrue U.S. federal income taxes on unremitted earnings of all other
foreign subsidiaries. The benefit of an uncertain tax position is included in the accompanying financial statements when we
determine 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:
Weighted average shares outstanding used to compute
basic earnings per share
Incremental shares attributable to stock options and
restricted stock
2013
2012
2011
32,171,751
32,032,343
31,931,962
427,528
160,233
281,212
Shares used to compute diluted earnings per share
32,599,279
32,192,576
32,213,174
Incremental shares attributable to stock options and restricted stock are computed using the average market price during
the related period. During 2013, 2012 and 2011, 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 was 31,167, 632,050 and 293,704,
respectively.
Stock-Based Employee Compensation Plans. Compensation expense is recorded on all share-based awards based upon its
calculated fair value over the requisite service period using 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 our closing stock price on that date.
49
The assumptions used in this model for valuing Tredegar stock options granted in 2013, 2012 and 2011 are as follows:
Dividend yield
Weighted average volatility percentage
Weighted average risk-free interest rate
Holding period (years):
Officers
Management
Weighted average exercise price at date of grant (also
weighted average market price at date of grant):
2013
2012
2011
1.1%
48.3%
1.1%
6.0
5.0
0.9%
48.7%
1.0%
6.0
5.0
0.9%
46.4%
2.5%
6.0
5.0
Officers
Management
$
$
24.84
25.10
$
19.30
19.40
19.84
19.73
The dividend yield is the dividend yield on our common stock at the date of grant, which we believe is a reasonable
estimate of the expected yield during the holding period. We calculate expected volatility based on the historical volatility of
our common stock using a sequential period of historical data equal to the expected holding period of the option. We have 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. The
expected holding period and forfeiture assumptions are based on historical experience. Estimated forfeiture assumptions are
reviewed through the vesting period. Adjustments are made if actual forfeitures differ from previous estimates. The
cumulative effect of a change in estimated forfeitures is recognized in the period of the change.
Tredegar stock options granted during 2013, 2012 and 2011, and related estimated fair value at the date of grant, are as
follows:
Stock options granted (number of shares):
Officers
Management
Total
Estimated weighted average fair value of options per share
at date of grant:
Officers
Management
Total estimated fair value of stock options granted (in
thousands)
2013
2012
2011
94,400
90,300
184,700
99,600
82,500
182,100
140,500
95,300
235,800
$
$
10.37
$
9.65
$
8.07
7.81
8.55
8.03
1,850
$
1,449
$
1,966
Additional disclosure of Tredegar stock options is included in Note 13.
Financial Instruments. We use derivative financial instruments for the purpose of hedging aluminum price volatility and
currency exchange rate exposures that exist as part of transactions associated with our ongoing business operations. Our
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 as 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 on 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 2013, 2012 and 2011.
Our policy requires that we formally document all relationships between hedging instruments and hedged items, as well
as our risk management objective and strategy for undertaking various hedge transactions. We also formally assess (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
50
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, we discontinue hedge accounting prospectively.
As a policy, we do not engage in speculative or leveraged transactions, nor do we hold or issue financial instruments for
trading purposes. Additional disclosure of our utilization of derivative hedging instruments is included in Note 9.
Comprehensive Income (Loss). Comprehensive income (loss) is defined as net income or loss and other comprehensive
income or loss. Other comprehensive income (loss) includes changes in foreign currency translation adjustments, unrealized
gains and losses on derivative financial instruments, prior service costs and net gains or losses from pension and other
postretirement benefit plans arising during the period and amortization of these prior service costs and net gains or losses
adjustments, 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, 2013:
(In Thousands)
Foreign currency
translation
adjustment
Gain (loss) on
derivative financial
instruments
Pension and other
post-retirement
benefit adjustments
Total
Beginning balance, January 1, 2013
$
131
$
993
$
(103,471) $ (102,347)
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from accumulated
other comprehensive income (loss)
Net other comprehensive income (loss) -
current period
(19,336)
—
(19,336)
Ending balance, December 31, 2013
$
(19,205) $
134
(362)
22,203
9,420
3,001
9,058
(228)
765
$
31,623
(71,848) $
12,059
(90,288)
Reclassifications of balances out of accumulated other comprehensive income (loss) into net income during 2013 are
summarized as follows:
(In Thousands)
Gain (loss) on derivative financial instruments:
Aluminum future contracts, before taxes
Foreign currency forward contracts, before taxes
Total, before taxes
Income tax expense (benefit)
Total, net of tax
Amortization of pension and other post-retirement benefits:
Actuarial gain (loss) and prior service costs, before taxes
Income tax expense (benefit)
Total, net of tax
Amount reclassified
from other
comprehensive income
Location of gain (loss)
reclassified from accumulated
other comprehensive income to
net income
$
$
$
$
(583) Cost of sales
—
(583)
(221)
(362)
Income taxes
(a)
Income taxes
(14,818)
(5,398)
(9,420)
(a) This component of accumulated other comprehensive income is included in the computation of net periodic pension
cost (see Note 14 for additional detail).
Recently Issued Accounting Standards. In February 2013, the Financial Accounting Standards Board (“FASB”) issued updated
guidance to address the recognition, measurement and disclosure of obligations resulting from joint and several liability
arrangements for which the total amount under the arrangement is fixed at the reporting date. Under the new guidance, an
entity would measure its obligation from a joint and several liability arrangement as the sum of the amount the entity agreed
with its co-obligors that it will pay, and any additional amount the entity expects to pay on behalf of its co-obligors. The
standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2013. Early
application is permitted, and we do not expect the guidance to impact us.
51
In March 2013, the FASB issued updated guidance related to foreign currency matters. The updated guidance attempts to
resolve the diversity in practice about the release of the cumulative translation adjustment into net income when a parent either
sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group
of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas
mineral rights) within a foreign entity. In addition, the amended guidance attempts to resolve the diversity in practice for the
treatment of business combinations achieved in stages involving a foreign entity. The guidance is effective for the first annual
period beginning after December 15, 2013, and we do expect the guidance to impact us.
In July 2013, the FASB issued new guidance regarding the presentation of an unrecognized tax benefit when a net
operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The new guidance requires an unrecognized
tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward,
a similar tax loss, or a tax credit carryforward, unless certain exceptions are met. The amendments are effective prospectively
for fiscal and interim periods beginning after December 15, 2013. We are still assessing the applicability of this guidance in
future periods.
2
ACQUISITIONS
On October 1, 2012, The William L. Bonnell Company, Inc. acquired 100% ownership of AACOA. AACOA operates
production facilities in Elkhart, Indiana and Niles, Michigan. Its primary markets include consumer durables, machinery and
equipment and transportation. The acquisition will add fabrication capabilities to Aluminum Extrusions’ current array of
products and services while providing AACOA with large press capabilities and enhanced geographic sales coverage in a
variety of end-use markets.
All post-closing adjustments related to the purchase price for AACOA were resolved in 2013. Adjustments to the
purchase price were made retrospectively as if the accounting had been completed on the acquisition date. After certain post-
closing adjustments (primarily related to working capital transferred), the purchase price, net of cash acquired, was $54.1
million, which includes $0.6 million that was received from the seller in 2013. The purchase price was funded using financing
secured from our existing $350 million revolving credit facility. Based upon management’s valuation of the fair value of
tangible and intangible assets acquired (net of cash acquired) and liabilities assumed, the preliminary estimated purchase price
allocation is as follows:
(In Thousands)
Accounts receivable
Inventories
Property, plant & equipment
Identifiable intangible assets:
Customer relationships
Trade names
Proprietary technology
Noncompete agreements
Other assets (current & noncurrent)
Trade payables & accrued expenses
Total identifiable net assets
Purchase price, net of cash received
Goodwill
$
$
12,477
4,708
15,116
4,800
4,800
3,400
1,600
42
(6,574)
40,369
54,065
13,696
The goodwill and other intangible asset balances associated with this acquisition will be deductible for tax purposes.
Intangible assets acquired in the purchase of AACOA are being amortized over the following periods:
Identifiable Intangible Asset
Customer relationships
Proprietary technology
Trade names
Noncompete agreements
Useful Life (Yrs)
10
6-10
Indefinite
2
52
On October 14, 2011, TAC Holdings, LLC (the “Buyer”) and Tredegar Film Products Corporation, which are indirect and
direct, respectively, wholly-owned subsidiaries of Tredegar, entered into a Membership Interest Purchase Agreement (the
“Purchase Agreement”) with Gaucho Holdings, B.V. (the “Seller”) an indirect, wholly-owned subsidiary of Vision Capital
Partners VII LP (“Vision Capital”). On October 24, under the terms of the Purchase Agreement, the Buyer acquired from the
Seller 100% of the outstanding equity interests of Terphane Holdings, LLC (“Terphane”).
Terphane operates manufacturing facilities in Cabo de Santo Agostinho, Brazil and Bloomfield, New York. It is a
producer of thin polyester films in Latin America with a growing presence in strategic niches in the U.S. Polyester films have
specialized properties, such as heat resistance and barrier protection, that make them uniquely suited for the flexible packaging
market. We expect that the acquisition of Terphane will allow us to extend our product offerings into adjacent specialty films
markets and to expand in Latin America.
All post-closing adjustments related to the purchase price for Terphane were resolved in 2012. Adjustments to the
purchase price were made retrospectively as if the accounting had been completed on the acquisition date. Upon completing
these post-closing adjustments, which were primarily related to working capital transferred, the total purchase price (net of cash
acquired) was $182.7 million. The purchase price was funded using available cash (net of cash received) of approximately
$57.7 million and financing of $125 million secured from Tredegar’s former revolving credit facility. Based upon
management’s valuation of the fair value of tangible and intangible assets acquired (net of cash acquired) and liabilities
assumed, the final estimated purchase price allocation was as follows:
(In Thousands)
Accounts receivable
Inventories
Property, plant & equipment
Identifiable intangible assets:
Customer relationships
Proprietary technology
Trade names
Noncompete agreements
Other assets (current & noncurrent)
Trade payables
Other liabilities (current & noncurrent)
Deferred taxes
Total identifiable net assets
Purchase price, net of cash received
$
14,321
23,437
86,963
32,600
14,700
9,400
2,300
3,680
(17,471)
(12,216)
(38,167)
119,547
182,761
Goodwill
$
63,214
None of the goodwill or other intangible assets will be deductible for tax purposes. Intangible assets acquired in the
purchase of Terphane are being amortized over the following periods:
Identifiable Intangible Asset
Customer relationships
Proprietary technology
Trade names
Noncompete agreements
Useful Life (Yrs)
12
10
Indefinite
2
The financial position and results of operations for AACOA and Terphane have been consolidated with Tredegar
subsequent to October 1, 2012. For the year ended December 31, 2012, the consolidated results of operations included sales of
$19.9 million and net income from continuing operations of $1.0 million related to AACOA. The financial position and results
of operations for Terphane have been consolidated with Tredegar subsequent to October 24, 2011. For the year ended
December 31, 2011, the consolidated results of operations included sales of $29.2 million and net income from continuing
operations of $2.0 million related to Terphane.
53
The following unaudited supplemental pro forma data presents our consolidated revenues and earnings as if the
acquisitions of Terphane and AACOA had been consummated on January 1, 2011. The pro forma results are not necessarily
indicative of our consolidated revenues and earnings if the acquisition and related borrowing had been consummated on
January 1, 2011. Supplemental unaudited pro forma results for the years ended December 31, 2012 and 2011 are as follows:
(In Thousands, Except Per Share Data)
Sales
Income from continuing operations
Earnings per share from continuing operations:
Basic
Diluted
$
$
2012
946,594
44,816
2011
$
1,009,601
43,407
$
1.40
1.39
1.36
1.35
The above supplemental unaudited pro forma amounts reflect the application of the following adjustments in order to present
the consolidated results as if the acquisitions and related borrowings had occurred on January 1, 2011:
•
•
•
•
•
•
Adjustment for additional depreciation and amortization expense associated with the adjustments to property, plant
and equipment, and intangible assets associated with purchase accounting;
Additional interest expense and financing fees associated with borrowing arrangements used to fund the acquisitions
of Terphane and AACOA and the elimination of historical interest expense associated with historical borrowings of
Terphane and AACOA that were not assumed by Tredegar;
Adjustments to eliminate transactions-related expenses associated with the October 2011 acquisition of Terphane
and the October 2012 acquisition of AACOA;
Adjustments related to the elimination of foreign currency remeasurement gains associated with long-term
borrowings of Terphane that were not assumed by Tredegar;
Adjustments for the estimated net income tax benefit associated with the previously described adjustments; and
Adjustments to income tax expense for AACOA as it had previously elected to be treated as an S-Corp for federal
income tax purposes.
3
DISCONTINUED OPERATIONS
On November 20, 2012, Tredegar Real Estate Holdings, Inc., a wholly-owned subsidiary, sold its membership interests in
Falling Springs to Arc Ventures, LC for $16.6 million. Arc Ventures, LC is a Virginia limited liability company affiliated with
John D. Gottwald, a member of our Board of Directors. The purchase price was comprised of $12.8 million of cash and
209,576 shares of common stock of Tredegar owned by Arc Ventures, LC. The corresponding loss on sale of $3.1 million,
which includes transaction-related expenses of $0.5 million, and the results of operations related to Falling Springs have been
classified as discontinued operations for all periods presented. For the years ended December 31, 2012 and 2011, sales of $3.2
million and $3.2 million, respectively, have been reclassified to discontinued operations, and net income of $0.5 million and
$0.7 million have been reclassified to discontinued operations in 2012 and 2011, respectively. Falling Springs was formerly a
component of the Other segment.
On February 12, 2008, we sold our aluminum extrusions business in Canada for approximately $25.0 million to an
affiliate of H.I.G. Capital. In 2013, 2012 and 2011, accruals of $14.0 million ($14.0 million net of tax), $13.4 million ($13.4
million net of tax) and $4.4 million ($4.4 million net of tax) were made for indemnifications under the purchase agreement
related to environmental matters.
The historical results for these businesses, including any subsequent adjustments for contractual indemnifications, have
been reflected as discontinued operations; however, cash flows for discontinued operations have not been separately disclosed
in the consolidated statements of cash flows.
54
4
INVESTMENTS
In August 2007 and December 2008, we made an aggregate investment of $7.5 million in kaleo, Inc. (“kaléo”), a privately
held specialty pharmaceutical company formerly known as Intelliject, Inc. The mission of kaléo is to set a new standard in life-
saving personal medical products designed to enable superior treatment outcomes, improved cost effectiveness and intuitive
patient administration. Our ownership interest on a fully diluted basis is approximately 20%, and the investment is accounted
for under the fair value method. At the time of our initial investment, we elected the fair value option over the equity method
of accounting since our investment objectives were similar to those of venture capitalists, which typically do not have
controlling financial interests. We recognized a net unrealized gain of $3.4 million ($2.2 million after taxes) in 2013 that
primarily related to favorable adjustments in the fair value for the passage of time as anticipated cash flows associated with
achieving product development and commercialization milestones were discounted at 55% for their high degree of risk,
partially offset by unfavorable adjustments in the fair value due to a reassessment of the amount and timing of projected receipt
of royalty and milestone payments from commercial sales of kaléo's licensed product, which launched in early 2013, and
unfavorable adjustments for higher development and commercialization expenses related to its product pipeline.
We recognized an unrealized gain of $16.1 million ($10.2 million after taxes) in 2012 attributed to various factors, most
notably:
•
•
•
a favorable adjustment to the timing and amount of anticipated cash flows derived from updated marketing research;
the passage of time as anticipated cash flows associated with achieving product development commercialization
milestones are discounted at 55% for their high degree of risk; and
a reduction in the weighted average cost of capital used to discount cash flows in our valuation in the first quarter to
reflect the completion of certain process testing and a reassessment of the risk associated with the timing for
obtaining final marketing approval from the U.S. Food and Drug Administration (“FDA”) for the company’s first
product.
In 2011, we recognized an unrealized gain of $1.6 million ($1.0 million after taxes) attributed to the appreciation of our interest
upon changes in the market dynamics and pricing associated with an upcoming product introduction and the addition of
projects to the product pipeline. 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.
At December 31, 2013 and 2012, the estimated fair value of our investment (included in “Other assets and deferred
charges” in the consolidated balance sheets) was $37.1 million and $33.7 million, respectively. Subsequent to our most recent
investment (December 15, 2008), and until the next round of financing, we believe fair value estimates are based upon Level 3
inputs since there is no secondary market for our ownership interest. Accordingly, until the next round of financing or any
other significant financial transaction, value estimates will primarily be based on assumptions relating to meeting product
development and commercialization milestones, cash flow projections (projections of development and commercialization
milestone payments, sales, costs, expenses, capital expenditures and working capital investment) and discounting of these
factors for the high degree of risk. As a result, any future changes in the estimated fair value of our ownership interest will
likely be attributed to a new round of financing, a merger or initial public offering or adjustments to the timing or magnitude of
cash flows associated with development and commercialization milestones. If kaléo does not meet its development and
commercialization milestones and there are indications that the amount or timing of its projected cash flows or related risks are
unfavorable versus our most recent valuation, or a new round of financing or other significant financial transaction indicates a
lower enterprise value, then our estimate of the fair value of our ownership interest in the company is likely to decline.
Adjustments to the estimated fair value of our investment will be made in the period upon which such changes can be
quantified.
The fair market valuation of our 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 meeting development and commercialization
milestones as anticipated. The weighted average cost of capital used in the fair market valuation of our interest in kaléo was
55% at December 31, 2013 and 2012. At December 31, 2013, the effect of a 500 basis point decrease in the weighted average
cost of capital assumption would have further increased the fair value of our interest in kaléo by approximately $5 million, and
a 500 basis point increase in the weighted average cost of capital assumption would have decreased the fair value of our interest
by approximately $5 million.
55
Had we not elected to account for our investment under the fair value method, we would have been required to use the
equity method of accounting. The condensed balance sheets for kaléo at December 31, 2013 and 2012 and related condensed
statements of operations for the last three years ended December 31, 2013, that were reported to us by kaléo, are provided
below:
December 31,
2013
2012
December 31,
2013
2012
(In Thousands)
Assets:
Cash & cash equivalents
$
33,560
$
53,288
Other current assets
Other long-term assets
Identifiable intangibles assets
5,682
11,004
2,433
686
4,278
2,152
Liabilities & Equity:
Long-term debt, net of discount,
current portion
$
5,414
$
Other current liabilities
Other noncurrent liabilities
Long-term debt, net of discount
Redeemable preferred stock
Equity
4,845
3,098
9,372
21,970
7,980
—
13,405
1,449
14,696
20,995
9,859
Total assets
$
52,679
$
60,404 Total liabilities & equity
$
52,679
$
60,404
Revenues & Expenses:
Revenues
Expenses and other, net
Income tax (expense) benefit
Net income (loss)
2013
2012
2011
$
$
$
15,305
(18,631)
1,586
(1,740) $
38,179
(13,073)
(9,642)
15,464
$
$
8,839
(10,474)
927
(708)
The audited financial statements and accompanying footnotes of kaléo as of December 31, 2013 and 2012 and for the
years ended December 31, 2013, 2012 and 2011 have been included as an exhibit to our Annual Report on Form 10-K for the
year ended December 31, 2013 filed with the Securities and Exchange Commission.
On April 2, 2007, we invested $10.0 million in Harbinger Capital Partners Special Situations Fund, L.P. (“Harbinger”), a
private investment fund that is subject to limitations on withdrawal. There is no secondary market for interests in the fund. Our
investment in Harbinger, which represents less than 2% of its total partnership capital, is accounted for under the cost method.
We recorded unrealized losses of $0.4 million ($0.3 million after taxes), $1.1 million ($0.7 million after taxes) and $0.6 million
($0.4 million after taxes) on our investment in Harbinger in 2013, 2012 and 2011, respectively, as a result of a reduction in the
estimated fair value of our investment that is not expected to be temporary. The December 31, 2013 and 2012 carrying value in
the consolidated balance sheets (included in “Other assets and deferred charges”) was $2.8 million and $3.6 million,
respectively. The carrying value at December 31, 2013 reflected Tredegar’s cost basis in its investment in Harbinger, net of
total withdrawal proceeds received and unrealized losses. Withdrawal proceeds were $0.4 million in 2013, $0.5 million in
2012 and $0.6 million in 2011. The timing and amount of future installments of withdrawal proceeds was not known as of
December 31, 2013. There were no realized gains or losses associated with our investment in Harbinger in 2013, 2012 and
2011. Gains on our investment in Harbinger, if any, will be recognized when the amounts expected to be collected from our
withdrawal from the investment are known, which will likely be when cash in excess of our 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.
We have investment property in Alleghany and Bath County, Virginia. We also recorded an unrealized loss on our
investment property in Alleghany and Bath County, Virginia of $1.0 million ($0.6 million after taxes) in 2013 as a result of a
reduction in the estimated fair value of our investment that is not expected to be temporary. Our carrying value in this
investment property (included in “Other assets and deferred charges” on the consolidated balance sheets) was $5.9 million at
December 31, 2013 and $6.9 million at December 31, 2012.
5
BUSINESS SEGMENTS
Our primary business segments are Film Products and Aluminum Extrusions. Beginning in February 2010, we started
reporting an additional segment, Other, comprised of the start-up operations of Bright View and Falling Springs. Effective
January 1, 2012, the operations and results of Bright View were incorporated into Film Products to leverage research and
development efforts and accelerate new product development. Prior year balances for Bright View have been reclassified to
56
Film Products to conform with the current year presentation. As discussed in Note 3, Falling Springs was divested in
November 2012. All historical results for this business have been reflected as discontinued operations. With the sale of Falling
Springs, there is no longer an Other segment to report.
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 for purposes
of assessing performance. Film Products’ net sales to The Procter & Gamble Company (“P&G”) totaled $261.9 million in
2013, $264.0 million in 2012 and $280.3 million in 2011. These amounts include plastic film sold to others that convert the
film into materials used with products manufactured by P&G.
(In Thousands)
Film Products
Aluminum Extrusions
Total net sales
Add back freight
Sales as shown in consolidated statements of income
Net Sales
Operating Profit
(In Thousands)
Film Products:
Ongoing operations
Plant shutdowns, asset impairments, restructurings and other (a)
Aluminum Extrusions:
Ongoing operations
Plant shutdowns, asset impairments, restructurings and other (a)
Total
Interest income
Interest expense
Gain (loss) on investment accounted for under the fair value
method (a)
Unrealized loss on investment property
Stock option-based compensation expense
Corporate expenses, net (a)
Income from continuing operations before income taxes
Income taxes (a)
Income from continuing operations
Income (loss) from discontinued operations (a)
Net income (loss)
2013
621,239
309,482
930,721
28,625
959,346
$
$
2012
611,877
245,465
857,342
24,846
882,188
$
$
2011
535,540
240,392
775,932
18,488
794,420
2013
2012
2011
$
70,966
(671)
$
69,950
(109)
59,493
(6,807)
18,291
(2,748)
85,838
594
2,870
3,400
1,018
1,155
31,857
52,932
16,995
35,937
(13,990)
21,947
9,037
(5,427)
73,451
418
3,590
16,100
—
1,432
23,443
61,504
18,319
43,185
(14,934)
28,251
$
$
3,457
58
56,201
1,023
1,926
1,600
—
1,940
16,169
38,789
10,244
28,545
(3,690)
24,855
$
$
$
$
(a) See Notes 1, 3, 4 and 18 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) We recognize in the balance sheets the funded status of each of our defined benefit pension and other postretirement plans. The
funded status of our defined benefit pension plan was a net liability of $42.5 million, $83.3 million and $57.8 million in “Other
noncurrent liabilities” as of December 31, 2013, 2012 and 2011, respectively. See Note 14 for more information on our pension and
other postretirement plans.
(c) The difference between total consolidated sales as reported in the consolidated statements of income and segment and geographic net
sales reported in this note is freight of $28.6 million in 2013, $24.8 million in 2012 and $18.5 million in 2011.
(d) Information on exports and foreign operations are provided on the next page. Cash and cash equivalents includes funds held in
locations outside the U.S. of $38.6 million and $28.6 million at December 31, 2013 and 2012, respectively. Export sales relate
almost entirely to Film Products. Operations outside the U.S. in The Netherlands, Hungary, China, Italy (sold in 2011), Brazil and
India also relate to Film Products. Sales from our locations in The Netherlands, Hungary and Italy are primarily to customers located
in Europe. Sales from our locations in China (Guangzhou and Shanghai) are primarily to customers located in China, but also
include other customers in Asia. Sales activity at the new film products manufacturing facility in India was not significant in 2011.
57
(In Thousands)
Film Products
Aluminum Extrusions
Subtotal
General corporate (b)
Cash and cash equivalents (d)
Total
Identifiable Assets
2013
556,873
134,928
691,801
48,590
52,617
793,008
$
$
2012
551,842
129,279
681,121
53,222
48,822
783,165
$
$
(In Thousands)
Film Products
Aluminum Extrusions
Subtotal
General corporate
Continuing operations
Discontinued operations
Total
(In Thousands)
United States
Exports from the United States to:
Asia
Canada
Europe
Latin America
Operations outside the United States:
Brazil
The Netherlands
Hungary
China
India
Italy
Total (c)
(In Thousands)
United States (b)
Operations outside the United States:
Brazil
The Netherlands
China
Hungary
India
General corporate (b)
Cash and cash equivalents (d)
Total
Depreciation and Amortization
Capital Expenditures
2013
35,332
9,202
44,534
121
44,655
—
44,655
$
$
2012
39,202
9,984
49,186
73
49,259
10
49,269
$
$
2011
36,315
8,333
44,648
75
44,723
12
44,735
$
$
2013
64,867
14,742
79,609
52
79,661
—
79,661
$
$
2012
30,484
2,332
32,816
436
33,252
—
33,252
$
$
2011
13,107
2,697
15,804
76
15,880
—
15,880
$
$
Net Sales by Geographic Area (d)
2013
534,346
$
2012
480,041
$
2011
462,479
$
82,235
46,481
6,984
3,505
109,415
68,471
43,482
28,702
7,100
—
930,721
$
Identifiable Assets
by Geographic Area (d)
2013
419,234
$
2012
412,822
$
191,415
32,156
25,165
17,681
6,150
48,590
52,617
793,008
$
181,663
37,076
25,167
17,887
6,506
53,222
48,822
783,165
$
57,639
46,948
5,186
3,145
121,373
67,758
41,285
30,636
3,331
—
857,342
$
56,050
49,428
6,171
4,413
43,528
80,509
33,824
32,740
—
6,790
775,932
Property, Plant & Equipment,
Net by Geographic Area (d)
2013
141,444
$
2012
126,072
99,956
14,172
14,430
7,461
4,007
1,090
n/a
282,560
$
77,723
19,443
16,584
7,782
4,653
1,160
n/a
253,417
$
$
$
See footnotes on prior page and a reconciliation of net sales to sales as shown in the consolidated statements of income.
58
(In Thousands)
Film Products:
Net Sales by Product Group
2013
2012
2011
Personal care materials
Flexible packaging films
Surface protection films
Polyethylene overwrap and polypropylene films
Films for other markets
Subtotal
Aluminum Extrusions:
Nonresidential building & construction
Consumer durables
Residential building & construction
Machinery & equipment
Transportation
Distribution
Electrical
Other
Subtotal
Total
$
$
339,559
125,712
90,182
56,590
9,196
621,239
179,437
39,565
22,055
21,936
19,919
13,115
12,822
633
309,482
930,721
$
$
327,161
138,028
69,627
63,796
13,265
611,877
165,159
12,259
23,555
8,773
11,757
15,227
6,140
2,595
245,465
857,342
$
$
352,376
28,256
69,452
67,282
18,174
535,540
166,229
4,784
31,444
5,665
13,176
14,700
4,394
—
240,392
775,932
See footnotes on prior pages and a reconciliation of net sales to sales as shown in the consolidated statements of income.
6
ACCOUNTS AND OTHER RECEIVABLES
Accounts and other receivables consist of the following:
(In Thousands)
Trade, less allowance for doubtful accounts and sales returns of
$3,327 in 2013 and $3,552 in 2012
Other
Total
2013
2012
$
$
94,684
4,562
99,246
$
$
96,686
4,112
100,798
A reconciliation of the beginning and ending balances of the allowance for doubtful accounts and sales returns for the
three years ended December 31, 2013 is as follows:
(In Thousands)
Balance, beginning of year
Charges to expense
Recoveries
Write-offs
Foreign exchange and other
Balance, end of year
2013
2012
2011
$
$
3,552
1,874
(1,760)
(285)
(54)
3,327
$
$
3,539
1,589
(1,076)
(588)
88
3,552
$
$
5,286
1,525
(1,489)
(2,508)
725
3,539
59
7
INVENTORIES
Inventories consist of the following:
(In Thousands)
Finished goods
Work-in-process
Raw materials
Stores, supplies and other
Total
2013
2012
$
$
14,953
7,750
24,477
23,483
70,663
$
$
16,138
7,451
28,758
22,323
74,670
Inventories stated on the LIFO basis amounted to $10.0 million at December 31, 2013 and $10.9 million at December 31,
2012, which are below replacement costs by approximately $15.8 million at December 31, 2013 and $20.5 million at
December 31, 2012. During 2013, 2012 and 2011, certain inventories accounted for on a LIFO basis declined, which resulted
in cost of goods sold being stated at below current replacement costs, by approximately $0.9 million in Film Products in 2013,
$2.7 million in 2012 ($1.1 million in Film Products and $1.6 million in Aluminum Extrusions) and $1.1 million in Film
Products in 2011.
8 GOODWILL AND OTHER INTANGIBLE ASSETS
The components of goodwill and other intangibles at December 31, 2013 and 2012, and related amortization periods for
continuing operations are as follows:
(In Thousands)
Goodwill
Other identifiable intangibles:
2013
172,788
$
2012
Amortization Periods
$
176,620 Not amortized
Customer relationships (cost basis of $31,357
in 2013 and 34,135 in 2012)
Proprietary technology (cost basis of $18,851 in
2013 and $19,624 in 2012)
Tradenames
Non-compete agreements (cost basis of $4,154
in 2013 and 2012)
Total carrying value of other intangibles
25,962
14,356
12,594
600
53,512
31,163
10-12 years
17,145 Not more than 15 years
13,332
Indefinite life
2,359
2 years
63,999
Total carrying value of goodwill and other
intangibles
$
226,300
$
240,619
A reconciliation of the beginning and ending balance of goodwill for each of the three years in the period ended
December 31, 2013 is as follows:
(In Thousands)
Net carrying value of goodwill, beginning of year
Acquisitions
Increase (decrease) due to foreign currency translation
Net carrying value of goodwill, end of year
2013
176,620
—
(3,832)
172,788
$
$
2012
2011
165,372
$
103,639
13,695
(2,447)
176,620
$
63,214
(1,481)
165,372
$
$
At December 31, 2013, the goodwill balance was $159.1 million for Film Products and $13.7 million for Aluminum
Extrusions.
60
Amortization expense for continuing operations over the next five years is expected to be as follows:
Year
2014
2015
2016
2017
2018
Amount
(In Thousands)
$
5,643
4,946
4,906
4,906
4,773
9
FINANCIAL INSTRUMENTS
We use derivative financial instruments for the purpose of hedging margin exposure from fixed-price forward sales
contracts in Aluminum Extrusions and currency exchange rate exposures that exist as part of ongoing business operations
(primarily in Film Products). Our 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 are based upon Level 2 inputs. If individual derivative instruments with the same counterparty can be settled on
a net basis, we record the corresponding derivative fair values as a net asset or net liability.
In the normal course of business, we enter 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 our margin exposure created from the
fixing of future sales prices relative to volatile raw material (aluminum) costs, we enter 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. 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 us for any losses on the related aluminum
futures and/or forward purchase contracts through the date of cancellation. 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 $8.0 million (8.4
million pounds of aluminum) at December 31, 2013 and $6.2 million (6.7 million pounds of aluminum) at December 31, 2012.
The table below summarizes the location and gross amounts of aluminum derivative contract fair values in the
consolidated balance sheets as of December 31, 2013 and 2012:
(In Thousands)
Derivatives Designated as Hedging Instruments
Asset derivatives:
Aluminum futures contracts
Liability derivatives:
Aluminum futures contracts
Net asset (liability)
December 31, 2013
December 31, 2012
Balance Sheet
Account
Fair
Value
Balance Sheet
Account
Fair
Value
Accrued expenses
Accrued expenses
Prepaid expenses
and other
31
Prepaid expenses
and other
178
(147)
$
$
$
226
88
138
$
$
$
We have future fixed Euro-denominated contractual payments for equipment being purchased as part of our multi-year
capacity expansion project at our film products manufacturing facility in Cabo de Santo Agostinho, Brazil. We are using fixed
rate Euro forward contracts with various settlement dates through February 2014 to hedge exchange rate exposure on these
obligations. We had fixed rate forward contracts with outstanding notional amounts of €2.1 million as of December 31, 2013
and €9.9 million as of December 31, 2012.
61
The table below summarizes the location and gross amounts of foreign currency forward contract fair values in the
consolidated balance sheets as of December 31, 2013 and 2012:
(In Thousands)
Derivatives Designated as Hedging Instruments
December 31, 2013
December 31, 2012
Balance Sheet
Account
Fair
Value
Balance Sheet
Account
Fair
Value
Asset derivatives:
Foreign currency forward contracts
Prepaid expenses
and other
Net asset (liability)
$
$
47
47
Prepaid expenses
and other
$
$
948
948
We receive Euro-based royalty payments relating to our operations in Europe. From time to time we use zero-cost collar
currency options to hedge a portion of our exposure to changes in cash flows due to variability in U.S. Dollar and Euro
exchange rates. There were no outstanding notional amounts on these collars at December 31, 2013 and 2012 as there were no
derivatives outstanding related to the hedging of royalty payments with currency options.
The counterparties to our forward purchase commitments are major aluminum brokers and suppliers, and the
counterparties to our aluminum futures contracts are major financial institutions. Fixed-price forward sales contracts are only
made available to our best and most credit-worthy customers. The counterparties to our foreign currency futures and zero-cost
collar contracts are major financial institutions.
The pretax 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, 2013, 2012, and 2011 is summarized in the
tables below:
(In Thousands)
Cash Flow Derivative Hedges
Years Ended December 31,
Amount of pre-tax gain (loss)
recognized in other comprehensive
income
Location of gain (loss) reclassified from
accumulated other comprehensive
income into net income (effective
portion)
Amount of pre-tax gain (loss)
reclassified from accumulated other
comprehensive income to net income
(effective portion)
Aluminum Futures Contracts
Foreign Currency Forwards and Options
2013
2012
2011
2013
2012
2011
$
(868) $
(232) $
(802) $
(77) $
1,421
$
—
Cost of
sales
Cost of
sales
Cost of
sales
$
(583) $
(1,026) $
308
$
— $
— $
—
Gains and losses on the ineffective portion of derivative instruments or derivative instruments that were not designated as
hedging instruments were not significant in 2013, 2012 and 2011. For the years ended December 31, 2013, 2012 and 2011,
unrealized net losses from hedges that were discontinued were not significant. As of December 31, 2013, we expect $0.1
million of unrealized after-tax losses on derivative instruments reported in accumulated other comprehensive income to be
reclassified to earnings within the next 12 months.
62
10 ACCRUED EXPENSES
Accrued expenses consist of the following:
(In Thousands)
Vacation
Payrolls, related taxes and medical and other benefits
Incentive compensation
Workers’ compensation and disabilities
Contractual indemnification claims (see note 3)
Taxes other than federal income and payroll
Deferred revenue
Other
Total
2013
2012
$
7,077
$
5,679
4,148
2,753
2,604
2,153
1,660
16,084
$
42,158
$
6,124
7,088
3,840
2,457
4,316
3,056
2,564
13,069
42,514
A reconciliation of the beginning and ending balances of accrued expenses associated with asset impairments and costs
associated with exit and disposal activities for each of the three years in the period ended December 31, 2013 is as follows:
(In Thousands)
Severance
Asset
Impairments
Other (a)
Total
Balance at January 1, 2011
$
237
$
— $
1,593
$
1,830
For the year ended December 31, 2011:
Charges
Cash spend
Charges against assets
Balance at December 31, 2011
For the year ended December 31, 2012:
Charges
Cash spend
Charges against assets
Balance at December 31, 2012
For the year ended December 31, 2013:
Charges
Cash spend
Charges against assets
541
(581)
—
197
1,562
(1,463)
—
296
671
(636)
—
1,367
—
(1,367)
—
1,077
—
(1,077)
—
172
—
(172)
—
(1,593)
—
—
2,255
(1,670)
—
585
569
(798)
—
Balance at December 31, 2013
$
331
$
— $
356
$
1,908
(2,174)
(1,367)
197
4,894
(3,133)
(1,077)
881
1,412
(1,434)
(172)
687
(a) Other includes primarily accrued losses on a sub-lease at a facility in Princeton, New Jersey in 2011 and other shutdown-related
costs associated with the shutdown of our aluminum extrusions manufacturing facility in Kentland, Indiana in 2013 and 2012.
See Note 18 for more information on plant shutdowns, asset impairments and restructurings of continuing operations.
11 DEBT AND CREDIT AGREEMENTS
On April 23, 2012, we entered into a $350 million five-year, unsecured revolving credit facility (the “Credit Agreement”),
with an option to increase that amount by an additional $75 million. The Credit Agreement replaced our previous $300 million
four-year, unsecured revolving credit facility that was due to expire on June 21, 2014. In connection with the refinancing, we
borrowed $102 million under the Credit Agreement, which was used, together with available cash on hand, to repay all
indebtedness under our previous revolving credit facility.
63
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
> 2.0x but <= 3.0x
> 1.0x but <=2.0x
<= 1.0x
Credit Spread
Over LIBOR
Commitment
Fee
200
175
150
35
30
25
At December 31, 2013, 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 of 3.0x;
• Minimum adjusted EBIT-to-interest expense of 2.5x;
• Maximum aggregate distributions to shareholders over the term of the Credit Agreement of $100 million plus,
beginning with the fiscal quarter ended March 31, 2012, 50% of net income; and
• Minimum shareholders’ equity at any point during the term of the Credit Agreement of at least $320 million
increased on a cumulative basis at the end of each fiscal quarter, beginning with the fiscal quarter ended March 31,
2012, by an amount equal to 50% of net income (to the extent positive).
At December 31, 2013, based upon the most restrictive covenants within the Credit Agreement, available credit under the
Credit Agreement was approximately $165 million. Total debt due and outstanding at December 31, 2013 is summarized
below:
Debt Due and Outstanding at December 31, 2013
(In Thousands)
Credit
Agreement
Other
Total Debt
Due
$
— $
— $
—
—
139,000
—
—
—
—
—
—
—
—
139,000
—
$
139,000
$
— $
139,000
Year Due
2014
2015
2016
2017
2018
Total
We believe we were in compliance with all of our debt covenants as of December 31, 2013. 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 we 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 SHAREHOLDER RIGHTS AGREEMENT
Pursuant to the Second Amended and Restated Rights Agreement (the “Rights Agreement”), dated as of November 18,
2013, with Computershare Trust Company, N.A., as Rights Agent, one purchase right (a “Right”) is attached to each
outstanding share of our Common Stock. All Rights previously issued under the original Rights Agreement, dated as of June
30, 1999, and the Amended and Restated Rights Agreement, dated as of June 30, 2009, that were appurtenant to shares of
Common Stock outstanding at the effective time of the Rights Agreement remain outstanding.
Each Right entitles the registered holder to purchase from Tredegar one one-hundredth of a share of our Series A
Participating Cumulative Preferred Stock (the “Preferred Stock”) at an exercise price of $150, subject to adjustment (the
"Purchase Price"). The Rights will become exercisable, if not earlier redeemed, only if a person or group (i) acquires beneficial
ownership of 20% or more of the outstanding shares of our Common Stock or (ii) commences, or publicly discloses an
intention to commence, a tender offer or exchange offer that would result in beneficial ownership by a person or group of 20%
64
or more of the outstanding shares of our Common Stock (in each case thereby becoming an “Acquiring Person”). Any person
or group that beneficially owned 20% or more of the outstanding shares of our Common Stock as of the first date of public
announcement of the adoption of the Rights Agreement will not become an Acquiring Person unless and until such person or
group acquires beneficial ownership of additional shares of Common Stock (other than beneficial ownership of any Common
Stock which is acquired, whether in the form of options, restricted stock or other equity-linked securities, as compensation for
services as an officer or director of the Company) representing one percent (1%) or more of the Common Stock then
outstanding.
The Rights Agreement provides that if any person or group becomes an Acquiring Person, each holder of a Right (other
than Rights held by an Acquiring Person) will become entitled to receive, upon exercise and payment of the Purchase Price,
Preferred Stock or, at the option of Tredegar, Common Stock (or, in certain circumstances, cash, property or other securities of
the Company) having a value equal to twice the amount of the Purchase Price. In addition, in the event that, at any time
following the date that a person or group acquires beneficial ownership of 20% or more of the outstanding shares of our
Common Stock, (i) Tredegar is acquired in a merger, statutory share exchange, or other business combination in which
Tredegar is not the surviving corporation, or (ii) fifty percent (50%) or more of our assets or earning power is sold or
transferred, each holder of a Right (other than Rights held by an Acquiring Person) shall thereafter have the right to receive,
upon exercise and payment of the Purchase Price, common stock of the acquiring company (or comparable equity securities of
an acquiring entity that is not a corporation) having a value equal to twice the Purchase Price.
The Rights were scheduled to expire on June 30, 2019. On February 19, 2014, our Board of Directors authorized the
termination of the Rights Agreement and the redemption of all of the outstanding Rights, at a redemption price of $.01 per
Right to be paid in cash to shareholders of record as of the close of business on March 3, 2014, with the payment date of such
redemption price to be on March 7, 2014.
13 STOCK OPTION AND STOCK AWARD PLANS
We have one equity incentive plan under which 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. In
addition, we have one other equity incentive plan under which there are options that remain outstanding, but no future grants
can be made. Prior to 2012, employee options ordinarily vest two years from the date of grant. Employee options granted in
2012 and thereafter ordinarily vest over a four year period, with a quarter of the options granted vesting on each year on the
grant date anniversary. The option plans also permit the grant of stock appreciation rights (“SARs”), stock, restricted stock,
stock unit awards and incentive awards. Restricted stock grants ordinarily vest three years from the date of grant based upon
continued employment and/or the achievement of certain performance targets. No SARs have been granted since 1992 and
none are currently outstanding.
A summary of our stock options outstanding at December 31, 2013, 2012 and 2011, and changes during those years, is
presented below:
Outstanding at January 1, 2011
Granted
Forfeited and Expired
Exercised
Outstanding at December 31, 2011
Granted
Forfeited and Expired
Exercised
Outstanding at December 31, 2012
Granted
Forfeited and Expired
Exercised
Outstanding at December 31, 2013
Option Exercise Price/Share
Range
Weighted
Average
13.95
16.87
13.95
13.95
14.06
18.51
15.80
14.72
14.06
24.84
15.11
14.27
14.06
to
to
to
to
to
to
to
to
to
to
to
to
to
$
19.52
$
19.84
19.84
18.12
19.84
19.40
19.84
18.12
19.84
30.01
24.84
19.84
$
30.01
$
16.64
19.79
16.78
15.11
17.40
19.34
19.34
16.33
17.81
24.97
21.10
17.32
19.06
Number of
Options
1,017,275
$
235,800
(51,800)
(79,775)
1,121,500
182,100
(50,300)
(176,600)
1,076,700
184,700
(34,000)
(180,600)
1,046,800
$
65
The following table summarizes additional information about stock options outstanding and exercisable at December 31,
2013:
Options Outstanding at
December 31, 2013
Weighted Average
Options Exercisable at
December 31, 2013
Range of
Exercise Prices
— to
$
$
15.01
17.51
20.01
25.01
to
to
to
to
Total
15.00
17.50
20.00
25.00
30.01
Shares
26,000
346,300
503,200
166,800
4,500
1,046,800
Remaining
Contractual
Life (Years)
Exercise
Price
Aggregate
Intrinsic Value
(In Thousands)
Shares
Weighted
Average
Exercise
Price
Aggregate
Intrinsic Value
(In Thousands)
1.9
2.2
4.3
9.1
9.6
4.3
$
14.06
$
16.56
19.02
24.84
30.01
384
4,243
4,928
662
—
26,000
$
14.06
$
346,300
397,525
—
—
16.56
18.93
—
—
384
4,243
3,926
—
—
$
19.06
$
10,217
769,825
$
17.70
$
8,553
The following table summarizes additional information about non-vested restricted stock outstanding at December 31,
2013:
Non-vested Restricted Stock
Maximum Non-vested 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, 2011
93,850
$
17.40
$
Granted
Vested
Forfeited
Outstanding at December 31, 2011
Granted
Vested
Forfeited
Outstanding at December 31, 2012
Granted
Vested
Forfeited
51,360
(18,060)
(1,000)
126,150
94,949
(60,357)
(16,842)
143,900
93,425
(58,175)
(21,300)
19.42
17.20
17.13
18.25
19.06
18.01
18.82
18.82
25.45
20.15
20.70
Outstanding at December 31, 2013
157,850
$
22.00
$
1,633
997
(311)
(17)
2,302
1,810
(1,087)
(317)
2,708
2,378
(1,172)
(441)
3,473
150,925
$
17.21
$
88,900
(66,925)
(87,900)
85,000
87,200
—
(80,400)
91,800
77,200
—
(36,700)
132,300
19.32
17.68
16.93
19.35
18.79
—
19.31
18.85
27.82
—
19.83
$
23.81
$
2,598
1,718
(1,183)
(1,488)
1,645
1,638
—
(1,553)
1,730
2,148
—
(728)
3,150
The total intrinsic value of stock options exercised was $1.3 million in 2013, $0.5 million in 2012 and $0.4 million in
2011. The grant-date fair value of stock option-based awards vested was $1.7 million in 2013, $2.1 million in 2012 and $1.9
million in 2011. As of December 31, 2013, there was unrecognized compensation cost of $1.2 million related to stock option-
based awards and $1.8 million related to non-vested restricted stock and other stock-based awards. This cost is expected to be
recognized over the remaining weighted average period of 1.5 years for stock option-based awards and 1.5 years for non-vested
restricted stock and other stock-based awards.
Stock options exercisable totaled 769,825 at December 31, 2013 and 714,800 shares at December 31, 2012. Stock
options available for grant totaled 2,361,926 shares at December 31, 2013.
66
14 RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS
We sponsor noncontributory defined benefit (pension) plans covering most 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 based on plan changes announced
in 2006, pay for active participants of the plan was frozen as of December 31, 2007. Beginning in the first quarter of 2014,
with the exception of plan participants at two of our U.S. manufacturing facilities, the plan will no longer accrue benefits
associated with crediting employees for service, thereby freezing all future benefits under the plan.
In addition to providing pension benefits, we provide 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. We eliminated prescription
drug coverage for Medicare-eligible retirees as of January 1, 2006. Consequently, we are not eligible for any federal subsidies.
The following tables reconcile the changes in benefit obligations and plan assets in 2013 and 2012, and reconcile the
funded status to prepaid or accrued cost at December 31, 2013 and 2012:
(In Thousands)
Change in benefit obligation:
Pension Benefits
Other Post-
Retirement Benefits
2013
2012
2013
2012
Benefit obligation, beginning of year
$
302,285
$
272,436
$
8,879
$
8,422
Service cost
Interest cost
Effect of actuarial (gains) losses related to the
following:
Discount rate change
Retirement rate assumptions and mortality
table adjustments
Other
Benefits paid
Benefit obligation, end of year
Change in plan assets:
Plan assets at fair value, beginning of year
Actual return on plan assets
Employer contributions
Benefits paid
Plan assets at fair value, end of year
Funded status of the plans
Amounts recognized in the consolidated balance
sheets:
Prepaid benefit cost
Accrued benefit liability
Net amount recognized
3,754
12,338
3,657
13,084
58
345
(26,848)
26,843
(144)
(3,058)
(13,161)
275,166
219,035
21,657
$
$
5,174
(13,161)
232,705
$
(42,461) $
—
(1,372)
(12,363)
302,285
214,647
14,455
2,296
(12,363)
219,035
(83,250)
$
$
$
$
(746)
—
(382)
(296)
7,858
$
— $
—
296
(296)
— $
(7,858) $
— $
— $
— $
(42,461)
(83,250)
(7,858)
(42,461) $
(83,250)
$
(7,858) $
$
$
$
$
$
$
58
385
549
—
(243)
(292)
8,879
—
—
292
(292)
—
(8,879)
—
(8,879)
(8,879)
67
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:
(In Thousands, Except Percentages)
Weighted-average assumptions used to
determine benefit obligations:
Pension Benefits
Other Post-
Retirement Benefits
2013
2012
2011
2013
2012
2011
Discount rate
4.99%
4.21%
4.95%
4.88%
4.10%
4.90%
Weighted-average assumptions used to
determine net periodic benefit cost:
Discount rate
4.21%
4.95%
5.45%
4.10%
4.90%
5.35%
Expected long-term return on plan
assets
Components of net periodic benefit cost:
7.75%
8.00%
8.25%
n/a
n/a
n/a
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service costs
and gains or losses
Settlement/curtailment
Net periodic benefit cost
$ 3,754
$
3,657
$
3,361
$
12,338
(17,430)
13,084
(19,108)
13,024
(20,448)
15,028
10,377
28
99
6,359
—
$ 13,718
$
8,109
$
2,296
$
58
345
—
(210)
—
193
$
$
58
385
—
(241)
—
$
202
$
54
395
—
(264)
—
185
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. Pension and other postretirement liabilities for continuing operations of $50.3
million and $92.1 million are included in “Other noncurrent liabilities” in the consolidated balance sheets at December 31, 2013
and 2012, respectively. The amount of our accumulated benefit obligation is the same as our projected benefit obligation.
At December 31, 2013, the effect of a 1% change in the health care cost trend rate assumptions would be immaterial.
Expected benefit payments for continuing operations over the next five years and in the aggregate for 2019-2023 are as
follows:
(In Thousands)
2014
2015
2016
2017
2018
2019—2023
Pension
Benefits
$
14,398
$
15,193
15,775
16,334
16,748
89,586
Other Post-
Retirement
Benefits
474
495
511
521
533
2,696
Amounts recognized in 2013, 2012 and 2011 before related deferred income taxes in accumulated other comprehensive
income consist of:
(In Thousands)
Prior service cost (benefit)
Net actuarial (gain) loss
2013
Pension
2012
$
270
$
(887) $
2011
(1,890) $
Other Post-Retirement
2013
2012
2011
— $
— $
—
(1,401)
116,519
167,009
148,364
(1,773)
(855)
68
As a result of the decrease in the discount rate and freezing all future service benefits for certain plan participants, pension
expense is expected to be $7.5 million in 2014. The amounts before related deferred income taxes in accumulated other
comprehensive income that are expected to be recognized as components of net periodic benefit or cost during 2014 are as
follows:
(In Thousands)
Prior service cost (benefit)
Net actuarial (gain) loss
Pension
$
183
$
11,153
Other Post-
Retirement
—
(307)
The percentage composition of assets held by pension plans for continuing operations at December 31, 2013, 2012 and
2011 are as follows:
Pension plans related to continuing operations:
Fixed income securities
Large/mid-capitalization equity securities
Small-capitalization equity securities
International and emerging market equity securities
Total equity securities
Private equity and hedge funds
Other assets
Total for continuing operations
% Composition of Plan Assets
at December 31,
2013
2012
2011
14.0%
14.7%
9.7%
13.8
4.8
11.7
30.3
48.3
7.4
10.9
5.4
10.0
26.3
50.0
9.0
15.9
6.2
14.3
36.4
41.8
12.1
100.0%
100.0%
100.0%
Our targeted allocation percentage for pension plan assets and the expected long-term rate of return on assets is as
follows:
Pension plans related to continuing operations:
Fixed income securities
Large/mid-capitalization equity securities
Small-capitalization equity securities
International and emerging market equity securities
Total equity securities
Private equity and hedge funds
Total for continuing operations
Target %
Composition of
Plan Assets *
Expected Long-
term Return %
32.0%
5.5%
10.0
4.0
13.0
27.0
41.0
9.2
10.5
10.3
9.9
8.1
100.0%
7.8%
* 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. Other assets are primarily comprised of cash and
contracts with insurance companies. Our primary investment objective is to maximize total return with a strong emphasis on
the preservation of capital. We believe 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 our pension plans is about 11.4 years. We expect our required contributions to be
approximately $0.2 million in 2014.
69
Estimates of the fair value of assets held by our pension plans are provided by third parties not affiliated with Tredegar.
At December 31, 2013, the pension plan assets are categorized by level within the fair value measurement hierarchy as follows:
(In Thousands)
Balances at December 31, 2013:
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Large/mid-capitalization equity securities
$
32,134
$
32,134
$
Small-capitalization equity securities
International and emerging market equity securities
Fixed income securities
Private equity and hedge funds
Other assets
Total plan assets at fair value
Contracts with insurance companies
Total plan assets, December 31, 2013
Balances at December 31, 2012:
Large/mid-capitalization equity securities
Small-capitalization equity securities
International and emerging market equity securities
Fixed income securities
Private equity and hedge funds
Other assets
Total plan assets at fair value
Contracts with insurance companies
Total plan assets, December 31, 2012
11,063
27,271
32,601
112,345
7,871
11,063
13,488
17,770
—
7,871
— $
—
13,783
14,831
103,531
—
$
$
$
$
$
223,285
$
82,326
$
132,145
$
9,420
232,705
23,845
$
23,845
$
11,914
21,827
32,150
109,690
10,256
11,914
8,814
18,080
—
10,256
— $
—
13,013
14,070
101,334
—
209,682
$
72,909
$
128,417
$
9,353
219,035
—
—
—
—
8,814
—
8,814
—
—
—
—
8,356
—
8,356
For fair value measurements of plan assets using significant unobservable inputs (Level 3), a reconciliation of the
balances from January 1, 2012 to December 31, 2013 are as follows:
(In Thousands)
Balance at January 1, 2012
Purchases
Sales
Distributions
Actual return on plan assets still held at year end
Transfers in and/or out of Level 3
Balance at December 31, 2012
Purchases
Sales
Distributions
Actual return on plan assets still held at year end
Transfers in and/or out of Level 3
Balance at December 31, 2013
$
$
$
Private equity and
hedge funds
6,992
3,767
—
(2,094)
(309)
—
8,356
2,864
—
(2,567)
161
—
8,814
70
We also have 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 our
principal pension plans if it were not for limitations imposed by income tax regulations. The projected benefit obligation
relating to this unfunded plan was $2.4 million at December 31, 2013 and $2.8 million at December 31, 2012. Pension expense
recognized for this plan was $0.1 million in 2013, $0.1 million in 2012 and $0.1 million in 2011. This information has been
included in the preceding pension benefit tables.
Approximately 98 employees at our films 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 $0.5 million in 2013, $0.5 million in 2012 and $0.6
million in 2011. This information has been excluded from the preceding pension benefit tables.
15 SAVINGS PLAN
We have a savings plan that allows eligible employees to voluntarily contribute a percentage of their compensation up to
Internal Revenue Service (“IRS”) limitations. Effective January 1, 2007, 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 of employee contribution. The
maximum matching contribution is currently 5% of base pay.
The savings plan includes immediate vesting for active employees of past matching contributions as well as future
matching contributions when made (compared with the previous 5-year graded vesting) and automatic enrollment at 3%
of base pay unless the employee opts out or elects a different percentage.
We also have a non-qualified plan that restores matching benefits for employees suspended from the savings plan due to
certain limitations imposed by income tax regulations. Charges recognized for these plans were $2.6 million in 2013, $2.5
million in 2012 and $2.5 million in 2011. Our liability under the restoration plan was $2.2 million at December 31, 2013
(consisting of 75,726 phantom shares of common stock) and $1.6 million at December 31, 2012 (consisting of 78,615 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 our common stock in 1998 for $0.2
million and 46,671 shares of our 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 1997 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 balance sheets.
16 RENTAL EXPENSE AND CONTRACTUAL COMMITMENTS
Rental expense for continuing operations was $3.4 million in 2013, $3.6 million in 2012 and $3.2 million in 2011. Rental
commitments under all non-cancelable operating leases for continuing operations as of December 31, 2013, are as follows:
Year
2014
2015
2016
2017
2018
Remainder
Total
Amount
(In Thousands)
$
$
2,205
1,513
1,393
1,372
1,327
—
7,810
Contractual obligations for plant construction and purchases of real property and equipment amounted to $14.5 million at
December 31, 2013.
71
17
INCOME TAXES
Income from continuing operations before income taxes and income taxes are as follows:
(In Thousands)
Income from continuing operations before income taxes:
2013
2012
2011
Domestic
Foreign
Total
Current income taxes:
Federal
State
Foreign
Total
Deferred income taxes:
Federal
State
Foreign
Total
Total income taxes
$
$
$
$
37,380
15,552
52,932
15,988
1,416
4,737
22,141
(2,933)
(852)
(1,361)
(5,146)
16,995
$
$
$
$
35,488
26,016
61,504
10,905
796
7,372
19,073
1,212
163
(2,129)
(754)
18,319
$
$
$
29,491
9,298
38,789
2,958
639
4,500
8,097
3,243
(211)
(885)
2,147
$
10,244
The significant differences between the U.S. federal statutory rate and the effective income tax rate for continuing
operations are as follows:
Income tax expense at federal statutory rate
Tax contingency accruals and tax settlements
Unremitted earnings from foreign operations
Valuation allowance for capital loss carry-forwards
Non-deductible expenses
Valuation allowance for foreign operating loss carry-forwards
State taxes, net of federal income tax benefit
Non-deductible acquisition expenses
Deduction for divestiture of subsidiary stock
Research and development tax credit
Changes in estimates related to prior year tax provision
Foreign rate differences
Domestic Production Activities Deduction
Tax incentive
Other
Effective income tax rate
Percent of Income Before Income
Taxes for Continuing Operations
2013
2012
2011
35.0
2.0
0.9
0.8
0.6
0.5
0.1
—
—
(0.4)
(0.6)
(0.7)
(1.4)
(4.7)
—
32.1
35.0
(0.5)
0.6
1.9
0.3
(0.1)
1.1
—
—
—
(0.5)
(0.6)
(0.6)
(7.0)
0.2
29.8
35.0
0.3
1.8
0.9
0.8
1.4
1.7
3.5
(15.3)
(1.0)
(0.1)
(0.7)
—
(1.8)
(0.1)
26.4
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 Ltda. (6.25% of income tax and 9.0% social contribution on
income). The current incentives will expire at the end of 2014, but we anticipate that we will qualify for additional incentives
that will extend beyond 2014. The benefit from the tax incentives was $2.5 million (8 cents per share), $4.3 million (13 cents
per share) and $0.7 million (2 cents per share) in 2013, 2012 and 2011, respectively.
72
Deferred tax liabilities and deferred tax assets at December 31, 2013 and 2012, are as follows:
(In Thousands)
Deferred tax liabilities:
Amortization of goodwill
Depreciation
Foreign currency translation gain adjustment
Derivative financial instruments
Total deferred tax liabilities
Deferred tax assets:
Pensions
Employee benefits
Excess capital losses and book/tax basis differences on investments
Asset write-offs, divestitures and environmental accruals
Inventory
Tax benefit on state and foreign NOL and credit carryforwards
Allowance for doubtful accounts
Timing adjustment for unrecognized tax benefits on uncertain tax positions,
including portion relating to interest and penalties
Other
Deferred tax assets before valuation allowance
Less: Valuation allowance
Total deferred tax assets
Net deferred tax liability
Included in the balance sheet:
Noncurrent deferred tax liabilities in excess of assets
Current deferred tax assets in excess of liabilities
Net deferred tax liability
2013
2012
$
47,521
$
29,994
8,620
432
86,567
14,813
11,124
4,316
3,734
2,292
1,871
639
600
2,030
41,419
20,019
21,400
65,167
70,795
5,628
65,167
$
$
$
$
$
$
47,956
34,110
8,795
568
91,429
30,488
10,532
4,923
3,234
2,086
1,676
756
236
974
54,905
18,635
36,270
55,159
60,773
5,614
55,159
Except as noted below, we believe that it is more likely than not that future taxable income will exceed future tax
deductible amounts thereby resulting in the realization of deferred tax assets. A valuation allowance of $1.7 million at
December 31, 2013 and $1.3 million at December 31, 2012, respectively, is recorded against the tax benefit on state and foreign
net operating loss carryforwards for possible future tax benefits on domestic state and foreign operating losses generated by
certain foreign and domestic subsidiaries that may not be recoverable in the carry-forward period. In addition, the valuation
allowance for excess capital losses from investments and other related items was increased from $15.5 million at December 31,
2012 to $16.4 million at December 31, 2013 due to changes in the relative amounts of capital gains and losses generated during
the year. The amount of the deferred tax asset considered realizable, however, could be adjusted in the near term if estimates of
the fair value of certain investments during the carryforward period change. The valuation allowance for asset impairments in
foreign jurisdictions where we believe it is more likely than not that the deferred tax asset will not be realized was $1.9 million
in 2013 and 2012.
A reconciliation of our unrecognized uncertain tax positions since January 1, 2011, is shown below:
(In Thousands)
Balance at beginning of period
Increase (decrease) due to tax positions taken in:
Current period
Prior period
Increase (decrease) due to settlements with taxing authorities
Reductions due to lapse of statute of limitations
Years Ended December 31,
2013
2012
2011
$
910
$
1,025
$
1,065
643
686
—
—
432
(21)
(398)
(128)
910
$
185
10
—
(235)
1,025
Balance at end of period
$
2,239
$
73
Additional information related to our unrecognized uncertain tax positions since January 1, 2011 is summarized below:
(In Thousands)
Gross unrecognized tax benefits on uncertain tax positions (reflected in
current income tax and other noncurrent liability 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)
Net unrecognized tax benefits on uncertain tax positions, which would
impact the effective tax rate if recognized
Interest and penalties accrued on deductions taken relating to uncertain tax
positions (approximately $100, $(300) and $200 reflected in income tax
expense in the income statement in 2013, 2012 and 2011, 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
Interest and penalties accrued on uncertain tax positions net of related
deferred income tax benefits, 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
Years Ended December 31,
2013
2012
2011
$
2,239
$
910
$
1,025
(540)
1,699
156
(60)
96
(212)
698
60
(23)
37
(219)
806
373
(141)
232
$
1,795
$
735
$
1,038
Tredegar and its subsidiaries file income tax returns in the U.S., various states and jurisdictions outside the U.S. With few
exceptions, Tredegar and its subsidiaries are no longer subject to state or non-U.S. income tax examinations by tax authorities
for years before 2010. We believe that it is reasonably possible that approximately $1.0 million of the balance of unrecognized
state tax positions may be recognized within the next twelve months as a result of a lapse of the statute of limitations.
18 LOSSES ASSOCIATED WITH PLANT SHUTDOWNS, ASSET IMPAIRMENTS AND RESTRUCTURINGS,
UNUSUAL ITEMS, GAINS FROM SALE OF ASSETS AND OTHER ITEMS
Losses associated with plant shutdowns, asset impairments, restructurings and other charges for continuing operations in 2013
(as shown in the segment operating profit table in Note 5) totaled $3.4 million ($2.2 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 2013 included:
• A fourth quarter charge of $1.5 million ($0.9 million after taxes), a third quarter charge of $0.1 million ($62,000 after
taxes) and a second quarter charge of $85,000 ($53,000 after taxes) related to expected future environmental costs at
our aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the
consolidated statements of income);
• A third quarter charge of $45,000 ($28,000 after taxes), a second quarter charge of $0.4 million ($0.2 million after
taxes) and a first quarter charge of $0.2 million ($94,000 after taxes) associated with the shutdown of the aluminum
extrusions manufacturing facility in Kentland, Indiana;
• A fourth quarter charge of $0.3 million ($0.2 million after taxes) and a third quarter charge of $0.2 million ($83,000
after taxes) 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 impairments of $0.2 million;
• A fourth quarter charge of $0.3 million ($0.2 million after taxes) in Aluminum Extrusions and a first quarter charge of
$0.1 million ($67,000 after taxes) in Film Products associated with severance and other employee related costs in
connection with restructurings;
• A second quarter charge of $90,000 ($54,000 after taxes) and a first quarter charge of $0.1 million ($63,000 after
taxes) for integration-related expenses and other non-recurring transactions (included in “Selling, general and
administrative expenses” in the consolidated statements of income) associated with the acquisition of AACOA by
Aluminum Extrusions; and
74
• A second quarter loss of $91,000 ($91,000 after taxes) related to the sale of previously impaired machinery and
equipment at our film products manufacturing facility in Shanghai, China (included in “Other income (expense), net”
in the consolidated statements of income).
Results in 2013 include an unrealized gain on our investment in kaléo (included in “Other income (expense), net” in the
consolidated statements of income) of $3.4 million ($2.2 million after taxes). An unrealized loss on our investment in the
Harbinger Fund (included in “Other income (expense), net” in the consolidated statements of income and “Corporate expenses,
net” in the statement of net sales and operating profit by segment) of $0.4 million ($0.3 million after taxes) was recorded in
2013 as a result of a reduction in the fair value of our investment that is not expected to be temporary. We also recorded an
unrealized loss on our investment property in Alleghany and Bath County, Virginia of $1.0 million ($0.6 million after taxes) in
the second quarter of 2013 as a result of a reduction in the estimated fair value of our investment that is not expected to be
temporary. See Note 4 for additional information on investments.
We have announced that we will be closing our film products manufacturing facility in Red Springs, North Carolina in
June 2014. The plant, which is a leased facility, is solely dedicated to producing babycare elastic laminate films for P&G, and
P&G has informed us that we will lose this volume when it consolidates its suppliers for North American product needs. The
Red Springs manufacturing facility currently employs 66 people, and we estimate that charges incurred related to the shutdown,
which primarily consist of severance and other employee-related costs, will be approximately $1.3 million.
Losses associated with plant shutdowns, asset impairments, restructurings and other charges for continuing operations in
2012 (as shown in the segment operating profit table in Note 5) totaled $5.5 million ($3.6 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 2012 included:
• A fourth quarter charge of $0.9 million ($0.5 million after taxes), a third quarter charge of $0.8 million ($0.5 million
after taxes), a second quarter charge of $1.0 million ($0.7 million after taxes) and a first quarter charge of $0.9
million ($0.5 million after taxes) associated with the shutdown of the aluminum extrusions manufacturing facility in
Kentland, Indiana, which includes accelerated depreciation for property, plant and equipment of $2.4 million
(included in “Cost of goods sold” in the consolidated statements of income), severance and other employee related
expenses of $1.2 million and other shutdown-related charges of $2.3 million, partially offset by adjustments to
inventories accounted for under the LIFO method of $1.5 million (included in “Cost of goods sold” in the
consolidated statements of income) and gains on the sale of equipment of $0.8 million (included in “Other income
(expense), net” in the consolidated statements of income);
• A fourth quarter gain of $1.3 million ($0.7 million after taxes) in Film Products (included in “Other income
(expense), net” in the consolidated statements of income) associated with an insurance recovery on idle equipment
that was destroyed in a fire at an outside warehouse;
• A fourth quarter charge of $0.9 million ($0.6 million after taxes) and a third quarter charge of $0.3 million ($0.2
million after taxes) for acquisition-related expenses (included in “Selling, general and administrative expenses” in the
consolidated statements of income) associated with the acquisition of AACOA by Aluminum Extrusions (see
discussion below for further detail);
• A fourth quarter charge of $0.1 million ($0.1 million after taxes), a third quarter charge of $0.1 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) for integration-related expenses (included in “Selling, general and administrative
expenses” in the consolidated statements of income) associated with the Film Products acquisition of Terphane;
• A fourth quarter gain of $1.1 million ($0.6 million after taxes) related to the sale of a previously shutdown film
products manufacturing facility in LaGrange, Georgia;
• A second quarter charge of $0.8 million ($0.5 million after taxes) for asset impairments associated with a previously
shutdown film products manufacturing facility in LaGrange, Georgia;
• A fourth quarter charge of $0.2 million ($0.1 million after taxes) and a second quarter charge of $0.1 million
($46,000 after taxes) in Film Products and a first quarter charge of $0.2 million ($0.1 million after taxes) in
Aluminum Extrusions for severance and other employee-related costs in connection with restructurings;
• A fourth quarter charge of $0.2 million ($0.2 million after taxes) for asset impairments in Film Products;
• A fourth quarter charge of $0.2 million ($0.1 million after taxes) for integration-related expenses (included in
“Selling, general and administrative expenses” in the consolidated statements of income) associated with the
Aluminum Extrusions’ acquisition of AACOA;
75
• A fourth quarter charge of $0.1 million ($0.1 million after taxes) associated with purchase accounting adjustments
made to the value of inventory sold by Aluminum Extrusions after its acquisition of AACOA (included in “Cost of
goods sold” in the consolidated statements of income); and
• A fourth quarter charge of $0.1 million ($49,000 after taxes) related to expected future environmental costs at our
aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the
consolidated statements of income).
Total acquisition-related expenses (included in “Selling, general and administrative expenses” in the consolidated
statements of income) associated with the acquisition of AACOA by Aluminum Extrusions were $2.0 million in 2012.
Acquisition-related expenses of $0.8 million were recorded to “Corporate expenses, net” in the segment operating profit table
in Note 5 during the first and second quarters of 2012, and as noted above, acquisitions-related expenses of $1.2 million were
recorded to “Losses associated with plant shutdowns, asset impairments, restructurings and other charges” for Aluminum
Extrusions in the segment operating profit table in Note 5 during the third and fourth quarters of 2012.
Results in 2012 include an unrealized gain from our investment in kaléo of $16.1 million ($10.2 million after taxes),
which is accounted for under the fair value method. An unrealized loss on our investment in Harbinger of $1.1 million ($0.7
million after taxes) was recorded in 2012 as a result of a reduction in the fair value of our investment that is not expected to be
temporary. See Note 4 for additional information on investments.
Aluminum Extrusions closed its manufacturing facility in Kentland, Indiana in August 2012. The plant, whose core
market was residential construction, previously employed 146 people. We estimate that charges incurred related to the
shutdown will be approximately $4.5 million, and include accelerated depreciation on property, plant and equipment of
approximately $2.4 million, severance and other employee-related charges of approximately $1.2 million and other shutdown-
related costs of approximately $1 million. Other shutdown-related costs are primarily comprised of equipment transfers and
plant shutdown charges, partially offset by adjustment for inventories accounted for under the LIFO method. Most of these
shutdown charges, which include cash expenditures of approximately $3.5 million, are expected to be recognized over a period
of 18 months.
Losses associated with plant shutdowns, asset impairments, restructurings and other charges for continuing operations in
2011 (as shown in the segment operating profit table in Note 5) totaled $6.8 million ($0.3 million gain 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 2011 included:
• A fourth quarter charge of $2.5 million ($2.2 million after taxes) and a third quarter charge of $2.3 million ($2.2
million after taxes) for acquisition-related expenses (included in “Selling, general and administrative expenses” in the
consolidated statements of income) associated with the Film Products acquisition of Terphane;
• A fourth quarter charge of $0.6 million ($0.4 million after taxes) and a second quarter charge of $0.8 million ($0.5
million after taxes) for asset impairments in Film Products;
• A third quarter gain of $1.0 million ($6.6 million after taxes) on the divestiture of our film products business in
Roccamontepiano, Italy (included in “Other income (expense), net” in the consolidated statements of income), which
includes the recognition of previously unrealized foreign currency translation gains of $4.3 million that were
associated with the business;
• A fourth quarter charge of $0.7 million ($0.5 million after taxes) associated with purchase accounting adjustments
made to the value of inventory sold by Film Products after its purchase of Terphane (included in “Cost of goods sold”
in the consolidated statements of income);
• A fourth quarter charge of $0.1 million ($39,000 after taxes), a third quarter charge of $0.2 million ($0.1 million after
taxes) and a second quarter charge of $0.3 million ($0.2 million after taxes) for severance and other employee-related
costs in connection with restructurings in Film Products;
• A fourth quarter charge of $0.4 million ($0.3 million after taxes) for integration-related expenses (included in
“Selling, general and administrative expenses” in the consolidated statements of income) associated with the Film
Products acquisition of Terphane; and
• A fourth quarter benefit of $39,000 ($24,000 after taxes), a third quarter charge of $43,000 ($27,000 after taxes), a
second quarter benefit of $0.1 million ($0.1 million after taxes), and a first quarter charge of $32,000 ($20,000 after
taxes) for timing differences between the recognition of realized losses on aluminum futures contracts and related
revenues from the delayed fulfillment by customers of fixed-price forward purchase commitments (included in “Cost
of goods sold” in the consolidated statements of income).
76
Results in 2011 include an unrealized gain on our investment in kaléo of $1.6 million ($1.0 million after taxes), which is
accounted for under the fair value method. An unrealized loss on our investment in Harbinger of $0.6 million ($0.4 million
after taxes) was recorded in 2011 as a result of a reduction in the fair value of our investment that is not expected to be
temporary. See Note 4 for additional information on investments.
The estimated fair value of machinery and equipment that was evaluated for impairment was primarily based on our
estimates of the proceeds that we would receive if and/or when assets are sold. Our estimates of the remaining fair value for
the related machinery and equipment were based on both Level 2 and 3 inputs as defined under U.S. GAAP.
The impairment charges in Film Products were recognized to write down the machinery and equipment to the lower of
their carrying value or estimated fair value. The estimated fair value of machinery and equipment that was evaluated for
impairment was primarily based on our estimates of the proceeds that we would receive if and/or when assets are sold. Our
estimates of the remaining fair value for the related machinery and equipment were based on both Level 2 and 3 inputs as
defined under U.S generally accepted accounting principles.
19 CONTINGENCIES
We are involved in various stages of investigation and remediation relating to environmental matters at certain current and
former plant locations. Where we have determined the nature and scope of any required environmental remediation activity,
estimates of cleanup costs have been obtained and accrued. As we continue efforts to maintain compliance with applicable
environmental laws and regulations, additional contingencies may be identified. If additional contingencies are identified, our
practice is to determine the nature and scope of those contingencies, obtain and accrue estimates of the cost of remediation, and
perform remediation. We do not believe that additional costs that could arise from those activities will have a material adverse
effect on our financial position. However, those costs could have a material adverse effect on quarterly or annual operating
results at that time.
We are involved in various other legal actions arising in the normal course of business. After taking into consideration
information we deemed relevant, we believe that we have sufficiently accrued for probable losses and that the actions will not
have a material adverse effect on our 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, we enter into transactions with third parties in connection with the sale of assets or businesses in
which we agree 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 us, for certain liabilities or risks related to the assets or business. Also, in the
ordinary course of our business, we 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, we are unable to estimate the maximum potential amount of the potential future liability under the indemnity
provisions of these agreements. We do, 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. We disclose
contingent liabilities if the probability of loss is reasonably possible and material.
In November 2009, the 3M Company (“3M”) filed a patent infringement complaint in the United States District Court for
the District of Minnesota (“Minnesota District Court”) against our film products business. The complaint alleges infringement
upon elastic film technology patents held by 3M and seeks unspecified compensatory and enhanced damages associated with
our sales of certain elastic film product lines, which include our FabriFlex™ and FlexFeel™ family of products.
Following the issuance of a “Markman” Memorandum Opinion by the Minnesota District Court in November 2011, 3M
filed a stipulation of non-infringement related to this matter in February 2012. 3M then filed an appeal with the U.S. Federal
Circuit Court of Appeals regarding the “Markman” Memorandum Opinion. In August 2013, the U.S. Federal Circuit Court of
Appeals issued an opinion that remanded this patent infringement complaint back to the Minnesota District Court for further
consideration. Despite this ruling, we believe that we have sufficient defenses to prevail, and we intend to defend our position
vigorously. In the event that we do not prevail in this matter, we do not anticipate that any damages awarded to 3M, which
would be in the form of a lump sum payment, will be material to our consolidated financial position. We expect to incur legal
expenses of approximately $3 million in the next 12 to 18 months as we defend against this matter.
77
In 2011, we were notified by U.S. Customs and Border Protection (“U.S. Customs”) that certain film products exported
by Terphane to the U.S. since November 6, 2008 could be subject to duties associated with an antidumping duty order on
imported PET films from Brazil. We contested the applicability of these antidumping duties to the films exported by Terphane,
and we filed a request with the U.S. Department of Commerce (“Commerce”) for clarification about whether the film products
at issue are within the scope of the antidumping duty order. On January 8, 2013, Commerce issued a scope ruling confirming
that the films are not subject to the order, provided that Terphane 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. If U.S. Customs ultimately were to require the
collection of antidumping duties because Commerce’s scope ruling was overturned on appeal, or otherwise, indemnifications
for related liabilities are specifically provided for under the Purchase Agreement.
78
20 SELECTED QUARTERLY FINANCIAL DATA
Tredegar Corporation and Subsidiaries
(In Thousands, Except Per-Share Amounts)
(Unaudited)
For the year ended December 31, 2013
Sales
Gross profit
Income from continuing operations
Income (loss) from discontinued operations
Net income
Earnings (loss) per share:
Basic
Continuing operations
Discontinued operations
Net income
Diluted
Continuing operations
Discontinued operations
Net income
Shares used to compute earnings (loss) per share:
Basic
Diluted
For the year ended December 31, 2012
Sales
Gross profit
Income from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Earnings (loss) per share:
Basic
Continuing operations
Discontinued operations
Net income (loss)
Diluted
Continuing operations
Discontinued operations
Net income (loss)
Shares used to compute earnings (loss) per share:
Basic
Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
241,526
$
243,530
$
243,194
$
231,096
$
$
$
$
$
36,836
9,517
(5,240)
4,277
0.30
(0.16)
0.14
0.29
(0.16)
0.13
$
$
$
$
$
37,540
9,590
(8,300)
1,290
0.30
(0.26)
0.04
0.29
(0.25)
0.04
$
$
$
$
$
37,253
7,428
(450)
6,978
0.23
(0.01)
0.22
0.23
(0.02)
0.21
$
$
$
$
$
34,417
9,402
—
9,402
0.29
—
0.29
0.29
—
0.29
32,076
32,480
32,187
32,635
32,201
32,658
32,222
32,622
$
216,644
$
215,859
$
216,648
$
233,038
35,450
7,737
(4,739)
2,998
0.24
(0.15)
0.09
0.24
(0.15)
0.09
$
$
$
$
$
33,435
7,388
(35)
7,353
0.23
—
0.23
0.23
—
0.23
$
$
$
$
$
38,087
14,210
(6,783)
7,427
0.44
(0.21)
0.23
0.44
(0.21)
0.23
$
$
$
$
$
37,710
13,850
(3,377)
10,473
0.43
(0.10)
0.33
0.43
(0.10)
0.33
32,010
32,393
32,051
32,101
32,052
32,101
32,016
32,176
$
$
$
$
$
79
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.
SIGNATURES
TREDEGAR CORPORATION
(Registrant)
Dated: February 28, 2014
By
/s/ Nancy M. Taylor
Nancy M. Taylor
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 27, 2014.
Signature
Title
/s/ Nancy M. Taylor
(Nancy M. Taylor)
/s/ Kevin A. O’Leary
(Kevin A. O’Leary)
President, Chief Executive Officer and Director
(Principal Executive Officer)
Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Frasier W. Brickhouse, II
(Frasier W. Brickhouse, II)
Corporate Controller and Assistant Treasurer
(Principal Accounting Officer)
/s/ R. Gregory Williams
(R. Gregory Williams)
/s/ William M. Gottwald
(William M. Gottwald)
/s/ Austin Brockenbrough, III
(Austin Brockenbrough, III)
/s/ Donald T. Cowles
(Donald T. Cowles)
/s/ George C. Freeman, III
(George C. Freeman, III)
/s/ John D. Gottwald
(John D. Gottwald)
/s/ George A. Newbill
(George A. Newbill)
/s/ Thomas G. Snead, Jr.
(Thomas G. Snead, Jr.)
Chairman of the Board of Directors
Vice Chairman of the Board of Directors
Director
Director
Director
Director
Director
Director
80
EXHIBIT INDEX
2.1
2.2
3.1
3.1.1
3.2
3.3
4.1
4.2
4.3
4.3.1
4.4
10.1
*10.2
10.3
10.4
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)
Membership Interest Purchase Agreement, dated as of October 14, 2011, by and among TAC Holdings, LLC,
Gaucho Holdings B.V. 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)
Amended and Restated Articles of Incorporation of Tredegar (filed as Exhibit 3.1 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)
Articles of Amendment to Amended and Restated Articles of Incorporation of Tredegar, as of May 24, 2013 (filed
as Exhibit 3.1 to Tredegar's Current Report on Form 8-K (File No. 1-10258), filed on May 29, 2013 and
incorporated herein by reference
Amended and Restated Bylaws of Tredegar (filed as Exhibit 3.2 to Tredegar’s Current Report on Form 8-K (File
No. 1-10258), filed on February 20, 2014, and incorporated herein by reference)
Articles of Amendment (filed as Exhibit 3.3 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)
Form of Common Stock Certificate (filed as Exhibit 4.1 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)
Second Amended and Restated Rights Agreement, dated as of November 18, 2013, by and between Tredegar and
Computershare Trust Company, N.A., as Rights Agent (filed as Exhibit 1 to Amendment No. 4 to Tredegar’s
Registration Statement on Form 8-A/A (File No. 1-10258) filed on November 19, 2013, and incorporated herein by
reference)
Credit Agreement, dated as of April 23, 2012, among Tredegar Corporation, as borrower, the lenders named therein,
JPMorgan Chase Bank, N.A., as administrative agent, SunTrust Bank, as syndication agent, and Citizens Bank of
Pennsylvania, HSBC Bank USA, National Association, PNC Bank, National Association, and U.S. 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 April 26, 2012, and incorporated herein by reference)
Guaranty, dated as of April 23, 2012, 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 (filed as Exhibit 4.2 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed
on April 26, 2012, and incorporated herein by reference)
Credit Agreement, dated as of June 21, 2010, among Tredegar, as borrower, the lenders named therein, JPMorgan
Chase Bank, N.A., as administrative agent, SunTrust Bank, as syndication agent, and Bank of America, N.A.,
HSBC Bank USA, National Association and U.S. Bank National Association, as co-documentation agents (filed as
Exhibit 4.3 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on June 22, 2010, and incorporated
herein by reference)
Reorganization and Distribution Agreement, dated as of June 1, 1989, between Tredegar and Ethyl Corporation
(filed as Exhibit 10.1 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)
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)
Tax Sharing Agreement, dated as of June 1, 1989, between Tredegar and Ethyl Corporation (filed as Exhibit 10.3 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)
Indemnification Agreement, dated as of June 1, 1989, between Tredegar and Ethyl Corporation (filed as Exhibit
10.4 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)
81
*10.5
Tredegar Industries, Inc. Retirement Benefit Restoration Plan (filed as Exhibit 10.7 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)
*10.5.1 Amendment to the Tredegar Industries, Inc. Retirement Benefit Restoration Plan (filed as Exhibit 10.7.1 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)
+*10.6 Tredegar Industries, Inc. Savings Plan Benefit Restoration Plan
*10.6.1 Resolutions of the Executive Committee of the Board of Directors of Tredegar Corporation adopted on December
28, 2004 (effective as of December 31, 2004) amending the Tredegar Corporation Retirement Savings Plan Benefit
Restoration Plan (filed as Exhibit 10.9.1 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on
December 30, 2004, and incorporated herein by reference)
*10.7
*10.8
*10.9
10.10
10.11
10.12
*10.13
*10.14
*10.15
Tredegar Amended and Restated Incentive Plan (filed as Exhibit 10.9 to Tredegar’s Annual Report on Form 10-K
(File No. 1-10258) for the year ended December 31, 2005, and incorporated herein by reference)
Tredegar 2004 Equity Incentive Plan as Amended and Restated Effective March 27, 2009 (filed as Annex 1 to
Tredegar’s Definitive Proxy Statement on Schedule 14A (File No. 1-10258) filed on April 14, 2009 and
incorporated herein by reference)
Transfer Agreement, by and between AFBS, Inc. and Therics, LLC, dated as of June 30, 2005 (filed as Exhibit
10.17 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on July 1, 2005, and incorporated herein
by reference)
Intellectual Property Transfer Agreement, by and between AFBS, Inc. and Therics, LLC, dated as of June 30, 2005
(filed as Exhibit 10.18 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on July 1, 2005, and
incorporated herein by reference)
Unit Purchase Agreement, by and between Therics, Inc., AFBS, LLC and Randall R. Theken, dated as of June 30,
2005 (filed as Exhibit 10.19 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on July 1, 2005,
and incorporated herein by reference)
Payment Agreement, by and between AFBS, Inc. and Therics, LLC, dated as of June 30, 2005 (filed as Exhibit
10.20 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on July 1, 2005, and incorporated herein
by reference)
Form of Notice of Stock Award and Stock Award Terms and Conditions (filed as Exhibit 10.2 to Tredegar’s Current
Report on Form 8-K (File No. 1-10258), filed on February 27, 2013, and incorporated herein by reference)
Form of Notice of Stock Unit Award and Stock Unit Award Terms and Conditions (filed as Exhibit 10.1 to
Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on February 27, 2013, and incorporated herein by
reference)
Form of Notice of Nonstatutory Stock Option Grant and Nonstatutory Stock Option Terms and Conditions (filed as
Exhibit 10.3 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on February 27, 2013, and
incorporated herein by reference)
*10.16 Amended and Restated Severance Agreement, effective as of February 3, 2014, between Tredegar and Nancy M.
Taylor (filed as Exhibit 10.1 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed February 10, 2014,
and incorporated herein by reference)
*10.17 Consulting Agreement, dated May 21, 2013, between Tredegar and Duncan A. Crowdis (filed as Exhibit 10.1 to
Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on May 22, 2013, and incorporated herein by
reference)
*10.18 Consulting Agreement, dated May 21, 2013, between Tredegar and Larry J. Scott (filed as Exhibit 10.2 to
Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on May 22, 2013, and incorporated herein by
reference)
10.19
Consulting Agreement, dated March 28, 2012, between the Company and MOMO Partners LLC and Monica
Moretti (filed as Exhibit 10.1 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on March 29,
2012, and incorporated herein by reference)
*10.20 Amended and Restated Severance Agreement, effective February 3, 2014, between the Company and Kevin A.
O’Leary (filed as Exhibit 10.3 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on February 10,
2014, and incorporated herein by reference)
*10.21 Amended and Restated Severance Agreement, effective February 3, 2014, between the Company and A. Brent King
(filed as Exhibit 10.4 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on February 10, 2014,
and incorporated herein by reference)
82
*10.22 Amended and Restated Severance Agreement, effective February 3, 2014, between the Company and Mary Jane
Hellyar (filed as Exhibit 10.2 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on February 10,
2014, and incorporated herein by reference)
+*10.23 Summary of Director Compensation for Fiscal 2013
10.24
Agreement, dated as of February 19, 2014, by and amoung Tredegar Corporation, John D. Gottwald, William M.
Gottwald and Floyd D. Gottwald, Jr. (filed as Exhibit 10.1 to to Tredegar’s Current Report on Form 8-K (File No.
1-10258), filed on February 20, 2014, and incorporated herein by reference)
21
23.1
23.2
31.1
31.2
32.1
32.2
99
101
*
+
Subsidiaries of Tredegar
Consent of PricewaterhouseCoopers, LLC, Independent Registered Public Accounting Firm
Consent of Dixon Hughes Goodman, LLP, Independent Registered Public Accounting Firm
Certification of Nancy M. Taylor, President and Chief Executive Officer of Tredegar Corporation, pursuant to Rules
13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
Certification of Kevin A. O’Leary, Vice President, Chief Financial Officer and Treasurer (Principal Financial
Officer) of Tredegar Corporation, pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Nancy M. Taylor, President and Chief Executive Officer of Tredegar Corporation, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Kevin A. O’Leary, Vice President, Chief Financial Officer and Treasurer (Principal Financial
Officer) of Tredegar Corporation, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
kaléo, Inc., separate financial statements and Report of Independent Registered Accounting Firm
XBRL Instance Document and Related Items
Denotes compensatory plans or arrangements or management contracts.
Filed herewith
83
APPENDIX – FOOTNOTES
1 The after-tax effects of losses associated with plant shutdowns, asset impairments and restructurings and gains or
losses from the sale of assets and other items (which includes unrealized gains and losses on non-operating
investments) have been presented separately and removed from net income (loss) and earnings (loss) per share
from continuing operations as reported under United States generally accepted accounting principles (U.S. GAAP)
to determine Tredegar’s presentation of net income and earnings per share from ongoing operations. Net income
and earnings per share from ongoing operations are key financial and analytical measures used by Tredegar to
gauge the operating performance of its ongoing operations. They are not intended to represent the stand-alone
results for Tredegar’s ongoing operations under U.S. GAAP and should not be considered as an alternative to net
income or earnings per share from continuing operations as defined by U.S. GAAP. They exclude items that we
believe do not relate to Tredegar’s ongoing operations.
2 Net sales (sales less freight) and operating profit from ongoing operations are non-GAAP financial measures that
are not intended to represent sales or net income, respectively, as defined by U.S. GAAP. Net sales and operating
profit from ongoing operations are key measures used by the chief operating decision maker for purposes of
assessing the operating performance of its business segments. A reconciliation of net sales to sales and operating
profit from ongoing operations to net income is shown in Note 5 to the consolidated financial statements included
in the 2013 Annual Report filed on Form 10-K.
3 Adjusted EBITDA represents income (loss) from continuing operations before interest, taxes, depreciation,
amortization, unusual items, losses associated with plant shutdowns, asset impairments and restructurings, gains or
losses from the sale of assets, unrealized gains (losses) on investments, charges related to stock option awards
accounted for under the fair value-based method and other items. Adjusted EBITDA is a non-GAAP financial
measure that is not intended to represent net income (loss) or cash flow from operations as defined by U.S. GAAP
and should not be considered as either an alternative to net income (loss) (as an indicator of operating
performance) or to cash flow (as a measure of liquidity). Tredegar uses Adjusted EBITDA as a measure of
unlevered (debt-free) operating cash flow. We also use it when comparing relative enterprise values of
manufacturing companies and when measuring debt capacity. When comparing the valuations of a peer group of
manufacturing companies, we express enterprise value as a multiple of Adjusted EBITDA. We believe Adjusted
EBITDA is preferable to net income from continuing operations and other GAAP measures when applying a
comparable multiple approach to enterprise valuation because it excludes the items noted above, measures of
which may vary among peer companies.
A reconciliation of ongoing operating profit (loss) from continuing operations to Adjusted EBITDA is shown
below.
(In Millions)FilmAluminum2013ProductsExtrusionsTotalOperating profit from ongoing operations71.0$ 18.3$ 89.3$ Add back depreciation & amortization 35.3 9.2 44.5 133.8 Corporate overhead- - (31.3) Adjusted EBITDA 106.3$ 27.5$ 102.5$ 2012Operating profit from ongoing operations70.0$ 9.0$ 79.0$ Add back depreciation & amortization 39.2 10.0 49.2 Less accelerated depreciation associated with plant shutdown- (2.4) (2.4) 125.8 Corporate overhead- - (22.3) Adjusted EBITDA 109.2$ 16.6$ 103.5$ 2011Operating profit from ongoing operations59.5$ 3.5$ 63.0$ Add back depreciation & amortization 36.3 8.3 44.6 107.6 Corporate overhead- - (15.5) Adjusted EBITDA 95.8$ 11.8$ 92.1$
APPENDIX – FOOTNOTES, CONTINUED
Adjusted EBITDA for Aluminum Extrusions in 2012 includes an adjustment of $2.4 million for accelerated
depreciation associated with the shutdown of its manufacturing facility in Kentland, IN. Accelerated depreciation
associated with the shutdown of the Kentland manufacturing facility was excluded from operating profit from
ongoing operations. This amount has therefore been subtracted from the amount of depreciation expense added
back in calculating Adjusted EBITDA.
4
In addition to quarterly dividends of 4½ cents per share in the first and second quarter and 6 cents per share in the
third and fourth quarters of 2012, there was a special one-time dividend of 75 cents per share paid to shareholders
in December 2012.
5 Total return to shareholders is defined as the change in the stock price during the year plus dividends per share,
divided by the stock price at the beginning of the year.
6 The compound annual growth rate (CAGR) is the year-over-year growth rate of an investment over a specified
period of time. CAGR is calculated by taking the nth root of the total percentage growth rate, where n is the
number of years in the period being considered.
7 Return on invested capital (ROIC) is defined by Tredegar as Adjusted Net Income from Ongoing Operations
divided by average Invested Capital where the individual components are defined as follows:
Adjusted Net Income from Ongoing Operations equals:
Plus: Net income from ongoing operations (as previously defined in footnote 1 of this appendix)
Plus: Pension expense excluding service costs, net of taxes
Plus: Interest expense, net of tax
Average Invested Capital is the average of the beginning and ending Invested Capital balance where Invested
Capital is defined as follows:
Plus: Shareholders equity
Plus: Short-term portion of long-term debt
Plus: Long-term debt
Plus: Accrued pension liability
Minus: Cash
Minus: Non-operating investments (investment in kaleo, Inc.)
Minus: Non-operating investments (investment in Harbinger Capital Special Situations Fund, L.P.)
Minus: Non-operating investments (investment in real estate property)
8 Certain statements contained herein are forward-looking statements, including estimates prepared using data from
industry publications and management’s market knowledge and experience. Management’s estimates have not
been verified by any independent source and are subject to various risks and uncertainties, which could cause
actual results to materially deviate from estimates. Pursuant to federal securities regulations, we have set forth
cautionary disclosures related to forward-looking statements in our Annual Report on Form 10-K for the year
ended December 31, 2013. We urge readers to review and carefully consider these cautionary statements and the
other disclosures we make in our filings with the Securities and Exchange Commission.
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
(closing in 2014)
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
Elkhart, indiana
Newnan, georgia
Niles, Michigan
coRPoRATE iNFoRMATioN
coRPoRATE oFFicERS AND oPERATiNg coMPANy MANAgEMENT
Nancy M. Taylor
President and
chief Executive officer
kevin A. o’leary
Vice President, chief Financial
officer and Treasurer
Mary jane Hellyar
President, Tredegar Film Products
and corporate Vice President
DiREcToRS
R. gregory Williams1, 4, 5
chairman of the Board
Tredegar corporation
President
ccA Financial Services, llc
Austin Brockenbrough, iii1, 3, 5
Managing Director and President
lowe, Brockenbrough &
company, inc.
Donald T. cowles1, 2, 5
Retired
Reynolds Metals company
george c. Freeman, iii1, 3, 4, 5
President and
chief Executive officer
universal corporation
john D. gottwald3, 5
Retired
Tredegar corporation
William M. gottwald2, 5
Vice chairman
Tredegar corporation
Retired
Albemarle corporation
george A. Newbill2, 5
Retired
Albemarle corporation
kenneth R. Newsome1, 2, 5
President and
chief Executive officer
AMF Bakery Systems, inc.
W. Brook Hamilton
President, Bonnell Aluminum
gregory A. Pratt1, 3, 4, 5
Retired
carpenter Technology
corporation
Thomas g. Snead, jr.2, 3, 5
Retired
Wellpoint, inc.
carl E. Tack, iii2, 4, 5
Adjunct Professor
college of William and Mary
Nancy M. Taylor
President and
chief Executive officer
Tredegar corporation
A. Brent king
Vice President, general counsel
and corporate Secretary
1) Audit committee
2) Executive compensation
committee
3) Nominating and governance
committee
4) Strategic Finance committee
5) independent Director
SHAREHolDER iNFoRMATioN
coRPoRATE
HEADquARTERS
1100 Boulders Parkway
Richmond, Virginia 23225
Phone: 804-330-1000
Website: www.tredegar.com
NuMBER oF EMPloyEES
Approximately 2,700
STock liSTiNg
New york Stock Exchange
Ticker Symbol: Tg
TRANSFER AgENT AND
REgiSTRAR
computershare investor
Services
iNquiRiES
inquiries concerning stock
transfers, dividends, dividend
reinvestment, consolidating
accounts, changes of address,
or lost or stolen stock certifi-
cates should be directed to:
computershare
P.o. Box 30170
college Station, Texas 77842
Phone:
800-622-6757
(uS, canada, Puerto Rico)
781-575-4735
(international)
E-mail:
web.queries@computershare.com
Website:
www.computershare.com/
investor
All other investor 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
Tredegar Film Products
Among the top global leaders in the plastic films industry, Tredegar Film Products manufactures high-
performance plastic films, elastics and laminate materials for the personal care, electronic display,
flexible packaging, lighting and other specialty film markets. With a global R&D structure and locations
throughout North America, Europe, Asia, and South America, Tredegar Film Products provides
innovative solutions with superior quality and strong local support to meet our customers’ needs.
Bonnell Aluminum
A premier North American extruder for more than 60 years, Bonnell Aluminum manufactures custom
aluminum extrusions for the building and construction, automotive, transportation, consumer durables,
machinery and equipment, electrical and distribution markets. With four strategically located
manufacturing facilities, Bonnell Aluminum serves many of our nation’s largest and most respected
manufacturing companies with unmatched aluminum extrusion solutions, capabilities and services.
Experience with Confidence
FPO
Tredegar Corporation
1100 Boulders Parkway
Richmond, Virginia 23225
www.tredegar.com