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2015 Annual Report
TREDEGAR AT A GLANCE
PE FILMS:
• Personal Care—Tredegar is a global leader in supplying the
rapidly growing categories of adult incontinence, baby diapers
and feminine hygiene. Our innovation, local supply capability
and product quality lead to unique product offerings that help
our customers meet global consumers’ increasing demands for
softness, comfort, fit and fluid management.
• Surface Protection—As the global leader in quality, technol-
ogy and service, Tredegar’s surface protection films are used by
the world’s leading manufacturers of components, including
optical films and substrates, ensuring that their products remain
defect-free and their yield efficiencies are maximized during the
manufacturing and transportation processes. As the number and
size of display screens increase and quality requirements become
more demanding, technology leaders in the flat panel display
industry consistently rely on Tredegar’s portfolio of high perfor-
mance surface protection films.
• Engineered Polymer Solutions—Combining microstructure
expertise with films capabilities, Engineered Polymer Solutions
leverages multiple technology platforms for application-specific
functionalities. Bright View Technologies (BVT) designs and
manufactures a broad portfolio of highly-advanced optical manage-
ment products for the rapidly expanding LED and fluorescent
lighting markets.
FLEXIBLE PACKAGING:
Tredegar’s flexible packaging films business, Terphane, produces
films with specialized properties, such as heat resistance, strength,
and barrier protection, for use in packaging applications. Predominantly
sold in Latin America and the U.S. to serve the demand for sophisti-
cated packaging of consumer products, these high-value films are
primarily used in food packaging and industrial applications.
ALUMINUM EXTRUSIONS:
Bonnell Aluminum is one of North America’s leading manufacturers
of custom aluminum extrusions in the building and construction,
automotive, and specialty markets. With a wide range of extrusion
and finishing capabilities, Bonnell Aluminum serves many of the
nation’s largest and most respected manufacturing companies.
DEAR SHAREHOLDERS,
reasons. Some of you have a market
theme, others are relying on a par-
ticular analytical model or recom-
mendation, and perhaps one or two
of you threw a dart at a stock listing
page. Regardless, I suspect all prefer
that Tredegar communications be as
direct and straightforward as possible.
I cannot emphasize enough that
transparency is a priority for me.
Before I address our performance
and initiatives, I’d like to express
a business version of Utopia using
motherhood and apple pie like tru-
isms. Management’s role is to chan-
nel a diverse organization’s talents
to capture highly profitable growth
opportunities. This is best done
with a focus on satisfying or prefer-
ably delighting customers through
cost-effective innovation, flawless
service and continuous improve-
ment. Once success takes hold,
enthusiasm blossoms and a pros-
perous cycle should result.
So, with that fundamental character-
ization of business harmony stated
for the record, here’s one sharehold-
er’s direct and straightforward report
to other owners.
First, I feel a need to acknowledge
that I’m disappointed and have been
for quite a while. An investment in
Tredegar stock has not provided a
worthwhile return on investment
since the turn of the century
(see chart below). I pride myself on
patience, but I suspect 15 years would
push Job to the limit.
On the positive side, the company
has increased its payout over recent
years. From December of 2012 to
date, the company has distributed
$1.85 to shareholders in regular and
special dividends. However, the stock
price has continued to languish.
I am not an expert on stock valuation,
but I am confident that generating
cash and growing earnings while
TREDEGAR STOCK PRICE 2000–2015
$13.62
A company’s annual report is
addressed to its owners, the share-
holders. I identify with shareholders
easily. A good portion of the shares
I own predate Tredegar’s creation as
a spinoff from Ethyl Corporation in
1989, and a good number of those
shares predate Ethyl’s entry into
the aluminum extrusion and plastic
film industries in the 1960s. So I see
things through the prism of a long-
term owner.
I recognize that investors make their
equity selections for a variety of
$40
$30
$20
$10
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2015 ANNUAL REPORT • PAGE 1
*2009 to 2012 adjusted for Falling Springs move to discontinued operations
DILUTED EARNINGS PER SHARE
ONGOING OPERATIONS*
ALUMINUM EXTRUSIONS PROFIT
ONGOING OPERATIONS* ($ Millions)
1.2
1.0
0.8
0.6
0.4
0.2
0.0
$1.20 $1.15 $1.13
30
$1.01
25
20
15
10
5
’12
’13
0
’14 ’15
$0.93
$0.85
30.000000
$0.88 $0.87
23.666667
17.333333
11.000000
4.666667
’10
-1.666667
’11
-8.000000
’08
’09
$30
$26
$18
$9
($7)
($4)
$3
’11
’12
’13
’14 ’15
’10
’09
$10
’08
maintaining a solid balance sheet is
a good formula. Unfortunately, since
the recession of 2008–09 Tredegar’s
earnings per share from ongoing
operations is only 17% higher, despite
our investing about $500 million in
acquisitions and internal projects
(see chart above).
All of you want to know how we
plan to improve Tredegar’s perfor-
mance. Our company has many
stories, and we are executing on
specific strategic priorities for each
of our business units to address
their unique opportunities and
challenges.
Tredegar’s aluminum extrusions
unit, Bonnell, has performed well
since the 2008–09 recession (see
chart above). The acquisition of
AACOA in 2012 has strengthened
Bonnell. In 2015, Bonnell’s return on
capital employed reached 19.2%.*
Looking forward, Tredegar’s board
recently approved a project to expand
extrusion capacity at Bonnell’s Niles
plant. This new press will provide
for growth in 2017. In addition,
we will consider an acquisition
while remaining mindful of the
cyclicality of the markets in which
we participate. Keeping costs down
and operations reliable are always
critical in this business.
Another positive story has been the
growth of our Surface Protection
films business unit. Our company,
over many years, has developed very
unique capabilities that help custom-
ers protect valuable component lay-
ers in a number of optical display
devices (including TVs, computer and
tablet screens, and smartphones). As
we help our customers reduce flaws,
their manufacturing efficiencies and
costs improve. Participation in infor-
mation technology markets brings
both a demand for extraordinary
quality and relentless cost pressures.
Rapid innovation of our products is
not a luxury. It is a necessity without
which sales become fleeting. Over
recent months Tredegar has com-
mitted to ramping up our product
development activity throughout
our businesses. This is a critical ini-
tiative as we endeavor to improve
our organic growth.
Unfortunately, the growth in Bonnell
and Surface Protection films over the
past two years has been overwhelmed
by a negative sales trend in our
Personal Care business unit (see
chart on next page). We have taken
great care in recent public disclosures
to outline the impact of customer
decisions to reduce purchases from
Tredegar. Given the record since
2013, it is clear that we have failed
to channel our strengths to delight
all of our customers. Reversing this
trend will require changes in the way
we interact with and develop solutions
for our customers. We are investing
in our people and technology with
the goal of growing revenues. To this
end, we’ve increased our R&D costs
by $4 million annually for resources
specifically supporting growth
opportunities in acquisition distribu-
tion layer, elastics and topsheets in
Personal Care and new opportunities
in Surface Protection.
Despite the record, there is good news
here. We are blessed with talent.
Our technology and global position
are valued. We have recently made
progress improving some critical
customer relations. And we will
launch new elastic and acquisition
distribution layer products this
year. Hopefully we will see the
beginning of a more prosperous
cycle soon.
PAGE 2
PERSONAL CARE
NET SALES* ($ Millions)
FLEXIBLE PACKAGING FILMS PROFIT
ONGOING OPERATIONS* ($ Millions)
500
400
300
200
100
0
20.00
14.25
8.50
2.75
-3.00
$402 $368
20
15
$288
10
5
0
’13
’14 ’15
In 2011, Tredegar acquired Terphane,
which manufactures flexible packag-
ing products primarily for the Latin
American market. From 2012 through
the middle of 2015, this business
unit experienced a very significant
decline in performance (see chart
above). The magnitude of the decline
and reduced outlook caused us
to write off its goodwill on our bal-
ance sheet.
Terphane has experienced a number
of operational and quality issues
during the last two to three years as
one existing line was upgraded and
a new line was put in place. There
continue to be episodes of inconsis-
tency but recently operations have
become much more reliable. This
helps a great deal as we look to 2016
and beyond.
There are two big issues that remain.
First, the bulk of Terphane’s opera-
tions and half of our sales are in
Brazil, which continues to be in a
very tough recession. Second, there
is large excess global capacity in the
industry causing very significant
pricing pressure. Despite these chal-
lenges, Terphane’s excellent team
has taken us from a troubling stretch
of losses to profitability over the past
few months. We are hoping that the
operational improvements and
progress bringing new products to
market will keep us on a positive
slope despite the economic and
market challenges.
There is one additional business
unit within Tredegar. It is an emerg-
ing story. Our Engineered Polymer
Solutions unit primarily manufac-
tures products that enhance the
effectiveness of LED lighting. This is
a rapidly growing market. I believe
the key for success in this unit will
be our ability to broaden our prod-
uct lines and commercialize new
products. Investments to achieve
those objectives are in the works.
We believe that Tredegar will be
experiencing strong growth from
this unit, but it will be a few years
before it is a significant contributor.
In summary, a key part of my job
is to channel the efforts of our
employees such that we can
seize the opportunities, grow and
prosper. As outlined above, we
have stumbled and we have big
challenges. As we build customer
confidence and gain traction with
$19
$9
’12
’13
$5
’15
($3)
’14
an increased focus on organic
growth, I hope that shareholders
will see progress on creating
value…in the form of prosperity!
Since last year’s annual meeting, two
of the members of Tredegar’s Board of
Directors have stepped down, Greg
Williams and Nancy Taylor. I greatly
appreciate the service of these two
long-term contributors to Tredegar.
They put tremendous efforts into this
company for which I am very grateful.
John D. Gottwald
President and Chief Executive Officer
*See appendix for footnotes.
2015 ANNUAL REPORT • PAGE 3
FINANCIAL HIGHLIGHTS
FINANCIAL SUMMARY
Years Ended December 31
(In thousands, except per-share data)
NET INCOME AND DILUTED EARNINGS PER SHARE
Net income as reported (continuing ops)
After-tax effects of:
(Gains) losses associated with plant shutdowns, asset impairments
and restructurings
(Gains) losses from sale of assets and other
Goodwill impairment charge
Income from ongoing operations1
Diluted earnings per share as reported (continuing ops)
After-tax effects per diluted share of:
(Gains) losses associated with plant shutdowns, asset impairments
and restructurings
(Gains) losses from sale of assets and other
Goodwill impairment charge
Diluted earnings per share from ongoing operations1
ONGOING OPERATIONS
PE Films:
Net sales2
Ongoing operating profit2
Adjusted EBITDA3
Depreciation and amortization
Capital expenditures
Flexible Packaging Films:
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
Consolidated Adjusted EBITDA3
FINANCIAL POSITION AND OTHER DATA
Cash and cash equivalents
Debt outstanding
Shareholders’ equity
Cash dividends declared per share
Shares outstanding at end of period
Shares used to compute diluted earnings (loss) per share
CLOSING MARKET PRICE PER SHARE
High
Low
End of year
Total return to shareholders4
See appendix for footnotes.
PAGE 4
2015
2014
$ (32,135)
$ 36,029
3,045
17,675
44,465
1,960
(1,156)
—
$ 33,049
$ 36,833
$
(.99)
$
1.11
.09
.54
1.37
1.01
$
.06
(.04)
—
$
1.13
$ 385,550
48,275
63,399
15,480
21,218
$ 464,339
60,971
82,370
21,399
17,000
105,332
5,453
15,150
9,697
3,489
375,457
30,432
40,130
9,698
8,124
90,171
44,156
104,000
272,748
.42
32,682
32,578
114,348
(2,917)
6,414
9,331
21,806
344,346
25,664
35,638
9,974
6,092
100,994
50,056
137,250
372,029
.34
32,422
32,554
$ 23.76
12.63
13.62
(37.6)%
$ 28.45
16.76
22.49
(20.8)%
2015 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
1–4
5–9
10
11–12
13–18
19–42
42
43
44
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 45
Exhibits and Financial Statement Schedules
Financial Statements and Supplementary Data
46
46–87
Also see our comments on Forward-looking and Cautionary Statements on page 19.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-10258
TREDEGAR CORPORATION
(Exact name of registrant as specified in its charter)
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 30, 2015 (the last business day of the registrant’s most
recently completed second fiscal quarter): $560,178,695*
Number of shares of Common Stock outstanding as of January 30, 2016: 32,682,162 (32,705,198 as of June 30, 2015)
*
In determining this figure, an aggregate of 7,369,210 shares of Common Stock beneficially owned by Floyd D. Gottwald, Jr., 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. The aggregate market value has been computed based on the closing price in the New
York Stock Exchange on June 30, 2015.
Documents Incorporated By Reference
Portions of the Tredegar Corporation Proxy Statement for the 2016 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, 2015
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
1-4
5-9
10
10
10
10
11-12
13-18
19-42
42
42
42
43
43
44
45
45
45
45
46
EXPLANATORY NOTE
Tredegar Corporation (“Tredegar” or “the Company”) filed its Annual Report on Form 10-K for the fiscal year ended
December 31, 2015 (the “Original Form 10-K”), with the U.S. Securities and Exchange Commission (the “SEC”) on
February 29, 2016. The Company is filing this Amendment No. 1 to its Original Form 10-K (this “Form 10-K/A”) solely for
the purpose of correcting a disclosure of 2012 and 2011 segment data in Item 6 of Part II. The Form 10-K/A corrects an error
that occurred in the division of operating profit from ongoing operations of its previously reported segment, Film Products,
between PE Films and Flexible Packaging Films. For the years ended December 31, 2012 and 2011, operating profit from
ongoing operations in PE Films and Flexible Packaging Films has been corrected as shown in the following table:
(In Thousands)
PE Films
Flexible Packaging Films
As Originally Reported
Corrected
2012
2011
2012
2011
$
76,003 $
58,067
$
50,814 $
56,521
(6,053)
1,426
19,136
2,972
Except for the correction of these amounts, there have been no changes in any of the financial or other information
contained in the Original Form 10-K. The correction of the error had no impact on the consolidated balance sheets, income
statements or cash flow statements included in the Original Form 10-K and had no impact on the previously reported
consolidated operating profit for the years ended December 31, 2012 and 2011.
Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), this Form 10-K/A
also contains currently dated certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. This Form 10-
K/A also contains a currently dated consent of PricewaterhouseCoopers LLP, the Company’s independent registered public
accounting firm. Accordingly, Item 15 of Part IV has been amended in its entirety to include the currently dated certifications
and consent as exhibits.
Except as described above, this Form 10-K/A does not modify or update the disclosures presented in the Original Form
10-K, nor does it reflect events occurring after the filing of the Original Form 10-K or otherwise modify or update the
disclosures in the Original Form 10-K. Therefore, this Form 10-K/A should be read in conjunction with the Original Form 10-
K and the Company’s other filings with the SEC filed subsequent to the filing of the Original Form 10-K. For convenience, the
entire Annual Report on Form 10-K, as amended for the year ended December 31, 2015, is being re-filed.
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 polyethylene (“PE”) plastic films, polyester (“PET”) films and aluminum extrusions. The financial
information related to Tredegar’s PE films, PET films and aluminum extrusions segments and related geographical areas
included in Note 5 of the Notes to Financial Statements is incorporated herein by reference. Unless the context requires
otherwise, all references herein to “Tredegar,” “the Company,” “we,” “us” or “our” are to Tredegar Corporation and its
consolidated subsidiaries.
Tredegar has historically reported two business segments: Film Products and Aluminum Extrusions. In the third quarter
of 2015, the Company divided Film Products into two separate reportable segments: PE Films and Flexible Packaging Films.
As part of its transition to a new executive leadership team, the Company’s management decided to discontinue its efforts to
integrate Terphane Holdings, LLC (“Terphane”) with its PE film products operations. In separating PE Films and Flexible
Packaging Films, the Company’s management believes that it will be able to more effectively manage the distinct opportunities
and challenges that each of these businesses face. Therefore, the Company's reportable business segments are now PE Films,
Flexible Packaging Films and Aluminum Extrusions.
PE Films
PE Films manufactures plastic films, elastics and laminate materials primarily utilized in personal care materials, surface
protection films and specialty and optical lighting applications. These products are manufactured at facilities in the United
States (“U.S.”), The Netherlands, Hungary, China, Brazil and India. PE Films competes in all of its markets on the basis of
product innovation, quality, price and service.
Personal Care Materials. PE Films is one of the largest global suppliers of apertured, breathable, elastic and embossed films,
laminate materials, and polyethylene and polypropylene overwrap films 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 ComfortAire™, ComfortFeel™ 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™, FlexAire™ and
FlexFeel™ brand names);
• Absorbent transfer layers for baby diapers and adult incontinence products sold under the AquiDry® and AquiDry
Plus™ brand names;
• Thin-gauge films that are readily printable and convertible on conventional processing equipment for overwrap for
bathroom tissue and paper towels; and
•
Polypropylene films for various industrial applications, including tape and automotive protection.
In 2015, 2014 and 2013, personal care materials accounted for approximately 33%, 40% and 43% of Tredegar’s
consolidated net sales (sales less freight) from continuing operations, respectively.
Surface Protection Films. PE Films 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 2015, 2014 and 2013, surface protection
films accounted for approximately 10% of Tredegar’s consolidated net sales (sales less freight) from continuing operations.
Engineered Polymer Solutions. PE Films 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. Bright View Technologies Corporation (“Bright
View”), a wholly owned subsidiary of Tredegar, is a developer and producer of advanced optical management products for the
LED (light-emitting diode) and fluorescent lighting markets. By leveraging multiple technology platforms, including film
capabilities and its patented microstructure technology, Bright View offers engineered solutions for a wide range of
applications.
1
PE Films’ net sales by market segment over the last three years is shown below:
% of PE Films Net Sales by Market Segment *
Personal care materials
Surface protection films
Engineered polymer solutions
Total
2015
2014
2013
75%
23%
2%
100%
79%
19%
2%
100%
81%
18%
1%
100%
* See previous discussion by market segment for comparison of net sales to the Company’s consolidated net
sales (sales less freight) from continuing operations for significant market segments for each of the years
presented.
Raw Materials. The primary raw materials used by PE Films in polyethylene and polypropylene films are low density, linear
low density and high density polyethylene and polypropylene resins. All of these raw materials are obtained from domestic and
foreign suppliers at competitive prices, and PE Films believes that there will be an adequate supply of polyethylene and
polypropylene resins in the foreseeable future. PE Films also buys polypropylene-based nonwoven fabrics based on the resins
previously noted and styrenic block copolymers, and it believes there will be an adequate supply of these raw materials in the
foreseeable future.
Customers. PE Films sells to many branded product producers throughout the world, with the top five customers comprising
73%, 76% and 82% of its net sales in 2015, 2014 and 2013, respectively. Its largest customer is The Procter & Gamble
Company (“P&G”). Net sales to P&G totaled $164 million in 2015, $221 million in 2014 and $262 million in 2013 (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, see “Item 1A. Risk Factors” beginning on page 5.
Flexible Packaging Films
Flexible Packaging Films is comprised of Terphane, which was acquired in October 2011. Flexible Packaging Films
produces polyester-based films for use in packaging applications that have specialized properties, such as heat resistance,
strength, barrier protection and the ability to accept high-quality print graphics. 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. In 2015, 2014 and 2013, Flexible Packaging Films accounted for approximately 12%,
12% and 14%, respectively, of Tredegar’s consolidated net sales (sales less freight) from continuing operations. Flexible
Packaging Films competes in all of its markets on the basis of product quality, price and service.
Raw Materials. The primary raw materials used by Flexible Packaging Films in polyester films are purified terephthalic acid
(“PTA”) and monoethylene glycol (“MEG”) to produce the polyester resins. Flexible Packaging Films also purchases
additional polyester resins directly from suppliers. All of these raw materials are obtained from domestic and foreign suppliers
at competitive prices, and Flexible Packaging Films believes that there will be an adequate supply of polyester resins as well as
PTA and MEG in the foreseeable future.
Aluminum Extrusions
The William L. Bonnell Company, Inc., known in the industry as Bonnell Aluminum, and AACOA, Inc., a division of
Bonnell Aluminum (together, “Aluminum Extrusions”), produce high-quality, soft-alloy and medium-strength aluminum
extrusions primarily for building and construction, automotive, consumer durables, machinery and equipment, electrical and
distribution 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 predominantly in the U.S.
2
The 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
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 and
pre-engineered structures
Shower and tub enclosures, railing and support systems,
venetian blinds, swimming pools and storm shutters
Furniture, pleasure boats, refrigerators and freezers,
appliances and sporting goods
Material handling equipment, conveyors and conveying
systems, industrial modular assemblies and medical
equipment
Automotive and light truck structural components, spare
parts, after-market automotive accessories, travel trailers
and recreation vehicles
Distribution (metal service centers specializing in stock and
release programs and custom fabrications to small
manufacturers)
Various custom profiles including storm shutters, pleasure
boat accessories, theater set structures and various standard
profiles (including rod, bar, tube and pipe)
Electrical
Lighting fixtures, solar panels, electronic apparatus and
rigid and flexible conduits
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)
2015
2014
2013
Building and construction:
Nonresidential
Residential
Specialty:
Consumer durables
Machinery & equipment
Distribution
Electrical
Automotive
Total
58%
6%
10%
7%
5%
4%
10%
100%
59%
6%
12%
7%
5%
4%
7%
60%
7%
12%
7%
4%
4%
6%
100%
100%
In 2015, 2014 and 2013, nonresidential building and construction accounted for approximately 26%, 22% and 19% 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. Aluminum Extrusions believes that it has adequate long-term supply agreements for aluminum and other required
raw materials and supplies in the foreseeable future.
General
Intellectual Property. Tredegar considers patents, licenses and trademarks to be significant to PE Films. As of December 31,
2015, PE Films held 280 issued patents (81 of which are issued in the U.S.) and 107 trademarks (10 of which are issued in the
3
U.S.). Flexible Packaging Films held 1 patent, which is issued in the U.S. and 14 trademarks (2 of which are issued in the
U.S.). Aluminum Extrusions held no U.S. patents and three U.S. trademark registrations. These patents have remaining terms
ranging from 1 to 20 years. Tredegar also has licenses under patents owned by third parties.
Research and Development. Tredegar’s spending for research and development (“R&D”) activities in 2015, 2014 and 2013
was primarily related to PE Films. PE Films has technical centers in Durham, North Carolina; Richmond, Virginia; and Terre
Haute, Indiana. Flexible Packaging has a technical center in Bloomfield, New York. R&D spending by the Company was
approximately $16.2 million, $12.1 million and $12.7 million in 2015, 2014 and 2013, respectively.
Backlog. Backlogs are not material to the operations in PE Films or Flexible Packaging Films. Overall backlog for continuing
operations in Aluminum Extrusions was approximately 11.8 million pounds at December 31, 2015 compared to approximately
17.0 million pounds at December 31, 2014, a decrease of 5.2 million pounds, or approximately 30%. Volume for Aluminum
Extrusions, which it believes is cyclical in nature, was 170.0 million pounds in 2015, 153.8 million pounds in 2014 and 143.7
million pounds in 2013.
Government Regulation. U.S. laws concerning the environment to which the Company’s 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 because Tredegar uses hazardous materials in some of its operations,
is a generator of hazardous waste, and wastewater from the Company’s operations is discharged to various types of wastewater
management systems. Under CERCLA and other laws, Tredegar may be subject to financial exposure for costs associated with
waste management and disposal, even if the Company fully complies with applicable environmental laws.
The U.S. Environmental Protection Agency has adopted regulations under the Clean Air Act relating to emissions of
carbon dioxide and other greenhouse gases (“GHG”), including mandatory reporting and permitting requirements. Additional
regulations are anticipated. Several of the Company’s manufacturing operations result in emissions or GHG and are subject to
the current GHG regulations. The Company’s 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 Tredegar does not
anticipate compliance to have a material adverse effect on its consolidated financial condition, results of operations and cash
flows based on information currently available.
Tredegar is also subject to the governmental regulations in the countries where it conducts business.
At December 31, 2015, the Company believes that it was in substantial compliance with all applicable environmental
laws, regulations and permits in the U.S. and other countries where it conducts business. Environmental standards tend to
become more stringent over time. In order to maintain substantial compliance with such standards, the Company 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, failure to comply with current or
future laws and regulations could subject Tredegar to substantial penalties, fines, costs and expenses.
Employees. Tredegar employed approximately 2,800 people at December 31, 2015.
Available Information and Corporate Governance Documents. Tredegar’s Internet address is www.tredegar.com. The
Company makes available, free of charge through its website, its annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such documents are electronically filed
with, or furnished to, the Securities and Exchange Commission (“SEC”). Information filed electronically with the SEC can be
accessed on its website at www.sec.gov. In addition, the Company’s Corporate Governance Guidelines, Code of Conduct and
the charters of the Audit, Executive Compensation, and Nominating and Governance Committees are available on Tredegar’s
website and are available in print, without charge, to any shareholder upon request by contacting Tredegar’s Corporate
Secretary at 1100 Boulders Parkway, Richmond, Virginia 23225. The information on or that can be accessed through the
Company’s website is not, and shall not be deemed to be, a part of this report or incorporated into other filings it makes with
the SEC.
4
Item 1A. RISK FACTORS
There are a number of risks and uncertainties that could have a material adverse effect on the Company’s consolidated
financial condition, results of operations, or cash flows. The following risk factors should be considered, in addition to the
other information included in this Annual Report on Form 10-K for the year ended December 31, 2015 (“Form 10-K”), when
evaluating Tredegar and its businesses:
General
•
•
•
•
•
Tredegar has an underfunded defined benefit (pension) plan. Tredegar sponsors a pension plan that covers certain
hourly and salaried employees in the U.S. The plan was substantially frozen to new participants in 2007, and frozen to
benefit accruals for active participants in 2014. As of December 31, 2015, the plan was underfunded under U.S. GAAP
measures by $93.2 million. Tredegar expects that it will be required to make a cash contribution of approximately $6.1
million to its underfunded pension plan in 2016, and may be required to make higher cash contributions in future periods
depending on the level of interest rates and investment returns on plan assets.
U.S. and global economic conditions could have an adverse effect on the consolidated financial condition, results of
operations and cash flows of some or all of Tredegar’s operations. As a global entity, the consolidated financial
condition, results of operations and cash flows for Tredegar 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 Company’s business, its consolidated financial condition, results of operations and
cash flows may be adversely impacted by seasonal slowdowns, cyclical downturns in the economy or changes in foreign
currency rates.
Noncompliance with any of the covenants in the Company’s $350 million credit facility could result in all debt under
the agreement outstanding at such time becoming due and limiting its borrowing capacity, which could have a
material adverse effect on consolidated financial condition and liquidity. The credit agreement governing Tredegar’s
revolving credit facility contains restrictions and financial covenants that could restrict the Company’s operational and
financial flexibility. 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 the Company’s consolidated financial condition and liquidity. Renegotiation of the covenant(s)
through an amendment to the revolving credit facility may effectively cure the noncompliance, but may have a negative
effect on the Company’s consolidated financial condition or liquidity depending upon how the amended covenant is
renegotiated.
Tredegar’s performance is influenced by costs incurred by its operating companies, including, for example, the cost of
raw materials and energy. These costs include, without limitation, the cost of resin (the raw material on which PE Films
primarily depends), PTA and MEG (the raw materials on which Flexible Packaging Films primarily depends), aluminum
(the raw material on which Aluminum Extrusions primarily depends), natural gas (the principal fuel necessary for
Aluminum Extrusions’ plants to operate), electricity and diesel fuel. Resin, aluminum and natural gas prices are
extremely volatile as shown in the charts in the Quantitative and Qualitative Disclosures section on pages 36-37. The
Company attempts to mitigate the effects of increased costs through price increases and contractual pass-through
provisions, but there are no assurances that higher prices can effectively be passed through to customers or that Tredegar
will be able to offset fully or on a timely basis the effects of higher raw material and energy costs through price increases
or pass-through arrangements. Further, the Company’s cost control efforts may not be sufficient to offset any additional
future declines in revenue or increases in raw material, energy or other costs.
Substantial international operations subject the Company to risks of doing business in countries outside the U.S.,
which could adversely affect its consolidated financial condition, results of operations and cash flows. 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,
imposition of additional taxes on income generated outside the U.S., nationalization of private enterprises, unexpected
adverse changes in international laws and regulatory requirements and fluctuations in exchange rates. In the countries
where Tredegar conducts its operations, significant fluctuations in the foreign currencies relative to the U.S. dollar could
have a material impact on its consolidated financial condition, results of operations and cash flows. In addition, while
expanding operations into emerging markets provides greater opportunities for growth, there are certain operating risks,
as previously noted.
5
•
•
•
Tredegar may not be able to successfully identify, complete or integrate strategic acquisitions. From time to time, the
Company evaluates acquisition candidates that fit its business objectives. Acquisitions involve special risks, including,
without limitation, meeting revenue, margin, working capital and capital expenditure expectations that substantially drive
valuation, diversion of management’s time and attention from existing businesses, the potential assumption of
unanticipated liabilities and contingencies and potential difficulties in integrating acquired businesses and achieving
anticipated operational improvements. Acquired businesses may not achieve expected results.
Failure to continue to attract, develop and retain certain senior executive officers, operating company management or
other key employees could adversely affect Tredegar’s businesses. The Company depends on its senior executive
officers, operating company management and other key personnel to run the businesses. The loss of key personnel could
have a material adverse effect on operations. Competition for qualified employees among companies that rely heavily on
engineering and technology expertise 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 Tredegar’s businesses could hinder its
ability to improve manufacturing operations, conduct research activities successfully and develop marketable products.
Tredegar is subject to various environmental laws and regulations and could become exposed to material liabilities
and costs associated with such laws. The Company is 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 the Company’s 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 Tredegar 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, Tredegar
expects to be subject to new environmental laws and regulations. However, any such changes are uncertain and,
therefore, it is not possible for the Company to predict with certainty the amount of additional capital expenditures or
operating expenses that could be necessary for compliance with respect to any such changes. See Government
Regulation on page 4 for a further discussion of this risk factor.
• Material disruptions at one of the Company’s major manufacturing facilities could negatively impact financial results.
Tredegar believes its facilities are operated in compliance with applicable local laws and regulations and that the
Company has implemented measures to minimize the risks of disruption at its facilities. 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. A material disruption in one of the Company’s operating locations could negatively impact
production and its consolidated financial condition, results of operations and cash flows.
•
•
An information technology system failure may adversely affect the business. Tredegar relies on information technology
systems to help manage business processes, collect and interpret business data and communicate internally and externally
with employees, investors, suppliers, customers and others. Some of these information systems are managed by third-
party service providers. The Company has backup systems and business continuity plans in place, and takes care to
protect its systems and data from unauthorized access. To date, interruptions of our information systems have been
infrequent and have not had a material impact on our operations. Nevertheless, 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 operations and prevent the Company from being able to process
transactions with its customers, operate its manufacturing facilities, and properly report those transactions in a timely
manner. A significant, protracted information technology system failure or cyber attacks or security breaches by parties
intent on extracting or corrupting information or otherwise disrupting business processes may result in the loss of
revenue, assets or personal or other sensitive data, cause damage to the reputation of the Company and result in legal
challenges and significant remediation and other costs to the Company.
Tredegar is subject to credit risk that is inherent with efforts to increase market share as the Company attempts to
broaden its customer base. In the event of the deterioration of operating cash flows or diminished borrowing capacity of
Tredegar’s customers, the collection of trade receivable balances may be delayed or deemed unlikely. The Company’s
credit risk exposure could increase as business is expanded, including on export sales which have payment terms in
excess of domestic sales. In addition, the operations of the 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.
6
•
•
An inability to renegotiate the Company’s collective bargaining agreements could adversely impact its consolidated
financial condition, results of operations and cash flows. Some of the Company’s employees are represented by labor
unions under various collective bargaining agreements with varying durations and expiration dates. Tredegar may not be
able to satisfactorily renegotiate collective bargaining agreements when they expire, which could result in strikes or work
stoppages or higher labor costs. In addition, existing collective bargaining agreements may not prevent a strike or work
stoppage at the Company’s facilities in the future. Any such work stoppages (or potential work stoppages) could
negatively impact Tredegar’s ability to manufacture its products and adversely affect its consolidated financial condition,
results of operations and cash flows.
Tredegar’s valuation of its $7.5 million cost-basis investment in kaléo is volatile and uncertain. Tredegar uses the fair
value method to account for its 19% ownership interest and investment in kaleo, Inc. (“kaléo”), a private specialty
pharmaceutical company. There is no active secondary market for buying or selling ownership interests in kaléo. The
Company’s fair value estimates can fluctuate materially between reporting periods, primarily due to variances in
performance versus expectations, and kaléo’s ability to meet developmental and commercialization milestones within an
anticipated time frame. Commercial sales of kaléo’s first licensed product, an epinephrine auto-injector, commenced in
the first quarter of 2013, and commercial sales of its second product, a naloxone auto-injector, commenced in the third
quarter of 2014.
In 2009, kaléo licensed exclusive rights to sanofi-aventis U.S. LLC (“Sanofi”) to commercialize the epinephrine auto-
injector in the U.S. and Canada. Sanofi began manufacturing and distributing the epinephrine auto-injector, under the
names Auvi-Q® in the U.S. and Allerject® in Canada, in 2013. Sanofi announced on October 28, 2015, a voluntary
recall of all Auvi-Q and Allerject epinephrine auto-injectors that were previously on the market. As a result of this recall
and its adverse impact on kaléo’s expected future prospects, the Company’s estimated fair value of its investment
decreased $20.5 million, or 52%, in the fourth quarter of 2015.
Kaléo may need additional financing as it addresses this recall, attempts to correct the issues with its epinephrine auto-
injector that resulted in the recall, and continues to invest in its product pipeline. Whether or not kaléo could be successful
in raising additional funds is uncertain. Moreover, significant dilution could occur to existing investors in any new round
of financing that does occur. Even with additional financing, kaléo may not be able to resolve the recall issue or bring
new technology to market.
The estimated fair value of the Company’s investment in kaléo was $18.6 million at December 31, 2015 (included in
“Other assets and deferred charges” in the consolidated balance sheets).
PE Films
•
PE Films is highly dependent on sales associated with its top five customers, the largest of which is P&G. PE Films’
top five customers comprised approximately 32%, 38% and 44% of Tredegar’s consolidated net sales (sales less freight)
from continuing operations, in 2015, 2014 and 2013, respectively, with net sales to P&G alone comprising approximately
19%, 24% and 28% in 2015, 2014 and 2013, respectively. The loss or significant reduction of sales associated with one
or more of these customers could have a material adverse effect on the Company’s business. Other factors that could
adversely affect the business include, by way of example, (i) failure by a key customer to achieve success or maintain
share in markets in which they sell products containing PE Films’ materials, (ii) key customers rolling out products
utilizing technologies developed by others that replace PE Films’ business with such customer, (iii) delays in a key
customer rolling out products utilizing new technologies developed by PE Films and (iv) operational decisions by a key
customer that result in component substitution, inventory reductions and similar changes. While PE Films has undertaken
efforts to expand its customer base, there can be no assurance that such efforts will be successful, or that they will offset
any delay or loss of sales and profits associated with these large customers.
In recent years, PE Films lost substantial sales volume due to product transitions and suffered other losses associated with
various customers (see further discussion in the Executive Summary, PE Films section on page 20).
PE Films anticipates further exposure to product transitions and lost business in certain personal care materials that could
negatively affect future operating profit from ongoing operations by approximately $10 million annually, likely beginning
after 2017. While it continues to identify new business opportunities with its existing customers, PE Films is also
working to expand its customer base in order to create long-term growth and profitability by actively competing for new
business with various customers across its full product portfolio and introducing new products and/or improvements to
existing applications. There is no assurance that these efforts to expand the revenue base and mitigate this or any future
loss of sales and profits from significant customers will be successful.
7
•
•
•
•
•
PE Films and its customers operate in highly competitive markets. PE Films competes on product innovation, quality,
price and service, and its businesses and their customers operate in highly competitive markets. Global market conditions
continue to exacerbate the Company’s exposure to margin compression due to competitive forces, especially as certain
products move into the later stages of their product life cycles. While PE Films continually works to identify new
business opportunities with existing and new customers, primarily through the development of new products with
improved performance and/or cost characteristics, there can be no assurances that such efforts will be successful, or that
they will offset business lost from competitive dynamics or customer product transitions.
Growth of PE Films depends on its ability to develop and deliver new products at competitive prices. Personal care
materials, surface protection films and engineered polymer solutions applications are now being made with a variety of
new innovative materials and the overall cycle for bringing new films products to market has accelerated. While PE
Films has substantial technological resources, there can be no assurance that its 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 PE Films’ technologies, its inability to develop and deliver new profitable
products, or delayed acceptance of its new products in domestic or foreign markets, could have a material adverse effect
on its consolidated financial condition, results of operations and cash flows. In the long term, growth will depend on PE
Films’ ability to provide innovative products at a price that meets the customers’ needs.
Failure of PE Films’ customers, who are subject to cyclical downturns, to achieve success or maintain market share
could adversely impact its sales and operating margins. PE Films’ plastic films serve as components for various
consumer products sold worldwide. A customer’s ability to successfully develop, manufacture and market their products
is integral to PE Films’ success. In addition, many customers are in industries that are cyclical in nature and sensitive to
changes in general economic conditions. During weak economic cycles, consumers of premium products made with or
using PE Films’ components may shift to less premium, less expensive products, reducing the demand for PE Films’
plastic films. Cycle downturns may negatively affect businesses that use PE Films’ plastic film products, which could
adversely affect sales and operating margins.
The Company’s inability to protect its intellectual property rights or its infringement of the intellectual property rights
of others could have a material adverse impact on PE Films. PE Films operates in an industry where its significant
customers and competitors have substantial intellectual property portfolios. The continued success of its business
depends on its ability not only to protect its own technologies and trade secrets, but also to develop and sell new products
that do not infringe upon existing patents or threaten existing customer relationships. Intellectual property litigation is
very costly and could result in substantial expense and diversions of Company resources, both of which could adversely
affect its consolidated financial condition, results of operations and cash flows. In addition, there may be no effective
legal recourse against infringement of the Company’s intellectual property by third parties, whether due to limitations on
enforcement of rights in foreign jurisdictions or as a result of other factors. An unfavorable outcome in any intellectual
property litigation or similar proceeding could have a material adverse effect on the consolidated financial condition,
results of operations and cash flows of PE Films.
An unstable economic environment could have a disruptive impact on PE Films’ supply chain. Certain raw materials
used in manufacturing PE Films’ products are sourced from single suppliers, and PE Films may not be able to quickly or
inexpensively re-source from other suppliers. The risk of damage or disruption to its supply chain may increase if and
when different suppliers consolidate their product portfolios or experience 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 PE Films’ consolidated financial condition, results of operations and cash flows, as well
as require additional resources to restore its supply chain.
Flexible Packaging Films
•
Uncertain economic conditions in Brazil could adversely impact the financial condition, results of operations and cash
flows of Flexible Packaging Films. Flexible Packaging Films and its customers operate in a highly competitive global
market for PET films. In addition, its operations have been adversely impacted by ongoing unfavorable economic
conditions in Brazil, its primary market, which accounted for approximately 46% of its overall sales in 2015. These
combined factors have resulted in significant competitive pricing pressures and margin compression. Tredegar has
attempted to mitigate these impacts through new product offerings, cost saving measures and manufacturing efficiency
initiatives, but these efforts to-date have not been sufficient, resulting in a significant decline in the operating profit for
Flexible Packaging Films since its acquisition in October 2011 and further efforts may not be successful, which could
adversely impact Flexible Packaging Films’ financial condition, results of operations and cash flows.
8
•
Governmental failure to extend anti-dumping duties in Brazil on imported products or prevent competitors from
circumventing such duties could adversely impact Flexible Packaging Films. In recent years, excess global capacity in
the industry has led to increased competitive pressures from imports into Brazil, the Company’s primary market for
flexible packaging films. The Company believes that these conditions have shifted the competitive environment from a
regional to a global landscape and have driven price convergence and lower product margins for Flexible Packaging
Films. In addition to previous actions taken against UAE, Mexico and Turkey, the Brazilian government recently
extended anti-dumping duties on PET films imported from China, Egypt and India, and authorities have initiated new
investigations of dumping against Peru and Bahrain. Competitors not currently subject to anti-dumping duties may
choose to utilize their excess capacity by selling product in Brazil, which may result in pricing pressures thereby creating
margin compression that Flexible Packaging Films may not be able to offset with cost savings measures and/or
manufacturing efficiency initiatives.
Aluminum Extrusions
•
•
•
•
Sales volume and profitability of Aluminum Extrusions is seasonal and cyclical and highly dependent on economic
conditions of end-use markets in the U.S., particularly in the construction sector. Aluminum Extrusions’ end-use
markets can be subject to seasonality as well as large cyclical swings in volume. Because of capital intensive nature and
level of fixed costs inherent in the aluminum extrusions business, the percentage drop in operating profits in a cyclical
downturn will likely exceed the percentage drop in volume. Any benefits associated with cost reductions and productivity
improvements may not be sufficient to offset the adverse effects on profitability from pricing and margin pressure and
higher bad debts (including a greater chance of loss associated with customers defaulting on fixed-price forward sales
contracts) that usually accompany a downturn. In addition, higher energy costs can further reduce profits unless offset by
price increases or cost reductions and productivity improvements.
The markets for Aluminum Extrusions’ products are highly competitive with product quality, service, delivery
performance and price being the principal competitive factors. Aluminum Extrusions has approximately 1,500
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. Future success and prospects depend on its ability to provide superior
service and high quality products to retain existing customers and participate in overall industry cross-cycle growth. In
recent years, increased demand, primarily from the nonresidential building and construction sector, has pushed Aluminum
Extrusions’ average capacity utilization in excess of 90%. Aluminum Extrusions’ ability to grow and service existing
customers is closely tied to having sufficient capacity.
During improving economic conditions, excess industry capacity is absorbed and pricing pressure becomes less of a
factor in many of its 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.
Aluminum Extrusions’ efforts to expand the Company’s presence in the automotive market may not be successful.
Aluminum Extrusions has made significant capital investments in recent years to increase sales to automotive and light
truck tier suppliers. Efforts to expand product offerings and broaden the customer base are tied to successfully
substituting the Company’s aluminum extrusions for current market alternatives. New Corporate Average Fuel Economy
(CAFE) standards requiring material improvements in the automotive and light truck MPG (miles per gallon) by 2025,
are expected to increase demand for lighter materials used in the vehicle’s body, some of which can be supplied by
Aluminum Extrusions. If the demand does not increase and/or the alternative products offered by Aluminum Extrusions
are not accepted by its customers, Aluminum Extrusions may not generate expected returns on its capital investments,
which could have a material adverse effect on its consolidated financial condition, results of operations and cash flows.
Failure to extend duties on imported products or prevent competitors from circumventing such duties could adversely
impact Aluminum Extrusions. In previous years, imports into the U.S., primarily from China, represented an increasing
portion of the U.S. aluminum extrusion market. However, due to an affirmative determination by the U.S. International
Trade Commission in April 2011 that asserted that dumped and subsidized imports of aluminum extrusion from China
unfairly and negatively impacted 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, these protective duties are scheduled to expire in 2016. There
are ongoing efforts within the U.S. aluminum extrusions industry to extend these protective duties. An unfavorable
outcome could have a material adverse effect on the consolidated financial condition, results of operations and cash flows
of Aluminum Extrusions.
9
Item 1B.
UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
General
Most of the improved real property and the other assets used in the Company’s operations are owned, and none of the
owned property is subject to an encumbrance that is considered to be material to its consolidated operations. Tredegar
considers the manufacturing facilities, warehouses and other properties and assets that it owns or leases to be in generally good
condition. Capacity utilization at its various manufacturing facilities can vary with product mix and normal fluctuations in
sales levels. The Company believes that its PE Films and Flexible Packaging Films manufacturing facilities have sufficient
capacity to meet its current production requirements. Increased demand, primarily from the nonresidential building and
construction sector, pushed Aluminum Extrusions’ average capacity utilization in excess of 90% in 2015. Tredegar’s corporate
headquarters, which is leased, is located at 1100 Boulders Parkway, Richmond, Virginia 23225.
The Company’s principal manufacturing plants and facilities are listed below:
PE Films
Locations in the U.S.
Lake Zurich, Illinois
Durham, North Carolina (technical
center and production facility)
(leased)
Pottsville, Pennsylvania
Richmond, Virginia (technical center)
Locations Outside the U.S.
Guangzhou, China
Kerkrade, The Netherlands
Pune, India
Rétság, Hungary
São Paulo, Brazil
Shanghai, China
(leased)
Terre Haute, Indiana (technical center
and production facility)
Principal Operations
Production of plastic films and
laminate materials
Flexible Packaging Films
Locations in the U.S.
Bloomfield, New York (technical center
Locations Outside the U.S.
Cabo de Santo Agostinho, Brazil
Principal Operations
Production of polyester films
and production facility)
Principal Operations
Production of aluminum
extrusions, fabrication and
finishing
Aluminum Extrusions
Locations in the U.S.
Carthage, Tennessee
Elkhart, Indiana
Newnan, Georgia
Niles, Michigan
Item 3.
LEGAL PROCEEDINGS
None.
Item 4.
MINE SAFETY DISCLOSURES
None.
10
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
Tredegar’s common stock is traded on the New York Stock Exchange (“NYSE”) under the ticker symbol TG. The
Company has no preferred stock outstanding. There were 32,682,162 shares of common stock held by 2,188 shareholders of
record on December 31, 2015.
The following table shows the reported high and low closing prices of Tredegar’s common stock by quarter for the past
two years.
First quarter
Second quarter
Third quarter
Fourth quarter
2015
2014
High
Low
High
Low
$
23.07
$
18.87
$
28.45
$
23.16
23.76
16.17
19.75
12.63
13.09
25.08
24.07
22.49
22.48
19.65
18.41
16.76
The closing price of Tredegar’s common stock on February 20, 2016 was $12.19.
Dividend Information
Tredegar has paid a dividend every quarter since becoming a public company in July 1989. During the past three years,
the Company paid quarterly dividends as follows:
• 11 cents per share in the last three quarters of 2015
• 9 cents per share in each of the final three quarters of 2014 and first quarter of 2015;
• 7 cents per share in the first quarter of 2014 and each of the quarters of 2013;
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 the Company’s revolving credit
agreement and other such considerations as the Board deems relevant. See Note 11 of the Notes to Financial Statements
beginning on page 70 for the restrictions on the payment of dividends contained in the Company’s revolving credit agreement
related to aggregate dividends permitted.
Issuer Purchases of Equity Securities
On January 7, 2008, Tredegar announced that its Board of Directors approved a share repurchase program whereby
management is authorized at its discretion to purchase, in the open market or in privately negotiated transactions, up to 5
million shares of the Company’s outstanding common stock. The authorization has no time limit. Tredegar did not repurchase
any shares in the open market or otherwise in 2015, 2014 and 2013 under this standing authorization. The maximum number
of shares remaining under this standing authorization was 1,732,003 at December 31, 2015.
11
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, 2015. Tredegar is part of both the S&P SmallCap 600 Index and Russell 2000 Index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Tredegar Corporation, the S&P SmallCap 600 Index, and the Russell 2000 Index
*$100 invested on 12/31/10 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
Copyright© 2016 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
Copyright© 2016 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 the
Company’s common stock:
Computershare Investor Services
P.O. Box 30170
College Station, TX 77842-3170
Phone: 800-622-6757
www.computershare.com/us/contact
All other inquiries should be directed to:
Tredegar Corporation
Investor Relations Department
1100 Boulders Parkway
Richmond, Virginia 23225
Phone: 800-411-7441
E-mail: invest@tredegar.com
Website: www.tredegar.com
Quarterly Information
Tredegar does not generate or distribute quarterly reports to its shareholders. Information on quarterly results can be
obtained from the Company’s website. In addition, Tredegar files quarterly, annual and other information electronically with
the SEC, which can be accessed on its website at www.sec.gov.
12
Item 6.
SELECTED FINANCIAL DATA
The tables that follow on pages 13-18 present certain selected financial and segment information for the five years ended December 31, 2015.
FIVE-YEAR SUMMARY
Tredegar Corporation and Subsidiaries
Years Ended December 31
(In Thousands, Except Per-Share Data)
Results of Operations (g):
Sales
Other income (expense), net
Cost of goods sold
Freight
Selling, general & administrative expenses
Research and development expenses
Amortization of intangibles
Interest expense
Asset impairments and costs associated with exit and disposal
activities
Goodwill impairment charge
Income (loss) from continuing operations before income taxes
Income taxes
Income (loss) from continuing operations (g)
Income (loss) from discontinued operations, net of tax (g)
Net income
Diluted earnings (loss) per share (g):
Continuing operations
Discontinued operations
Net income
Refer to Notes to Financial Tables on page 18.
2015
2014
2013
2012
2011
$ 896,177
$ 951,826
$ 959,346
$ 882,188
$ 794,420
(20,113) (b)
876,064
725,459 (b)
29,838
71,911 (b)
16,173
4,073
3,502
3,850 (b)
44,465 (a)
899,271
(23,207)
8,928 (b)
(32,135)
—
$ (32,135)
$
$
(0.99)
—
(0.99)
(6,697) (c)
1,776 (d)
18,119 (e)
3,213 (f)
945,129
961,122
900,307
797,633
778,113 (c)
784,675 (d)
712,660 (e)
654,087 (f)
28,793
28,625
24,846
18,488
69,526 (c)
71,195 (d)
73,717 (e)
67,808 (f)
12,147
5,395
2,713
12,669
6,744
2,870
13,162
5,806
3,590
13,219
1,399
1,926
3,026 (c)
1,412 (d)
5,022 (e)
1,917 (f)
—
—
—
—
899,713
908,190
838,803
758,844
45,416
9,387 (c)
36,029
850 (g)
36,879
1.11
0.02 (g)
1.13
$
$
$
52,932
16,995 (d)
35,937
(13,990) (g)
21,947
1.10
(0.43) (g)
0.67
$
$
$
61,504
18,319 (e)
43,185
(14,934) (g)
28,251
1.34
(0.46) (g)
0.88
$
$
$
38,789
10,244 (f)
28,545
(3,690) (g)
24,855
0.89
(0.12)
0.77
$
$
$
13
FIVE-YEAR SUMMARY
Tredegar Corporation and Subsidiaries
Years Ended December 31
(In Thousands, Except Per-Share Data)
Share Data:
Equity per share (m)
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 (l)
Cash and cash equivalents
Debt
Shareholders’ equity (net book value)
Equity market capitalization (i)
Refer to Notes to Financial Tables on page 18.
2015
2014
2013
2012
2011
11.61
$
0.96
(k) $
12.46
0.28
32,172
32,599
32,305
30.73
21.06
28.81
$
$
$
$
$
32,032
32,193
32,069
26.29
13.49
20.42
42.5%
(3.8)%
793,008
$ 783,165
52,617
$
48,822
139,000
$ 128,000
402,664
930,711
$ 372,252
$ 654,857
12.38
0.18
31,932
32,213
32,057
23.00
13.92
22.22
15.6%
780,610
68,939
125,000
396,907
712,307
$
$
$
$
$
$
$
$
$
$
$
$
$
8.35
0.42
32,578
32,578
32,682
23.76
12.63
13.62
(37.6)%
$
$
$
$
$
11.47
0.34
32,302
32,554
32,422
28.45
16.76
22.49
(20.8)%
$ 623,260
$ 788,626
$
44,156
$
50,056
$ 104,000
$ 137,250
$ 272,748
$ 445,131
$ 372,029
$ 729,173
$
$
$
$
$
$
$
$
$
$
14
SEGMENT TABLES
Tredegar Corporation and Subsidiaries
Net Sales (j)
(In Thousands)
PE Films
Flexible Packaging Films
Aluminum Extrusions
Total net sales
Add back freight
2015
2014
2013
2012
2011
$
385,550
$
464,339
$
495,386
$
473,849
$
507,284
105,332
375,457
866,339
29,838
114,348
344,346
923,033
28,793
125,853
309,482
930,721
28,625
138,028
245,465
857,342
24,846
28,256
240,392
775,932
18,488
Sales as shown in Consolidated Statements of Income
$
896,177
$
951,826
$
959,346
$
882,188
$
794,420
Identifiable Assets
(In Thousands)
PE Films
Flexible Packaging Films
Aluminum Extrusions
Subtotal
General corporate
Cash and cash equivalents
Identifiable assets from continuing operations
Discontinued operations (g)
Total
Refer to Notes to Financial Tables on page 18.
2015
2014
2013
2012
2011
$
270,236
$
283,606
$
291,377
$
301,175
$
329,961
146,253
136,935
553,424
25,680
44,156
623,260
—
623,260
$
262,604
143,328
689,538
49,032
50,056
788,626
—
788,626
$
265,496
134,928
691,801
48,590
52,617
793,008
—
793,008
$
250,667
129,279
681,121
53,222
48,822
783,165
—
783,165
$
244,610
78,661
653,232
40,917
68,939
763,088
17,522
780,610
$
15
SEGMENT TABLES
Tredegar Corporation and Subsidiaries
Operating Profit
(In Thousands)
PE Films:
Ongoing operations
Plant shutdowns, asset impairments, restructurings and other
Flexible Packaging Films:
Ongoing operations
Plant shutdowns, asset impairments, restructurings and other
Goodwill impairment charge
Aluminum Extrusions:
Ongoing operations
Plant shutdowns, asset impairments, restructurings and other
Total
Interest income
Interest expense
Gain (loss) on investment accounted for under the fair value method
Gain on sale of investment property
Unrealized loss on investment property
Stock option-based compensation expense
Corporate expenses, net
Income (loss) from continuing operations before income taxes
Income taxes
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax (g)
Net income
Refer to Notes to Financial Tables on page 18.
2015
2014
2013
2012
2011
$
48,275
(4,180) (b)
$
60,971
(12,236) (c)
$
61,866
$
50,814
$
56,521
(671) (d)
1,011 (e)
(901) (f)
5,453
(185) (b)
(44,465) (a)
(2,917)
(591) (c)
—
9,100
—
—
19,136
2,972
(1,120) (e)
(5,906) (f)
—
—
30,432
25,664
(708) (b)
(976) (c)
34,622
294
3,502
(20,500)
—
—
483
33,638 (b)
(23,207)
8,928 (b)
(32,135)
—
69,915
588
2,713
2,000 (c)
1,208 (c)
—
1,272
24,310 (c)
45,416
9,387 (c)
36,029
850 (g)
$ (32,135)
$
36,879
$
18,291
(2,748) (d)
85,838
594
2,870
9,037
3,457
(5,427) (e)
58 (f)
73,451
418
3,590
56,201
1,023
1,926
3,400 (d)
16,100 (e)
1,600 (f)
—
1,018 (d)
1,155
31,857 (d)
52,932
16,995 (d)
—
—
1,432
23,443 (e)
61,504
18,319 (e)
35,937
(13,990) (g)
21,947
43,185
(14,934) (g)
28,251
$
$
—
—
1,940
16,169 (f)
38,789
10,244 (f)
28,545
(3,690) (g)
24,855
16
SEGMENT TABLES
Tredegar Corporation and Subsidiaries
Depreciation and Amortization
(In Thousands)
PE Films
Flexible Packaging Films
Aluminum Extrusions
Subtotal
General corporate
Total continuing operations
Discontinued operations (g)
2015
2014
2013
2012
2011
$
15,480
$
21,399
$
25,656
$
28,962
$
34,201
9,697
9,698
34,875
107
34,982
—
9,331
9,974
40,704
114
40,818
—
9,676
9,202
44,534
121
44,655
—
10,240
9,984
49,186
73
49,259
10
2,114
8,333
44,648
75
44,723
12
Total depreciation and amortization expense
$
34,982
$
40,818
$
44,655
$
49,269
$
44,735
Capital Expenditures
(In Thousands)
PE Films
Flexible Packaging Films
Aluminum Extrusions
Subtotal
General corporate
Capital expenditures for continuing operations
Discontinued operations
Total capital expenditures
Refer to Notes to Financial Tables on page 18.
2015
2014
2013
2012
2011
$
21,218
$
17,000
$
15,615
$
5,965
$
10,783
3,489
8,124
32,831
—
32,831
—
32,831
$
21,806
6,092
44,898
—
44,898
—
44,898
$
49,252
14,742
79,609
52
79,661
—
79,661
$
24,519
2,332
32,816
436
33,252
—
33,252
2,324
2,697
15,804
76
15,880
—
15,880
17
NOTES TO FINANCIAL TABLES
(a) Results for 2015 included a goodwill impairment charge of $44.5 million ($44.5 million after taxes) recognized in Flexible Packaging Films in the third quarter of 2015 upon completion of an impairment analysis performed as of September 30, 2015.
See further discussion in Executive Summary beginning on page 19.
(b) Plant shutdowns, asset impairments, restructurings and other charges for 2015 include charges of $3.9 million (included in “Selling, general and administrative” in the consolidated statements of income) for severance and other employee-related costs
associated with the resignation of the Company’s former chief executive and chief financial officers; charges of $2.2 million associated with the consolidation of domestic PE Films manufacturing facilities, which includes severance and other
employee-related costs of $0.8 million, asset impairments of $0.4 million, accelerated depreciation of $0.4 million (included in “Cost of goods sold” in the consolidated statements of income) and other facility consolidation-related expenses of $0.6
million ($0.1 million is included in “Cost of goods sold” in the consolidated statements of income); charge of $2.2 million for severance and other employee-related costs associated with restructurings in PE Films ($2.0 million) ($0.4 million included
in “Selling, general and administrative expense” in the consolidated statement of income), Flexible Packaging Films ($0.2 million), Aluminum Extrusions ($35,000) and Corporate ($26,000); charges of $1.0 million associated with a non-recurring
business development project (included in “Cost of goods sold” in the consolidated statements of income); charges of $0.4 million associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana; and charges of
$0.3 million related to expected future environmental costs at the Company’s aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statements of income). The unrealized loss on the
Company’s investment in kaléo of $20.5 million is included in “Other income (expense), net” in the consolidated statements of income.
(c) Plant shutdowns, asset impairments, restructurings and other for 2014 include a charge of $10.0 million (included in “Other income (expense), net” in the consolidated statements of income) associated with the one-time, lump sum license payment to
3M Company (“3M”) after the Company settled all litigation issues associated with a patent infringement complaint; charges of $2.3 million for severance and other employee-related costs in connection with restructurings in PE Films ($1.7 million),
Flexible Packaging Films ($0.6 million) and Aluminum Extrusions ($31,000); charges of $0.9 million related to expected future environmental costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods
sold” in the consolidated statement of income); charges of $0.7 million associated with the shutdown of the film products manufacturing facility in Red Springs, North Carolina, which includes severance and other employee-related costs of $0.4 million
and asset impairment and other shutdown-related charges of $0.3 million; gain of $0.1 million related to the sale of previously shutdown film products manufacturing facility in LaGrange, Georgia (included in “Other income (expense), net” in the
consolidated statements of income); and charges of $54,000 associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana. The unrealized gain on the Company’s investment in kaléo of $2.0 million; the
unrealized loss on the Company’s investment in Harbinger Capital Partners Special Situations Fund L.P. (“Harbinger”) of $0.8 million and the gain on sale on a portion the Company’s investment property in Alleghany and Bath County, Virginia was
$1.2 million in 2014 are included in “Other income (expense), net” in the consolidated statements of income. Income taxes from continuing operations in 2014 includes the recognition of a tax benefit for a portion of the Company’s capital loss
carryforwards of $4.9 million. These capital loss carryforwards were previously offset by a valuation allowance associated with expected limitations on the utilization of these assumed capital losses. As a result of changes in the underlying basis of
certain foreign subsidiaries, income taxes from continuing operations in 2014 also included an adjustment of $2.2 million to reverse previously accrued deferred tax liabilities arising from foreign currency translation adjustments.
(d) Plant shutdowns, asset impairments, restructurings and other for 2013 include a charge of $1.7 million related to expected future environmental costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods
sold” in the consolidated statement of income); charges of $0.6 million associated with the shutdown of the Company’s aluminum extrusions manufacturing facility in Kentland, Indiana; charges of $0.5 million associated with the shutdown of the film
products manufacturing facility in Red Springs, North Carolina, which includes severance and other employee-related costs of $0.3 million and asset impairment charges of $0.2 million; charges of $0.4 million for severance and other employee-related
costs in connection with restructurings in Aluminum Extrusions ($0.3 million) and PE Films ($0.1 million); charges of $0.2 million for integration-related expenses and other nonrecurring transactions (included in “Selling, general and administrative
expenses” in the consolidated statements of income) associated with the acquisition of AACOA by Aluminum Extrusions; and a loss of $0.1 million related to the sale of previously impaired machinery and equipment at the Company’s film products
manufacturing facility in Shanghai, China (included in “Other income (expense), net” in the consolidated statements of income). The unrealized gain on the Company’s investment in kaléo of $3.4 million, the unrealized loss on the Company’s
investment in Harbinger of $0.4 million and the unrealized loss on the Company’s 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.
(e) Plant shutdowns, asset impairments, restructurings and other for 2012 include a net charge of $3.6 million associated with the shutdown of the Company’s 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 PE Films (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 Tredegar; gain of $1.1 million (included in “Other income (expense), net” in the consolidated statements of income) on the sale of assets associated with 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 PE Films
($0.3 million) and Aluminum Extrusions ($0.2 million); charges of $0.2 million for asset impairments in PE Films; 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 the Company’s investment in kaléo of $16.1 million and the unrealized loss on the Company’s 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.
(f) 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) associated with
the acquisition of Terphane by Tredegar; charges of $1.4 million for asset impairments in PE Films; a gain of $1.0 million on the disposition of the 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 Tredegar after its acquisition 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 PE Films; 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
Tredegar; 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 the Company’s investment in kaléo of $1.6 million and the unrealized loss on the Company’s investment in Harbinger
of $0.6 million in 2011 are included in “Other income (expense), net” in the consolidated statements of income.
Equity market capitalization is the closing market price per share for the period multiplied by the shares outstanding at the end of the period.
(g) On November 20, 2012, Tredegar sold its membership interests in Falling Springs, LLC. All historical results for this business have been reflected in discontinued operations. 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. In 2012 and 2011, net income of $0.5 million and $0.7 million, respectively, have been reclassified to discontinued operations. On February 12, 2008,
Tredegar sold its aluminum extrusions business in Canada. All historical results for this business have been reflected as discontinued operations. In 2014, accruals for indemnifications under the purchase agreement were adjusted, resulting in income
from discontinued operations of $0.9 million. In 2013, 2012 and 2011, discontinued operations include after-tax charges of $14.0 million and $13.4 million and $4.4 million, respectively, to accrue for indemnifications under the purchase agreement
related to environmental matters.
(h) Total return to shareholders is defined as the change in stock price during the year plus dividends per share, divided by the stock price at the beginning of the year.
(i) Equity market capitalization is the closing market price per share for the period multiplied by the shares outstanding at the end of the period.
(j) Net sales represent gross sales less freight. Net sales is the measure used by the chief operating decision maker of each segment for purposes of assessing performance.
(k) 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 in December 2012.
(l) Total assets in 2015 are not comparable to prior years due to the adoption of new FASB guidance associated with the classification of deferred income tax assets and liabilities. See Note 17 to the Notes to the Financial Statements for additional
details.
(m) Equity per share is computed by dividing Shareholders’ equity at year end by the shares outstanding at end of period.
18
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 using the words “believe,”
“estimate,” “anticipate,” “expect,” “project,” “likely,” “may” and similar expressions, Tredegar does so to identify forward-
looking statements. Such statements are based on then current expectations and are subject to a number of risks and
uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. It is
possible that actual results and financial condition may differ, possibly materially, from the anticipated results and financial
condition indicated in or implied by these forward-looking statements. For risks and important factors that could cause actual
results to differ from expectations, refer to the reports that the Company files with or provides 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,
except as required by applicable law.
General
Executive Summary
Tredegar is a manufacturer of polyethylene (“PE”) plastic films, polyester films, and aluminum extrusions. Descriptions
of all of the Company’s businesses are provided in the Business section on pages 1-4.
Sales from continuing operations were $896.2 million in 2015 compared to $951.8 million in 2014. Net loss from
continuing operations was $32.1 million ($0.99 per diluted share) in 2015, compared with net income from continuing
operations of $36.0 million ($1.11 per diluted share) in 2014. The net loss from continuing operations in 2015 included the
following:
• The write-off of all goodwill associated with Flexible Packaging Films ($44.5 million); and
• An unrealized loss on the Company’s investment in kaléo ($20.5 million), which is accounted for under the
fair value method.
Other losses associated with plant shutdowns, asset 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 26.
Tredegar has historically reported two business segments: Film Products and Aluminum Extrusions. In 2015, the
Company divided Film Products into two separate reportable segments: PE Films and Flexible Packaging Films. PE Films is
comprised of personal care materials, surface protection films and engineered polymer solutions, and Flexible Packaging Films
is comprised of the Company’s polyester films business, Terphane, which was acquired by the Company in October 2011. As
part of its transition to a new executive leadership team, the Company’s management decided to discontinue its efforts to
integrate Terphane with its PE film products operations. In separating PE Films and Flexible Packaging Films, the Company’s
management believes that it will be able to more effectively manage the distinct opportunities and challenges that each of these
businesses face. Therefore, the Company's business segments are now PE Films, Flexible Packaging Films and Aluminum
Extrusions. All historical results for PE Films and Flexible Packaging Films have been separately presented to conform with
the new presentation of segments. See also the Business Segment Review beginning on page 39.
19
PE Films
A summary of operating results for PE Films is provided below:
(In thousands, except percentages)
Sales volume (pounds)
Net sales
Operating profit from ongoing operations
Year Ended
December 31
2015
2014
160,283
385,550
48,275
$
$
175,203
464,339
60,971
$
$
Favorable/
(Unfavorable)
% Change
(8.5)%
(17.0)%
(20.8)%
Net sales in 2015 decreased by $78.8 million versus 2014, primarily due to lower volume ($46.3 million), mainly from
lost business and product transitions, and the unfavorable impact from the change in the U.S. dollar value of currencies for
operations outside of the U.S. ($25.9 million).
Sales volume in 2015 declined as a result of the wind down of shipments for certain personal care materials due to
various product transitions and lost business, primarily with PE Films’ largest customer. In addition, efforts to consolidate
domestic manufacturing facilities in PE Films commenced in the third quarter of 2015. This restructuring project is not
expected to be completed until the second half of 2017, and once complete, annual pre-tax cash cost savings are expected to be
approximately $5-6 million. The table below summarizes the pro forma operating profit from ongoing operations for 2015 and
2014, had the impact of the events noted in the Restructuring section below been fully realized in each period:
(In Thousands)
Operating profit from ongoing operations, as reported
Contribution to operating profit from ongoing operations associated
with lost business:
Certain babycare elastic films sold in North America
Product transitions & other lost business before restructurings &
fixed costs reduction
Operating profit from ongoing operations net of the impact of business
that will be fully eliminated in future periods
Estimated future benefit of North American facility consolidation
Pro forma estimated operating profit from ongoing operations
Twelve Months Ended December 31,
2015
2014
$48,275
$60,971
—
13,349
34,926
5,200
$40,126
2,106
22,686
36,179
5,200
$41,379
Net sales associated with lost business and product transitions that have yet to be fully eliminated were approximately
$38.5 million and $84.5 million in 2015 and 2014, respectively.
Net of the impact of product transitions and lost business, pro forma estimated operating profit from ongoing
operations in 2015 decreased by $1.3 million versus 2014 due to the following:
• An increase in volume of over 6% and a favorable mix for surface protection films ($4.2 million);
• A decrease in volume for polyethylene overwrap films and other personal care materials ($2.4 million);
• The favorable lag in the pass-through of average resin costs of $1.3 million in 2015 versus a negative $0.1 million in
2014;
• An increase in foreign currency translation and transaction losses ($3.7 million); and
• Other factors including higher research and development costs partially offset by lower depreciation.
The competitive dynamics in PE Films require continuous development of new products to improve cost and
performance for customers. PE Films anticipates additional exposure to product transitions and lost business in certain
personal care materials. The estimated additional adverse impact to future operating profit from ongoing operations relating to
such exposure is $10 million annually, which would not likely occur until after 2017.
20
Restructuring
PE Films believes that most of the growth in the demand for its products will come from markets outside of North
America. In recent years, PE Films made significant capacity investments in foreign markets to better meet its customers’
desire for local supply. With increasing levels of production shifting to the PE Films manufacturing facilities located outside of
North America, PE Films believes that consolidating its domestic PE Films manufacturing facilities provides an opportunity to
reduce fixed manufacturing costs.
On July 7, 2015, the Company announced its intention to consolidate its domestic production for PE Films by
restructuring its manufacturing facility in Lake Zurich, Illinois. Efforts to transition domestic production from the Lake Zurich
manufacturing facility will require various machinery upgrades and equipment transfers to its other manufacturing facilities.
Given PE Films’ focus on maintaining product quality and customer satisfaction, the Company anticipates that these activities
will be completed in the middle of 2017. Total pre-tax cash expenditures associated with restructuring the Lake Zurich
manufacturing facility are expected to be approximately $15-16 million over this period, and once complete, annual pre-tax
cash cost savings are expected to be approximately $5-6 million.
The Company expects to recognize costs associated with the exit and disposal activities of approximately $4-5 million
over the project period. Exit and disposal costs include severance charges and other employee-related expenses arising from
the termination of employees of approximately $2-3 million and equipment transfers and other facility consolidation-related
costs of approximately $2 million. During the same period of time, operating expenses will include the acceleration of
approximately $3 million of non-cash depreciation expense for certain machinery and equipment at the Lake Zurich
manufacturing facility. Total expenses associated with the North American facility consolidation project were $2.2 million in
2015 ($1.7 million included in “Asset impairments and costs associated with exit and disposal activities” and $0.5 million
included in “Cost of goods sold” in the consolidated statement of income).
Total estimated cash expenditures of $15-16 million over the project period include the following:
• Cash outlays associated with previously discussed exit and disposal expenses of approximately $4 million;
• Capital expenditures associated with equipment upgrades at other PE Films manufacturing facilities in the U.S. of
approximately $10 million;
• Cash incentives of approximately $1 million in connection with meeting safety and quality standards while
production ramps down at the Lake Zurich manufacturing facility; and
• Additional operating expenses of approximately $1 million associated with customer product qualifications on
upgraded and transferred production lines.
Cash expenditures for the North American facility consolidation project were $3.1 million in 2015, which includes $2.5 million
for capital expenditures.
Capital Expenditures and Depreciation & Amortization
Capital expenditures in PE Films were $21.2 million in 2015 compared to $17.0 million in 2014. Capital expenditures
are projected to be $30 million in 2016, including approximately $10 million for routine items required to support operations.
Capital spending for strategic projects in 2016 includes expansion of elastics capacity in Europe, expansion of surface
protection films capacity in China and the North American facility consolidation. Depreciation expense was $15.4 million in
2015 and $21.1 million in 2014. Depreciation expense is projected to be $15 million in 2016. Amortization expense was $0.1
million in 2015 and $0.3 million in 2014, and is projected to be $0.1 million in 2016.
21
Flexible Packaging Films
A summary of operating results for Flexible Packaging Films, which excludes the goodwill impairment charge discussed
below, is provided below:
(In thousands, except percentages)
Sales volume (pounds)
Net sales
Operating profit (loss) from ongoing operations
$
$
2015
2014
82,347
105,332
5,453
$
$
72,064
114,348
(2,917)
Year Ended
December 31
Favorable/
(Unfavorable)
% Change
14.3 %
(7.9)%
-
Net sales in 2015 decreased 7.9% versus 2014 primarily due to competitive pricing pressures and the pass-through to
customers of lower raw material costs, partially offset by a 14.3% increase in sales volume.
Operating profit (loss) from ongoing operations improved from a loss of $2.9 million in 2014 to income of $5.5
million in 2015 ($8.4 million improvement), primarily due to the following:
• An improvement of $1.4 million in 2015 versus 2014 due to lower general, sales and administration costs of $1.2
million and operating efficiencies of $0.9 million, partially offset by lower margins of $0.7 million primarily from
competitive pricing pressures;
•
Foreign currency transaction gains associated with U.S. dollar denominated export sales in Brazil of $3.5 million in
2015 versus $0.5 million in 2014;
• The estimated lag in the pass through of lower raw material costs of $1.0 million in 2015 (none in 2014);
• Net refunds of $1.6 million in 2015 as a result of the reinstatement by the U.S. in the third quarter of 2015 of the
Generalized System of Preferences (GSP) program allowing for duty-free shipment of Terphane’s products to the
U.S. versus duties paid of $1.1 million in 2014; and
• The favorable settlement of certain loss contingencies of $0.6 million in 2015 versus $0.3 million in 2014.
Capital Expenditures, Depreciation & Amortization and Goodwill Impairment Charge
Capital expenditures were $3.5 million in 2015 compared to $21.8 million in 2014. Capital expenditures in 2014
included $17 million for the capacity expansion project at a manufacturing facility in Cabo de Santo Agostinho, Brazil. Capital
expenditures are projected to be $5 million in 2016, including approximately $3 million for routine items required to support
operations. Depreciation expense was $6.8 million in 2015 and $5.8 million in 2014. Depreciation expense is projected to be
$6 million in 2016. Amortization expense was $2.9 million in 2015 and $3.5 million in 2014, and is projected to be $3 million
in 2016.
During the third quarter of 2015, the Company performed a goodwill impairment assessment related to Flexible
Packaging Films. This review was undertaken as a result of the continued competitive pressures related to ongoing unfavorable
economic conditions in Flexible Packaging Films’ primary market of Brazil and excess global industry capacity. The
assessment resulted in a full write-off of the goodwill of $44.5 million associated with the acquisition of Terphane. The
Company believes that unfavorable business conditions in its markets have shifted the competitive environment from a regional
to a global landscape and have driven price convergence and lower product margins. Authorities in Brazil have initiated new
investigations of dumping against Peru and Bahrain. These new investigations follow recent favorable anti-dumping rulings
issued by the Brazilian government against China, Egypt and India, which were in addition to previous actions taken against
United Arab Emirates, Mexico, and Turkey.
22
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
2015
170,045
375,457
30,432
$
$
2014
153,843
344,346
25,664
$
$
Year Ended
December 31
Favorable/
(Unfavorable)
% Change
10.5%
9.0%
18.6%
Net sales in 2015 increased in comparison to 2014 primarily due to higher sales volume in all major markets, offset by
a decrease in average selling prices. Higher sales volume had a favorable impact of $40.6 million in 2015 compared to 2014.
The decrease in average selling prices, which reduced net sales by $9.5 million, were mainly due to lower aluminum costs and
mix changes.
Operating profit from ongoing operations in 2015 increased $4.8 million primarily as a result of higher volume
partially offset by new hire costs and other production inefficiencies that occurred in the first three quarters of 2015.
Capital Expenditures and Depreciation & Amortization
Capital expenditures for Aluminum Extrusions were $8.1 million in 2015 compared to $6.1 million in 2014. Capital
expenditures are projected to be $24 million in 2016, which includes approximately $5 million for routine items required to
support operations and approximately $14 million of a total $18 million expected to add extrusions capacity at the Niles
facility. Depreciation expense was $8.7 million in 2015 compared to $8.3 million in 2014, and is projected to be $9 million in
2016. Amortization expense was $1.0 million in 2015 and $1.6 million in 2014, and is projected to be $1 million in 2016.
Corporate Expenses, Interest and Income Taxes
Pension expense was $12.3 million in 2015, an unfavorable change of $5.6 million from 2014 primarily due to a drop
in the discount rate. Most of the impact on earnings from higher pension expense is reflected in “Corporate expenses, net” in
the Net Sales and Operating Profit by Segment table. Pension expense is projected to be $11.3 million in 2016. Corporate
expenses, net increased in 2015 versus 2014 primarily due to the increase in pension expense noted above, business
development costs and corporate severance charges. In 2015, corporate expenses, net included non-recurring costs of $4.9
million, which consisted mainly of business development costs of $1.0 million and severance and other employee-related
charges of $3.9 million associated with the resignations of the Company’s former chief executive and chief financial officers in
the second quarter of 2015. In 2014, corporate expenses, net included non-recurring costs of $0.9 million.
Interest expense was $3.5 million in 2015 in comparison to $2.7 million in 2014.
The effective tax rate used to compute income taxes for income from continuing operations was a negative 38.5% in
2015 compared to a positive 20.7% in 2014. The effective tax rate for 2015 was significantly lowered by 68.1% due to the non-
deductible goodwill impairment charge of $44.5 million associated with the acquisition of Terphane. The effective tax rate in
2014 was lowered by 14.3% due to the partial reversal of a valuation allowance, and the reversal of deferred tax liabilities
recorded on unremitted earnings of foreign subsidiaries and other special items. More information on the significant
differences between the effective tax rate for income from continuing operations and the U.S. federal statutory rate for 2015 and
2014 are further detailed in the effective income tax rate reconciliation provided in Note 17 of the Notes to Financial
Statements beginning on Page 79.
Net debt (debt in excess of cash and cash equivalents) was $59.8 million at December 31, 2015, compared with $87.2
million at December 31, 2014. Net debt is calculated as follows:
(in millions)
Debt
Less: Cash and cash equivalents
Net debt
December 31, 2015
December 31, 2014
$
$
104.0
$
44.2
59.8
$
137.3
50.1
87.2
23
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. The Company believes that investors also may find net debt helpful for the
same purposes. Consolidated net capitalization and other credit measures are provided in the Financial Condition section
beginning on page 29.
Critical Accounting Policies
In the ordinary course of business, the Company makes a number of estimates and assumptions relating to the reporting of
results of operations and financial position in the preparation of financial statements in conformity with U.S. GAAP. Actual
results could differ significantly from those estimates under different assumptions and conditions. The Company believes the
following discussion addresses its critical accounting policies. These policies require management to exercise judgments that
are often difficult, subjective and complex due to the necessity of estimating the effect of matters that are inherently uncertain.
Impairment and Useful Lives of Long-lived Identifiable Assets and Goodwill
The Company assesses its long-lived identifiable assets for impairment when events or circumstances indicate that their
carrying value may not be recoverable from future cash flows. Any necessary impairment charges are recorded when the
Company does not believe the carrying value of the long-lived asset(s) will be recoverable. Tredegar also reassesses the useful
lives of its long-lived assets based on changes in the business and technologies.
The Company assesses goodwill for impairment when events or circumstances indicate that the carrying value may not be
recoverable, or, at a minimum, on an annual basis (December 1st of each year). As of December 31, 2015, reporting units in PE
Films and Aluminum Extrusions carried goodwill balances. All goodwill associated with Flexible Packaging Films was
impaired in the third quarter of 2015. The remaining goodwill was tested for impairment at the annual testing date, with the
estimated fair value of the tested units substantially exceeding the carrying value of the net assets.
In assessing the recoverability of goodwill and long-lived identifiable assets, the Company estimates fair value using
discounted cash flow analysis and comparative enterprise value-to-EBITDA (earnings before interest, taxes, depreciation and
amortization) multiples. These calculations require management 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, the Company may be required to record additional impairment charges.
Based upon assessments performed as to the recoverability of long-lived identifiable assets, the Company recorded asset
impairment losses for continuing operations of $0.2 million in 2015 (none in 2014 and 2013).
Investment Accounted for Under the Fair Value Method
In August 2007 and December 2008, Tredegar made an aggregate investment of $7.5 million in kaléo (formerly
Intelliject, Inc.), a privately held specialty pharmaceutical company. This investment is accounted for under the fair value
method. At the time of the initial investment, the Company elected the fair value option over the equity method of accounting
since its 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,
2015, Tredegar’s ownership interest was approximately 19% on a fully diluted basis.
The Company discloses the level within the fair value hierarchy in which fair value measurements in their entirety fall,
segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant
other observable inputs (Level 2), and significant unobservable inputs (Level 3). On the dates of its investments, Tredegar
believes that the amount it paid for its ownership interest and liquidation preferences was based on Level 2 inputs, including
investments by other investors. Subsequent to the last round of financing, and until the next round of financing, the Company
believes fair value estimates are based upon Level 3 inputs since there is no secondary market for Tredegar’s 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. Adjustments to the estimated fair value of this investment will be made in the period upon which such changes can be
quantified.
24
At December 31, 2015 and 2014, the fair value of the Company’s investment in kaléo (the carrying value included in
“Other assets and deferred charges” in the consolidated balance sheet) was $18.6 million and $39.1 million, respectively. The
weighted average cost of capital used in the fair market valuation of the Company’s interest in kaléo was 45% at both
December 31, 2015 and 2014. The fair market valuation of Tredegar’s interest in kaléo is sensitive to changes in the weighted
average cost of capital used to discount cash flow projections for the high degree of risk associated with meeting development
and commercialization milestones as anticipated. At December 31, 2015, the effect of a 500 basis point decrease in the
weighted average cost of capital assumption would have further increased the fair value of the Company’s interest in kaléo by
approximately $4 million, and a 500 basis point increase in the weighted average cost of capital assumption would have
decreased the fair value of the Company’s interest by approximately $4 million. See Note 4 of the Notes to Financial
Statements on page 61 for more information.
Pension Benefits
Tredegar sponsors noncontributory defined benefit (pension) plans in its continuing operations that have resulted in
varying amounts of net pension income or expense, as developed from actuarial valuations. Inherent in these valuations are
key assumptions including discount rates, expected return on plan assets and rate of future compensation increases. The
Company is required to consider current market conditions, including changes in interest rates and plan asset investment
returns, in determining these assumptions. Actuarial assumptions may differ materially from actual results due to changing
market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These
differences may result in a significant impact to the amount of net pension income or expense recorded in future periods.
The discount rate is used to determine the present value of future payments. The discount rate is the single rate that, when
applied to expected benefit payments, provides a present value equal to the present value of expected benefit payments
determined by using the AA-rated bond yield curve. In general, the pension liability increases as the discount rate decreases
and vice versa. The weighted average discount rate utilized was 4.55%, 4.17% and 4.99% at the end of 2015, 2014 and 2013,
respectively, with changes between periods due to changes in market interest rates. 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 (one as
of February 1, 2016) of the Company’s U.S. manufacturing facilities, the plan no longer accrued 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 plan assets, which is primarily
affected by the change in fair value of plan assets, current year contributions and current year payments to participants, was
approximately (1.8)%, 4.1% and 11.2% in 2015, 2014 and 2013, respectively. The expected long-term return on plan assets
relating to continuing operations, which is estimated by asset class and generally based on inflation-adjusted historical returns,
volatilities, risk premiums and managed asset premiums, was 7.5% in 2015, 7.75% in 2014 and 2013, 8.0% in 2012 and 8.25%
from 2009 to 2011. The Company anticipates that its expected long-term return on plan assets will be 7.0% for 2016. See Note
14 of the Notes to Financial Statements on page 74 for more information on expected long-term return on plan assets and asset
mix.
See the Executive Summary beginning on page 19 for further discussion regarding the financial impact of the Company’s
pension plans.
Income Taxes
On a quarterly basis, Tredegar reviews its judgments regarding uncertain tax positions and the likelihood that the benefits
of a deferred tax asset will be realized. As circumstances change, the Company reflects in earnings any adjustments to
unrecognized benefits for uncertain tax positions and valuation allowances for deferred tax assets.
For financial reporting purposes, unrecognized tax benefits on uncertain tax positions were $4.0 million, $3.3 million and
$2.2 million as of December 31, 2015, 2014 and 2013, respectively. Tax payments resulting from the successful challenge by
the taxing authority on uncertain tax positions taken by Tredegar would possibly result in the payment of interest and penalties.
Accordingly, the Company also accrues for possible interest and penalties on uncertain tax positions. The balance of accrued
interest and penalties on deductions taken relating to uncertain tax positions was $0.4 million, $0.3 million and $0.2 million at
December 31, 2015, 2014 and 2013, respectively ($0.2 million, $0.2 million and $0.1 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, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction, various states and jurisdictions
outside the U.S. With few exceptions, Tredegar is no longer subject to U.S. federal, state or non-U.S. income tax examinations
by tax authorities for years before 2012.
25
As of December 31, 2015 and 2014, valuation allowances relating to deferred tax assets were $13.3 million and $14.6
million, respectively. For more information on deferred income tax assets and liabilities, see Note 17 of the Notes to Financial
Statements beginning on Page 79.
Recently Issued Accounting Standards
Refer to the section Recently Issued Accounting Statements in Note 1 of the Notes to Financial Statements
beginning on page 53 for information concerning the effect of recently issued accounting pronouncements.
Results of Continuing Operations
2015 versus 2014
Revenues. Sales in 2015 decreased by 5.8% compared with 2014 due to lower sales by PE Films and Flexible Packaging Films,
partially offset by higher sales in Aluminum Extrusions. Net sales decreased 17.0% in PE Films primarily due to lower
volume, a decrease in average selling prices due to competitive pricing pressures and lower input costs and the unfavorable
impact of the change in the U.S. dollar value of currencies for operations outside the U.S. Net sales decreased 7.9% in Flexible
Packaging Films primarily due to competitive pricing pressures and the pass-through to customers of lower raw material costs,
partially offset by an increase in sales volume. Net sales increased 9.0% in Aluminum Extrusions primarily due to higher sales
volume in all markets, offset by a decrease in average selling prices driven mainly by lower aluminum costs and mix changes.
For more information on net sales and volume, see the Executive Summary beginning on page 19.
Operating Costs and Expenses. Consolidated gross profit margin (sales minus cost of goods sold and freight as a percentage of
sales) was 15.7% in 2015 and 15.2% in 2014. The gross profit margin in PE Films increased due to a favorable lag in the pass-
through of average resin costs and higher productivity in surface protection films offset by lower volume, partially offset by
competitive pricing pressures and the unfavorable impact of the change in the U.S. dollar value of currencies for operations
outside the U.S. The gross profit margin in Flexible Packaging Films increased primarily as a result of higher sales volume,
lower manufacturing costs, foreign currency transaction gains associated with U.S. dollar denominated export sales in Brazil, a
favorable lag in the pass through of lower raw material costs and net refunds of export duties paid. The gross profit margin in
Aluminum Extrusions increased primarily as a result of higher volume partially offset by new hire costs and other production
inefficiencies that occurred in the first three quarters of 2015. Consolidated gross profit as a percentage of sales was negatively
impacted by higher pension expenses in 2015 compared to 2014. Most of the impact of higher pension expense is not allocated
to PE Films or Aluminum Extrusions. For more information on operating costs and expenses, see the Executive Summary
beginning on page 19.
As a percentage of sales, selling, general and administrative and R&D expenses were 9.8% in 2015, which increased from
8.6% in 2014. The increase in selling, general and administrative and R&D expenses as a percentage of sales can be primarily
attributed to the severance and other employee-related costs associated with the resignation of the Company’s former chief
executive and chief financial officers and costs incurred on a non-recurring business development project.
Losses associated with plant shutdowns, asset impairments, restructurings and other charges for continuing operations in
2015 totaled $10.1 million ($6.4 million after taxes) and unless otherwise noted below, are included in “Asset impairments and
costs associated with exit and disposal activities” in the consolidated statements of income. Results in 2015 included:
• A second quarter charge of $3.9 million ($2.5 million after taxes) for severance and other employee-related costs
associated with the resignation of the Company’s former chief executive and chief financial officers (included in
“Selling, general and administrative expense” in the consolidated statements of income and “Corporate expenses,
net” in the statement of net sales and operating profit by segment);
• A fourth quarter charge of $1.0 million ($0.6 million after taxes) and a third quarter charge of $1.2 million ($0.7
million) associated with the consolidation of domestic PE Films’ manufacturing facilities, which includes severance
and other employee-related costs of $0.8 million, asset impairments of $0.4 million, accelerated depreciation of $0.4
million (included in “Cost of goods sold” in the consolidated statements of income) and other facility consolidation-
related expenses of $0.6 million ($0.1 million is included in “Cost of goods sold” in the consolidated statements of
income);
• A fourth quarter charge of $1.1 million ($0.7 million after taxes) in PE Films ($0.4 million included in “Selling,
general and administrative expense” in the consolidated statement of income), a third quarter charge of $0.9 million
($0.6 million after taxes) in PE Films ($0.9 million), Aluminum Extrusions ($35,000) and Corporate ($26,000,
included in “Corporate expenses, net” in the statement of net sales and operating profit by segment) and a second
quarter charge of $0.3 million ($0.2 million after taxes) in Flexible Packaging Films ($0.3 million) and PE Films
($7,000) for severance and other employee-related costs, and a first quarter reversal of previously accrued severance
26
and other employee related costs of $67,000 ($43,000 after taxes) in Flexible Packaging Films, all associated with
restructurings;
• A fourth quarter charge of $1.0 million ($0.6 million after taxes) associated with a business development project
(included in “Selling, general and administrative expense” in the consolidated statement of income and “Corporate
expenses, net” in the statement of net sales and operating profit by segment);
• A fourth quarter charge of $31,000 ($19,000 after taxes), a third quarter charge of $0.3 million ($0.2 million after
taxes), a second quarter charge of $18,000 ($11,000 after taxes) and a first quarter charge of $15,000 ($9,000 after
taxes) associated with the previously shutdown aluminum extrusions manufacturing facility in Kentland, Indiana; and
• A fourth quarter charge of $0.3 million ($0.2 million after taxes) related to expected future environmental costs at the
aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the
consolidated statements of income).
Results in 2015 included a goodwill impairment charge of $44.5 million ($44.5 million after taxes) recognized in Flexible
Packaging Films in the third quarter of 2015 upon completion of an impairment analysis performed as of September 30, 2015.
See further discussion in Executive Summary beginning on page 19. Results in 2015 also included an unrealized loss on the
Company’s investment in kaléo (included in “Other income (expense), net” in the consolidated statements of income) of $20.5
million ($15.7 million after taxes; see further discussion in Investment Accounted for Under the Fair Value Method beginning
on page 24).
For more information on costs and expenses, see the Executive Summary beginning on page 19.
Interest Income and Expense. Interest income, which is included in “Other income (expense), net” in the consolidated
statements of income, was $0.3 million in 2015, compared to $0.6 million in 2014.
Interest expense, which is net of amounts capitalized and included in property, plant and equipment ($0.4 million and $1.1
million capitalized in 2015 and 2014, respectively), was $3.5 million in 2015, compared to $2.7 million for 2014. Average debt
outstanding and interest rates were as follows:
(In Millions)
2015
2014
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
$
$
$
135.1
$
136.5
2.0%
2.0%
— $
n/a
—
n/a
135.1
$
136.5
2.0%
2.0%
Income Taxes. The effective income tax rate from continuing operations was (38.5)% in 2015 compared with 20.7% in 2014.
The effective tax rate for 2015 was significantly lower due to the non-deductible goodwill impairment charge of $44.5 million
associated with the acquisition of Terphane. Income taxes from continuing operations in 2014 included the recognition of a tax
benefit for a portion of the Company’s capital loss carryforwards of $4.9 million. As a result of changes in the underlying basis
of certain foreign subsidiaries, income taxes from continuing operations in 2014 also included an adjustment of $2.2 million to
reverse previously accrued deferred tax liabilities arising from changes in tax basis due to foreign currency translation
adjustments and unremitted earnings. Factors impacting the effective tax rate for 2015 and 2014 are further detailed in the
effective income tax rate reconciliation provided in Note 17 of the Notes to Financial Statements beginning on Page 79.
2014 versus 2013
Revenues. Sales in 2014 decreased by 0.8% compared with 2013 due to lower sales in PE Films and Flexible Packaging Films,
partially offset by higher sales in Aluminum Extrusions. Net sales decreased 6.3% in PE Films primarily due to lower volume
and the unfavorable impact of the change in the U.S. dollar value of currencies for operations outside the U.S. Net sales
decreased 9.1% in Flexible Packaging Films primarily due to lower volume and a decrease in average selling prices due to
competitive pricing pressures and lower input costs. Net sales increased 11.3% in Aluminum Extrusions primarily due to
27
higher sales volume and an increase in average selling prices mainly driven by inflationary price increases, higher average
aluminum costs and favorable changes in product mix due to a higher percentage of painted and anodized finished products and
an increase in fabricated components. For more information on net sales and volume, see the Executive Summary beginning
on page 19.
Operating Costs and Expenses. Consolidated gross profit margin was 15.2% in 2014 and 15.2% in 2013. Gross profit as a
percentage of sales was favorably impacted by lower pension expenses in 2014 compared to 2013. Most of the impact of lower
pension expense is not allocated to PE Films or Aluminum Extrusions. The gross profit margin in PE Films decreased due to
lower volume, partially offset by the favorable impact of the change in the U.S. dollar value of currencies for operations outside
the U.S. The gross profit margin in Flexible Packaging Films decreased due to lower volume, competitive pricing pressures
and higher manufacturing costs, partially offset by foreign currency transaction gains associated with U.S. dollar denominated
export sales in Brazil. The gross profit margin in Aluminum Extrusions increased primarily as a result of improved product
mix, higher volume, additional manufacturing efficiencies and improved pricing on value-added services. For more
information on operating costs and expenses, see the Executive Summary beginning on page 19.
As a percentage of sales, selling, general and administrative and R&D expenses were 8.6% in 2014, which decreased
from 8.7% in 2013. The decrease in selling, general and administrative and R&D expenses as a percentage of sales can be
primarily attributed to the reduction of selling, general and administrative costs in Aluminum Extrusions and lower
performance-based incentive costs.
Losses associated with plant shutdowns, asset impairments, restructurings and other charges in 2014 totaled $13.8 million
($9.3 million after taxes), and unless otherwise noted below, are included in “Asset impairments and costs associated with exit
and disposal activities” in the consolidated statements of income. Results in 2014 included:
• A second quarter charge of $10.0 million ($6.8 million after taxes) associated with a one-time, lump sum license
payment to the 3M Company after the Company settled all litigation issues associated with a patent infringement
complaint (included in “Other income (expense), net” in the consolidated statements of income);
• A fourth quarter charge of $0.5 million ($0.3 million after taxes) in Flexible Packaging Films ($0.3 million) and PE
Films ($0.2 million), a third quarter charge of $0.4 million ($0.2 million after taxes) in Flexible Packaging Films
($0.3 million), PE Films ($78,000) and Aluminum Extrusions ($31,000), a second quarter charge of $0.6 million
($0.4 million after taxes) in PE Films and a first quarter charge of $0.8 million ($0.5 million after taxes) in PE Films
for severance and other employee-related costs associated with restructurings;
• A fourth quarter charge of $0.7 million ($0.4 million after taxes), a third quarter charge of $75,000 ($46,000 after
taxes) and a second quarter charge of $0.2 million ($0.1 million after taxes) related to expected future environmental
costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the
consolidated statements of income);
• A fourth quarter adjustment of previously accrued severance and other employee-related costs of $0.1 million
($63,000 after taxes) and a third quarter charge of $37,000 ($23,000 after taxes), a second quarter charge of $0.3
million ($0.2 million after taxes) and a first quarter charge of $0.5 million ($0.3 million after taxes) associated with
the shutdown of the PE Films’ manufacturing facility in Red Springs, North Carolina, which includes net severance
and other employee-related costs of $0.4 million and asset impairment and other shutdown-related charges of $0.3
million;
• A fourth quarter gain of $0.1 million ($73,000 after taxes) related to the sale of a previously shutdown PE Films’
manufacturing facility in LaGrange, Georgia (included in “Other income (expense), net” in the consolidated
statements of income); and
• A fourth quarter charge of $11,000 ($7,000 after taxes), a third quarter charge of $20,000 ($12,000 after taxes) and a
second quarter charge of $24,000 ($15,000 after taxes) associated with the previously shutdown aluminum extrusions
manufacturing facility in Kentland, Indiana.
On February 12, 2008, Tredegar sold its aluminum extrusions business in Canada for $25.0 million. All historical results
for this business have been reflected as discontinued operations. Accruals for indemnifications under the purchase agreement
related to environmental matters were adjusted in 2014, resulting in income from discontinued operations of $0.9 million ($0.9
million after taxes).
Results in 2014 include an unrealized gain on the Company’s investment in kaléo (included in “Other income (expense),
net” in the consolidated statements of income) of $2.0 million ($1.0 million after taxes; see further discussion in Investment
Accounted for Under the Fair Value Method beginning on page 24). An unrealized loss on the Company’s investment in the
Harbinger Fund (included in “Other income (expense), net” in the consolidated statements of income and “Corporate expenses,
28
net” in the statement of net sales and operating profit by segment) of $0.8 million ($0.4 million after taxes) was recorded in
2014 as a result of a reduction in the fair value of the investment that is not expected to be temporary. The Company realized a
gain on the sale of a portion of its investment property in Alleghany and Bath Counties, Virginia (included in “Other income
(expense), net” in the consolidated statements of income) of $1.2 million ($0.8 million after taxes) in 2014. For more
information on costs and expenses, see the Executive Summary beginning on page 19.
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 2014, compared to $0.6 million in 2013.
Interest expense, which includes the amortization of debt issue costs, was $2.7 million in 2014, compared to $2.9 million
for 2013. Average debt outstanding and interest rates were as follows:
(In Millions)
2014
2013
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
$
$
$
136.5
$
133.5
2.0%
1.9%
— $
n/a
—
n/a
136.5
$
133.5
2.0%
1.9%
Income Taxes. The effective income tax rate from continuing operations was 20.7% in 2014 compared with 32.1% in 2013.
Income taxes from continuing operations in 2014 included the recognition of a tax benefit for a portion of the Company’s
capital loss carryforwards of $4.9 million. These capital loss carryforwards were previously offset by a valuation allowance
associated with expected limitations on the utilization of these assumed capital losses. As a result of changes in the underlying
basis of certain foreign subsidiaries, income taxes from continuing operations in 2014 also included an adjustment of $2.2
million to reverse previously accrued deferred tax liabilities arising from changes in tax basis due to foreign currency
translation adjustments and unremitted earnings. Income taxes from continuing operations in 2013 primarily reflect the benefit
of foreign tax incentives, partially offset by the impact of adjustments for tax contingency matters. Factors impacting the
effective tax rate for 2014 and 2013 are further detailed in the effective income tax rate reconciliation provided in Note 17 of
the Notes to Financial Statements beginning on Page 79.
Assets and Liabilities
Financial Condition
Tredegar’s management continues to focus on improving working capital management, and measures such as days sales
outstanding (“DSO”), days inventory outstanding (“DIO”) and days payables outstanding (“DPO”) are used by the Company to
evaluate changes in working capital. Significant changes in assets and liabilities from continuing operations from
December 31, 2014 to December 31, 2015 are summarized below:
• Accounts and other receivables decreased $19.1 million (16.9%).
• Accounts and other receivables in PE Films decreased by $9.3 million due mainly to the timing of cash receipts and
lower sales volume. DSO (represents trailing 12 months net sales divided by a rolling 12-month average of accounts
and other receivables balances) was approximately 42.7 days in 2015 and 42.9 days in 2014.
• Accounts and other receivables in Flexible Packaging Films decreased by $6.2 million primarily due to the timing of
cash receipts and lower net sales. DSO was approximately 68.9 days in 2015 and 59.5 days in 2014. The increase in
DSO from 2014 to 2015 is primarily due to higher export sales, which have longer terms than domestic sales, and
pricing pressures, which has led to extending payment terms to remain competitive.
• Accounts and other receivables in Aluminum Extrusions decreased by $3.6 million primarily due to the timing of
cash receipts. DSO was approximately 45.1 days in 2015 and 45.3 days in 2014.
•
Inventories decreased $9.0 million (12.1%).
29
•
•
•
Inventories in PE Films decreased by $3.8 million primarily due to the impact of the change in the U.S. dollar value
of currencies for operations outside the U.S. and the timing of shipments at the end of the year. DIO (represents
trailing 12 months costs of goods sold calculated on a first-in, first-out basis divided by a rolling 12-month average of
inventory balances calculated on the first-in, first-out basis) was approximately 48.3 days in 2015 and 46.2 days in
2014.
Inventories in Flexible Packaging Films decreased by $6.7 million primarily due to the impact of the change in the
U.S. dollar value of currencies for operations outside the U.S. DIO was approximately 81.6 days in 2015 and 71.8
days in 2014. The increase in DIO from 2014 to 2015 is primarily due to the impact of the change in the U.S. dollar
value of currencies for operations outside the U.S.
Inventories in Aluminum Extrusions increased by $1.5 million primarily due to higher sales volume and the timing of
shipments at the end of the year. DIO was approximately 29.8 days in 2015 and 24.1 days in 2014. The increase in
DIO from 2014 to 2015 is primarily due to stockpiling of inventory for expected future demand.
• Net property, plant and equipment decreased $38.6 million (14.3%) due primarily to depreciation of $30.9 million and a
change in the value of the U.S. dollar relative to foreign currencies (a decrease of approximately $40.3 million), partially
offset by capital expenditures of $32.8 million.
• Goodwill and other intangibles decreased by $62.1 million (28.8%) primarily due to the write-off of $44.5 million of
goodwill associated with Flexible Packaging Films (see Note 8 of the Notes to Financial Statements beginning on page 67),
amortization expense of $4.1 million and changes in the value of the U.S. dollar relative to the Brazilian Real.
• Accounts payable decreased by $10.0 million (10.6%).
• Accounts payable in PE Films decreased by $3.6 million primarily due to lower inventory balances and the timing of
payments at the end of the year. DPO (represents trailing 12 months costs of goods sold calculated on a first-in, first-
out basis divided by a rolling 12-month average of accounts payable balances) was approximately 39.0 days in 2015
and 36.2 days in 2014.
• Accounts payable in Flexible Packaging Films decreased by $4.6 million, primarily due to lower inventory balances,
the timing of payments and the impact of the change in the U.S. dollar value of currencies for operations outside the
U.S. DPO was approximately 34.2 days in 2015 and 35.5 days in 2014.
• Accounts payable in Aluminum Extrusions decreased by $2.4 million, primarily due to the timing of payments. DPO
was approximately 48.0 days in 2015 and 48.0 days in 2014.
• Accrued expenses increased by $1.6 million (5.0%) from December 31, 2014.
• Other noncurrent liabilities decreased by $3.9 million (3.4%) from December 31, 2014.
• Net deferred income tax liabilities in excess of assets decreased by $11.7 million primarily due to numerous changes
between years in the balance of the components shown in the December 31, 2015 and 2014 schedule of deferred income tax
assets and liabilities provided in Note 17 of the Notes to Financial Statements beginning on Page 79. The Company had a
current income tax receivable of $0.4 million at December 31, 2015 compared to a current receivable of $0.9 million at
December 31, 2014. The change is primarily due to the timing of tax payments.
30
Net capitalization and indebtedness as defined under the Company’s revolving credit agreement as of December 31, 2015
were as follows:
Net Capitalization and Indebtedness as of December 31, 2015
(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
$
44,156
104,000
—
104,000
59,844
272,748
332,592
104,000
2,684
250
106,934
$
$
$
Under the revolving credit agreement, borrowings are permitted up to $350 million, and approximately $164 million was
available to borrow at December 31, 2015 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, 2015, 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 the consolidated financial
results. The Company has historically had indebtedness-to-adjusted EBITDA ratios of less than 2.0x.
As of December 31, 2015, Tredegar is in compliance with all financial covenants outlined in its 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 the Company 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
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.
31
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, 2015 (In Thousands)
Computations of adjusted EBITDA and adjusted EBIT as defined in revolving credit agreement for the twelve months ended
December 31, 2015:
Net income (loss)
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 $8,331)
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
$ (32,135)
—
8,928
3,502
34,982
54,561
483
—
20,500
—
—
(294)
—
—
—
—
—
—
90,527
(34,982)
55,545
$
Computations of leverage and interest coverage ratios as defined in revolving credit agreement at December 31, 2015:
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)
Maximum leverage ratio permitted:
Minimum interest coverage ratio permitted
1.18x
15.86x
$ 148,771
3.00x
2.50x
32
Tredegar is obligated to make future payments under various contracts as set forth below:
(In Millions)
Debt:
2016
2017
2018
2019
2020
Remainder
Total
Payments Due by Period
Principal payments
$
— $
104.0
$
— $
— $
— $
— $
104.0
Estimated interest expense
Estimated contributions required (1) :
Defined benefit plans
Other postretirement benefits
Capital expenditure commitments
Operating leases
Estimated obligations relating to
uncertain tax positions (2)
Other (3)
Total
2.3
6.1
0.5
7.3
2.3
—
3.1
0.7
8.0
0.5
—
2.0
—
3.0
—
—
—
—
3.0
13.8
13.0
12.8
0.5
—
1.9
—
2.1
0.5
—
1.8
—
—
0.5
—
1.8
—
—
52.2
5.2
2.3
4.2
—
105.9
7.7
7.3
12.1
4.2
8.2
$
21.6
$
118.2
$
18.3
$
15.3
$
15.1
$
63.9
$
252.4
(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 2016 through 2025 were determined under provisions of the Pension Protection Act of 2006
using the preliminary assumptions chosen by Tredegar for the 2016 plan year. Tredegar has determined that it is not practicable to present defined
benefit contributions and other postretirement benefit payments beyond 2025.
(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 the purchase of the assets of Bright View, and other miscellaneous contractual
arrangements.
From time to time, the Company enters into transactions with third parties in connection with the sale of assets or
businesses in which it agrees to indemnify the buyers or third parties involved in the transaction, or the sellers or third parties
involved in the transaction agree to indemnify Tredegar, for certain liabilities or risks related to the assets or business. Also, in
the ordinary course of business, the Company may enter into agreements with third parties for the sale of goods or services that
may contain indemnification provisions. In the event that an indemnification claim is asserted, liability for indemnification
would be subject to an assessment of the underlying facts and circumstances under the terms of the applicable agreement.
Further, any indemnification payments may be limited or barred by a monetary cap, a time limitation, or a deductible or basket.
For these reasons, the Company is unable to estimate the maximum potential amount of the potential future liability under the
indemnity provisions of these agreements. Tredegar does, however, accrue for losses for any known contingent liability,
including those that may arise from indemnification provisions, when future payment is probable and the amount is reasonably
estimable. The Company discloses contingent liabilities if the probability of loss is reasonably possible and material.
At December 31, 2015, Tredegar had cash and cash equivalents of $44.2 million, including funds held in locations outside
the U.S. of $27.7 million. The Company accrues U.S. federal income taxes to the extent required under U.S. GAAP on
unremitted earnings of all foreign subsidiaries except Terphane. Deferred U.S. federal income taxes have not been provided on
the undistributed earnings for Terphane because of the Company’s intent to permanently reinvest these earnings. Because of
the accumulation of significant losses related to foreign currency translations at Terphane, there were no unrecorded deferred
tax liabilities at December 31, 2015 associated with the U.S. federal income taxes and foreign withholding taxes on
undistributed earnings indefinitely invested outside the U.S. The Company believes that existing borrowing availability,
current cash balances and cash flow from operations will be sufficient to satisfy working capital, capital expenditure and
dividend requirements for at least the next twelve months.
Shareholders’ Equity
At December 31, 2015, Tredegar had 32,682,162 shares of common stock outstanding and a total market capitalization of
$445.1 million, compared with 32,422,082 shares of common stock outstanding and a total market capitalization of $729.2
million at December 31, 2014.
Tredegar did not repurchase any shares on the open market in 2015, 2014 or 2013 under its approved share repurchase
program.
33
Cash Flows
The discussion in this section supplements the information presented in the Consolidated Statements of Cash Flows on
page 51. Cash flows for discontinued operations have not been separately disclosed in the consolidated statements of cash
flows.
Cash provided by operating activities was $74.3 million in 2015 compared with $51.2 million in 2014. The increase is
due primarily to normal volatility of working capital components (see the Assets and Liabilities section beginning on page 29
for discussion of changes in working capital).
Cash used in investing activities was $31.4 million in 2015 compared with $38.3 million in 2014. Cash used in investing
activities in 2015 primarily includes capital expenditures of $32.8 million. Cash used in investing activities in 2014 primarily
consists of capital expenditures of $44.9 million, partially offset by proceeds from the sale of a portion of investment property
in Alleghany and Bath Counties, Virginia ($4.5 million).
Net cash flow used by financing activities was $44.2 million in 2015, which is primarily due to net payments on the
Company’s revolving credit facility of $33.3 million and the payment of regular quarterly dividends of $13.7 million (42 cents
per share) partially offset by the proceeds from the exercise of stock options and other financing activities of $2.9 million.
Cash provided by operating activities was $51.2 million in 2014 compared with $76.7 million in 2013. The decrease is
due primarily to normal volatility of working capital components (see the Assets and Liabilities section beginning on page 29
for discussion of changes in working capital).
Cash used in investing activities was $38.3 million in 2014 compared with $77.6 million in 2013. Cash used in investing
activities in 2014 primarily includes capital expenditures of $44.9 million, partially offset by proceeds from the sale of a
portion of its investment property in Alleghany and Bath Counties, Virginia ($4.5 million). Cash used in investing activities in
2013 primarily consists of capital expenditures of $79.7 million.
Net cash flow used by financing activities was $12.4 million in 2014, which is primarily due to the payment of regular
quarterly dividends of $11.0 million (34 cents per share) and net payments on the Company’s revolving credit facility of $1.8
million, partially offset by the proceeds from the exercise of stock options and other financing activities of $0.4 million.
Quantitative and Qualitative Disclosures about Market Risk
Tredegar has exposure to the volatility of interest rates, polyethylene, polypropylene and polyester 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 29 regarding interest rate exposures
related to borrowings under the revolving credit agreement.
Changes in polyethylene resin prices, and the timing of those changes, could have a significant impact on profit margins
in PE Films. Changes in polyester resin, PTA and MEG prices, and the timing of those changes, could have a significant
impact on profit margins in Flexible Packaging Films. Profit margins in Aluminum Extrusions are sensitive to fluctuations in
aluminum ingot and scrap prices as well as natural gas prices (natural gas is the principal energy source used to operate its
casting furnaces). There is no assurance of the Company’s ability to pass through higher raw material and energy costs to its
customers.
See the Executive Summary beginning on page 19 and the Business Segment Review beginning on page 39 for
discussion regarding the impact of the lag in the pass-through of resin price changes.
34
The volatility of average quarterly prices of low density polyethylene resin in the U.S. (a primary raw material for PE
Films products) is shown in the chart below:
Source: Quarterly averages computed by Tredegar using monthly data provided by IHS, Inc. In January 2015, IHS reflected a 21 cents per pound non-market adjustment based
on their estimate of the growth of discounts in prior periods. The 4th quarter 2014 average rate of $1.09 per pound is shown on a pro forma basis as if the non-market
adjustment was made in the fourth quarter of 2014.
Polyethylene resin prices in Europe, Asia and South America have exhibited similar long-term trends. The price of resin
is driven by several factors, including supply and demand and the price of oil, ethylene and natural gas. To address fluctuating
resin prices, PE Films has index-based pass-through raw material cost agreements for the majority of its business. However,
under certain agreements, changes in resin prices are not passed through for an average period of 90 days (see the Executive
Summary on page 19 and the Business Segment Review on page 39 for more information). Pricing on the remainder of the
business is based upon raw material costs and supply/demand dynamics within the markets that the Company competes.
Polyester resins, MEG and PTA used by Flexible Packaging Films in Brazil are primarily purchased domestically, with
other sources available, mostly from Asia and the U.S. Given the nature of these products as commodities, pricing is derived
from Asian pricing indexes. The volatility of the average quarterly prices for polyester fibers in Asia, which is representative of
polyester resin (a primary raw material for polyester film products) prices, is shown in the chart below:
Source: Quarterly averages computed by Tredegar using monthly data from CMAI Global Index data.
35
The volatility of average quarterly prices of PTA and MEG in Asia (raw materials used in the production of polyester
resins produced by Flexible Packaging Films) is shown in the chart below:
Source: Quarterly averages computed by Tredegar using monthly data from CMAI Global Index data.
In the normal course of business, Aluminum Extrusions enters into fixed-price forward sales contracts with certain
customers for the sale of fixed quantities of aluminum extrusions at scheduled intervals. In order to hedge its exposure to
aluminum price volatility (see the chart below) under these fixed-price arrangements, which generally have a duration of not
more than 12 months, the Company enters into a combination of forward purchase commitments and futures contracts to
acquire or hedge aluminum, based on the scheduled deliveries. See Note 9 of the Notes to Financial Statements beginning on
page 68 for more information. The volatility of quarterly average aluminum prices is shown in the chart below:
Source: Quarterly averages computed by Tredegar using daily Midwest average prices provided by Platts.
From time-to-time, Aluminum Extrusions hedges a portion of its exposure to natural gas price volatility by entering into
fixed-price forward purchase contracts with its natural gas suppliers. The Company estimates that, in an unhedged situation,
every $1 per mmBtu per month change in the market price of natural gas has an $89,000 impact on the continuing monthly
operating profit for U.S. operations in Aluminum Extrusions. There is an energy surcharge for Aluminum Extrusions in the
U.S. that is applied when the previous quarter’s NYMEX natural gas average settlement price is in excess of $8.85 per mmBtu.
36
The volatility of quarterly average natural gas prices is shown in the chart below:
Source: Quarterly averages computed by Tredegar using monthly NYMEX settlement prices.
Tredegar sells to customers in foreign markets through its foreign operations and through exports from U.S. plants. The
percentage of sales and total assets for manufacturing operations related to foreign markets for 2015, 2014 and 2013 are as
follows:
Tredegar Corporation—Continuing Operations
Percentage of Net Sales and Total Assets Related to Foreign Markets
2015
% 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
—
10
10
3
23
2014
% of Total
Net Sales *
Exports
From
U.S.
Foreign
Oper-
ations
5
1
—
8
14
—
12
11
4
27
% Total
Assets -
Foreign
Oper-
ations *
—
5
27
4
36
2013
% of Total
Net Sales *
Exports
From
U.S.
Foreign
Oper-
ations
5
1
—
9
15
—
12
12
4
28
% Total
Assets -
Foreign
Oper-
ations *
—
5
20
7
32
% Total
Assets -
Foreign
Oper-
ations *
—
6
24
4
34
*
The percentages for foreign markets are relative to Tredegar’s consolidated net sales and total assets from continuing operations.
Tredegar attempts to match the pricing and cost of its 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 on page 39) 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. The Company’s foreign currency exposure on income from
continuing foreign operations relates to the Euro, the Chinese Yuan, the Hungarian Forint, the Brazilian Real and the Indian
Rupee.
PE Films is generally able to match the currency of its sales and costs for its product lines. For flexible packaging films
produced in Brazil, while selling prices and key raw material costs are principally determined in U.S. Dollars, they are
impacted by local economic conditions, including the value of the Brazilian Real in U.S. Dollars and local supply and demand
factors. Certain production costs, such as conversion costs and other fixed costs, are priced in Brazilian Real, and adversely
impacted by high inflation levels in Brazil. Moreover, the value of the Brazilian Real when compared to the U.S. Dollar is
impacted by many variables, including inflation differentials between the U.S. and Brazil. In general, local currency
inflationary cost increases in Brazil will be offset when converting to U.S. Dollars by decreases in the value of the Brazilian
Real relative to the U.S. Dollar that is related to high Brazil inflation versus low U.S. inflation. Accordingly, because of the
37
many volatile economic variables at play in Brazil, it is not practical to isolate to one measure the economic impact on Flexible
Packaging Films’ operating profit of changes in the U.S. Dollar value of the Brazilian Real.
Tredegar estimates that the change in the value of foreign currencies relative to the U.S. Dollar on PE Films had a
unfavorable impact on operating profit from ongoing operations in PE Films of $3.7 million in 2015 compared to 2014, a
favorable impact on operating profit from ongoing operations of $0.7 million in 2014 compared with 2013, a favorable impact
of $0.7 million in 2013 compared with 2012.
Trends for the Euro are shown in the chart below:
Source: Quarterly averages computed by Tredegar using daily closing data provided by Bloomberg.
38
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.
PE Films
Net Sales and Operating Profit (2014 vs. 2013)
A summary of operating results for PE Films for the year ended December 31, 2014 versus 2013 is provided in the
table below.
(In thousands, except percentages)
Sales volume (pounds)
Net sales
Operating profit from ongoing operations
Year Ended
December 31
2014
2013
175,203
464,339
60,971
$
$
197,045
495,386
61,866
$
$
Favorable/
(Unfavorable)
% Change
(11.1)%
(6.3)%
(1.4)%
Net sales for 2014 decreased in comparison to 2013, primarily due to lower volume and the unfavorable impact of the
change in the U.S. dollar value of currencies for operations outside the U.S. Lower volume had an unfavorable impact of
approximately $37.9 million on net sales, as lost business related to certain babycare elastic laminate films sold in North
America accounted for approximately $33.9 million of this change. Net sales in PE Films were also impacted by reduced sales
volume for polyethylene overwrap and surface protection films, partially offset by higher volume for other personal care
materials. Lower volume in surface protection films were primarily related to customer inventory corrections in 2014 and a
minor loss of market share in a lower-tier film due to competitive pricing pressures. Average selling prices were favorably
impacted by the contractual pass-through of certain costs, primarily an increase in average resin prices. The impact of
contractual pass-throughs was offset by competitive pricing pressures in personal care materials. The change in the U.S. dollar
value of currencies for operations outside the U.S. had an unfavorable impact on net sales in 2014 versus 2013 of
approximately $2.6 million.
39
Operating profit from ongoing operations in 2014 decreased by $0.9 million in comparison to 2013. The previously
noted loss of babycare elastic laminate film volume had an estimated unfavorable impact on operating profit from ongoing
operations of $7.0 million. Lower volume noted above and changes in product mix, offset by improved pricing, had an
unfavorable effect on operating profit from ongoing operations of approximately $3.8 million. Cost of operations were lower
by $6.7 million due to the lower volume shipped and operational efficiency improvements. Lower selling, general and
administrative expenses and reduced research and development project costs within PE Films had a favorable impact on
operating profit from ongoing operations of approximately $0.4 million.
Fourth-quarter 2014 operating results included an inventory valuation adjustment. As part of its evaluation of operational
performance, PE Films recorded an inventory valuation adjustment of $0.8 million associated with supplies inventories not
expected to be utilized as a result of expected changes in product mix in personal care materials.
The change in the U.S. dollar value of currencies for operations outside the U.S. had a favorable impact of approximately
$0.7 million in 2014 compared to 2013. The estimated impact on operating profit from ongoing operations of the quarterly lag
in the pass-through of average resin costs was a negative of approximately $0.1 million in 2014 compared to a negative of
approximately $2.1 million in 2013.
Identifiable Assets, Depreciation & Amortization and Capital Expenditures
A summary of identifiable assets, depreciation & amortization and capital expenditures for PE Films for the years ended
December 31, 2015, 2014 and 2013 is provided below:
(In thousands)
Identifiable assets
Depreciation & amortization
Capital expenditures
Year Ended
December 31
2015
270,236
15,480
21,218
$
$
$
2014
283,606
21,399
17,000
$
$
$
2013
291,377
25,656
15,615
$
$
$
Identifiable assets in PE Films decreased at December 31, 2015 from December 31, 2014 primarily due to lower
accounts receivable and inventories as a result of lower sales volume and lower property, plant and equipment and intangible
asset balances as a result of changes in the value of the U.S. dollar relative to foreign currencies, partially offset by current year
capital expenditures. Identifiable assets in PE Films decreased between December 31, 2014 and December 31, 2013 primarily
due to lower inventories as a result of lower sales volume and lower property, plant and equipment and intangible asset
balances as a result of changes in the value of the U.S. dollar relative to foreign currencies, partially offset by current year
capital expenditures.
Depreciation and amortization expense decreased in 2015 compared to 2014 and in 2014 compared to 2013 as certain
assets became fully depreciated. The Company estimates depreciation and amortization expense for PE Films will be $15
million in 2016 as additional depreciation from recent capacity expansion projects will be offset by reductions from certain
assets becoming fully depreciated.
Capital expenditures in 2016 are estimated to be $30 million, which includes approximately $10 million for routine
capital expenditures required to support operations. Capital spending for strategic projects in 2016 includes expansion of
elastics capacity in Europe, expansion of surface protection films capacity in China and the North American facility
consolidation.
Flexible Packaging Films
Net Sales and Operating Profit (2014 vs. 2013)
A summary of operating results for Flexible Packaging Films for the year ended December 31, 2014 versus 2013 is
provided in the table below.
(In thousands, except percentages)
Sales volume (pounds)
Net sales
Operating profit from ongoing operations
Year Ended
December 31
2014
2013
72,064
114,348
$
(2,917) $
73,418
125,853
9,100
Favorable/
(Unfavorable)
% Change
(1.8)%
(9.1)%
-
$
$
40
Net sales in 2014 decreased versus 2013 primarily due to lower sales volume and competitive pricing pressures due to
poor economic conditions and a competitive market in Brazil, Flexible Packaging Films’ primary market. Lower sales volume
had a negative impact of approximately $1.6 million in 2014, while the decrease in average selling prices had a negative impact
of approximately $10.0 million.
Operating profit from ongoing operations decreased in 2014 versus 2013, primarily as a result of higher costs, lower
volume and competitive pricing pressures. Competitive pricing pressure in Flexible Packaging Films lowered operating profit
from ongoing operations by approximately $4.2 million in 2014. Higher manufacturing expenses decreased operating profit
from ongoing operations by approximately $10.6 million. Lower selling, general and administrative expenses of $0.7 million
and foreign currency transaction gains associated with U.S. dollar denominated export sales in Brazil of $3.8 million had a
favorable impact on operating profit from ongoing operations.
Fourth-quarter 2014 operating results included an inventory valuation adjustment. As part of its evaluation of
operational performance, Flexible Packaging Films assessed the raw materials required to optimize the operational
effectiveness of its production lines, which resulted in an inventory valuation adjustment of $1.3 million.
Identifiable Assets, Depreciation & Amortization and Capital Expenditures
A summary of identifiable assets, depreciation & amortization and capital expenditures for Flexible Packaging Films for
the years ended December 31, 2015, 2014 and 2013 is provided below:
(In thousands)
Identifiable assets
Depreciation & amortization
Capital expenditures
Year Ended
December 31
2015
146,253
9,697
3,489
$
$
$
2014
262,604
9,331
21,806
$
$
$
2013
265,496
9,676
49,252
$
$
$
Identifiable assets decreased at December 31, 2015 from December 31, 2014 primarily due to the write off of $44.5
million of goodwill from the Terphane acquisition, lower accounts receivable and inventories as a result of lower sales volume,
a reduction in property, plant and equipment and intangible asset balances as a result of changes in the value of the U.S. dollar
relative to foreign currencies, partially offset by current year capital expenditures. Identifiable assets decreased between
December 31, 2014 and December 31, 2013 primarily due to lower intangible asset balances as a result of current year
amortization, the effect of changes in the value of the U.S. dollar relative to the Brazilian Real, and a reduction in inventory
balances, partially offset by an increase in accounts receivable and inventory balances, and higher property, plant and
equipment balances as a result of higher current year capital expenditures.
Depreciation and amortization expense varied slightly from year to year based on normal cost recovery of capitalized
assets, additional capital spending and the effect of changes in the value of the U.S. dollar relative to the Brazilian Real.
Depreciation and amortization expense is projected to be $6 million in 2016.
Capital expenditures included $17 million and $41 million in 2014 and 2013, respectively, for the capacity expansion
project at a manufacturing facility in Cabo de Santo Agostinho, Brazil. Capital expenditures are projected to be $5 million in
2016, including approximately $3 million for routine items required to support operations.
Aluminum Extrusions
Net Sales and Operating Profit (2014 vs. 2013)
A summary of operating results for Aluminum Extrusions for the year ended December 31, 2014 versus 2013 is
provided in the table below. See the Executive Summary beginning on page 19 for the discussion of net sales (sales less
freight) and operating profit from ongoing operations of Aluminum Extrusions in 2015 compared with 2014.
(In thousands, except percentages)
Sales volume (pounds)
Net sales
Operating profit from ongoing operations
Year Ended
December 31
2014
2013
153,843
344,346
25,664
$
$
143,684
309,482
18,291
Favorable/
(Unfavorable)
% Change
7.1%
11.3%
40.3%
$
$
41
Net sales in 2014 increased versus 2013 primarily due to higher sales volume and an increase in average selling prices.
Higher sales volume had a favorable impact of approximately $18.5 million in 2014. The increase in average selling prices,
which had a positive impact on net sales of approximately $16.4 million, can be attributed to inflationary price increases,
higher average aluminum costs and favorable changes in product mix due to a higher percentage of painted and anodized
finished products as well as an increase in the sales of fabricated components.
Operating profit from ongoing operations increased in 2014 versus 2013, primarily as a result of an improved product
mix, higher volume, the favorable impact of manufacturing efficiencies and reduced selling, general and administrative
expenses. Higher sales volume and improved product mix had a favorable impact of approximately $5.3 million in comparison
to the prior year. Despite unanticipated utility, distribution and manufacturing costs as a result of adverse weather conditions in
the first quarter of 2014, improved margins from manufacturing efficiencies and reduced selling, general and administrative
expenses increased operating profit from ongoing operations by approximately $1.4 million. In addition, operating profit from
ongoing operations in the prior year includes one-time, construction-related expense of $0.6 million associated with the
automotive press project at the Company’s manufacturing facility in Newnan, Georgia. The remaining portion of the change in
operating profit from ongoing operations in 2014 compared to 2013 is primarily related to favorable pricing from value-added
services.
Identifiable Assets, Depreciation & Amortization and Capital Expenditures
A summary of identifiable assets, depreciation & amortization and capital expenditures for Aluminum Extrusions for the
years ended December 31, 2015, 2014 and 2013 is provided below:
(In thousands)
Identifiable assets
Depreciation & amortization
Capital expenditures
Year Ended
December 31
2015
136,935
9,698
8,124
$
$
$
2014
143,328
9,974
6,092
$
$
$
2013
134,928
9,202
14,742
$
$
$
Identifiable assets decreased at December 31, 2015 from December 31, 2014 primarily due to lower accounts
receivable balances as a result of the timing of collections. Identifiable assets increased in 2014 compared to 2013 primarily
due to higher accounts receivable and inventories as a result of higher sales volume.
Amortization expense decreased in 2015 versus 2014 primarily due to the full cost recovery of certain intangible
assets. Depreciation expense increased in 2014 versus 2013 primarily due to capital expenditures in 2014. The Company
estimates depreciation and amortization expense for Aluminum Extrusions to be $10 million in 2016.
Capital expenditures in 2014 and 2013 include $2.8 million and $11.5 million, respectively, for a project that added
capacity at the manufacturing facility in Newnan, Georgia. This additional capacity serves the automotive industry. Capital
expenditures are projected to be $24 million in 2016, which includes approximately $5 million for routine items required to
support operations and approximately $14 million of a total $18 million expected to add extrusions capacity at the Niles
facility.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See discussion of Quantitative and Qualitative Disclosures about Market Risk beginning on page 34 in Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to Financial Statements and Supplementary Data on page 46 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.
42
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”), Tredegar
carried out an evaluation, with the participation of its management, including its principal executive officer and principal
financial officer, of the effectiveness of 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, the principal executive officer
and principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that
information required to be disclosed by Tredegar in the reports that it files or submits 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 management, including the 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
The Company’s 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 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 is not intended to provide absolute assurance
that a misstatement of the Company’s consolidated financial statements would be prevented or detected. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework in Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). Based on this evaluation under the framework in Internal Control — Integrated
Framework 2013, Tredegar’s management concluded that the Company’s internal control over financial reporting was effective
as of December 31, 2015.
The effectiveness of Tredegar’s internal control over financial reporting as of December 31, 2015 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included on
page 47.
Changes in Internal Control Over Financial Reporting
There has been no change in Tredegar’s internal control over financial reporting during the quarter ended December 31,
2015, that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
Item 9B. OTHER INFORMATION
None.
43
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 the 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 the Company’s executive officers:
Name
John D. Gottwald
D. Andrew Edwards
Michael W. Giancaspro
A. Brent King
Age
Title
61 President and Chief Executive Officer
57 Vice President and Chief Financial Officer
61 Vice President, Business Processes and Corporate Development
47 Vice President, General Counsel and Corporate Secretary
John D. Gottwald. Mr. Gottwald was elected President and Chief Executive Officer on August 18, 2015. From June 26, 2015
until August 17, 2015, he served as interim President and Chief Executive Officer. He previously served as the Company’s
President and Chief Executive Officer from March 1, 2006 until January 31, 2010, and as the Company’s Chairman of the
Board from September 2001 until February 2008. Mr. Gottwald also served as the Company’s President and Chief Executive
Officer from July 1989 until September 2001.
D. Andrew Edwards. Mr. Edwards was elected Vice President and Chief Financial Officer effective July 20, 2015. He
previously served as the Chief Financial Officer of United Sporting Companies, Inc., a wholesale distributor of outdoor
sporting goods, from February 2013 until July 2015 and as Vice President, Controller and Chief Accounting Officer of Owens
& Minor, Inc., a distributor of acute medical products, from April 2010 to February 2013 and as Acting Chief Financial Officer
of Owens & Minor, Inc. from March 2012 to February 2013. Mr. Edwards also served as Vice President, Finance, of Owens &
Minor, Inc. from December 2009 until April 2010. Mr. Edwards previously served as the Company’s Vice President, Chief
Financial Officer and Treasurer from August 2003 to December 2009 and as the Company’s Vice President, Finance from
November 1998 to August 2003. Mr. Edwards also served as the Company’s Treasurer from May 1997 to December 2009 and
as the Company’s Controller from October 1992 until July 2000.
Michael W. Giancaspro. Mr. Giancaspro was elected Vice President, Business Processes and Corporate Development,
effective October 1, 2015. He previously was President of Turnaround Strategies LLC, a business turnaround consulting
practice, from 2006 until 2015. He served as part of the Company’s initial senior management team in 1989, and as a Vice
President of the Company from 1992 until 2000 and from 2003 until 2005.
A. Brent King. Mr. King was elected Vice President, General Counsel and Corporate Secretary on October 20, 2008. Mr.
King resigned from the position of Vice President, General Counsel and Secretary effective as of March 4, 2016.
Tredegar has adopted a Code of Conduct that applies to all of its directors, officers and employees (including its chief
executive officer, chief financial officer and principal accounting officer) and has posted the Code of Conduct on its website.
All amendments to or waivers from any provision of the Company’s Code of Conduct applicable to the chief executive officer,
chief financial officer and principal accounting officer will be disclosed on the Company’s website. The Internet address is
www.tredegar.com. The information on or that can be accessed through Tredegar’s website is not, and shall not be deemed to
be, a part of this report or incorporated into other filings the Company makes with the SEC.
44
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, 2015.
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)
1,180,994
—
1,180,994
$
$
20.22
—
20.22
2,520,632
—
2,520,632
*
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.”
45
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, 2015 and 2014
Consolidated Statements of Income for the Years Ended December 31, 2015,
2014 and 2013
Consolidated Statements of Comprehensive Income (Loss) for the Years
Ended December 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows for the Years Ended December 31,
2015, 2014 and 2013
Consolidated Statements of Shareholders’ Equity for the Years Ended
December 31, 2015, 2014 and 2013
Notes to Financial Statements
(2)
Financial statement schedules:
None.
(3)
Exhibits:
See Exhibit Index on pages 89-91.
Page
47
48
49
50
51
52
53-87
46
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 the 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, 2015 and 2014, and the results of their operations
and their cash flows for each of the three years in the period ended December 31, 2015 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, 2015, based on criteria established in Internal
Control - Integrated Framework (2013) 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.
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it classifies
deferred tax assets and liabilities on the consolidated balance sheet in 2015.
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 29, 2016
47
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 $3,746 in 2015 and $2,610 in 2014
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
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—32,682,162 shares in 2015 and 32,422,082 in 2014
(including restricted stock)
Common stock held in trust for savings restoration plan (67,726 shares in 2015 and
66,255 in 2014)
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.
48
2015
2014
$
44,156
$
50,056
94,217
360
65,325
—
6,946
211,004
10,953
120,544
623,181
754,678
(523,363)
231,315
153,072
27,869
623,260
84,148
33,653
117,801
104,000
18,656
110,055
350,512
$
$
113,341
877
74,308
8,877
8,283
255,742
11,814
135,015
643,793
790,622
(520,665)
269,957
215,129
47,798
788,626
94,131
32,049
126,180
137,250
39,255
113,912
416,597
29,467
24,364
(1,467)
(1,440)
(112,807)
(373)
(95,539)
453,467
272,748
623,260
$
(47,270)
656
(103,581)
499,300
372,029
788,626
$
$
$
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
Goodwill impairment charge
Total
Income (loss) from continuing operations before income taxes
Income taxes
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Earnings (loss) per share:
Basic:
Continuing operations
Discontinued operations
Net income (loss)
Diluted:
Continuing operations
Discontinued operations
Net income (loss)
See accompanying notes to financial statements.
2015
2014
2013
$
$
896,177
(20,113)
876,064
951,826
(6,697)
945,129
$
959,346
1,776
961,122
725,459
778,113
784,675
29,838
71,911
16,173
4,073
3,502
3,850
44,465
899,271
(23,207)
8,928
(32,135)
—
(32,135) $
(0.99) $
—
(0.99) $
(0.99) $
—
(0.99) $
28,793
69,526
12,147
5,395
2,713
3,026
—
899,713
45,416
9,387
36,029
850
36,879
$
1.12
0.02
1.14
1.11
0.02
1.13
$
$
$
$
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
$
$
$
$
$
49
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Tredegar Corporation and Subsidiaries
Years Ended December 31
(In Thousands, Except Per-Share Data)
Net income (loss)
Other comprehensive income (loss):
Unrealized foreign currency translation adjustment (net of tax benefit
of $890 in 2015, tax benefit of $2,396 in 2014 and tax of $233 in
2013)
Derivative financial instruments adjustment (net of tax benefit of $550
in 2015, tax benefit of $112 in 2014 and tax benefit of $133 in 2013)
Pension & other post-retirement benefit adjustments
Net gains (losses) and prior service costs (net of tax benefit of
$226 in 2015, tax benefit of $22,445 in 2014 and net of tax of
$13,231 in 2013)
Amortization of prior service costs and net gains or losses (net of
tax of $5,823 in 2015, tax of $3,582 in 2014 and tax of $5,398
in 2013)
Other comprehensive income (loss)
Comprehensive income (loss)
See accompanying notes to financial statements.
2015
2014
2013
$
(32,135) $
36,879
$
21,947
(65,537)
(28,065)
(19,336)
(1,029)
(109)
(228)
(2,176)
(38,730)
22,203
10,218
(58,524)
(90,659) $
6,997
(59,907)
(23,028) $
9,420
12,059
34,006
$
50
CONSOLIDATED STATEMENTS OF CASH FLOWS
Tredegar Corporation and Subsidiaries
Years Ended December 31
(In Thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments for noncash items:
Depreciation
Amortization of intangibles
Goodwill impairment charge
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/payable
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 investment property (2014) and Fallings
Springs, LLC (2013)
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.
51
2015
2014
2013
$
(32,135) $
36,879
$
21,947
30,909
4,073
44,465
(10,523)
12,521
20,500
403
(11)
9,180
1,137
(1,849)
(1,256)
(2,455)
(703)
74,256
(32,831)
—
—
1,416
(31,415)
35,423
5,395
—
(11,489)
6,974
(2,000)
993
(1,031)
(18,696)
(8,803)
(906)
496
5,554
2,446
51,235
(44,898)
—
4,500
2,125
(38,273)
107,000
(140,328)
(13,725)
2,858
(44,195)
(4,546)
(5,900)
50,056
44,156
3,508
20,118
$
$
116,000
(117,779)
(11,007)
410
(12,376)
(3,147)
(2,561)
52,617
50,056
3,320
20,890
$
$
$
$
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
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Tredegar Corporation and Subsidiaries
Accumulated Other Comprehensive Income (Loss)
(In Thousands, Except Share and Per-Share Data)
Shares
Amount
Common Stock
Trust for
Savings
Restora-
tion Plan
Foreign
Currency
Trans-
lation
Retained
Earnings
32,069,370
$ 15,195
$460,805
$ (1,401) $
21,947
—
131
—
Balance at January 1, 2013
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 ($0.28 per share)
—
—
—
—
—
—
—
—
—
—
—
—
Stock-based compensation expense
72,125
2,572
Issued upon exercise of stock options (including related
income tax benefit of $188) & other
163,650
2,874
Tredegar common stock purchased by trust for savings
restoration plan
—
—
—
—
—
—
(9,040)
—
—
17
— (19,336)
—
—
—
—
—
—
(17)
—
—
—
—
—
—
—
36,879
—
—
— (28,065)
Balance at December 31, 2013
32,305,145
20,641
473,729
(1,418)
(19,205)
Net income
Foreign currency translation adjustment (net of tax
benefit of $2,396)
Derivative financial instruments adjustment (net of tax
benefit of $112)
Net gains or losses and prior service costs (net of tax
benefit of $22,445)
Amortization of prior service costs and net gains or
losses (net of tax of $3,582)
Cash dividends declared ($0.34 per share)
—
—
—
—
—
—
—
—
—
—
—
Stock-based compensation expense
85,129
3,224
Issued upon exercise of stock options (including related
income tax benefit of $3) & other
Shareholder Rights Plan redemption
Tredegar common stock purchased by trust for savings
restoration plan
31,808
—
—
499
—
—
—
—
—
—
—
—
(323)
— (11,007)
Net loss
Foreign currency translation adjustment (net of tax
benefit of $890)
Derivative financial instruments adjustment (net of tax
benefit of $550)
Net gains or losses and prior service costs (net of tax
benefit of $226)
Amortization of prior service costs and net gains or
losses (net of tax of $5,823)
Cash dividends declared ($0.42 per share)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— (13,725)
Stock-based compensation expense
118,440
3,435
Issued upon exercise of stock options (including related
income tax of $302) & other
141,640
1,668
Tredegar common stock purchased by trust for savings
restoration plan
—
—
—
27
—
—
—
—
—
—
—
—
—
—
—
—
—
— (65,537)
—
—
—
—
—
—
(27)
—
—
—
—
—
—
—
Balance at December 31, 2014
32,422,082
24,364
499,300
(1,440)
(47,270)
22
(22)
— (32,135)
—
—
Gain
(Loss) on
Derivative
Financial
Instruments
993
$
Pension &
Other Post-
retirement
Benefit
Adjust.
Total
Share-
holders’
Equity
$ (103,471) $ 372,252
—
—
(228)
—
—
—
—
—
—
765
—
—
(109)
—
—
—
—
—
—
656
—
—
(1,029)
—
—
—
—
—
—
—
—
—
21,947
(19,336)
(228)
22,203
22,203
9,420
—
—
—
—
9,420
(9,040)
2,572
2,874
—
(71,848)
402,664
—
—
—
36,879
(28,065)
(109)
(38,730)
(38,730)
6,997
—
—
—
—
6,997
(11,007)
3,224
499
(323)
—
(103,581)
372,029
—
—
—
(32,135)
(65,537)
(1,029)
(2,176)
(2,176)
10,218
—
—
—
—
10,218
(13,725)
3,435
1,668
—
Balance at December 31, 2015
32,682,162
$ 29,467
$453,467
$ (1,467) $(112,807) $
(373) $
(95,539) $ 272,748
See accompanying notes to financial statements.
52
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,” “the Company,”
“we,” “us” or “our”) are primarily engaged in the manufacture of polyethylene films, polyester 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, Tredegar sold its aluminum extrusions business in Canada. All historical results for this business 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 Tredegar to make estimates and assumptions that affect the reported amounts of revenues,
expenses, assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual
results could differ from those estimates.
Tredegar has historically reported two business segments: Film Products and Aluminum Extrusions. In the third quarter
of 2015, the Company divided Film Products into two separate operating segments: PE Films and Flexible Packaging Films.
All historical results for PE Films and Flexible Packaging Films have been separately presented to conform with the new
presentation of segments. See Note 5 regarding business segments.
Certain amounts for the prior years have been reclassified to conform to current year presentation.
Foreign Currency Translation. The financial statements of subsidiaries located outside the U.S., where the local currency is
the functional currency, are translated into U.S. Dollars using exchange rates in effect at the period end for assets and liabilities
and average exchange rates during each reporting period for results of operations. Adjustments resulting from the translation of
these financial statements are reflected as a separate component of shareholders’ equity. There are no operating subsidiaries
located outside the U.S. where the U.S. Dollar is the functional currency.
Transaction and remeasurement gains or losses included in income were losses of $4.0 million, $1.5 million and $0.4
million in 2015, 2014 and 2013, respectively. These amounts do not include the effects between reporting periods that
exchange rate changes have on income of the locations outside the U.S. that result from translation into U.S. Dollars.
Cash 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, 2015 and 2014, Tredegar had cash
and cash equivalents of $44.2 million and $50.1 million, respectively, including funds held in locations outside the U.S. of
$27.7 million and $40.5 million, respectively.
The Company’s policy permits investment of excess cash in marketable securities that have the highest credit ratings and
maturities of less than one year. The primary objectives of the policy are safety of principal and liquidity.
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 an
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. Finished goods, work in process, raw materials and
supplies, stores and other inventory are reviewed to determine if inventory quantities are in excess of forecasted usage or if they
have become obsolete.
Property, Plant and Equipment. Accounts include costs of assets constructed or purchased, related delivery and installation
costs and interest incurred on significant capital projects during their construction periods. Expenditures for renewals and
betterments also are capitalized, but expenditures for repairs and maintenance are expensed as incurred. The cost and
53
accumulated depreciation applicable to assets retired or sold are removed from the respective accounts, and gains or losses
thereon are included in income.
Capital expenditures for property, plant and equipment include capitalized interest. Capitalized interest included in
capital expenditures for property, plant and equipment was $0.4 million, $1.1 million and $0.9 million in 2015, 2014 and 2013,
respectively.
Depreciation is computed primarily by the straight-line method based on the estimated useful lives of the assets that,
except for isolated exceptions, range from 5 to 40 years for buildings and land improvements and 2 to 20 years for machinery
and equipment.
Investments in Private Entities with Less Than or Equal to 50% Voting Ownership Interest. The Company accounts for its
investments in private entities where its voting ownership is less than or equal to 50% based on the facts and circumstances
surrounding the investment. Investments are required to be accounted for under the consolidation method in situations where
Tredegar is 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. The Company is deemed to have a controlling financial interest if it has (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 the Company is not deemed to be the primary beneficiary in an investment in a variable interest entity then it selects
either: (i) the fair value method or (ii) either (a) the cost method if it does not have significant influence over operating and
financial policies of the investee or (b) the equity method if it does 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. The Company assesses goodwill for impairment when events or circumstances indicate
that the carrying value may not be recoverable or, at a minimum, on an annual basis (December 1 of each year). The Company
recorded a goodwill impairment charge of $44.5 million ($44.5 million after taxes) to write off the goodwill associated with
Flexible Packaging Films in the third quarter of 2015. See Note 8 for additional details.
The Company estimates the fair value of its reporting units using discounted cash flow analysis and comparative
enterprise value-to-EBITDA (earnings before interest, taxes, depreciation and amortization) multiples. The remaining goodwill
were tested for impairment at the annual testing date, with the estimated fair value of these reporting units substantially
exceeding the carrying value of its net assets.
Indefinite-lived intangible assets are assessed for impairment when events or circumstances indicate that the carrying
value may not be recoverable, or, at a minimum, on an annual basis (December 1st of each year). The Company estimates the
fair value of its trade names using a relief-from-royalty method that relies upon a corresponding discounted cash flow analysis.
The indefinite-lived intangible assets were tested for impairment at the annual testing date, with the estimated fair value
substantially exceeding the carrying value of the net assets.
Impairment of Long-Lived Assets. The Company reviews long-lived assets for possible impairment when events indicate that
an impairment may exist. For assets that are held and used in operations, if events indicate that an asset may be impaired, the
Company estimates the future unlevered pre-tax cash flows expected to result from the use of the asset and its eventual
disposition. Assets are grouped for this purpose at the lowest level for which there are identifiable and independent cash flows.
If the sum of these undiscounted pre-tax cash flows is less than the carrying amount of the asset, 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
54
assumptions relating to the employee workforce. The Company recognizes the funded status of its pension and other
postretirement plans in the accompanying consolidated balance sheets. Tredegar’s policy is to fund its pension plans at
amounts not less than the minimum requirements of the Employee Retirement Income Security Act (“ERISA”) of 1974 and to
fund postretirement benefits other than pensions when claims are incurred.
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 Holdings, LLC (“Terphane”) because of the Company’s intent to
permanently reinvest these earnings. Because of the accumulation of significant losses related to foreign currency translations
at Terphane as of December 31, 2015, there were no unrecorded deferred tax liabilities associated with the U.S. federal income
taxes and foreign withholding taxes on undistributed earnings indefinitely invested outside the U.S. The Company accrues U.S.
federal income taxes to the extent required under U.S. GAAP on unremitted earnings of all other foreign subsidiaries.
A valuation allowance is recorded in the period when the Company determines that it is more likely than not that all or a
portion of deferred tax assets may not be realized. The establishment and removal of a valuation allowance requires the
Company to consider all positive and negative evidence and make a judgmental decision regarding the amount of valuation
allowance required as of a reporting date. The benefit of an uncertain tax position is included in the accompanying financial
statements when the Company determines that it is more likely than not that the position will be sustained, based on the
technical merits of the position, if the taxing authority examines the position and the dispute is litigated. This determination is
made on the basis of all the facts, circumstances and information available as of the reporting date.
Earnings Per Share. Basic earnings per share is computed using the weighted average number of shares of common stock
outstanding. Diluted earnings per share is computed using the weighted average common and potentially dilutive common
equivalent shares outstanding, determined as follows:
Weighted average shares outstanding used to compute
basic earnings per share
Incremental shares attributable to stock options and
restricted stock
Shares used to compute diluted earnings per share
2015
2014
2013
32,578,116
32,302,108
32,171,751
—
32,578,116
251,746
32,553,854
427,528
32,599,279
Incremental shares attributable to stock options and restricted stock are computed using the average market price during
the related period. The Company had a net loss from continuing operations in 2015, so there is no dilutive impact for such
shares. If the Company had reported net income from continuing operations in 2015, average out-of-the-money options to
purchase shares that would have been excluded from the calculation of incremental shares attributable to stock options and
restricted stock were 881,513. The average out-of-the-money options to purchase shares that were excluded from the
calculation of incremental shares attributable to stock options and restricted stock were 320,849 in 2014 and 31,167 in 2013.
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 the closing stock price on that date.
55
The assumptions used in this model for valuing Tredegar stock options granted in 2014 and 2013 (no grants in 2015) are
as follows:
Dividend yield
Weighted average volatility percentage
Weighted average risk-free interest rate
Holding period (years):
Officers
Management
2014
2013
1.3%
43.5%
2.0%
6.0
5.0
1.1%
48.3%
1.1%
6.0
5.0
Weighted average exercise price at date of grant (also
weighted average market price at date of grant):
Officers
Management
$
$
22.49
22.33
$
$
24.84
25.10
The dividend yield is the actual dividend yield on Tredegar’s common stock at the date of grant, which the Company
believes is a reasonable estimate of the expected yield during the holding period. The expected volatility is based on the
historical volatility of Tredegar’s common stock using a sequential period of historical data equal to the expected holding
period of the option. The Company has no reason to believe that future volatility for this period is likely to differ from the past.
The assumed risk-free interest rate is based on observed interest rates (zero coupon U.S. Treasury debt securities) appropriate
for the expected holding period. 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 2014 and 2013 (no grants in 2015), 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)
2014
2013
87,820
93,656
181,476
94,400
90,300
184,700
$
$
$
9.21
7.60
1,521
$
$
$
10.37
9.65
1,850
Additional disclosure of Tredegar stock options is included in Note 13.
Financial Instruments. Tredegar uses derivative financial instruments for the purpose of hedging aluminum price volatility and
currency exchange rate exposures that exist as part of transactions associated with ongoing business operations. The
Company’s derivative financial instruments are designated as and qualify as cash flow hedges and are recognized in the
accompanying balance sheet at fair value. A change in the fair value of the derivative that is highly effective and that is
designated and qualifies as a cash flow hedge is recorded in other comprehensive income. Gains and losses reported in other
comprehensive income (loss) are reclassified to earnings in the periods in which earnings are affected by the variability of cash
flows of the hedged transaction. Such gains and losses are reported 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 2015, 2014 and
2013.
The Company’s policy requires that it formally document all relationships between hedging instruments and hedged
items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Company also
formally assesses (both at the hedge’s inception and on an ongoing basis) whether the derivatives that are used in hedging
56
transactions have been highly effective in offsetting changes in the fair value or cash flows of hedged items and whether those
derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not (or has
ceased to be) highly effective as a hedge, the Company discontinues hedge accounting prospectively.
As a policy, Tredegar does not engage in speculative or leveraged transactions, nor does it hold or issue financial
instruments for trading purposes. Additional disclosure of the utilization of derivative hedging instruments is included in Note
9.
Comprehensive Income (Loss). Comprehensive income (loss) is defined as net income or loss as adjusted by other
comprehensive income or loss items. Other comprehensive income (loss) includes changes in foreign currency translation
adjustments, 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
gain or loss 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, 2015:
(In Thousands)
Foreign currency
translation
adjustment
Gain (loss) on
derivative financial
instruments
Pension and other
post-retirement
benefit adjustments
Total
Beginning balance, January 1, 2015
$
(47,270) $
656
$
(103,581) $ (150,195)
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from accumulated
other comprehensive income (loss)
Net other comprehensive income (loss) -
current period
(65,537)
(3,221)
(2,176)
(70,934)
—
2,192
10,218
12,410
Ending balance, December 31, 2015
$
(112,807) $
(373) $
(65,537)
(1,029)
8,042
(58,524)
(95,539) $ (208,719)
The following table summarizes the after-tax changes in accumulated other comprehensive income (loss) for the year
ended December 31, 2014:
(In Thousands)
Foreign currency
translation
adjustment
Gain (loss) on
derivative financial
instruments
Pension and other
post-retirement
benefit adjustments
Total
Beginning balance, January 1, 2014
$
(19,205) $
765
$
(71,848) $
(90,288)
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from accumulated
other comprehensive income (loss)
Net other comprehensive income (loss) -
current period
(28,065)
—
(28,065)
Ending balance, December 31, 2014
$
(47,270) $
294
(403)
(38,730)
(66,501)
6,997
6,594
(109)
656
$
(31,733)
(59,907)
(103,581) $ (150,195)
57
Reclassifications of balances out of accumulated other comprehensive income (loss) into net income during 2015 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
(loss)
Location of gain (loss)
reclassified from accumulated
other comprehensive income
(loss) to net income (loss)
$
$
$
$
(3,538) Cost of sales
62 Cost of sales
(3,476)
(1,284)
(2,192)
(16,041)
(5,823)
(10,218)
Income taxes
(a)
Income taxes
(a) This component of accumulated other comprehensive income is included in the computation of net periodic pension
cost (see Note 14 for additional detail).
Reclassifications of balances out of accumulated other comprehensive income (loss) into net income during 2014 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
(loss)
Location of gain (loss)
reclassified from accumulated
other comprehensive income
(loss) to net income
$
$
$
$
631 Cost of sales
16 Cost of sales
647
244
403
Income taxes
(a)
Income taxes
(10,579)
(3,582)
(6,997)
(a) This component of accumulated other comprehensive income is included in the computation of net periodic pension
cost (see Note 14 for additional detail).
58
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
(loss)
Location of gain (loss)
reclassified from accumulated
other comprehensive income
(loss) 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 May 2014, the Financial Accounting Standards Board (“FASB”) and International
Accounting Standards Board (“IASB”) issued their converged standard on revenue recognition. The revised revenue standard
contains principles that an entity will apply to direct the measurement of revenue and timing of when it is recognized. The core
principle of the guidance is that the recognition of revenue should depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods and
services. To achieve that core principle, an entity will utilize a principle-based five-step approach model. The converged
standard also includes more robust disclosure requirements which will require entities to provide sufficient information to
enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising
from contracts with customers. In July 2015, the FASB delayed the effective date of this revised standard to annual reporting
periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is
permitted as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that
annual reporting period. The converged standard can be adopted either retrospectively or through the use of a practical
expedient. The Company is assessing the impact of this new guidance.
In April 2015, the FASB issued new guidance requiring that debt issuance costs related to a recognized debt liability be
presented in the balance sheet as a direct reduction from the carrying amount of that corresponding debt liability, consistent
with debt discounts, rather than as a deferred charge (e.g., an asset). The new guidance did not address the presentation or
subsequent measurement of debt issuance costs related to line-of-credit arrangements. In August 2015, the FASB issued
updated guidance that stated in the absence of authoritative guidance, debt issuance costs associated with line-of-credit
arrangements could continue to be deferred and presented as an asset over the corresponding amortization period. The new
guidance will be effective for annual reporting periods beginning after December 15, 2015, including interim periods within
that reporting period. The guidance requires that all prior period balance sheets be adjusted retrospectively, and early adoption
is permitted. The Company expects to adopt the guidance by the first quarter of 2016. Deferred debt issuance costs associated
with the Company’s Credit Agreement were $0.7 million and $1.1 million (included in “Other assets and deferred charges” in
the consolidated balance sheet) at December 31, 2015 and December 31, 2014, respectively. The Company does not anticipate
that this guidance will impact its consolidated balance sheet as its current debt issuance costs are associated with a revolving
credit facility.
In May 2015, the FASB issued new guidance for investments measured at net asset value (“NAV”). Under the new
guidance, investments measured at NAV, as a practical expedient for fair value, are excluded from the fair value hierarchy.
Removing investments measured using the practical expedient from the fair value hierarchy is intended to eliminate diversity in
practice that currently exists with respect to the categorization of these investments. The new guidance is effective for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2015 for public business entities. Early
adoption is permitted, including for financial statement periods that have not yet been issued. Early adoption is permitted for
all entities, and the Company has chosen to early adopt this guidance on a retrospective basis. See Note 14 for additional detail.
59
In July 2015, the FASB issued new guidance for the measurement of inventories. Inventories within the scope of the
revised guidance should be measured at the lower of cost or net realizable value. The previous guidance dictated that inventory
should be measured at the lower of cost or market, with market being either replacement cost, net realizable value or net
realizable value less an approximation of normal profit margin. Net realizable value is the estimated selling prices in the
ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Subsequent
measurement is unchanged for inventories measured using LIFO or the retail inventory method. The amended guidance is
effective for fiscal years beginning after December 31, 2016, including the interim periods within those fiscal years. The
amendments should be applied prospectively, with early adoption permitted. The Company is assessing the impact of this
revised guidance.
In September 2015, the FASB issued new guidance associated with accounting for adjustments to provisional amounts
recognized in a business combination. To simplify the accounting for adjustments made to provisional amounts, the updated
standard requires that the acquirer recognize adjustments to provisional amounts that are identified during the measurement
period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the
same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if
any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition
date. An entity is also required to present separately on the face of the income statement or disclose in the notes to the financial
statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in
previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The
revised guidance is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal
years, with early adoption permitted. The amendments should be applied prospectively to adjustments to provisional amounts
that occur after adoption. The Company will apply this guidance in accounting for future business combinations.
In November 2015, the FASB issued new guidance associated with the classification of deferred income tax assets and
liabilities in a classified statement of financial position. Current guidance requires an entity to separate deferred income tax
liabilities and assets into current and noncurrent amounts in a classified statement of financial position. Deferred tax liabilities
and assets are classified as current or noncurrent based on the classification of the related asset or liability for financial
reporting. Deferred tax liabilities and assets that are not related to an asset or liability for financial reporting are classified
according to the expected reversal date of the temporary difference. To simplify the presentation of deferred income taxes, the
amended guidance requires that deferred income tax liabilities and assets be classified as noncurrent in a classified statement of
financial position. The amended guidance is effective for financial statement periods beginning after December 15, 2016, and
interim periods within those periods. Early application is permitted for all entities, and the Company has chosen to early adopt
this guidance on a prospective basis. See Note 17 for additional detail.
2
ACQUISITIONS
On October 1, 2012, The William L. Bonnell Company, Inc. acquired 100% ownership of AACOA, Inc. (“AACOA”).
AACOA operates production facilities in Elkhart, Indiana and Niles, Michigan. Its primary markets include consumer
durables, machinery and equipment and transportation. The acquisition added fabrication capabilities to Aluminum Extrusions’
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 the Company’s existing $350 million revolving credit facility.
3
DISCONTINUED OPERATIONS
On February 12, 2008, the Company sold its aluminum extrusions business in Canada for $25.0 million. In 2014,
accruals for indemnifications under the purchase agreement related to environmental matters were adjusted, resulting in income
from discontinued operations of $0.9 million ($0.9 million net of tax). In 2013, an accrual of $14.0 million ($14.0 million net
of tax) was made for indemnifications under the purchase agreement related to environmental matters. The historical results
for this business, 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.
60
4
INVESTMENTS
In August 2007 and December 2008, Tredegar made an aggregate investment of $7.5 million in kaleo, Inc. (“kaléo”), a
privately held specialty pharmaceutical company dedicated to building innovative solutions for serious and life-threatening
medical conditions. The mission of kaléo is to provide products that empower patients to confidently take control of their
medical conditions. The Company’s ownership interest on a fully diluted basis is approximately 19%, and the investment is
accounted for under the fair value method. At the time of the initial investment, the Company elected the fair value option over
the equity method of accounting since its investment objectives were similar to those of venture capitalists, which typically do
not have controlling financial interests.
At December 31, 2015 and 2014, the estimated fair value of the Company’s investment (included in “Other assets and
deferred charges” in the consolidated balance sheets) was $18.6 million and $39.1 million, respectively. In 2009, kaléo
licensed exclusive rights to sanofi-aventis U.S. LLC (“Sanofi”) to commercialize an epinephrine auto-injector in the U.S. and
Canada. Sanofi began manufacturing and distributing the epinephrine auto-injector, under the names Auvi-Q® in the U.S. and
Allerject® in Canada, in 2013. On October 28, 2015, Sanofi announced a voluntary recall of all Auvi-Q and Allerject
epinephrine injectors that were currently on the market. The Company recognized an unrealized loss on its investment in kaléo
of $20.5 million ($15.7 million after taxes) in 2015 that was primarily related to the adverse impact of this product recall.
The Company recognized a net unrealized gain of $2.0 million ($1.0 million after taxes) in 2014 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 45% for their high degree of risk and the impact of reducing
the weighted average cost of capital used to discount cash flow projections after kaléo commercialized a second product,
partially offset by unfavorable adjustments in the fair value due to a reassessment of the amount and timing of estimated cash
flows associated with kaléo’s commercialized products.
The Company recognized an unrealized gain of $3.4 million ($2.2 million after taxes) in 2013 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.
Unrealized gains (losses) associated with this investment are included in “Other income (expense), net” in the
consolidated statements of income and separately stated in the segment operating profit table in Note 5. Subsequent to its most
recent investment (December 15, 2008), and until the next round of financing, the Company believes fair value estimates are
based upon Level 3 inputs since there is no secondary market for its ownership interest. Accordingly, until the next round of
financing or any other significant financial transaction, value estimates will primarily be based on assumptions 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 their high degree of risk. If kaléo does not meet its development and commercialization
milestones or there are indications that the amount or timing of its projected cash flows or related risks are unfavorable versus
the most recent valuation, or a new round of financing or other significant financial transaction indicates a lower enterprise
value, then the Company’s estimate of the fair value of its ownership interest in kaléo is likely to decline. Adjustments to the
estimated fair value of this investment will be made in the period upon which such changes can be quantified.
In addition to the impact on valuation of the possible changes in assumptions, Level 3 inputs and projections from
changes in business conditions, the fair market valuation of Tredegar’s interest in kaléo is sensitive to changes in the weighted
average cost of capital used to discount cash flow projections for the high degree of risk associated with meeting development
and commercialization milestones as anticipated. The weighted average cost of capital used in the fair market valuation of the
Company’s interest in kaléo was 45% at both December 31, 2015 and 2014. In 2015, the weighted average cost of capital used
to discount cash flow projections reflected the product risk associated with Sanofi’s voluntary recall of Auvi-Q® and Allerject®
in North America. In 2014, the weighted average cost of capital used to discount cash flow projections was decreased to reflect
lower product risk after the U.S. Food and Drug Administration’s approval of kaléo’s naloxone auto-injector for emergency
treatment of known or suspected opioid overdoses and reduced funding risk subsequent to kaléo securing new debt financing,
both of which occurred in April 2014. At December 31, 2015, the effect of a 500 basis point decrease in the weighted average
cost of capital assumption would have further increased the fair value of Tredegar’s interest in kaléo by approximately $4
million, and a 500 basis point increase in the weighted average cost of capital assumption would have decreased the fair value
of the Company’s interest by approximately $4 million.
61
Had the Company not elected to account for its investment under the fair value method, it would have been required to
use the equity method of accounting. The condensed balance sheets for kaléo at December 31, 2015 and 2014 and related
condensed statements of operations for the last three years ended December 31, 2015, that were reported by kaléo, are provided
below:
(In Thousands)
Assets:
Cash & short-term
investments
Restricted cash
Other current assets
Property & equipment
Patents
Other long-term assets (a)
December 31,
2015
2014
$
91,844
$ 117,589
Liabilities & Equity:
December 31,
2015
2014
8,182
9,070
8,453
2,811
92
14,498
17,916
10,824
2,702
Other current liabilities
$
10,261
$
Other noncurrent liabilities
552
8,123
1,247
Long-term debt, net (a)
142,696
146,629
Redeemable preferred stock
15
Equity
—
(33,057)
$ 120,452
22,946
(15,401)
$ 163,544
Total assets
$ 120,452
$ 163,544 Total liabilities & equity
Revenues & Expenses:
2015
2014
2013
Revenues
$
Cost of goods sold
Expenses and other, net (b)
21,156
(3,801)
(48,447)
8,100
(22,992) $
(a) Certain immaterial prior year balances have been reclassified to conform with current year presentation.
(b) “Expenses and other, net” includes selling, general and administrative expense, research and development expense,
35,731
(14,147)
(63,042)
(481)
(41,939) $
Income tax (expense) benefit
Net income (loss)
—
(18,631)
1,586
(1,740)
15,305
$
$
$
interest expense and other income (expense), net.
The audited financial statements and accompanying footnotes of kaléo as of December 31, 2015 and 2014 and for the
years ended December 31, 2015, 2014 and 2013 have been included as an exhibit to the Company’s Annual Report on Form 10-
K for the year ended December 31, 2015 filed with the Securities and Exchange Commission.
On April 2, 2007, Tredegar invested $10.0 million in Harbinger Capital Partners Special Situations Fund, L.P. (the
“Harbinger Fund”), a private investment fund that is subject to limitations on withdrawal. There is no secondary market for
interests in the fund. The Company’s investment in the Harbinger Fund, which represents less than 1% of its total partnership
capital, is accounted for under the cost method. Unrealized losses on the Company’s investment in the Harbinger Fund
(included in “Other income (expense), net” in the consolidated statements of income) were $0.8 million ($0.4 million after
taxes) and $0.4 million ($0.3 million after taxes) in 2014 and 2013, respectively (none in 2015), as a result of a reduction in the
estimated fair value of the investment that is not expected to be temporary. The December 31, 2015 and 2014 carrying value in
the consolidated balance sheets (included in “Other assets and deferred charges”) was $1.7 million and $1.8 million,
respectively. The carrying value at December 31, 2015 reflected Tredegar’s cost basis in its investment in Harbinger, net of
total withdrawal proceeds received and unrealized losses. Withdrawal proceeds were $0.1 million in 2015, $0.2 million in 2014
and $0.4 million in 2013. The timing and amount of future installments of withdrawal proceeds was not known as of
December 31, 2015. There were no realized gains or losses associated with the investment in the Harbinger Fund in 2015, 2014
and 2013. Gains on the Company’s investment in the Harbinger Fund, if any, will be recognized when the amounts expected to
be collected from withdrawal from the investment are known, which will likely be when cash in excess of the remaining
carrying value is received. Losses will be recognized if management believes it is probable that future withdrawal proceeds
will not exceed the remaining carrying value.
Tredegar has investment property in Alleghany and Bath County, Virginia. The Company realized a gain (included in
“Other income (expense), net” in the consolidated statements of income) of $1.2 million ($0.8 million after taxes) on a sale of a
portion of this investment property in 2014. The Company recorded an unrealized loss on its 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 the investment that is not expected to be temporary. The Company’s carrying value in this investment property (included in
“Other assets and deferred charges” on the consolidated balance sheets) was $2.6 million at December 31, 2015 and $2.6
million at December 31, 2014.
62
5
BUSINESS SEGMENTS
Tredegar has historically reported two business segments: Film Products and Aluminum Extrusions. In 2015, the
Company divided Film Products into two separate reportable segments: PE Films and Flexible Packaging Films. PE Films is
comprised of the following operating segments: personal care materials, surface protection films, and engineered polymer
solutions; and Flexible Packaging Films is comprised of the Company’s polyester films business, Terphane, which was
acquired by Film Products in October 2011. As part of its transition to a new executive leadership team, the Company’s
management has decided to discontinue its efforts to integrate Terphane with its other film products operations. In separating
PE Films and Flexible Packaging Films, the Company’s management believes that it will be able to more effectively manage
the distinct opportunities and challenges that each of these businesses face. Therefore, the Company's business segments are
now PE Films, Flexible Packaging Films and Aluminum Extrusions. All historical results for PE Films and Flexible Packaging
Films have been separately presented to conform with the new presentation of segments.
Information by business segment and geographic area for the last three years is provided below. There were no
accounting transactions between segments and no allocations to segments. Net sales (sales less freight) and operating profit
from ongoing operations are the measures of sales and operating profit used by the chief operating decision maker (Tredegar’s
President and Chief Executive Officer) for purposes of assessing performance. PE Films’ net sales to The Procter & Gamble
Company (“P&G”) totaled $163.9 million in 2015, $220.8 million in 2014 and $261.9 million in 2013. These amounts include
plastic film sold to others that convert the film into materials used with products manufactured by P&G.
Net Sales
(In Thousands)
PE Films
Flexible Packaging Films
Aluminum Extrusions
Total net sales
Add back freight
Sales as shown in consolidated statements of income
2015
385,550
105,332
375,457
866,339
29,838
896,177
$
$
2014
464,339
114,348
344,346
923,033
28,793
951,826
$
$
2013
495,386
125,853
309,482
930,721
28,625
959,346
$
$
63
Operating Profit
2015
2014
2013
$
$
48,275
(4,180)
$
60,971
(12,236)
61,866
(671)
(In Thousands)
PE Films:
Ongoing operations
Plant shutdowns, asset impairments, restructurings and other (a)
Flexible Packaging Films:
Ongoing operations
Plant shutdowns, asset impairments, restructurings and other (a)
Goodwill impairment
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)
Gain on sale of investment property (a)
Unrealized loss on investment property (a)
Stock option-based compensation expense
Corporate expenses, net (a)
Income (loss) from continuing operations before income taxes
Income taxes (a)
Income (loss) from continuing operations
Income (loss) from discontinued operations (a)
Net income (loss)
$
Identifiable Assets
(In Thousands)
PE Films
Flexible Packaging Films
Aluminum Extrusions
Subtotal
General corporate (b)
Cash and cash equivalents (d)
Total
5,453
(185)
(44,465)
30,432
(708)
34,622
294
3,502
(20,500)
—
—
483
33,638
(23,207)
8,928
(32,135)
—
(32,135) $
(2,917)
(591)
—
25,664
(976)
69,915
588
2,713
2,000
1,208
—
1,272
24,310
45,416
9,387
36,029
850
36,879
$
9,100
—
—
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
2015
270,236
146,253
136,935
553,424
25,680
44,156
623,260
$
$
2014
283,606
262,604
143,328
689,538
49,032
50,056
788,626
$
$
(In Thousands)
PE Films
Flexible Packaging Films
Aluminum Extrusions
Subtotal
General corporate
Total
See footnotes on page 66.
Depreciation and Amortization
Capital Expenditures
2015
15,480
9,697
9,698
34,875
107
34,982
$
$
2014
21,399
9,331
9,974
40,704
114
40,818
$
$
2013
25,656
9,676
9,202
44,534
121
44,655
$
$
2015
21,218
3,489
8,124
32,831
—
32,831
$
$
2014
17,000
21,806
6,092
44,898
—
44,898
$
$
2013
15,615
49,252
14,742
79,609
52
79,661
$
$
64
(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
Total (c)
(In Thousands)
United States (b)
Operations outside the United States:
Brazil
China
The Netherlands
Hungary
India
General corporate (b)
Cash and cash equivalents (d)
Total
(In Thousands)
PE Films:
Personal care materials
Surface protection films
Engineered polymer solutions
Subtotal
Flexible Packaging Films
Aluminum Extrusions:
Nonresidential building & construction
Consumer durables
Automotive
Residential building & construction
Electrical
Distribution
Machinery & equipment
Subtotal
Total
Net Sales by Geographic Area (d)
2015
528,881
$
2014
542,395
$
2013
534,346
$
75,383
45,290
9,809
3,464
89,829
53,211
32,612
18,919
8,941
866,339
$
Identifiable Assets
by Geographic Area (d)
2015
351,115
$
2014
409,272
$
126,478
34,409
19,372
14,798
7,252
25,680
44,156
623,260
$
212,186
23,037
23,729
13,440
7,874
49,032
50,056
788,626
$
72,597
47,391
10,874
3,116
97,954
74,329
39,457
26,109
8,811
923,033
$
82,235
46,481
6,984
3,505
109,415
68,471
43,482
28,702
7,100
930,721
Property, Plant & Equipment,
Net by Geographic Area (d)
2015
104,380
$
2014
115,189
78,845
27,563
6,224
8,135
5,234
934
n/a
231,315
$
119,066
14,141
9,117
5,829
5,575
1,040
n/a
269,957
$
$
$
Net Sales by Product Group
2015
2014
2013
$
$
287,768
90,197
7,585
385,550
105,332
221,363
41,835
30,250
22,737
22,511
18,659
18,102
375,457
866,339
$
$
367,451
90,129
6,759
464,339
114,348
200,707
44,897
22,272
21,470
12,775
15,318
26,907
344,346
923,033
$
$
401,451
90,182
3,753
495,386
125,853
179,437
39,565
19,919
22,055
13,455
13,115
21,936
309,482
930,721
See footnotes on page 66 and a reconciliation of net sales to sales as shown in the Consolidated Statements of Income on page 64.
65
(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) The balance sheets include the funded status of each of the Company’s defined benefit pension and other postretirement plans. The funded status of
the Company’s defined benefit pension plan was a net liability of $93.2 million and $96.4 million as of December 31, 2015 and 2014, respectively.
See Note 14 for more information on the Company’s pension and other postretirement plans.
(c) The difference between total consolidated sales as reported in the consolidated statements of income and segment, geographic and product group net
(d)
sales reported in this note is freight of $29.8 million in 2015, $28.8 million in 2014 and $28.6 million in 2013.
Information on exports and foreign operations are provided on the previous page. Cash and cash equivalents includes funds held in locations outside
the U.S. of $27.7 million and $40.5 million at December 31, 2015 and 2014, respectively. Export sales relate almost entirely to PE Films. Operations
outside the U.S. in The Netherlands, Hungary, China and India also relate to PE Films. Operations in Brazil are primarily related to Flexible
Packaging Films, but also include PE Films operations. Sales from locations in The Netherlands and Hungary are primarily to customers located in
Europe. Sales from locations in China (Guangzhou and Shanghai) are primarily to customers located in China, but also include other customers in
Asia.
6
ACCOUNTS AND OTHER RECEIVABLES
Accounts and other receivables consist of the following:
(In Thousands)
Trade, less allowance for doubtful accounts and sales returns of
$3,746 in 2015 and $2,610 in 2014
Other
Total
2015
2014
$
$
90,028
4,189
94,217
$
$
106,093
7,248
113,341
A reconciliation of the beginning and ending balances of the allowance for doubtful accounts and sales returns for the
three years ended December 31, 2015 is as follows:
(In Thousands)
Balance, beginning of year
Charges to expense
Recoveries
Write-offs
Foreign exchange and other
Balance, end of year
2015
2014
2013
$
$
2,610
3,387
(7)
(1,970)
(274)
3,746
$
$
3,327
1,344
(1,654)
(153)
(254)
2,610
$
$
3,552
1,874
(1,760)
(285)
(54)
3,327
7
INVENTORIES
Inventories consist of the following:
(In Thousands)
Finished goods
Work-in-process
Raw materials
Stores, supplies and other
Total
2015
2014
$
$
13,935
9,249
22,149
19,992
65,325
$
$
17,559
10,089
25,227
21,433
74,308
Inventories stated on the LIFO basis amounted to $13.5 million at December 31, 2015 and $12.2 million at December 31,
2014, which were below replacement costs by $13.4 million at December 31, 2015 and $18.3 million at December 31, 2014.
During 2015, 2014 and 2013, certain PE Films inventories accounted for on a LIFO basis declined, which resulted in cost of
goods sold being stated at below replacement costs, by $0.4 million, $1.0 million and $0.9 million, respectively.
66
8 GOODWILL AND OTHER INTANGIBLE ASSETS
The components of goodwill and other intangibles at December 31, 2015 and 2014, and related amortization periods for
continuing operations are as follows:
(In Thousands)
Goodwill
Other identifiable intangibles (a):
2015
2014
Amortization Periods
$
117,839
$
169,687 Not amortized
Customer relationships (cost basis of $23,766
in 2015 and $29,117 in 2014)
Proprietary technology (cost basis of $16,738 in
2015 and $18,228 in 2014)
Trade names
Total carrying value of other intangibles
Total carrying value of goodwill and other
intangibles
15,620
9,037
10,576
35,233
21,620
10-12 years
11,824 Not more than 15 years
11,998
Indefinite life
45,442
$
153,072
$
215,129
(a) Other identifiable intangibles includes non-compete agreements which have been fully amortized. These identifiable intangible assets,
which have a cost basis of $4.2 million, were previously amortized over 2 years.
A reconciliation of the beginning and ending balance of goodwill for each of the three years in the period ended
December 31, 2015 is as follows:
(In Thousands)
Net carrying value of goodwill at January 1, 2014
Increase (decrease) due to foreign currency translation
Net carrying value of goodwill at December 31, 2014
Goodwill impairment charge
Increase (decrease) due to foreign currency translation
Net carrying value of goodwill at December 31, 2015
PE Films
$
$
104,161
(1)
104,160
—
(17)
104,143
$
$
(1) Goodwill balance is net of accumulated impairment losses of $30.6 million.
Flexible
Packaging
Films
54,931
(3,100)
51,831
(44,465)
(7,366)
Aluminum
Extrusions (1)
$
13,696
$
—
13,696
—
—
— $
13,696
$
Total
172,788
(3,101)
169,687
(44,465)
(7,383)
117,839
The Company recorded a goodwill impairment charge of $44.5 million ($44.5 million after taxes) for goodwill associated
with Flexible Packaging Films in 2015. This impairment charge represents the entire amount of goodwill associated with the
Flexible Packaging Films segment. The operations of Flexible Packaging Films continue to be adversely impacted by
competitive pressures that are primarily related to ongoing unfavorable economic conditions in its primary market of Brazil and
excess global capacity in the industry. The Company believes that these conditions have shifted the competitive environment
from a regional to a global landscape and have driven price convergence and lower product margins in Brazil. While recent
favorable anti-dumping rulings have been issued against China, Egypt and India, authorities in Brazil have initiated new
investigations of dumping against Peru and Bahrain. In light of market trends, increased economic uncertainty and continued
dumping activity in Brazil, the Company reassessed its projections for the timing and extent of a market recovery with Flexible
Packaging Films in 2015. The Company’s assessment of future prospects and timing of a recovery under these conditions
indicate that its current enterprise value is less than $120 million (Flexible Packaging Films’ net assets excluding goodwill), the
minimum value needed to have avoided a full write-off of its goodwill. The Company also assessed the fair value of Flexible
Packaging Films’ other long-lived assets and determined that no additional impairments had occurred.
Amortization expense for continuing operations over the next five years is expected to be as follows:
Year
2016
2017
2018
2019
2020
Amount
(In Thousands)
3,889
3,850
3,680
3,280
3,280
$
67
9
FINANCIAL INSTRUMENTS
Tredegar uses 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 PE Films). These derivative financial instruments are designated as and qualify as cash flow hedges and are
recognized in the consolidated balance sheet at fair value. The fair value of derivative instruments recorded on the consolidated
balance sheets are based upon Level 2 inputs. If individual derivative instruments with the same counterparty can be settled on
a net basis, the Company records the corresponding derivative fair values as a net asset or net liability.
In the normal course of business, Aluminum Extrusions enters into fixed-price forward sales contracts with certain
customers for the future sale of fixed quantities of aluminum extrusions at scheduled intervals. In order to hedge margin
exposure created from the fixing of future sales prices relative to volatile raw material (aluminum) costs, Aluminum Extrusions
enters into a combination of forward purchase commitments and futures contracts to acquire or hedge aluminum, based on the
scheduled purchases for the firm sales commitments. The fixed-price firm sales commitments and related hedging instruments
generally have durations of not more than 12 months, and the notional amount of aluminum futures contracts that hedged future
purchases of aluminum to meet fixed-price forward sales contract obligations was $16.6 million (18.9 million pounds of
aluminum) at December 31, 2015 and $8.6 million (7.8 million pounds of aluminum) at December 31, 2014.
The table below summarizes the location and gross amounts of aluminum derivative contract fair values (Level 2) in the
consolidated balance sheets as of December 31, 2015 and 2014:
(In Thousands)
Derivatives Designated as Hedging Instruments
Asset derivatives:
Aluminum futures contracts
Liability derivatives:
Aluminum futures contracts
Derivatives Not Designated as Hedging Instruments
Asset derivatives:
Aluminum futures contracts
Liability derivatives:
Aluminum futures contracts
Net asset (liability)
December 31, 2015
December 31, 2014
Balance Sheet
Account
Fair
Value
Balance Sheet
Account
Fair
Value
Accrued expenses
Accrued expenses
Accrued expenses
Accrued expenses
$
$
$
$
$
44 Accrued expenses
(1,797) Accrued expenses
— Accrued expenses
— Accrued expenses
(1,753)
$
$
$
$
$
82
(318)
7
(7)
(236)
In the event that a counterparty to an aluminum fixed-price forward sales contract chooses not to take delivery of its
aluminum extrusions, the customer is contractually obligated to compensate Aluminum Extrusions for any losses on the related
aluminum futures and/or forward contracts through the date of cancellation. The offsetting asset and liability positions
included in the table above are associated with the unwinding of aluminum futures contracts due to such cancellations.
Tredegar used future fixed Euro-denominated contractual payments for equipment being purchased as part of its multi-
year capacity expansion project at the film products manufacturing facility in Cabo de Santo Agostinho, Brazil. The Company
used fixed rate Euro forward contracts with various settlement dates through February 2014 to hedge exchange rate exposure
on these obligations. The Company did not have any fixed rate forward contracts with outstanding notional amounts as of
December 31, 2015 and 2014.
Tredegar receives Euro-based royalty payments relating to its operations in Europe. From time to time Tredegar uses
zero-cost collar currency options to hedge a portion of its 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, 2015 and 2014 as
there were no derivatives outstanding related to the hedging of royalty payments with currency options.
The counterparties to the Company’s forward purchase commitments are major aluminum brokers and suppliers, and the
counterparties to aluminum futures contracts are major financial institutions. Fixed-price forward sales contracts are only made
available to the best and most credit-worthy customers. The counterparties to Tredegar’s foreign currency futures and zero-cost
collar contracts are major financial institutions.
68
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, 2015, 2014, and 2013 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
2015
2014
2013
2015
2014
2013
$
(5,055) $
542
$
(868) $
— $
(120) $
(77)
Cost of
sales
Cost of
sales
Cost of
sales
Cost of
sales
Cost of
sales
$
(3,538) $
631
$
(583) $
62
$
16
$
—
Gains and losses on the ineffective portion of derivative instruments or derivative instruments that were not designated as
hedging instruments were not significant in 2015, 2014 and 2013. For the years ended December 31, 2015, 2014 and 2013,
unrealized net losses from hedges that were discontinued were not significant. As of December 31, 2015, the Company
expected $1.1 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.
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
Accrued utilities
Customer rebates
Accrued severance
Derivative contract liability
Other
Total
2015
2014
$
7,155
$
4,762
3,883
3,036
2,048
2,032
1,908
1,753
7,076
$
33,653
$
7,266
4,119
3,803
3,007
2,186
2,055
245
236
9,132
32,049
69
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, 2015 is as follows:
(In Thousands)
Severance
Asset
Impairments
Other (a)
Total
Balance at January 1, 2013
$
296
$
— $
585
$
881
For the year ended December 31, 2013:
Charges
Cash spend
Charges against assets
Balance at December 31, 2013
For the year ended December 31, 2014:
Charges
Cash spend
Charges against assets
Balance at December 31, 2014
For the year ended December 31, 2015:
Charges
Cash spend
Charges against assets
671
(636)
—
331
2,668
(2,753)
—
246
2,568
(1,352)
—
172
—
(172)
—
227
—
(227)
—
403
—
(403)
569
(798)
—
356
131
(286)
—
201
879
(675)
—
Balance at December 31, 2015
$
1,462
$
— $
405
$
1,412
(1,434)
(172)
687
3,026
(3,039)
(227)
447
3,850
(2,027)
(403)
1,867
(a) Other includes other shutdown-related costs associated with the consolidation of domestic PE Films manufacturing facilities and
the shutdown of the Company’s aluminum extrusions manufacturing facility in Kentland, Indiana.
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, Tredegar 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 the previous
$300 million four-year, unsecured revolving credit facility that was due to expire on June 21, 2014. In connection with the
refinancing, the Company borrowed $102 million under the Credit Agreement, which was used, together with available cash on
hand, to repay all indebtedness under the previous revolving credit facility.
Borrowings under the Credit Agreement bear an interest rate of LIBOR plus a credit spread and commitment fees charged
on the unused amount under the Credit Agreement at various indebtedness-to-adjusted-EBITDA levels as follows:
Pricing Under Credit Revolving Agreement (Basis Points)
Indebtedness-to-Adjusted EBITDA Ratio
> 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, 2015, 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; and
• Maximum aggregate distributions to shareholders over the term of the Credit Agreement of $100 million plus,
beginning with the fiscal quarter ended March 31, 2012, 50% of net income.
70
At December 31, 2015, based upon the most restrictive covenants within the Credit Agreement, available credit under the
Credit Agreement was approximately $164 million. Total debt due and outstanding at December 31, 2015 is summarized
below:
Debt Due and Outstanding at December 31, 2015
(In Thousands)
Credit
Agreement
Other
Total Debt
Due
$
— $
— $
104,000
—
—
—
—
—
—
—
—
104,000
—
—
—
$
104,000
$
— $
104,000
Year Due
2016
2017
2018
2019
2020
Total
Tredegar believes that it was in compliance with all of its debt covenants as of December 31, 2015. Noncompliance with
any of the debt covenants may have a material adverse effect on financial condition or liquidity in the event such
noncompliance cannot be cured or should the Company be unable to obtain a waiver from the lenders. Renegotiation of the
covenant through an amendment to the Credit Agreement may effectively cure the noncompliance, but may have an effect on
financial condition or liquidity depending upon how the covenant is renegotiated.
12 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”) was attached to each
outstanding share of Tredegar’s common stock. Each Right entitled the registered holder to purchase from Tredegar one one-
hundredth of a share of Tredegar’s Series A Participating Cumulative Preferred Stock at an exercise price of $150, subject to
adjustment (the “Purchase Price”). Unless otherwise noted in the Rights Agreement, the Rights would have 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 the Company’s 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% or more of the outstanding
shares of the Company’s common stock.
On February 19, 2014, Tredegar’s 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. The
corresponding redemption payment of $0.3 million was made in 2014.
13 STOCK OPTION AND STOCK AWARD PLANS
Tredegar has 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, the Company has one other equity incentive plan under which there are options that remain outstanding, but
no future grants can be made. 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.
71
A summary of stock options outstanding at December 31, 2015, 2014 and 2013, and changes during those years, is
presented below:
Outstanding at January 1, 2013
Granted
Forfeited and Expired
Exercised
Outstanding at December 31, 2013
Granted
Forfeited and Expired
Exercised
Outstanding at December 31, 2014
Granted
Forfeited and Expired
Exercised
Number of
Options
1,076,700
$
184,700
(34,000)
(180,600)
1,046,800
181,476
(22,581)
(41,575)
1,164,120
—
(60,207)
(222,400)
Outstanding at December 31, 2015
881,513
$
Option Exercise Price/Share
Range
Weighted
Average
14.06
24.84
15.11
14.27
14.06
19.84
15.80
15.80
14.06
—
17.13
14.06
17.13
to
to
to
to
to
to
to
to
to
to
to
to
to
$
19.84
$
30.01
24.84
19.84
30.01
22.49
24.84
19.84
30.01
—
30.01
19.84
$
30.01
$
17.81
24.97
21.10
17.32
19.06
22.41
21.42
17.55
19.59
—
22.30
16.34
20.22
The following table summarizes additional information about stock options outstanding and exercisable at December 31,
2015:
Options Outstanding at
December 31, 2015
Weighted Average
Options Exercisable at
December 31, 2015
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
—
164,500
424,330
289,033
3,650
881,513
Remaining
Contractual
Life (Years)
Exercise
Price
Aggregate
Intrinsic Value
(In Thousands)
Shares
Weighted
Average
Exercise
Price
Aggregate
Intrinsic Value
(In Thousands)
0.0
1.1
2.3
7.4
5.9
3.8
$
— $
17.13
19.02
23.62
30.01
$
20.22
$
—
—
—
—
—
—
— $
— $
164,500
410,155
194,095
2,250
17.13
19.00
23.78
30.01
771,000
$
19.84
$
—
—
—
—
—
—
During 2015, the Board of Directors approved the acceleration vesting of stock options and restricted stock for several
Tredegar executives who left the Company in recognition of their many years of service. Compensation expense recognized in
2015 for accelerated stock option vestings (0.4 million shares) and accelerated restricted stock vestings (0.1 million shares)
totaled $0.4 million and $1.0 million, respectively.
72
The following table summarizes additional information about unvested restricted stock outstanding at December 31,
2015, 2014 and 2013:
Unvested Restricted Stock
Maximum Unvested Restricted Stock Units Issuable
Upon Satisfaction of Certain Performance Criteria
Number
of Shares
Weighted Avg.
Grant Date
Fair Value/
Share
Grant Date
Fair Value
(In Thousands)
Number
of Shares
Weighted Avg.
Grant Date
Fair Value/
Share
Grant Date
Fair Value
(In Thousands)
Outstanding at January 1, 2013
143,900
$
18.82
$
Granted
Vested
Forfeited
Outstanding at December 31, 2013
Granted
Vested
Forfeited
Outstanding at December 31, 2014
Granted
Vested
Forfeited
93,425
(58,175)
(21,300)
157,850
95,707
(54,921)
(10,578)
188,058
147,666
(174,145)
(29,226)
25.45
20.15
20.70
22.00
22.18
20.73
21.76
22.48
18.87
20.57
21.42
Outstanding at December 31, 2015
132,353
$
21.19
$
2,708
2,378
(1,172)
(441)
3,473
2,123
(1,139)
(230)
4,227
2,786
(3,582)
(626)
2,805
91,800
$
18.85
$
77,200
—
(36,700)
132,300
59,675
—
(62,262)
129,713
144,582
—
(107,167)
167,128
27.82
—
19.83
23.81
21.54
—
19.18
24.99
18.47
—
20.78
$
22.04
$
1,730
2,148
—
(728)
3,150
1,285
—
(1,194)
3,241
2,670
—
(2,227)
3,684
The total intrinsic value of stock options exercised was $1.0 million in 2015, $0.1 million in 2014 and $1.3 million in
2013. The grant-date fair value of stock option-based awards vested was $1.9 million in 2015, $0.7 million in 2014 and $1.7
million in 2013. As of December 31, 2015, there was unrecognized compensation cost of $0.2 million related to stock option-
based awards and $1.4 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 0.9 years for stock option-based awards and 1.6 years for non-vested
restricted stock and other stock-based awards.
Stock options exercisable totaled 771,000 at December 31, 2015 and 800,050 shares at December 31, 2014. Stock
options available for grant totaled 2,520,632 shares at December 31, 2015.
73
14 RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS
Tredegar sponsors noncontributory defined benefit (pension) plans covering certain current and former employees. The
plans for salaried and hourly employees currently in effect are based on a formula using the participant’s years of service and
compensation or using the participant’s years of service and a dollar amount. The plan is closed to new participants, and pay
for active participants of the plan was frozen as of December 31, 2007. With the exception of plan participants at one of the
Company’s U.S. manufacturing facilities, the plan no longer accrues benefits associated with crediting employees for service,
thereby freezing all future benefits under the plan.
In addition to providing pension benefits, the Company provides postretirement life insurance and health care benefits for
certain groups of employees. Tredegar and retirees share in the cost of postretirement health care benefits, with employees
hired on or before January 1, 1993, receiving a fixed subsidy to cover a portion of their health care premiums. The Company
eliminated prescription drug coverage for Medicare-eligible retirees as of January 1, 2006. Consequently, Tredegar is not
eligible for any federal subsidies.
The following tables reconcile the changes in benefit obligations and plan assets in 2015 and 2014, and reconcile the
funded status to prepaid or accrued cost at December 31, 2015 and 2014:
(In Thousands)
Change in benefit obligation:
Pension Benefits
Other Post-
Retirement Benefits
2015
2014
2015
2014
Benefit obligation, beginning of year
$
325,426
$
275,166
$
8,372
$
7,858
Service cost
Interest cost
Effect of actuarial (gains) losses related to the
following:
Discount rate change
Retirement rate assumptions and mortality
table adjustments
Retiree medical participation rate change
Other
Plan participant contributions
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
Plan participant contributions
Benefits paid
Plan assets at fair value, end of year
Funded status of the plans
Amounts recognized in the consolidated balance
sheets:
Accrued expenses (current)
Other noncurrent liabilities
Net amount recognized
530
13,217
869
13,397
(14,687)
32,089
(5,456)
—
(746)
—
(14,432)
303,852
229,017
(6,311)
2,368
$
$
—
(14,432)
210,642
$
(93,210) $
17,331
—
490
—
(13,916)
325,426
232,705
7,466
2,762
—
(13,916)
229,017
(96,409)
210
93,000
93,210
$
$
130
96,279
96,409
$
$
$
$
$
$
$
$
$
$
$
$
44
325
(356)
32
—
(332)
625
(965)
7,745
$
— $
—
340
625
(965)
— $
(7,745) $
43
387
732
(131)
(390)
218
681
(1,026)
8,372
—
—
345
681
(1,026)
—
(8,372)
455
7,290
7,745
$
$
456
7,916
8,372
74
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
2015
2014
2013
2015
2014
2013
Discount rate
4.55%
4.17%
4.99%
4.49%
4.11%
4.88%
Expected long-term return on plan
assets
Weighted-average assumptions used to
determine net periodic benefit cost:
7.00%
7.50%
7.75%
n/a
n/a
n/a
Discount rate
4.17%
4.99%
4.21%
4.11%
4.88%
4.10%
Expected long-term return on plan
assets
Components of net periodic benefit cost:
7.50%
7.75%
7.75%
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
$
530
$
869
$
3,754
$
13,217
(17,636)
13,397
(18,301)
12,338
(17,430)
16,190
10,688
15,028
45
81
28
$ 12,346
$
6,734
$ 13,718
$
44
325
—
(194)
—
175
$
$
43
387
—
(190)
—
$
240
$
58
345
—
(210)
—
193
Net benefit income or cost is determined using assumptions at the beginning of each year. Funded status is determined
using assumptions at the end of each year. The amount of the accumulated benefit obligation is the same as the projected
benefit obligation. At December 31, 2015, the effect of a 1% change in the health care cost trend rate assumptions would not
impact the post-retirement obligation.
Expected benefit payments for continuing operations over the next five years and in the aggregate for 2021-2025 are as
follows:
(In Thousands)
2016
2017
2018
2019
2020
2021—2025
Pension
Benefits
Other Post-
Retirement
Benefits
$
15,904
$
16,505
16,969
17,504
17,997
94,105
455
467
478
485
489
2,468
Amounts recorded in 2015, 2014 and 2013 in accumulated other comprehensive income, before related deferred income
taxes, consist of:
(In Thousands)
Prior service cost (benefit)
Net actuarial (gain) loss
2015
Pension
2014
2013
2015
2014
2013
Other Post-Retirement
$
18
$
87
$
270
$
— $
— $
153,570
166,678
116,519
(1,616)
(1,154)
—
(1,773)
75
Pension expense is expected to be $11.3 million in 2016 as the favorable impact of the increase in the discount rate,
change to the mortality rate and the freezing of all future service benefits for certain plan participants are offset by the
unfavorable decrease in the expected long-term return on plan assets. The amounts in accumulated other comprehensive
income, before related deferred income taxes, that are expected to be recognized as components of net periodic benefit or cost
during 2016 are as follows:
(In Thousands)
Prior service cost (benefit)
Net actuarial (gain) loss
Pension
$
9
$
13,526
Other Post-
Retirement
—
(190)
The percentage composition of assets held by pension plans for continuing operations at December 31, 2015, 2014 and
2013 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,
2015
2014
2013
12.8%
14.5%
14.0%
13.8
4.0
10.9
28.7
52.4
6.1
13.7
4.3
11.0
29.0
51.2
5.3
13.8
4.8
11.7
30.3
48.3
7.4
100.0%
100.0%
100.0%
Tredegar’s targeted allocation percentage for pension plan assets and the expected long-term rate of return on assets used
to determine its benefit obligation at December 31, 2015, 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
Total for continuing operations
Target %
Composition of
Plan Assets *
Expected Long-
term Return %
25.0%
4.4%
14.0
4.0
11.0
29.0
46.0
8.8
10.0
9.4
9.4
7.1
100.0%
7.0%
*
Target percentages for the composition of plan assets represents a neutral position within the approved
range of allocations for such assets.
Expected long-term returns are estimated by asset class and generally are based on inflation-adjusted historical returns,
volatilities, risk premiums and managed asset premiums. The portfolio of fixed income securities is structured with maturities
that generally match estimated benefit payments over the next 1-2 years. The other assets category is primarily comprised of
cash and contracts with insurance companies. The Company’s primary investment objective is to maximize total return with a
strong emphasis on the preservation of capital, and it believes that over the long-term a diversified portfolio of fixed income
securities, equity securities, hedge funds and private equity funds has a better risk-return profile than fixed income securities
alone. The average remaining duration of benefit payments for the pension plans is about 11.7 years. The Company expects its
required contributions to be approximately $6.1 million in 2016.
76
Estimates of the fair value of assets held by the Company’s pension plan are provided by unaffiliated third parties. At
December 31, 2015, the Company adopted the updated accounting guidance associated with investments that utilized NAV as a
practical expedient for measuring fair value. Investments in private equity and hedge funds and certain fixed income securities
by the Company’s pension plan are measured at NAV. These assets are therefore excluded from the fair value hierarchy for
each of the years presented. At December 31, 2015 and 2014, the pension plan assets are categorized by level within the fair
value measurement hierarchy as follows:
(In Thousands)
Balances at December 31, 2015:
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
$
29,027
$
29,027
$
Small-capitalization equity securities
International and emerging market equity securities
Fixed income securities
Other assets
Total plan assets at fair value
Private equity and hedge funds
Contracts with insurance companies
Fixed income securities
Total plan assets, December 31, 2015
Balances at December 31, 2014:
Large/mid-capitalization equity securities
Small-capitalization equity securities
$
$
International and emerging market equity securities
Fixed income securities
Other assets
Total plan assets at fair value
Private equity and hedge funds
Contracts with insurance companies
Fixed income securities
8,457
23,054
22,968
2,727
8,457
10,126
10,626
2,727
— $
—
12,928
12,342
—
$
86,233
$
60,963
$
25,270
$
110,340
10,207
3,862
210,642
31,401
$
31,401
$
9,827
25,224
28,714
1,741
9,827
11,471
12,661
1,741
— $
—
13,753
16,053
—
$
96,907
$
67,101
$
29,806
$
117,276
10,267
4,567
—
—
—
—
—
—
—
—
—
—
—
—
Total plan assets, December 31, 2014
$
229,017
Tredegar also has a non-qualified supplemental pension plan covering certain employees. Effective December 31, 2005,
further participation in this plan was terminated and benefit accruals for existing participants were frozen. The plan was
designed to restore all or a part of the pension benefits that would have been payable to designated participants from the
principal pension plans if it were not for limitations imposed by income tax regulations. The projected benefit obligation
relating to this unfunded plan was $2.3 million at December 31, 2015 and $2.4 million at December 31, 2014. Pension expense
recognized for this plan was $0.1 million in 2015, $0.1 million in 2014 and $0.1 million in 2013. This information has been
included in the preceding pension benefit tables.
Approximately 79 employees at the Company’s film products manufacturing facility in Kerkrade, The Netherlands are
covered by a collective bargaining agreement that includes participation in a multi-employer pension plan. Pension expense
recognized for participation in this plan, which is equal to required contributions, was $0.4 million in 2015, $0.5 million in
2014 and $0.5 million in 2013. This information has been excluded from the preceding pension benefit tables.
15 SAVINGS PLAN
Tredegar has a savings plan that allows eligible employees to voluntarily contribute a percentage of their compensation,
up to Internal Revenue Service (“IRS”) limitations. The provisions of the savings plan provided the following benefits for
salaried and certain hourly employees:
77
• The Company makes matching contributions to the savings plan of $1 for every $1 of employee contribution. The
matching contribution is currently on a maximum of 5% of base pay.
• The savings plan includes immediate vesting of matching contributions when made and automatic enrollment at 3%
of base pay unless the employee opts out or elects a different percentage.
For the period from February 1, 2014 to December 31, 2014, the Company made matching contributions to the savings
plan for salaried and non-union hourly employees of $0.50 for every $1 a participant contributed, with a matching contribution
on a maximum of 5% of base pay during this period. The Company also has a non-qualified plan that restores matching
benefits for employees suspended from the savings plan due to certain limitations imposed by income tax regulations. Charges
recognized for these plans were $3.0 million in 2015, $1.6 million in 2014 and $2.6 million in 2013. The Company’s liability
under the restoration plan was $1.0 million at December 31, 2015 (consisting of 71,818 phantom shares of common stock) and
$1.7 million at December 31, 2014 (consisting of 74,190 phantom shares of common stock) and valued at the closing market
price on those dates.
The Tredegar Corporation Benefits Plan Trust (the “Trust”) purchased 7,200 shares of the Company’s common stock in
1998 for $0.2 million and 46,671 shares of its common stock in 1997 for $1.0 million, as a partial hedge against the phantom
shares held in the restoration plan. There have been no shares purchased since 1998 except for re-invested dividends. The cost
of the shares held by the Trust is shown as a reduction to shareholders’ equity in the consolidated balance sheets.
16 RENTAL EXPENSE AND CONTRACTUAL COMMITMENTS
Rental expense for continuing operations was $3.6 million in 2015, $3.6 million in 2014 and $3.4 million in 2013. Rental
commitments under all non-cancelable operating leases for continuing operations as of December 31, 2015, are as follows:
Year
2016
2017
2018
2019
2020
Remainder
Total
$
Amount
(In Thousands)
2,253
2,038
1,889
1,799
1,834
2,338
$
12,151
Contractual obligations for plant construction and purchases of real property and equipment amounted to $7.3 million at
December 31, 2015.
78
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:
2015
2014
2013
Domestic
Foreign
Total
Current income taxes:
Federal
State
Foreign
Total
Deferred income taxes:
Federal
State
Foreign
Total
Total income taxes
$
$
$
$
(9,116) $
(14,091)
(23,207) $
38,402
7,014
45,416
12,693
$
14,568
973
6,064
19,730
(9,419)
(1,035)
(348)
(10,802)
8,928
$
2,178
4,102
20,848
(9,530)
(417)
(1,514)
(11,461)
9,387
$
$
$
$
37,380
15,552
52,932
15,988
1,416
4,737
22,141
(2,933)
(852)
(1,361)
(5,146)
16,995
The significant differences between the U.S. federal statutory rate and the effective income tax rate for continuing
operations are as follows:
Federal statutory rate
Domestic Production Activities Deduction
Foreign rate differences
Unremitted earnings from foreign operations
Research and development tax credit
Valuation allowance for capital loss carry-forwards
Tax incentive
State taxes, net of federal income tax benefit
Remitted earnings from foreign operations
Valuation allowance for foreign operating loss carry-forwards
Non-deductible expenses
Changes in estimates related to prior year tax provision
Tax contingency accruals and tax settlements
Foreign investment write down
Goodwill impairment
Effective income tax rate for continuing operations
Percent of Income Before Income
Taxes from Continuing Operations
2015
2014
2013
35.0
3.6
3.1
2.2
1.5
1.3
0.5
0.3
0.1
—
(1.9)
(2.1)
(3.1)
(10.9)
(68.1)
(38.5)
35.0
(1.9)
(0.1)
(3.8)
(0.6)
(10.2)
(0.1)
2.2
—
(0.4)
0.9
(2.3)
2.0
—
—
20.7
35.0
(1.4)
(0.7)
0.9
(0.4)
0.8
(4.7)
0.1
—
0.5
0.6
(0.6)
2.0
—
—
32.1
The change in income taxes from continuing operations in 2015 in comparison to the prior year can be attributed to
several factors including recording no tax benefit on either the goodwill impairment charge or the unrealized loss on the portion
of the Company’s investment in shares of kaléo shares held in a foreign jurisdiction. Also, there was a $0.5 million tax benefit
related to the valuation allowance associated with capital losses in 2015 compared to a $4.9 million tax benefit in 2014. In
2014 there was a $2.2 million tax benefit recorded for changes in the underlying basis of certain foreign subsidiaries versus a
$0.5 million tax benefit in 2015 for changes in the underlying basis of certain foreign subsidiaries.
79
The reduction in income taxes from continuing operations in 2014 in comparison to prior years can be attributed to a pair
of distinct tax adjustments. In recent years the Company has been evaluating various tax advantageous methods for executing
its overall growth and international expansion strategies. The Company, having been authorized by its management in the
fourth quarter of 2014 to proceed, implemented an international tax planning strategy that generated capital gains. These
capital gains were offset against previously recorded capital losses on certain investments. Income taxes from continuing
operations in 2014 therefore included the recognition of a tax benefit of $4.9 million related to a portion of its capital loss
carryforwards that were previously offset by a valuation allowance associated with expected limitations on the utilization of
historic capital losses carried over from the previous years. In addition, as previously discussed in Note 1, with the exception
of Terphane, the Company accrues U.S. federal income taxes to the extent required under U.S. GAAP on unremitted earnings
from foreign operations. As a result of changes in the underlying basis of certain foreign subsidiaries, income taxes from
continuing operations in 2014 included an adjustment of $2.2 million in the fourth quarter, $1.7 million of which is a correction
to prior years, to reverse previously accrued deferred tax liabilities accumulated over several years arising from changes in tax
basis due to foreign currency translation adjustments and unremitted earnings. The corresponding prior period changes in the
underlying basis of certain foreign subsidiaries primarily occurred before 2010, and the prior period components are not
considered material to any period presented.
The Brazilian federal statutory income tax rate is a composite of 34.0% (25.0% of income tax and 9.0% of social
contribution on income). Terphane’s manufacturing facility in Brazil is the beneficiary of certain income tax incentives that
allow for a reduction in the statutory Brazilian federal income tax rate levied on the operating profit of its products. These
incentives produce a current tax rate of 15.25% for Terphane (6.25% of income tax and 9.0% social contribution on income).
The current incentives will expire at the end of 2024. The benefit from the tax incentives was $0.1 million (0 cents per share),
$0.1 million (0 cents per share) and $2.5 million (8 cents per share) in 2015, 2014 and 2013, respectively.
Deferred tax liabilities and deferred tax assets at December 31, 2015 and 2014, are as follows:
(In Thousands)
Deferred tax liabilities:
2015
2014
Amortization of goodwill and other intangibles
$
42,900
$
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
Inventory
Asset write-offs, divestitures and environmental accruals
Tax benefit on state and foreign NOL and credit carryforwards
Timing adjustment for unrecognized tax benefits on uncertain tax positions,
including portion relating to interest and penalties
Allowance for doubtful accounts
Derivative financial instruments
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
80
22,221
2,738
—
67,859
31,972
10,397
8,026
4,636
2,022
1,624
1,006
406
234
2,224
62,547
13,344
49,203
18,656
18,656
—
18,656
$
$
$
$
$
$
45,696
27,550
4,233
316
77,795
34,214
11,597
3,282
6,221
1,593
2,967
842
479
—
799
61,994
14,577
47,417
30,378
39,255
8,877
30,378
Except as noted below, the Company believes that it is more likely than not that future taxable income will exceed future
tax deductible amounts thereby resulting in the realization of deferred tax assets. The Company has estimated gross state and
foreign tax credits and net operating loss carryforwards of $1.6 million and $3.0 million at December 31, 2015 and 2014,
respectively, which primarily expire at different points over the next 5 to 8 years. Valuation allowances of $1.5 million, $2.8
million and $1.7 million at at December 31, 2015, 2014 and 2013, respectively, are recorded against the tax benefit on state and
foreign tax credits and net operating loss carryforwards generated by certain foreign and domestic subsidiaries that may not be
recoverable in the carryforward period. The valuation allowance for excess capital losses from investments and other related
items was $10.9 million, $11.4 million and $16.4 million at December 31, 2015, 2014 and 2013. The current year balance
decreased 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. Tredegar continues to evaluate opportunities to utilize capital loss
carryforwards prior to their expiration at various dates in the future. As circumstances and events warrant, allowances will be
reversed when it is more likely than not that future taxable income will exceed deductible amounts, thereby resulting in the
realization of deferred tax assets. The valuation allowance for asset impairments in foreign jurisdictions where the Company
believes it is more likely than not that the deferred tax asset will not be realized was $0.9 million at December 31, 2015, $0.4
million at December 31, 2014 and $1.9 million at December 31, 2013.
A reconciliation of the Company’s unrecognized uncertain tax positions since January 1, 2013, 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
Balance at end of period
$
Years Ended December 31,
2015
2014
2013
$
3,255
$
2,239
$
518
326
—
(50)
4,049
619
397
—
—
$
3,255
$
2,239
910
643
686
—
—
Additional information related to unrecognized uncertain tax positions since January 1, 2013 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 $90, $150 and $100 reflected in income tax
expense in the income statement in 2015, 2014 and 2013, 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,
2015
2014
2013
$
4,049
$
3,255
$
2,239
(858)
3,191
(726)
2,529
(540)
1,699
397
(148)
310
(116)
249
194
156
(60)
96
$
3,440
$
2,723
$
1,795
Tredegar, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction, various states and jurisdictions
outside the U.S. With few exceptions, Tredegar is no longer subject to U.S. federal, state or non-U.S. income tax examinations
by tax authorities for years before 2012. The Company anticipates that it is reasonably possible that Federal and state income
81
tax audits or statutes may settle or close within the next 12 months, which could result in the recognition of up to approximately
$2.1 million of the balance of unrecognized tax positions, including any payments that may be made.
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 2015
(as shown in the segment operating profit table in Note 5) totaled $10.1 million ($6.4 million after taxes), and unless otherwise
noted below, are also included in “Asset impairments and costs associated with exit and disposal activities” in the consolidated
statements of income. Results in 2015 included:
• A second quarter charge of $3.9 million ($2.5 million after taxes) for severance and other employee-related costs
associated with the resignation of the Company’s former chief executive and chief financial officers (included in
“Selling, general and administrative expense” in the consolidated statements of income and “Corporate expenses,
net” in the statement of net sales and operating profit by segment);
• A fourth quarter charge of $1.0 million ($0.6 million after taxes) and a third quarter charge of $1.2 million ($0.7
million) associated with the consolidation of domestic PE Films’ manufacturing facilities, which includes severance
and other employee-related costs of $0.8 million, asset impairments of $0.4 million, accelerated depreciation of $0.4
million (included in “Cost of goods sold” in the consolidated statements of income) and other facility consolidation-
related expenses of $0.6 million ($0.1 million is included in “Cost of goods sold” in the consolidated statements of
income);
• A fourth quarter charge of $1.1 million ($0.7 million after taxes) in PE Films ($0.4 million included in “Selling,
general and administrative expense” in the consolidated statement of income), a third quarter charge of $0.9 million
($0.6 million after taxes) in PE Films ($0.9 million), Aluminum Extrusions ($35,000) and Corporate ($26,000,
included in “Corporate expenses, net” in the statement of net sales and operating profit by segment), and a second
quarter charge of $0.3 million ($0.2 million taxes) in Flexible Packaging Films ($0.3 million) and PE Films ($7,000)
for severance and other employee-related costs, and a first quarter reversal of previously accrued severance and other
employee related costs of $67,000 ($43,000 after taxes) in Flexible Packaging Films, all associated with
restructurings;
• A fourth quarter charge of $1.0 million ($0.6 million after taxes) associated with a business development project
(included in “Selling, general and administrative expense” in the consolidated statement of income and “Corporate
expenses, net” in the statement of net sales and operating profit by segment);
• A fourth quarter charge of $31,000 ($19,000 after taxes), a third quarter charge of $0.3 million ($0.2 million after
taxes), a second quarter charge of $18,000 ($11,000 after taxes) and a first quarter charge of $15,000 ($9,000 after
taxes) associated with the previously shutdown aluminum extrusions manufacturing facility in Kentland, Indiana; and
• A fourth quarter charge of $0.3 million ($0.2 million after taxes) related to expected future environmental costs at the
aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the
consolidated statements of income).
Results in 2015 include a net unrealized loss on the Company’s investment in kaléo (included in “Other income
(expense), net” in the consolidated statements of income) of $20.5 million ($15.7 million after taxes). See Note 4 for additional
information on investments.
On July 7, 2015, the Company announced its intention to consolidate its domestic production for PE Films by
restructuring its manufacturing facility in Lake Zurich, Illinois. Efforts to transition domestic production from the Lake Zurich
manufacturing facility will require various machinery upgrades and equipment transfers to its other manufacturing facilities.
Given PE Films’ focus on maintaining product quality and customer satisfaction, the Company anticipates that these activities
will be completed in the middle of 2017. Total pre-tax cash expenditures associated with restructuring the Lake Zurich
manufacturing facility are expected to be approximately $15-16 million over this period, and once complete, annual pre-tax
cash cost savings are expected to be approximately $5-6 million.
The Company expects to recognize costs associated with the exit and disposal activities of approximately $4-5 million
over the project period. Exit and disposal costs include severance charges and other employee-related expenses arising from
the termination of employees of approximately $2-3 million and equipment transfers and other facility consolidation-related
costs of approximately $2 million. During the same period of time, operating expenses will include the acceleration of
approximately $3 million of non-cash depreciation expense for certain machinery and equipment at the Lake Zurich
manufacturing facility.
Total estimated cash expenditures of $15-16 million over the project period include the following:
82
• Cash outlays associated with previously discussed exit and disposal expenses of approximately $4 million;
• Capital expenditures associated with equipment upgrades at other PE Films manufacturing facilities in the U.S. of
approximately $10 million;
• Cash incentives of approximately $1 million in connection with meeting safety and quality standards while
production ramps down at the Lake Zurich manufacturing facility; and
• Additional operating expenses of approximately $1 million associated with customer product qualifications on
upgraded and transferred production lines.
Cash expenditures for restructuring costs in 2015 totaled $3.1 million, which included $2.5 million in capital
expenditures.
Losses associated with plant shutdowns, asset impairments, restructurings and other charges for continuing operations in
2014 (as shown in the segment operating profit table in Note 5) totaled $13.8 million ($9.3 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 2014 included:
• A second quarter charge of $10.0 million ($6.8 million after taxes) associated with a one-time, lump sum license
payment to the 3M Company after the Company settled all litigation issues associated with a patent infringement
complaint (included in “Other income (expense), net” in the consolidated statements of income);
• A fourth quarter charge of $0.5 million ($0.3 million after taxes) in Flexible Packaging Films ($0.3 million) and PE
Films ($0.2 million), a third quarter charge of $0.4 million ($0.2 million after taxes) in Flexible Packaging Films
($0.3 million), PE Films ($78,000) and Aluminum Extrusions ($31,000), a second quarter charge of $0.6 million
($0.4 million after taxes) in PE Films and a first quarter charge of $0.8 million ($0.5 million after taxes) in PE Films
for severance and other employee-related costs associated with restructurings;
• A fourth quarter charge of $0.7 million ($0.4 million after taxes), a third quarter charge of $75,000 ($46,000 after
taxes) and a second quarter charge of $0.2 million ($0.1 million after taxes) related to expected future environmental
costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the
consolidated statements of income);
• A fourth quarter adjustment of previously accrued severance and other employee-related costs of $0.1 million
($63,000 after taxes) and a third quarter charge of $37,000 ($23,000 after taxes), a second quarter charge of $0.3
million ($0.2 million after taxes) and a first quarter charge of $0.5 million ($0.3 million after taxes) associated with
the shutdown of the PE Films’ manufacturing facility in Red Springs, North Carolina, which includes net severance
and other employee-related costs of $0.4 million and asset impairment and other shutdown-related charges of $0.3
million;
• A fourth quarter gain of $0.1 million ($73,000 after taxes) related to the sale of a previously shutdown PE Films’
manufacturing facility in LaGrange, Georgia (included in “Other income (expense), net” in the consolidated
statements of income); and
• A fourth quarter charge of $11,000 ($7,000 after taxes), a third quarter charge of $20,000 ($12,000 after taxes) and a
second quarter charge of $24,000 ($15,000 after taxes) associated with the previously shutdown aluminum extrusions
manufacturing facility in Kentland, Indiana.
Results in 2014 include a net unrealized gain on the Company’s investment in kaléo (included in “Other income
(expense), net” in the consolidated statements of income) of $2.0 million ($1.0 million after taxes). An unrealized loss on the
Company’s 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 $0.8 million ($0.4
million after taxes) was recorded in 2014 as a result of a reduction in the fair value of the investment that is not expected to be
temporary. The Company realized a gain on the sale of a portion of its investment property in Alleghany and Bath Counties,
Virginia (included in “Other income (expense), net” in the consolidated statements of income) of $1.2 million ($0.8 million
after taxes) in 2014. See Note 4 for additional information on investments.
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
the aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the
consolidated statements of income);
83
• 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 previously shutdown
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 PE Films’ 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 PE Films 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 the 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 the Company’s 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 the Company’s
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 the investment that is not expected to be temporary.
Tredegar also recorded an unrealized loss on its 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 the Company’s
investment that was not expected to be temporary. See Note 4 for additional information on investments.
PE Films closed its manufacturing facility in Red Springs, North Carolina in June 2014. The plant, which was a leased
facility, was solely dedicated to producing babycare elastic laminate films for P&G, who has consolidated its North American
suppliers for this product. The Red Springs manufacturing facility employed 66 people, and total charges incurred related to
the shutdown, which primarily consisted of severance and other employee-related costs, were $0.7 million in 2014 and $0.5
million in 2013. Impairment charges 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 estimates of the proceeds that the Company would receive if and/or when assets are sold. 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.
19 CONTINGENCIES
Tredegar is involved in various stages of investigation and remediation relating to environmental matters at certain current
and former plant locations. Where the Company has determined the nature and scope of any required environmental
remediation activity, estimates of cleanup costs have been obtained and accrued. As efforts continue to maintain compliance
with applicable environmental laws and regulations, additional contingencies may be identified. If additional contingencies are
identified, the Company’s practice is to determine the nature and scope of those contingencies, obtain and accrue estimates of
the cost of remediation, and perform remediation. The Company does not believe that additional costs that could arise from
those activities will have a material adverse effect on its financial position. However, those costs could have a material adverse
effect on its financial condition, results of operations and cash flows at that time.
The Company is involved in various other legal actions arising in the normal course of business. After taking into
consideration the relevant information, the Company believes that it has sufficiently accrued for probable losses and that the
actions will not have a material adverse effect on its financial position. However, the resolution of the actions in a future period
could have a material adverse effect on quarterly or annual operating results at that time.
From time to time, the Company enters into transactions with third parties in connection with the sale of assets or
businesses in which it agrees to indemnify the buyers or third parties involved in the transaction, or in which the sellers or third
parties involved in the transaction agree to indemnify Tredegar, for certain liabilities or risks related to the assets or business.
Also, in the ordinary course of its business, the Company may enter into agreements with third parties for the sale of goods or
services that may contain indemnification provisions. In the event that an indemnification claim is asserted, liability for
84
indemnification would be subject to an assessment of the underlying facts and circumstances under the terms of the applicable
agreement. Further, any indemnification payments may be limited or barred by a monetary cap, a time limitation, or a
deductible or basket. For these reasons, Tredegar is unable to estimate the maximum amount of the potential future liability
under the indemnity provisions of these agreements. The Company does, however, accrue for losses for any known contingent
liability, including those that may arise from indemnification provisions, when future payment is probable and the amount is
reasonably estimable. The Company discloses contingent liabilities if the probability of loss is reasonably possible and
material.
In 2011, Tredegar was 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 anti-dumping duty
order on imported PET films from Brazil. The Company contested the applicability of these anti-dumping duties to the films
exported by Terphane, and a request was filed with the U.S. Department of Commerce (“Commerce”) for clarification about
whether the film products at issue are within the scope of the anti-dumping duty order. On January 8, 2013, Commerce issued
a scope ruling confirming that the films are not subject to the order, provided that Terphane 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 anti-dumping duties because Commerce’s scope ruling was overturned on appeal, or otherwise,
indemnifications for related liabilities are specifically provided for under the Terphane purchase agreement. In December
2014, the U.S. International Trade Commission voted to revoke the anti-dumping duty order on imported PET films from
Brazil. The revocation, as a result of the vote by the International Trade Commission, was effective as of November 2013. On
February 20, 2015, certain U.S. producers of Flexible Packaging Films filed a summons with the U.S. Court of International
Trade to appeal the determination by the U.S. International Trade Commission.
85
20 SELECTED QUARTERLY FINANCIAL DATA
Tredegar Corporation and Subsidiaries
(In Thousands, Except Per-Share Amounts)
(Unaudited)
For the year ended December 31, 2015
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, 2014
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
$
234,171
$
221,245
$
223,772
$
216,989
$
$
$
$
$
37,415
9,870
—
29,748
594
—
9,870
$
594
$
33,468
(36,723)
—
(36,723) $
40,249
(5,876)
—
(5,876)
0.30
—
0.30
0.30
—
0.30
$
$
$
$
0.02
—
0.02
0.02
—
0.02
$
$
$
$
(1.13) $
—
(1.13) $
(1.13) $
—
(1.13) $
(0.18)
—
(0.18)
(0.18)
—
(0.18)
32,482
32,628
32,609
32,746
32,605
32,605
32,614
32,614
$
235,213
$
236,965
$
240,429
$
239,219
37,749
8,479
—
38,480
3,752
—
34,582
10,745
850
34,109
13,054
—
8,479
$
3,752
$
11,595
$
13,054
0.26
—
0.26
0.26
—
0.26
$
$
$
$
0.12
—
0.12
0.11
—
0.11
$
$
$
$
0.33
0.03
0.36
0.33
0.03
0.36
$
$
$
$
0.40
—
0.40
0.40
—
0.40
32,242
32,621
32,312
32,641
32,319
32,507
32,335
32,449
$
$
$
$
$
86
Net income (loss) from continuing operations in the fourth quarter of 2014 includes the reduction in income taxes from
continuing operations in 2014 in comparison to the prior year as a result of a pair of distinct tax adjustments. Income taxes in
the fourth quarter of 2014 included the recognition of a tax benefit for a portion of the Company’s capital loss carryforwards of
$4.8 million. These capital loss carryforwards were previously offset by a valuation allowance associated with expected
limitations on the utilization of these assumed capital losses. In addition, as previously discussed in Note 1, with the exception
of Terphane, the Company accrues U.S. federal income taxes to the extent required under U.S. GAAP on unremitted earnings
from foreign operations. As a result of changes in the underlying basis of certain foreign subsidiaries, income taxes from
continuing operations in 2014 included an adjustment of $2.2 million in the fourth quarter, $1.7 million of which is a correction
to prior years, to reverse previously accrued deferred tax liabilities accumulated over several years arising from changes in tax
basis due to foreign currency translation adjustments and unremitted earnings. The corresponding prior period changes in the
underlying basis of certain foreign subsidiaries primarily occurred before 2010, and the prior period components are not
considered material to any period presented.
87
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
Dated: March 9, 2016
TREDEGAR CORPORATION
(Registrant)
By
/s/ D. Andrew Edwards
D. Andrew Edwards
Vice President and Chief Financial Officer
88
EXHIBIT INDEX
2.1
2.2
3.1
3.1.1
3.1.2
3.2
4.1
4.3
4.3.1
4.3.2
10.1
*10.2
10.3
10.4
*10.5
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 (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)
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 August 10, 2015, 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)
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)
Amendment No. 2, dated as of March 31, 2015, to Credit Agreement, dated as of April 23, 2012, among Tredegar,
as borrower, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders named therein (filed as Exhibit
4.2 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on April 2, 2015, 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)
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)
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)
89
*10.6
Tredegar Industries, Inc. Savings Plan Benefit Restoration Plan (filed as Exhibit 10.6 to Tredegar’s Annual Report
on Form 10-K (File No. 1-10258) for the year ended December 31, 2013, and incorporated herein by reference)
*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
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)
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 April 3, 2014, 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 April 3, 2014, 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 April 3, 2014, 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 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 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)
*10.14 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)
*10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
21
Summary of Director Compensation for Fiscal 2015 (filed as Exhibit 10.15 to Tredegar’s Annual Report on Form
10-K (File No. 1-10258) for the year ended December 31, 2015, and incorporated herein by reference)
Agreement, dated as of February 19, 2014, by and among Tredegar Corporation, John D. Gottwald, William M.
Gottwald and Floyd D. Gottwald, Jr. (filed as Exhibit 10.1 to Tredegar’s Current Report on Form 8-K (File No.
1-10258), filed on February 20, 2014, 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 March 3, 2015, and incorporated herein by
reference)
Form of Notice of Stock Award and Stock Terms and Conditions (filed as Exhibit 10.2 to Tredegar’s Current Report
on Form 8-K (File No. 1-10258), filed on March 3, 2015, and incorporated herein by reference)
Separation, Waiver and Release Agreement with Nancy M. Taylor, dated June 25, 2015 (filed as Exhibit 10.1 to
Tredegar’s Current Report on Form 8-K (file No. 1-10258) filed on June 29, 2015, and incorporated herein by
reference)
Separation, Waiver and Release Agreement with Kevin A. O’Leary, dated June 25, 2015 (filed as Exhibit 10.2 to
Tredegar’s Current Report on Form 8-K (file No. 1-10258) filed on June 29, 2015, and incorporated herein by
reference)
Severance Agreement with D. Andrew Edwards, dated June 25, 2015 (filed as Exhibit 10.3 to Tredegar’s Current
Report on Form 8-K (file No. 1-10258) filed on June 29, 2015, and incorporated herein by reference)
Agreement with Mary Jane Hellyar, dated August 19, 2015 (filed as Exhibit 10.1 to Tredegar’s Current Report on
Form 8-K (File No. 1-10258) filed on August 21, 2015, and incorporated herein by reference
Subsidiaries of Tredegar (filed as Exhibit 21 to Tredegar’s Annual Report on Form 10-K (File No. 1-10258) for the
year ended December 31, 2015, and incorporated herein by reference)
+23.1
Consent of PricewaterhouseCoopers, LLC, Independent Registered Public Accounting Firm
90
23.2
+31.1
+31.2
+32.1
+32.2
99
Consent of Dixon Hughes Goodman LLP, Independent Auditors (filed as Exhibit 23.2 to Tredegar’s Annual Report
on Form 10-K (File No. 1-10258) for the year ended December 31, 2015, and incorporated herein by reference)
Certification of John D. Gottwald, 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 D. Andrew Edwards, Vice President and Chief Financial Officer (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 John D. Gottwald, 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 D. Andrew Edwards, Vice President and Chief Financial Officer (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
Financial Statements of kaléo, Inc. and Independent Auditors’ Report (filed as Exhibit 99 to Tredegar’s Annual
Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2015, and incorporated herein by
reference)
+101
XBRL Instance Document and Related Items
*
+
Denotes compensatory plans or arrangements or management contracts.
Filed herewith
91
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, goodwill impairment charges and other items (which includes unrealized gains and
losses on non-operating investments) have been presented separately and removed from net income and earnings
per share from continuing operations as reported under generally accepted accounting principles in the United
States (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 Tredegar believes do not relate to its ongoing operations. A reconciliation of earnings (loss)
from continuing operations per share under U.S. GAAP (diluted) to earnings per share from ongoing operations
(diluted) is shown below:
Earnings (loss) from continuing operations per share under GAAP (diluted)
After tax effects of:
(Gains) losses associated with plant shutdowns, asset impairments and
restructurings
(Gains) losses from sale of assets and other
Goodwill impairment related to flexible packaging films business
Goodwill impairment related to aluminum extrusions business
Earnings per share from ongoing operations (diluted)
2008
2009
$0.87 $(0.04) $0.82
2010
2011
$0.89
2012
$1.34
2013
$1.10
2015
2014
$1.11 $(0.99)
0.03
0.07
0.26
0.04
(0.20) (0.08) 0.03 (0.06)
-
-
- 0.90
$ 0.85
$0.93
0.10
(0.24)
- - -
-
- -
$1.15
$1.20
$0.87
$0.88
-
0.09
0.54
- 1.37
-
-
$ 1.01
$1.13
0.03
0.06
0.02 (0.04)
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 below:
(in thousands)
PE Films:
Ongoing operations
Plant shutdowns, asset impairments and restructurings, gain
from sale of assets and other items
Flexible Packaging Films:
Ongoing operations
Plant shutdowns, asset impairments and restructurings, gain
from sale of assets and other items
Goodwill Impairment charge
Aluminum Extrusions:
Ongoing operations
Goodwill Impairment charge
Plant shutdowns, asset impairments and restructurings, gain
from sale of assets and other items
AFBS (formerly T herics):
2008
2009
2010
2011
2012
2013
2014
2015
$
53,914
$
64,379
$
66,718
$
56,521
$
50,814
$
61,866
$
60,971
$
48,275
(11,297)
(1,846)
(758)
(901)
1,011
(671)
(12,236)
(4,180)
-
-
-
-
-
-
-
-
-
2,972
19,136
9,100
(2,917)
5,453
(5,906)
-
(1,120)
-
-
-
(591)
-
(185)
(44,465)
10,132
-
(6,494)
(30,559)
(4,154)
-
3,457
-
9,037
-
18,291
-
25,664
-
30,432
-
(687)
(639)
493
58
(5,427)
(2,748)
(976)
(708)
Gain on sale of investments in T heken Spine and T herics, LLC
1,499
1,968
-
-
-
-
-
-
T otal
Interest income
Interest expense
Gain on sale of investment property
Unrealized loss on investment property
Gain (loss) from an investment accounted for under the fair value method
Stock option-based compensation costs
Corporate expenses, net
Income (loss) from continuing operations before income taxes
Income taxes
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
53,561
1,006
2,393
1,001
-
5,600
782
8,866
49,127
19,486
29,641
(705)
26,809
806
783
404
-
5,100
1,692
13,334
17,310
18,663
(1,353)
-
62,299
709
1,136
-
-
(2,200)
2,064
17,118
40,490
13,649
26,841
186
56,201
1,023
1,926
-
-
1,600
1,940
16,169
38,789
10,244
28,545
(3,690)
73,451
418
3,590
-
-
16,100
1,432
23,443
61,504
18,319
43,185
(14,934)
85,838
594
2,870
-
(1,018)
3,400
1,155
31,857
52,932
16,995
35,937
(13,990)
69,915
588
2,713
1,208
-
2,000
1,272
24,310
45,416
9,387
36,029
850
34,622
294
3,502
-
-
(20,500)
483
33,638
(23,207)
8,928
(32,135)
-
Net income (loss)
$
28,936
$
(1,353)
$
27,027
$
24,855
$
28,251
$
21,947
$
36,879
$
(32,135)
APPENDIX – FOOTNOTES, CONTINUED
3 Adjusted EBITDA represents income 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, goodwill impairment charges and other items. Adjusted EBITDA is a non-
GAAP financial measure that is not intended to represent net income or cash flows from operating activities as
defined by U.S. GAAP and should not be considered as either an alternative to net income (as an indicator of
operating performance) or to cash flows from operations (as a measure of liquidity). Tredegar uses adjusted
EBITDA as a measure of unlevered (debt-free) operating cash flow. Tredegar also uses 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, Tredegar expresses enterprise value as a multiple of adjusted
EBITDA. The Company believes 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 operating profit from ongoing operations to adjusted EBITDA is shown below.
(in thousands)
2015
Operating profit (loss) from ongoing operations
Add back depreciation & amortization
Less accelerated depreciation associated with plant consolidation
Adjusted EBITDA before corporate overhead
Corporate overhead
Adjusted EBITDA
PE
Films
$ 48,275
15,480
(356)
$ 63,399
Flexible
Packaging Aluminum
Extrusions
$ 30,432
9,698
Films
$ 5,453
9,697
$ 15,150
$ 40,130
2014
Operating profit (loss) from ongoing operations
Add back depreciation & amortization
Adjusted EBITDA before corporate overhead
Corporate overhead
Adjusted EBITDA
$ 60,971 $ (2,917)
9,331
21,399
$ 6,414
$ 82,370
$ 25,664
9,974
$ 35,638
Total
$ 84,160
34,875
(356)
118,679
(28,508)
$ 90,171
$ 83,718
40,704
124,422
(23,428)
$ 100,994
Adjusted EBITDA in the fourth quarter and year December 31, 2015 includes an adjustment of $0.4 million for
accelerated depreciation associated with the consolidation of PE Films manufacturing facilities in North America.
4 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.
5 Return on capital employed (ROCE) is a non-GAAP financial measure that assesses Tredegar’s efficiency at
allocating the capital that is under its control to profitable investments. It is not intended to represent the stand-
alone results for Tredegar’s continuing operations under U.S. GAAP and should not be considered as an
alternative to income from continuing operations before income taxes as defined by U.S. GAAP. ROCE is defined
by Tredegar as “Adjusted Net Income from Ongoing Operations” divided by the 12 month average “Capital
Employed.” ROCE for the year ended December 31, 2015 for Bonnell is calculated as follows:
APPENDIX – FOOTNOTES, CONTINUED
(in millions, except percentages)
Income from Ongoing Operations
Less: Income taxes
Adjusted Net Income from Ongoing Operations (a)
Accounts and notes receivable
Inventories, net (FIFO)
Prepaid expenses and other
Deferred income taxes
Net property, plant and equipment
Goodwill and other intangibles
Less:
Accounts payable
Accrued expenses
Deferred income taxes
Other noncurrent liabilities
Miscellaneous adjustments
Capital Employed (b)
ROCE
(a) / (b)
$ 30.4
(11.6)
$ 18.9
12 Month
Average
$ 46.4
27.0
1.1
2.1
56.9
23.8
(44.2)
(7.7)
(5.3)
(2.3)
0.7
$ 98.5
19.2%
6 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, the Company has set
forth cautionary disclosures related to forward-looking statements in our Annual Report on Form 10-K for the year
ended December 31, 2015. Tredegar urges readers to review and carefully consider these cautionary statements
and the other disclosures that the Company makes in its filings with the U.S. Securities and Exchange
Commission.
CORPORATE INFORMATION
CORPORATE OFFICERS AND OPERATING COMPANY MANAGEMENT
John D. Gottwald
President and
Chief Executive Officer
D. Andrew Edwards
Vice President and
Chief Financial Officer
Michael W. Giancaspro
Vice President, Business Processes
and Corporate Development
W. Brook Hamilton
President, Bonnell Aluminum
Jose Bosco Silveira, Jr.
President, Flexible
Packaging Films
DIRECTORS
William M. Gottwald2
Chairman of the Board
Tredegar Corporation
Retired
Albemarle Corporation
George C. Freeman, III1, 4, 5
President and
Chief Executive Officer
Universal Corporation
John D. Gottwald2
President and
Chief Executive Officer
Tredegar Corporation
Jennifer Aspell
President,
Engineered Polymer Solutions
Arijit (Bapi) DasGupta
President, Surface Protection
J. Stephen Prince
President, Personal Care
PE Films
Thomas G. Snead, Jr.1, 3, 5
Retired
Wellpoint, Inc.
Carl E. Tack, III1, 4, 5
Adjunct Professor
College of William and Mary
1) Audit Committee
2) Executive Committee
3) Executive Compensation
Committee
4) Nominating and Governance
Committee
5) Independent Director
George A. Newbill3, 5
Retired
Albemarle Corporation
Kenneth R. Newsome2, 3, 5
President and
Chief Executive Officer
Markel Food Group
Gregory A. Pratt1, 4, 5
Chairman of the Board
Carpenter Technology
Corporation
SHAREHOLDER INFORMATION
CORPORATE
HEADQUARTERS
1100 Boulders Parkway
Richmond, Virginia 23225
Phone: 804-330-1000
Website: www.tredegar.com
NUMBER OF EMPLOYEES
2,800
STOCK LISTING
New York Stock Exchange
Ticker Symbol: TG
Additional shareholder
information is available
on the investor section
of the Tredegar website
@ www.tredegar.com/
investors/IR.
OPERATING COMPANY LOCATIONS
Manufacturing Plants
Domestic
International
Technical Centers
PE FILMS
Division Headquarters
Richmond, Virginia
Lake Zurich, Illinois
Terre Haute, Indiana
Durham, North Carolina
Pottsville, Pennsylvania
FLEXIBLE PACKAGING
Division Headquarters
São Paulo, Brazil
Bloomfield, New York
ALUMINUM EXTRUSIONS
Division Headquarters
Newnan, Georgia
Carthage, Tennessee
Elkhart, Indiana
Newnan, Georgia
Niles, Michigan
Guangzhou, China
Kerkrade, Netherlands
Pune, India
Rétság, Hungary
São Paulo, Brazil
Shanghai, China
Cabo de Santo
Agostinho, Brazil
Durham, North Carolina
Richmond, Virginia
Terre Haute, Indiana
Bloomfield, New York
Cabo de Santo
Agostinho, Brazil
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TREDEGAR CORPORATION
1100 Boulders Parkway
Richmond, Virginia 23225
www.tredegar.com