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2016 A N N UA L R EPORT
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, technology and service, Tredegar’s surface protec-
tion films are used by the world’s leading manufacturers of components used in
displays, including optical films and engineered 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 performance surface protection films.
Bright View Technologies
Bright View Technologies designs and manufactures a broad portfolio of highly-
advanced optical management products for the rapidly expanding LED and
fluorescent lighting markets. Combining microstructure expertise with films
capabilities, Bright View Technologies leverages multiple technology platforms
for application-specific functionalities.
FLEXIBLE PACKAGING:
Tredegar’s flexible packaging films business, Terphane, produces bi-oriented
polyester films with specialized properties, such as heat resistance, strength, and
barrier protection. Predominantly sold in Latin America and the U.S. to serve the
demand for sophisticated 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
finished aluminum extrusions serving the building and construction, automotive,
and specialty markets. With highly comprehensive capabilities in aluminum
extruding, fabricating and finishing, Bonnell Aluminum and its operating divisions,
AACOA and Futura Industries, serve many of the nation’s largest and most
respected manufacturing companies.
DEAR SHAREHOLDERS,
I received a very helpful letter from
prod and Warren’s wisdom got me
unfavorable developments. For
a shareholder last summer. In a
thinking: I consider myself a leader,
example, a reasonably alert share-
very polite manner, he suggested
so what is my preferred reality?
holder knows that we have not
that my 2015 letter to shareholders
needed a little bumping up on
Vision. There is no doubt that his-
torically I have disappointed some
on what President George H. W.
Bush called “the vision thing.”
In a nutshell, I would like for all
shareholders, employees, and
customers to sleep well at night.
From my experience, a good night’s
sleep depends on a mattress of
confidence. With that premise in
I continue to search for an awe-
mind, I offer my prerequisites for
inspiring, textbook-compliant Vision
stakeholders’ confidence, and my
only lost a substantial amount of
sales with top customers in our
polyethylene films business units
over recent years, but we are
vulnerable to continued losses
as customers seek to substitute
lower cost materials (in Surface
Protection) or alternative designs
that could reduce our market share
Statement. I am certain that epiph-
any will occur on my deathbed,
Diluted Earnings Per Share
Ongoing Operations*
along with other insights like “I
that goal.
assessment of our progress toward
Aluminum Extrusions Profit
Ongoing Operations* In Millions
(in Personal Care). Our response to
this downward trend has been to
should have flossed and asked
1.2
my wife about her feelings more
1.0
often.” Nevertheless, I thought I
would offer my latest ruminations
0.8
on the topic in this year’s letter.
0.6
Most weeks I share a quote with
0.4
my team. One by Warren Bennis
0.2
stuck with me: “Leadership is
0.0
bringing vision into reality.” The
’10
’08
’09
’12
’13
’11
’14
SHAREHOLDERS
A shareholder’s confidence
depends on the following.
1) A strong management team that is
honest, transparent, and competent.
Status: We have worked hard to
earn your trust. Transparency is
a top priority. We have provided
’08
timely and pointed disclosures on
’16
’15
40
35
30
25
20
15
10
5
0
confluence of the shareholder’s
a number of significant risks and
listen carefully to our customers,
increase product development
investment (spending), strengthen
our commercialization capability,
and broaden our customer base.
Regarding competency, other than
the consistently excellent results
from our Bonnell team (see the
’09
Aluminum Extrusions profit trend
’10
’13
chart), I cannot yet demonstrate
’12
’14
’11
’15
’16
as compelling a case as I would
Diluted Earnings Per Share
Ongoing Operations*
Aluminum Extrusions Profit
Ongoing Operations* In Millions
$1.20
$1.15
$1.13
$1.01
$0.93
$0.85
$0.88
$0.87
$0.69
’08
’09
’10
’11
’12
’13
’14
’15
’16
$38
$30
$26
$18
$9
($7)
($4)
$3
’11
’12
’13
’14
’15
’16
’10
’09
$10
’08
1
like across the whole company.
the recently announced acquisition
Status: Bonnell remains vulnerable
Earnings have declined for four
of Futura Industries. Futura is a
to economic cycles. Demand for
straight years (see chart on page 1)
well-managed aluminum extruder
most products that incorporate
in large part due to the previously
and fabricator located in Clearfield,
aluminum decline when a recession
mentioned sales losses. As we
Utah. We believe that Futura will
occurs. However, we have reduced
spend more to enhance our capa-
help our entire organization become
our exposure over the last few years
bilities and rejuvenate our new
even more customer-oriented
through market diversification. In
product offerings in the Personal
and will contribute innovative
2010, 82% of our sales were tied to
Care unit, profits continue to
approaches to improve productivity.
the construction market (see chart
weaken. But we are encouraged
by several new projects that are
gathering momentum. These proj-
ects are the keys to demonstrating
healthy profit growth in 2018 and
beyond.
2) A sustainable competitive
advantage.
Status: In three words, this is a work
in progress. Our Bonnell Aluminum
team is pushing themselves to
become increasingly indispensable
to our customers by targeting tech-
Our plastic film business units uti-
lize a number of unique technolo-
gies, which provide opportunities
for customer and consumer-directed
new product development. Some of
these potential new products are
in areas where no competitor can
duplicate our offerings. I am hope-
ful that our management teams
will be able to capture the value of
our solutions such that sharehold-
ers will benefit from meaningful
growth down the road.
nically challenging opportunities
3) A reasonable balance of risks
and providing superior service.
and rewards through customer
A significant positive step toward
and market diversification.
this goal has been achieved with
below). Today, our participation
in the automotive and specialty
segments has grown significantly,
lessening our dependence on one
principal market. One contributor to
this shift was the 2012 acquisition
of AACOA. Now, with the addition
of Futura, we expect additional
market diversification benefits,
further reducing our exposure to
building and construction markets
to approximately 59%. Futura also
provides a geographic presence in
the western United States which
we previously did not have.
Two of our business units in poly-
ethylene films are dependent on
relatively few customers. The top
Aluminum Extrusions
Sales by End Market
2010
(before AACOA & Futura Acquisitions)
2016
(including AACOA & Futura)
10%
8%
30%
82%
11%
59%
Building & Construction
Automotive
Specialty
2
three Surface Protection customers
facility and our solid balance sheet
want to know about our unique
account for a significant portion of
allowed us to quickly take advantage
technologies? No. Have we always
Surface Protection sales. One of
of the opportunity to acquire Futura.
provided immediate notification
those customers is actively pursu-
Our pro forma post-acquisition
of potential issues? No. However,
ing a strategy to diversify its supply
leverage ratio (indebtedness-to-
every shortcoming is recognized as
base, while another has a program
adjusted EBITDA) at December 31,
an opportunity for us to improve.
directed at replacing some of our
2016 is 2.25x, which is well below
And, despite the lapses, given our
film with an alternative material.
the 3.5x level at which dividend
demonstrated efforts to be the best
In response, we are diversifying
restrictions could occur.* With
supplier possible, I believe we are
our customer base as rapidly as
$13.6 million of EBITDA in 2016,
seen as a supplier that exemplifies
possible and developing new prod-
Futura should add to our cash
the highest integrity. Our leaders
ucts that we believe bring substan-
generation.
tial value to our customers. Our
challenge is to gain traction quickly
with a greater diversity of products
and customers. We are applying the
same approach in Personal Care,
6
Bright View and Terphane.
5
4) A solid balance sheet and ability
4
to consistently generate cash.
3
Status: In March 2016, we completed
2
a refinancing of our revolving credit
1
facility. This facility has four more
0
years until maturity and permits
’10
’11
’12
us to borrow up to $400 million.
The combination of this credit
CUSTOMERS
Regardless of country, region, cul-
ture, material, or market, customers
tend to express very similar needs.
Customers place a high value on
integrity. Remarkably, as important
as trust is, a supplier that is honest
and open can often differentiate
itself from its competitors. Tredegar
aspires to be seen as the most
principled supplier by all of our
’14
customers. Have we been difficult
’13
’15
must continue to reinforce this
value throughout the entire organi-
zation every day.
Most customers state very plainly
that quality of product and reli-
ability of supply are “givens.” They
should be, yet differentials between
suppliers continue to exist, and
sometimes we come up short of
expectations. Too often we’ve had
service and supply issues. Reliability
of delivery for all customers is
’16
critical. World-class organizations
continuously improve their manu-
to work with at times? Yes. Can we
tell our customers everything they
facturing, sales and service systems
to optimize the supply chain.
Aluminum Extrusions & PE Films Safety
Performance Total Recordable Incident Rate (TRIR)
6
5
4
3
2
1
0
5.8
1.9
4.4
2.2
’10
’11
5.3
5.5
1.1
’12
0.6
’13
2.8
2.2
2.2
0.0
’14
0.1
’15
0.2
’16
PE Films
Aluminum Extrusions
Five year industry average through 2014. See Appendix for more information.
5 YEAR INDUSTRY
AVERAGE
Aluminum
Extrusions
5.2
PE Films
5.8
3
Tredegar, like many manufacturers,
employment than I. Regardless,
a survey regarding Talent Retention
has plenty of room for improvement
Tredegar employees’ confidence
and Talent Development, the current
in our systems. This is a priority
is improved if we can deliver on
level of apparent dissatisfaction is
that is receiving added resources.
a few fundamental needs and
large (36%). This is an alarm that
All business is based on value
expectations.
must be addressed.
propositions. Tredegar prefers to
We believe that when an employee
I suspect I failed to meet the share-
participate in markets where we
comes to work at a Tredegar loca-
holder’s Vision Statement expecta-
can bring solutions that are not
tion he or she should be in an envi-
tion once again, but hopefully you
only preferred by the ultimate
ronment that is not only safer than
have a little better insight as to what
consumer through best-in-class
any other employer in our industry,
we are doing to improve your sleep.
performance, but also provide our
but safer than when he or she is
customers with improved market
at home. Tredegar’s safety perfor-
share. Consequently, we are plac-
mance has been outstanding over
ing a substantial emphasis on
the past several years (see chart on
innovation. Specifically, our PE
previous page). However, we expe-
Films’ R&D expenses in 2017 are
rienced an explosion in one of our
expected to be approximately $20
aluminum cast houses this summer.
million or 30% higher than we
Thankfully, there were no fatalities,
experienced in 2015. The type of
but this incident reinforces the need
value proposition that we like to
to constantly improve our safety
pursue might be better understood
practices and policies.
At this year’s Annual Meeting we
will commemorate George Newbill’s
retirement from Tredegar’s Board.
On behalf of all directors and
employees, I’d like to express our
deep appreciation for George’s serv-
ice to the company. Fortunately, we
have successfully recruited John
Steitz to join the Board. John is
CEO of a chemical firm, Addivant
Corporation. He and George worked
through examples. When we sup-
ply manufacturers of electronic
display screens with a product that
reduces their operating scrap rates
or machine downtimes, then the
value of our product far exceeds its
cost. In personal hygiene markets,
if we can provide a woman with
the softest product that keeps
her drier than other alternatives,
then our customer benefits from a
powerful increase in market share
(i.e. their sales and profits grow).
EMPLOYEES
I’m a baby boomer. I have to confess
that younger generations confound
me. A Millennial has a very differ-
ent perspective of the world and
Most people strongly value oppor-
together for many years at Albemarle
tunity and self-fulfillment. This is
Corporation when John was its
an area where the generation gaps
COO. John is a great addition to the
might be the most significant in
Board, bringing extensive operating
terms of definition as well as
and commercial experience. Thank
expectations. Every business is
you, George and John!
seeking the magic potion that
allows it to succeed in the market-
place of human talent. This is an
area where Tredegar must show
meaningful improvement. If we fail
John D. Gottwald
to provide an environment that
President and Chief Executive Officer
attracts and keeps brain power,
then no strategy or vision can be
realized. While there has been a
large reduction (33%) since mid-2015
in the number of employees that
responded “needs improvement” to
* See Appendix for footnotes. All statements other
than statements of historical facts contained in
this letter, including statements regarding our
plans, objectives and goals, and future events
or results, are forward-looking statements. See
“Forward-looking and Cautionary Statements”
on page 20 of the accompanying Annual Report
on Form 10-K.
4
2016 FOR M 10 -K
TABLE OF CONTENTS
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5.
Market for Tredegar’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
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
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance*
Item 11. Executive Compensation
1–4
5–10
11
11
11
11
12–13
14–19
20–43
43
43
43
44
44
45
46
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters* 46
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
Item 16. Form 10-K Summary
*Items 11, 13 and 14 and portions of Items 10 and 12 are incorporated by reference from the Proxy Statement.
46
46
47
89
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
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, 2016 (the last business day of the registrant’s most
recently completed second fiscal quarter): $411,286,270*
Number of shares of Common Stock outstanding as of January 31, 2017: 32,963,939 (32,795,168 as of June 30, 2016)
*
In determining this figure, an aggregate of 7,281,133 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, 2016.
Documents Incorporated By Reference
Portions of the Tredegar Corporation Proxy Statement for the 2017 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, 2016
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
Item 16. Form 10-K Summary
*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
11
11
11
11
12-13
14-19
20-43
43
43
43
44
44
45
46
46
46
46
47
89
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, polyester films and aluminum extrusions segments and related geographical areas
included in Note 5 of the Notes to Financial Statements is incorporated herein by reference. Unless the context requires
otherwise, all references herein to “Tredegar,” “the Company,” “we,” “us” or “our” are to Tredegar Corporation and its
consolidated subsidiaries.
Prior to the third quarter of 2015, Tredegar 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. In separating PE Films and Flexible Packaging Films, the Company’s management believes that it is able to
more effectively manage the distinct opportunities and challenges that each of these businesses face. The Company's current
reportable business segments are 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. Tredegar’s Personal Care unit 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 2016, 2015 and 2014, personal care materials accounted for approximately 30%, 33% and 40% of Tredegar’s
consolidated net sales (sales less freight) from continuing operations, respectively.
Surface Protection. Tredegar’s Surface Protection unit 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 2016, 2015 and 2014, surface protection
films accounted for approximately 11%, 10% and 10%, respectively, of Tredegar’s consolidated net sales from continuing
operations.
Bright View Technologies (formerly Engineered Polymer Solutions). Tredegar’s Bright View unit makes a variety of
specialty films and film-based products that provide tailored functionality for the illumination market. Bright View 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
Surface Protection
Bright View
Total
2016
72%
25%
3%
100%
2015
75%
23%
2%
100%
2014
79%
19%
2%
100%
* See previous discussion by market segment for comparison of net sales to the Company’s consolidated net
sales 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. These raw materials are obtained from domestic and
foreign suppliers at competitive prices. 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, collectively,
comprising 69%, 73% and 76% of its net sales in 2016, 2015 and 2014, respectively. Its largest customer is The Procter &
Gamble Company (“P&G”). Net sales to P&G totaled $129 million in 2016, $164 million in 2015 and $221 million in 2014
(these amounts include film sold to third parties that converted the film into materials used with products manufactured by
P&G). For additional information, see “Item 1A. Risk Factors”.
Flexible Packaging Films
Flexible Packaging Films is comprised of Terphane Holdings LLC (“Terphane”), which the Company acquired in October
2011. Flexible Packaging Films produces PET-based films for use in packaging applications that have specialized properties,
such as heat resistance, strength, barrier protection and the ability to accept high-quality print graphics. These differentiated,
high-value films are primarily manufactured in Brazil and sold in Latin America and the U.S. under the Terphane® and
Sealphane® brand names. Major end uses include food packaging and industrial applications. In 2016, 2015 and 2014,
Flexible Packaging Films accounted for approximately 14%, 12% and 12%, respectively, of Tredegar’s consolidated net sales
from continuing operations. Flexible Packaging Films competes in all of its markets on the basis of product quality, price and
service.
Raw Materials. The primary raw materials used by Flexible Packaging Films in PET 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 Brazilian suppliers
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
Automotive
Consumer durables
Machinery & equipment
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
Automotive and light truck structural components, spare
parts, after-market automotive accessories, travel trailers
and recreation vehicles
Furniture, pleasure boats, refrigerators and freezers,
appliances and sporting goods
Material handling equipment, conveyors and conveying
systems, industrial modular assemblies and medical
equipment
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)
Building and construction:
Nonresidential
Residential
Automotive
Specialty:
Consumer durables
Machinery & equipment
Distribution
Electrical
2016
58%
5%
11%
11%
5%
6%
4%
2015
58%
6%
10%
10%
7%
5%
4%
2014
59%
6%
7%
12%
7%
5%
4%
Total
100%
100%
100%
In 2016, 2015 and 2014, nonresidential building and construction accounted for approximately 27%, 26% and 22% of
Tredegar’s consolidated net sales from continuing operations, respectively.
Raw Materials. The primary raw materials used by Aluminum Extrusions consist of aluminum ingot, aluminum scrap and
various alloys, which are purchased from domestic and foreign producers in open-market purchases and under short-term
contracts. Aluminum Extrusions believes that it has adequate long-term supply agreements for aluminum and other required
raw materials and supplies in the foreseeable future.
Futura Acquisition. On February 15, 2017, Bonnell Aluminum completed its previously announced acquisition of Futura
Industries Corporation (“Futura”) on a net debt-free basis for approximately $92 million. The acquisition, which was funded
3
using Tredegar’s secured revolving credit agreement and will be treated as an asset purchase for U.S. federal income tax
purposes, is expected to be immediately accretive to Tredegar’s consolidated ongoing earnings.
Futura, headquartered in Clearfield, Utah, with a national sales presence and particular strength in the western U.S.,
designs and manufactures a wide range of extruded aluminum products for a number of industries and end markets, including
branded flooring trims and TSLOTSTM, as well as OEM (original equipment manufacturer) components for truck grills, solar
panels, fitness equipment and other applications. Futura has approximately 350 employees.
General
Intellectual Property. Tredegar considers patents, licenses and trademarks to be significant to PE Films. As of December 31,
2016, PE Films held 267 issued patents (63 of which are issued in the U.S.) and 116 trademarks (9 of which are issued in the
U.S.). Flexible Packaging Films held 1 patent, which is issued in the U.S. and 13 trademarks (2 of which are issued in the
U.S.). Aluminum Extrusions held no U.S. patents and 2 U.S. trademarks (1 of which is issued in the U.S.). 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 2016, 2015 and 2014
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 $19.1 million, $16.2 million and $12.1 million in 2016, 2015 and 2014, 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 13.5 million pounds at December 31, 2016 compared to approximately
11.8 million pounds at December 31, 2015, an increase of 1.6 million pounds, or approximately 14%. Volume for Aluminum
Extrusions, which the Company believes is cyclical in nature, was 173.0 million pounds in 2016, 170.0 million pounds in 2015
and 153.8 million pounds in 2014.
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. Several of
the Company’s manufacturing operations result in emissions of carbon dioxide or GHG and are subject to the current GHG
regulations. The Company’s compliance with 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, 2016, 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, 2016.
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 (the “Exchange Act”), as soon as reasonably practicable after such documents are
electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). Information filed electronically
4
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 Annual Report on Form 10-K for
the year ended December 31, 2016 (“Form 10-K”) or incorporated into other filings it makes with the SEC.
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 Form 10-K, when evaluating Tredegar and its businesses:
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 29%, 32% and 38% of Tredegar’s consolidated net sales from continuing
operations, in 2016, 2015 and 2014, respectively, with net sales to P&G alone comprising approximately 16%, 19% and
24% in 2016, 2015 and 2014, 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 sales losses associated
with various customers (see further discussion in the Executive Summary, PE Films section).
PE Films anticipates further exposure to product transitions and lost business in certain personal care and surface
protection materials that could negatively affect future operating profit from ongoing operations by, in the case of
personal care materials, approximately $10 million annually, possibly beginning after 2018, and in the case of surface
protection materials, estimated to be in the range of up to $5 to $10 million, although the timing and ultimate amount of
the possible transitions for surface protection are uncertain. 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.
PE Films depends on its ability to develop and deliver new products at competitive prices. Personal Care, Surface
Protection and Bright View 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. The competitive dynamics in the
personal care business require continuous development of new materials for customers. The product development
process for personal care materials, which spans from idea inception to product commercialization, is typically 24 to 48
months. 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.
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.
5
•
•
•
•
Failure of PE Films’ customers, who are subject to cyclical downturns, to achieve success or maintain market share
could adversely impact PE Films’ sales and operating margins. PE Films’ plastic films serve as components for various
consumer products sold worldwide. A customer’s ability to successfully develop, manufacture and market those 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. Cyclical downturns may negatively affect businesses that use PE Films’ plastic film products, which could
adversely affect sales and operating margins.
The Company’s inability to protect its intellectual property rights or its infringement of the intellectual property rights
of others could have a 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 PE Films’ business
depends on its ability not only to protect its own technologies and trade secrets, but also to develop and sell new products
that do not infringe upon existing patents or threaten existing customer relationships. 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.
Our restructuring activities and cost saving initiatives may not achieve the results we anticipate. PE Films has
undertaken and will continue to undertake restructuring activities and cost reduction initiatives to consolidate certain
domestic production, improve operating efficiencies and generate cost savings. PE Films cannot be certain that it will be
able to complete these initiatives as planned or that the estimated operating efficiencies or cost savings from such
activities will be fully realized or maintained over time. In addition, PE Films may not be successful in moving
production to other facilities or timely qualifying new production equipment. Failure to complete these initiatives could
adversely affect PE Films’ financial condition, results of operations and cash flows.
Flexible Packaging Films
•
Uncertain economic conditions in Brazil and overcapacity in Latin American polyester film production 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 polyester films. Competition in
Brazil, Terphane’s primary market, has been exacerbated by global overcapacity in the polyester industry, in general, and
by particularly acute overcapacity in Latin America. Additional PET capacity from a competitor in Latin America is
expected to come on line in the second quarter of 2017. In addition, Flexible Packaging Films operations have been
adversely impacted by ongoing unfavorable economic and political conditions in Brazil, which accounted for
approximately 52% of its overall sales in 2016. These combined factors have resulted in significant competitive pricing
pressures and U.S. Dollar equivalent margin compression. Moreover, variable conversion, fixed conversion and general,
sales and administrative (“GS&A”) costs for operations in Brazil (“Operating Costs”) are expected to be adversely
impacted by inflation that is higher than in the U.S. The possible offsetting impact on U.S. Dollar equivalent Operating
Costs from higher Brazilian Real inflation of depreciation in the value of the Real relative to the U.S. Dollar (i.e.,
purchasing power parity) may not occur. There are many economic variables impacting currency exchange rates, and the
Real could appreciate in value relative to the U.S. Dollar despite higher inflation resulting in U.S. Dollar equivalent
Operating Costs being adversely affected by both higher Real inflation and Real appreciation. Accordingly, the U.S.
Dollar equivalent pricing/product margins related to the underlying Operating Costs may not move in the same direction
with the combined result being a whipsaw of the U.S. Dollar equivalent operating profit for Flexible Packaging Films.
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 to prevent a significant decline in the operating
profit for Flexible Packaging Films since the acquisition of Terphane in October 2011 and continuing efforts may not be
6
successful, which could further adversely impact Flexible Packaging Films’ financial condition, results of operations and
cash flows.
•
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 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. Recent favorable anti-dumping rulings have been
issued against China, Egypt and India. Competitors not currently subject to anti-dumping duties may choose to utilize
their excess capacity by selling product in Brazil, which may result in pricing pressures that Flexible Packaging Films
may not be able to offset with cost savings measures and/or manufacturing efficiency initiatives. There can be no
assurance that efforts to impose anti-dumping constraints on these competitors will be successful.
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 the capital intensive nature
and level of fixed costs inherent in the aluminum extrusions business, the percentage drop in operating profits in a
cyclical downturn will likely exceed the percentage drop in volume. In addition, during an economic slowdown, excess
industry capacity often drives increased pricing pressure in many end-use markets as competitors protect their position
with key customers. Any benefits associated with cost reductions and productivity improvements may not be sufficient to
offset the adverse effects on profitability from pricing and margin pressure and higher bad debts (including a greater
chance of loss associated with customers defaulting on fixed-price forward sales contracts) that usually accompany a
downturn. In addition, higher energy costs can further reduce profits unless offset by price increases or cost reductions
and productivity improvements.
Failure to extend anti-dumping and countervailing duties on imported products or prevent competitors from
circumventing such duties, or a reduction in such duties, could adversely impact Aluminum Extrusions. In years prior
to 2011, 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 anti-dumping and countervailing duties to these
imported products. As a result, aluminum extrusion imports from China have decreased significantly. While the risk to
the domestic industry had been abated for a period of time, these protective duties were scheduled to expire in November
2016 but have been extended until a hearing can be held and a subsequent decision can be made on further extending the
duties. A final decision on extending these duties is expected in March 2017. There are ongoing efforts within the U.S.
aluminum extrusions industry supporting the extension of these protective duties. Chinese and other overseas
manufacturers continue to try to circumvent anti-dumping duties, by both legal and illegal means. An unfavorable
outcome on the continuation of U.S. anti-dumping duties, or a failure by U.S. trade officials to curtail efforts to
circumvent those duties, could have a material adverse effect on the financial condition, results of operations and cash
flows of Aluminum Extrusions.
Competition from China could increase significantly if China is granted market economy status by the World Trade
Organization. As of December 11, 2016 China’s automatic status as a non-market economy under World Trade
Organization rules ended. As a result, China believes with respect to all Chinese-made products that it should receive
market economy status and the rights attendant to that status under World Trade Organization rules. The United States
and the European Union have each rejected that interpretation with respect to at least certain products, and are expected to
do so with respect to aluminum extrusions. If China is granted market economy status by the United States government
with respect to aluminum extrusions, that would likely create substantial pricing pressure on Aluminum Extrusions
products and could have a material adverse effect on the financial condition, results of operations and cash flows of
Aluminum Extrusions.
The markets for Aluminum Extrusions’ products are highly competitive with product quality, service, delivery
performance and price being the principal competitive factors. Aluminum Extrusions has approximately 1,500
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 4% of Aluminum Extrusions’ net sales. Future success and prospects depend on its ability to provide superior
service, high quality products, timely delivery and competitive pricing to retain existing customers and participate in
overall industry cross-cycle growth. Failure in any of these areas could lead to a loss of customers, which could have an
adverse material effect on the financial condition, results of operations and cash flows of Aluminum Extrusions.
7
•
•
Aluminum Extrusions may not have sufficient capacity to meet its growth targets and service all of its customers. 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.
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 or if CAFE standards are reduced or delayed, 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.
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, 2016, the plan was underfunded under U.S.
generally accepted accounting principles (“GAAP”) measures by $88.6 million. Tredegar expects that it will be required
to make a cash contribution of approximately $5.5 million to its underfunded pension plan in 2017, and may be required
to make higher cash contributions in future periods depending on the level of interest rates and investment returns on plan
assets.
An impairment of our long-lived intangible assets, including goodwill, could have a material non-cash adverse impact
on our results of operations. As of December 31, 2016, reporting units in PE Films and Aluminum Extrusions carried
goodwill balances of $104.1 million and $13.7 million, respectively. PE Films’ goodwill balance was carried by its
operating units, Personal Care Films and Surface Protection Films, at $46.8 million and $57.3 million, respectively. The
Company assesses goodwill for impairment when events or circumstances indicate that the carrying value may not be
recoverable, or, at a minimum, on an annual basis. The valuation of goodwill depends on a variety of factors, including
the success in achieving the Company’s business goals, global market and economic conditions, earnings growth and
expected cash flows, and goodwill impairment valuations can be sensitive to assumptions associated with such factors.
Failure to successfully achieve projections could result in future impairments. Impairments to goodwill and other
intangible assets may also be caused by factors outside the Company’s control, such as increasing competitive pricing
pressures, changes in foreign exchange rates, lower than expected sales and profit growth rates, and various other factors.
Significant and unanticipated changes could require a non-cash charge for impairment in a future period, which may
significantly affect the Company’s results of operations in the period of such charge.
Noncompliance with any of the covenants in the Company’s $400 million secured revolving credit facility, which
matures in March of 2021, could result in all debt under the agreement outstanding at such time becoming due and
limiting its borrowing capacity, which could have a material adverse effect on consolidated financial condition and
liquidity. The credit agreement governing Tredegar’s secured revolving credit facility contains restrictions and financial
covenants that, if violated, 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.
Tredegar’s performance is influenced by costs incurred by its operating companies, including, for example, the cost of
raw materials and energy. These costs include, without limitation, the cost of resin (the raw material on which PE Films
primarily depends), PTA and MEG (the raw materials on which Flexible Packaging Films primarily depends), aluminum
(the raw material on which Aluminum Extrusions primarily depends), natural gas (the principal fuel necessary for
Aluminum Extrusions’ plants to operate), electricity and diesel fuel. Resin, aluminum and natural gas prices are
extremely volatile as shown in the charts in the Quantitative and Qualitative Disclosures section. The Company
attempts to mitigate the effects of increased costs through price increases and contractual pass-through provisions, but
there are no assurances that higher prices can effectively be passed through to customers or that Tredegar will be able to
offset fully or on a timely basis the effects of higher raw material and energy costs through price increases or pass-through
arrangements. Further, the Company’s cost control efforts may not be sufficient to offset any increases in raw material,
energy or other costs.
8
•
•
•
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 generally have longer
payment terms than domestic sales. In addition, the operations of the customers for Aluminum Extrusions generally
follow the cycles within the economy, resulting in increased credit risk from diminished operating cash flows and greater
risk of bankruptcy when the economy is deteriorating or in recession. In addition, difficult economic conditions in Brazil
have resulted in increased credit risk to Flexible Packaging from customers whose businesses are detrimentally affected
by those conditions.
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, including our recent acquisition
of Futura, involve special risks, including, without limitation, meeting revenue, margin, working capital and capital
expenditure expectations that substantially drive valuation, diversion of management’s time and attention from existing
businesses, the potential assumption of unanticipated liabilities and contingencies and potential difficulties in integrating
acquired businesses and achieving anticipated operational improvements. Acquired businesses may not achieve expected
results.
Tredegar is subject to 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. 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 in “Item 1. Business” 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 transact its business. An information technology system failure due to computer viruses, internal or external
security breaches, cybersecurity attacks, power interruptions, hardware failures, fire, natural disasters, human error, or
other causes could disrupt its operation and prevent it from being able to process transactions with its customers, operate
its manufacturing facilities, and properly report transactions in a timely manner. A significant, protracted information
technology system failure may adversely affect Tredegar’s results of operations, financial condition, or cash flows.
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 ownership interest of approximately 19% in kaleo, Inc. (“kaléo”), a privately held
specialty pharmaceutical company. There is no active secondary market for buying or selling stock in kaléo. The
Company’s fair value estimates can fluctuate materially between reporting periods, primarily due to variances in
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.
9
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 announced on October 28, 2015, a voluntary recall of all Auvi-Q and Allerject
epinephrine auto-injectors that were on the market. In January 2017, kaléo announced that it would recommence sales of
Auvi-Q in the U.S. in February 2017.
Kaléo may be unsuccessful in its attempt to re-enter the epinephrine market due to lack of customer acceptance,
competition or other market factors beyond its control. If kaléo is unsuccessful re-entering the epinephrine market, it may
require additional funding to support its other products and its development of new products.
Additionally, the estimated fair value of the Company’s investment in kaléo could decline. See Note 4 to the Notes to
Financial Statements for more information.
10
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 certain of the
owned property is subject to an encumbrance under the Company’s secured revolving credit facility (see Note 11 in the Notes
to Financial Statements for more information). Tredegar considers the manufacturing facilities, warehouses and other
properties and assets that it owns or leases to be in generally good condition. Capacity utilization at its various manufacturing
facilities can vary with product mix and normal fluctuations in sales levels. The Company believes that its 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 2016. Tredegar’s corporate headquarters, which is leased, is located at 1100 Boulders
Parkway, Richmond, Virginia 23225.
The Company’s principal manufacturing plants and facilities as of December 31, 2016 are listed below:
PE Films
Locations in the U.S.
Locations Outside the U.S.
Principal Operations
Lake Zurich, Illinois
Durham, North Carolina (technical
center and production facility)
(leased)
Pottsville, Pennsylvania
Richmond, Virginia (technical center)
Guangzhou, China
Kerkrade, The Netherlands
Pune, India
Rétság, Hungary
São Paulo, Brazil
Shanghai, China
(leased)
Terre Haute, Indiana (technical center
and production facility)
Flexible Packaging Films
Production of plastic films and
laminate materials
Locations in the U.S.
Locations Outside the U.S.
Principal Operations
Bloomfield, New York (technical center
Cabo de Santo Agostinho, Brazil
Production of polyester films
and production facility)
Aluminum Extrusions
Locations in the U.S.
Principal Operations
Carthage, Tennessee
Elkhart, Indiana
Newnan, Georgia
Niles, Michigan
Note: On February 15, 2017, Bonnell Aluminum acquired Futura, which is located in Clearfield, Utah. Futura’s principal operations are the design and manufacturing of
extruded aluminum products.
Production of aluminum
extrusions, fabrication and
finishing
Item 3.
LEGAL PROCEEDINGS
None.
Item 4.
MINE SAFETY DISCLOSURES
None.
11
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”. There
were 32,933,807 shares of common stock held by 2,123 shareholders of record on December 31, 2016.
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
2016
2015
High
Low
High
Low
$
16.01
$
11.68
$
23.07
$
17.37
19.39
25.55
14.80
16.30
17.30
23.16
23.76
16.17
18.87
19.75
12.63
13.09
The closing price of Tredegar’s common stock on February 17, 2017 was $22.45.
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 and each of the quarters of 2016;
• 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.
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 secured revolving
credit facility and other such considerations as the Board deems relevant. See Note 11 of the Notes to Financial Statements
for the restrictions on the payment of dividends contained in the Company’s secured 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 2016, 2015 and 2014 under this standing authorization. The maximum number
of shares remaining under this standing authorization was 1,732,003 at December 31, 2016.
12
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, 2016. 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 12/31/11 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2017 Standard & Poor's, a division of S&P Global. All rights reserved.
Copyright© 2017 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.
13
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9
1
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. Accordingly, you should not place undue reliance on
these forward-looking statements. For risks and important factors that could cause actual results to differ from expectations,
refer to the reports that Tredegar files with or furnishes the SEC from time-to-time, including the risks and important factors set
forth in “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.
Sales from continuing operations were $828.3 million in 2016 compared to $896.2 million in 2015. Net income from
continuing operations was $24.5 million ($0.75 per diluted share) in 2016, compared with net loss from continuing operations
of $32.1 million ($0.99 per diluted share) in 2015. 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 Note 18 of the
Notes to Financial Statements.
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
2016
2015
139,020
331,146
26,312
$
$
160,283
385,550
48,275
$
$
Favorable/
(Unfavorable)
% Change
(13.3)%
(14.1)%
(45.5)%
20
Net sales in 2016 decreased by $54.4 million versus 2015 primarily due to:
• The loss of business with PE Films’ largest customer related to various products in personal care materials ($22.0
million) and other personal care materials customers ($7.6 million);
• Lower volume in personal care materials primarily due to the timing of product transitions and lower customer
demand ($10.8 million);
• A decline in volume in surface protection films ($6.2 million) that the Company believes is primarily the result of
lower consumer demand for products with flat panel display screens; and
• Lower volume of low margin overwrap films ($9.1 million) primarily due to the loss of business with a large
customer, partially offset by sales growth for components used in LED lighting products ($1.3 million).
As noted above, current year sales volume has declined in part due to the wind down of shipments for certain personal
care materials related to previously announced known lost business, primarily with PE Films’ largest customer. The
restructuring project to consolidate domestic manufacturing facilities in PE Films, which commenced in the third quarter of
2015 (“North American facility consolidation”), is expected to be completed in the second half of 2017. Once complete, annual
pre-tax cash cost savings are expected to be approximately $5-6 million on cash-related expenditures. Exit costs are expected
to be approximately $17 million. The table below summarizes the pro forma operating profit from ongoing operations for
2016 and 2015, had the impact of the events noted above been fully realized:
(In Thousands)
Year Ended December 31,
2016
2015
Operating profit from ongoing operations, as reported
$26,312
$48,275
Contribution to operating profit from ongoing operations
associated with known lost business before restructurings &
fixed costs reduction
Operating profit from ongoing operations net of the impact of known
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
2,995
13,349
23,317
5,200
$28,517
34,926
5,200
$40,126
Net sales associated with known lost business that have yet to be fully eliminated were $8.9 million and $38.5 million in
2016 and 2015, respectively.
Net of the impact of known lost business, pro forma estimated operating profit from ongoing operations in 2016
decreased by $11.6 million versus 2015 primarily due to:
• Lower contribution to profits from surface protection films ($5.0 million) primarily due to lower volume and
productivity issues;
• Lower contribution to profits in personal care materials primarily due to volume declines resulting from the
timing of product transitions and lower customer demand ($3.1 million) and lower productivity ($1.8 million) due
in part to operational inefficiencies largely related to elastics production for European customers sourced from the
Lake Zurich, Illinois facility;
• The unfavorable lag in the pass-through of average resin costs of $0.2 million in 2016 versus the favorable lag of
$1.3 million in 2015;
• A charge for inventories accounted for under the LIFO method of $0.9 million in 2016 versus income of $0.4
million in 2015;
• Higher contribution to profits from other products in PE Films ($0.7 million); and
• Higher research and development expenses to support new product opportunities ($3.0 million), offset by lower
general, sales and administrative expenses ($3.6 million).
The surface protection operating segment of the PE Films reporting segment supports manufacturers of optical and other
specialty substrates used in flat panel display products. These films are primarily used by customers to protect components of
21
displays during the manufacturing and transportation process and then discarded. The top three surface protection customers
account for a significant portion of surface protection sales.
As previously discussed, the Company believes that over the next few years, there is an increased risk that a portion of its
film used in surface protection applications will be made obsolete by possible future customer product transitions to less costly
alternative processes or materials. The Company estimates on a preliminary basis that the annual adverse impact on ongoing
operating profit from customer shifts to alternative processes or materials in surface protection is in the range of up to $5 to $10
million. Given the technological and commercial complexity involved in bringing these alternative processes and materials to
market, the Company is very uncertain as to the timing and ultimate amount of the possible transitions. In addition, the
Company is experiencing increasing competitive pricing pressures in other surface protection applications. In response, the
Company is aggressively pursuing new surface protection products, applications and customers.
The valuation of the intangible assets associated with the surface protection operating unit not currently subject to
amortization of $57 million is dependent upon the timing and extent of the business lost by customers transitions to less costly
alternative processes and materials and changes in the Company’s previous assessment could trigger an impairment of these
intangible assets.
The Company continues to anticipate a significant additional product transition in its personal care business after 2018
that has an estimated annual adverse impact on ongoing operating profit of $10 million. The competitive dynamics in the
personal care business require continuous development of new materials for customers, which include the leading global and
regional personal care producers. The product development process for personal care materials, which spans from idea
inception to product commercialization, is typically 24 to 48 months.
Amounts estimated for the expected impact on future profits of lost business and product transitions are provided on a
stand-alone basis and do not include any potential offsets such as sales growth, cost reductions or new product developments.
Restructuring
In July 2015, the Company announced its intention to consolidate its domestic production for PE Films by restructuring
the operations in 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 $17 million over the project 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 $5-6 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 $3-4 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 $4.3 million in
2016, ($2.1 million included in “Asset impairments and costs associated with exit and disposal activities, net of adjustments”
and $2.2 million included in “Cost of goods sold” in the consolidated statements of income). As of December 31, 2016, total
expenses incurred since the project began in the third quarter of 2015 were $6.5 million.
Total estimated cash expenditures of $16-17 million over the project period include the following:
• Cash outlays associated with previously discussed exit and disposal expenses of approximately $5 million,
including additional operating expenses of approximately $1 million associated with customer product
qualifications on upgraded and transferred production lines;
• Capital expenditures associated with equipment upgrades at other PE Films manufacturing facilities in the U.S. of
approximately $11 million; and
• Cash incentives of approximately $1 million in connection with meeting safety and quality standards while
production ramps down at the Lake Zurich manufacturing facility.
Cash expenditures for the North American facility consolidation project were $10.2 million in 2016, which includes capital
expenditures of $8.2 million. As of December 31, 2016, total cash expenditures since the project began in the third quarter of
2015 were $13.8 million, which includes $11.1 million for capital expenditures.
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Capital Expenditures and Depreciation & Amortization
Capital expenditures in PE Films were $25.8 million in 2016 compared to $21.2 million in 2015. Capital expenditures are
projected to be $36 million in 2017, including capacity expansion for elastics and acquisition distribution layer materials, other
growth and strategic projects and approximately $10 million for routine capital expenditures required to support operations.
Depreciation expense was $13.5 million in 2016 and $15.4 million in 2015. Depreciation expense is projected to be $16
million in 2017. Amortization expense was $0.1 million in 2016 and $0.1 million in 2015, and is projected to be $0.1 million in
2017.
Flexible Packaging Films
A summary of operating results for Flexible Packaging Films, which excludes the 2015 goodwill impairment charge, is
provided below:
(In thousands, except percentages)
Sales volume (pounds)
Net sales
Operating profit from ongoing operations
Year Ended
December 31
2016
2015
89,706
108,028
1,774
$
$
82,347
105,332
5,453
$
$
Favorable/
(Unfavorable)
% Change
8.9 %
2.6 %
(67.5)%
Net sales in 2016 increased 2.6% versus 2015 primarily due to a 8.9% increase in sales volume partially offset by
competitive pricing pressures and the pass-through to customers of lower raw material costs. Sales volume improved from 2015
to 2016 partially due to the increase of end-use applications for flexible packaging films in the Latin American market.
Operating profit from ongoing operations decreased by $3.7 million in 2016 versus 2015 primarily due to:
•
Foreign currency transaction losses of $3.5 million in 2016 versus foreign currency transaction gains of $3.5
million in 2015, associated with U.S. dollar denominated export sales in Brazil;
• Higher volume ($3.0 million) and operating efficiencies ($0.7 million);
• Net refunds of $1.6 million in 2015 received as a result of the reinstatement by the U.S. of the Generalized System
of Preferences (GSP) program for allowing duty-free shipments of Terphane products into the U.S. (none in
2016);
• The favorable settlement of certain loss contingencies of $0.6 million in 2015 (none in 2016);
• The estimated lag in the pass through of lower raw material costs of $1.2 million in 2016 versus $1.0 million in
2015; and
• Lower depreciation and amortization costs ($0.2 million) and other costs and expenses ($1.4 million).
Capital Expenditures, Depreciation & Amortization and Goodwill Impairment Charge
Capital expenditures were $3.4 million in 2016 compared to $3.5 million in 2015. Capital expenditures are projected to
be $4 million in 2017, including approximately $3 million for routine items required to support operations. Depreciation
expense was $6.7 million in 2016 and $6.8 million in 2015. Depreciation expense is projected to be $7 million in 2017.
Amortization expense was $2.8 million in 2016 and $2.9 million in 2015, and is projected to be $3 million in 2017.
During the third quarter of 2015, the Company performed a goodwill impairment assessment related to Terphane. This
review was undertaken as a result of the continued competitive pressures related to ongoing unfavorable economic conditions
in Terphane’s primary market of Brazil, and excess global industry capacity. The assessment resulted in a full write-off of the
goodwill of $44.5 million associated with the acquisition of Terphane.
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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
2016
172,986
360,098
37,794
$
$
2015
170,045
375,457
30,432
$
$
Year Ended
December 31
Favorable/
(Unfavorable)
% Change
1.7 %
(4.1)%
24.2 %
Net sales in 2016 decreased versus 2015 primarily due to a decrease in average selling prices, partially offset by higher
sales volume. Higher sales volume, primarily in the automotive market, had a favorable impact of $4.7 million on sales in 2016
versus 2015. Lower average selling prices, which had an unfavorable impact on net sales of $20.8 million, can be primarily
attributed to a decrease in average aluminum market prices.
Operating profit from ongoing operations in 2016 increased in comparison to 2015 by $7.4 million, as a result of:
• Higher volume ($0.9 million) and lower materials, supply and other net costs ($2.6 million, including $0.7 million
of construction-related costs incurred in 2015 for the anodizing upgrade project); and
•
Improved management of freight logistics and lower utility costs ($2.2 million) and other efficiencies ($1.8
million).
Cast House Explosion
As previously disclosed, on June 29, 2016, the Bonnell Aluminum plant in Newnan, Georgia suffered an explosion in the
casting department, resulting in injuries to five employees, one seriously. The explosion caused significant damage to the cast
house and related equipment. Production in the extrusion and finishing areas of the plant resumed on June 30, 2016. The
Company is in the process of replacing the damaged casting equipment and expects the cast house to be back in production by
the end of the second quarter of 2017. The Newnan plant is now sourcing raw materials for its extrusion process from other
Bonnell plants and from third party vendors.
Bonnell Aluminum has various forms of insurance to cover losses in the event of such incidents. These policies cover
damage to buildings and equipment, workers compensation claims, third party claims, business interruption losses and
additional expenses incurred as a result of the explosion.
During 2016, Bonnell Aluminum recognized a gain of $1.9 million for insurance recoveries to-date associated with assets
destroyed or damaged (included in “Other income (expense), net” in the Consolidated Statements of Income - see Note 18 of
the Notes to Financial Statements for additional details). The Company also incurred $5.0 million of additional expenses
during 2016, $4.3 million of which have been fully offset by insurance recoveries (netted in “Cost of goods sold” in the
Consolidated Statements of Income and in “Plant shutdowns, asset impairments, restructurings and other” in the Operating
Profit table in Note 5 of the Notes to Financial Statements). The remaining $0.7 million in 2016 of additional expenses for
which recovery from insurance is not assured are included in “Cost of goods sold” in the Consolidated Statements of Income.
As the insurance recovery process progresses, additional insurance recoveries are expected and any associated gains will be
recorded in “Plant shutdowns, asset impairments, restructurings and other” in the Operating Profit table in Note 5 of the Notes
to Financial Statements).
Capital Expenditures and Depreciation & Amortization
Capital expenditures for Aluminum Extrusions were $15.9 million in 2016 compared to $8.1 million in 2015. Capital
expenditures in 2016 included approximately $5 million for routine capital expenditures required to support operations and $9
million of a total of $18 million expected to add extrusions capacity at the Niles, Michigan, manufacturing facility. Bonnell
Aluminum’s average extrusions capacity utilization at year end was in excess of 90%. Projections of capital expenditures for
Bonnell Aluminum of $27 million in 2017 include approximately $9 million to complete the extrusions capacity project at
Niles, expenditures to fix the damage caused by the cast house explosion net of related insurance recoveries (facility upgrades
of approximately $2 million will not be covered by insurance reimbursements), $9 million for routine items required to support
legacy operations, and $6 million to support operations for Futura Industries, which was acquired in February 2017.
Depreciation expense was $8.1 million in 2016 compared to $8.7 million in 2015, and is projected to be $12 million in 2017.
Amortization expense was $1.0 million in 2016 and $1.0 million in 2015, and is projected to be $4 million in 2017.
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Futura Acquisition
On February 15, 2017, Bonnell Aluminum completed its previously announced acquisition of Futura on a net debt-free
basis for approximately $92 million. The acquisition, which was funded using Tredegar’s secured revolving credit facility and
will be treated as an asset purchase for U.S. federal income tax purposes, is expected to be immediately accretive to Tredegar’s
consolidated ongoing earnings. For more information, see “Aluminum Extrustions - Futura Acquisition” in the Business
section.
Corporate Expenses, Interest and Income Taxes
Pension expense was $10.9 million in 2016, a favorable change of $1.5 million from 2015. Most of the impact on
earnings from lower pension expense is reflected in “Corporate expenses, net” in the Operating Profit table in Note 5 of the
Notes to Financial Statements. Pension expense is projected to be $10.4 million in 2017. Corporate expenses, net decreased in
2016 versus 2015. In 2015, corporate expenses, net included non-recurring costs of $4.9 million, which consisted mainly of
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 $3.8 million in 2016 in comparison to $3.5 million in 2015.
The effective tax rate from continuing operations was 11.6% in 2016 compared to a negative 38.5% in 2015. The low
effective tax rate in 2016 is primarily due to a $6.4 million tax benefit from excess foreign tax credits that are related to the
repatriation of cash from Brazil. 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. More information on the significant
differences between the effective tax rate for income from continuing operations and the U.S. federal statutory rate for 2016 and
2015 are further detailed in the effective income tax rate reconciliation provided in Note 17 of the Notes to Financial
Statements.
Total debt was $95.0 million at December 31, 2016, compared to $104.0 million at December 31, 2015. Net debt (debt in
excess of cash and cash equivalents) was $65.5 million at December 31, 2016, compared with $59.8 million at December 31,
2015. Net debt is calculated as follows:
(in millions)
Debt
Less: Cash and cash equivalents
Net debt
December 31, 2016
December 31, 2015
$
$
95.0
$
29.5
65.5
$
104.0
44.2
59.8
Net debt, a financial measure that is not calculated or presented in accordance with GAAP, is not intended to represent debt as
defined by GAAP, but is utilized by management in evaluating financial leverage and equity valuation. The Company believes
that investors also may find net debt helpful for the same purposes. Consolidated net capitalization and other credit measures
are provided in the Financial Condition section.
Critical Accounting Policies
In the ordinary course of business, the Company makes a number of estimates and assumptions relating to the reporting of
results of operations and financial position in the preparation of financial statements in conformity with GAAP. Actual results
could differ significantly from those estimates under different assumptions and conditions. The Company believes the
following discussion addresses its critical accounting policies. These policies require management to exercise judgments that
are often difficult, subjective and complex due to the necessity of estimating the effect of matters that are inherently uncertain.
Impairment and Useful Lives of Long-lived Identifiable Assets and Goodwill
The Company assesses its long-lived identifiable assets for impairment when events or circumstances indicate that their
carrying value may not be recoverable from future cash flows. Any necessary impairment charges are recorded when the
Company does not believe the carrying value of the long-lived asset(s) will be recoverable. Tredegar also reassesses the useful
lives of its long-lived assets based on changes in the business and technologies.
The Company assesses goodwill for impairment when events or circumstances indicate that the carrying value may not be
recoverable, or, at a minimum, on an annual basis (December 1st of each year). As of December 31, 2016, reporting units in PE
Films and Aluminum Extrusions carried goodwill balances. All goodwill associated with Flexible Packaging Films was
25
impaired in the third quarter of 2015. Goodwill of the PE Films operating units, Personal Care and Surface Protection, was
tested for impairment at the annual testing date, with the estimated fair value of these reporting units exceeding the carrying
value of their net assets by approximately 30% and 48%, respectively, at December 1, 2016. The goodwill of the Aluminum
Extrusions reporting unit is associated with the October 2012 acquisition of AACOA. The estimated fair value of this reporting
unit substantially exceeded the carrying value of its net assets at December 1, 2016.
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 an
asset impairment loss for continuing operations of $0.6 million and $0.2 million in 2016 and 2015, respectively (none in 2014).
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,
2016, 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.
At December 31, 2016 and 2015, 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 $20.2 million and $18.6 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, 2016 and 2015. 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, 2016, 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 $6 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 $5 million. See Note 4 of the Notes to Financial
Statements for more information.
Pension Benefits
Tredegar sponsors noncontributory defined benefit (pension) plans in its continuing operations that have resulted in
varying amounts of net pension income or expense, as developed from actuarial valuations. Inherent in these valuations are
key assumptions including discount rates, expected return on plan assets and rate of future compensation increases. The
Company is required to consider current market conditions, including changes in interest rates and plan asset investment
returns, in determining these assumptions. Actuarial assumptions may differ materially from actual results due to changing
market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These
differences may result in a significant impact to the amount of net pension income or expense recorded in future periods.
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
26
and vice versa. The weighted average discount rate utilized was 4.29%, 4.55% and 4.17% at the end of 2016, 2015 and 2014,
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. With the exception of plan participants at one 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 7.9%, (1.8)% and 4.1% in 2016, 2015 and 2014, 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 7.00%, 7.50% and 7.75% in 2016, 2015 and 2014, respectively.
The Company anticipates that its expected long-term return on plan assets will be 6.50% for 2017. See Note 14 of the Notes to
Financial Statements on for more information on expected long-term return on plan assets and asset mix.
See the Executive Summary for further discussion regarding the financial impact of the Company’s pension plans.
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 $3.3 million, $4.0 million and
$3.3 million as of December 31, 2016, 2015 and 2014, 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 $0.1 million, $0.4 million and $0.3 million at
December 31, 2016, 2015 and 2014, respectively ($0.1 million, $0.2 million and $0.2 million, respectively, net of
corresponding federal and state income tax benefits). Accruals for possible interest and penalties on uncertain tax positions are
reflected in income tax expense for financial reporting purposes.
Tredegar, 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 2013.
As of December 31, 2016 and 2015, valuation allowances relating to deferred tax assets were $12.7 million and $13.3
million, respectively. For more information on deferred income tax assets and liabilities, see Note 17 of the Notes to Financial
Statements.
Recently Issued Accounting Standards
Refer to the section Recently Issued Accounting Statements in Note 1 of the Notes to Financial Statements for
information concerning the effect of recently issued accounting pronouncements.
Results of Continuing Operations
2016 versus 2015
Revenues. Sales in 2016 decreased by 7.6% compared with 2015 due to lower sales by PE Films and Aluminum Extrusions,
partially offset by higher sales by Flexible Packaging Films. Net sales decreased 14.1% in PE Films primarily due to lower
volume from lost sales, product transitions and adverse market demand for certain products. Net sales increased 2.6% in
Flexible Packaging Films from higher volume partially due to the increase of end-use applications for flexible packaging films
in the Latin American market, partially offset by competitive pricing pressures and the pass-through to customers of lower raw
material costs. Net sales decreased 4.1% in Aluminum Extrusions primarily due to a decrease in average selling prices driven
mainly by lower aluminum costs, partially offset by higher sales volume in the automotive market. For more information on
changes in net sales and volume, see the Executive Summary.
Operating Costs and Expenses. Consolidated gross profit margin (sales minus cost of goods sold and freight as a percentage of
sales) was 15.8% in 2016 and 15.7% in 2015. The gross profit margin in PE Films decreased due to lower revenue, as
discussed above, an unfavorable lag in the pass-through of average resin costs, productivity inefficiencies in surface protection
27
films and an unfavorable LIFO inventory adjustment. The gross profit margin in Flexible Packaging Films increased primarily
as a result of higher sales volume, as discussed above, operating efficiencies and lower other costs and expenses, partially offset
by net refunds in 2015 of export duties paid. The gross profit margin in Aluminum Extrusions increased primarily as a result of
higher volume, production efficiencies, improved management of freight logistics and lower utility costs. Consolidated gross
profit as a percentage of sales was positively impacted by lower pension expenses in 2016 compared to 2015. Most of the
impact related to pension expense is not allocated to PE Films or Aluminum Extrusions.
For more information on changes in operating costs and expenses, see the Executive Summary.
Selling, General and Administrative. As a percentage of sales, selling, general and administrative and R&D expenses were
11.5% in 2016, which increased from 9.8% in 2015. The increase in selling, general and administrative and R&D expenses as
a percentage of sales can be primarily attributed to the higher R&D expenses.
Plant shutdowns, asset impairments, restructurings and other. Plant shutdowns, asset impairments, restructurings and other
items in 2016 are shown in the segment operating profit table in Note 5 and are described in detail in Note 18 of the Notes to
Financial Statements. A discussion of unrealized gains and losses on investments can also be found in Note 4 of the Notes to
Financial Statements.
Interest Income and Expense. Interest income, which is included in “Other income (expense), net” in the consolidated
statements of income, was $0.3 million in both 2016 and 2015.
Interest expense, which is net of amounts capitalized and included in property, plant and equipment ($0.3 million and $0.4
million capitalized in 2016 and 2015, respectively), was $3.8 million in 2016, compared to $3.5 million for 2015. Interest
expense in 2016 included the write-off of $0.2 million in unamortized loan fees from Tredegar’s revolving credit facility that
was refinanced, in the first quarter of 2016. Average debt outstanding and interest rates were as follows:
(In millions, except percentages)
2016
2015
Floating-rate debt with interest charged on a rollover
basis at one-month LIBOR plus a credit spread:
Average outstanding debt balance
Average interest rate
Fixed-rate and other debt:
Average outstanding debt balance
Average interest rate
Total debt:
Average outstanding debt balance
Average interest rate
$
$
$
103.5
$
135.1
2.3%
2.0%
— $
n/a
—
n/a
103.5
$
135.1
2.3%
2.0%
Identifiable Assets. A summary of identifiable assets for the year ended December 31, 2016 versus 2015 is provided below:
(In thousands)
PE Films
Flexible Packaging Films
Aluminum Extrusions
Subtotal
General corporate
Cash and cash equivalents
Total
Year Ended
December 31
2016
278,558
156,836
147,639
583,033
38,618
29,511
651,162
$
$
2015
270,236
146,253
136,935
553,424
25,680
44,156
623,260
$
$
Variance
8,322
10,583
10,704
29,609
12,938
(14,645)
27,902
$
$
Identifiable assets in PE Films increased at December 31, 2016 from December 31, 2015 primarily due to higher
property, plant and equipment balances as a result of higher current year capital expenditures. Identifiable assets in Flexible
Packaging Films increased at December 31, 2016 from December 31, 2015 primarily due to higher property, plant and
equipment balances as a result of changes in the value of the U.S. dollar relative to foreign currencies, partially offset by
depreciation and amortization. Identifiable assets in Aluminum Extrusions increased at December 31, 2016 from December 31,
28
2015 primarily due to higher property, plant and equipment balances as a result of current year capital expenditures, higher
accounts receivable balances due to the timing of collections and higher inventory balances. Identifiable assets in General
Corporate increased at December 31, 2016 from December 31, 2015 due to an increase in income taxes recoverable, deferred
financing fees from the refinancing of the revolving credit facility, and an increase in the value of the Company’s investment in
kaléo.
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.
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.
Selling, General and Administrative. 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.
Plant shutdowns, asset impairments, restructurings and other. Plant shutdowns, asset impairments, restructurings and other
items in 2015 are shown in the segment operating profit table in Note 5 and are described in detail in Note 18 of the Notes to
Financial Statements. A discussion of unrealized gains and losses on investments can also be found in Note 4 of the Notes to
Financial Statements.
Discontinued Operations. 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).
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.
29
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, except percentages)
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 a negative 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.
Identifiable Assets. A summary of identifiable assets for the year ended December 31, 2015 versus 2014 is provided below:
(In thousands)
PE Films
Flexible Packaging Films
Aluminum Extrusions
Subtotal
General corporate
Cash and cash equivalents
Total
Year Ended
December 31
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
$
$
Variance
(13,370)
(116,351)
(6,393)
(136,114)
(23,352)
(5,900)
(165,366)
$
$
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 Flexible Packaging Films 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 capital expenditures.
Identifiable assets in Aluminum Extrusions 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 in General Corporate decreased at
December 31, 2015 from December 31, 2014 primarily due to a decrease in the value of the Company’s investment in kaléo.
30
Segment Analysis. A summary of operating results for 2015 versus 2014 for each of the Company’s reporting segments is
shown below.
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 in the Executive Summary been fully realized in each
period:
(In Thousands)
Year Ended December 31,
2015
2014
Operating profit from ongoing operations, as reported
$48,275
$60,971
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
—
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.
Capital Expenditures and Depreciation & Amortization
31
Capital expenditures in PE Films were $21.2 million in 2015 compared to $17.0 million in 2014. Depreciation
expense was $15.4 million in 2015 and $21.1 million in 2014 as certain assets became fully depreciated. Amortization expense
was $0.1 million in 2015 and $0.3 million in 2014.
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.
Depreciation expense was $6.8 million in 2015 and $5.8 million in 2014. Amortization expense was $2.9 million in 2015 and
$3.5 million in 2014.
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.
Aluminum Extrusions
A summary of operating results for Aluminum Extrusions is provided below:
(In thousands, except percentages)
Sales volume (pounds)
Net sales
Operating profit from ongoing operations
Year Ended
December 31
2015
170,045
375,457
30,432
$
$
2014
153,843
344,346
25,664
Favorable/
(Unfavorable)
% Change
10.5%
9.0%
18.6%
$
$
32
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.
Depreciation expense was $8.7 million in 2015 compared to $8.3 million in 2014. Amortization expense was $1.0 million in
2015 and $1.6 million in 2014.
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, 2015 to December 31, 2016 are summarized below:
• Accounts and other receivables increased $3.2 million (3.4%).
• Accounts and other receivables in PE Films increased by $0.8 million due mainly to the timing of cash receipts and
slower collections. DSO (represents trailing 12 months net sales divided by a rolling 12-month average of accounts
and other receivables balances) was approximately 45.7 days in 2016 and 42.7 days in 2015.
• Accounts and other receivables in Flexible Packaging Films increased by $0.2 million primarily due to the impact of
the change in the value of the U.S. dollar relative to the Brazilian real. DSO was approximately 51.8 days in 2016
and 68.9 days in 2015.
• Accounts and other receivables in Aluminum Extrusions increased by $2.0 million primarily due to the timing of
cash receipts. DSO was approximately 43.3 days in 2016 and 45.1 days in 2015.
•
Inventories increased $0.7 million (1.1%).
•
•
•
Inventories in PE Films decreased by $0.3 million primarily due to lower storeroom and shop supply balances 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 52.2 days in 2016 and 48.3 days in 2015.
Inventories in Flexible Packaging Films increased by $0.1 million primarily due to the impact of the change in the
value of the U.S. dollar relative to the Brazilian real. DIO was approximately 77.0 days in 2016 and 81.6 days in
2015.
Inventories in Aluminum Extrusions increased by $1.0 million primarily due to higher sales volume and the timing of
shipments at the end of the year. DIO was approximately 26.5 days in 2016 and 29.8 days in 2015.
• Net property, plant and equipment increased $29.4 million (12.7%) due primarily to capital expenditures of $45.5 million
and changes in the value of the U.S. dollar relative to the Brazilian Real of $12.9 million, partially offset by depreciation of
$28.5 million.
• Goodwill and other intangibles decreased by $1.6 million (1.1%) primarily due to amortization expense of $4.0 million,
partially offset by changes in the value of the U.S. dollar relative to the Brazilian real of $2.3 million.
• Accounts payable decreased by $2.8 million (3.3%).
• Accounts payable in PE Films decreased by $3.4 million primarily due to 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 38.5 days in 2016 and 39.0 days in 2015.
• Accounts payable in Flexible Packaging Films increased by $3.7 million, 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 39.5 days
in 2016 and 34.2 days in 2015.
33
• Accounts payable in Aluminum Extrusions decreased by $1.9 million, primarily due to the timing of payments. DPO
was approximately 45.4 days in 2016 and 48.0 days in 2015.
• Accrued expenses increased by $5.0 million (14.8%) from December 31, 2015 due to higher employee benefit accruals,
higher stock-based benefit obligations and deferred revenue related to the startup of a new production line.
• Other noncurrent liabilities decreased by $5.8 million (5.2%) from December 31, 2015, primarily due to a reduction in the
accrued pension liability.
• Net noncurrent deferred income tax liabilities in excess of noncurrent deferred tax assets increased by $1.9 million primarily
due to numerous changes between years in the balance of the components shown in the December 31, 2016 and 2015
schedule of deferred income tax assets and liabilities provided in Note 17 of the Notes to Financial Statements. The
Company had a current income tax receivable of $7.5 million at December 31, 2016 compared to $0.4 million at December
31, 2015. The change is primarily due to timing of tax payments and anticipated refunds of credits available for carryback
to prior years.
On March 1, 2016, the Company entered into a new five-year, $400 million secured revolving credit agreement that
expires on March 1, 2021 (“revolving credit agreement”), replacing the previous $350 million unsecured revolving credit
agreement. Net capitalization and indebtedness as defined under the revolving credit agreement as of December 31, 2016 were
as follows:
Net Capitalization and Indebtedness as of December 31, 2016
(In Thousands)
Net capitalization:
Cash and cash equivalents
Debt:
$400 million revolving credit agreement maturing March 1, 2021
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
Capital lease
Other
Indebtedness
$
29,511
95,000
—
95,000
65,489
310,783
376,272
95,000
2,685
255
250
98,190
$
$
$
The credit spread and commitment fees charged on the unused amount under our revolving credit agreement at various
indebtedness-to-adjusted EBITDA levels are as follows:
Pricing Under Revolving Credit Agreement (Basis Points)
Indebtedness-to-Adjusted EBITDA Ratio
> 3.5x but <= 4.0x
Credit Spread
Over LIBOR
250
> 3.0x but <= 3.5x
> 2.0x but <= 3.0x
> 1.0x but <= 2.0x
<= 1.0x
225
200
175
150
Commitment
Fee
45
40
35
30
25
At December 31, 2016, the interest rate on debt under the revolving credit agreement existing at that date was priced at
one-month LIBOR plus the applicable credit spread of 175 basis points. Under the revolving credit agreement, borrowings are
permitted up to $400 million, and approximately $185.0 million was available to borrow at December 31, 2016, based upon the
most restrictive covenants.
34
As of December 31, 2016, 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 revolving 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
revolving credit agreement are presented below along with the related most restrictive covenants. Adjusted EBITDA and
adjusted EBIT as defined in the revolving credit agreement are not intended to represent net income or cash flow from
operations as defined by GAAP and should not be considered as either an alternative to net income or to cash flow.
35
Computations of Adjusted EBITDA, Adjusted EBIT, Leverage Ratio and Interest Coverage Ratio as Defined in the Revolving
Credit Agreement Along with Related Most Restrictive Covenants
As of and for the Twelve Months Ended December 31, 2016 (In Thousands)
Computations of adjusted EBITDA and adjusted EBIT as defined in revolving credit agreement for the twelve months ended
December 31, 2016:
Net income
Plus:
After-tax losses related to discontinued operations
Total income tax expense for continuing operations
Interest expense
Depreciation and amortization expense for continuing operations
All non-cash losses and expenses, plus cash losses and expenses not to exceed $10,000, for continuing
operations that are classified as unusual, extraordinary or which are related to plant shutdowns, asset
impairments and/or restructurings (cash-related of $6,742)
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
$
24,466
—
3,217
3,806
32,472
8,645
56
—
—
—
—
(261)
—
—
—
(1,600)
—
—
70,801
(32,472)
38,329
$
Computations of leverage and interest coverage ratios as defined in revolving credit agreement at December 31, 2016:
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 for each quarter beginning
January 1, 2016)
Maximum leverage ratio permitted
Minimum interest coverage ratio permitted
1.39x
10.07x
$ 112,233
4.00x
2.50x
36
Tredegar is obligated to make future payments under various contracts as set forth below:
(In Millions)
Debt:
2017
2018
2019
2020
2021
Remainder
Total
Payments Due by Period
Principal payments
$
— $
— $
— $
— $
95.0
$
— $
Estimated interest expense
Estimated contributions required (1) :
Defined benefit plans
Other postretirement benefits
Capital expenditure commitments
Leases
Estimated obligations relating to
uncertain tax positions (2)
Other (3)
Total
2.5
5.5
0.5
12.0
2.4
3.8
2.5
8.9
0.5
—
2.2
2.1
2.5
2.5
0.4
—
12.1
0.5
—
2.0
10.3
0.5
—
2.0
10.5
0.5
—
1.5
—
—
—
28.1
2.5
—
1.1
3.4
—
$
26.7
$
16.2
$
17.1
$
15.3
$
107.9
$
35.1
$
218.3
95.0
10.4
75.4
5.0
12.0
11.2
3.4
5.9
(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 2017 through 2026 were determined under provisions of the Pension Protection Act of 2006
using the preliminary assumptions chosen by Tredegar for the 2017 plan year. Tredegar has determined that it is not practicable to present defined
benefit contributions and other postretirement benefit payments beyond 2026.
(2) Amounts for which reasonable estimates about the timing of payments cannot be made are included in the remainder column.
(3)
Includes contractual severance and other miscellaneous contractual arrangements.
From time to time, the Company enters into transactions with third parties in connection with the sale of assets or
businesses in which it agrees to indemnify the buyers or third parties involved in the transaction, or the sellers or third parties
involved in the transaction agree to indemnify Tredegar, for certain liabilities or risks related to the assets or business. Also, in
the ordinary course of business, the Company may enter into agreements with third parties for the sale of goods or services that
may contain indemnification provisions. In the event that an indemnification claim is asserted, liability for indemnification
would be subject to an assessment of the underlying facts and circumstances under the terms of the applicable agreement.
Further, any indemnification payments may be limited or barred by a monetary cap, a time limitation, or a deductible or basket.
For these reasons, the Company is unable to estimate the maximum potential amount of the potential future liability under the
indemnity provisions of these agreements. Tredegar does, however, accrue for losses for any known contingent liability,
including those that may arise from indemnification provisions, when future payment is probable and the amount is reasonably
estimable. The Company discloses contingent liabilities if the probability of loss is reasonably possible and material.
At December 31, 2016, Tredegar had cash and cash equivalents of $29.5 million, including funds held in locations outside
the U.S. of $23.8 million. Tredegar’s policy is to accrue U.S. federal income taxes on unremitted earnings of all foreign
subsidiaries where required. Prior to the second quarter of 2016, deferred U.S. federal income taxes had not been recorded for
the undistributed earnings for Terphane Ltda. because the Company had intended to permanently reinvest these earnings. Due
to concerns about the current political and economic conditions in Brazil, Terphane Ltda. has begun making cash distributions
to the Company. During 2016, Terphane Ltda. paid dividends totaling $13.3 million to the Company. Because of the
accumulation of significant losses related to foreign currency translations at Terphane Ltda., there were no unrecorded deferred
tax liabilities associated with the U.S. federal income taxes and foreign withholding taxes on Terphane Ltda.’s undistributed
earnings as of December 31, 2016 and December 31, 2015.
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, 2016, Tredegar had 32,933,807 shares of common stock outstanding and a total market capitalization of
$790.4 million, compared with 32,682,162 shares of common stock outstanding and a total market capitalization of $445.1
million at December 31, 2015.
Tredegar did not repurchase any shares on the open market in 2016, 2015 or 2014 under its approved share repurchase
program.
37
Cash Flows
The discussion in this section supplements the information presented in the Consolidated Statements of Cash Flows.
Cash flows for discontinued operations have not been separately disclosed in the consolidated statements of cash flows.
Cash provided by operating activities was $48.9 million in 2016 compared with $74.3 million in 2015. The decrease is
due primarily to lower earnings in PE Films and changes in working capital (higher accounts receivable and income taxes
recoverable) (see the Assets and Liabilities section for discussion of changes in working capital).
Cash used in investing activities was $42.0 million in 2016 compared with $31.4 million in 2015. Cash used in investing
activities in 2016 primarily includes capital expenditures of $45.5 million.
Net cash flow used by financing activities was $23.7 million in 2016, which is primarily due to net payments on the
revolving credit agreement of $9.0 million, the payment of regular quarterly dividends of $14.5 million (44 cents per share) and
debt financing costs related to the refinancing of the revolving credit agreement of $2.6 million, partially offset by the proceeds
from the exercise of stock options and other financing activities of $2.3 million.
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 and higher earnings, after adjusting for two large, non-cash
charges: $44.5 million goodwill impairment charge at Terphane and $20.5 million write down of an investment in kaléo.
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 consists of 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
existing revolving credit agreement 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.
Quantitative and Qualitative Disclosures about Market Risk
Tredegar has exposure to the volatility of interest rates, polyethylene, polypropylene and polyester resin prices, PTA and
MEG prices, aluminum ingot and scrap prices, energy prices, foreign currencies and emerging markets. See the Assets and
Liabilities section regarding interest rate exposures related to borrowings under the revolving credit agreement.
Changes in polyethylene resin prices, and the timing of those changes, could have a significant impact on profit margins
in PE Films. Changes in polyester resin, PTA and MEG prices, and the timing of those changes, could have a significant
impact on profit margins in Flexible Packaging Films. Profit margins in Aluminum Extrusions are sensitive to fluctuations in
aluminum ingot and scrap 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 and the Results of Continuing Operations sections for discussion regarding the impact of
the lag in the pass-through of resin price changes.
38
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 and the Results of Continuing Operations sections for more information). Pricing on the remainder of the business
is based upon raw material costs and supply/demand dynamics within the markets 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.
39
The volatility of average quarterly prices of PTA and MEG in Asia (raw materials used in the production of polyester
resins produced by Flexible Packaging Films) is shown in the chart below:
Source: Quarterly averages computed by Tredegar using monthly data from CMAI Global Index data.
In the normal course of business, Aluminum Extrusions enters into fixed-price forward sales contracts with certain
customers for the sale of fixed quantities of aluminum extrusions at scheduled intervals. In order to hedge its exposure to
aluminum price volatility (see the chart below) under these fixed-price arrangements, which generally have a duration of not
more than 12 months, the Company enters into a combination of forward purchase commitments and futures contracts to
acquire or hedge aluminum, based on the scheduled deliveries. See Note 9 of the Notes to Financial Statements for more
information. The volatility of quarterly average aluminum prices is shown in the chart below:
Source: Quarterly averages computed by Tredegar using daily Midwest average prices provided by Platts.
From time-to-time, Aluminum Extrusions hedges a portion of its exposure to natural gas price volatility by entering into
fixed-price forward purchase contracts with its natural gas suppliers. The Company estimates that, in an unhedged situation,
every $1 per mmBtu per month change in the market price of natural gas has an $81,000 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.
40
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 2016, 2015 and 2014 are as
follows:
Tredegar Corporation—Continuing Operations
Percentage of Net Sales and Total Assets Related to Foreign Markets
2016
% of Total
Net Sales *
Exports
From
U.S.
Foreign
Oper-
ations
Canada
Europe
Latin America
Asia
Total % exposure to foreign
markets
6
1
—
9
16
—
10
11
3
24
2015
% of Total
Net Sales *
Exports
From
U.S.
Foreign
Oper-
ations
5
1
—
9
15
—
10
10
3
23
% Total
Assets -
Foreign
Oper-
ations *
—
5
20
7
32
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 *
—
6
21
6
33
% Total
Assets -
Foreign
Oper-
ations *
—
5
27
4
36
*
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 pages 42-43) 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
41
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 an
unfavorable impact on operating profit from ongoing operations in PE Films of $0.3 million in 2016 compared to 2015, an
unfavorable impact on operating profit from ongoing operations of $3.7 million in 2015 compared with 2014, a favorable
impact of $0.7 million in 2014 compared with 2013.
Trends for the Euro are shown in the chart below:
Source: Quarterly averages computed by Tredegar using daily closing data provided by Bloomberg.
42
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.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See discussion of Quantitative and Qualitative Disclosures about Market Risk 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 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.
43
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under 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, 2016.
The effectiveness of Tredegar’s internal control over financial reporting as of December 31, 2016 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included on
page 48.
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,
2016, that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
Item 9B. OTHER INFORMATION
None.
44
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
Michael J. Schewel
Age
Title
62 President and Chief Executive Officer
58 Vice President and Chief Financial Officer
62 Vice President, Business Processes and Corporate Development
63 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.
Michael J. Schewel. Mr. Schewel was elected Vice President, General Counsel and Corporate Secretary effective May 9,
2016. He was previously partner with the law firm of McGuire Woods, LLP from 1986 until May 2016, except for four years
from 2002 until 2006 when he served as Secretary of Commerce and Trade for the Commonwealth of Virginia.
Tredegar has adopted a Code of Conduct that applies to all of its directors, officers and employees (including its chief
executive officer, chief financial officer and principal accounting officer) and has posted the Code of Conduct on its website.
All amendments to or waivers from any provision of the Company’s Code of Conduct applicable to the chief executive officer,
chief financial officer and principal accounting officer will be disclosed on the Company’s website. The Company’s internet
address is www.tredegar.com.
45
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, 2016.
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)
946,703
—
946,703
$
$
21.67
—
21.67
2,748,000
—
2,748,000
*
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.”
46
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, 2016 and 2015
Consolidated Statements of Income for the Years Ended December 31, 2016,
2015 and 2014
Consolidated Statements of Comprehensive Income (Loss) for the Years
Ended December 31, 2016, 2015 and 2014
Consolidated Statements of Cash Flows for the Years Ended December 31,
2016, 2015 and 2014
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 2016, 2015 and 2014
Notes to Financial Statements
(2)
Financial statement schedules:
None.
(3)
Exhibits:
See Exhibit Index on pages 91-93.
Page
48
49
50
51
52
53
54-89
47
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 (loss), cash flows and shareholders’ equity present fairly, in all material respects, the financial position
of Tredegar Corporation and its subsidiaries at December 31, 2016 and 2015, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2016 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, 2016, 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.
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 22, 2017
48
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 $3,102 in 2016 and $3,746 in 2015
Income taxes recoverable
Inventories
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—32,933,807 shares in 2016 and 32,682,162 in 2015
(including restricted stock)
Common stock held in trust for savings restoration plan (69,622 shares in 2016 and
67,726 in 2015)
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.
49
2016
2015
$
29,511
$
44,156
97,388
7,518
66,069
7,738
208,224
11,294
126,064
660,272
797,630
(536,905)
260,725
151,423
30,790
651,162
81,342
38,647
119,989
95,000
21,110
104,280
340,379
$
$
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
32,007
29,467
(1,497)
(1,467)
(93,970)
863
(90,127)
463,507
310,783
651,162
$
(112,807)
(373)
(95,539)
453,467
272,748
623,260
$
$
$
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.
2016
2015
2014
$
828,341
$
2,381
830,722
$
896,177
(20,113)
876,064
951,826
(6,697)
945,129
668,626
725,459
778,113
29,069
75,754
19,122
3,978
3,806
2,684
—
803,039
27,683
3,217
24,466
—
24,466
$
0.75
—
0.75
0.75
—
0.75
$
$
$
$
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
$
$
$
$
$
50
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 $729 in 2016, tax benefit of $890 in 2015 and tax benefit of
$2,396 in 2014)
Derivative financial instruments adjustment (net of tax of $727 in
2016, tax benefit of $550 in 2015 and tax benefit of $112 in 2014)
Pension & other post-retirement benefit adjustments
Net gains (losses) and prior service costs (net of tax benefit of
$1,874 in 2016, tax benefit of $226 in 2015 and tax benefit of
$22,445 in 2014)
Amortization of prior service costs and net gains or losses (net of
tax of $4,398 in 2016, tax of $5,823 in 2015 and tax of $3,582
in 2014)
Other comprehensive income (loss)
Comprehensive income (loss)
See accompanying notes to financial statements.
2016
2015
2014
$
24,466
$
(32,135) $
36,879
18,837
(65,537)
(28,065)
1,236
(1,029)
(109)
(3,288)
(2,176)
(38,730)
8,700
25,485
$
49,951
$
10,218
(58,524)
(90,659) $
6,997
(59,907)
(23,028)
51
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
Gain from insurance recoveries
Changes in assets and liabilities:
Accounts and notes receivables
Inventories
Income taxes recoverable/payable
Prepaid expenses and other
Accounts payable and accrued expenses
Pension and postretirement benefit plan contributions
Other, net
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Net proceeds from the sale of investment property
Insurance proceeds from cast house explosion
Proceeds from the sale of assets and other
Net cash used in investing activities
Cash flows from financing activities:
Borrowings
Debt principal payments
Dividends paid
Debt financing costs
Proceeds from exercise of stock options and other
Net cash used in financing activities
Effect of exchange rate changes on cash
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.
$
$
$
52
2016
2015
2014
$
24,466
$
(32,135) $
36,879
28,494
3,978
—
(3,689)
11,047
(1,600)
1,436
(220)
(1,634)
92
1,127
(7,061)
(1,914)
161
(8,061)
2,250
48,872
(45,457)
—
1,156
2,308
(41,993)
96,750
(105,750)
(14,456)
(2,606)
2,313
(23,749)
2,225
(14,645)
44,156
29,511
3,074
15,406
30,909
4,073
44,465
(10,523)
12,521
20,500
403
(11)
—
9,180
1,137
(1,849)
(1,256)
(2,455)
(2,709)
2,006
74,256
(32,831)
—
—
1,416
(31,415)
107,000
(140,250)
(13,725)
(78)
2,858
(44,195)
(4,546)
(5,900)
50,056
44,156
3,508
20,118
$
$
$
$
$
$
35,423
5,395
—
(11,489)
6,974
(2,000)
993
(1,031)
—
(18,696)
(8,803)
(906)
496
5,554
(3,108)
5,554
51,235
(44,898)
4,500
—
2,125
(38,273)
116,000
(117,750)
(11,007)
(29)
410
(12,376)
(3,147)
(2,561)
52,617
50,056
3,320
20,890
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Tredegar Corporation and Subsidiaries
Accumulated Other Comprehensive Income (Loss)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(323)
— (11,007)
(In Thousands, Except Share and Per-Share Data)
Shares
Amount
Common Stock
Trust for
Savings
Restora-
tion Plan
Foreign
Currency
Trans-
lation
Retained
Earnings
32,305,145
$ 20,641
$473,729
$ (1,418) $ (19,205) $
36,879
—
—
— (28,065)
Balance at January 1, 2014
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
—
—
Balance at December 31, 2014
32,422,082
24,364
499,300
(1,440)
(47,270)
22
(22)
— (32,135)
—
—
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
Gain
(Loss) on
Derivative
Financial
Instruments
765
Pension &
Other Post-
retirement
Benefit
Adjust.
Total
Share-
holders’
Equity
$
(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
—
—
—
(109)
—
—
—
—
—
—
—
656
—
—
(1,029)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— (65,537)
—
—
—
—
—
(27)
—
—
—
—
—
—
Balance at December 31, 2015
32,682,162
29,467
453,467
(1,467)
(112,807)
(373)
(95,539)
272,748
Net income
Foreign currency translation adjustment (net of tax
benefit of $729)
Derivative financial instruments adjustment (net of tax
of $727)
Net gains or losses and prior service costs (net of tax
benefit of $1,874)
Amortization of prior service costs and net gains or
losses (net of tax of $4,398)
Cash dividends declared ($0.44 per share)
—
—
—
—
—
—
—
—
—
—
—
24,466
—
—
—
—
— (14,456)
Stock-based compensation expense
127,169
1,461
Issued upon exercise of stock options (including related
income tax of $1,109) & other
124,476
1,079
Tredegar common stock purchased by trust for savings
restoration plan
—
—
—
—
30
—
—
—
—
—
—
—
—
(30)
—
18,837
—
—
—
—
—
—
—
—
—
1,236
—
—
—
—
—
—
—
—
—
24,466
18,837
1,236
(3,288)
(3,288)
8,700
—
—
—
—
8,700
(14,456)
1,461
1,079
—
Balance at December 31, 2016
32,933,807
$ 32,007
$463,507
$ (1,497) $ (93,970) $
863
$
(90,127) $ 310,783
See accompanying notes to financial statements.
53
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 (“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.
Fiscal Year End. The Company operates on a calendar fiscal year except the Aluminum Extrusions segment, which operates
on a 52/53-week fiscal year basis. References to Aluminum Extrusions for 2016, 2015 and 2014 relate to the 52-week fiscal
years ended December 26, 2016, December 27, 2015 and December 28, 2014, respectively. The Company does not believe the
impact of reporting the results of this segment as stated above is material to the consolidated financial results.
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 $3.6 million, $4.0 million and $1.5
million in 2016, 2015 and 2014, 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, 2016 and 2015, Tredegar had cash
and cash equivalents of $29.5 million and $44.2 million, respectively, including funds held in locations outside the U.S. of
$23.8 million and $27.7 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
54
supplies, stores and other inventory are reviewed to determine if inventory quantities are in excess of forecasted usage or if they
have become obsolete.
Property, Plant and Equipment. Accounts include costs of assets constructed or purchased, related delivery and installation
costs and interest incurred on significant capital projects during their construction periods. Expenditures for renewals and
betterments also are capitalized, but expenditures for repairs and maintenance are expensed as incurred. The cost and
accumulated depreciation applicable to assets retired or sold are removed from the respective accounts, and gains or losses
thereon are included in income.
Capital expenditures for property, plant and equipment include capitalized interest. Capitalized interest included in
capital expenditures for property, plant and equipment was $0.3 million, $0.4 million and $1.1 million in 2016, 2015 and 2014,
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, 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 1st of each year). The
Company’s significant operating units in PE Films include Personal Care and Surface Protection. There are two operating units
in Aluminum Extrusions, Bonnell Aluminum and AACOA. Each of these reporting units has separately identifiable operating
net assets (operating assets including goodwill and intangible assets net of operating liabilities).
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. Goodwill of the PE
Films operating units, Personal Care and Surface Protection, was tested for impairment at the annual testing date, with the
estimated fair value of these reporting units exceeding the carrying value of their net assets by approximately 30% and 48%,
respectively, at December 1, 2016. The goodwill of the Aluminum Extrusions reporting unit was tested for impairment at the
annual testing date. All goodwill in Aluminum Extrusions is associated with the October 2012 acquisition of AACOA, Inc.
(“AACOA”). The estimated fair value of this reporting unit substantially exceeded the carrying value of its net assets at
December 1, 2016.
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 of Flexible Packaging Films were tested for impairment at the annual testing date, with
the estimated fair value of these reporting units exceeding the carrying value of their net assets by approximately 20% at
December 1, 2016. For AACOA, 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.
55
Additional disclosure of Tredegar goodwill and other intangible assets is included in Note 8.
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
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). Tredegar’s policy is to accrue U.S. federal
income taxes to the extent required under GAAP on unremitted earnings of all foreign subsidiaries. Prior to the second quarter
of 2016, deferred U.S. federal income taxes had not been recorded for the undistributed earnings for Terphane Ltda. because the
Company had intended to permanently reinvest these earnings. Due to concerns about the current political and economic
conditions in Brazil, Terphane Ltda. has begun making cash distributions to the Company. During 2016, Terphane Ltda. paid
dividends totaling $13.3 million to the Company. Because of the accumulation of significant losses related to foreign currency
translations at Terphane Ltda., there were no unrecorded deferred tax liabilities associated with the U.S. federal income taxes
and foreign withholding taxes on Terphane Ltda.’s undistributed earnings as of December 31, 2016 and December 31, 2015.
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:
56
Weighted average shares outstanding used to compute
basic earnings per share
Incremental shares attributable to stock options and
restricted stock
2016
2015
2014
32,761,793
32,578,116
32,302,108
13,279
—
251,746
Shares used to compute diluted earnings per share
32,775,072
32,578,116
32,553,854
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 128,200 in 2016 and 320,849 in 2014.
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.
The assumptions used in this model for valuing Tredegar stock options granted in 2014 (no grants in 2015 and 2016) were
as follows:
Dividend yield
Weighted average volatility percentage
Weighted average risk-free interest rate
Holding period (years):
Officers
Management
Weighted average exercise price at date of grant (also
weighted average market price at date of grant):
Officers
Management
2014
1.3%
43.5%
2.0%
6.0
5.0
$
$
22.49
22.33
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 (no grants in 2015 and 2016), and related estimated fair value at the date of
grant, are as follows:
57
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
87,820
93,656
181,476
$
$
$
9.21
7.60
1,521
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 2016, 2015 and
2014.
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
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, 2016:
58
(In Thousands)
Foreign currency
translation
adjustment
Gain (loss) on
derivative financial
instruments
Pension and other
post-retirement
benefit adjustments
Total
Beginning balance, January 1, 2016
$
(112,807) $
(373) $
(95,539) $ (208,719)
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from accumulated
other comprehensive income (loss)
Net other comprehensive income (loss) -
current period
18,837
—
18,837
Ending balance, December 31, 2016
$
(93,970) $
247
989
(3,288)
15,796
8,700
9,689
1,236
863
$
5,412
25,485
(90,127) $ (183,234)
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
(65,537)
(1,029)
8,042
(58,524)
(95,539) $ (208,719)
Ending balance, December 31, 2015
$
(112,807) $
(373) $
59
Reclassifications of balances out of accumulated other comprehensive income (loss) into net income during 2016 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)
$
$
$
$
(1,630) Cost of sales
62 Cost of sales
(1,568)
(579)
(989)
(13,098)
(4,398)
(8,700)
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 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
$
$
$
$
(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:
60
(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).
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 March 2016, amended guidance was issued regarding clarifying the implementation guidance
on principal versus agent considerations and in April 2016, clarifying guidance was issued relating to identifying performance
obligations and licensing implementation. The effective date of this revised standard is for annual reporting periods beginning
after December 15, 2017, including interim periods within that reporting period. 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
continues to assess the impact of this standard. The Company has a team in place to analyze the impact of standard, and the
related guidance issued, across all revenue streams to evaluate the impact of the new standard on revenue contracts. This
includes reviewing current accounting policies and practices to identify potential differences that would result from applying
the requirements under the new standard. In 2016, the Company made progress on contract reviews and expects to complete the
contract evaluations and validate results in the first half of 2017. The Company has also started evaluating the new disclosure
requirements and expects to complete its evaluations of the impacts of the accounting and disclosure requirements on its
business processes, controls and systems by the end of the third quarter of 2017. Full implementation will be completed by the
end of 2017. The Company is still evaluating the method of adoption of the standard, which will occur in the first quarter of
2018.
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 new 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 will adopt the new guidance in the first quarter
of 2017, and the adoption of this guidance is not expected to have a material impact on the consolidated financial statements.
In January 2016, the FASB issued amended guidance associated with accounting for equity investments measured at fair
value. The amended guidance requires all equity investments to be measured at fair value with changes in the fair value
recognized through net income (other than those accounted for under equity method of accounting or those that result in
consolidation of the investee). The amended guidance also requires an entity to present separately in other comprehensive
61
income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit
risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial
instruments. In addition, the amendments in this update eliminate the requirement to disclose the fair value of financial
instruments measured at amortized cost for entities that are not public business entities and the requirement to disclose the
method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments
measured at amortized cost on the balance sheet for public business entities. The amended guidance is effective for fiscal years
beginning after December 31, 2017, including the interim periods within those fiscal years. The amendments should be applied
by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The
amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be
applied prospectively to equity investments that exist as of the date of adoption of the update. Early adoption is permitted
under limited, specific circumstances. The Company is still assessing the impact of this amended guidance.
In February 2016, the FASB issued a revised standard on lease accounting. Lessees will need to recognize virtually all of
their leases on the balance sheet, by recording a right-of-use asset and lease liability. The revised standard requires additional
analysis of the components of a transaction to determine if a right-to-use asset is embedded in the transaction that needs to be
treated as a lease. Substantial additional disclosures are also required by the revised standard. The revised standard is effective
for fiscal years beginning after December 31, 2018, including the interim periods within those fiscal years. The revised
standard should be applied on a modified retrospective approach or through the use of a practical expedient, with early adoption
permitted. The Company is still assessing the impact of this revised standard.
In March 2016, the FASB issued amended guidance to simplify several aspects of the accounting for share-based payment
transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on
the statement of cash flows. The updated guidance is effective for fiscal years beginning after December 31, 2016, including
the interim periods within those fiscal years. The Company will adopt the new guidance in the first quarter of 2017. Under the
new guidance, excess tax benefits related to equity compensation will be recognized in "Income taxes" in the consolidated
statements of income rather than in "Common stock" in the consolidated balance sheets and will be applied on a prospective
basis. If these amounts had been included in the consolidated statements of income in previous years, net income would have
been reduced by $1.1 million in 2016, and the net loss would have increased $0.3 million in 2015 (no impact in 2014).
Changes to the statements of cash flows related to the classification of excess tax benefits and employee taxes paid for share-
based payment arrangements will be implemented on a retrospective basis. The Company does not expect further impacts from
the guidance.
In June 2016, the FASB issued new accounting guidance that will require the earlier recognition of credit losses on loans
and other financial instruments based on an expected loss model, replacing the incurred loss model that is currently in use.
Under the new guidance, an entity will measure all expected credit losses for financial instruments held at the reporting date
based on historical experience, current conditions and reasonable and supportable forecasts. The expected loss model will apply
to loans and leases, unfunded lending commitments, held-to-maturity (HTM) debt securities and other debt instruments
measured at amortized cost and accounts receivable. The new guidance is effective for fiscal years beginning after December
31, 2019, including the interim periods within those fiscal years, with early adoption allowed for fiscal years beginning after
December 31, 2018. The new guidance must be applied on a modified retrospective basis, with a cumulative effect adjustment
recorded to opening retained earnings. The Company is not expecting to be materially impacted by this new guidance.
In October 2016, the FASB issued guidance that requires an entity to recognize the income tax consequences of an intra-
entity transfer of an asset other than inventory when the transfer occurs. The amendments are effective for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2017, and should be applied on a modified retrospective
basis through a cumulative-effect adjustment directly to retained earnings at the beginning period of adoption. Early adoption is
permitted in the first interim period of an annual reporting period for which financial statements have not been issued. The
Company is currently evaluating the impact of adopting this guidance.
In January 2017, the FASB issued guidance to assist with evaluating when a set of transferred assets and activities
(collectively, the "set") is a business and provides a screen to determine when a set is not a business. Under the new guidance,
when substantially all of the fair value of gross assets acquired (or disposed of) is concentrated in a single identifiable asset, or
group of similar assets, the assets acquired would not represent a business. Also, to be considered a business, an acquisition
would have to include an input and a substantive process that together significantly contribute to the ability to produce outputs.
The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017,
and should be applied on a prospective basis to any transactions occurring within the period of adoption. Early adoption is
permitted for interim or annual periods in which the financial statements have not been issued. The Company is currently
evaluating the impact of adopting this guidance.
62
In January 2017, the FASB issued amended guidance that eliminates the requirement to determine the fair value of
individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the amendments in the new
guidance, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying
amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair
value. The new standard is effective for annual and interim goodwill impairment tests in fiscal years beginning after December
15, 2019, and should be applied on a prospective basis. Early adoption is permitted for annual or interim goodwill impairment
testing performed after January 1, 2017. The Company is currently evaluating the impact of adopting this guidance.
2 SUBSEQUENT EVENTS
On February 15, 2017, Bonnell Aluminum acquired 100% of the stock of Futura Industries Corporation (“Futura”) on
a net debt-free basis for approximately $92 million pursuant to a Stock Purchase Agreement, dated as of February 1, 2017. The
acquisition, which was funded using Tredegar’s existing revolving credit facility, will be treated as an asset purchase for U.S.
federal income tax purposes.
Futura, headquartered in Clearfield, Utah, with a national sales presence and particular strength in the western U.S.,
designs and manufactures a wide range of extruded aluminum products for a number of industries and end markets, including
branded flooring trims and TSLOTSTM, as well as OEM (original equipment manufacturer) components for truck grills, solar
panels, fitness equipment and other applications. As a result of this transaction, Futura is now a wholly-owned subsidiary of
Tredegar and will operate as a division of Aluminum Extrusions, and its results of operations will be included in Tredegar’s
consolidated financial statements from the date of acquisition.
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). 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.
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. Tredegar’s ownership interest on a fully diluted basis was approximately 19% at December 31, 2016, 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.
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 on the market. In January 2017, kaléo announced that it would recommence
sales of Auvi-Q in the U.S. starting in February 2017.
At December 31, 2016 and 2015, the estimated fair value of the Company’s investment (also the carrying value, which is
included in “Other assets and deferred charges” in the consolidated balance sheets) was $20.2 million and $18.6 million,
respectively. The Company recognized an unrealized gain on its investment in kaléo of $1.6 million ($1.2 million after taxes)
in 2016. The change in the estimated fair value of the Company’s holding in kaléo in 2016 was 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 are discounted at 45% for their high degree of risk.
The Company recognized a net unrealized loss of $20.5 million ($15.7 million after taxes) in 2015 that primarily related
to the adverse impact of the product recall noted above.
63
The Company recognized an 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 from 55% 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.
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 of the Notes to
Financial Statements. 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 the reintroduction of the Auvi-Q product, 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, 2016 and 2015. At December 31, 2016, 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 $6 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 $5 million.
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, 2016 and 2015 and related
condensed statements of operations for the last three years ended December 31, 2016, as reported to the Company by kaléo, are
provided below:
(In Thousands)
Assets:
December 31,
2016
2015
December 31,
2016
2015
Liabilities & Equity:
Cash & cash equivalents
$ 102,329
$
91,844
Restricted cash
Other current assets
Property & equipment
Other long-term assets
31
15,391
13,011
472
8,182
9,070
8,453
2,903
Current liabilities
Long-term debt, net
Other noncurrent liabilities
Equity
Total assets
$ 131,234
$ 120,452 Total liabilities & equity
$
50,134
$
10,261
143,380
142,696
822
(63,102)
$ 131,234
552
(33,057)
$ 120,452
Revenues & Expenses:
Revenues
Cost of goods sold
Expenses and other, net (a)
Income tax (expense) benefit
Net income (loss)
2016
2015
2014
$
$
$
56,188
(15,428)
(71,548)
(35)
(30,823) $
$
35,731
(14,147)
(63,042)
(481)
(41,939) $
21,156
(3,801)
(48,447)
8,100
(22,992)
(a) “Expenses and other, net” includes selling, general and administrative expense, research and development expense,
gain on contract termination, interest expense and other income (expense), net. Excluding the gain on contract
termination, “Expenses and other, net” would have been a net deduction of $89.6 million in 2016.
64
The audited financial statements and accompanying footnotes of kaléo as of December 31, 2016 and 2015 and for the
years ended December 31, 2016, 2015 and 2014 have been included as an exhibit to the Company’s Annual Report on Form 10-
K for the year ended December 31, 2016 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) in 2014 (none in 2015 and 2016), as a result of a reduction in the estimated fair value of the investment that is not
expected to be temporary. The December 31, 2016 and 2015 carrying values in the consolidated balance sheets (included in
“Other assets and deferred charges”) were $1.7 million and $1.7 million, respectively. The carrying value at December 31,
2016 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 and $0.2 million in 2014 (none in 2016). The timing and amount of
future installments of withdrawal proceeds was not known as of December 31, 2016. There were no realized gains or losses
associated with the investment in the Harbinger Fund in 2016, 2015 and 2014. 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. In 2016, the Company recorded an unrealized
loss on this investment property of $1.0 million ($0.7 million after taxes) as a reduction in the estimated fair value of our
investment that is not expected to be temporary. 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’s carrying value in this investment property (included in “Other assets and deferred charges”
on the consolidated balance sheets) was $1.6 million at December 31, 2016 and $2.6 million at December 31, 2015.
5
BUSINESS SEGMENTS
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.
PE Films is comprised of the following operating segments: personal care materials, surface protection films, and LED lighting
products. Flexible Packaging Films is comprised of the Company’s polyester films business, Terphane Holdings LLC
(“Terphane”), which was acquired by Film Products in October 2011. 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 $129.1 million in 2016, $163.9 million in 2015 and $220.8 million in 2014. These amounts include
plastic film sold to others that convert the film into materials used with products manufactured by P&G.
(In Thousands)
PE Films
Flexible Packaging Films
Aluminum Extrusions
Total net sales
Add back freight
Sales as shown in consolidated statements of income
Net Sales
65
2016
331,146
108,028
360,098
799,272
29,069
828,341
$
$
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
$
$
(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 charge
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
Operating Profit
2016
2015
2014
$
$
26,312
(4,602)
$
48,275
(4,180)
60,971
(12,236)
1,774
(214)
—
37,794
(741)
60,323
261
3,806
1,600
—
1,032
56
29,607
27,683
3,217
24,466
—
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
Income taxes (a)
Income (loss) from continuing operations
Income (loss) from discontinued operations (a)
Net income (loss)
(In Thousands)
PE Films
Flexible Packaging Films
Aluminum Extrusions
Subtotal
General corporate (b)
Cash and cash equivalents (d)
Total
$
24,466
$
Identifiable Assets
2016
278,558
156,836
147,639
583,033
38,618
29,511
651,162
$
$
2015
270,236
146,253
136,935
553,424
25,680
44,156
623,260
$
$
(In Thousands)
PE Films
Flexible Packaging Films
Aluminum Extrusions
Subtotal
General corporate
Total
See footnotes on page 68.
Depreciation and Amortization
Capital Expenditures
2016
13,653
9,505
9,173
32,331
141
32,472
$
$
2015
15,480
9,697
9,698
34,875
107
34,982
$
$
2014
21,399
9,331
9,974
40,704
114
40,818
$
$
2016
25,759
3,391
15,918
45,068
389
45,457
$
$
2015
21,218
3,489
8,124
32,831
—
32,831
$
$
2014
17,000
21,806
6,092
44,898
—
44,898
$
$
66
(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
Hungary
The Netherlands
India
General corporate (b)
Cash and cash equivalents (d)
Total
(In Thousands)
PE Films:
Personal care materials
Surface protection films
LED lighting products & other films
Subtotal
Flexible Packaging Films
Aluminum Extrusions:
Nonresidential building & construction
Consumer durables
Automotive
Machinery & equipment
Distribution
Residential building & construction
Electrical
Subtotal
Total
Net Sales by Geographic Area (d)
2016
475,734
$
2015
528,881
$
2014
542,395
$
73,220
45,683
7,348
5,561
90,571
54,352
24,207
14,390
8,206
799,272
$
Identifiable Assets
by Geographic Area (d)
2016
367,406
$
2015
351,115
$
139,163
29,751
20,610
19,484
6,619
38,618
29,511
651,162
$
126,478
34,409
14,798
19,372
7,252
25,680
44,156
623,260
$
75,383
45,290
9,809
3,464
89,829
53,211
32,612
18,919
8,941
866,339
$
72,597
47,391
10,874
3,116
97,954
74,329
39,457
26,109
8,811
923,033
Property, Plant & Equipment,
Net by Geographic Area (d)
2016
118,661
$
2015
104,380
91,553
23,759
15,117
5,784
4,670
1,181
n/a
260,725
$
78,845
27,563
8,135
6,224
5,234
934
n/a
231,315
$
$
$
Net Sales by Product Group
2016
2015
2014
$
$
238,213
84,013
8,920
331,146
108,028
212,863
39,293
34,700
20,872
20,506
20,252
11,612
360,098
799,272
$
$
287,768
90,197
7,585
385,550
105,332
221,363
41,835
30,250
18,102
18,659
22,737
22,511
375,457
866,339
$
$
367,451
90,129
6,759
464,339
114,348
200,707
44,897
22,272
26,907
15,318
21,470
12,775
344,346
923,033
See footnotes on page 68 and a reconciliation of net sales to sales as shown in the Consolidated Statements of Income on page 65.
67
(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 $88.6 million and $93.2 million as of December 31, 2016 and 2015, 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 $29.1 million in 2016, $29.8 million in 2015 and $28.8 million in 2014.
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 $23.8 million and $27.7 million at December 31, 2016 and 2015, 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
$3,102 in 2016 and $3,746 in 2015
Other
Total
2016
2015
$
$
91,109
6,279
97,388
$
$
90,028
4,189
94,217
A reconciliation of the beginning and ending balances of the allowance for doubtful accounts and sales returns for the
three years ended December 31, 2016 is as follows:
(In Thousands)
Balance, beginning of year
Charges to expense
Recoveries
Write-offs and settlements
Foreign exchange and other
Balance, end of year
2016
2015
2014
$
$
3,746
1,410
(32)
(2,167)
145
3,102
$
$
2,610
3,387
(7)
(1,970)
(274)
3,746
$
$
3,327
1,344
(1,654)
(153)
(254)
2,610
7
INVENTORIES
Inventories consist of the following:
(In Thousands)
Finished goods
Work-in-process
Raw materials
Stores, supplies and other
Total
2016
2015
$
$
16,215
8,590
23,733
17,531
66,069
$
$
13,935
9,249
22,149
19,992
65,325
Inventories stated on the LIFO basis amounted to $16.4 million at December 31, 2016 and $13.5 million at December 31,
2015, which were below replacement costs by $15.3 million at December 31, 2016 and $13.4 million at December 31, 2015.
During 2016 certain PE Films inventories accounted for on a LIFO basis increased, which resulted in cost of goods sold being
stated at above replacement costs by $0.9 million and, during 2015 and 2014, 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 and $1.0
million, respectively.
68
8 GOODWILL AND OTHER INTANGIBLE ASSETS
The components of goodwill and other intangibles at December 31, 2016 and 2015, and related amortization periods for
continuing operations are as follows:
(In Thousands)
Goodwill
Other identifiable intangibles (a):
2016
117,822
$
2015
Amortization Periods
$
117,839 Not amortized
Customer relationships (cost basis of $26,021
in 2016 and $23,766 in 2015)
Proprietary technology (cost basis of $17,366 in
2016 and $16,738 in 2015)
Trade names
Total carrying value of other intangibles
Total carrying value of goodwill and other
intangibles
14,844
7,582
11,175
33,601
15,620
10-12 years
9,037 Not more than 15 years
10,576
Indefinite life
35,233
$
151,423
$
153,072
(a) Other identifiable intangibles also 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 two years in the period ended
December 31, 2016 is as follows:
(In Thousands)
Net carrying value of goodwill at January 1, 2015
PE Films
$
104,160
$
Goodwill impairment charge
Increase (decrease) due to foreign currency translation
Net carrying value of goodwill at December 31, 2015
Increase (decrease) due to foreign currency translation
Net carrying value of goodwill at December 31, 2016
$
(1) Goodwill balance is net of accumulated impairment losses of $30.6 million.
—
(17)
104,143
(17)
104,126
Flexible
Packaging
Films
51,831
(44,465)
(7,366)
—
—
Aluminum
Extrusions (1)
$
13,696
$
—
—
13,696
—
$
— $
13,696
$
Total
169,687
(44,465)
(7,383)
117,839
(17)
117,822
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 represented the entire amount of goodwill associated with the
Flexible Packaging Films segment. The operations of Flexible Packaging Films were adversely impacted by competitive
pressures that were primarily related to unfavorable economic conditions in its primary market of Brazil and excess global
capacity in the industry. The Company’s assessment of future prospects and timing of a recovery under these conditions
indicated that its enterprise value was 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.
Amortization expense for continuing operations over the next five years is expected to be as follows:
Year
2017
2018
2019
2020
2021
Amount
(In Thousands)
$
4,007
3,873
3,473
3,473
3,360
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
69
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 $8.0 million (9.6 million pounds of
aluminum) at December 31, 2016 and $16.6 million (18.9 million pounds of aluminum) at December 31, 2015.
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, 2016 and 2015:
(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, 2016
December 31, 2015
Balance Sheet
Account
Fair
Value
Balance Sheet
Account
Fair
Value
Prepaid expenses
and other
Prepaid expenses
and other
Prepaid expenses
and other
Prepaid expenses
and other
$
$
$
$
$
308 Accrued expenses
(37) Accrued expenses
— Accrued expenses
— Accrued expenses
271
$
$
$
$
$
44
(1,797)
—
—
(1,753)
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 purchased as part of its multi-year
capacity expansion project at the Flexible Packaging Films 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, 2016 and 2015.
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, 2016 and 2015 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.
70
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, 2016, 2015, and 2014 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
2016
2015
2014
2016
2015
2014
$
394
$
(5,055) $
542
$
— $
— $
(120)
Cost of
sales
Cost of
sales
Cost of
sales
Cost of
sales
Cost of
sales
Cost of
sales
$
(1,630) $
(3,538) $
631
$
62
$
62
$
16
Gains and losses on the ineffective portion of derivative instruments or derivative instruments that were not designated as
hedging instruments were not material in 2016, 2015 and 2014. For the years ended December 31, 2016, 2015 and 2014,
unrealized net losses from hedges that were discontinued were not material. As of December 31, 2016, the Company expected
$0.2 million of unrealized after-tax gains 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
Incentive compensation
Payrolls, related taxes and medical and other benefits
Workers’ compensation and disabilities
Accrued utilities
Environmental liabilities (current)
Accrued severance
Accrued freight
Customer rebates
Derivative contract liability
Other
Total
2016
2015
$
8,254
$
5,530
5,519
3,732
2,126
2,100
1,976
1,612
842
—
6,956
7,155
3,883
4,762
3,036
2,048
1,713
1,908
1,111
2,032
1,753
4,252
$
38,647
$
33,653
71
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, 2016 is as follows:
(In Thousands)
Severance
Asset
Impairments
Other (a)
Total
Balance at January 1, 2014
$
331
$
— $
356
$
687
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
Balance at December 31, 2015
For the year ended December 31, 2016:
Charges
Cash spend
Charges against assets
2,668
(2,753)
—
246
2,568
(1,352)
—
1,462
1,535
(1,143)
—
227
—
(227)
—
403
—
(403)
—
603
—
(603)
131
(286)
—
201
879
(675)
—
405
546
(397)
—
Balance at December 31, 2016
$
1,854
$
— $
554
$
3,026
(3,039)
(227)
447
3,850
(2,027)
(403)
1,867
2,684
(1,540)
(603)
2,408
(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 March 1, 2016, Tredegar entered into a $400 million five-year, secured revolving credit facility (“Credit Agreement”),
with an option to increase that amount by $50 million. The Credit Agreement replaced the Company’s previous $350 million
five-year, unsecured revolving credit facility that was due to expire on April 17, 2017. In connection with the refinancing, the
Company borrowed $107 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
> 3.5x but <= 4.0x
> 3.0x but <= 3.5x
> 2.0x but <= 3.0x
> 1.0x but <= 2.0x
<= 1.0x
Credit Spread
Over LIBOR
Commitment
Fee
250
225
200
175
150
45
40
35
30
25
At December 31, 2016, the interest cost on debt borrowed under the Credit Agreement was priced at one-month LIBOR
plus the applicable credit spread of 175 basis points.
The most restrictive covenants in the Credit Agreement include:
• Maximum indebtedness-to-adjusted EBITDA (“Leverage Ratio:) of 4.00x;
72
• Minimum adjusted EBIT-to-interest expense of 2.50x; and
• Maximum aggregate distributions to shareholders over the term of the Credit Agreement of $100,000 plus,
beginning with the fiscal quarter ended March 31, 2016, 50% of net income and, at a Leverage Ratio of equal to
or greater than 3.00x, a limitation on such payments for the succeeding quarter at the greater of (i) $4 million and
(ii) 50% of consolidated net income for the most recent fiscal quarter, and, at a Leverage Ratio of equal to
or greater than 3.50x, the prevention of such payments for the succeeding quarter unless the fixed charge coverage
ratio is equal to or greater than 1.20x.
The Credit Agreement is secured by substantially all of the Company’s and its domestic subsidiaries’ assets, including
equity in certain material first-tier foreign subsidiaries.
At December 31, 2016, based upon the most restrictive covenants within the Credit Agreement, available credit under the
Credit Agreement was approximately $185.0 million. Total debt due and outstanding at December 31, 2016 is summarized
below:
Debt Due and Outstanding at December 31, 2016
(In Thousands)
Credit
Agreement
Other
Total Debt
Due
$
— $
— $
—
—
—
95,000
—
—
—
—
$
95,000
$
— $
—
—
—
—
95,000
95,000
Year Due
2017
2018
2019
2020
2021
Total
Tredegar believes that it was in compliance with all of its debt covenants as of December 31, 2016. 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. 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 plan also permits the grant of stock appreciation rights
(“SARs”), stock, restricted stock, stock unit awards and incentive awards. Restricted stock grants ordinarily vest three years
73
from the date of grant based upon continued employment. Stock unit awards vest upon the achievement of certain performance
targets. No SARs have been granted since 1992 and none are currently outstanding.
A summary of stock options outstanding at December 31, 2016, 2015 and 2014, and changes during those years, is
presented below:
Outstanding at January 1, 2014
Granted
Forfeited and Expired
Exercised
Outstanding at December 31, 2014
Granted
Forfeited and Expired
Exercised
Outstanding at December 31, 2015
Granted
Forfeited and Expired
Exercised
Number of
Options
1,046,800
$
181,476
(22,581)
(41,575)
1,164,120
—
(60,207)
(222,400)
881,513
—
(246,394)
(134,200)
Outstanding at December 31, 2016
500,919
$
Option Exercise Price/Share
Range
Weighted
Average
14.06
19.84
15.80
15.80
14.06
—
17.13
14.06
17.13
—
17.13
17.13
17.13
to
to
to
to
to
to
to
to
to
to
to
to
to
$
30.01
$
22.49
24.84
19.84
30.01
—
30.01
19.84
30.01
—
30.01
19.84
$
30.01
$
19.06
22.41
21.42
17.55
19.59
—
22.30
16.34
20.22
—
18.90
17.23
21.67
The following table summarizes additional information about stock options outstanding and exercisable at December 31,
2016:
Options Outstanding at
December 31, 2016
Weighted Average
Options Exercisable at
December 31, 2016
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
—
13,000
226,425
258,694
2,800
500,919
Remaining
Contractual
Life (Years)
Exercise
Price
Aggregate
Intrinsic Value
(In Thousands)
Shares
Weighted
Average
Exercise
Price
Aggregate
Intrinsic Value
(In Thousands)
0.0
0.1
2.8
6.5
6.6
4.6
$
— $
—
— $
— $
—
17.13
19.59
23.63
30.01
89,310
999,156
201,274
—
13,000
226,425
211,542
2,100
17.13
19.59
23.74
30.01
89,310
999,156
149,553
—
$
21.67
$ 1,289,740
453,067
$
21.50
$ 1,238,019
During 2015, the Board of Directors approved the accelerated 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.
74
The following table summarizes additional information about unvested restricted stock outstanding at December 31,
2016, 2015 and 2014:
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, 2014
157,850
$
22.00
$
Granted
Vested
Forfeited
Outstanding at December 31, 2014
Granted
Vested
Forfeited
Outstanding at December 31, 2015
Granted
Vested
Forfeited
95,707
(54,921)
(10,578)
188,058
147,666
(174,145)
(29,226)
132,353
144,546
(52,167)
(17,377)
22.18
20.73
21.76
22.48
18.87
20.57
21.42
21.19
13.47
21.56
18.97
Outstanding at December 31, 2016
207,355
$
15.90
$
3,473
2,123
(1,139)
(230)
4,227
2,786
(3,582)
(626)
2,805
1,947
(1,125)
(330)
3,297
132,300
$
23.81
$
59,675
—
(62,262)
129,713
144,582
—
(107,167)
167,128
136,986
—
(65,685)
238,429
21.54
—
19.18
24.99
18.47
—
20.78
22.04
11.34
—
20.24
$
16.39
$
3,150
1,285
—
(1,194)
3,241
2,670
—
(2,227)
3,684
1,553
—
(1,329)
3,908
The total intrinsic value of stock options exercised was $0.2 million in 2016, $1.0 million in 2015 and $0.1 million in
2014. The grant-date fair value of stock option-based awards vested was $0.4 million in 2016, $1.9 million in 2015 and $0.7
million in 2014. As of December 31, 2016, there was unrecognized compensation cost of $0.1 million related to stock option-
based awards and $1.6 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 0.6 years for stock option-based awards and 1.6 years for non-vested
restricted stock and other stock-based awards.
Stock options exercisable totaled 453,067 at December 31, 2016 and 771,000 shares at December 31, 2015. Stock
options available for grant totaled 2,748,000 shares at December 31, 2016.
75
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 2016 and 2015, and reconcile the
funded status to prepaid or accrued cost at December 31, 2016 and 2015:
(In Thousands)
Change in benefit obligation:
Pension Benefits
Other Post-
Retirement Benefits
2016
2015
2016
2015
Benefit obligation, beginning of year
$
303,852
$
325,426
$
7,745
$
8,372
Service cost
Interest cost
Effect of actuarial (gains) losses related to the
following:
Discount rate change
Retirement rate assumptions and mortality
table adjustments
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
231
13,323
530
13,217
9,296
(14,687)
(5,537)
(3,025)
—
(15,014)
303,126
210,642
11,199
7,732
$
$
—
(15,014)
214,559
$
(88,567) $
(5,456)
(746)
—
(14,432)
303,852
229,017
(6,311)
2,368
—
(14,432)
210,642
(93,210)
182
88,385
88,567
$
$
210
93,000
93,210
$
$
$
$
$
$
$
$
$
$
$
$
38
337
210
(433)
(131)
634
(964)
7,436
$
— $
—
330
634
(964)
— $
(7,436) $
44
325
(356)
32
(332)
625
(965)
7,745
—
—
340
625
(965)
—
(7,745)
453
6,983
7,436
$
$
455
7,290
7,745
76
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
2016
2015
2014
2016
2015
2014
Discount rate
4.29%
4.55%
4.17%
4.24%
4.49%
4.11%
Expected long-term return on plan
assets
Weighted-average assumptions used to
determine net periodic benefit cost:
6.50%
7.00%
7.50%
n/a
n/a
n/a
Discount rate
4.55%
4.17%
4.99%
4.49%
4.11%
4.88%
Expected long-term return on plan
assets
Components of net periodic benefit cost:
7.00%
7.50%
7.75%
n/a
n/a
n/a
Service cost
$
231
$
530
$
869
$
Interest cost
Expected return on plan assets
Amortization of prior service costs
and gains or losses
Settlement/curtailment
Net periodic benefit cost
13,323
(15,980)
13,217
(17,636)
13,397
(18,301)
13,312
16,190
10,688
—
45
81
$ 10,886
$ 12,346
$
6,734
$
38
337
—
(214)
—
161
$
$
44
325
—
(194)
—
$
175
$
43
387
—
(190)
—
240
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, 2016, 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)
2017
2018
2019
2020
2021
2022—2026
Pension
Benefits
$
16,165
$
16,568
17,076
17,537
17,860
92,955
Other Post-
Retirement
Benefits
453
456
460
462
465
2,322
Amounts recorded in 2016, 2015 and 2014 in accumulated other comprehensive income, before related deferred income
taxes, consist of:
(In Thousands)
Prior service cost (benefit)
Net actuarial (gain) loss
2016
Pension
2015
2014
2016
2015
2014
Other Post-Retirement
$
10
$
18
$
87
$
— $
— $
145,782
153,570
166,678
(1,756)
(1,616)
—
(1,154)
77
Pension expense is expected to be $10.4 million in 2017. 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
2017 are as follows:
(In Thousands)
Prior service cost (benefit)
Net actuarial (gain) loss
Pension
$
5
$
12,329
Other Post-
Retirement
—
(245)
The percentage composition of assets held by pension plans for continuing operations at December 31, 2016, 2015 and
2014 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,
2016
2015
2014
8.0%
12.8%
14.5%
14.7
5.3
11.5
31.5
48.4
12.1
13.8
4.0
10.9
28.7
52.4
6.1
13.7
4.3
11.0
29.0
51.2
5.3
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, 2016, 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 %
22.0%
3.8%
14.0
5.0
13.0
32.0
46.0
100.0%
8.4
9.5
8.6
8.7
6.3
6.5%
*
Target percentages for the composition of plan assets represents a neutral position within the approved
range of allocations for such assets.
Expected long-term returns are estimated by asset class and generally are based on inflation-adjusted historical returns,
volatilities, risk premiums and managed asset premiums. The portfolio of fixed income securities is structured with maturities
that generally match estimated benefit payments over the next 1-2 years. The other assets category is primarily comprised of
cash and contracts with insurance companies. The Company’s primary investment objective is to maximize total return with a
strong emphasis on the preservation of capital, and it believes that over the long-term a diversified portfolio of fixed income
securities, equity securities, hedge funds and private equity funds has a better risk-return profile than fixed income securities
alone. The average remaining duration of benefit payments for the pension plans is about 11.4 years. The Company expects its
required contributions to be approximately $5.5 million in 2017.
78
Estimates of the fair value of assets held by the Company’s pension plan are provided by unaffiliated third parties.
Investments in private equity and hedge funds and certain fixed income securities by the Company’s pension plan are measured
at NAV, which is a practical expedient for measuring fair value. These assets are therefore excluded from the fair value
hierarchy for each of the years presented. At December 31, 2016 and 2015, the pension plan assets are categorized by level
within the fair value measurement hierarchy as follows:
(In Thousands)
Balances at December 31, 2016
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
$
31,549
$
31,549
$
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
Total plan assets, December 31, 2016
Balances at December 31, 2015
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
11,389
24,710
17,213
15,853
11,389
11,410
4,441
15,853
— $
—
13,300
12,772
—
100,714
$
74,642
$
26,072
$
103,686
10,158
214,558
29,027
$
29,027
$
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
—
—
—
—
—
—
—
—
—
—
—
—
Total plan assets, December 31, 2015
$
210,642
Tredegar also has a non-qualified supplemental pension plan covering certain employees. Effective December 31, 2005,
further participation in this plan was terminated and benefit accruals for existing participants were frozen. The plan was
designed to restore all or a part of the pension benefits that would have been payable to designated participants from the
principal pension plans if it were not for limitations imposed by income tax regulations. The projected benefit obligation
relating to this unfunded plan was $2.2 million at December 31, 2016 and $2.3 million at December 31, 2015. Pension expense
recognized for this plan was $0.1 million in 2016, $0.1 million in 2015 and $0.1 million in 2014. This information has been
included in the preceding pension benefit tables.
Approximately 78 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 2016, $0.4 million in
2015 and $0.5 million in 2014. 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:
• 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.
79
• 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
(“restoration plan”). Charges recognized for these plans were $3.2 million in 2016, $3.0 million in 2015 and $1.6 million in
2014. The Company’s liability under the restoration plan was $1.6 million at December 31, 2016 (consisting of 67,013
phantom shares of common stock) and $1.0 million at December 31, 2015 (consisting of 71,818 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 $2.9 million in 2016, $3.6 million in 2015 and $3.6 million in 2014. Rental
commitments under all non-cancelable leases (including $0.3 million for capital leases) for continuing operations as of
December 31, 2016, are as follows:
(in thousands)
2017
2018
2019
2020
2021
Remainder
$
2,397
2,200
1,982
1,976
1,491
1,169
Total minimum lease payments
$
11,215
Contractual obligations for plant construction and purchases of real property and equipment amounted to $12.0 million at
December 31, 2016.
80
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:
2016
2015
2014
Domestic
Foreign
Total
Current income taxes:
Federal
State
Foreign
Total
Deferred income taxes:
Federal
State
Foreign
Total
Total income taxes
$
$
$
$
26,284
1,399
27,683
4,302
(709)
3,255
6,848
(2,505)
1,396
(2,522)
(3,631)
3,217
$
$
$
$
(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
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
State taxes, net of federal income tax benefit
Foreign rate differences
Non-deductible expenses
Changes in estimates related to prior year tax provision
Valuation allowance for capital loss carry-forwards
Tax contingency accruals and tax settlements
Tax incentive
Foreign investment write down
Unremitted earnings from foreign operations
Valuation allowance due to foreign losses
Research and development tax credit
Domestic Production Activities Deduction
Remitted earnings from foreign operations
Goodwill impairment
Effective income tax rate for continuing operations
Percent of Income Before Income
Taxes from Continuing Operations
2016
2015
2014
35.0
2.3
1.8
1.4
1.2
1.0
0.4
—
(0.7)
(0.9)
(1.5)
(2.0)
(2.7)
(23.7)
—
11.6
35.0
0.3
3.1
(1.9)
(2.1)
1.3
(3.1)
0.5
(10.9)
2.2
—
1.5
3.6
0.1
(68.1)
(38.5)
35.0
2.2
(0.1)
0.9
(2.3)
(10.2)
2.0
(0.1)
—
(3.8)
(0.4)
(0.6)
(1.9)
—
—
20.7
Income taxes from continuing operations in 2016 included the recognition of an additional valuation allowance of $0.3
million related to expected limitations on the utilization of assumed capital losses on certain investments. In 2016, the
difference between the federal statutory rate and the effective tax rate is primarily driven by the $6.4 million tax benefit from
excess foreign tax credits related to the repatriation of cash from Brazil.
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
81
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.
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)
and $0.1 million (0 cents per share) in 2015 and 2014, respectively (none in 2016).
Deferred tax liabilities and deferred tax assets at December 31, 2016 and 2015, are as follows:
(In Thousands)
Deferred tax liabilities:
2016
2015
Amortization of goodwill and other intangibles
$
43,546
$
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
Amounts recognized in the consolidated balance sheets:
Other assets and deferred charges (noncurrent)
Deferred income taxes (noncurrent)
Net deferred tax liability
24,178
1,424
493
69,641
30,733
10,262
7,595
3,622
2,515
4,921
395
198
—
1,568
61,809
12,694
49,115
$
$
$
20,526
$
584
21,110
20,526
$
$
42,900
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
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 $4.9 million and $1.6 million at December 31, 2016 and 2015,
respectively, which primarily expire at different points over the next 5 to 8 years. Valuation allowances of $1.5 million, $1.5
million and $2.8 million at December 31, 2016, 2015 and 2014, 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 $11.2 million, $10.9 million and $11.4 million at December 31, 2016, 2015 and 2014. The current year balance
increased 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
82
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 and
$0.4 million at December 31, 2014 (none in 2016).
A reconciliation of the Company’s unrecognized uncertain tax positions since January 1, 2014, 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,
2016
2015
2014
$
4,049
$
3,255
$
2,239
1,151
43
(1,706)
(222)
3,315
$
518
326
—
(50)
4,049
619
397
—
—
$
3,255
Additional information related to unrecognized uncertain tax positions since January 1, 2014 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 $(262), $90 and $150 reflected in income tax
expense in the income statement in 2016, 2015 and 2014, 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,
2016
2015
2014
$
3,315
$
4,049
$
3,255
(345)
2,970
(858)
3,191
(726)
2,529
135
(49)
86
397
(148)
310
(116)
249
194
$
3,056
$
3,440
$
2,723
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 2013. The Company anticipates that it is reasonably possible that Federal and state income
tax audits or statutes may settle or close within the next 12 months, which could result in the recognition of up to approximately
$0.8 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 in 2016 (as shown in the
segment operating profit table in Note 5) totaled $6.1 million ($3.9 million after taxes), and unless otherwise noted below, are
also included in “Asset impairments and costs associated with exit and disposal activities” in the consolidated statements of
income. Results in 2016 included:
83
•
Fourth quarter net loss $0.7 million ($0.4 million after taxes), related to the explosion that occurred in the second
quarter of 2016 at the aluminum extrusions manufacturing facility in Newnan, Georgia, which consists of excess
production costs for which recovery from insurance is not assured of $0.6 million ($0.4 million after taxes) (included
in “Cost of goods sold” in the consolidated statements of income) and legal and consulting fees of $0.1 million ($0.1
million after taxes) (included in “Selling, general and administrative expenses” in the consolidated statements of
income), third quarter net income of $1.7 million ($1.1 million after taxes), which includes the recognition of a gain
of $1.9 million ($1.2 million after taxes) for a portion of the insurance recoveries approved by the insurer to begin the
replacement of capital equipment, offset by the impairment of equipment damaged by the explosion of $0.3 million
($0.2 million after taxes) (net amount included in “Other income (expense), net” in the consolidated statements of
income), and the reversal of an accrual for other costs related to the explosion not recoverable from insurance of $0.1
million ($0.0 million after taxes) (included in “Selling, general and administrative expenses” in the consolidated
statements of income), and second quarter net loss of $0.6 million ($0.4 million after taxes) for other costs related to
the explosion not recoverable from insurance (included in “Selling, general and administrative expenses” in the
consolidated statements of income);
• Quarterly charges associated with the consolidation of domestic PE Films’ manufacturing facilities, which includes
categories of expenses shown in the table below (Accelerated depreciation and a portion of Other facility
consolidation-related costs as noted in the table below are included in “Cost of goods sold” in the consolidated
statements of income):
($ in Millions)
Severance
Asset impairments
Accelerated depreciation
Other facility consolidation-related costs
Total
Other facility consolidation-related costs
included in “Cost of goods sold” in the
consolidated statements of income
Note: BT = before taxes; AT = after taxes
1st Quarter
AT
BT
0.2
0.3
2nd Quarter
AT
BT
0.2
0.4
3rd Quarter
AT
BT
0.2
0.3
4th Quarter
AT
BT
0.2
0.3
2016
BT
1.2
AT
0.8
0.3
0.1
0.5
1.1
0.2
0.1
0.3
0.7
0.1
0.1
0.8
1.3
0.1
0.1
0.5
0.9
0.1
0.1
0.6
1.1
—
0.1
0.4
0.7
—
0.3
0.2
0.8
— 0.4
0.2
0.6
0.1
0.5
2.0
4.3
0.3
0.4
1.3
2.8
0.4
0.2
0.7
0.4
0.4
0.2
0.2
0.1
1.6
1.0
• A fourth quarter charge of $0.6 million ($0.4 million after taxes) associated with the acquisition of Futura Industries
by Bonnell Aluminum (included in “Selling, general and administrative expenses” in the consolidated statements of
income);
• A fourth quarter charge of $0.5 million ($0.3 million after taxes) related to expected future environmental costs at the
aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the
consolidated statements of income);
• A first quarter charge of $0.4 million ($0.2 million after taxes) associated with a non-recurring business development
project (included in “Selling, general and administrative expense” in the consolidated statements of income and
“Corporate expenses, net” in the statement of net sales and operating profit by segment);
• A third quarter charge of $0.3 million ($0.2 million after taxes) for severance and other employee-related costs
associated with restructurings in PE Films ($0.1 million) ($0.1 million after taxes) and Corporate ($0.2 million) ($0.1
million after taxes) (included in “Corporate expenses, net” in the statement of net sales and operating profit by
segment);
• A fourth quarter charge of $0.3 million ($0.2 million after taxes) related to contingencies associated with the
application of prior period Brazilian value-added tax credits in Flexible Packaging Films (included in “Cost of goods
sold” in the consolidated statements of income);
• A fourth quarter charge of $0.2 million ($0.1 million after taxes) associated with asset impairments in PE Films;
• A fourth quarter gain of $0.1 million ($0.0 million after taxes) related to contractual indemnifications associated with
the anticipated settlement of a Terphane pre-acquisition contingency (included in “Other income (expense), net” in
the consolidated statements of income); and
84
• A fourth quarter gain of $0.1 million ($0.1 million after taxes) associated with the shutdown of the aluminum
extrusions manufacturing facility in Kentland, Indiana, which includes a pretax gain of $0.2 million ($0.1 million
after taxes) related to the sale of the property, partially offset by pretax charges of $0.1 million ($0.0 million after
taxes) associated with the shutdown of this facility and a third quarter charge of $0.3 million ($0.2 million after
taxes) associated with shutdown costs.
Results in 2016 include a net unrealized gain on the Company’s investment in kaléo (included in “Other income
(expense), net” in the consolidated statements of income) of $1.6 million ($1.2 million after taxes). The Company recorded an
unrealized loss on its investment property in Alleghany and Bath Counties, Virginia (included in “Other income (expense), net”
in the consolidated statements of income) of $1.0 million ($0.7 million after taxes) in the fourth quarter of 2016. See Note 4
for additional information on investments.
In July 2015, the Company announced its intention to consolidate its domestic production for PE Films by
restructuring the operations in 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 $17 million over the project 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 $5-6 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 $3-4 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 $4.3 million in
the full year 2016 with $2.1 million ($1.3 million after taxes) included in “Asset impairments and costs associated with exit and
disposal activities, net of adjustments” and $2.2 million ($1.4 million after taxes) included in “Cost of goods sold” in the
consolidated statements of income. As of December 31, 2016, total expenses incurred since the project began in the third
quarter of 2015 were $6.5 million ($4.1 million after taxes).
Total estimated cash expenditures of $16-17 million over the project period include the following:
• Cash outlays associated with previously discussed exit and disposal expenses of approximately $5 million, including
additional operating expenses of approximately $1 million associated with customer product qualifications on
upgraded and transferred production lines;
• Capital expenditures associated with equipment upgrades at other PE Films manufacturing facilities in the U.S. of
approximately $11 million; and
• Cash incentives of approximately $1 million in connection with meeting safety and quality standards while
production ramps down at the Lake Zurich manufacturing facility.
Cash expenditures for the North American facility consolidation project were $10.2 million in the full year 2016,
which includes capital expenditures of $8.2 million. As of December 31, 2016, total cash expenditures since the project began
in the third quarter of 2015 were $13.8 million, which includes $11.1 million for capital expenditures.
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);
85
• 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.
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.
86
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.
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.
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 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
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.
87
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 polyester 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. The Court granted a
motion by the plaintiffs to stay the appeal of the revocation decision pending the resolution of the scope appeal. A decision by
the Court in the scope appeal remains pending.
88
20 SELECTED QUARTERLY FINANCIAL DATA
Tredegar Corporation and Subsidiaries
(In Thousands, Except Per-Share Amounts)
(Unaudited)
For the year ended December 31, 2016
Sales
Gross profit
Net income
Earnings per share:
Basic
Diluted
Shares used to compute earnings per share:
Basic
Diluted
For the year ended December 31, 2015
Sales
Gross profit
Net income (loss)
Earnings (loss) per share:
Basic
Diluted
Shares used to compute earnings (loss) per share:
Basic
Diluted
Item 16. FORM 10-K SUMMARY
Not Applicable.
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
207,333
37,279
7,281
0.22
0.22
32,654
32,654
234,171
37,415
9,870
0.30
0.30
32,482
32,628
$
$
$
$
$
$
$
$
208,533
31,637
3,408
0.10
0.10
32,716
32,716
221,245
29,748
594
0.02
0.02
32,609
32,746
$
$
$
$
207,702
33,927
12,048
0.37
0.37
32,818
32,828
204,772
27,801
1,728
0.05
0.05
32,856
32,900
223,772
$
216,989
33,468
(36,723) $
40,249
(5,876)
(1.13) $
(1.13) $
(0.18)
(0.18)
32,605
32,605
32,614
32,614
89
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: February 22, 2017
TREDEGAR CORPORATION
(Registrant)
By
/s/ John D. Gottwald
John D. Gottwald
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated on February 22, 2017.
Signature
Title
/s/ John D. Gottwald
(John D. Gottwald)
/s/ D. Andrew Edwards
(D. Andrew Edwards)
/s/ Frasier W. Brickhouse, II
(Frasier W. Brickhouse, II)
/s/ William M. Gottwald
(William M. Gottwald)
/s/ George C. Freeman, III
(George C. Freeman, III)
/s/ George A. Newbill
(George A. Newbill)
/s/ Kenneth R. Newsome
(Kenneth R. Newsome)
/s/ Gregory A. Pratt
(Gregory A. Pratt)
/s/ Thomas G. Snead, Jr.
(Thomas G. Snead, Jr.)
/s/ Carl E. Tack, III
(Carl E. Tack, III)
(John M. Steitz)
President, Chief Executive Officer and Director
(Principal Executive Officer)
Vice President and Chief Financial Officer
(Principal Financial Officer)
Corporate Treasurer and Controller
(Principal Accounting Officer)
Chairman of the Board of Directors
Director
Director
Director
Director
Director
Director
Director
90
EXHIBIT INDEX
2.1
2.2
2.3
3.1
3.1.1
3.1.2
3.1.3
3.2
4.1
4.2
4.2.1
4.2.2
10.1
Stock Purchase Agreement, made as of October 1, 2012, by and among The William L. Bonnell Company, Inc.,
AACOA, Inc., the shareholders of AACOA, Inc., and Daniel G. Formsma, as the representative of the shareholders
of AACOA, Inc. (filed as Exhibit 2.1 to Tredegar Corporation’s (“Tredegar’s”) Current Report on Form 8-K (File
No. 1-10258), filed on October 3, 2012, and incorporated herein by reference). (Schedules and exhibits have been
omitted pursuant to Item 601(b)(2) of Regulation S-K. Tredegar agrees to furnish supplementally to the Securities
and Exchange Commission a copy of any omitted exhibit or schedule upon request)
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)
Stock Purchase Agreement, dated as of February 1, 2017, by and among Futura Industries Corporation, Futura
Corporation, Susan D. Johnson, The Susan D. Johnson Trust, Ken Wells, The William L. Bonnell Company, Inc.,
and, in his capacity as Sellers’ Representative, Brent F. Lloyd (filed as Exhibit 2.1 of Tredegar’s Current Report on
Form 8-K (File No. 1-10258), filed on February 2, 2017, 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)
Articles of Amendment to Amended and Restated Articles of Incorporation of Tredegar Corporation, as of May 4,
2016 (filed as Exhibit 3.1 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on May 6, 2016, 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 March 1, 2016, among Tredegar Corporation, as borrower, the lenders named therein,
JPMorgan Chase Bank, N.A., as administrative agent, SunTrust Bank, Citizens Bank of Pennsylvania and PNC
Bank, National Association, as co-syndication agents, and U.S. Bank National Association, BMO Harris Bank,
N.A., Bank of America, N.A. and Wells Fargo Bank, National Association, as co-documentation agents, and the
other lenders party thereto (filed as Exhibit 4.1 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed
on March 3, 2016, and incorporated herein by reference).
Guaranty, dated as of March 1, 2016, by and among the subsidiaries of Tredegar Corporation listed on the signature
pages thereto in favor of JPMorgan Chase Bank, N.A., as administrative agent, for the ratable benefit of the Holders
of Guaranteed Obligations (as defined therein) (filed as Exhibit 4.2 to Tredegar’s Current Report on Form 8-K (File
No. 1-10258), filed on March 3, 2016, and incorporated herein by reference).
Pledge and Security Agreement, dated as of March 1, 2016, by and among Tredegar Corporation and the
subsidiaries of Tredegar Corporation listed on the signature pages thereto and JPMorgan Chase Bank, N.A., as
administrative agent, for the ratable benefit of the Secured Parties (as defined therein) (filed as Exhibit 4.3 to
Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on March 3, 2016, 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)
91
*10.2
10.3
10.4
*10.5
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)
*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
*10.14
*10.15
*10.16
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 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)
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 1, 2016, 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 March 1, 2016, and incorporated herein by reference)
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)
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)
*10.16.1 First Amendment to Severance Agreement with D. Andrew Edwards, dated February 25, 2016 (filed as Exhibit 10.3
to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on March 1, 2016, and incorporated herein by
reference)
*+10.17 Severance Agreement with Michael J. Schewel, dated May 9, 2016
+21
+23.1
Subsidiaries of Tredegar
Consent of PricewaterhouseCoopers, LLC, Independent Registered Public Accounting Firm
92
+23.2
+23.3
+31.1
+31.2
+32.1
+32.2
+99
+101
Consent of Dixon Hughes Goodman LLP, Independent Auditors
Consent of Ernst & Young LLP, Independent Auditors
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 kaleo, Inc. and Independent Auditors’ Reports
XBRL Instance Document and Related Items
*
+
Denotes compensatory plans or arrangements or management contracts.
Filed herewith
93
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) per
share from continuing operations under U.S. GAAP (diluted) to earnings per share from ongoing operations
(diluted) is shown below:
Earnings (loss) per share from continuing operations 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)
2009
2008
$0.87 $(0.04) $0.82 $0.89
2010
2011
0.07
0.26
0.03 0.04
(0.20) (0.08) 0.03 (0.06)
-
-
-
-
- 0.90
$0.88 $0.87
$ 0.85
$0.93
-
2012
$1.34
2013
$1.10
2014
$1.11
2015
$(0.99)
2016
$ 0.75
0.03
0.06
0.10
(0.24)
0.02 (0.04)
- - - 1.37
- -
- -
$ 1.01
$1.13
$1.15
$1.20
0.09
0.09
0.54 (0.15)
-
-
$ 0.69
2 Operating profit (loss) from ongoing operations is a non-GAAP financial measures that is not intended to represent
net income as defined by U.S. GAAP. Operating profit (loss) from ongoing operations is a key measure used by
the chief operating decision maker for purposes of assessing the operating performance of its business segments.
A reconciliation of operating profit (loss) from ongoing operations to net income (loss) is shown below:
(in thousands)
PE Films:
Operating profit from ongoing operations
Plant shutdowns, asset impairments and restructurings, gain
from sale of assets and other items
Flexible Packaging Films:
Operating profit(loss) from ongoing operations
Plant shutdowns, asset impairments and restructurings, gain
from sale of assets and other items
Goodwill Impairment charge
Aluminum Extrusions:
Operating profit(loss) from 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
2016
$
53,914
$
64,379
$
66,718
$
56,521
$
50,814
$
61,866
$
60,971
$
48,275
$
26,312
(11,297)
(1,846)
(758)
(901)
1,011
(671)
(12,236)
(4,180)
(4,602)
-
-
-
-
-
-
-
-
-
2,972
19,136
9,100
(2,917)
5,453
1,774
(5,906)
-
(1,120)
-
-
-
(591)
-
(185)
(44,465)
(214)
-
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)
37,794
-
-
(741)
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)
-
60,323
261
3,806
-
(1,032)
1,600
56
29,607
27,683
3,217
24,466
-
Net income (loss)
$
28,936
$
(1,353)
$
27,027
$
24,855
$
28,251
$
21,947
$
36,879
$
(32,135)
$
24,466
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 as defined in Tredegar’s
revolving credit agreement is shown below.
Computations of Adjusted EBITDA and Leverage Ratio as Defined in the
Revolving Credit Agreement
As of and for the Twelve Months Ended December 31, 2016 (In Millions)
Computations of adjusted EBITDA as defined in revolving credit agreement
for the twelve months ended December 31, 2016:
Net income
Plus:
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 $10.0, for continuing operations that are classified as
unusual, extraordinary or which are related to plant shutdowns,
asset impairments and/or restructurings (cash-related of $6.7)
Charges related to stock option grants and awards accounted for
under the fair value-based method
Minus:
Interest income
Income related to adjustments in the estimated fair value of assets
accounted for under the fair value method of accounting
Adjusted EBITDA as defined in revolving credit agreement
Futura proforma adjusted EBITDA
Proforma adjusted EBITDA
Total debt
Face value of letters of credit
Capital Lease
Other
Indebtedness
Futura purchase price
Proforma indebtedness
Computation of leverage ratio as defined in
revolving credit agreement at December 31, 2016:
Leverage ratio (indebtedness-to-adjusted EBITDA)
Proforma leverage ratio
$
24.5
3.2
3.8
32.5
8.6
0.1
(0.3)
(1.6)
70.8
13.6
84.4
95.0
2.7
0.3
0.2
98.2
92.0
190.2
1.39 x
2.25 x
Adjusted EBITDA in the fourth quarter and year ended December 31, 2016 includes an adjustment of $0.6 million
for accelerated depreciation associated with the consolidation of PE Films manufacturing facilities in North
America.
4 Total Recordable Incident Rate (TRIR) is a measure of recordable workplace injuries, normalized to represent the
number of recordable injuries per 100 workers per year. TRIR is derived by multiplying the number of recordable
injuries in a time period by 200,000 and dividing this value by the total man-hours actually worked in that time
period. Recordable workplace injuries include occupational death, non-fatal occupational illness and those non-
fatal occupational injuries that involve one or more of the following: loss of consciousness, restriction of work or
motion, transfer to another job, lost time or medical treatment other than first aid.
The Bonnell and PE Films Safety Performance chart includes a five-year industry average through 2014 for each
of the respective industries. The sources for these averages are the Bureau of Labor Statistics (NAICS Code 326)
for PE Films and the Occupational Health and Safety Administration for Bonnell.
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
Michael J. Schewel
Vice President, General Counsel
and Corporate Secretary
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, III 3, 4, 5
President and
Chief Executive Officer
Universal Corporation
John D. Gottwald2
President and
Chief Executive Officer
Tredegar Corporation
Jennifer Aspell
President,
Bright View Technologies
Arijit (Bapi) DasGupta
President, Surface Protection
J. Stephen Prince
President, Personal Care
PE Films
George A. Newbill3, 5
Retired
Albemarle Corporation
Thomas G. Snead, Jr.1, 3, 5
Retired
Wellpoint, Inc.
Kenneth R. Newsome2, 3, 5
President and
Chief Executive Officer
Markel Food Group
John M. Steitz5
President and
Chief Executive Officer
Addivant Corporation
Gregory A. Pratt1, 4, 5
Chairman of the Board
Carpenter Technology
Corporation
Carl E. Tack, III1, 4, 5
Clinical Professor
Mason School of Business
College of William and Mary
1) Audit Committee
2) Executive Committee
3) Executive Compensation
Committee
4) Nominating and Governance
Committee
5) Independent Director
SHAREHOLDER INFORMATION
CORPORATE
HEADQUARTERS
1100 Boulders Parkway
Richmond, Virginia 23225
Phone: 804-330-1000
Website: www.tredegar.com
NUMBER OF EMPLOYEES
3,200
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
Domestic Manufacturing
International Manufacturing
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
ALUMINUM EXTRUSIONS
Division Headquarters
Newnan, Georgia
Bloomfield, New York
Newnan, Georgia
Elkhart, Indiana
Niles, Michigan
Carthage, Tennessee
Clearfield, Utah
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
Annual Report Design by Curran & Connors, Inc. / www.curran-connors.com
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