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2019 Annual Report
2018
2019
$ 127.7
(10.4)
(16.3)
101.0
(33.2)
(1.2)
0.4
(5.7)
(14.0)
$ 118.2
(9.6)
(20.8)
87.8
(33.0)
(2.9)
0.3
(4.1)
(10.5)
47.3
37.6
(3.8)
23.9
—
(38.2)
(4.4)
1.3
8.5
14.9
(7.8)
(6.2)
$ 24.8
$ 48.3
$ 1.43
$ 0.75
$ 1.13
$ 1.45
12/31/18 12/31/19
$ 69.5
$ 78.0
$ 101.5
34.4
2019
$ 42.0
31.4
$ 67.1
$ 10.6
Summary Financial Information
Years Ended December 31
($ Millions, except per-share data)
Income and expense relating to ongoing operations:
Total EBITDA for segments (a)
Pension expense
Corporate expenses
Consolidated EBITDA from ongoing operations (“Consolidated EBITDA”) (b)
Depreciation & amortization
Stock option-based compensation costs
Interest income
Interest expense
Income taxes
Net income from ongoing operations (b)
After-tax effects of special items:
Gains (losses) associated with plant shutdowns, assets impairments & restructuring
Unrealized gain on investment in kaléo
Cash dividend received from investment in kaléo
Accelerated trade name amortization (2019) and goodwill impairment charge (2018)
Other
200
1200
1000
Net income as reported under GAAP
800
Diluted earnings per share (EPS):
Ongoing operations (b)
600
As reported under GAAP
400
Fair value of investment in kaléo, net of tax
200
Net Debt (c):
Debt
Less: Cash and cash equivalents
0
2018
2019
Net Debt
Net Sales by Segment
($ in millions)
$1,029
573
332
124
2018
$936
530
272
134
2019
150
100
50
0
2018
Consolidated EBITDA & EPS
from Ongoing Operations(a)(b)
($ in millions except EPS data)
$1.43
$101.0
65.5
51.1
11.1
(10.4)
(16.3)
2018
$1.13
$87.8
65.7
37.8
14.7
(9.6)
(20.8)
2019
EPS From Ongoing Operations
Aluminum Extrusions
PE Films
Flexible Packaging Films
Pension Expense
Ongoing Corporate Expenses
Notes:
(a) Tredegar’s presentation of segment EBITDA from ongoing operations (“EBITDA”) aligns with key metrics used by the Chief Operating Decision Maker under Accounting
Standards Codification (“ASC”) 280. For additional information, refer to the segment footnote within Tredegar’s consolidated financial statements.
(b) Tredegar’s presentation of Consolidated EBITDA from ongoing operations, net income from ongoing operations and earnings per share from ongoing operations are non-GAAP
financial measures that exclude the effects of special items, which Tredegar defines for this purpose as gains or losses associated with plant shutdowns, asset impairments and
restructurings, gains or losses from the sale of assets, goodwill impairment charges and other items (which includes unrealized gains and losses for an investment accounted for
under the fair value method). Consolidated EBITDA from ongoing operations also excludes net interest expenses, income taxes, depreciation & amortization and stock option-
based compensation costs.
Consolidated EBITDA from ongoing operations, net income from ongoing operations and earnings per share from ongoing operations are key financial and analytical measures
used by management to gauge the operating performance of Tredegar’s ongoing operations, its borrowing capacity and its estimated enterprise value. They are not intended to
represent the stand-alone results for Tredegar’s ongoing operations under GAAP and should not be considered as an alternative to cash flow, net income or earnings per share
as defined by GAAP. A reconciliation is provided above of these ongoing non-GAAP measures to net income and earnings per share as reported under GAAP. EPS from ongoing
operations represents net income from ongoing operations divided by GAAP diluted shares (33.3 million shares).
(c) Tredegar’s presentation of Net Debt is not intended to represent total debt as defined by GAAP. Net debt is utilized by management in evaluating Tredegar’s financial leverage
and equity valuation, and management believes that investors may also find Net Debt to be helpful for the same purpose.
Dear Shareholders,
John M. Steitz
President and Chief Executive Officer
Thank you for taking the time to read my first letter
to Tredegar shareholders. I joined Tredegar as a
board member in February 2017 and became CEO in
March of last year when John Gottwald, our Chairman,
retired from the day-to-day responsibilities of leading
a public company.
I’d like to start with letting you know that we’ve been
working diligently to safeguard our employees and
businesses from the coronavirus. Its impact on our
supply chains and customers is uncertain as of the
writing of this letter.
At our May 2019 annual meeting, I introduced “The
Tredegar Way” comprised of the five core principles that
we use to operate our businesses, including top-line
growth, margin management, velocity (speed-to-market
and working capital management), new investment and
leadership. Our business units have wholeheartedly
1
embraced the “The Tredegar Way.” We expect its
2019 was a good year for Tredegar with strong
by-product to be shareholder value creation.
cash generation and a decline in Net Debt of $56.5
A big part of shareholder value creation is net
cash generation, which starts with sales and
providing value to customers. Our broadest
measure of cash generation after deducting cash-
based operating costs from sales is Consolidated
EBITDA. Consolidated EBITDA provides funds
to support working capital and to pay interest,
income taxes, capital expenditures (new
investment), one-time costs and dividends. Our Net
Debt will decline with net cash generation.
million, which included a dividend received from
our kaléo investment of $17.6 million.
Aluminum Extrusions
Bonnell Aluminum, our aluminum extrusions
business, produces high-quality, soft-alloy and
medium strength aluminum extrusions for
building and construction, automotive and various
specialty markets in North America. The EBITDA
at Bonnell was flat in 2019 despite a 7% decline in
volume. Trade association data indicates that sales
We use Consolidated EBITDA as a key valuation
volume for the industry in North America declined
metric, and a derivation of it is used in our
by a similar amount. Given Bonnell’s level of fixed
revolving credit agreement to determine the
costs, if we’d known that sales volume would
maximum amount of money that we can borrow.
decline by 7%, we’d have predicted an even greater
We believe that the combination of growing
percentage decline in EBITDA.
Consolidated EBITDA and reducing Net Debt
through net cash generation are key factors for
70
a higher stock price.
60
80
50
Tredegar’s Consolidated EBITDA and EPS from
ongoing operations declined in 2019 primarily due
40
to significantly lower sales in the Personal Care
30
component of our PE Films segment. This was
A combination of factors caused the favorable
performance relative to the volume decline, but
mainly delivering higher value to customers and
managing operations and costs to levels consistent
with sales. Maintaining EBITDA at current levels
will be a challenge if industry conditions worsen,
but overall, we expect industry cross-cycle growth
mainly from business lost with a key customer,
20
to be consistent with historical levels of 2–3% for
which was not a surprise as we’ve been disclosing
10
Bonnell’s end-markets.
its expected occurrence since 2015. Otherwise,
0
12/31/18
3/31/19
6/30/19
9/30/19
12/31/19
Quarterly Net Debt Trends
($ in millions)
$73.7
$67.1
$38.3
$31.1
$10.6
12/31/18
3/31/19
6/30/19
9/30/19
12/31/19
2
Operational excellence plays a critical role in
Our Surface Protection business produces pristine
delivering custom aluminum extrusions on-time
films that are primarily used by customers
and complete to customers. Bonnell has five
to protect components of displays in their
facilities, including one acquired with Futura in
manufacturing and transportation processes
February 2017 and two facilities acquired with
and then discarded. Surface Protection had record
AACOA in October 2012. The acquired facilities and
performance in 2019 with EBITDA of $40 million
operations, however, have not been fully integrated.
versus $33 million in 2018. These amounts include
In 2019, Bonnell completed a rebranding initiative.
an allocation of PE Films costs for certain shared
Testimonials from employees include “one brand…
services and facilities. Sales for Surface Protection
integration of three cultures…rallying under one
were $104 million in 2019 versus $98 million in 2018.
umbrella…wearing the same jersey.”
Surface Protection sales increased in 2019 by $6
The final integration step will be implementing
million and EBITDA increased by $7 million. I’ve
and utilizing a new enterprise resource planning
been in business a long time and it’s rare when
(ERP) and manufacturing excellence system (MES)
EBITDA increases more than sales during a year.
to consolidate into one system the three different
How did this happen? First, our high-quality films
systems that Bonnell has today. A project plan is
provide savings to our customers in the form of
currently being prepared. Execution will take several
lower scrap rates and higher yields on the substrates
years with an expected payback including better
that they produce to make flat panel displays. Our
tools and processes for managing and improving
unique value proposition can be quantified by
operations, customer service levels and margins
them every day. Second, we have a great team at
consistently across the organization.
Surface Protection that prices our value proposition
PE Films
PE Films is comprised of three components:
Surface Protection, Personal Care and Bright
View Technologies.
appropriately while also driving increases in
productivity to improve quality, yields and costs.
Surface Protection can have volume swings that
follow the cycles associated with flat panel display
end-markets. It also has significant customer
3
concentration. In this regard, we’ve been disclosing
opportunity to add as much as $15 million to our
since mid-2016 a possible significant future
annual EBITDA, but we must win the business first.
customer product transition to a less costly
alternative process or material. The full transition
continues to encounter delays resulting in higher
Flexible Packaging Films
Flexible Packaging Films,
than expected sales for Surface Protection. Our
Surface Protection team has been aggressively
which is also referred
to as Terphane, is our
pursuing and making progress generating sales
Brazilian-based producer
from new products, applications and customers.
of polyester-based films
For example, EBITDA from new customers since
used mainly in packaging
2016 is over $4 million, and our goal is to add over
$3.5 million to this amount in 2020.
Our Personal Care business is a provider of
apertured, elastic and embossed films and
laminate materials for various personal care end
markets. Net sales declined from $227 million in
2018 to $162 million in 2019, including net sales
related to P&G which declined from $107 million
to $59 million. EBITDA declined from $20 million in
2018 to zero in 2019 due to the decline in net sales.
We’ve disclosed and discussed our lost business
with P&G on numerous occasions in the past.
We’re looking forward and are very focused on
winning new business, especially in elastics. Over
the last four years, we’ve expanded our elastics
production capabilities with approximately $50
million of aggregate investments at our Retsag,
Hungary and Terre Haute, Indiana manufacturing
facilities. We believe the combination of our
global elastics manufacturing capabilities and
the softness, breathability and high-quality
performance of our elastic products provide us an
applications that have
specialized properties,
such as heat resistance,
barrier protection and the ability to accept high-
quality print graphics. We’ve seen positive trends
in this business since 2017. Sales volume was up
6% in 2019. EBITDA increased to $14.7 million in
2019 from $11.2 million in 2018. We look forward
to further improvements, including continuing
to expand sales of value-add products such as
our high barrier metalized and peelable films.
Continuing risks include an existing industry
oversupply situation in Latin America and the
possibility that the Brazilian government will
not extend anti-dumping duties beyond 2020 on
products imported from China, India, Egypt and
other countries.
In conclusion, I’d like to thank our board of
directors for their support and our employees for
their hard work, commitment and widespread
adoption of the principles of “The Tredegar Way.”
We look forward to celebrating our successes
in 2020.
John M. Steitz
President and Chief Executive Officer
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 19 of the accompanying Annual Report on Form 10-K.
4
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, 2019
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
Trading Symbol
TG
Name of Each Exchange on Which Registered
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 every Interactive Data File required to be submitted 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 such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.:
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant 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, 2019 (the last business day of the registrant’s most
recently completed second fiscal quarter): $437,372,894*
Number of shares of Common Stock outstanding as of January 31, 2020: 33,365,039
*
In determining this figure, an aggregate of 7,037,025 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, 2019.
Documents Incorporated By Reference
Portions of the Tredegar Corporation Proxy Statement for the 2020 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, 2019
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
Page
1-4
5-10
11
11
11
11
12-13
14-19
19-43
43
43
43
43-45
45
46
47
47
47
47
48-95
95
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 aluminum extrusions, polyethylene (“PE”) plastic films and polyester (“PET”) films. Unless the context
requires otherwise, all references herein to “Tredegar,” “the Company,” “we,” “us” or “our” are to Tredegar Corporation and its
consolidated subsidiaries.
The Company's reportable business segments are Aluminum Extrusions, PE Films and Flexible Packaging Films.
Aluminum Extrusions
Aluminum Extrusions, also referred to as Bonnell Aluminum, produces high-quality, soft-alloy and medium-strength
custom fabricated and finished aluminum extrusions for the building and construction, automotive and transportation,
consumer durables, machinery and equipment, electrical and distribution markets. Bonnell Aluminum has manufacturing
facilities located in: Newnan, Georgia; Carthage, Tennessee; Niles, Michigan; Elkhart, Indiana; and Clearfield, Utah.
Aluminum Extrusions manufactures mill (unfinished), anodized and painted (finished) and fabricated aluminum
extrusions for sale directly to fabricators and distributors. It also sells branded aluminum flooring trims under its Futura
TransitionsTM line and aluminum framing systems under its TSLOTSTM line. Aluminum Extrusions competes primarily on the
basis of product quality, service and price. Sales are made predominantly in the United States (“U.S.”).
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,
pre-engineered structures, and flooring trims (Futura
TransitionsTM)
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, grills for heavy
trucks, travel trailers and recreation vehicles
Furniture, pleasure boats, refrigerators and freezers,
appliances and sporting goods
Material handling equipment, conveyors and conveying
systems, medical equipment, and aluminum framing
systems (TSLOTSTM)
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 panel frames, electronic apparatus
and rigid and flexible conduits
1
Aluminum Extrusions’ net sales (sales less freight) by market segment for the three years ended December 31 is shown
below:
% of Aluminum Extrusions Net Sales by Market Segment
Building and construction:
Nonresidential
Residential
Automotive
Specialty:
Consumer durables
Machinery & equipment
Electrical
Distribution
2019
51%
8%
9%
11%
7%
7%
7%
2018
51%
8%
8%
12%
7%
7%
7%
2017
51%
9%
8%
12%
7%
7%
6%
Total
100%
100%
100%
In 2019, 2018 and 2017, nonresidential building and construction accounted for approximately 29%, 28% and 26% of
Tredegar’s consolidated net sales, 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 annual contracts.
Aluminum Extrusions believes that it has adequate supply agreements for aluminum and other required raw materials and
supplies in the foreseeable future.
PE Films
PE Films manufactures plastic films, elastics and laminate materials primarily utilized in surface protection films,
personal care materials, and specialty and optical lighting applications. These products are manufactured at facilities in the
U.S., The Netherlands, Hungary, China, Brazil and India. PE Films competes in all of its markets on the basis of product
innovation, quality, service and price.
Surface Protection. Tredegar’s Surface Protection unit produces single- and multi-layer surface protection films sold under the
UltraMask®, ForceField™, ForceField PEARL® and Pearl A™ 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, automobiles and digital signage, during the manufacturing and transportation process. In
2019, 2018 and 2017, Surface Protection accounted for approximately 11%, 10% and 11%, respectively, of Tredegar’s
consolidated net sales.
Personal Care. Tredegar’s Personal Care unit is a global supplier of apertured, 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 Sure&Soft™, Soft Quilt™, ComfortAire™, ComfortFeel™ and
FreshFeel™ brand names);
• Elastic films and fabrics for use as components for baby diapers, adult incontinence products and feminine hygiene
products (including components sold under the ExtraFlex™ and FlexAire™ brand names);
• Three-dimensional apertured film transfer layers for baby diapers and adult incontinence products sold under the
AquiSoft™, 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 2019, 2018 and 2017, Personal Care accounted for approximately 17%, 22% and 27% of Tredegar’s consolidated net
sales, respectively.
2
Bright View Technologies. Tredegar’s Bright View Technologies, a late stage start-up company, designs and manufactures a
range of advanced film-based components that provide specialized functionality for the global engineered optics market. By
leveraging multiple platforms, including film capabilities and its patented microstructure technology, Bright View Technologies
offers high performance solutions for a variety of LED-based applications such as lighting, consumer electronics, automotive,
and other optical management markets.
PE Films’ net sales by market segment over the last three years are shown below:
% of PE Films Net Sales by Market Segment *
Personal Care
Surface Protection
Bright View Technologies
Total
2019
59%
38%
3%
100%
2018
68%
30%
2%
100%
2017
70%
28%
2%
100%
* See previous discussion by market segment for comparison of net sales to the Company’s consolidated net
sales for each of the years presented.
Raw Materials. The primary raw materials used by PE 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’ products are sold globally, with the top five customers, collectively, comprising 64%, 66% and 68% of
its net sales in 2019, 2018 and 2017, respectively. Its largest customer is The Procter & Gamble Company (“P&G”). Net sales
to P&G totaled $59 million in 2019, $107 million in 2018 and $122 million in 2017 (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”). 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. Flexible Packaging Films competes in all of its markets on the basis of
product quality, service and price.
Raw Materials. The primary raw materials used by Flexible Packaging Films to produce polyester resins are purified
terephthalic acid (“PTA”) and monoethylene glycol (“MEG”). Flexible Packaging Films also purchases additional polyester
resins directly from suppliers. These raw materials are obtained from Brazilian and foreign suppliers at competitive prices.
Flexible Packaging Films believes that there will be an adequate supply of polyester resins, PTA and MEG in the foreseeable
future.
General
Intellectual Property. Tredegar considers patents, licenses and trademarks to be significant to PE Films. On December 31,
2019, PE Films held 274 patents (including 69 U.S. patents), licenses under patents owned by third parties, and 105 registered
trademarks (including 8 U.S. registered trademarks). Flexible Packaging Films held 1 U.S. patent and 14 registered trademarks
(including 2 U.S. registered trademarks). Aluminum Extrusions held no U.S. patents and 2 U.S. registered trademarks. On
December 31, 2019, these patents had remaining terms of less than one year to 19 years.
Research and Development. Tredegar’s spending for research and development (“R&D”) activities in 2019, 2018 and 2017
was primarily related to PE Films. PE Films has technical centers in: Durham, North Carolina; Richmond, Virginia; and Terre
Haute, Indiana. Flexible Packaging Films has a technical center in Bloomfield, New York. R&D spending by the Company
was approximately $19.6 million, $18.7 million and $18.3 million in 2019, 2018 and 2017, respectively.
3
Backlog. Overall backlog for continuing operations in Aluminum Extrusions was approximately $52.8 million at December 31,
2019 compared to approximately $67.6 million at December 31, 2018, a decrease of $14.8 million, or approximately 22%.
Backlogs are not material to the operations in PE Films or Flexible Packaging Films. Net sales for Aluminum Extrusions,
which the Company believes are cyclical in nature, were $529.6 million in 2019, $573.1 million in 2018 and $466.8 million in
2017.
Environmental 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”), regulations promulgated under these
acts, and other federal, state or local laws or regulations governing environmental matters. Compliance with these laws is an
important consideration because Tredegar uses hazardous materials in some of its operations, is a generator of hazardous waste,
and wastewater from the Company’s operations is discharged to various types of wastewater management systems. Under
CERCLA and other laws, Tredegar may be subject to financial exposure for costs associated with waste management and
disposal, even if the Company fully complies with applicable environmental laws.
The U.S. Environmental Protection Agency has adopted regulations under the Clean Air Act relating to emissions of
carbon dioxide and other greenhouse gases (“GHG”), including mandatory reporting and permitting requirements. Several of
the Company’s manufacturing operations result in emissions of carbon dioxide or GHG and are subject to the current GHG
regulations. The Company’s compliance with 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 environmental laws and regulations in the other countries where it conducts business.
At December 31, 2019, the Company believes that it was in material 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 addition, consumer preferences, ongoing health, safety and environmental initiatives on plastics
and resins and other related legislative initiatives may adversely affect Tredegar’s business. 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 3,000 people at December 31, 2019.
Information About Our Executive Officers. See “Directors, Executive Officers and Corporate Governance” in Part III, Item
10 of this Form 10-K.
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
with the SEC can be accessed on its website at www.sec.gov. In addition, the Company’s Corporate Governance Guidelines,
Code of Conduct, the charters of the Audit, Executive Compensation, and Nominating and Governance Committees and many
other of our corporate policies are available on Tredegar’s website and are available in print, without charge, to any shareholder
upon request by contacting Tredegar’s Corporate Secretary at 1100 Boulders Parkway, Richmond, Virginia 23225. The
information on or that can be accessed through the Company’s website is not, and shall not be deemed to be, a part of this
Annual Report on Form 10-K for the year ended December 31, 2019 (“Form 10-K”) or incorporated into other filings it makes
with the SEC.
4
Item 1A. RISK FACTORS
There are a number of risks and uncertainties that could have a material adverse effect on the Company’s consolidated
financial condition, results of operations, or cash flows. The following risk factors should be considered, in addition to the
other information included in this Form 10-K, when evaluating Tredegar and its businesses.
Aluminum Extrusions
•
•
•
•
Sales volume and profitability of Aluminum Extrusions is cyclical and seasonal and highly dependent on economic
conditions of end-use markets in the U.S., particularly in the construction sector. Aluminum Extrusions’ end-use
markets can be cyclical and subject to seasonal swings in volume. Because of the capital intensive nature and level of
fixed costs inherent in the aluminum extrusions business, the percentage drop in operating profits in a cyclical downturn
will likely exceed the percentage drop in volume. In addition, during an economic slowdown, excess industry capacity
often drives increased pricing pressure in many end-use markets as competitors protect their position with key customers.
Any benefits associated with cost reductions and productivity improvements may not be sufficient to offset the adverse
effects on profitability from pricing and margin pressure and higher bad debts (including a greater chance of loss
associated with customers defaulting on fixed-price forward sales contracts) that usually accompany a downturn. In
addition, higher energy costs can further reduce profits unless offset by price increases or cost reductions and productivity
improvements.
Failure to prevent competitors from evading anti-dumping and countervailing duties, or a reduction in such duties,
could adversely impact Aluminum Extrusions. Effective April 25, 2017, the anti-dumping duty and countervailing duty
orders on aluminum extrusions were extended for a period of five years. The orders will be reviewed again beginning in
March 2022. Chinese and other overseas manufacturers continue to try to evade the anti-dumping and countervailing
orders to avoid duties. A failure by, or the inability of, U.S. trade officials to curtail the evasion of these duties, or the
potential reduction of applicable duties pursuant to annual administrative reviews of the orders by the Department of
Commerce, could have a material adverse effect on the financial condition, results of operations and cash flows of
Aluminum Extrusions.
The duty-free importation of goods allowed under USMCA could result in lower demand for aluminum extrusions
made in the U.S., which could materially and negatively affect Bonnell Aluminum’s business and results of operations.
In March 2018, the U.S. imposed tariffs of 10% on aluminum ingot and semi-finished aluminum imported in the U.S.
from certain countries, including countries from which Bonnell Aluminum has historically sourced aluminum products.
In September 2019, the United States, Canada and Mexico entered into the United States-Mexico-Canada Agreement
(“USMCA”). As a result of the 10% tariffs on aluminum ingot imported to the U.S. and the duty-free importation of
goods allowed under USMCA, aluminum extrusions made in Canada and Mexico are free of the 10% tariff and can now
be imported into and sold in the U.S. at very competitive prices. This could result in lower demand for aluminum
extrusions made in the U.S., which could materially and negatively affect Bonnell Aluminum’s business and results of
operations.
Competition from China could increase significantly if China is granted market economy status by the World Trade
Organization. China launched a formal complaint at the World Trade Organization (“WTO”) challenging its non-market
economy status, claiming that as of December 11, 2016, China’s transition period as a non-market economy under its
Accession Protocol to the WTO ended. China believes with respect to all Chinese-made products that it should receive
market economy status and the rights attendant to that status under WTO rules. The U.S. and the European Union have
each rejected that interpretation. If China is granted market economy status by the WTO, the extent to which the U.S.
anti-dumping laws will be able to limit unfair trade practices from China will likely be limited because the U.S.
government will be forced to utilize Chinese prices and costs that do not reflect market principles in anti-dumping duty
investigations involving China, which could ultimately limit the level of anti-dumping duties applied to unfairly traded
Chinese imports. The volume of unfairly traded imports of Chinese aluminum extrusions could increase as a result and
this, in turn, 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. In June 2019, at
China’s request, after certain preliminary rulings in the case went against the Chinese position, the WTO indefinitely
suspended the proceedings on the Chinese WTO complaint.
5
•
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 Aluminum Extrusions’ ability to
provide superior service, high quality products, timely delivery and competitive pricing to retain existing customers and
participate in overall industry cross-cycle growth. Failure in any of these areas could lead to a loss of customers, which
could have an adverse material effect on the financial condition, results of operations and cash flows of Aluminum
Extrusions.
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 19%, 21% and 26% of Tredegar’s consolidated net sales in 2019, 2018 and
2017, respectively, with net sales to P&G alone comprising approximately 6%, 10% and 13% in 2019, 2018 and 2017,
respectively. The loss or significant reduction of sales associated with one or more of these customers without
replacement by new business could have a material adverse effect on the Company. Other factors that could adversely
affect the business include, by way of example, (i) failure by a key customer to achieve success or maintain share in
markets in which they sell products containing PE Films’ materials, including as a result of customer preferences for
products other than plastics, (ii) key customers using products developed by others that replace PE Films’ business with
such customer, (iii) delays in a key customer rolling out products utilizing new technologies developed by PE Films, (iv)
operational decisions by a key customer that result in component substitution, inventory reductions and similar changes,
and (v) the cyclicality of the electronic display markets. While PE Films is undertaking efforts to expand its customer
base, there can be no assurance that such efforts will be successful, or that they will offset any delay or loss of sales and
profits associated with these large customers.
PE Films anticipates that a portion of its film products used in surface protection applications could be made obsolete by
possible future customer product transitions to less costly alternative processes or materials. These transitions principally
relate to one customer. The full transition continues to encounter delays. The Company estimates that during the next four
quarters the adverse impact on operating profit from this customer shift versus the last four quarters ended December 31,
2019 could possibly be $14 million. To offset the potential adverse impact, the Company is aggressively pursuing and
making progress generating sales from new surface protection products, applications and customers.
The Company previously disclosed a significant customer product transition for the Personal Care component of PE
Films. Annual sales for this product declined from approximately $70 million in 2018 to $30 million in 2019. The
Company recently extended an arrangement with this customer that is expected to generate sales of this product at
approximately 2019 levels through at least 2022.
Personal Care had approximately break-even EBITDA (earnings before interest, taxes, depreciation and amortization)
from ongoing operations in 2019 as competitive pressures resulted in missed sales and margin goals. Personal Care
continues to focus on new business development and cost reduction initiatives in an effort to improve profitability. There
can be no assurance that such efforts will be successful or that they will offset any loss of business due to product
transitions and other lost sales.
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 in its Personal Care business due to competitive
forces, especially as certain personal care products move into the later stages of their product and intellectual protection
life cycles. In addition, the changing dynamics of consumer products retailing, including the impact of on-line retailers
such as Amazon, is creating price and margin pressure on the customers of PE Films’ Personal Care business. While PE
Films continually works to identify new business opportunities with new and existing customers, primarily through the
development of new products with improved performance and/or cost characteristics, there can be no assurance that such
efforts will be successful or that they will offset business lost from competitive dynamics or customer product transitions.
Cost saving initiatives may not achieve the results anticipated. PE Films has undertaken and will continue to undertake
cost reduction initiatives to consolidate certain production, improve operating efficiencies and generate cost savings. PE
Films cannot be certain that it will be able to complete these initiatives as planned or that the estimated operating
efficiencies or cost savings 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.
6
•
•
•
Failure of PE Films’ customers, who are subject to cyclical downturns, to achieve success or maintain market share
could adversely impact PE Films’ sales and operating margins. PE Films’ plastic films serve as components for, or are
used in the production of, various consumer products sold worldwide. A customer’s ability to successfully develop,
manufacture and market those products is integral to PE Films’ success. Also, consumers of premium products made with
or using PE Films’ components may shift to less premium or less expensive products, reducing the demand for PE Films’
plastic films. Cyclical downturns and changing consumer preferences for plastic products generally 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 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, experience financial distress or disruption of manufacturing
operations (such as, for example, the impact of hurricanes on petrochemical production). Failure to take adequate steps to
effectively manage such events, which are intensified when a product is procured from a single supplier or location, could
adversely affect PE Films’ consolidated financial condition, results of operations and cash flows, as well as require
additional resources to restore its supply chain.
Flexible Packaging Films
•
Overcapacity in Latin American polyester film production and a history of uncertain economic conditions in Brazil
could adversely impact the financial condition, results of operations and cash flows of Flexible Packaging Films.
For flexible packaging films produced in Brazil, costs for operations in Brazil have been adversely impacted by inflation
in Brazil that is higher than in the U.S. Flexible Packaging Films is exposed to additional foreign exchange translation
risk because almost 90% of Flexible Packaging Films’ Brazilian sales are quoted or priced in U.S. Dollars while a large
part of its Brazilian costs are quoted or priced in Brazilian Real. This mismatch, together with a variety of economic
variables impacting currency exchange rates, causes volatility that could negatively or positively impact profitability for
Flexible Packaging Films. While Flexible Packaging Films hedges this exposure on a short-term basis with foreign
exchange forward rate contracts, the exposure continues to exist beyond the hedging periods.
•
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. Favorable anti-dumping rulings or countervailing
duties are in effect for products imported from China, Egypt, India, Mexico, United Arab Emirates, Turkey, Peru and
Bahrain. Competitors not currently subject to anti-dumping duties may choose to utilize their excess capacity by selling
product in Brazil, which may result in pricing pressures that Flexible Packaging Films may not be able to offset with cost
savings measures and/or manufacturing efficiency initiatives. There can be no assurance that efforts to extend anti-
dumping duties beyond 2020 on products imported from China, India, Egypt and other countries will be successful.
General
•
The Company has identified material weaknesses in its internal control over financial reporting at December 31, 2017,
2018 and 2019. The Company’s failure to establish and maintain effective internal control over financial reporting
and to maintain effective disclosure controls and procedures increases the risk of a material misstatement in its
consolidated financial statements, and its failure to meet its reporting and financial obligations, which in turn could
have a negative impact on its financial condition.
Maintaining effective internal control over financial reporting is an integral part of producing reliable financial
statements. As discussed in Item 9A. “Controls and Procedures,” the Company’s management concluded that the
Company’s internal control over financial reporting was not effective for the periods referred to therein as a result of
7
certain deficiencies that were determined to constitute material weaknesses in the Company’s internal control over
financial reporting.
Under standards established by the Public Company Accounting Oversight Board (“PCAOB”), a material weakness is
defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or
detected on a timely basis. Under the criteria set forth in Internal Control - Integrated Framework 2013 issued by the
Committee of Sponsoring Organizations of the Treadway Commission, a material weakness in the design of monitoring
controls indicates that the Company has not sufficiently developed and/or documented internal controls by which
management can review and oversee the Company’s financial information to detect and correct material errors or that the
personnel responsible for performing the review did not have the sufficient skill set or knowledge of the subject matter to
perform a proper assessment.
As discussed in Item 9A. “Controls and Procedures,” to remediate the material weaknesses, the Company, with the
assistance of its outside consultant, is in the process of implementing certain changes to its internal controls and
reviewing the entire control environment to help ensure that there are no other material weaknesses. The Company
believes that its remediation plan will be sufficient to remediate the identified material weaknesses and strengthen its
internal control over financial reporting. However, remediation of the identified material weaknesses and strengthening
the Company’s internal control environment will require a substantial effort throughout 2020 and, the Company
anticipates, through the first quarter of 2021. As the Company continues to evaluate and work to improve its internal
control over financial reporting and disclosure controls and procedures, management may determine to take additional
measures to address control deficiencies or determine to modify the remediation plan. The Company cannot provide
assurance, however, of when it will remediate all such weaknesses, nor can it be certain of whether additional actions will
be required or the costs of any such actions. Moreover, the Company cannot provide assurance that additional material
weaknesses will not arise in the future.
While the material weaknesses discussed in Item 9A. “Controls and Procedures” did not result in material misstatements
of the Company’s financial statements as of and for the year ended December 31, 2017, 2018 or 2019, or any interim
period during 2017, 2018 or 2019, any failure to remediate the material weaknesses, or the development of new material
weaknesses in its internal control over financial reporting, could result in material misstatements in the Company’s
consolidated financial statements and cause it to fail to meet its reporting and financial obligations, which in turn could
have a negative impact on its financial condition.
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, 2019, the plan was underfunded under U.S. generally
accepted accounting principles (“GAAP”) measures by $100.4 million. Tredegar expects that it will be required to make
a cash contribution of approximately $12.3 million to its underfunded pension plan in 2020, 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.
Noncompliance with any of the covenants in the Company’s $500 million revolving credit facility, which matures in
June of 2024, could result in all debt under the agreement outstanding at such time becoming due and limiting its
borrowing capacity, which could have a material adverse effect on consolidated financial condition and liquidity. The
credit agreement governing Tredegar’s revolving credit facility contains restrictions and financial covenants that, 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 aluminum (the raw material on which
Aluminum Extrusions primarily depends), resin (the raw material on which PE Films primarily depends), PTA and MEG
(the raw materials on which Flexible Packaging Films primarily depends), natural gas (the principal fuel necessary for
Aluminum Extrusions’ plants to operate), electricity and diesel fuel. Aluminum, resin and natural gas prices are volatile
as shown in the charts in the Quantitative and Qualitative Disclosures in Part II, Item 7. “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.” The Company attempts to mitigate the effects of increased
costs through price increases and contractual pass-through provisions, but there are no assurance 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 may not be able to successfully integrate strategic acquisitions. Acquisitions involve special risks, including,
without limitation, meeting revenue, margin, working capital and capital expenditure expectations that substantially drive
valuation, diversion of management’s time and attention from existing businesses, the potential assumption of
unanticipated liabilities and contingencies and potential difficulties in integrating acquired businesses and achieving
anticipated operational improvements. Acquired businesses may not achieve expected results.
Tredegar is subject to current and future governmental regulation, including environmental laws and regulations, and
could become exposed to material liabilities and costs associated with such regulation. The Company is subject to
regulation by local, state, federal and foreign governmental authorities. New laws and regulations, or changes to existing
laws, including those relating to environmental matters (including global climate change and plastic products), and
privacy matters, could subject Tredegar to significant additional capital expenditures, operating expenses or other
compliance costs. Moreover, future developments in federal, state, local and international laws and regulations, including
environmental laws, are difficult to predict. Environmental laws and privacy restrictions have become and are expected to
continue to become increasingly strict. As a result, Tredegar expects to be subject to new environmental and privacy laws
and regulations. However, any such changes are uncertain and, therefore, it is not possible for the Company to predict
with certainty the amount of additional capital expenditures or operating expenses that could be necessary for compliance
with respect to any such changes. See Environmental Regulation in Item 1. “Business” for a further discussion of this
risk factor.
We are subject to the U.S. Foreign Corrupt Practices Act, Brazilian anti-corruption laws and similar anti-bribery
laws in other jurisdictions, which generally prohibit companies and their intermediaries from making improper payments
to foreign officials for the purpose of obtaining or retaining business. Although we have policies and procedures designed
to facilitate compliance with these laws and regulations, our employees, contractors and agents may take actions in
violation of our policies. Any such violation, even if prohibited by our policies, could adversely affect our business and/or
our reputation.
• 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: an equipment failure with repairs requiring long lead times, labor stoppages or shortages,
cybersecurity attacks, utility disruptions, constraints on the supply or delivery of critical raw materials, and severe
weather conditions. 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 inability to renegotiate the Company’s collective bargaining agreements could adversely impact its consolidated
financial condition, results of operations and cash flows. Approximately 19% 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. None of Tredegar’s collective bargaining agreements expire
before the fourth quarter of 2021.
Our business and operations, and the operations of our suppliers, may be adversely affected by epidemics such as the
recent coronavirus (or COVID-19) outbreak. We may face risks related to health epidemics or outbreaks of
communicable diseases. The outbreak of such a communicable disease could result in a widespread health crisis that
could adversely affect general commercial activity and the economies and financial markets of many countries. For
example, the recent outbreak of the Coronavirus Disease 2019 (COVID-19), which began in China, has been declared by
the World Health Organization to be a “pandemic,” has spread across the globe to many countries in which the Company
does business and is impacting worldwide economic activity.
A public health epidemic, including COVID-19, poses the risk that we or our employees, contractors, suppliers,
customers and other business partners may be prevented from conducting business activities for an indefinite period of
time, including due to shutdowns that may be requested or mandated by governmental authorities, or that such epidemic
may otherwise interrupt or impair business activities. For example, a majority of protective films made by the PE Films’
Surface Protection unit are sold to customers who produce key components for flat panel displays. A significant
proportion of that production and fabrication occurs in China. Although we have not had significant issues at our Surface
Protection manufacturing plant in Guangzhou, China, there can be no assurance that COVID-19 will not impact our
Surface Protection business as a result of the virus’ potential impact on delays in production and transportation in, and
other impacts on, the flat panel display industry and its supply chain. While it is not possible at this time to estimate the
impact that COVID-19 could have on our Surface Protection unit and the Company’s other business units, the continued
9
•
•
•
spread of COVID-19, the measures taken by the governments of countries affected, actions taken to protect employees,
and the impact of the pandemic on various business activities in affected countries could adversely affect our financial
condition, results of operations and cash flows.
Tredegar’s valuation of its $7.5 million cost-basis investment in kaléo is volatile and uncertain. Tredegar uses the fair
value method to account for its fully-diluted ownership interest of approximately 18% 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 kaléo’s
performance versus expectations and changes in the valuation of guideline public companies as measured by their
enterprise value-to-EBITDA multiples. Additionally, the estimated fair value of the Company’s investment in kaléo could
decline. Public pressure to lower the price of pharmaceutical products and competitive pressures in the market could
affect the price at which kaléo sells its products. The U.S. Department of Justice began an investigation of kaléo’s Evzio
business in 2018, the impact of which on kaléo and on the value of the Company’s interest in kaléo cannot yet be
estimated with any certainty. Kaléo initiated a plan in 2019 to reduce the cost structure of the Evzio product line and
reallocate resources to its allergy and pediatric product lines, principally Auvi-Q. As a result, kaléo substantially reduced
commercial activities associated with Evzio in 2019. See Note 4 to the Notes to Financial Statements (“Note 4”) for
more information.
Rising trade tensions could cause an increase in the cost of the Company’s products or otherwise negatively impact the
Company. A significant portion of the Company’s business involves imports to and from the U.S. and other countries
where the Company produces and sells its products. Trade tensions have been rising between the U.S. and other
countries, particularly China. An increase in tariffs and other trade barriers between the U.S. and China, or between the
U.S. and other countries, could cause an increase in the cost of the Company’s products or otherwise negatively impact
the production and sale of the Company’s products in world markets.
A failure in the Company’s information technology systems as a result of cybersecurity attacks or other causes could
negatively affect Tredegar’s business. The Company depends on information technology (“IT”) to record and process
customers’ orders, manufacture and ship products in a timely manner, secure its production processes and know-how,
maintain the financial accuracy of its business records and maintain personally identified information of its employees.
An IT system failure due to computer viruses, internal or external security breaches, cybersecurity attacks, or other
malicious causes could disrupt our operations and prevent us from being able to process transactions with our customers,
operate our manufacturing facilities and properly report transactions in a timely manner. Increased global IT security
threats and cyber-crime pose a potential risk to the security and availability of the Company’s IT systems, networks, and
services, including those that are managed, hosted, provided, or used by third parties, as well as to the confidentiality,
availability, and integrity of the Company’s data. To date, interruptions of the Company’s IT systems have been infrequent
and have not had a material impact on the Company’s operations. A significant protracted failure of or security breach of
the IT systems, networks, or service providers the Company relies upon, or a loss or disclosure of business or other
sensitive information, or personally identified information, as a result of a cybersecurity incident or other cause, could
result in substantial costs to the Company, damage to the Company’s reputation, regulatory enforcement actions and
lawsuits, and could adversely affect the Company’s results of operations, financial condition or cash flows.
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. Certain of the
owned property is subject to an encumbrance under the Company’s revolving credit facility (see Note 11 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 Bonnell Aluminum, PE Films and Flexible Packaging Films
manufacturing facilities have sufficient capacity to meet current production requirements. 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, 2019 are listed below:
Aluminum Extrusions
Locations in the U.S.
Carthage, Tennessee
Elkhart, Indiana
Newnan, Georgia
Niles, Michigan
Clearfield, Utah (leased)
PE Films
Locations in the U.S.
Durham, North Carolina (technical
center and production facility)
(leased)
Pottsville, Pennsylvania
Richmond, Virginia (technical center)
Locations Outside the U.S.
Guangzhou, China
Kerkrade, The Netherlands
Pune, India
Rétság, Hungary
São Paulo, Brazil
(leased)
Terre Haute, Indiana (technical center
and production facility)
Principal Operations
Production of aluminum
extrusions, fabrication and
finishing
Principal Operations
Production of plastic films,
elastics and laminate materials
Flexible Packaging Films
Locations in the U.S.
Bloomfield, New York (technical center
Locations Outside the U.S.
Cabo de Santo Agostinho, Brazil
Principal Operations
Production of PET-based films
and production facility)
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 33,365,039 shares of common stock held by 1,822 shareholders of record on December 31, 2019.
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
2019
2018
High
Low
High
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Dividend Information
Tredegar has paid a dividend every quarter since becoming a public company in July 1989. During 2017, 2018 and the
first two quarters of 2019, the Company paid quarterly dividends of 11 cents per share; for the last two quarters of 2019, the
Company paid quarterly dividends of 12 cents per share.
All decisions with respect to the declaration and payment of dividends will be made by the Board of Directors (“Board”)
in its sole discretion based upon earnings, financial condition, anticipated cash needs, restrictions in the Company’s revolving
credit facility and other such considerations as the Board deems relevant. See Note 11 for the restrictions on the payment of
dividends contained in the Company’s revolving credit agreement related to aggregate dividends permitted.
Issuer Purchases of Equity Securities
On January 7, 2008, Tredegar announced that its Board 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 2019, 2018 or 2017 under this standing authorization. The maximum number of shares remaining
under this standing authorization was 1,732,003 at December 31, 2019.
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, 2019. 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 12/31/14 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2020 Standard & Poor's, a division of S&P Global. All rights reserved.
Copyright© 2020 Russell Investment Group. All rights reserved.
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8
1
NOTES TO FINANCIAL TABLES
(a) For a description of plant shutdowns, asset impairments, restructurings and other charges for 2019, 2018, and 2017, see the plant shutdowns, asset
impairments, restructurings and other tables for 2019, 2018 and 2017 in Results of Continuing Operations “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in Part II, Item 7 of this Form 10-K.
(b) For a description of plant shutdowns, asset impairments, restructurings and other charges for 2016 and 2015, see “Selected Financial Data” in Part II, Item
6 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K“), Part II, Item 6.
(c) Results for 2018 included a goodwill impairment charge of $46.8 million ($38.2 million after taxes) recognized in PE Films in the third quarter of 2018
upon completion of an impairment analysis performed as of September 30, 2018. Results for 2015 included a goodwill impairment charge of $44.5
million ($44.5 million after taxes) recognized in Flexible Packaging Films in the third quarter of 2015 upon completion of an impairment analysis
performed as of September 30, 2015.
(d) Total return to shareholders is defined as the change in stock price during the year plus dividends per share, divided by the stock price at the beginning of
the year.
(e) Equity market capitalization is the closing market price per share for the period multiplied by the shares outstanding at the end of the period.
(f) Net sales represents gross sales less freight. The Company uses net sales as its measure of revenues from external customers at the segment level.
(g) The gains and losses on the Company’s investment in kaléo are included in “Other income (expense), net” in the consolidated statements of income. See
Note 4 to the Notes to financial statements for more details for the years 2019, 2018 and 2017.
(h) Equity per share is computed by dividing shareholders’ equity at year end by the shares outstanding at year end.
(i) For the years ended December 31, 2015 to 2017, the pension and postretirement benefit expenses recorded in Cost of goods sold and Selling, general and
administrative expenses were reclassified to a new line item, Pension and postretirement benefits, on the consolidated statements of income, due to the
retrospective adoption of Accounting Standards Update (“ASU”) 2017-07.
(j) Depreciation and amortization (“D&A”) in 2019 for Aluminum Extrusions excludes $10.0 million for accelerated amortization of trade names as a result of
a rebranding initiative. D&A in 2019, 2018, 2017, 2016 and 2015 for PE Films excludes $1.2 million, $0.6 million, $0.3 million, $0.6 million and $0.4
million, respectively, for accelerated depreciation associated with restructurings and plant closures.
(k) Corporate depreciation and amortization is included in Corporate expenses, net, on the EBITDA from ongoing operations table above.
(l) In the fourth quarter of 2019, the Company changed its segment measure of profit and loss from operating profit from ongoing operations to EBITDA
(earnings before interest, taxes, depreciation and amortization) from ongoing operations. EBITDA from ongoing operations is the key profitability metric
used by the Company’s chief operating decision maker to assess segment financial performance. See Note 5 to the Notes to Financial Statements in this
2019 Form 10-K for additional business segment information.
(m) EBIT (earnings before interest and taxes) from ongoing operations is a non-GAAP financial measure included in the reconciliation of segment financial
information to consolidated results for the Company. It is not intended to represent the stand-alone results for Tredegar’s ongoing operations under GAAP
and should not be considered as an alternative to net income as defined by GAAP. EBIT is a widely understood and utilized metric that is meaningful to
certain investors. We believe that including this financial metric in the reconciliation of management’s performance metric, EBITDA from ongoing
operations, provides useful information to those investors that primarily utilize EBIT to analyze the Company’s core operations.
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,” “plan,” “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 aluminum extrusions, polyethylene (“PE”) plastic films, and polyester films. Descriptions
of all the Company’s businesses are provided in the Business section in Part I, Item 1 of this Form10-K.
Sales were $1.0 billion in 2019 compared to $1.1 billion in 2018. Net income was $48.3 million ($1.45 per diluted share)
in 2019, compared with $24.8 million ($0.75 per diluted share) in 2018.
The 2019 results include:
• An after-tax gain on the sale of the Company’s Shanghai manufacturing property of $5.9 million ($0.18 per share);
19
• An after-tax dividend received from kaléo of $14.8 million ($0.45 per share); and
• An unrealized after-tax gain on the Company’s investment in kaléo of $8.5 million ($0.26 per share), which is
accounted for under the fair value method (see Note 4 for more details);
The 2018 results include:
• An after-tax impairment of the total goodwill balance of PE Films’ Personal Care division of $38.2 million ($1.15 per
share after-tax). See the Customer Product Transitions in Personal Care and Surface Protection section below and
Note 8 to the Notes to Financial Statements for more details; and
• An unrealized after-tax gain on the Company’s investment in kaléo of $23.9 million ($0.72 per share);
Other losses associated with plant shutdowns, asset impairments and restructurings are described in Note 17 to the Notes
to Financial Statements. EBITDA from ongoing operations is the measure of profit and loss used by Tredegar’s chief operating
decision maker for purposes of assessing performance.
Aluminum Extrusions
A summary of operating results for Aluminum Extrusions is provided below:
(In thousands, except percentages)
Sales volume (lbs)
Net sales
Ongoing operations:
EBITDA
Depreciation & amortization**
EBIT*
Year Ended
December 31,
Favorable/
(Unfavorable)
2019
2018
% Change
208,249
$ 529,602
223,866
$ 573,126
$
$
$
65,683
(16,719)
48,964
17,855
$
$
$
65,479
(16,866)
48,613
12,966
(7.0)%
(7.6)%
0.3 %
0.9 %
0.7 %
Capital expenditures
* See the table in Item 6 for a reconciliation of this non-GAAP measure to GAAP and additional
information.
**Excludes pre-tax accelerated amortization of trade names of $10.0 million in 2019. See Note 8 to the
Notes to Financial Statements for more information.
Net sales in 2019 decreased versus 2018 primarily due to lower sales volume and the passthrough of lower metal
costs, partially offset by an increase in average selling prices to cover higher operating costs.
EBITDA from ongoing operations in 2019 increased slightly in comparison to 2018. Excluding the adverse impact of
the accounting for inventories under the last in, first out method in the fourth quarter of 2019 versus 2018 ($1.5 million),
EBITDA from ongoing operations increased $1.7 million despite a 7% decline in sales volume. The increase was primarily due
to higher pricing ($22.8 million) and fabrication profits ($1.0 million), partially offset by lower sales volume ($8.7 million),
increased labor and employee-related expenses ($7.4 million), higher supplies, maintenance, utilities and other operating costs
($2.0 million), increased freight costs ($2.0 million) and increased general and administrative expenses ($1.9 million).
Projected Capital Expenditures and Depreciation & Amortization
Capital expenditures are projected to be $23 million in 2020, including the expected initial investment for a multi-year
project to migrate to a new division-wide enterprise resource planning and manufacturing excellence system ($6 million),
infrastructure upgrades at the Carthage, Tennessee and Newnan, Georgia facilities ($4 million), and approximately $12 million
required to support continuity of current operations. Depreciation expense is projected to be $14 million in 2020. Amortization
expense is projected to be $3 million in 2020.
20
PE Films
A summary of operating results for PE Films is provided below:
(In thousands, except percentages)
Sales volume (lbs)
Net sales
Ongoing operations:
EBITDA
Depreciation & amortization
EBIT*
Year Ended
December 31,
2019
104,497
$ 272,758
2018
123,583
$ 332,488
$
$
$
37,803
(14,627)
23,176
23,920
$
$
$
51,058
(14,877)
36,181
21,998
Favorable/
(Unfavorable)
% Change
(15.4)%
(18.0)%
(26.0)%
1.7 %
(35.9)%
Capital expenditures
* See the table in Item 6 for a reconciliation of this non-GAAP measure to GAAP and additional
information.
Net sales in 2019 decreased by $59.7 million versus 2018 due to lower sales in Personal Care of $65 million. The decline
in net sales in Personal Care was primarily due to lower volume in most product categories from competitive pressures ($48
million), including a large portion associated with the customer product transition discussed below. In addition, net sales in
Personal Care were adversely impacted by pricing, mix and the decline in the value of currencies for operations outside of the
U.S. relative to the U.S. Dollar.
EBITDA from ongoing operations in 2019 decreased by $13.3 million versus 2018 primarily due to:
• A $6.8 million increase from Surface Protection, primarily due to higher selling prices ($6.0 million), quality
claims in 2018 that did not recur in 2019 ($1.2 million), production efficiencies ($1.4 million), and favorable raw
material costs ($1.9 million), partially offset by unfavorable mix (net impact of $2.0 million) and higher fixed
manufacturing and general and administrative costs ($1.5 million); and
• A $19.6 million decrease from Personal Care, primarily due to lower volume and unfavorable mix ($19.3 million),
unfavorable pricing ($4.8 million), and production inefficiencies ($3.8 million), partially offset by the timing in
the passthrough of changes in resin prices ($2.1 million), lower fixed manufacturing ($4.4 million) and selling,
general and administrative costs ($1.8 million).
Customer Product Transitions in Personal Care and Surface Protection
The Company previously disclosed a significant customer product transition for the Personal Care component of PE
Films. Annual sales for this product declined from approximately $70 million in 2018 to $30 million in 2019. The Company
recently extended an arrangement with this customer that is expected to generate sales of this product at approximately 2019
levels through at least 2022.
Personal Care had approximately break-even EBITDA from ongoing operations in 2019 as competitive pressures
resulted in missed sales and margin goals. Personal Care continues to focus on new business development and cost reduction
initiatives in an effort to improve profitability.
The Surface Protection component of PE Films supports manufacturers of optical and other specialty substrates used
in flat panel display products. These films are primarily used by customers to protect components of displays in the
manufacturing and transportation processes and then discarded.
The Company previously reported the risk that a portion of its film products used in surface protection applications
will be made obsolete by possible future customer product transitions to less costly alternative processes or materials. These
transitions principally relate to one customer. The full transition continues to encounter delays, resulting in higher than expected
sales to this customer in 2019. The Company estimates that during 2020 the adverse impact on EBITDA from ongoing
operations from this customer shift versus 2019 could possibly be $14 million. To offset the potential adverse impact, the
Company is aggressively pursuing and making progress generating sales from new surface protection products, applications
and customers.
21
Projected Capital Expenditures and Depreciation & Amortization
Capital expenditures are projected to be $16 million in 2020, including: $1.5 million to complete a scale-up line in
Surface Protection to improve development and speed to market for new products; $6 million for other development projects;
and $8 million for capital expenditures required to support continuity of current operations. Depreciation expense is projected
to be $15 million in 2020. There is no amortization expense for PE Films.
Flexible Packaging Films
A summary of operating results for Flexible Packaging Films is provided below:
(In thousands, except percentages)
Sales volume (lbs)
Net sales
Ongoing operations:
EBITDA
Depreciation & amortization
EBIT*
Year Ended
December 31,
2019
105,276
$ 133,935
2018
98,994
$ 123,830
$ 14,737
(1,517)
$ 13,220
8,866
$
$ 11,154
(1,262)
9,892
5,423
$
$
Favorable/
(Unfavorable)
% Change
6.3 %
8.2 %
32.1 %
(20.2)%
33.6 %
Capital expenditures
* See the table in Item 6 for a reconciliation of this non-GAAP measure to GAAP and additional
information.
Net sales in 2019 increased versus 2018 primarily due to higher sales volume and increased selling prices.
Terphane’s EBITDA from ongoing operations in 2019 increased by $3.6 million versus 2018 due to:
• Higher volume ($2.6 million) and higher selling prices ($1.6 million), partially offset by higher fixed and variable
costs, including costs related to a restarted line ($2.0 million);
• Net favorable foreign currency translation of Real-denominated operating costs of $0.4 million; and
•
Foreign currency transaction gains of $1.0 million in 2019 versus losses of $0.8 million in 2018.
Projected Capital Expenditures and Depreciation & Amortization
Capital expenditures are projected to be $8 million in 2020, including $6 million for new capacity for value-added
products and productivity projects and $1 million for capital expenditures required to support continuity of current operations.
Depreciation expense is projected to be $2 million in 2020. Amortization expense is projected to be $0.4 million in 2020.
Corporate Expenses, Investments, Interest and Income Taxes
Pension expense was $9.6 million in 2019, a favorable change of $0.8 million from 2018. The impact on earnings from
lower pension expense is reflected in “Corporate expenses, net” in the EBITDA from ongoing operations table in Note 5.
Pension expense is projected to be $14.2 million in 2020. Corporate expenses, net, increased in 2019 versus 2018 primarily due
to higher stock-based employee compensation ($1.7 million), and consulting fees ($4.1 million) related to the identification and
remediation of previously disclosed material weaknesses in the Company’s internal control over financial reporting, business
development activities, and implementation of new accounting guidance.
Interest expense decreased to $4.1 million in 2019 from $5.7 million in 2018, primarily due to lower average debt levels.
During 2019, the Company recognized consolidated income tax expense of $9.9 million based on pretax income of $58.2
million. During 2018, the Company recognized consolidated income tax expense of $11.5 million based on pretax income of
$36.4 million. Information on the differences between the effective tax rate for income and the U.S. federal statutory rate for
2019 and 2018 are further detailed in the effective income tax rate reconciliation provided in Note 16.
22
Total debt was $42.0 million at December 31, 2019, compared to $101.5 million at December 31, 2018. Net debt (debt in
excess of cash and cash equivalents) was $10.6 million at December 31, 2019, compared to $67.1 million at December 31,
2018. Net debt is calculated as follows:
(In millions)
Debt
Less: Cash and cash equivalents
Net debt
December 31, 2019
December 31, 2018
$
$
42.0
$
31.4
10.6
$
101.5
34.4
67.1
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 below.
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). When assessing goodwill for impairment,
accounting guidance allows the Company to first perform a qualitative assessment about the likelihood of the carrying value of
a reporting unit exceeding its fair value, referred to as the Step 0 assessment. The Step 0 assessment requires the evaluation of
certain qualitative factors, including macroeconomic conditions, industry and market considerations, cost factors and overall
financial performance, as well as company and reporting unit factors. If the Company's Step 0 analysis indicates that it is more
likely than not that the fair value of a reporting unit is less than the carrying amount, then the Company would perform a
quantitative impairment test.
As of December 31, 2019, the Company applied the Step 0 assessment to its PE Films’ Surface Protection reporting unit
and Aluminum Extrusions’ reporting units created as a result of acquisitions in 2012 (“AACOA”) and in 2017 (“Futura”), each
of which had fair values significantly in excess of their carrying amounts when last tested using the quantitative impairment
test. The Company's Step 0 analysis in 2019 of the reporting units concluded that it is not more likely than not that the fair
value of the reporting unit is less than its carrying amount. Therefore, the quantitative goodwill impairment test for these
reporting units was not necessary in 2019.
Goodwill for Surface Protection, AACOA and Futura totaled $57.3 million, $13.7 million and $10.4 million, respectively,
at December 31, 2019.
In assessing the recoverability of goodwill and long-lived identifiable assets, the Company primarily estimates fair value
using discounted cash flow analysis and comparative enterprise value-to-EBITDA 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.
All goodwill associated with PE Films’ Personal Care operating unit, in the amount of $46.8 million ($38.2 million after
deferred income tax benefits), was impaired in the third quarter of 2018. The goodwill impairment charge was recognized upon
the completion of an asset recoverability test and impairment analysis performed as of September 30, 2018. This non-
operating, non-cash charge, as computed under GAAP, resulted from the expectation of a significant customer transition. The
23
Company performed an asset recoverability test and impairment analysis using projections under various business planning
scenarios and concluded that the fair value of the Personal Care reporting unit was less than its carrying value.
In 2017, Flexible Packaging Films recorded a charge for the impairment of assets in the amount of $101 million. As part
of this write-down, trade names, customer relationships and proprietary technology were impaired by $4.0 million, $9.4 million
and $4.1 million, respectively; the remaining part of the write-down was related to property, plant and equipment.
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 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 option to account for their investment portfolios). At December 31, 2019, Tredegar’s
ownership interest was approximately 18% on a fully diluted basis.
The Company considers its investment in kaléo to be a Level 3 investment under the hierarchy described in GAAP. The
Company discloses the level of its investments 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). The Company believes that its
fair value estimates will continue to be based upon Level 3 inputs since there is no secondary market for Tredegar’s ownership.
See Note 4 for more information on valuation methods used. Adjustments to the estimated fair value of this investment will be
made in the period in which such changes can be quantified.
At December 31, 2019 and 2018, the fair value of the Company’s investment in kaléo (also the carrying value, which is
separately stated in the consolidated balance sheets) was estimated at $95.5 million and $84.6 million, respectively. The
ultimate value of the Company’s ownership interest in kaléo will be determined and realized only if and when a liquidity event
occurs, and the ultimate value could be materially different from the $95.5 million estimated fair value reflected in the
Company’s financial statements at December 31, 2019.
Pension Benefits
Tredegar sponsors noncontributory defined benefit (pension) plans in its continuing operations that have resulted in
varying amounts of net pension income or expense, as developed from actuarial valuations. Inherent in these valuations are
key assumptions including discount rates, expected return on plan assets and rate of future compensation increases. The
Company is required to consider current market conditions, including changes in interest rates and plan asset investment
returns, in determining these assumptions. Actuarial assumptions may differ materially from actual results due to changing
market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These
differences may result in a significant impact to the amount of net pension income or expense recorded in future periods.
The discount rate is used to determine the present value of future payments. The discount rate is the single rate that, when
applied to expected benefit payments, provides a present value equal to the present value of expected benefit payments
determined by using the AA-rated bond yield curve. In general, the pension liability increases as the discount rate decreases
and vice versa. The weighted average discount rate utilized was 3.27%, 4.40% and 3.72% at the end of 2019, 2018 and 2017,
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. As of January 31, 2018, the plan no longer accrued benefits associated with crediting
employees for service, thereby freezing all future benefits under the plan.
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 (net of fees and plan
expenses), which is primarily affected by the change in fair value of plan assets, current year contributions and current year
payments to participants, was approximately 11.8% in 2019, negative 5.4% in 2018 and 10.0% in 2017. The expected long-
term return on plan assets relating to continuing operations, which is estimated by asset class and generally based on inflation-
adjusted historical returns, volatilities, risk premiums and managed asset premiums, was 6.00%, 6.50% and 6.50% in 2019,
2018 and 2017, respectively. The Company anticipates that its expected long-term return on plan assets will be 5.00% for
2020. See Note 13 for more information on expected long-term return on plan assets and asset mix.
See the Executive Summary section above for further discussion regarding the financial impact of the Company’s
pension plans.
24
Income Taxes
On a quarterly basis, Tredegar reviews its judgments regarding uncertain tax positions and the likelihood that the benefits
of a deferred income tax asset will be realized. As circumstances change, the Company reflects in earnings any adjustments to
unrecognized benefits for uncertain tax positions and valuation allowances for deferred income tax assets.
For financial reporting purposes, unrecognized tax benefits on uncertain tax positions were $0.9 million, $3.4 million and
$2.0 million as of December 31, 2019, 2018 and 2017, 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, $0.2 million and $0.1 million at
December 31, 2019, 2018 and 2017, respectively ($0.1 million, $0.2 million and $0.1 million, respectively, net of
corresponding U.S. 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 2016.
As of December 31, 2019 and 2018, valuation allowances relating to deferred income tax assets were $5.1 million and
$24.7 million, respectively. For more information on deferred income tax assets and liabilities, see Note 16.
Refer to the section Recently Issued Accounting Standards in Note 1 for information concerning the effect of recently
issued accounting pronouncements.
Recently Issued Accounting Standards
Results of Operations
2019 versus 2018
Revenues. Sales in 2019 decreased by 8.7% compared with 2018 due to lower sales in both Aluminum Extrusions and PE
Films. Net sales decreased 7.6% in Aluminum Extrusions primarily due to lower sales volume and the passthrough of lower
metal costs, partially offset by an increase in average selling prices to cover higher operating costs. Net sales decreased 18.0%
in PE Films primarily due to lower volume in most product categories in Personal Care from competitive pressures. Net sales
increased in Flexible Packaging Films by 8.2% primarily due to higher sales volume and increased selling prices. For more
information on changes in net sales and volume, see the Executive Summary section above.
Operating Costs and Expenses. Consolidated gross profit margin (sales minus cost of goods sold and freight as a percentage of
sales) was 17.4% in 2019 versus 16.9% in 2018. The gross profit margin in Aluminum Extrusions increased primarily as a
result of higher selling prices. The gross profit margins in PE Films and Flexible Packaging Films were essentially unchanged
from 2018 to 2019.
For more information on changes in operating costs and expenses, see the Executive Summary section above.
Selling, General and Administrative. As a percentage of sales, selling, general and administrative and R&D expenses were
11.7% in 2019, which increased from 9.8% in 2018. The increase in selling, general and administrative and R&D expenses as
a percentage of sales can be primarily attributed to lower sales for Aluminum Extrusions and PE Films. Increased spending
was due to higher stock-based compensation and consulting fees due to remediation activities and other costs relating to the
Company’s material weaknesses in internal control over financial reporting, business development activities, and
implementation of new accounting guidance.
Plant shutdowns, asset impairments, restructurings and other. Pre-tax losses associated with plant shutdowns, asset
impairments, restructurings and other items in 2019 as detailed below are shown in the EBITDA from ongoing operations table
in Note 5 and are included in “Asset impairments and costs associated with exit and disposal activities, net of adjustments” in
the consolidated statements of income, unless otherwise noted. A discussion of unrealized gains and losses on investments can
also be found in Note 4 and additional information on restructuring costs can be found in Note 17.
25
($ in millions)
Q1
Q2
Q3
Q4
2019
Aluminum Extrusions:
(Gains) losses from sale of assets, investment writedowns and other items:
Wind damage to roof of Elkhart, Indiana plant2
Environmental charges at Carthage Tennessee plant1
Total for Aluminum Extrusions
PE Films:
(Gains) losses associated with plant shutdowns, asset impairments and
restructurings:
Shanghai plant shutdown:
Asset-related expenses
Gain from sale of plant3
Consolidation of Personal Care manufacturing facilities - U.S. and Europe:4
Severance
Asset impairment
Product qualifications1
Lake Zurich, Illinois plant shutdown and transfer of production to new
elastics lines in Terre Haute, Indiana:4
Severance
Asset impairment
Safety/quality initiative1
Accelerated depreciation1
Product qualifications1
Reserve for inventory impairment - Personal Care's Hungary facility
Other restructuring costs - severance
Write-off Personal Care production line - Guangzhou, China facility
Subtotal for PE Films
Losses from sale of assets, investment writedowns and other items:
Estimated excess costs associated with ramp-up of new product offerings
and additional expenses related to strategic capacity expansion projects1
Total for PE Films
Corporate:
$ — $ — $ 0.3
0.3
$ — $ — $ 0.6
—
—
$ (0.4)
0.2
$ (0.2)
$ (0.1)
0.5
$ 0.4
$ 0.2
—
$ 0.2
—
$ 0.2
(6.3)
$ 0.1
—
$ 0.7
(6.3)
—
—
—
—
—
—
—
—
—
0.4
0.4
1.0
0.1
0.1
—
0.3
0.2
—
0.3
—
—
0.1
—
1.3
0.5
—
0.1
0.4
—
0.1
0.5
0.1
0.2
0.1
—
(4.1)
—
—
—
0.2
—
0.1
0.4
0.1
—
0.2
—
1.1
0.6
0.1
0.1
0.9
0.2
0.2
1.2
0.2
0.2
0.8
0.4
(0.7)
0.3
0.2
0.3
0.3
1.1
$ 1.3
$ 1.5
$ (3.8) $ 1.4
$ 0.4
Professional fees associated with: internal control over financial reporting;
business development activities; and implementation of new accounting
guidance2
Accelerated recognition of stock option-based compensation5
Environmental costs not associated with a business unit2
Total for Corporate
$ 0.9
—
—
$ 0.9
$ 2.0
—
—
$ 2.0
$ 1.6
—
—
$ 1.6
$ 0.8
1.3
0.6
$ 2.7
$ 5.3
1.3
0.6
$ 7.2
1. Included in “Cost of goods sold” in the consolidated statements of income.
2. Included in “Selling, general and administrative” in the consolidated statements of income.
3. Included in “Other income (expense), net” in the consolidated statements of income.
4. Additional information on costs associated with exit and disposal activities and other details are available in Note 17.
5. Included in “Stock option-based compensation” in the EBITDA from ongoing operations table in Note 5.
26
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 2019 and $0.4 million in 2018.
Interest expense, which is net of amounts capitalized and included in property, plant and equipment ($0.9 million and $0.3
million capitalized in 2019 and 2018, respectively), was $4.1 million in 2019, compared to $5.7 million for 2018. Average debt
outstanding and interest rates were as follows:
(In millions, except percentages)
2019
2018
Floating-rate debt with interest charged on a rollover
basis at one-month LIBOR plus a credit spread:
Average outstanding debt balance
$
85.0
$
121.3
Average interest rate
4.0%
3.8%
Identifiable Assets. A summary of identifiable assets for the year ended December 31, 2019 versus 2018 is provided below:
(In thousands)
Aluminum Extrusions
PE Films
Flexible Packaging Films
Subtotal
General corporate
Cash and cash equivalents
Total
Year Ended
December 31,
2019
265,027
230,415
74,016
569,458
111,788
31,422
712,668
$
$
2018
281,372
231,720
58,964
572,056
100,920
34,397
707,373
$
$
Variance
(16,345)
(1,305)
15,052
(2,598)
10,868
(2,975)
5,295
$
$
Identifiable assets in Aluminum Extrusions decreased at December 31, 2019 from December 31, 2018 primarily due to
accelerated trade name amortization, lower accounts receivable balances due to lower sales and the timing of collections and
lower inventory balances, partially offset by the addition of the right-of-use assets resulting from the implementation of the new
lease accounting guidance. Identifiable assets in PE Films decreased slightly at December 31, 2019 from December 31, 2018.
Identifiable assets in Flexible Packaging Films increased at December 31, 2019 from December 31, 2018 primarily due to
current year capital expenditures partially offset by lower inventory balances. Identifiable assets in General corporate
increased at December 31, 2019 from December 31, 2018 primarily due to the increase in the fair value of the Company’s
investment in kaléo.
2018 versus 2017
Revenues. Sales in 2018 increased by 10.8% compared with 2017 due to higher sales in all segments, except PE Films. Net
sales increased 22.8% in Aluminum Extrusions primarily due to a full year of sales by Futura (acquired February 15, 2017),
higher volume and an increase in average selling prices from the pass-through of higher market-driven raw material costs. Net
sales decreased 5.7% in PE Films primarily due to topsheet business lost from competitive pressures in Europe and Asia,
including at the Shanghai, China, facility that was recently shut down. Net sales increased in Flexible Packaging Films by
14.3% primarily due to higher sales volume, increased selling prices associated with the pass-through of higher resin costs and
increased production capacity from an idle line that was restarted in June 2018. For more information on changes in net sales
and volume, see the Segment Analysis below.
Operating Costs and Expenses. Consolidated gross profit margin (sales minus cost of goods sold and freight as a percentage of
sales) was 16.9% in 2018 versus 16.7% in 2017. The gross profit margin in Aluminum Extrusions decreased primarily as a
result of operating inefficiencies relating to the operation of its Niles, Michigan facility. The gross profit margin in PE Films
decreased due to lower volume, as discussed above, unfavorable product mix and increased operating costs, partially offset by
the realized cost savings of a restructuring completed in 2017. The gross profit margin in Flexible Packaging Films increased
due to significantly lower depreciation and amortization costs in 2018 compared to 2017, resulting from the $101 million non-
cash asset impairment charge recognized in the fourth quarter of 2017, higher production primarily from the restart of an idle
line in June 2018, and higher overall demand.
For more information on changes in operating costs and expenses, see the Segment Analysis below.
27
Selling, General and Administrative. As a percentage of sales, selling, general and administrative and R&D expenses were
9.8% in 2018, which decreased from 10.6% in 2017. The decrease in selling, general and administrative and R&D expenses as
a percentage of sales can be primarily attributed to higher sales as a result of the acquisition of Futura and the restart of a
production line by Flexible Packaging Films, overall higher demand at Aluminum Extrusions and higher selling prices
primarily due to the pass-through to customers of higher market-driven raw material costs.
During 2019, the Company changed the presentation of plant shutdowns, asset impairments, restructuring and other.
The table below for 2018 has been provided to be consistent with the 2019 presentation.
Plant shutdowns, asset impairments, restructurings and other. Pre-tax losses associated with plant shutdowns, asset
impairments, restructurings and other items in 2018 as detailed below are shown in the EBITDA from ongoing operations table
in Note 5 and are included in “Asset impairments and costs associated with exit and disposal activities, net of adjustments” in
the consolidated statements of income, unless otherwise noted. A discussion of unrealized gains and losses on investments can
also be found in Note 4 and additional information on restructuring costs can be found in Note 17.
28
($ in millions)
Q1
Q2
Q3
Q4
2018
Aluminum Extrusions:
Losses associated with plant shutdowns, asset impairments and restructurings:
Other restructuring costs - severance
$
0.1 $ — $ — $ — $
0.1
Losses from sale of assets, investment writedowns and other items:
Aluminum Extrusions:
Wind damage to roof of Elkhart, Indiana plant2
Environmental charges at Carthage, Tennessee facility1
Subtotal for Aluminum Extrusions
Total for Aluminum Extrusions
PE Films:
(Gains) losses associated with plant shutdowns, asset impairments and
restructurings:
Shanghai plant shutdown:
Asset-related expenses
Severance & employee-related expenses
Severance & employee-related expenses - administrative1
Legal
Accelerated depreciation1
Other restructuring costs - severance
Subtotal for PE Films
(Gains) losses from sale of assets, investment writedowns and other items:
Estimated excess costs associated with ramp-up of new product offerings
and additional expenses related to strategic capacity expansion projects1
Costs related to a fire that occurred at a facility in Rétság, Hungary2
Costs to prepare a market study2
Gain on reversal of contingent liability3
Subtotal for PE Films
Total for PE Films
Corporate:
$
$
0.1
0.3
0.4
0.5
0.4
1.8
0.4
—
0.6
0.6
3.7
—
—
—
—
—
—
0.1 $ — $
0.1
0.2
0.3
0.3 $
—
0.1
0.1
0.1
$
0.1 $
1.1
0.2
(0.1)
0.4
0.2
1.9
0.3
0.4
0.1
—
0.1
0.3
1.2
$ — $ — $
—
—
—
—
0.1
0.1
1.0
—
—
—
1.0
0.3
0.1
0.1
0.1
—
0.6
0.6
—
—
—
0.6
0.2
—
0.2
—
0.4
0.3
0.1
—
(0.3)
0.1
2.1
0.1
0.2
(0.3)
2.1
$
1.1 $
1.2 $
2.3 $
1.3
$
5.8
Professional fees associated with: internal control over financial reporting;
and implementation of new accounting guidance2
$
0.3 $ — $
0.2 $
0.6
$
1.1
Loss on investment in Harbinger Capital Partners Special Situations Fund,
L.P.3
Business development projects2
Total for Corporate
—
—
0.3 $
0.2
—
0.2 $
0.2
—
0.4 $
0.1
0.5
1.2
$
0.5
0.5
2.1
$
1. Included in “Cost of goods sold” in the consolidated statements of income.
2. Included in “Selling, general and administrative” in the consolidated statements of income.
3. Included in “Other income (expense), net” in the consolidated statements of income.
29
Segment Analysis. A summary of operating results for 2018 versus 2017 for each of the Company’s reporting segments is
shown below.
Aluminum Extrusions
A summary of operating results for Aluminum Extrusions is provided below:
(In thousands, except percentages)
Sales volume (lbs)*
Net sales
Ongoing operations:
EBITDA
Depreciation & amortization
EBIT**
Year Ended
December 31,
Favorable/
(Unfavorable)
2018
190,696
$ 573,126
2017
176,269
$ 466,833
% Change
8.2%
22.8%
$
$
$
65,479
(16,866)
48,613
12,966
$
$
$
58,524
(15,070)
43,454
25,653
11.9%
11.9%
11.9%
Capital expenditures
* Sales volume for the years ended December 31, 2018 and 2017 excludes sales volume of 33,170 lbs.
and 23,166 lbs., respectively, associated with Futura, which was acquired on February 15, 2017.
** See the table in Item 6 for a reconciliation of this non-GAAP measure to GAAP and additional
information.
Net sales in 2018 increased versus 2017 primarily due to higher volume and an increase in average selling prices from the
pass-through of higher market-driven raw material costs. Futura contributed $102.5 million of net sales in 2018 versus $71.0
million for the 10½ months owned during 2017. Excluding the impact of Futura, the increase in net sales was the result of
higher sales volume ($32.4 million), an increase in average selling prices as noted above ($31.7 million) and improved mix
($10.8 million).
Volume on an organic basis, (which excludes the impact of the Futura acquisition) increased by 8.2% in 2018 versus 2017
due to higher volume in all of Aluminum Extrusion’s primary markets. Overall average capacity utilization during the fourth
quarter of 2018 was in excess of 90%.
EBITDA from ongoing operations in 2018 increased by $7.0 million in comparison to 2017. Excluding the favorable
impact of owning Futura for a full twelve-month period ($3.8 million) and the benefit for inventories accounted for under the
LIFO method in the fourth quarter of 2018 ($2.3 million), EBITDA from ongoing operations increased $0.9 million, primarily
due to:
• Higher volume ($5.1 million) and favorable mix ($5.8 million), which were offset by higher employee-related
costs ($5.2 million), higher supplies and maintenance ($2.3 million), higher freight ($1.7 million), and higher
utilities, primarily in the first quarter of 2018 at the Newnan, Georgia facility ($0.9 million).
The Company focused on fixing inefficiencies associated with the new extrusion line at its Niles, Michigan plant and
estimated that EBITDA from ongoing operations in 2018 would have been higher by $3 million if not for these inefficiencies.
These inefficiencies are reflected in the higher costs noted above.
30
PE Films
A summary of operating results for PE Films is provided below:
Year Ended
December 31,
Favorable/
(Unfavorable)
(In thousands, except percentages)
Sales volume (lbs)
Net sales
Ongoing operations:
EBITDA
Depreciation & amortization
EBIT*
2018
123,583
$ 332,488
2017
138,999
$ 352,459
$ 51,058
(14,877)
$ 36,181
$ 21,998
$ 55,889
(14,343)
$ 41,546
$ 15,029
% Change
(11.1)%
(5.7)%
(8.6)%
3.7%
(12.9)%
Capital expenditures
* See the table in Item 6 for a reconciliation of this non-GAAP measure to GAAP and additional
information.
Net sales in 2018 decreased by $20.0 million versus 2017 primarily due to:
• The volume decline in Personal Care was primarily related to topsheet business lost from competitive pressures in
North America, Europe and Asia, including at the Shanghai, China, facility that was shut down in the fourth
quarter of 2018. A small portion of the volume decline was associated with the start of a customer product
transition. Volume for elastics products in Personal Care increased year-over-year; and
•
Slightly lower sales in Surface Protection caused by lower volume and the adverse impact of quality claims,
partially offset by higher volume-based selling prices.
EBITDA from ongoing operations in 2018 decreased by $4.8 million versus 2017 primarily due to:
• Lower contribution to profits from Personal Care, primarily due to lower volume and unfavorable product mix
($9.3 million), partially offset by volume-based higher selling pricing ($2.2 million), lower fixed and selling,
general and administrative costs ($1.1 million), the timing of resin cost passthroughs ($0.7 million), productivity
improvements ($0.3 million) and net favorable impact from the change in U.S. Dollar value of currencies for
operations outside of the U.S. ($0.8 million);
• Lower contribution to profits from Surface Protection, primarily due to lower volumes and unfavorable product
mix ($4.1 million), the adverse impact of quality claims ($1.3 million), higher fixed and other manufacturing
costs ($1.6 million), higher research and development spending and selling, general and administrative costs ($0.4
million) and higher freight costs ($0.5 million), partially offset by volume-based higher selling prices ($4.4
million); and
• Realized cost savings associated with the North American consolidation of our PE Films manufacturing facilities
completed in 2017 ($2.4 million).
31
Flexible Packaging Films
A summary of operating results for Flexible Packaging Films is provided below:
(In thousands, except percentages)
Sales volume (lbs)
Net sales
Ongoing operations:
EBITDA
Depreciation & amortization
EBIT*
Year Ended
December 31,
2018
98,994
$ 123,830
2017
89,325
$ 108,355
$ 11,154
(1,262)
9,892
5,423
$
$
$
7,817
(10,443)
$ (2,626)
3,619
$
Favorable/
(Unfavorable)
% Change
10.8 %
14.3 %
42.7 %
(87.9)%
N/A
Capital expenditures
* See the table in Item 6 for a reconciliation of this non-GAAP measure to GAAP and additional
information.
Net sales in 2018 increased versus 2017 primarily due to higher sales volume and increased selling prices associated with
the pass-through of higher resin costs. The higher sales volume was supported by increased production capacity for Brazilian
operations resulting from the re-start in June 2018 of a previously idled production line.
Terphane had EBITDA from ongoing operations in 2018 of $11.2 million versus $7.8 million in 2017. The resulting
favorable change of $3.3 million for the period was primarily due to:
• A benefit from higher volume ($5.5 million) and favorable tax incentives ($1.3 million), partially offset by the
unfavorable impact of mix and higher resin costs, net of higher selling prices ($2.2 million);
• Higher fixed and other manufacturing costs and selling, general and administrative costs, primarily related to
higher volume ($2.0 million);
•
Favorable foreign currency translation of Real-denominated operating costs ($3.2 million), which was offset by a
$1.7 million loss on foreign currency forward contracts that partially hedged Real-denominated operating costs;
and
• Unfavorable net foreign currency transaction impact ($0.6 million) resulting from foreign currency transaction
losses of $0.8 million in 2018 and losses of $0.2 million in 2017.
Depreciation and amortization expense in 2018 was significantly lower than 2017 due to the non-cash write-down of
Terphane’s long-lived assets during the fourth quarter of 2017.
***
During 2019, the Company changed the presentation of plant shutdowns, asset impairments, restructuring and other. The
table below for 2017 has been provided to be consistent with the 2019 presentation.
Plant shutdowns, asset impairments, restructurings and other. Pre-tax losses associated with plant shutdowns, asset
impairments, restructurings and other items 2017 as detailed below are shown in the EBITDA from ongoing operations table in
Note 5 and are included in “Asset impairments and costs associated with exit and disposal activities, net of adjustments” in the
consolidated statements of income, unless otherwise noted. A discussion of unrealized gains and losses on investments can also
be found in Note 4 and additional information on restructuring costs can be found in Note 17.
32
($ in millions)
Aluminum Extrusions:
Losses associated with plant shutdowns, asset impairments and
restructurings:
Other restructuring costs - severance
Kentland shutdown - settlement of claims and other costs
Q1
Q2
Q3
Q4
2017
$ — $ — $ — $
—
0.2
—
$
0.1
—
0.1
0.1
0.2
0.3
Total
—
—
0.2
(Gains) losses from sale of assets, investment writedowns and other items:
Aluminum Extrusions:
Estimated excess costs associated with ramp-up of new product
offerings and additional expenses related to strategic capacity expansion
projects1
(Gains) losses related to the explosion at the Newnan, Georgia facility in
June 2016:
Gain on involuntary conversion of damaged plant3
Other excess production costs and adjustments1
Non-reimbursable legal and consulting fees2
(Gains) losses related to the acquisition and integration of Futura:
Fair valuation of earnout provision3
Acquisition costs2
Integration costs2
Accounting adjustments upon inventory revaluation1
Environmental charges Newnan, Georgia and Carthage, Tennessee
plants1
Subtotal for Aluminum Extrusions
Total for Aluminum Extrusions
PE Films:
(Gains) losses associated with plant shutdowns, asset impairments and
restructurings:
Lake Zurich plant downsizing and restructuring:
Severance & employee-related expenses
Accelerated depreciation1
Other exit & disposal costs
Other costs related to the downsizing1
Other restructuring costs - severance
Asset impairments at the Hungary production facility
Subtotal for PE Films
Losses from sale of assets, investment writedowns and other items:
Estimated excess costs associated with ramp-up of new product
offerings and additional expenses related to strategic capacity
expansion projects1
Total for PE Films
Flexible Packaging:
(Gains) losses from sale of assets, investment writedowns and other items:
Impairment of assets
Terphane acquisition escrow payout gain3
Subtotal for Flexible Packaging
33
0.3
0.1
0.1
—
0.5
—
0.3
0.1
—
(0.9)
—
— (5.3)
0.2
—
—
—
— (0.7)
—
1.5
—
0.1
—
1.7
—
—
—
—
—
—
—
—
(5.3)
(0.4)
0.1
(0.7)
1.5
0.1
1.7
—
(1.5)
0.4
4.4
4.4 $ (1.5) $
1.9
1.5
—
(0.6)
(3.6)
0.1
0.3 $ (3.5) $ (0.3)
0.2 $ (0.3) $ — $ — $ (0.1)
0.3
—
0.2
0.1
—
$
$
0.1
0.2
—
—
0.7
—
0.2
—
—
—
—
0.1
0.1
—
0.2
—
—
0.1
0.3
0.4
0.1
0.5
0.2
0.3
1.3
1.5
0.9
0.6
$
2.2 $
0.9 $
0.8 $
0.6
1.0
$
3.6
4.9
$ — $ — $ — $ 101.3
— (11.9)
—
$ — $ (11.9) $ — $ 101.3
$ 101.3
— (11.9)
$ 89.4
Corporate:
Severance
Professional fees associated with: Terphane’s Limitada worthless stock
deduction; and the impairment of assets of Flexible Packaging Films2
Business development projects2
Environmental costs not associated with a business unit2
Total for Corporate
1. Included in “Cost of goods sold” in the consolidated statements of income.
2. Included in “Selling, general and administrative” in the consolidated statements of income.
3. Included in “Other income (expense), net” in the consolidated statements of income.
0.3
—
0.3
—
—
0.6
—
—
0.2
—
0.6 $
—
0.6 $
—
0.2 $
$
0.1
0.4
1.3
0.8
2.6
$
$
$
$
$
0.4
0.4
2.4
0.8
4.0
Assets and Liabilities
Financial Condition
Tredegar’s management continues to focus on working capital management. Measures such as days sales outstanding
(“DSO”), days inventory outstanding (“DIO”) and days payables outstanding (“DPO”) are used by the Company to evaluate
changes in working capital. Significant changes in assets and liabilities from December 31, 2018 to December 31, 2019 are
summarized below:
• Accounts and other receivables decreased $17.2 million (13.8%).
• Accounts and other receivables in Aluminum Extrusions decreased by $11.6 million primarily due to lower sales.
DSO (computed using trailing 12 months net sales and a rolling 12-month average of accounts and other receivables
balances) was approximately 48.5 days in 2019 and 44.6 days in 2018.
• Accounts and other receivables in PE Films decreased by $7.0 million due mainly to lower net sales for Personal
Care products. DSO was approximately 44.0 days in 2019 and 43.2 days in 2018.
• Accounts and other receivables in Flexible Packaging Films increased by $1.5 million primarily due to higher sales.
DSO was approximately 37.7 days in 2019 and 43.7 days in 2018.
•
Inventories decreased $12.4 million (13.3%).
•
•
•
Inventories in Aluminum Extrusions decreased by $5.4 million primarily due to a decrease in raw material prices and
reduced purchases of inventory in light of lower sales. DIO (computed using trailing 12 months costs of goods sold
calculated on a first in, first out basis and a rolling 12-month average of inventory balances calculated on the first-in,
first-out basis) was approximately 38.6 days in 2019 and 33.5 days in 2018.
Inventories in PE Films decreased by $2.1 million primarily due to lower sales and the timing of raw material
purchases. DIO was approximately 55.7 days in 2019 and 54.9 days in 2018.
Inventories in Flexible Packaging Films decreased by $5.0 million primarily due to a reduction of finished goods on
hand and an overall reduction in raw material levels. DIO was approximately 94.3 days in 2019 and 77.9 days in
2018.
• Net property, plant and equipment increased by $14.5 million (6.4%) primarily due to capital expenditures of $50.9 million,
offset by depreciation of $30.7 million and the disposal of fixed assets ($2.1 million decrease).
•
Identifiable intangible assets decreased by $13.7 million (37.6%) primarily due to amortization expense of $13.6 million,
including $10.0 million of accelerated amortization of trade names associated with the Bonnell Aluminum rebranding
initiative. For information on the rebranding initiative, see Note 8.
• Accounts payable decreased by $9.1 million (8.1%).
• Accounts payable in Aluminum Extrusions decreased by $6.5 million, primarily due to lower volume, a decrease in
metal prices and the normal volatility associated with the timing of payments. DPO (computed using trailing 12
months costs of goods sold calculated on a first in, first out basis and a rolling 12-month average of accounts payable
balances) was approximately 49.9 days in 2019 and 49.7 days in 2018.
• Accounts payable in PE Films decreased by $0.9 million primarily due to the normal volatility associated with the
timing of payments. DPO was approximately 44.9 days in 2019 and 43.7 days in 2018.
34
• Accounts payable in Flexible Packaging Films decreased by $1.3 million, primarily due to lower inventory levels and
the normal volatility associated with the timing of payments. DPO was approximately 55.2 days in 2019 and 51.9
days in 2018.
• Accrued expenses increased by $3.3 million (7.8%) from December 31, 2018 due to normal fluctuations in the accrual
accounts.
• Net noncurrent deferred income tax assets in excess of noncurrent deferred income tax liabilities decreased by $1.3 million
primarily due to numerous changes between years in the balance of the components shown in the December 31, 2019 and
2018 schedule of deferred income tax assets and liabilities provided in Note 16. The Company had a current income tax
receivable of $4.1 million at December 31, 2019 compared to a current income tax receivable of $6.8 million at December
31, 2018. The change is primarily due to timing of tax payments and refunds from net operating losses and tax credits
carried back to prior years.
On June 28, 2019, Tredegar entered into a $500 million five-year, secured revolving credit agreement (“revolving
credit agreement”), with an option to increase that amount by $100 million. The revolving credit agreement amends and
restates the Company’s previous $400 million five-year agreement that was due to expire on March 1, 2021. Net capitalization
and indebtedness as defined under the revolving credit agreement as of December 31, 2019 were as follows:
Net Capitalization and Indebtedness as of December 31, 2019
(In thousands)
Net capitalization:
Cash and cash equivalents
Debt:
Revolving credit agreement
Other debt
Total debt
Debt net of cash and cash equivalents
Shareholders’ equity
Net capitalization
Indebtedness as defined in revolving credit agreement:
Total debt
Other
Indebtedness
$
31,422
42,000
—
42,000
10,578
376,749
387,327
42,000
—
42,000
$
$
$
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
> 3.0x but <= 3.5x
> 2.0x but <= 3.0x
> 1.0x but <= 2.0x
<= 1.0x
Credit Spread
Over LIBOR
Commitment
Fee
200.0
187.5
175.0
162.5
150.0
40
35
30
25
20
At December 31, 2019, 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 150 basis points. Under the revolving credit agreement, borrowings are
permitted up to $500 million, and approximately $370 million was available to borrow at December 31, 2019, based upon the
most restrictive covenant within the revolving credit agreement.
As of December 31, 2019, Tredegar was in compliance with all financial covenants outlined in its revolving credit
agreement. Noncompliance with any of the debt covenants may have a material 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
35
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, 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 as defined in the revolving
credit agreement is 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.
Computations of Adjusted EBITDA, 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, 2019 (In thousands)
Computations of adjusted EBITDA as defined in revolving credit agreement for the twelve months ended December 31, 2019
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 $10,000)
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 in an amount not to exceed $10,000 for such period
Plus or minus, as applicable, pro forma EBITDA adjustments associated with acquisitions and asset
dispositions
Adjusted EBITDA as defined in revolving credit agreement
$
48,259
—
9,913
4,051
44,284
11,116
4,209
—
—
—
—
(296)
—
—
—
(28,482)
10,000
—
$ 103,054
Computations of leverage and interest coverage ratios as defined in revolving credit agreement at December 31, 2019:
Leverage ratio (indebtedness-to-adjusted EBITDA)
Interest coverage ratio (adjusted EBITDA-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 April
1, 2019)
Maximum leverage ratio permitted
Minimum interest coverage ratio permitted
.41x
25.44x
$ 145,805
4.00x
3.00x
36
Tredegar is obligated to make future payments under various contracts as set forth below:
(In millions)
Debt:
2020
2021
2022
2023
2024
Remainder
Total
Payments Due by Period
Principal payments
$
— $
— $
— $
— $
42.0
$
— $
Estimated interest expense
Estimated contributions required: (1)
Defined benefit plans
Other postretirement benefits
Capital expenditure commitments
Leases(2)
Estimated obligations relating to
uncertain tax positions (3)
Other (4)
Total
1.4
1.4
1.4
1.4
0.7
—
12.3
11.1
14.3
13.2
13.9
29.5
0.5
2.3
4.7
0.1
3.7
0.5
—
3.6
—
2.3
0.5
—
2.6
—
0.6
0.5
—
2.4
—
—
0.5
—
2.4
—
—
2.1
—
9.8
0.8
—
42.0
6.3
94.3
4.6
2.3
25.5
0.9
6.6
$
25.0
$
18.9
$
19.4
$
17.5
$
59.5
$
42.2
$
182.5
(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 2020 through 2029 were determined under provisions of the Pension Protection Act of 2006
using the preliminary assumptions chosen by Tredegar for the 2020 plan year. Tredegar has determined that it is not practicable to present defined
benefit contributions and other postretirement benefit payments beyond 2029.
Contractual lease payments for 2020 include $0.4 million of short term lease payments and $0.5 million of variable lease costs.
(2)
(3) Amounts for which reasonable estimates about the timing of payments cannot be made are included in the remainder column.
(4)
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, 2019, Tredegar had cash and cash equivalents of $31.4 million, including funds held in locations outside
the U.S. of $23.0 million.
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, 2019, Tredegar had 33,365,039 shares of common stock outstanding and a total market capitalization of
$745.7 million, compared with 33,176,024 shares of common stock outstanding and a total market capitalization of $526.2
million at December 31, 2018.
Tredegar did not repurchase any shares on the open market in 2019, 2018 or 2017 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 provided by operating activities was $115.9 million in 2019 compared with $97.8 million in 2018. The increase is
primarily due to lower net working capital (accounts receivables, prepaids, accounts payable and accrued expenses) from
changing business conditions ($43.4 million) and a dividend received from kaleo ($17.6 million), partially offset by income
taxes paid in 2019 ($2.6 million) versus refunds received in 2018 ($24.0 million), lower EBITDA from ongoing operations by
the operating segments ($9.5 million), and higher corporate costs and cash expenses for plant shutdowns and restructurings
($8.0 million).
Cash used in investing activities was $39.9 million in 2019 compared with $34.1 million in 2018. Cash used in investing
activities primarily represents capital expenditures, which were $50.9 million and $40.8 million in 2019 and 2018, respectively.
Additionally, in the first quarter of 2018, the Company received $5 million from escrowed funds related to an earnout from the
acquisition of Futura, of which $4.3 million was classified in cash flows for investing activities, while in 2019, the Company
received $10.9 million in proceeds from the sale of the Shanghai facility, which was shut down in 2018.
Net cash flow used in financing activities was $77.3 million in 2019, primarily due to net repayments under the revolving
credit agreement of $59.5 million and the payment of regular quarterly dividends aggregating for the year to $15.3 million
($0.46 per share annually). Cash used in financing activities was $64.1 million in 2018, including net repayments under the
revolving credit agreement of $50.5 million and regular quarterly dividends aggregating for the year to $14.6 million ($0.44 per
share annually).
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 above 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 above 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 above for more information). Pricing on the remainder of the
business is based upon raw material costs and supply/demand dynamics within the markets in which the Company operates.
Polyester resins, MEG and PTA used by Flexible Packaging Films in Brazil are primarily purchased domestically, with
other sources available, mostly from Asia and the U.S. Given the nature of these products as commodities, pricing is derived
from Asian pricing indexes. The volatility of the average quarterly prices for polyester fibers in Asia, which is representative of
polyester resin (a primary raw material for polyester film products) prices, is shown in the chart below:
Source: Quarterly averages computed by Tredegar using monthly data from CMAI Global Index data.
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 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.
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 2019, 2018 and 2017 are as
follows:
Tredegar Corporation - Continuing Operations
Percentage of Net Sales and Total Assets Related to Foreign Markets
2019
% of Total
Net Sales *
Exports
From
U.S.
Foreign
Oper-
ations
Canada
Europe
Latin America
Asia
Total % exposure to foreign
markets
2
1
1
9
13
—
7
12
1
20
% Total
Assets -
Foreign
Oper-
ations *
—
5
8
3
2018
% of Total
Net Sales *
Exports
From
U.S.
Foreign
Oper-
ations
5
1
1
7
—
8
10
1
19
% Total
Assets -
Foreign
Oper-
ations *
—
6
8
4
2017
% of Total
Net Sales *
Exports
From
U.S.
Foreign
Oper-
ations
5
1
2
9
% Total
Assets -
Foreign
Oper-
ations *
—
6
7
5
18
—
9
9
2
20
16
14
18
17
*
The percentages for foreign markets are relative to Tredegar’s consolidated net sales and total assets .
Tredegar attempts to match the pricing and cost of its products in the same currency and generally views the volatility
of foreign currencies and emerging markets, and the corresponding impact on earnings and cash flow, as part of the overall risk
of operating in a global environment (for additional information, see trends for the Euro, Brazilian Real and Chinese Yuan in
the charts on the following page). Exports from the U.S. are generally denominated in U.S. Dollars. The Company’s foreign
currency exposure on income from continuing foreign operations relates to the Euro, the Chinese Yuan, the Hungarian Forint,
the Brazilian Real and the Indian Rupee.
PE Films is generally able to match the currency of its sales and costs for its product lines. For flexible packaging
films Terphane produced in Brazil, selling prices and key raw material costs are principally determined in U.S. Dollars and are
impacted by local economic conditions. Competition in Brazil, Terphane’s primary market, has been exacerbated by global
overcapacity in the polyester industry generally, particularly in Latin America. These factors have resulted in significant
competitive pricing pressures and U.S. Dollar equivalent margin compression. Moreover, variable conversion, fixed
conversion and sales, general and administrative costs for operations in Brazil have been adversely impacted by inflation in
Brazil that is higher than in the U.S. Terphane is exposed to additional foreign exchange translation risk (its functional
currency is the Brazilian Real) because almost 90% of its sales in Latin America are quoted or priced in U.S. Dollars, while a
41
large majority of its Brazilian costs are quoted or priced in Brazilian Real. This mismatch, together with a variety of economic
variables impacting currency exchange rates, causes volatility that could negatively or positively impact EBITDA from
ongoing operations for Terphane.
The Company estimates that the net mismatch translation exposure between Terphane Ltda.’s U.S. Dollar quoted or
priced sales and underlying Brazilian Real quoted or priced operating costs (excluding depreciation and amortization) is annual
net costs of R$137 million. Terphane Ltda. has outstanding foreign exchange average forward rate contracts to purchase
Brazilian Real and sell U.S. Dollars to hedge its exposure. See Note 9 for more information on outstanding hedging contracts
and this hedging program.
Tredegar estimates that the change in the value of foreign currencies relative to the U.S. Dollar on PE Films had a
favorable impact on EBITDA from ongoing operations in PE Films of $0.7 million in 2019 compared to 2018 and an
unfavorable impact on EBITDA from ongoing operations of $0.8 million in 2018 compared with 2017.
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.
Item 9A. CONTROLS AND PROCEDURES
On November 1, 2018, the Company filed a Current Report on Form 8-K (the “November Form 8-K”) to disclose
deficiencies in internal control over financial reporting. For further information, see the November Form 8-K and Item 4.
“Controls and Procedures” of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30,
2018 (the “2018 Third Quarter 10-Q”).
Evaluation of Disclosure Controls and Procedures as of December 31, 2019
In connection with the preparation of this Form 10-K, pursuant to Rule 13a-15(b) under the Exchange Act, the Company
carried out an evaluation, with the participation of its management, including its Chief Executive Officer (principal executive
officer) and Chief Financial Officer (principal financial officer), of the effectiveness of disclosure controls and procedures (as
defined under Rule 13a-15(e) or 15d-15(e) under the Exchange Act) as of December 31, 2019.
43
Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, because of
the material weaknesses in internal control over financial reporting discussed below, the Company’s disclosure controls and
procedures were not effective as of December 31, 2019, to ensure that information required to be disclosed by the Company 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 Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.
Management’s Report on Internal Control Over Financial Reporting as of December 31, 2019
The Company’s management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control
over financial reporting is a process designed by or under the supervision of the Company’s Chief Executive Officer and Chief
Financial Officer, and overseen by the Board of Directors, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of published financial statements for external purposes in accordance with GAAP 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 the Company’s assets;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in
accordance with the authorization of its management and directors; and
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 consolidated financial statements.
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.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented
or detected on a timely basis.
Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting
using the criteria in Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the “2013 COSO Framework”). As a result of this evaluation, management concluded that the
Company’s internal control over financial reporting was not effective as of December 31, 2019, because of the material
weaknesses in internal control over financial reporting discussed below.
• Control Environment: The Company did not have a sufficient number of trained resources with assigned
responsibility and accountability for the design, operation and documentation of internal control over financial
reporting in accordance with the 2013 COSO Framework.
• Risk Assessment: The Company did not have an effective risk assessment process that defined clear financial
reporting objectives and evaluated risks, including fraud risks, and risks resulting from changes in the external
environment and business operations, at a sufficient level of detail to identify all relevant risks of material
misstatement across the entity.
•
Information and Communication: The Company did not have an effective information and communication
process that identified and assessed the source of and controls necessary to ensure the reliability of information
used in financial reporting and that communicates relevant information about roles and responsibilities for
internal control over financial reporting.
• Monitoring Activities: The Company did not have effective monitoring activities to assess the operation of
internal control over financial reporting, including the continued appropriateness of control design and level of
documentation maintained to support control effectiveness.
44
• Control Activities: As a consequence of the material weaknesses described above, internal control deficiencies
related to the design and operation of process-level controls and general information technology controls were
determined to be pervasive throughout the Company’s financial reporting processes.
While these material weaknesses did not result in material misstatements of the Company’s financial statements as of and
for the year ended December 31, 2019, these material weaknesses create a reasonable possibility that a material misstatement
of account balances or disclosures in annual or interim consolidated financial statements may not be prevented or detected in a
timely manner. Accordingly, the Company concluded that the deficiencies represent material weaknesses in its internal control
over financial reporting and its internal control over financial reporting was not effective as of December 31, 2019.
The Company’s independent registered public accounting firm, KPMG LLP, which audited the 2019 consolidated
financial statements included in this Form 10-K, has expressed an adverse opinion on the operating effectiveness of the
Company's internal control over financial reporting. KPMG LLP's report appears on pages 50-51 of this Form 10-K.
Remediation Plan
The Company’s remediation efforts are ongoing and it will continue its initiatives to implement and document policies
and procedures, and strengthen the Company’s internal control environment. Remediation of the identified material
weaknesses and strengthening the Company’s internal control environment will require a substantial effort throughout 2020
and, we anticipate, the first quarter of 2021. The material weaknesses cannot be considered completely remediated until the
applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these
controls are operating effectively. In addition, we anticipate that certain controls the Company plans to implement in 2020 will
not have operated for a sufficient period of time in 2020 to test their operating effectiveness as part of the Company’s
evaluation of internal control over financial reporting as of December 31, 2020.
To remediate the material weaknesses described above, the Company is pursuing the six remediation steps identified in
the 2018 Third Quarter 10-Q. To date, the Company has accomplished the following as part of those remediation steps:
a.
Identified material processes and significant locations for the purpose of identifying risks of material
misstatement to the Company’s financial statements,
b. Conducted interviews with relevant parties to ensure our understanding of the activities involved in the recording
of transactions within material processes,
c. Substantially completed a comprehensive review and update, as necessary, of the documentation of relevant
processes with respect to the Company’s internal control over financial reporting, and
d. Documented significant elements of a comprehensive risk assessment and internal control gap analysis and
commenced the validation thereof with key stakeholders.
The Company continues to work with its outside consultant, an internationally recognized accounting firm, to assist in
completing the remediation plan. The Company believes that its remediation plan will be sufficient to remediate the identified
material weaknesses and strengthen its internal control over financial reporting. As the Company continues to evaluate, and
works to improve, its internal control over financial reporting, management may determine that additional measures to address
control deficiencies or modifications to the remediation plan are necessary. The Company cannot assure you, however, when it
will remediate such weaknesses, nor can it be certain whether additional actions will be required or the costs of any such
actions. Moreover, the Company cannot assure you that additional material weaknesses will not arise in the future.
Changes in Internal Control Over Financial Reporting
The Company is in the process of implementing certain changes in its internal controls to remediate the material
weaknesses described above. The implementation of the plan began in the second quarter of 2019. Except as noted above with
respect to the implementation of the remediation plan, there has been no change in the Company’s internal control over
financial reporting during the quarter ended December 31, 2019, that has materially affected, or is reasonably likely to
materially affect, its internal control over financial reporting.
Item 9B. OTHER INFORMATION
None.
45
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 “Proposal 1: Election of Directors” and “Tredegar’s Board of Directors” is incorporated herein by
reference.
The information concerning corporate governance to be included in the Proxy Statement under the headings “Board
Meetings, Meetings of Non-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 M. Steitz
D. Andrew Edwards
Michael J. Schewel
Age
Title
61 President and Chief Executive Officer
61 Vice President and Chief Financial Officer
66 Vice President, General Counsel and Corporate Secretary
John M. Steitz. Mr. Steitz was elected President and Chief Executive Officer effective March 19, 2019. He previously served
as President and Chief Executive Officer of Addivant Corporation, a leading global supplier of antioxidants, intermediates,
inhibitors, modifiers, UV stabilizers and other additives to the plastic and rubber industries, from March 2015 until January
2019, as President and Chief Operating Officer of PQ Corporation, a leading worldwide producer of specialty inorganic
performance chemicals and catalysts, from October 2013 until March 2015, as President and Chief Executive Officer of
Avantor Performance Materials, a global supplier of ultra-high-purity life sciences materials with strict regulatory and
performance specifications, from September 2012 until September 2013, as President and Chief Operating Officer of
Albemarle from March 2012 until August 2012, and as Chief Operating Officer and Executive Vice President of Albemarle
from April 2007 until March 2012.
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 J. Schewel. Mr. Schewel was elected Vice President, General Counsel and Corporate Secretary effective May 9,
2016. He was previously a 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.
46
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, 2019.
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)
2,062,501
—
2,062,501
$
$
19.13
—
19.13
954,454
—
954,454
*
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 and
Non-Audit Fees;” and
Information on the Audit Committee’s procedures for pre-approving certain audit and non-audit services to be
included in the Proxy Statement under the heading “Board Meetings, Meetings of Non-Management Directors and
Board Committees—Audit Committee Matters.”
47
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
Auditors’ Opinions:
Reports of Independent Registered Public Accounting Firm - KPMG LLP
Report of Independent Registered Public Accounting Firm -
PricewaterhouseCoopers LLP
Financial Statements:
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Income for the Years Ended December 31, 2019,
2018 and 2017
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended
December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the Years Ended December 31,
2019, 2018 and 2017
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 2019, 2018 and 2017
Notes to Financial Statements
(2)
Financial statement schedules:
None
(3)
Exhibits:
See Exhibit Index on pages:
96-98
Page
49
52
53
54
55
56
57
58-95
48
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Tredegar Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Tredegar Corporation and subsidiaries (the Company) as of
December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income (loss), cash flows, and
shareholders’ equity for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively,
the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 2019, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 16, 2020 expressed an adverse opinion on the effectiveness of the Company’s internal
control over financial reporting.
Change in Accounting Principles
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases
as of January 1, 2019 due to the adoption of Accounting Standards Codification (ASC) Topic 842, Leases and revenue as of
January 1, 2018 due to the adoption of ASC Topic 606, Revenue from Contracts with Customers.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2018.
Richmond, Virginia
March 16, 2020
49
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Tredegar Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited Tredegar Corporation and subsidiaries’ (the Company) internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. In our opinion, because of the effect of the material weaknesses,
described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal
control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated
statements of income, comprehensive income (loss), cash flows, and shareholders’ equity for each of the years in the two-year
period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements), and our report
dated March 16, 2020 expressed an unqualified opinion on those consolidated financial statements.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be
prevented or detected on a timely basis. Material weaknesses related to an ineffective control environment resulting from an
insufficient number of trained resources, ineffective risk assessment, ineffective information and communication, and
ineffective monitoring activities resulting in ineffective control activities related to the design and operation of process-level
controls and general information technology controls across all financial reporting processes have been identified and included
in management’s assessment. The material weaknesses were considered in determining the nature, timing, and extent of audit
tests applied in our audit of the 2019 consolidated financial statements, and this report does not affect our report on those
consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
on Internal Control Over Financial Reporting as of December 31, 2019. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
50
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/ KPMG LLP
Richmond, Virginia
March 16, 2020
51
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Tredegar Corporation
Opinion on the Financial Statements
We have audited the consolidated statements of income, of comprehensive income (loss), of shareholders’ equity, and of cash
flows of Tredegar Corporation and its subsidiaries (the “Company”) for the year ended December 31, 2017, including the
related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended
December 31, 2017 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express
an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on
a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Richmond, Virginia
February 21, 2018, except for the change in the manner in which the Company accounts for pension and postretirement benefits
discussed in Note 1 (not presented herein) to the consolidated financial statements appearing under Item 15 of the Company’s
2018 annual report on Form 10-K, as to which the date is March 18, 2019, and except for the change in the manner in which
the Company measures segment profit and loss discussed in Note 5 to the consolidated financial statements, as to which the
date is March 16, 2020.
We served as the Company's auditor from 1989 to 2018.
52
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 $3,036 in 2019 and $2,937 in 2018
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
Right-of-use leased assets
Investment in kaléo (cost basis of $7,500)
Identifiable intangible assets, net
Goodwill
Deferred income tax assets
Other assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses
Lease liability, short-term
Total current liabilities
Lease liability, long-term
Long-term debt
Pension and other postretirement benefit obligations, net
Deferred income tax liabilities
Other noncurrent liabilities
Total liabilities
Shareholders’ equity:
Common stock (no par value):
Authorized 150,000,000 shares;
Issued and outstanding—33,365,039 shares in 2019 and 33,176,024 in 2018
(including restricted stock)
Common stock held in trust for savings restoration plan (74,798 shares in 2019 and
72,883 in 2018)
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.
53
2019
2018
$
31,422
$
34,397
107,558
4,100
81,380
8,696
233,156
9,744
106,551
694,506
810,801
(567,911)
242,890
19,220
95,500
22,636
81,404
13,129
4,733
712,668
103,657
45,809
3,002
152,468
17,689
42,000
107,446
11,019
5,297
335,919
$
$
124,727
6,783
93,810
9,564
269,281
8,772
101,332
682,968
793,072
(564,703)
228,369
—
84,600
36,295
81,404
3,412
4,012
707,373
112,758
42,495
—
155,253
—
101,500
88,124
—
7,639
352,516
45,514
38,892
(1,592)
(1,559)
(100,663)
(1,307)
(95,681)
530,478
376,749
712,668
$
(96,940)
(1,601)
(81,446)
497,511
354,857
707,373
$
$
$
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 identifiable intangibles
Pension and postretirement benefits
Interest expense
Asset impairments and costs associated with exit and disposal
activities
Goodwill impairment charge
Total
Income (loss) before income taxes
Income tax expense (benefit)
Net income
Earnings per share:
Basic
Diluted
See accompanying notes to financial statements.
2019
2018
2017
$
972,358
$
1,065,471
$
961,330
34,795
30,459
51,713
1,007,153
1,095,930
1,013,043
767,511
849,756
767,550
36,063
94,352
19,636
13,601
9,642
4,051
4,125
—
948,981
58,172
9,913
36,027
85,283
18,707
3,976
10,406
5,702
2,913
46,792
1,059,562
36,368
11,526
48,259
$
24,842
$
33,683
83,386
18,287
6,198
10,193
6,170
102,488
—
1,027,955
(14,912)
(53,163)
38,251
1.45
1.45
$
$
0.75
0.75
$
$
1.16
1.16
$
$
$
54
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Tredegar Corporation and Subsidiaries
Years Ended December 31
(In thousands, except per-share data)
Net income
Other comprehensive income (loss):
Unrealized foreign currency translation adjustment (net of tax benefit
of $623 in 2019, tax of $281 in 2018 and tax benefit of $371 in
2017)
Derivative financial instruments adjustment (net of tax of $71 in 2019,
tax benefit of $503 in 2018 and tax of $111 in 2017)
Pension & other postretirement benefit adjustments:
Net gains (losses) and prior service costs (net of tax benefit of
$6,417 in 2019, tax benefit of $319 in 2018 and tax benefit of
$2,518 in 2017)
Amortization of prior service costs and net gains or losses (net of
tax of $2,359 in 2019, tax of $3,028 in 2018 and tax of $4,234
in 2017)
Other comprehensive income (loss)
Comprehensive income (loss)
See accompanying notes to financial statements.
2019
2018
2017
$
48,259
$
24,842
$
38,251
(3,723)
(10,762)
7,792
294
(2,060)
(404)
(22,508)
(1,118)
(8,634)
8,273
(17,664)
30,595
$
10,622
(3,318)
21,524
$
7,811
6,565
$
44,816
55
CONSOLIDATED STATEMENTS OF CASH FLOWS
Tredegar Corporation and Subsidiaries
Years Ended December 31
(In thousands)
Cash flows from operating activities:
Net income
Adjustments for noncash items:
Depreciation
Amortization of identifiable intangibles
Goodwill impairment charge
Reduction of right-of-use lease asset
Deferred income taxes
Accrued pension and postretirement benefits
(Gain) loss on investment in kaléo 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 other receivables
Inventories
Income taxes recoverable/payable
Prepaid expenses and other
Accounts payable and accrued expenses
Lease liability
Pension and postretirement benefit plan contributions
Other, net
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Acquisitions, net of cash acquired
Return of escrowed funds relating to acquisition earn-out
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
Repurchase of employee common stock for tax withholdings
Proceeds from exercise of stock options and other
Net cash provided by (used in) financing activities:
Effect of exchange rate changes on cash
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow information:
Interest payments
Income tax payments (refunds), net
See accompanying notes to financial statements.
$
$
$
56
2019
2018
2017
$
48,259
$
24,842
$
38,251
30,683
13,601
—
2,588
5,856
9,642
(10,900)
519
(6,334)
—
16,471
11,315
2,644
795
(2,937)
(2,723)
(8,614)
4,998
115,863
(50,864)
—
—
—
—
10,936
(39,928)
65,500
(125,000)
(15,325)
(1,817)
(854)
184
(77,312)
(1,598)
(2,975)
34,397
31,422
4,358
2,595
$
$
$
29,828
3,976
46,792
—
8,626
10,406
(30,600)
223
(46)
—
(11,883)
(9,577)
25,018
(1,924)
5,571
—
(8,907)
5,449
97,794
(40,814)
—
4,250
1,384
—
1,098
(34,082)
76,750
(127,250)
(14,592)
—
(328)
1,332
(64,088)
(1,718)
(2,094)
36,491
34,397
$
34,079
6,198
—
—
(36,414)
10,193
(33,800)
101,282
553
(5,261)
(10,566)
(9,128)
(24,449)
(784)
21,123
—
(5,829)
2,767
88,215
(44,362)
(87,110)
—
—
5,739
129
(125,604)
190,750
(133,750)
(14,532)
—
(124)
819
43,163
1,206
6,980
29,511
36,491
5,421
$
(24,020) $
5,808
9,193
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Tredegar Corporation and Subsidiaries
(In thousands, except share and per-share data)
Shares
Amount
Common Stock
Accumulated Other Comprehensive
Income (Loss)
Trust for
Savings
Restora-
tion Plan
Foreign
Currency
Trans-
lation
Retained
Earnings
Gain
(Loss) on
Derivative
Financial
Instruments
Pension &
Other Post-
retirement
Benefit
Adjust.
Total
Share-
holders’
Equity
32,933,807
$ 32,007
$463,507
$ (1,497) $ (93,970) $
863
$
(90,127) $ 310,783
Balance at January 1, 2017
Net income
Foreign currency translation adjustment (net of tax
benefit of $371)
Derivative financial instruments adjustment (net of tax
of $111)
Net gains or losses and prior service costs (net of tax
benefit of $2,518)
Amortization of prior service costs and net gains or
losses (net of tax of $4,234)
Cash dividends declared ($0.44 per share)
—
—
—
—
—
—
—
—
—
—
—
38,251
—
—
—
—
— (14,532)
Stock-based compensation expense
49,475
2,018
Repurchase of employee common stock for tax
withholdings
Issued upon exercise of stock options
Cumulative effect adjustment for adoption of stock-
based compensation accounting guidance
Tredegar common stock purchased by trust for savings
restoration plan
(7,125)
41,265
(124)
819
—
—
27
—
—
—
—
(27)
31
Net income
Foreign currency translation adjustment (net of tax of
$281)
Derivative financial instruments adjustment (net of tax
benefit of $503)
Net gains or losses and prior service costs (net of tax
benefit of $319)
Amortization of prior service costs and net gains or
losses (net of tax of $3,028)
Cash dividends declared ($0.44 per share)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— (14,592)
Stock-based compensation expense
102,762
3,141
Repurchase of employee common stock for tax
withholdings
Issued upon exercise of stock options
Tredegar common stock purchased by trust for savings
restoration plan
(17,558)
73,398
(328)
1,332
—
—
—
—
—
31
—
—
—
—
—
—
—
—
—
—
(31)
—
7,792
—
—
—
—
—
—
—
—
—
— (10,762)
—
—
—
—
—
—
(31)
—
—
—
—
—
—
—
—
—
(404)
—
—
—
—
—
—
—
—
459
—
—
(2,060)
—
—
—
—
—
—
—
—
—
38,251
7,792
(404)
(8,634)
(8,634)
7,811
—
—
—
—
—
—
7,811
(14,532)
2,018
(124)
819
—
—
(90,950)
343,780
—
—
—
24,842
(10,762)
(2,060)
(1,118)
(1,118)
10,622
—
—
—
—
10,622
(14,592)
3,141
(328)
1,332
—
Balance at December 31, 2017
33,017,422
34,747
487,230
(1,528)
(86,178)
24,842
—
—
Balance at December 31, 2018
33,176,024
38,892
497,511
(1,559)
(96,940)
(1,601)
(81,446)
354,857
Net income
Foreign currency translation adjustment (net of tax
benefit of $623)
Derivative financial instruments adjustment (net of tax
of $71)
Net gains or losses (net of tax benefit of $6,417)
Amortization of net gains or losses (net of tax of
$2,359)
Cash dividends declared ($0.46 per share)
—
—
—
—
—
—
—
—
—
—
—
48,259
—
—
—
—
— (15,325)
Stock-based compensation expense
228,959
7,292
Repurchase of employee common stock for tax
withholdings
Issued upon exercise of stock options
Tredegar common stock purchased by trust for savings
restoration plan
(49,444)
9,500
(854)
184
—
—
—
—
—
33
—
—
—
—
—
—
—
—
—
(33)
—
(3,723)
—
—
—
—
—
—
—
—
—
—
294
—
—
—
—
—
—
—
—
—
—
48,259
(3,723)
294
(22,508)
(22,508)
8,273
—
—
—
—
—
8,273
(15,325)
7,292
(854)
184
—
Balance at December 31, 2019
33,365,039
$ 45,514
$530,478
$ (1,592) $(100,663) $
(1,307) $
(95,681) $ 376,749
See accompanying notes to financial statements.
57
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 aluminum extrusions, polyethylene films and polyester films,
which are reported for business segment purposes under Aluminum Extrusions (also referred to as Bonnell Aluminum), PE
Films and Flexible Packaging Films (also referred to as Terphane), respectively. More information on the Company’s business
segments is provided in Note 5. See Note 17 regarding restructurings.
Basis of Presentation. The consolidated financial statements include the accounts and operations of Tredegar and all of its
wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with United States (“U.S.”) generally accepted accounting
principles (“GAAP”) requires Tredegar to make estimates and assumptions that affect the reported amounts of revenues,
expenses, assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual
results could differ from those estimates.
Certain amounts for the prior years have been reclassified to conform to current year presentation.
Fiscal Year End. The Company operates on a calendar fiscal year except the Aluminum Extrusions segment, which operates
on a 52/53-week fiscal year basis. References to Aluminum Extrusions for 2019, 2018 and 2017 relate to the 52-week fiscal
year ended December 29, 2019, the 53-week fiscal year ended December 30, 2018 and the 52-week fiscal year ended
December 24, 2017, 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 $0.7 million, $0.5 million and $0.8
million in 2019, 2018 and 2017, 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, 2019 and 2018, Tredegar had cash
and cash equivalents of $31.4 million and $34.4 million, respectively, including funds held in locations outside the U.S. of
$23.0 million and $31.1 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. For certain customers, the Company has arrangements in place with financial
institutions whereby certain customer receivables are sold to the financial institution at a discount and without recourse. Upon
sale, the associated receivable is derecognized and the discount is recognized.
Inventories. Inventories are stated at the lower of cost or market, with cost determined using the last in, first out (“LIFO”), the
weighted average cost or the first in, first out method. Cost elements included in work-in-process and finished goods
inventories are raw materials, direct labor and manufacturing overhead. Finished goods, work-in-process, raw materials and
supplies, stores and other inventory are reviewed to determine if inventory quantities are in excess of forecasted usage or if they
have become obsolete.
58
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 $0.9 million, $0.3 million and $0.4 million in 2019, 2018 and 2017,
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.
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).
For more information on investments, see Note 4.
Goodwill and Identifiable Intangibles. The excess of the purchase price over the fair value of identifiable net assets of acquired
companies is allocated to goodwill. The Company assesses goodwill for impairment when events or circumstances indicate
that the carrying value may not be recoverable or, at a minimum, on an annual basis (December 1st of each year). When
assessing goodwill for impairment, accounting guidance allows the Company to first perform a qualitative assessment about the
likelihood of the carrying value of a reporting unit exceeding its fair value, referred to as the "Step 0" assessment. The Step 0
assessment requires the evaluation of certain qualitative factors, including macroeconomic conditions, industry and market
considerations, cost factors and overall financial performance, as well as company and reporting unit factors. If the Company's
Step 0 analysis indicates that it is more likely than not that the fair value of a reporting unit is less than the carrying amount,
then the Company would perform a quantitative impairment test.
There are two reporting units in Aluminum Extrusions that have goodwill as a result of acquisitions in 2012 (“AACOA”)
and in 2017 (“Futura”). The Company’s significant reporting unit in PE Films with goodwill is Surface Protection. Each of
these reporting units has separately identifiable operating net assets (operating assets including goodwill and identifiable
intangible assets net of operating liabilities).
The Company estimates the fair value of its reporting units using discounted cash flow analysis and comparative
enterprise value-to-EBITDA (earnings before interest, taxes, depreciation and amortization) multiples. The Surface Protection
reporting unit of PE Films, AACOA and Futura had goodwill in the amounts of $57.3 million, $13.7 million and $10.4 million,
respectively, at December 31, 2019.
As of December 1, 2019, the Company applied the Step 0 goodwill assessment to Surface Protection, AACOA and
Futura, which all had fair values significantly in excess of their carrying amounts when last tested using the quantitative
impairment test. The Company's Step 0 analysis in 2019 of the reporting units concluded that it is not more likely than not that
the fair values of the reporting units are less than their carrying amounts. Therefore, the quantitative goodwill impairment test
for these reporting units was not necessary in 2019.
Indefinite-lived identifiable intangible assets are assessed for impairment when events or circumstances indicate that the
carrying value may not be recoverable. 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.
Additional disclosure of Tredegar’s goodwill and identifiable intangible assets and the impairments recorded in 2018 and
2017 are 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.
59
If the sum of these undiscounted pre-tax cash flows is less than the carrying amount of the asset group, an impairment loss is
calculated. Measurement of the impairment loss is the amount by which the carrying amount exceeds the estimated fair value
of the asset group.
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 have been accrued over the period employees provided 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.
Additional disclosure regarding Tredegar’s pension costs and postretirement benefit costs other than pensions is included
in Note 13.
Revenue Recognition. The Company’s revenue is primarily generated from the sale of finished products to customers. Those
sales predominantly contain a single performance obligation and revenue is recognized at the point in time when control of the
product is transferred to customers, along with the title, risk of loss and rewards of ownership. Depending on the arrangement
with the customer, these criteria are met either at the time the product is shipped or when the product is made available or
delivered at the destination specified in the agreement with the customer.
Sales revenue is recognized in an amount that reflects the consideration the Company expects to be entitled to in
exchange for that finished product. The Company offers various discounts, rebates and allowances to customers, (collectively,
“allowances”), all of which are considered when determining the transaction price. Certain allowances are fixed and
determinable at the time of sale and are recorded at the time of sale as a reduction to revenues. Other allowances can vary
depending on future outcomes such as customer sales volume and represent variable consideration.
Amounts billed to customers related to freight are classified as sales revenue and the cost of freight is classified as a
separate line in the accompanying consolidated statements of income. Taxes assessed by a governmental authority that are both
imposed on and concurrent with a specific revenue-producing transaction between Tredegar and its customers (such as value-
added taxes) are accounted for on a net basis and therefore excluded from revenues. See Note 5 for disaggregation of revenue
by segment and type. See Note 6 for a table showing accounts and other receivables, net of allowance for bad debts and sales
returns.
Revenue expected to be recognized in any future period related to remaining performance obligations, excluding i)
revenue pertaining to contracts that have an original expected duration of one year or less, ii) contracts where revenue is
recognized as invoiced and iii) variable consideration related to unsatisfied performance obligations, is not expected to
materially impact the Company’s financial results.
Research & 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 16). Tredegar’s policy is to accrue U.S. federal
income taxes to the extent required under GAAP on unremitted earnings of all foreign subsidiaries where required. However,
due to changes in the taxation of dividends under the Tax Cuts and Jobs Act (the “TCJA”) enacted by the U.S. government in
December 2017, Tredegar only records U.S. federal income taxes on unremitted earnings of its foreign subsidiaries where
Tredegar cannot take steps to eliminate any potential tax on future distributions from its foreign subsidiaries. Because of the
accumulation of significant losses related to foreign currency translations at Terphane Limitada, there were no unrecorded
deferred income tax liabilities associated with U.S. federal income taxes and foreign withholding taxes on Terphane Limitada’s
undistributed earnings as of December 31, 2019 and December 31, 2018.
A valuation allowance is recorded in the period when the Company determines that it is more likely than not that all or a
portion of deferred income tax assets may not be realized. The establishment and removal of a valuation allowance requires the
Company to consider all positive and negative evidence and make a judgmental decision regarding the amount of valuation
60
allowance required as of a reporting date. The benefit of an uncertain tax position is included in the accompanying financial
statements when the Company determines that it is more likely than not that the position will be sustained, based on the
technical merits of the position, if the taxing authority examines the position and the dispute is litigated. This determination is
made on the basis of all the facts, circumstances and information available as of the reporting date.
Earnings Per Share. Basic earnings per share is computed using the weighted average number of shares of common stock
outstanding. Diluted earnings per share is computed using the weighted average common and potentially dilutive common
equivalent shares outstanding, determined as follows:
Weighted average shares outstanding used to compute
basic earnings per share
Incremental shares attributable to stock options and
restricted stock
2019
2018
2017
33,236,115
33,067,800
32,945,961
22,022
24,674
5,327
Shares used to compute diluted earnings per share
33,258,137
33,092,474
32,951,288
Incremental shares attributable to stock options and restricted stock are computed using the average market price during
the related period. The 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 209,592, 726,475, and 397,669 as of December 31, 2019, 2018
and 2017, respectively.
Stock-Based Employee Compensation Plans. Compensation expense is recorded on all share-based awards using its calculated
fair value over the requisite service period under 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 2019, 2018 and 2017 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):
2019
2018
2017
2.4%
38.3%
2.4%
5
5
2.3%
38.3%
2.8%
5
5
1.9%
38.3%
1.8%
5
5
Officers
Management
$
$
18.48
18.48
$
$
19.35
19.35
$
$
15.65
15.65
The dividend yield is the actual dividend yield on Tredegar’s common stock at the date of grant, which the Company
believes is a reasonable estimate of the expected yield during the holding period. The expected volatility is based on the
historical volatility of Tredegar’s common stock using a sequential period of historical data equal to the expected holding
period of the option. The Company has no reason to believe that future volatility for this period is likely to differ from the past.
The assumed risk-free interest rate is based on observed interest rates for U.S. Treasury debt securities appropriate for the
expected holding period.
Tredegar stock options granted during 2019, 2018 and 2017, and related estimated fair value at the date of grant, are as
follows:
61
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)
2019
2018
2017
729,810
28,477
758,287
425,228
25,855
451,083
151,992
57,559
209,551
$
$
$
5.43
5.43
4,117
$
$
$
5.87
5.87
2,648
$
$
$
4.69
4.69
983
Additional disclosure of Tredegar stock options is included in Note 12.
Financial Instruments. Tredegar uses derivative financial instruments for the purpose of hedging aluminum price volatility and
currency exchange rate exposures that exist as part of transactions associated with ongoing business operations. The
Company’s derivative financial instruments are designated as and qualify as cash flow hedges and are recognized in the
accompanying balance sheet at fair value. A change in the fair value of the derivative that is highly effective and that is
designated and qualifies as a cash flow hedge is recorded in other comprehensive income. Gains and losses reported in other
comprehensive income (loss) are reclassified to earnings in the periods in which earnings are affected by the variability of cash
flows of the hedged transaction. Such gains and losses are reported 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 2019, 2018 and
2017.
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.
62
The following table summarizes the after-tax changes in accumulated other comprehensive income (loss) for the year
ended December 31, 2019:
(In thousands)
Foreign currency
translation
adjustment
Gain (loss) on
derivative financial
instruments
Pension and other
post-retirement
benefit adjustments
Total
Beginning balance, January 1, 2019
$
(96,940) $
(1,601) $
(81,446) $ (179,987)
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from accumulated
other comprehensive income (loss)
(3,723)
(2,686)
(22,508)
(28,917)
—
2,980
8,273
11,253
Net other comprehensive income (loss) -
current period
(3,723)
Ending balance, December 31, 2019
$
(100,663) $
294
(1,307) $
(14,235)
(17,664)
(95,681) $ (197,651)
The following table summarizes the after-tax changes in accumulated other comprehensive income (loss) for the year
ended December 31, 2018:
(In thousands)
Foreign currency
translation
adjustment
Gain (loss) on
derivative financial
instruments
Pension and other
post-retirement
benefit adjustments
Total
Beginning balance, January 1, 2018
$
(86,178) $
459
$
(90,950) $ (176,669)
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from accumulated
other comprehensive income (loss)
(10,762)
(2,978)
(1,118)
(14,858)
—
918
10,622
11,540
Net other comprehensive income (loss) -
current period
(10,762)
Ending balance, December 31, 2018
$
(96,940) $
(2,060)
(1,601) $
9,504
(3,318)
(81,446) $ (179,987)
Reclassifications of balances out of accumulated other comprehensive income (loss) into net income during 2019 are
summarized as follows:
(In thousands)
Gain (loss) on derivative financial instruments:
Aluminum future contracts, before taxes
Foreign currency forward 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)
$
$
$
$
(2,736) Cost of goods sold
Selling, general and
administrative
(904)
62 Cost of goods sold
(3,578)
(598)
(2,980)
(10,632)
(2,359)
(8,273)
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 13 for additional detail).
63
Reclassifications of balances out of accumulated other comprehensive income (loss) into net income during 2018 are
summarized as follows:
(In thousands)
Gain (loss) on derivative financial instruments:
Aluminum future contracts, before taxes
Foreign currency forward 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
$
$
$
$
1,069 Cost of goods sold
(1,796)
Selling, general and
administrative
62 Cost of goods sold
(665)
253
(918)
Income taxes
(a)
Income taxes
(13,650)
(3,028)
(10,622)
(a) This component of accumulated other comprehensive income is included in the computation of net periodic pension
cost (see Note 13 for additional detail).
Reclassifications of balances out of accumulated other comprehensive income (loss) into net income during 2017 are
summarized as follows:
(In thousands)
Gain (loss) on derivative financial instruments:
Aluminum future contracts, before taxes
Foreign currency forward 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
$
$
$
$
1,210 Cost of goods sold
Selling, general and
administrative
(43)
62 Cost of goods sold
1,229
287
942
Income taxes
(a)
Income taxes
(12,045)
(4,234)
(7,811)
(a) This component of accumulated other comprehensive income is included in the computation of net periodic pension
cost (see Note 13 for additional detail).
64
Recently Issued Accounting Standards.
Accounting pronouncements adopted prior to 2019:
ASU 2014-09, REVENUE FROM CONTRACTS WITH CUSTOMERS (TOPIC 606)
In May 2014, the FASB and International Accounting Standards Board 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 requires 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 Company adopted the new standard effective January 1, 2018, using the modified retrospective
approach applied to all contracts as of the date of adoption. Comparative periods have not been adjusted and continue to
be reported under the accounting standards in effect for those periods. The adoption of ASU 2014-09, as amended, had
no material impact on the Company’s consolidated financial position, results of operations, equity or cash flows upon
adoption. The Company has included the disclosures required by ASU 2014-09.
New accounting pronouncements adopted in 2019:
ASU 2016-02, LEASES (TOPIC 842)
In February 2016, the Financial Accounting Standards Board (“FASB”) issued a revised standard on lease
accounting. Lessees will need to recognize virtually all of their leases with a term longer than 12 months on the balance
sheet, by recording a right-of-use (“ROU”) asset and lease liability. The revised standard requires additional analysis of
the components of a transaction to determine if a right-of-use asset is embedded in the transaction that needs to be
treated as a lease. Substantial additional disclosures are also required by the revised standard. The revised standard is
effective for the Company for fiscal years beginning after December 31, 2018, including the interim periods within those
fiscal years. A modified retrospective transition approach which requires a cumulative-effect adjustment to the opening
balance of retained earnings on the effective date is required for leases existing at, or entered into after, the effective date,
with certain practical expedients available. The Company elected to use certain transition practical expedients that allow
it to elect to not reassess: i) whether expired or existing contracts contain leases under the new definition of a lease; ii)
lease classification for expired or existing leases; and iii) whether previously capitalized initial direct costs would qualify
for capitalization under Topic 842. The Company adopted the new guidance in the first quarter of 2019, electing the
modified retrospective transition approach. The adoption did not have a material effect on the Company’s consolidated
financial statements. The most significant impact of the new standard was the initial recognition of ROU assets of
approximately $21 million and lease liabilities of approximately $22 million for real estate, office equipment and vehicle
operating leases as of the date of adoption.
ASU 2017-12, DERIVATIVES AND HEDGING (TOPIC 815)
In August 2017, the FASB issued amended guidance on the accounting for hedging activities. The amended
guidance makes more hedging strategies qualify for hedge accounting. After initial qualification, the amended guidance
permits a qualitative effectiveness assessment for certain hedges instead of a quantitative test, if the company can
reasonably support an expectation of effectiveness throughout the term of the hedge. The amended guidance is effective
for annual and interim periods beginning after January 1, 2019, but may be adopted immediately. The Company adopted
the amended guidance in the first quarter of 2019 and there was no impact from adoption on the Company’s consolidated
financial statements.
ASU 2018-2, REPORTING COMPREHENSIVE INCOME (TOPIC 220)
In February 2018, the FASB issued ASU 2018-2 to provide entities an option to reclassify certain “stranded
tax effects” resulting from the recent U.S. tax reform from accumulated other comprehensive income (AOCI) to retained
earnings. This new standard takes effect for all entities in fiscal years beginning after December 15, 2018, and interim
periods within those fiscal years. The Company has elected to not reclassify the income tax effects resulting from tax
reform from AOCI to retained earnings.
65
Accounting Standards Not Yet Implemented:
ASU 2016-13, FINANCIAL INSTRUMENTS - CREDIT LOSSES (TOPIC 326)
In June 2016, the FASB issued ASU 2016-13 related to the measurement of credit losses on financial
instruments. The pronouncement replaces the incurred loss methodology to record credit losses with a methodology that
reflects the expected credit losses for financial assets not accounted for at fair value with gains and losses recognized
through net income. This standard is effective for fiscal years beginning after December 15, 2019 and interim periods
therein, with early adoption permitted for fiscal years, and interim periods therein, beginning after December 15, 2018.
The Company is in the process of evaluating the guidance and expects to adopt ASU 2016-13 in the first quarter of 2020,
with no material impact on the Company’s consolidated financial statements.
ASU 2018-13, FAIR VALUE MEASUREMENT (TOPIC 820)
In August 2018, the FASB issued ASU 2018-13, which amended the fair value measurement guidance by
removing and modifying certain disclosure requirements, while also adding new disclosure requirements. The
amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable
inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should
be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption.
All other amendments should be applied retrospectively to all periods presented upon their effective date. The
amendments are effective for all companies for fiscal years, and interim periods within those years, beginning after
December 15, 2019. Early adoption is permitted for all amendments. Further, a company may elect to early adopt the
removal or modification of disclosures immediately and delay adoption of the new disclosure requirements until the
effective date. The Company plans to adopt all disclosure requirements in the first quarter of 2020, with no material
impact on the Company’s consolidated financial statements.
2
ACQUISITIONS
On February 15, 2017, Bonnell Aluminum acquired 100% of the stock of Futura Industries Corporation on a net debt-
free basis for approximately $92 million (the “Initial Purchase Price”). The amount actually funded in cash at the transaction
date was approximately $87.0 million (the “Initial Cash Funding”), which was the Initial Purchase Price net of preliminary
closing adjustments for working capital and seller transaction-related obligations assumed and subsequently paid by Bonnell
Aluminum. In addition, the Company was refunded $5 million in the first quarter of 2018 since Futura did not meet certain
performance requirements for the 2017 fiscal year (“Earnout Provision”). The acquisition, which was funded using Tredegar’s
revolving credit facility, was treated as an asset purchase for U.S. federal income tax purposes.
Under the terms of the transaction, $5 million of the Initial Cash Funding was placed in escrow (the “Earnout Escrow”)
and was returned to Bonnell Aluminum because Futura did not achieve a targeted EBITDA level (as defined in the Stock
Purchase Agreement) for the last eleven months of the fiscal year ended December 2017. At the acquisition date, the Company
performed a probability weighted assessment in order to determine the fair value of this contingent asset. The assessment
estimated a fair value of $4.3 million and a receivable (“Initial Earnout Receivable”) was recorded by Bonnell Aluminum. At
December 31, 2017, the Company updated its valuation of this contingent asset, which resulted in a fair value of $5.0 million.
The receivable was increased to $5.0 million, and an additional $0.7 million was recognized as income in 2017 in Other income
(expense), net in the Consolidated Statements of Income.
The net purchase price for financial reporting purposes was set at approximately $82.9 million (the “Adjusted Net
Purchase Price”), which was the Initial Cash Funding less the Initial Earnout Receivable and the net settlement of certain post-
closing adjustments of $0.1 million paid to the seller in 2017. Adjustments to the purchase price were made retrospectively as
if the accounting had been completed on the acquisition date. Based upon management’s valuation of the fair value of tangible
and identifiable intangible assets acquired (net of cash acquired) and liabilities assumed, the allocation of the Adjusted Net
Purchase Price is as follows:
66
(In thousands)
Accounts receivable
Inventories
Prepaid expenses and other current assets
Property, plant & equipment
Identifiable intangible assets:
Customer relationships
Trade names
Trade payables & accrued expenses
Total identifiable net assets
Adjusted Net Purchase Price
Goodwill
$
$
6,680
10,342
240
32,662
24,000
6,700
(8,135)
72,489
82,860
10,371
The goodwill and identifiable intangible asset balances associated with this acquisition are deductible for tax purposes
on a straight-line basis over a period of approximately 15 years. For financial reporting purposes, customer relationships are
being amortized over 12 years; trade names were being amortized over 13 years but were fully amortized in 2019 as a result of
a rebranding initiative by Bonnell Aluminum (see Note 8 for more details on the rebranding initiative). Goodwill is not subject
to amortization for financial reporting purposes.
For the year ended December 31, 2017, Tredegar’s consolidated results of operations and its Aluminum Extrusions
business segment included the following Futura results for the 10.5 months owned: sales of $71.0 million, EBITDA from
ongoing operations of $13.2 million, depreciation and amortization of $5.0 million, and capital expenditures of $2.5 million.
The following unaudited supplemental pro forma data presents Tredegar’s consolidated sales, net income and related
earnings per share as if the acquisition of Futura had been consummated at the beginning of 2017, and is not necessarily
indicative of the Company’s financial performance if the acquisition had actually been consummated as of that date, or of
future performance. The supplemental unaudited pro forma measures for the year ended December 31, 2017 is presented
below:
Tredegar Pro Forma Results with Futura Acquisition
(In thousands, except per-share data)
Sales
Net income
Earnings per share:
Basic
Diluted
2017
$ 968,340
$ 37,974
$
$
1.15
1.15
Futura’s pre-acquisition results for the period from January 1 to February 14, 2017, and therefore the pro forma
information for 2017 presented above, were adversely impacted by significant disruptions to manufacturing operations and
sales caused by the renovation of its anodizing line. The actual accretion to Tredegar’s diluted earnings per share from Futura
since the acquisition date was 12 cents per share for 2017.
The Company’s pro forma net income was computed for the periods shown as: (i) the Company’s reported net income,
plus (ii) Futura’s historical pre-acquisition period earnings before interest, taxes, depreciation and amortization and excluding
one-time purchase accounting and transaction-related expenses, minus (iii) the pro forma pre-acquisition period depreciation
and amortization for Futura under purchase accounting for the Company, minus (iv) the pro forma pre-acquisition period
interest expense for the Company applied at an annual rate of 3.0% to the $87.0 million Initial Cash Funding, minus (v) the pro
forma pre-acquisition period income taxes applied at a rate of 39.1% to the pro forma pre-acquisition earnings before income
taxes computed from items (ii) through (iv).
67
3 OTHER INCOME (EXPENSE), NET
Other income (expense), net consists of the following:
(In thousands)
Gain on investment in kaléo accounted for under fair value
method
Gain on sale of manufacturing plant in Shanghai, China
Gain associated with the settlement of an escrow agreement
related to Terphane, acquired in October 2011
Gain from insurance recoveries
Unrealized loss on investment property
Other
Total
2019
2018
2017
$
28,482
$
30,600
$
33,800
6,316
—
—
—
(3)
34,795
$
—
—
—
(186)
45
—
11,856
5,261
—
796
$
30,459
$
51,713
The gain on investment in kaléo accounted for under the fair value method of $28.5 million includes a cash dividend of
$17.6 million from kaléo. See Note 4 for more details on the investment in kaléo. See Note 17 for more details on the closing
of the manufacturing plant in Shanghai, China.
The gain associated with the settlement of an escrow agreement related to the settlement of an escrow arrangement
established upon the acquisition of Terphane Holdings, LLC in 2011. In settling the escrow arrangement, the Company
assumed the risk of the claims (and associated legal fees) against which the escrow previously secured the Company. While the
ultimate amount of such claims is unknown, the Company believes that it could be liable for some portion of these claims, and
currently estimates the amount of such future claims at approximately $1.0 million.
The gain of $5.3 million from insurance recoveries related to the explosion that occurred in the second quarter of 2016 at
the Aluminum Extrusions manufacturing facility in Newnan, Georgia, which includes the recognition of a gain on the
involuntary conversion of an asset for insurance proceeds used for the replacement of capital equipment.
4
INVESTMENTS
In August 2007 and December 2008, the Company 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. Tredegar owns Series A-3 Preferred Stock and Series B Preferred Stock in kaléo that, taken together,
represents on a fully-diluted basis an approximate 18% interest in kaléo. Tredegar accounts for its investment in kaléo under the
fair value option. At the time of the initial investment, the Company elected the fair value option of accounting since its
investment objectives were similar to those of venture capitalists, which typically do not have controlling financial interests.
Kaléo’s stock is not publicly traded.
The estimated fair value of the Company’s investment was $95.5 million as of December 31, 2019 and $84.6 million
as of December 31, 2018. The Company recognized net appreciation on its investment in kaléo of $28.5 million ($23.4 million
after taxes) and $30.6 million ($23.9 million after taxes) in 2019 and 2018, respectively, including a $17.6 million dividend
paid on April 30, 2019. Future dividends are subject to the discretion of kaléo’s board of directors. Amounts recognized
associated with the Company’s investment in kaléo are included in “Other income (expense), net” in the consolidated
statements of income and separately stated in the EBITDA from ongoing operations table in Note 5.
The Company estimates the fair value of its investment in kaléo by: (i) computing the weighted average estimated
enterprise value (“EV”) utilizing both the discounted cash flow method (the “DCF Method”) and the application of a market
multiple to earnings before interest, taxes, depreciation and amortization (the “EBITDA Multiple Method”), (ii) applying
adjustments for any surplus or deficient working capital and estimates of contingent liabilities, (iii) adding cash and cash
equivalents, (iv) subtracting interest-bearing debt, (v) subtracting a private company liquidity discount estimated at 10% and
15% at December 31, 2019 and 2018, respectively, of the net result of (i) through (iv), and (vi) applying liquidation preferences
and fully diluted ownership percentages to the estimated equity value computed in (i) through (v).
The Company’s estimate of kaléo’s EV as of December 31, 2019 was determined by weighting the EBITDA Multiple
Method by 80% and the DCF Method by 20%, which was consistent with the weighting applied at December 31, 2018. The
heavier weighting towards the EBITDA Multiple Method was due to its heuristic nature versus the hypothetical nature of the
projections used in the DCF Method. The DCF Method projections rely on numerous assumptions and Level 3 inputs,
including estimating market growth, market share, pricing, net margins (after allowances for temporary discounts, prompt pay
68
discounts, product returns, wholesaler fees, chargebacks, rebates and copays), selling expenses, R&D expenses, general and
discounts, product returns, wholesaler fees, chargebacks, rebates and copays), selling expenses, R&D expenses, general and
administrative expenses, income taxes on unlevered pretax income, working capital, capital expenditures and the risk-adjusted
administrative expenses, income taxes on unlevered pretax income, working capital, capital expenditures and the risk-adjusted
discount rate. In addition, there are various regulatory and legal enforcement efforts, including an ongoing Department of
discount rate. In addition, there are various regulatory and legal enforcement efforts, including an ongoing Department of
Justice investigation related to kaléo’s Evzio business, which could have a material adverse effect on kaléo’s business that
Justice investigation related to kaléo’s Evzio business, which could have a material adverse effect on kaléo’s business that
require assessment in any valuation method applied.
require assessment in any valuation method applied.
The table below provides a sensitivity analysis of the estimated fair value at December 31, 2019, of the Company’s
The table below provides a sensitivity analysis of the estimated fair value at December 31, 2019, of the Company’s
investment in kaléo for changes in the EBITDA multiple used in applying the EBITDA Multiple Method and the changes in the
investment in kaléo for changes in the EBITDA multiple used in applying the EBITDA Multiple Method and the changes in the
weighting of the DCF Method.
weighting of the DCF Method.
($ Millions)
($ Millions)
7.0 x
7.0 x
EV-to-Adjusted EBITDA Multiple
EV-to-Adjusted EBITDA Multiple
9.0 x
9.0 x
10.0x
10.0x
8.0 x
8.0 x
11.0x
11.0x
Weighting
Weighting
to DCF
to DCF
Method
Method
50% $
50% $
40% $
40% $
30% $
30% $
20% $
20% $
10% $
10% $
—% $
—% $
89.8 $
89.8 $
85.5 $
85.5 $
81.1 $
81.1 $
76.8 $
76.8 $
72.5 $
72.5 $
68.2 $
68.2 $
95.6 $ 101.4 $ 107.3 $ 113.1
95.6 $ 101.4 $ 107.3 $ 113.1
99.5 $ 106.5 $ 113.5
92.5 $
99.5 $ 106.5 $ 113.5
92.5 $
97.5 $ 105.7 $ 113.8
89.3 $
97.5 $ 105.7 $ 113.8
89.3 $
95.5 $ 104.9 $ 114.2
86.2 $
95.5 $ 104.9 $ 114.2
86.2 $
93.6 $ 104.1 $ 114.6
83.1 $
93.6 $ 104.1 $ 114.6
83.1 $
91.6 $ 103.3 $ 114.9
79.9 $
91.6 $ 103.3 $ 114.9
79.9 $
The ultimate value of the Company’s ownership interest in kaléo will be determined and realized only if and when a
The ultimate value of the Company’s ownership interest in kaléo will be determined and realized only if and when a
liquidity event occurs (including dividends), and the ultimate value could be materially different from the $95.5 million
liquidity event occurs (including dividends), and the ultimate value could be materially different from the $95.5 million
estimated fair value reflected in the Company’s financial statements at December 31, 2019.
estimated fair value reflected in the Company’s financial statements at December 31, 2019.
5
5
BUSINESS SEGMENTS
BUSINESS SEGMENTS
The Company's business segments are Aluminum Extrusions, PE Films and Flexible Packaging Films. Aluminum
The Company's business segments are Aluminum Extrusions, PE Films and Flexible Packaging Films. Aluminum
Extrusions, also known as Bonnell Aluminum, produces high-quality, soft-alloy and medium-strength aluminum extrusions
Extrusions, also known as Bonnell Aluminum, produces high-quality, soft-alloy and medium-strength aluminum extrusions
primarily for the following markets: building and construction, automotive, and specialty (which consists of consumer
primarily for the following markets: building and construction, automotive, and specialty (which consists of consumer
durables, machinery and equipment, electrical and distribution end-use products). PE Films is comprised of the following
durables, machinery and equipment, electrical and distribution end-use products). PE Films is comprised of the following
operating segments: surface protection films, personal care materials, and films for other markets. Flexible Packaging Films is
operating segments: surface protection films, personal care materials, and films for other markets. Flexible Packaging Films is
comprised of the Company’s polyester films business, Terphane Holdings LLC (“Terphane”).
comprised of the Company’s polyester films business, Terphane Holdings LLC (“Terphane”).
The Company’s reportable segments are based on its method of internal reporting, which is generally segregated by
The Company’s reportable segments are based on its method of internal reporting, which is generally segregated by
differences in products. Accounting standards for presentation of segments require an approach based on the way the Company
differences in products. Accounting standards for presentation of segments require an approach based on the way the Company
organizes the segments for making operating decisions and how the chief operating decision maker (“CODM”) assesses
organizes the segments for making operating decisions and how the chief operating decision maker (“CODM”) assesses
performance.
performance.
Earnings before interest, taxes, depreciation and amortization from ongoing operations (“EBITDA from ongoing
Earnings before interest, taxes, depreciation and amortization from ongoing operations (“EBITDA from ongoing
operations”) is the measure of profit and loss used by the CODM (Tredegar’s President and Chief Executive Officer) for
operations”) is the measure of profit and loss used by the CODM (Tredegar’s President and Chief Executive Officer) for
purposes of assessing financial performance. In the fourth quarter of 2019, the Company concluded that “EBITDA from
purposes of assessing financial performance. In the fourth quarter of 2019, the Company concluded that “EBITDA from
ongoing operations,” instead of “operating profit from ongoing operations,” is the most relevant metric for measuring segment
ongoing operations,” instead of “operating profit from ongoing operations,” is the most relevant metric for measuring segment
financial performance. EBITDA from ongoing operations is the key profitability metric used by Tredegar’s President and Chief
financial performance. EBITDA from ongoing operations is the key profitability metric used by Tredegar’s President and Chief
Executive Officer, who was elected by the Tredegar Board of Directors in March 2019. This change resulted in a revision of
Executive Officer, who was elected by the Tredegar Board of Directors in March 2019. This change resulted in a revision of
the Company’s segment disclosures for all periods to report EBITDA from ongoing operations as the measure of segment
the Company’s segment disclosures for all periods to report EBITDA from ongoing operations as the measure of segment
financial performance. The Company uses sales less freight (“net sales”) as its measure of revenues from external customers at
financial performance. The Company uses sales less freight (“net sales”) as its measure of revenues from external customers at
the segment level. This measure is separately included in the financial information regularly provided to the CODM.
the segment level. This measure is separately included in the financial information regularly provided to the CODM.
PE Films’ net sales to The Procter & Gamble Company (“P&G”) totaled $58.8 million in 2019, $106.5 million in 2018
PE Films’ net sales to The Procter & Gamble Company (“P&G”) totaled $58.8 million in 2019, $106.5 million in 2018
and $122.4 million in 2017. These sales include plastic film sold to others that convert the film into materials used with
and $122.4 million in 2017. These sales include plastic film sold to others that convert the film into materials used with
products manufactured by P&G.
products manufactured by P&G.
Information by business segment and geographic area for the last three years is provided in the segment tables below.
Information by business segment and geographic area for the last three years is provided in the segment tables below.
There were no accounting transactions between segments and no allocations to segments.
There were no accounting transactions between segments and no allocations to segments.
69
69
(In thousands)
Aluminum Extrusions
PE Films
Flexible Packaging Films
Total net sales
Add back freight
Sales as shown in consolidated statements of income
Net Sales
$
$
(In thousands)
Aluminum Extrusions:
Ongoing operations:
EBITDA
EBITDA from Ongoing Operations
$
Depreciation & amortization (c)
EBIT
Plant shutdowns, asset impairments, restructurings and other (a)
Trade name accelerated amortization
PE Films:
Ongoing operations:
EBITDA
Depreciation & amortization (c)
EBIT
Plant shutdowns, asset impairments, restructurings and other (a)
Goodwill impairment charge
Flexible Packaging Films:
Ongoing operations:
EBITDA
Depreciation & amortization
EBIT
Plant shutdowns, asset impairments, restructurings and other (a)
Total
Interest income
Interest expense
Gain on investment in kaléo accounted for under the fair value
method (a)
Loss on sale of investment property (a)
Unrealized loss on investment property (a)
Stock option-based compensation expense
Corporate expenses, net (a)(d)
Income (loss) before income taxes
Income tax expense (benefit) (a)
Net income (loss)
See footnotes following the tables.
$
$
$
2019
529,602
272,758
133,935
936,295
36,063
972,358
2019
65,683
(16,719)
48,964
(561)
(10,040)
37,803
(14,627)
23,176
(475)
—
14,737
(1,517)
13,220
—
74,284
296
4,051
28,482
—
—
4,209
36,630
58,172
9,913
$
$
$
2018
573,126
332,488
123,830
1,029,444
36,027
1,065,471
2018
65,479
(16,866)
48,613
(505)
—
51,058
(14,877)
36,181
(5,905)
(46,792)
11,154
(1,262)
9,892
(45)
41,439
369
5,702
30,600
(38)
(186)
1,221
28,893
36,368
11,526
2017
466,833
352,459
108,355
927,647
33,683
961,330
2017
58,524
(15,070)
43,454
321
—
55,889
(14,343)
41,546
(4,905)
—
7,817
(10,443)
(2,626)
(89,398)
(11,608)
209
6,170
33,800
—
—
264
30,879
(14,912)
(53,163)
38,251
$
48,259
$
24,842
$
70
(In thousands)
Aluminum Extrusions
PE Films
Flexible Packaging Films
Subtotal
General corporate
Cash and cash equivalents (b)
Total
Identifiable Assets
2019
265,027
230,415
74,016
569,458
111,788
31,422
712,668
$
$
2018
281,372
231,720
58,964
572,056
100,920
34,397
707,373
$
$
(In thousands)
Aluminum Extrusions
PE Films
Flexible Packaging Films
Subtotal
General corporate (d)
Total
(In thousands)
United States
Exports from the United States to:
Asia
Canada
Europe
Latin America
Operations outside the United States:
Brazil
The Netherlands
Hungary
China
India
Total
(In thousands)
United States
Operations outside the United States:
Brazil
The Netherlands
Hungary
China
India
General corporate
Cash and cash equivalents (b)
Total
Depreciation and Amortization
Capital Expenditures
2019
26,759
15,822
1,517
44,098
186
44,284
$
$
2018
16,866
15,513
1,262
33,641
163
33,804
$
$
2017
15,070
14,609
10,443
40,122
155
40,277
$
$
2019
17,855
23,920
8,866
50,641
223
50,864
$
$
2018
12,966
21,998
5,423
40,387
427
40,814
$
$
2017
25,653
15,029
3,619
44,301
61
44,362
$
$
Net Sales by Geographic Area (b)
2019
638,815
$
2018
691,232
$
2017
584,066
$
82,829
16,846
6,091
13,735
111,246
35,871
25,530
225
5,107
936,295
$
Identifiable Assets
by Geographic Area (b)
2019
458,066
$
2018
454,178
$
54,698
12,579
20,179
18,056
5,880
111,788
31,422
712,668
$
52,796
15,020
23,615
21,610
4,837
100,920
34,397
707,373
$
75,904
51,984
6,203
12,106
101,217
45,667
33,512
7,814
3,805
1,029,444
$
84,846
46,505
8,505
15,199
87,155
54,380
24,727
12,199
10,065
927,647
Property, Plant & Equipment,
Net by Geographic Area (b)
2019
181,989
$
2018
166,550
20,542
5,729
13,715
16,210
3,316
1,389
n/a
242,890
$
16,072
6,005
15,436
19,213
3,692
1,401
n/a
228,369
$
$
$
See footnotes following the tables and a reconciliation of net sales to sales as shown in the Consolidated Statements of Income in the
first table of this Note 5.
71
(In thousands)
Aluminum Extrusions:
Nonresidential building & construction
Consumer durables
Automotive
Machinery & equipment
Distribution
Residential building & construction
Electrical
Subtotal
PE Films:
Personal care materials
Surface protection films
LED-based products
Subtotal
Flexible Packaging Films
Total
Net Sales by Product Group
2019
2018
2017
$
$
272,729
57,607
46,461
38,657
34,753
43,554
35,841
529,602
161,493
103,893
7,372
272,758
133,935
936,295
$
$
289,572
66,416
48,037
41,899
40,924
43,943
42,335
573,126
227,090
98,126
7,272
332,488
123,830
1,029,444
$
$
239,713
54,126
38,261
33,450
30,202
40,354
30,727
466,833
246,416
99,079
6,964
352,459
108,355
927,647
(a) See Notes 1, 3, 4 and 17 for more information on losses associated with plant shutdowns, asset impairments and restructurings, unusual items, gains
(b)
or losses from sale of assets, gains or losses on an investment accounted for under the fair value method and other items.
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 $23.0 million and $31.1 million at December 31, 2019 and 2018, 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. The facility in Shanghai was shut down in the fourth quarter of 2018.
(c) Depreciation and amortization for Aluminum Extrusions in 2019 excludes $10.0 million for accelerated amortization of trade names as a result of a
rebranding initiative (see Note 8 for more information) and for PE Films in 2019, 2018 and 2017 excludes $1.2 million, $0.6 million and $0.3 million,
respectively, for accelerated depreciation associated with restructurings and plant closures.
(d) Corporate depreciation and amortization is included in Corporate expenses, net, on the EBITDA from ongoing operations table above.
6
ACCOUNTS AND OTHER RECEIVABLES
As of December 31, 2019 and 2018, accounts receivable and other receivables, net, were $107.6 million and $124.7
million, respectively, made up of the following:
(In thousands)
Customer receivables
Other accounts and notes receivable
Total accounts and other receivables
Less: Allowance for bad debts and sales returns
Total accounts and other receivables, net
2019
2018
106,153
4,441
110,594
(3,036)
107,558
$
$
122,182
5,482
127,664
(2,937)
124,727
$
$
A reconciliation of the beginning and ending balances of the allowance for doubtful accounts and sales returns for the
three years ended December 31, 2019 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
2019
2018
2017
2,937
1,188
(38)
(974)
(77)
3,036
$
$
3,304
553
(56)
(710)
(154)
2,937
$
$
3,102
2,369
(857)
(1,322)
12
3,304
$
$
72
7
INVENTORIES
Inventories consist of the following:
(In thousands)
Finished goods
Work-in-process
Raw materials
Stores, supplies and other
Total
2019
2018
$
$
24,504
12,328
24,735
19,813
81,380
$
$
24,938
15,648
33,741
19,483
93,810
Inventories stated on the LIFO basis amounted to $17.6 million at December 31, 2019 and $18.2 million at December 31,
2018, which were below replacement costs by $11.1 million at December 31, 2019 and $16.4 million at December 31, 2018.
During 2018, certain PE Films inventories accounted for on a LIFO basis declined, which resulted in cost of goods sold being
stated at below current costs by $0.3 million.
8 GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
The components of goodwill and identifiable intangibles at December 31, 2019 and 2018, and related amortization
periods for continuing operations are as follows:
(In thousands)
Goodwill
Identifiable intangible assets:
2019
2018
Amortization Periods
$
81,404
$
81,404 Not amortized
Customer relationships (cost basis of $29,550
in 2019 and $29,568 in 2018)
Proprietary technology (cost basis of $6,181 in
2019 and $6,185 in 2018)
Trade names (cost basis of $13,645 in 2019 and
$13,690 in 2018)
Total carrying value of identifiable
intangibles
20,198
22,785
10-12 years
895
1,543
1,093 Not more than 15 years
12,417
5 - 13 years
22,636
36,295
Total carrying value of goodwill and identifiable
intangible assets
$
104,040
$
117,699
In the third quarter of 2019, the Company implemented a rebranding initiative at Bonnell Aluminum whereby the use of
the AACOA and Futura trade names was discontinued as of December 31, 2019. The associated trade names assets, with a
remaining net book value of $10.2 million, were amortized over the last four months of 2019.
A reconciliation of the beginning and ending balance of goodwill for each of the two years in the period ended
December 31, 2019 is as follows:
(In thousands)
Net carrying value of goodwill at January 1, 2018
Goodwill impairment charge
Increase (decrease) due to foreign currency translation
Net carrying value of goodwill at December 31, 2018
Goodwill impairment charge
Increase (decrease) due to foreign currency translation
Aluminum
Extrusions
$
24,066
$
—
—
24,066
—
—
PE Films
Total
$
104,142
(46,792)
(12)
57,338
—
—
128,208
(46,792)
(12)
81,404
—
—
81,404
Net carrying value of goodwill at December 31, 2019
$
24,066
$
57,338
$
The goodwill of Aluminum Extrusions is carried by the reporting units AACOA and Futura, in the amounts of $13.7
million and $10.4 million, respectively, as of December 31, 2019. The goodwill of PE Films is carried by its Surface Protection
component in the amount of $57.3 million as of December 31, 2019.
73
The Company recorded a goodwill impairment charge of $46.8 million ($38.2 million after taxes) for goodwill associated
with the acquisition of certain components of PE Films. During the third quarter of 2018, the Company performed a goodwill
impairment analysis related to the Personal Care reporting unit of PE Films. This review was undertaken as a result of the
expected loss of business from a key customer and revised projections for PE Films. Based on an evaluation of projections
under various business planning scenarios, the Company concluded that the fair value of the Personal Care reporting unit of PE
Films was less than its carrying value.
A reconciliation of the beginning and ending balance of identifiable intangibles for each of the two years in the period
ended December 31, 2019 is as follows:
(In thousands)
Aluminum Extrusions:
Net carrying value at January 1, 2018
Amortization expense
Net carrying value at December 31, 2018
Amortization expense
Net carrying value at December 31, 2019
PE Films:
Net carrying value at January 1, 2018
Amortization expense
Net carrying value at December 31, 2018
Amortization expense
Net carrying value at December 31, 2019
Flexible Packaging Films:
Net carrying value at January 1, 2018
Amortization expense
Increase (decrease) due to foreign currency
translation
Net carrying value at December 31, 2018
Amortization expense
Increase (decrease) due to foreign currency
translation
Net carrying value at December 31, 2019
Total net carrying value of identifiable intangibles at
December 31, 2019
Customer
Relationships
Proprietary
Technology
Trade Names
Total
$
$
$
$
$
$
$
24,613
(2,489)
22,124
(2,480)
19,644
$
$
— $
—
—
—
— $
$
831
(82)
(88)
661
(91)
(16)
554
20,198
$
$
495
(420)
75
(20)
55
845
(115)
730
(120)
610
360
(55)
(17)
288
(55)
(3)
230
895
$
$
$
$
$
$
$
$
11,071
(516)
10,555
(10,555)
— $
— $
—
—
—
— $
$
2,337
(299)
(176)
1,862
(280)
(39)
1,543
1,543
$
$
36,179
(3,425)
32,754
(13,055)
19,699
845
(115)
730
(120)
610
3,528
(436)
(281)
2,811
(426)
(58)
2,327
22,636
During the fourth quarter of 2017, in conjunction with annual business planning as well as valuation activities and other
efforts, the Company determined that the carrying value of Terphane’s remaining long-lived assets were impaired (Terphane’s
goodwill was written off in 2015). Accordingly, the Company wrote down these assets based on an enterprise valuation for all
of Terphane of approximately $30 million. This write-down resulted in a non-cash asset impairment loss recognized during the
fourth quarter of 2017 of $101 million ($87 million after non-cash tax benefits). As part of this write-down, customer
relationships, proprietary technology and trade names were impaired by $9.4 million, $4.1 million and $4.0 million,
respectively, reducing their values to $0.8 million, $0.4 million and $2.4 million, respectively. The remaining part of this write-
down was related to property, plant and equipment. Also, Terphane’s trade names were assigned estimated useful lives of 5 to
13 years, a change from the previous designation of an indefinite life.
74
Amortization expense for continuing operations over the next five years is expected to be as follows:
Year
2020
2021
2022
2023
2024
$
Amount
(In thousands)
3,070
3,070
2,935
2,309
2,269
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 exposure from currency volatility that exist as part of ongoing business operations
(primarily in Flexible Packaging Films). These derivative financial instruments are designated as and qualify as cash flow
hedges and are recognized in the consolidated balance sheet at fair value. The fair value of derivative instruments recorded on
the consolidated balance sheets 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 $20.2 million (19.6 million pounds of
aluminum) at December 31, 2019 and $25.4 million (22.5 million pounds of aluminum) at December 31, 2018.
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, 2019 and 2018:
(In thousands)
Derivatives Designated as Hedging Instruments
Asset derivatives:
Aluminum futures contracts
Liability derivatives:
Aluminum futures contracts
Net asset (liability)
December 31, 2019
December 31, 2018
Balance Sheet
Account
Fair
Value
Balance Sheet
Account
Fair
Value
Accrued
expenses
Accrued
expenses
Accrued
expenses
Accrued
expenses
$
$
6
(1,259)
(1,253)
$
$
20
(1,650)
(1,630)
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.
75
The table below summarizes the location and gross amounts of foreign currency forward contract fair values (Level 2) in
the consolidated balance sheets as of December 31, 2019 and 2018:
(In thousands)
Derivatives Designated as Hedging Instruments
Asset derivatives:
Foreign currency forward contracts
Liability derivatives:
Foreign currency forward contracts
Net asset (liability)
December 31, 2019
December 31, 2018
Balance Sheet
Account
Fair
Value
Balance Sheet
Account
Fair
Value
Prepaid expenses
and other
Accrued
expenses
Prepaid expenses
and other
83
Accrued
expenses
(935)
(852)
$
$
37
(1,090)
(1,053)
$
$
The Company's earnings are exposed to foreign currency exchange risk primarily through the translation of the financial
statements of subsidiaries that have a functional currency other than the U.S. Dollar. The Company’s largest exposure is for the
Flexible Packaging Films business unit in Brazil, Terphane Limitada's (“Terphane Ltda.”). The Company estimates that the net
mismatch translation exposure between Terphane Ltda.’s U.S. Dollar quoted or priced sales and its underlying Brazilian Real
(“R$”) quoted or priced operating costs (excluding depreciation and amortization) is annual net costs of R$137 million. As of
December 31, 2019, Terphane Ltda. had the following outstanding foreign exchange average forward rate contracts to purchase
Brazilian Real and sell U.S. Dollars:
USD Notional
Amount (000s)
Average Forward
Rate Contracted on
USD/BRL
R$ Equivalent
Amount (000s)
Applicable Month
Estimated % of
Terphane Ltda. R$
Operating Cost
Exposure Hedged
$2,100
$2,200
$2,200
$2,200
$2,200
$2,200
$2,200
$2,200
$2,200
$2,200
$2,200
$2,050
$26,150
3.8900
3.9040
3.9076
3.9131
3.9188
3.9249
3.9326
3.9413
3.9495
3.9579
3.9660
3.9653
3.9309
R$8,169
R$8,589
R$8,597
R$8,609
R$8,621
R$8,635
R$8,652
R$8,671
R$8,689
R$8,707
R$8,725
R$8,129
R$102,793
Jan-20
Feb-20
Mar-20
Apr-20
May-20
Jun-20
Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20
72%
75%
75%
75%
76%
76%
76%
76%
76%
76%
76%
71%
75%
These foreign currency exchange contracts have been designated as and qualify as cash flow hedges of Terphane Ltda.’s
forecasted sales to customers quoted or priced in U.S. Dollars over that period. By changing the currency risk associated with
these U.S. Dollar sales, the derivatives have the effect of offsetting operating costs quoted or priced in Brazilian Real and
decreasing the net exposure to Brazilian Real in the consolidated statements of income. The net fair value of the open forward
contracts was a negative $0.8 million as of December 31, 2019.
These derivative contracts involve elements of market risk that are not reflected on the consolidated balance sheet,
including the risk of dealing with counterparties and their ability to meet the terms of the contracts. The counterparties to any
forward purchase commitments are major aluminum brokers and suppliers, and the counterparties to any aluminum futures
contracts are major financial institutions. Fixed-price forward sales contracts are only made available to the best and most
credit-worthy customers. The counterparties to the Company’s foreign currency cash flow hedge contracts are major financial
institutions.
76
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, 2019, 2018, and 2017 is summarized in
the tables below:
(In thousands)
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)
Cash Flow Derivative Hedges
Aluminum Futures Contracts
2019
2018
2017
$
(2,359) $
(1,123) $
1,501
Cost of
goods sold
Cost of
goods sold
Cost of
goods sold
$
(2,736) $
1,069
$
1,210
(In thousands)
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)
Cash Flow Derivative Hedges
Foreign Currency Forward Contracts
2019
2018
2017
$
— $
(856) $
— $
(2,105) $
— $
(561)
Cost of
goods sold
Selling,
general &
admin
Cost of
goods sold
Selling,
general &
admin
Cost of
goods sold
Selling,
general &
admin
$
62 $
(904) $
62 $
(1,796) $
62 $
(43)
Gains and losses on the ineffective portion of derivative instruments or derivative instruments that were not designated as
hedging instruments were not material in 2019, 2018 and 2017. For the years ended December 31, 2019, 2018 and 2017,
unrealized net losses from hedges that were discontinued were not material. As of December 31, 2019, the Company expected
$0.9 million of unrealized after-tax losses on derivative instruments reported in accumulated other comprehensive income to be
reclassified to earnings within the next 12 months.
77
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
Derivative contract liability
Accrued utilities
Accrued freight
Environmental liabilities (current)
Customer rebates
Accrued severance
Other
Total
2019
2018
$
8,842
$
9,792
6,823
3,557
2,188
2,588
1,547
2,122
2,442
1,389
4,519
8,946
6,979
6,600
4,048
2,720
2,420
2,091
1,990
1,476
637
4,588
$
45,809
$
42,495
A reconciliation of the beginning and ending balances of accrued expenses associated with asset impairments and costs
related to exit and disposal activities for each of the three years in the period ended December 31, 2019 can be found in Note
17.
11 DEBT AND CREDIT AGREEMENTS
On June 28, 2019, Tredegar entered into a $500 million five-year, secured revolving credit agreement (“Credit
Agreement”), with an option to increase that amount by $100 million. The Credit Agreement amends and restates the
Company’s previous $400 million five-year, secured revolving credit facility that was due to expire on March 1, 2021.
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 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
200.0
187.5
175.0
162.5
150.0
40
35
30
25
20
At December 31, 2019, the interest cost on debt borrowed under the Credit Agreement was priced at one-month LIBOR
plus the applicable credit spread of 150 basis points.
The most restrictive covenants in the Credit Agreement include:
• Maximum indebtedness-to-adjusted EBITDA (“Leverage Ratio:) of 4.00x;
• Minimum adjusted EBITDA-to-interest expense of 3.00x; and
• Maximum aggregate distributions to shareholders over the term of the Credit Agreement of $130 million plus,
beginning with the fiscal quarter ended June 30, 2019, 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) $4.75 million
and (ii) 50% of consolidated net income for the most recent fiscal quarter.
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.
78
At December 31, 2019, based upon the most restrictive covenant within the Credit Agreement, available credit under the
Credit Agreement was approximately $370 million. Total debt due and outstanding at December 31, 2019 is summarized
below:
Debt Due and Outstanding at December 31, 2019
(In thousands)
Credit
Agreement
Other
Total Debt
Due
$
— $
— $
—
—
—
42,000
—
—
—
—
$
42,000
$
— $
—
—
—
—
42,000
42,000
Year Due
2020
2021
2022
2023
2024
Total
Tredegar was in compliance with all of its debt covenants as of December 31, 2019. Noncompliance with any of the debt
covenants may have a material adverse effect on financial condition or liquidity in the event such noncompliance cannot be
cured or should the Company be unable to obtain a waiver from the lenders. Renegotiation of the covenant through an
amendment to the Credit Agreement may effectively cure the noncompliance, but may have an effect on financial condition or
liquidity depending upon how the covenant is renegotiated.
12 STOCK OPTION AND STOCK AWARD PLANS
Tredegar has one equity incentive plan under which 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. Stock options granted by the Company during 2019, 2018 and 2017 either vest after 2 years and have a 7-year life or
vest after 3 years and have a 5-year life. The option plan also permits the granting of stock appreciation rights (“SARs”), stock,
restricted stock, stock unit awards and incentive awards. Restricted stock grants ordinarily vest three years from the date of
grant based upon continued employment. 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, 2019, 2018 and 2017, and changes during those years, is
presented below:
Outstanding at January 1, 2017
Granted
Forfeited and expired
Exercised
Outstanding at December 31, 2017
Granted
Forfeited and expired
Exercised
Outstanding at December 31, 2018
Granted
Forfeited and expired
Exercised
Number of
Options
500,919
$
209,551
(60,685)
(41,265)
608,520
451,083
(96,089)
(73,398)
890,116
758,287
(10,000)
(9,500)
Outstanding at December 31, 2019
1,628,903
$
Option Exercise Price/Share
Range
Weighted
Average
17.13
15.65
17.13
19.84
15.65
19.35
15.65
15.65
15.65
18.48
19.40
19.40
15.65
to
to
to
to
to
to
to
to
to
to
to
to
to
$
30.01
$
15.65
30.01
19.84
24.84
19.35
24.84
22.49
24.84
18.48
19.40
19.40
$
24.84
$
21.67
15.65
21.42
19.84
19.75
19.35
19.58
18.15
19.69
18.48
19.40
19.40
19.13
79
The following table summarizes additional information about stock options outstanding and exercisable at December 31,
2019:
Options Outstanding at December 31, 2019
Options Exercisable at December 31, 2019
Range of
Exercise Prices
— to
$
$
15.01
17.51
20.01
to
to
to
Total
15.00
17.50
20.00
25.00
Shares
—
163,641
1,255,670
209,592
1,628,903
Weighted Average
Remaining
Contractual
Life (Years)
Exercise
Price
Aggregate
Intrinsic Value
Shares
Weighted
Average
Exercise
Price
Aggregate
Intrinsic Value
0.0
4.4
5.3
3.5
5.0
$
— $
—
— $
— $
—
15.65
18.83
23.69
1,096,395
4,424,405
—
104,326
46,300
209,592
15.65
19.40
23.69
698,984
136,585
—
$
19.13
$ 5,520,800
360,218
$
20.81
$
835,569
The following table summarizes additional information about unvested restricted stock outstanding at December 31,
2019, 2018 and 2017:
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, 2017
207,355
$
15.90
$
Granted
Vested
Forfeited
Outstanding at December 31, 2017
Granted
Vested
Forfeited
Outstanding at December 31, 2018
Granted
Vested
Forfeited
107,362
(50,154)
(57,887)
206,676
119,915
(64,702)
(17,153)
244,736
185,422
(117,834)
(26,389)
18.29
19.72
16.16
16.15
17.39
18.31
15.84
16.20
18.46
14.76
16.11
Outstanding at December 31, 2019
285,935
$
18.27
$
3,297
1,964
(989)
(935)
3,337
2,085
(1,185)
(272)
3,965
3,423
(1,739)
(425)
5,224
238,429
$
16.39
$
46,205
—
(112,501)
172,133
61,227
—
(48,651)
184,709
57,442
(69,926)
(24,562)
147,663
17.38
—
17.73
15.78
17.35
—
13.23
16.97
18.34
10.96
11.51
$
21.25
$
3,908
803
—
(1,995)
2,716
1,062
—
(644)
3,134
1,053
(766)
(283)
3,138
The total intrinsic value of stock options exercised was $0.1 million in 2019, $0.4 million in 2018 and $0.2 million in
2017. The grant-date fair value of stock option-based awards vested was $0.5 million in 2019, $0.1 million in 2018 and $0.4
million in 2017. As of December 31, 2019, there was unrecognized compensation cost of $1.9 million related to stock option-
based awards and $2.5 million related to non-vested restricted stock and other stock-based awards. This cost is expected to be
recognized over the remaining weighted average period of 1.09 years for stock option-based awards and 1.44 years for non-
vested restricted stock and other stock-based awards. Stock option awards granted in 2019 included a retirement provision that
allowed for the immediate vesting of options held by a participant of the plan that ceased to provide service, including service
as a member of the board of directors, with the Company subsequent to reaching the age of 65. As a result of this provision and
in accordance with accounting for stock-based compensation, the Company accelerated the recognition of $1.3 million of
expense into 2019. At December 31, 2019, the participant continues to provide ongoing service to the Company, and therefore
continues to vest in the stock options under the originally contemplated service period.
Stock options exercisable totaled 360,218 shares at December 31, 2019 and 275,392 shares at December 31, 2018. Stock
options available for grant totaled 954,454 shares at December 31, 2019.
80
13 RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS
Tredegar sponsors a noncontributory defined benefit (pension) plan covering certain current and former U.S. employees.
The plans for salaried and hourly employees currently in effect is based on a formula using the participant’s years of service and
compensation or using the participant’s years of service and a dollar amount. The plan is closed to new participants and pay for
active plan participants for benefit calculations was frozen as of December 31, 2007. As of January 31, 2018, the plan no
longer accrued benefits associated with crediting employees for service, thereby freezing all future benefits under the plan.
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 2019 and 2018, and reconcile the
funded status to prepaid or accrued cost at December 31, 2019 and 2018:
(In thousands)
Change in benefit obligation:
Benefit obligation, beginning of year
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)
Pension and other postretirement benefit
obligations, net
Net amount recognized
Pension Benefits
Other Post-
Retirement Benefits
2019
2018
2019
2018
$
287,240
—
12,222
$
318,123
17
11,442
$
6,889
26
290
7,704
36
271
38,919
(23,653)
(2,589)
(1,047)
—
(15,982)
318,763
205,367
20,624
8,320
$
$
—
(15,982)
218,329
$
(100,434) $
(914)
(2,326)
—
(15,449)
287,240
226,354
(14,148)
8,610
—
(15,449)
205,367
(81,873)
$
$
$
$
894
21
(176)
649
(943)
7,650
$
— $
—
294
649
(943)
— $
(7,650) $
168
$
182
$
470
$
100,266
81,691
7,180
100,434
$
81,873
$
7,650
$
(546)
6
(285)
656
(953)
6,889
—
—
297
656
(953)
—
(6,889)
456
6,433
6,889
$
$
$
$
$
$
$
81
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
2019
2018
2017
2019
2018
2017
Discount rate
3.27%
4.40%
3.72%
3.25%
4.37%
3.69%
Expected long-term return on plan
assets
Weighted-average assumptions used to
determine net periodic benefit cost:
5.00%
6.00%
6.50%
n/a
n/a
n/a
Discount rate
4.40%
3.72%
4.29%
4.37%
3.69%
4.24%
Expected long-term return on plan
assets
Components of net periodic benefit cost:
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service costs
and gains or losses
6.00%
6.50%
6.50%
n/a
n/a
n/a
$
— $
17
$
194
$
12,222
(13,528)
11,442
(15,011)
12,575
(14,955)
$
26
290
—
10,891
13,894
12,320
(258)
36
271
—
(243)
64
$
$
33
301
—
(275)
59
Net periodic benefit cost
$ 9,585
$ 10,342
$ 10,134
$
58
$
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, 2019, 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 2025-2029 are as
follows:
(In thousands)
2020
2021
2022
2023
2024
2025—2029
Pension
Benefits
Other Post-
Retirement
Benefits
$
17,162
$
17,524
17,895
18,088
18,325
91,383
470
473
473
468
463
2,202
Amounts recorded in 2019, 2018 and 2017 in accumulated other comprehensive income, before related deferred income
taxes, consist of:
(In thousands)
Prior service cost (benefit)
Net actuarial (gain) loss
2019
Pension
2018
2017
2019
2018
2017
Other Post-Retirement
$
— $
— $
5
$
— $
— $
150,047
132,751
144,377
(824)
(1,821)
—
(1,238)
82
Pension expense is expected to be $14.2 million in 2020. 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
2020 are as follows:
(In thousands)
Prior service cost (benefit)
Net actuarial (gain) loss
Pension
$
— $
15,254
Other Post-
Retirement
—
(188)
The percentage composition of assets held by pension plans for continuing operations at December 31, 2019, 2018 and
2017 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,
2019
2018
2017
8.7%
8.6%
7.7%
21.3
7.8
19.7
48.8
35.0
7.5
18.2
6.8
16.0
41.0
42.3
8.1
19.0
6.4
15.1
40.5
44.6
7.2
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, 2019, 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 %
12.0%
2.0%
27.0
8.0
20.0
55.0
33.0
5.8
6.9
5.8
6.0
4.5
100.0%
5.0%
*
Target percentages for the composition of plan assets represents a neutral position within the approved
range of allocations for such assets.
Expected long-term returns are estimated by asset class and generally are based on inflation-adjusted historical returns,
volatilities, risk premiums and managed asset premiums. The portfolio of fixed income securities is structured with maturities
that generally match estimated benefit payments over the next 1-2 years. The other assets category is primarily comprised of
cash and contracts with insurance companies. The Company’s primary investment objective is to maximize total return with a
strong emphasis on the preservation of capital, and it believes that over the long-term a diversified portfolio of fixed income
securities, equity securities, hedge funds and private equity funds has a better risk-return profile than fixed income securities
alone. The average remaining duration of benefit payments for the pension plans is about 11.6 years. The Company expects its
required contributions to be approximately $12.3 million in 2020.
83
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, 2019 and 2018, the pension plan assets are categorized by level
within the fair value measurement hierarchy as follows:
(In thousands)
Balances at December 31, 2019
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
$
46,440
$
46,440
$
Small-capitalization equity securities
International and emerging market equity securities
Fixed income securities
Contracts with insurance companies
Other assets
Total plan assets at fair value
Private equity and hedge funds
Total plan assets, December 31, 2019
Balances at December 31, 2018
Large/mid-capitalization equity securities
Small-capitalization equity securities
International and emerging market equity securities
Fixed income securities
Contracts with insurance companies
Other assets
Total plan assets at fair value
Private equity and hedge funds
Total plan assets, December 31, 2018
17,135
43,079
18,911
8,840
7,585
17,135
19,117
6,209
—
7,585
— $
—
23,962
12,702
—
—
$
$
$
$
$
141,990
$
96,486
$
36,664
$
76,339
218,329
37,323
$
37,323
$
13,880
32,931
17,769
9,899
6,779
13,880
13,389
5,886
—
6,779
— $
—
19,542
11,883
—
—
118,581
$
77,257
$
31,425
$
86,786
205,367
—
—
—
—
8,840
—
8,840
—
—
—
—
9,899
—
9,899
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, 2019 and $2.0 million at December 31, 2018. Pension expense
recognized for this plan was $0.1 million in 2019, $0.1 million in 2018 and $0.1 million in 2017. This information has been
included in the preceding pension benefit tables.
Approximately 70 employees at PE Films’ manufacturing facility in Kerkrade, The Netherlands are covered by a
collective bargaining agreement that includes participation in a multi-employer pension plan. Pension expense recognized for
participation in this plan, which is equal to required contributions, was $0.3 million in 2019, $0.4 million in 2018 and $0.4
million in 2017. This information has been excluded from the preceding pension benefit tables.
14 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 an employee contributes per pay
period up to a maximum of 5% of eligible compensation.
• The savings plan includes immediate vesting of matching contributions and automatic enrollment at 3% of eligible
compensation unless the employee opts out or elects a different percentage.
84
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
$3.9 million in 2019, $3.7 million in 2018 and $3.5 million in 2017. The Company’s liability under the restoration plan was
$1.4 million at December 31, 2019 (consisting of 62,475 phantom shares of common stock) and $1.0 million at December 31,
2018 (consisting of 65,280 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.
15 LEASES
Tredegar has various lease agreements with terms up to 12 years, including leases of real estate, office equipment and
vehicles. Some leases include options to purchase the leased asset, terminate the agreement or extend the term of the agreement
for one or more years. These options are included in the lease term when it is reasonably certain that the option will be
exercised.
At inception, the Company determines if an arrangement contains a lease and whether that lease meets the classification
criteria of a finance or operating lease. The Company has elected to not record short-term leases with an original lease term of
one year or less in the consolidated balance sheet. To the extent such leases contain renewal options that the Company intends
to exercise, the related ROU asset and lease liability are included in the consolidated balance sheet. Some of the Company’s
lease arrangements contain lease components (e.g. minimum rent payments) and non-lease components (e.g. maintenance,
labor charges, etc.). The Company generally accounts for the lease and non-lease components as a single lease component.
Certain of the Company’s lease agreements include rental payments that are adjusted periodically for an index or rate.
The leases are initially measured using the projected payments adjusted for the index or rate in effect at the commencement
date. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Operating Leases
Operating leases are included in “Right-of-use lease assets”, “Lease liabilities - short-term” and “Lease liabilities -
long-term” on the consolidated balance sheets. These assets and liabilities are recognized at the commencement date based on
the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates,
adjusted for term and geographic location using country-based swap rates. After reviewing new lease contracts in 2019 and the
lease contracts in the implementation effort, the Company found no instance where it could readily determine the rate implicit
in the lease.
Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease expense is
recognized in the period in which the obligation for those payments is incurred. Depending upon the specific use of the ROU
asset, lease expense is included in the “Cost of goods sold”, “Freight”, “Selling, general and administrative”, and “Research
and development” line items on the consolidated statements of income. Lease income is not material to the results of operations
for the year ended December 31, 2019.
85
The following table presents information about the amount, timing and uncertainty of cash flows arising from the
Company’s operating leases as of December 31, 2019:
(In thousands)
Maturity of Lease Liabilities
2020
2021
2022
2023
2024
Thereafter
Total undiscounted operating lease payments
Less: Imputed interest
Present value of operating lease liabilities
Balance Sheet Classification
Lease liabilities, short-term
Lease liabilities, long-term
Total operating lease liabilities
Other Information:
Weighted-average remaining lease term for operating leases
Weighted-average discount rate for operating leases
$
$
$
As of December 31,
2019
Future Lease Payments
3,820
$
3,589
2,622
2,425
2,405
9,786
24,647
3,956
20,691
3,002
17,689
20,691
8 Years
4.32%
Rental expense was $5.2 million in 2018 and $4.4 million in 2017. Rental commitments under all noncancellable
leases as of December 31, 2018, were as follows:
(In thousands)
2019
2020
2021
2022
2023
Remainder
$
4,445
4,007
3,591
2,391
1,245
2,630
Total minimum lease payments
$
18,309
Cash Flows
An initial right-of-use asset of $21 million was recognized as a non-cash asset addition and an initial lease liability of
$22 million was recognized as a non-cash liability addition with the adoption of the new lease accounting standard.
Operating Lease Costs
Operating lease costs were $5.6 million in 2019. These costs are primarily related to long-term operating leases, but
also include amounts for variable leases and short-term leases.
86
16
INCOME TAXES
Income (loss) before income taxes and income tax expense (benefit) are as follows:
(In thousands)
Income (loss) before income taxes:
Domestic
Foreign
Total
Current income tax expense (benefit):
Federal
State
Foreign
Total
Deferred income tax expense (benefit):
Federal
State
Foreign
Total
2019
2018
2017
$
$
$
$
$
$
35,731
22,441
58,172
1,202
989
1,801
3,992
17,357
311
(11,747)
5,921
17,663
18,705
36,368
$
$
(187) $
815
2,090
2,718
8,708
364
(264)
8,808
67,549
(82,461)
(14,912)
(20,560)
800
3,247
(16,513)
(23,302)
(949)
(12,399)
(36,650)
(53,163)
Total income tax expense (benefit)
$
9,913
$
11,526
$
87
The significant differences between the U.S. federal statutory rate and the effective income tax rate for continuing
operations are as follows:
(In thousands, except percentages)
Income tax expense (benefit) at federal statutory rate
U.S. tax on foreign branch income
Foreign rate differences
State taxes, net of federal income tax benefit
Non-deductible expenses
Stock-based compensation
Global intangible low tax income
Valuation allowance for capital loss carryforwards
Unremitted earnings from foreign operations
Non-deductible goodwill and asset impairment loss
Increase in value of kaléo investment held abroad
Settlement of Terphane acquisition escrow
Impact of U.S. Tax Cuts and Jobs Act
Worthless stock deductions
Foreign derived intangible income deduction
Changes in estimates related to prior year tax provision
Research and development tax credit
Dividend received deduction net of foreign withholding tax
Brazilian tax incentive
Tax contingency accruals and tax settlements
Valuation allowance due to foreign losses and impairments
Income tax expense (benefit) at effective income tax rate
$
2019
2018
Amount
%
21.0
$
Amount
12,223
$
15,865
2,211
987
467
283
68
60
60
—
—
—
—
%
21.0
27.2
$
3.8
1.7
0.8
0.5
0.1
0.1
0.1
—
—
—
—
—
(273)
(721)
(830)
(1,016)
(1,999)
(2,543)
(14,929)
9,913
—
(0.5)
(1.2)
(1.4)
(1.7)
(3.4)
(4.4)
(25.6)
17.1
$
2017
Amount
(5,219)
—
2,546
656
434
199
—
83
—
228
(2,326)
(4,200)
(4,433)
(61,413)
—
320
(375)
—
—
(420)
20,757
$ (53,163)
%
35.0
—
(17.1)
(4.4)
(2.9)
(1.3)
—
(0.6)
—
(1.5)
15.6
28.2
29.7
411.9
—
(2.1)
2.5
—
—
2.8
(139.3)
356.5
7,638
1,901
1,805
520
322
175
—
553
126
1,801
—
—
—
—
(1,050)
(303)
(420)
—
(1,340)
773
(975)
11,526
5.2
5.0
1.4
0.9
0.5
—
1.5
0.3
5.1
—
—
—
—
(2.9)
(0.8)
(1.2)
—
(3.7)
2.1
(2.7)
31.7
During 2019, the Company recorded a deferred tax expense of $1.0 million as a valuation allowance to offset deferred tax
assets for loss carryovers at our Hungarian subsidiary that the Company does not believe are more likely than not to be realized
before the carryover periods expire. Due to recent favorable earnings trends, the Company reversed a $12.4 million valuation
allowance on the net deferred tax assets of its Brazilian subsidiary Terphane Ltda. Because Terphane Ltda. is taxed as a foreign
branch for US tax purposes, Tredegar also recorded a related deferred tax liability of $12.4 million for the reduction in foreign
tax credits that would result from Terphane Ltda. realizing this net deferred tax asset.
Income taxes in 2018 were primarily impacted by not recording a tax benefit on a portion of the PE Films Personal Care
goodwill impairment charge, the additional tax impact of Tredegar’s Brazilian subsidiaries being included in its US
consolidated tax return as foreign branches as well as the tax impact of the local statutory tax rates of Tredegar’s foreign
subsidiaries being higher than the current US tax rate of 21%. These increases to income tax expense were offset by recording
a tax benefit on a portion of foreign losses and impairments, by the tax benefit of the foreign derived intangible income
deduction under the TCJA, and by the benefit of tax incentives in Brazil.
During 2017, the Company completed a plan to liquidate for tax purposes one of its domestic subsidiaries, which allowed
it to claim an income tax benefit on the write-off of the stock basis of Terphane, Inc. (Terphane’s U.S. affiliate) on its 2017 U.S.
federal income tax return. The Company recorded an income tax benefit during the second quarter of 2017 of $8.1 million
related to this worthless stock deduction, net of valuation allowances and accrual for uncertain tax positions. Also, during the
fourth quarter of 2017, as a result of valuation activities and other efforts, the Company claimed an ordinary loss for U.S.
federal and state income tax purposes of $153 million for the write-off of the stock basis of Terphane Limitada (Terphane’s
Brazilian entity). The full tax benefit accrued for the Terphane Limitada worthless stock deduction at the 35% U.S. corporate
income tax rate applicable for 2017 was approximately $54 million. This benefit was reduced by $4.8 million in conjunction
with the TCJA for the portion of the deduction that is expected to be applied to income generated after 2017 where the new
U.S. federal corporate income tax rate of 21% is applicable. The significant foreign rate difference for 2017 is primarily due to
the difference between Hungary’s income tax rate of 9% and the U.S. federal corporate income tax rate of 35%.
88
Tredegar accrues U.S. federal income taxes on unremitted earnings of all foreign subsidiaries where required. However,
due to changes in the taxation of dividends under TCJA, Tredegar will only record U.S. federal income taxes on unremitted
earnings of its foreign subsidiaries where Tredegar cannot take steps to eliminate any potential tax on future distributions from
its foreign subsidiaries. Prior to the second quarter of 2016, deferred U.S. federal income taxes had not been recorded for the
undistributed earnings for Terphane Limitada because the Company had intended to permanently reinvest these earnings. Due
to concerns about the political and economic conditions in Brazil, Terphane Limitada began making cash distributions to the
Company in 2016. During the second quarter of 2016, Terphane Limitada paid a dividend of $10.7 million to the Company.
During the second quarter of 2017, the Company recognized a net tax benefit of $0.4 million associated with additional U.S.
tax related to this repatriation of cash from Brazil offset by the reversal of related tax contingencies. Because of the
accumulation of significant losses related to foreign currency translations at Terphane Limitada, there were no deferred income
tax liabilities associated with the U.S. federal income taxes and foreign withholding taxes on Terphane Limitada’s undistributed
earnings as of and December 31, 2019 and 2018.
The Brazilian federal statutory income tax rate is a composite of 34.0% (25.0% of income tax and 9.0% of social
contribution on income). Terphane’s manufacturing facility in Brazil is the beneficiary of certain income tax incentives that
allow for a reduction in the statutory Brazilian federal income tax rate levied on the operating profit of its products. These
incentives produce a current tax rate of 15.25% for Terphane (6.25% of income tax and 9.0% social contribution on income).
The incentives were originally granted for a 10-year period commencing January 1, 2015 and expiring at the end of 2024.
Terphane Brazil has been granted an additional three years of tax incentives through the end of 2027. The benefit from the tax
incentives was $2.0 million and $1.3 million in 2019 and 2018, respectively, and was immaterial for 2017.
89
Deferred income tax liabilities and deferred income tax assets at December 31, 2019 and 2018, are as follows:
(In thousands)
Deferred income tax liabilities:
2019
2018
Amortization of goodwill and identifiable intangibles
$
12,023
$
13,416
Depreciation
Foregone tax credits on foreign branch income
Foreign currency translation gain adjustment
Excess of carrying value over tax basis of investment in kaléo
Right-of-use leased assets
Other
Total deferred income tax liabilities
Deferred income tax assets:
Depreciation
Pensions
Employee benefits
Excess capital losses
Inventory
Asset write-offs, divestitures and environmental accruals
Tax benefit on U.S. federal, 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
Lease liabilities
Derivative financial instruments
Foreign currency translation gain adjustment
Deferred income tax assets before valuation allowance
Less: Valuation allowance
Total deferred income tax assets
Net deferred income tax (assets) liabilities
Amounts recognized in the consolidated balance sheets:
Deferred income tax assets (noncurrent)
Deferred income tax liabilities (noncurrent)
Net deferred income tax assets (liabilities)
7,065
12,361
—
17,504
751
549
—
—
300
15,131
—
184
50,253
29,031
—
21,025
7,964
1,551
3,734
1,355
2,399
17,153
6,676
1,519
3,644
1,200
19,658
23,507
187
383
967
345
285
57,454
5,091
52,363
(2,110) $
13,129
11,019
2,110
$
$
267
382
—
432
—
57,179
24,736
32,443
(3,412)
3,412
—
3,412
$
$
$
Except as noted below, the Company believes that it is more likely than not that future taxable income will exceed future
tax-deductible amounts thereby resulting in the realization of deferred income tax assets. The Company has estimated gross
federal, state and foreign tax credits and net operating loss carryforwards of $19.7 million and $23.5 million at December 31,
2019 and 2018, respectively. The U.S. federal tax credits will expire in 2026. The U.S. federal net operating loss
carryforwards were fully utilized in 2018. The majority of the foreign net operating loss carryforwards do not expire. The U.S.
state carryforwards expire at different points over the next 9 to 20 years.
Valuation allowances of $3.8 million, $7.7 million and $8.5 million at December 31, 2019, 2018 and 2017, respectively,
are recorded against the tax benefit on U.S. federal, 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 $1.3 million, $1.2 million and $4.4 million at
December 31, 2019, 2018 and 2017, respectively. The 2018 balance decreased primarily due to the expiration of a portion of
the capital loss carryforwards. The amount of the deferred income tax asset considered realizable, however, could be adjusted
in the near term if estimates of the fair value of certain investments during the carryforward period change. Tredegar continues
to evaluate opportunities to utilize capital loss carryforwards prior to their expiration at various dates in the future. As
circumstances and events warrant, allowances will be reversed when it is more likely than not that future taxable income will
90
exceed deductible amounts, thereby resulting in the realization of deferred income tax assets. The valuation allowance for asset
impairments in foreign jurisdictions where the Company believes it is more likely than not that the deferred income tax asset
will not be realized was $0.0 million, $15.8 million and $15.6 million at December 31, 2019, 2018 and 2017, respectively. Due
to recent favorable earnings trends, the Company reversed a $12.4 million valuation allowance on the net deferred tax assets of
its Brazilian subsidiary Terphane Ltda. Because Terphane Ltda. is taxed as a foreign branch for US tax purposes, Tredegar also
recorded a related deferred tax liability of $12.4 million for the reduction in foreign tax credits that would result from Terphane
Ltda. realizing this net deferred tax asset.
A reconciliation of the Company’s unrecognized uncertain tax positions since January 1, 2017, 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,
2019
2018
2017
$
3,361
$
1,962
$
3,315
12
49
(151)
(2,390)
881
$
13
1,430
—
(44)
3,361
$
27
(532)
(51)
(797)
1,962
Additional information related to unrecognized uncertain tax positions since January 1, 2017 is summarized below:
(In thousands)
Gross unrecognized tax benefits on uncertain tax positions (reflected in
current income tax, other noncurrent liability accounts, or deferred tax
assets in the balance sheet)
Deferred income tax assets related to unrecognized tax benefits on
uncertain tax positions (reflected in deferred income tax accounts in the
balance sheet)
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 $(144), $107 and $(1) reflected in income tax
expense in the income statement in 2019, 2018 and 2017, 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,
2019
2018
2017
$
881
$
3,361
$
1,962
(163)
718
100
(23)
(211)
(153)
3,150
1,809
243
(56)
136
(32)
77
187
104
$
795
$
3,337
$
1,913
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 2016. 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
$0.7 million of the balance of unrecognized tax positions, including any payments that may be made.
91
17 ASSET IMPAIRMENTS AND COSTS ASSOCIATED WITH EXIT AND DISPOSAL ACTIVITIES
The Company plans to close its PE Films manufacturing facility in Lake Zurich, Illinois, which produces elastic
materials. Production at the Lake Zurich plant is expected to cease during the first half of 2020 with product transfers to the
new elastic production lines at Terre Haute, Indiana (“Lake Zurich plant shutdown”). As a result of the Lake Zurich plant
shutdown, the Company expects to recognize pre-tax cash costs of $7.6 million comprised of (i) customer-related costs ($0.7
million), (ii) severance and other employee related costs ($1.8 million), and (iii) asset disposal and other cash costs ($5.1
million). In addition, the Company expects non-cash asset write-offs and accelerated depreciation of $1.6 million. Total
expenses associated with the Lake Zurich plant shutdown are $2.7 million since project inception. Cash expenditures were
$0.5 million in 2019. Proceeds from the expected sale of Lake Zurich’s real property are estimated at approximately $5
million. The Company anticipates that the Lake Zurich plant shutdown will be completed by the end of 2020.
The Company plans to consolidate the production of certain PE Films personal care products in Europe over the next
twelve months (“PC Europe consolidation”). As a result of this consolidation, the Company expects to recognize pre-tax cash
costs of $1.7 million, primarily for severance and customer-related costs. Total expenses associated with the PC Europe
consolidation are $0.8 million since project inception. Cash expenditures were $0.5 million in 2019.
In June 2018, the Company announced plans to close its facility in Shanghai, China, which primarily produced plastic
films used as components for personal care products (“Shanghai plant shutdown”). Production ceased at this plant during the
fourth quarter of 2018. Total expenses associated with the Shanghai plant shutdown are $4.1 million since project inception.
Cash expenditures were $0.8 million in 2019 and $3.3 million since project inception. The plant facilities were sold in the third
quarter of 2019, resulting in a pre-tax gain of $6.3 million, reported in “Other income (expense), net” in the consolidated
statements of income. The Shanghai plant shutdown was completed in the fourth quarter of 2019.
Other pre-tax charges in 2019 include restructuring costs in PE Films for severance in the amount of $0.8 million, the
write-off of inventory at PE Films’ Personal Care facility in Rétság, Hungary in the amount of $0.2 million, and the write-off of
a Personal Care production line at the Guangzhou, China facility in the amount of $0.4 million.
92
A reconciliation of the beginning and ending balances of accrued expenses associated with exit and disposal activities
and charges associated with asset impairments and reported as “Asset impairments and costs associated with exit and disposal
activities, net of adjustments” in the consolidated statements of income for the years ended December 31, 2019, 2018 and 2017
is as follows:
(In Thousands)
Severance
Asset
Impairments
Other
Total
Balance at January 1, 2017
$
1,854
$
— $
554
$
2,408
For the year ended December 31, 2017:
Charges:
Flexible Packaging Films impairment
Other restructuring charges(a)
Cash spend
Charges against assets
Balance at January 1, 2018
For the year ended December 31, 2018:
Charges:
Shanghai plant shutdown
Other restructuring charges(b)
Cash spend
Charges against assets
Reversed to income
Balance at January 1, 2019
For the year ended December 31, 2019:
Charges:
Shanghai plant shutdown
Lake Zurich plant shutdown
PC Europe consolidation
Other restructuring charges(c)
Cash spend
Charges against assets
—
589
589
(1,816)
—
627
1,832
822
2,654
(2,665)
—
—
616
113
874
588
842
2,417
(1,739)
—
101,254
341
101,595
—
(101,595)
—
233
—
233
—
(141)
(92)
—
—
191
96
595
882
—
(882)
—
304
304
(382)
—
476
98
20
118
(434)
—
—
160
716
58
—
52
826
(900)
—
Balance at December 31, 2019
$
1,294
$
— $
86
$
101,254
1,234
102,488
(2,198)
(101,595)
1,103
2,163
842
3,005
(3,099)
(141)
(92)
776
829
1,123
684
1,489
4,125
(2,639)
(882)
1,380
(a) Other restructuring charges in 2017 include PE Films severance ($0.2 million) and an impairment of a production line at its Rétság, Hungary facility
($0.2 million), Aluminum Extrusions severance ($0.1 million), Corporate severance ($0.3 million) and closure costs at the shutdown Kentland facility
($0.2 million).
(b) Other restructuring charges in 2018 include severance of $0.7 million and $0.1 million at PE Films and Aluminum Extrusions, respectively.
(c) Other restructuring charges in 2019 include PE Films severance ($0.8 million), write-off of inventory at its Personal Care facility in Rétság, Hungary
($0.2 million), and write-off of a Personal Care production line at the Guangzhou, China facility ($0.4 million).
18 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 in the future, the Company’s practice is to determine at that time the nature and scope of those contingencies, obtain
and accrue estimates of the cost of remediation, and perform remediation. While the Company believes it is currently
adequately accrued for known environmental issues, it is possible that unexpected future costs for known or unknown
93
environmental issues could have a material adverse effect on its financial condition, results of operations and cash flows at that
time.
The Company is involved in various other legal actions arising in the normal course of business. After taking into
consideration the relevant information, the Company believes that it has sufficiently accrued for probable losses and that the
actions will not have a material adverse effect on its financial position.
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. 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.
94
19 SELECTED QUARTERLY FINANCIAL DATA
Tredegar Corporation and Subsidiaries
(In Thousands, Except Per-Share Amounts)
(Unaudited)
For the year ended December 31, 2019
Sales
Gross profit
Net income (loss)
Earnings (loss) per share:
Basic
Diluted
Shares used to compute earnings (loss) per share:
Basic
Diluted
For the year ended December 31, 2018
Sales
Gross profit
Net income
Earnings per share:
Basic
Diluted
Shares used to compute earnings per share:
Basic
Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
248,466
38,792
19,785
0.60
0.60
33,123
33,127
258,711
46,732
18,165
0.55
0.55
32,982
32,988
$
$
$
$
$
$
$
$
248,248
46,780
14,477
0.44
0.44
33,270
33,278
263,759
44,652
14,722
0.45
0.44
33,074
33,108
$
$
$
$
243,217
42,668
17,133
0.51
0.51
33,271
33,285
232,427
40,546
(3,135)
(0.09)
(0.09)
33,278
33,278
267,294
$
275,707
40,478
(34,201) $
47,826
26,157
(1.03) $
(1.03) $
33,110
33,110
0.79
0.79
33,103
33,112
Due to rounding, the sum of quarterly amounts presented in the table above may not add up precisely to the
corresponding full year amounts.
Item 16. FORM 10-K SUMMARY
Not Applicable.
95
EXHIBIT INDEX
2.1
3.1
3.1.1
3.1.2
3.1.3
3.2
+4.1
10.1
10.1.1
10.1.2
10.2
*10.3
10.4
10.5
*10.6
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)
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, 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 3.1 to Tredegar’s Current Report on Form 8-K (File
No. 1-10258), filed on February 24, 2017, and incorporated herein by reference)
Description of Registered Securities
Amended and Restated Credit Agreement, dated as of June 28, 2019, among Tredegar, as borrower, the lenders
named therein, JPMorgan Chase Bank, N.A., as administrative agent, SunTrust Bank, Citizens Bank, N.A. and PNC
Bank, National Association, as co-syndication agents, and U.S. Bank National Association, 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 July 1, 2019, and incorporated
herein by reference)
Amended and Restated Guaranty, dated as of June 28, 2019, by and among the subsidiaries of Tredegar 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 July 1, 2019, and incorporated herein by reference)
Amended and Restated Pledge and Security Agreement, dated as of June 28, 2019, by and among Tredegar and the
subsidiaries of Tredegar 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 July 1, 2019, and incorporated herein by reference)
Reorganization and Distribution Agreement, dated as of June 1, 1989, between Tredegar and Ethyl Corporation
(filed as Exhibit 10.1 to Tredegar’s Annual Report on Form 10-K (File No. 1-10258) for the year ended December
31, 2004, and incorporated herein by reference)
Employee Benefits Agreement, dated as of June 1, 1989, between Tredegar and Ethyl Corporation (filed as Exhibit
10.2 to Tredegar’s Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2004, and
incorporated herein by reference)
Tax Sharing Agreement, dated as of June 1, 1989, between Tredegar and Ethyl Corporation (filed as Exhibit 10.3 to
Tredegar’s Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2004, and
incorporated herein by reference)
Indemnification Agreement, dated as of June 1, 1989, between Tredegar and Ethyl Corporation (filed as Exhibit
10.4 to Tredegar’s Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2004, and
incorporated herein by reference)
Tredegar Industries, Inc. Retirement Benefit Restoration Plan (filed as Exhibit 10.7 to Tredegar’s Annual Report on
Form 10-K (File No. 1-10258) for the year ended December 31, 2004, and incorporated herein by reference)
*10.6.1 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)
*10.7
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)
96
*10.7.1 Resolutions of the Executive Committee of the Board of Directors of Tredegar 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)
*10.8
*10.9
*10.10
*10.11
10.12
*10.13
Tredegar 2004 Equity Incentive Plan as Amended and Restated Effective March 27, 2009 (filed as Annex 1 to
Tredegar’s Definitive Proxy Statement on Schedule 14A (File No. 1-10258) filed on April 14, 2009 and
incorporated herein by reference)
Form of Notice of 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)
Agreement, dated as of February 19, 2014, by and among Tredegar, 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)
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)
*10.13.1 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)
*10.14
*10.15
*10.16
10.17
+21
+23.1
+23.2
+31.1
+31.2
+32.1
+32.2
Severance Agreement with Michael J. Schewel, dated May 9, 2016 (filed as Exhibit 10.17 to Tredegar’s Annual
Report on Form 10-K/A (File No. 1-10258) for the year ended December 31, 2016, and incorporated herein by
reference)
Tredegar 2018 Equity Incentive Plan (filed as Annex A to Tredegar’s Definitive Proxy Statement on Schedule 14A
(File No. 1-10258) filed on March 22, 2018, and incorporated herein by reference)
Form of Notice of Nonstatutory Stock Option Grant and Nonstatutory Stock Option Terms and Conditions (filed as
Exhibit 10.1 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on May 7, 2018, 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 Corporation’s Registration Statement on Form S-8 (Registration No. 333-230386), filed on
March 19, 2019 and incorporated herein by reference)
Subsidiaries of Tredegar
Consent of KPMG LLP, Independent Registered Public Accounting Firm
Consent of PricewaterhouseCoopers, LLP, Independent Registered Public Accounting Firm
Certification of President and Chief Executive Officer of Tredegar, 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 Vice President and Chief Financial Officer (Principal Financial Officer) of Tredegar, 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 President and Chief Executive Officer of Tredegar, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Vice President and Chief Financial Officer (Principal Financial Officer) of Tredegar, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
+101
XBRL Instance Document and Related Items
*
Denotes compensatory plans or arrangements or management contracts.
97
+
Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 16, 2020
TREDEGAR CORPORATION
(Registrant)
By
/s/ John M. Steitz
John M. Steitz
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated on March 16, 2020.
Signature
Title
/s/ John M. Steitz
(John M. Steitz)
/s/ D. Andrew Edwards
(D. Andrew Edwards)
/s/ Frasier W. Brickhouse, II
(Frasier W. Brickhouse, II)
/s/ John D. Gottwald
(John D. Gottwald)
/s/ George C. Freeman, III
(George C. Freeman, III)
/s/ William M. Gottwald
(William M. Gottwald)
/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)
/s/ Anne G. Waleski
(Anne G. Waleski)
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
98
Corporate Information
CORPORATE OFFICERS AND OPERATING COMPANY MANAGEMENT
John M. Steitz
President and
Chief Executive Officer
D. Andrew Edwards
Vice President and
Chief Financial Officer
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
John D. Gottwald2
Chairman of the Board
Tredegar Corporation
George C. Freeman, III 3, 4, 5
Chairman of the Board
Universal Corporation
William M. Gottwald2
Retired
Albemarle Corporation
Jennifer Aspell
President,
Bright View Technologies
Arijit (Bapi) DasGupta
President, Surface Protection
J. Stephen Prince
President, Personal Care
PE Films
Kenneth R. Newsome3, 5
President and
Chief Executive Officer
Markel Food Group
Gregory A. Pratt1, 4, 5
Chairman of the Board
Carpenter Technology
Corporation
Thomas G. Snead, Jr.1, 5
Retired
Wellpoint, Inc.
John M. Steitz2
President and Chief Executive
Officer
Tredegar Corporation
Carl E. Tack, III1, 4, 5
Clinical Professor
Mason School of Business
College of William and Mary
Anne G. Waleski1, 3, 5
Retired
Markel Corporation
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
3,000
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
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
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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w w w.t re degar.com
About the Cover:
In 2019, Tredegar bid adieu to the majestic willow oak
which graced its corporate headquarters in Richmond,
Virginia. This historically significant tree was living
at the time of the signing of the United States
Constitution in 1787.
Photography by Robert Llewellyn, 2008.