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Tredegar Reports Fourth-Quarter Results

Stocks in this article: TG

To the extent that the financial information portion of this release contains non-GAAP financial measures, it also presents both the most directly comparable financial measures calculated and presented in accordance with GAAP and a quantitative reconciliation of the difference between any such non-GAAP measures and such comparable GAAP financial measures. Accompanying the reconciliation is management’s statement concerning the reasons why management believes that presentation of non-GAAP measures provides useful information to investors concerning Tredegar’s financial condition and results of operations. Reconciliations of non-GAAP financial measures are provided in the Notes to the Financial Tables included with this press release and can also be found within Presentations in the Investor Relations section of our website, www.tredegar.com. Tredegar uses its website as a channel of distribution of material company information. Financial information and other material information regarding Tredegar is posted on and assembled in the Investor Relations section of our website.

Tredegar Corporation is primarily a manufacturer of plastic films and aluminum extrusions. A global company headquartered in Richmond, Virginia, Tredegar had 2012 sales of $882 million. With approximately 2,700 employees, the company operates manufacturing facilities in North America, South America, Europe, and Asia.

   
Tredegar Corporation
Condensed Consolidated Statements of Income
(In Thousands, Except Per-Share Data)
(Unaudited)
   
Fourth Quarter Ended Year Ended
December 31 December 31
2012 2011 2012 2011
 
Sales $ 233,038 $ 201,042 $ 882,188 $ 794,420
Other income (expense), net (a) (e) (f)   10,049     1,269     18,119     3,213  
  243,087     202,311     900,307     797,633  
 
Cost of goods sold (a) 187,886 164,716 712,660 654,087
Freight 7,442 5,111 24,846 18,488
Selling, R&D and general expenses (a) 22,420 22,369 86,879 81,027
Amortization of intangibles 1,759 1,011 5,806 1,399
Interest expense 858 843 3,590 1,926

Asset impairments and costs associated with exit and disposal activities (a)

  1,871     640     5,022     1,917  
  222,236     194,690     838,803     758,844  
 

Net income from continuing operations before income taxes

20,851 7,621 61,504 38,789
Income taxes (c)   7,001     4,140     18,319     10,244  
Net income from continuing operations 13,850 3,481 43,185 28,545
Net loss from discontinued operations (b)   (3,377 )   (3,733 )   (14,934 )   (3,690 )
 
Net income (a) (d) $ 10,473   $ (252 ) $ 28,251   $ 24,855  
 
 
Earnings (loss) per share:
Basic:
Continuing operations $ .43 $ .11 $ 1.35 $ .89
Discontinued operations (b)   (.10 )   (.12 )   (.47 )  

(.12

)
Net income $ .33   $ (.01 ) $ .88   $

.77

 
Diluted:
Continuing operations $ .43 $ .11 $ 1.34 $ .89
Discontinued operations (b)   (.10 )   (.12 )   (.46 )   (.12 )
Net income $ .33   $ (.01 ) $ .88   $ .77  
 
Shares used to compute earnings (loss) per share:
Basic 32,016 31,975 32,032 31,932
Diluted 32,176 32,328 32,193 32,213
 

     
Tredegar Corporation
Net Sales and Operating Profit by Segment
(In Thousands)
(Unaudited)
 
Fourth Quarter Ended Year Ended
December 31 December 31
2012 2011 2012 2011
Net Sales
Film Products $ 152,656 $ 142,251 $ 611,877 $ 535,540
Aluminum Extrusions   72,940     53,680     245,465     240,392  
Total net sales 225,596 195,931 857,342 775,932
Add back freight   7,442     5,111     24,846     18,488  
Sales as shown in the Consolidated
Statements of Income $ 233,038   $ 201,042   $ 882,188   $ 794,420  
 
Operating Profit
Film Products:
Ongoing operations $ 19,951 $ 15,621 $ 69,950 $ 59,493

Plant shutdowns, asset impairments, restructurings and other (a)

1,770 (4,288 ) (109 ) (6,807 )
 
Aluminum Extrusions:
Ongoing operations 1,688 918 9,037 3,457

Plant shutdowns, asset impairments, restructurings and other (a)

  (2,213 )   39     (5,427 )   58  
Total 21,196 12,290 73,451 56,201
Interest income 81 245 418 1,023
Interest expense 858 843 3,590 1,926

Gain (loss) on investment accounted for under the fair value method (e)

7,100 1,600 16,100 1,600
Stock option-based compensation costs 285 459 1,432 1,940
Corporate expenses, net (a) (f)   6,383     5,212     23,443     16,169  
Net income from continuing operations before income taxes 20,851 7,621 61,504 38,789
Income taxes (c)   7,001     4,140     18,319     10,244  
Net income from continuing operations 13,850 3,481 43,185 28,545
Net loss from discontinued operations (b)   (3,377 )   (3,733 )   (14,934 )   (3,690 )
Net income (loss) (a) (d) $ 10,473   $ (252 ) $ 28,251   $ 24,855  
 

   
Tredegar Corporation
Condensed Consolidated Balance Sheets
(In Thousands)
(Unaudited)
 
December 31,
2012 2011
Assets
 
Cash & cash equivalents $ 48,822 $ 68,939
Accounts & notes receivable, net 100,237 97,785
Income taxes recoverable 2,886 2,592
Inventories 74,670 61,290
Deferred income taxes 5,614 7,133
Prepaid expenses & other 6,780 7,780
Current assets of discontinued operation (b)   -   343
Total current assets 239,009 245,862
 
Property, plant & equipment, net 253,417 257,251
Goodwill & other intangibles 241,180 223,432
Other assets 49,559 36,886
Noncurrent assets of discontinued operation (b)   -   17,179
Total assets $ 783,165 $ 780,610
 
Liabilities and Shareholders' Equity
 
Accounts payable $ 82,067 $ 72,884
Accrued expenses 42,514 40,888
Current liabilities of discontinued operation (b)   -   1,967
Total current liabilities 124,581 115,739
 
Long-term debt 128,000 125,000
Deferred income taxes 60,773 70,769
Other noncurrent liabilities 97,559 71,834
Noncurrent liabilities of discontinued operation (b) - 361
Shareholders' equity   372,252   396,907
Total liabilities and shareholders' equity $ 783,165 $ 780,610
 

   
Tredegar Corporation
Condensed Consolidated Statement of Cash Flows
(In Thousands)
(Unaudited)
 
Year Ended
December 31
2012 2011
Cash flows from operating activities:
Net income $ 28,251 $ 24,855
Adjustments for noncash items:
Depreciation 43,463 43,336
Amortization of intangibles 5,806 1,399
Deferred income taxes (762 ) 2,108
Accrued pension and postretirement benefits 8,311 2,481

(Gain) loss on an investment accounted for under the fair value method (e)

(16,100 ) (1,600 )
Loss on asset impairments 2,185 1,376
(Gain) loss on sale of assets 1,219 (653 )

Changes in assets and liabilities, net of effects of acquisitions and divestitures:

Accounts and notes receivables 9,454 (4,737 )
Inventories (9,913 ) 2,410
Income taxes recoverable 3,193 (1,254 )
Prepaid expenses and other 1,883 (271 )
Accounts payable and accrued expenses 9,105 (282 )
Other, net   (3,509 )   2,597  
Net cash provided by operating activities   82,586     71,765  
Cash flows from investing activities:
Acquisitions, net of cash acquired (57,936 ) (180,975 )
Capital expenditures (33,252 ) (15,880 )
Net proceeds from the sale of Falling Springs, LLC 12,071 -
Proceeds from the sale of assets and other   3,557     1,622  
Net cash used in investing activities   (75,560 )   (195,233 )
Cash flows from financing activities:
Borrowings 93,250 125,000
Debt principal payments and financing costs (91,604 ) (89 )
Dividends paid (30,782 ) (5,761 )
Proceeds from exercise of stock options and other   2,400     1,242  
Net cash provided by (used in) financing activities   (26,736 )   120,392  
Effect of exchange rate changes on cash   (407 )   (1,176 )
Decrease in cash and cash equivalents (20,117 ) (4,252 )
Cash and cash equivalents at beginning of period   68,939     73,191  
Cash and cash equivalents at end of period $ 48,822   $ 68,939  
 

                               
Selected Financial Measures
(In Millions)
(Unaudited)
 
Selected balance sheet and other data as of December 31, 2012:
Net debt (g) $ 79.2
Shares outstanding 32.1
 

Notes to the Financial Tables

(a) Plant shutdowns, asset impairments, restructurings and other in the fourth quarter of 2012 include:

  • A net pretax gain of $1.3 million in Film Products (included in "Other income (expenses), net" in the condensed consolidated statements of income) associated with an insurance recovery on idle equipment that was destroyed in a fire at an outside warehouse;
  • Pretax gain of $1.1 million (included in "Other income (expenses), net" in the condensed consolidated statements of net income) on the sale of a previously shutdown film products manufacturing facility in LaGrange, Georgia;
  • Net pretax charge of $0.9 million associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana, which includes shutdown-related charges of $1.4 million, partially offset by gains on the sale of equipment of $0.5 million (included in "Other income (expense), net" in the condensed consolidated statement of income);
  • Pretax charges of $0.9 million for acquisition-related expenses (included in "Selling, R&D and general expenses" in the condensed consolidated statements of income) associated with the acquisition of AACOA by Aluminum Extrusions;
  • Pretax charges of $0.2 million for asset impairments in Film Products;
  • Pretax charges of $0.2 million for severance and other employee-related costs in connection with restructurings in Film Products;
  • Pretax charges of $0.2 million for integration-related expenses and other non-recurring transactions (included in "Selling, R&D and general expenses" in the condensed consolidated statements of income) associated with the acquisition of AACOA by Aluminum Extrusions;
  • Pretax charges of $0.1 million associated with purchase accounting adjustments made to the value of inventory sold by Aluminum Extrusions after its acquisition of AACOA (included in "Cost of goods sold" in the condensed consolidated statements of income, see note (i) below for further detail);
  • Pretax charges of $0.1 million for integration-related expenses and other non-recurring transactions (included in "Selling, R&D and general expenses" in the condensed consolidated statements of income) associated with the acquisition of Terphane by Film Products; and
  • A pretax charge of $0.1 million related to expected future environmental costs at our aluminum extrusions manufacturing facility in Newnan, Georgia (included in "Cost of goods sold" in the condensed consolidated statement of income).

Plant shutdowns, asset impairments, restructurings and other in 2012 include:

  • Net pretax charge of $3.6 million associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana, which includes accelerated depreciation for property and equipment of $2.4 million (included in "Cost of goods sold" in the condensed consolidated statements of income), severance and other employee-related costs of $1.2 million and other shutdown-related charges of $2.3 million, partially offset by adjustments to inventories accounted for under the last-in, first-out method of $1.5 million (included in "Cost of goods sold" in the condensed consolidated statements of income) and gains on the sale of equipment of $0.8 million (included in "Other income (expense), net" in the condensed consolidated statement of income);
  • A net pretax gain of $1.3 million in Film Products (included in "Other income (expenses), net" in the condensed consolidated statements of income) associated with an insurance recovery on idle equipment that was destroyed in a fire at an outside warehouse;
  • Pretax charges of $1.3 million for acquisition-related expenses (included in "Selling, R&D and general expenses" in the condensed consolidated statements of income) associated with the acquisition of AACOA by Aluminum Extrusions;
  • Pretax charges of $1.1 million for integration-related expenses and other non-recurring transactions (included in "Selling, R&D and general expenses" in the condensed consolidated statements of income) associated with the acquisition of Terphane by Film Products;
  • Pretax gain of $1.1 million (included in "Other income (expenses), net" in the condensed consolidated statements of income) on the sale of a previously shutdown film products manufacturing facility in LaGrange, Georgia;
  • Pretax loss of $0.8 million for asset impairments associated with a previously shutdown film products manufacturing facility in LaGrange, Georgia;
  • Pretax charges of $0.5 million for severance and other employee-related costs in connection with restructurings in Film Products ($0.3 million) and Aluminum Extrusions ($0.2 million);
  • Pretax charges of $0.2 million for asset impairments in Film Products;
  • Pretax charges of $0.2 million for integration-related expenses and other non-recurring transactions (included in "Selling, R&D and general expenses" in the condensed consolidated statements of income) associated with the acquisition of AACOA by Aluminum Extrusions;
  • Pretax charges of $0.1 million associated with purchase accounting adjustments made to the value of inventory sold by Aluminum Extrusions after its acquisition of AACOA (included in "Cost of goods sold" in the condensed consolidated statements of income, see note (i) below for further detail); and
  • A pretax charge of $0.1 million related to expected future environmental costs at our aluminum extrusions manufacturing facility in Newnan, Georgia (included in "Cost of goods sold" in the condensed consolidated statement of income).

Plant shutdowns, asset impairments, restructurings and other in the fourth quarter of 2011 include:

  • Pretax charges of $2.5 million for acquisition-related expenses (included in "Selling, R&D and general expenses" in the condensed consolidated statements of income) associated with the acquisition of Terphane by Film Products;
  • Pretax charges of $0.7 million associated with purchase accounting adjustments made to the value of inventory sold by Film Products after its acquisition of Terphane (included in "Cost of goods sold" in the condensed consolidated statements of income, see note (i) below for further detail);
  • Pretax charges of $0.6 million for asset impairments in Film Products;
  • Pretax charges of $0.4 million for integration-related expenses (included in "Selling, R&D and general expenses" in the condensed consolidated statements of income) associated with the acquisition of Terphane by Film Products;
  • Pretax charges of $0.1 million for severance and other employee-related costs in connection with restructurings in Film Products; and
  • Pretax gains of $39,000 associated with Aluminum Extrusions for timing differences between the recognition of realized losses on aluminum futures contracts and related revenues from the delayed fulfillment by customers of fixed-price forward purchase commitments (included in "Cost of goods sold" in the condensed consolidated statements of income).

Plant shutdowns, asset impairments, restructurings and other in 2011 include:

  • Pretax charges of $4.8 million for acquisition-related expenses (included in "Selling, R&D and general expenses" in the condensed consolidated statements of income) associated with the acquisition of Terphane by Film Products;
  • Pretax charges of $1.4 million for asset impairments in Film Products;
  • Pretax gain of $1.0 million on the disposition of our film products business in Roccamontepiano, Italy (included in "Other income (expenses), net" in the condensed consolidated statements of income), which includes the recognition of previously unrecognized foreign currency translation gains of $4.3 million that were associated with the business;
  • Pretax charges of $0.7 million associated with purchase accounting adjustments made to the value of inventory sold by Film Products after its acquisition of Terphane (included in "Cost of goods sold" in the condensed consolidated statements of income, see note (i) below for further detail);
  • Pretax charges of $0.5 million for severance and other employee-related costs in connection with restructurings in Film Products;
  • Pretax charges of $0.4 million for integration-related expenses (included in "Selling, R&D and general expenses" in the condensed consolidated statements of income) associated with the acquisition of Terphane by Film Products; and
  • Pretax gains of $0.1 million associated with Aluminum Extrusions for timing differences between the recognition of realized losses on aluminum futures contracts and related revenues from the delayed fulfillment by customers of fixed-price forward purchase commitments (included in "Cost of goods sold" in the condensed consolidated statements of income).
(b)  

On November 20, 2012, Tredegar sold its mitigation banking business, Falling Springs, LLC to Arc Ventures LC, a company affiliated with John D. Gottwald, a member of our Board of Directors, for cash and stock of $16.6 million. The corresponding pretax loss on sale of $3.1 million ($2.0 million after tax), which included pretax transaction-related expenses of $0.5 million ($0.3 million after taxes), and all historical results for this business have been reflected as discontinued operations in the accompanying condensed consolidated financial statements.

 

On February 12, 2008, Tredegar sold its aluminum extrusions business in Canada for a purchase price of approximately $25 million. All historical results for this business were previously reported in discontinued operations. An accrual was made for indemnifications under the purchase agreement related to environmental matters of $1.5 million ($1.5 million after tax) and $4.0 million ($4.0 million after tax) in the fourth quarters of 2012 and 2011, respectively, and $13.4 million ($13.4 million after tax) and $4.4 million ($4.4 million after tax) for 2012 and 2011, respectively.

 
(c)

Income taxes from continuing operations for 2011 reflect the recognition of estimated tax benefits of approximately $5 million related to the divestiture of the film products business in Italy, partially offset by the impact of non-deductible acquisition-related expenses associated with the purchase of Terphane by Film Products.

 
(d)

Comprehensive income (loss), defined as net income (loss) and other comprehensive income (loss), was a loss of $7.7 million in the fourth quarter of 2012 and loss of $44.2 million for the fourth quarter of 2011. Comprehensive income (loss) was a gain of $5.3 million in 2012 and loss of $18.5 million in 2011. Other comprehensive income (loss) includes changes in foreign currency translation adjustments, unrealized gains and losses on derivative financial instruments and prior service costs and net gains or losses from pension and other postretirement benefit plans arising during the period and the related amortization of these prior service costs and net gains or losses recorded net of deferred taxes directly in shareholders' equity. The comprehensive loss for the fourth quarter and full year of 2012 and 2011 are primarily related to the reduction in the funded status of our pension plans from 2010 to 2012.

 
(e)

The unrealized gains on an investment in a specialty pharmaceutical company accounted for under the fair value method (included in "Other income (expense), net" in the condensed consolidated statements of income) were $7.1 million in the fourth quarter of 2012 and $16.1 million in 2012. The unrealized gain in the fourth quarter of 2012 is primarily related to adjustments in the fair value to reflect updated insights from market research, which resulted in a favorable adjustment to the timing and amount of anticipated cash flows associated with its product pipeline, and the passage of time as anticipated cash flows associated with achieving product development and commercialization milestones are discounted at 55% for their high degree of risk. The unrealized gain in 2012 is primarily attributed to the factors previously noted as well as the appreciation of our ownership interest after the weighted average cost of capital used to discount cash flows in our valuation of the specialty pharmaceutical company was reduced in the first quarter of 2012 to reflect the completion of certain process testing and a reassessment of the risk associated with the timing for obtaining final marketing approval for its first product from the U.S. Food & Drug Administration. The unrealized gain in 2011 is attributed to the appreciation of our ownership interest upon changes in the market dynamics and pricing associated with an upcoming product introduction and the addition of projects to the product pipeline.

 
(f)

Pretax charges of $0.6 million in the fourth quarter of 2011 and $1.1 million in the first quarter of 2012 related to unrealized losses for our investment in the Harbinger Capital Partners Special Situations Fund, L.P. were recorded in 2011 and 2012, respectively, as a result of a reduction in the fair value of our investment that is not expected to be temporary. The impairment charge is included in "Other income (expense), net" in the condensed consolidated statements of income and in "Corporate expenses, net" in the statement of net sales and operating profit by segment.

 

(g)   Net debt is calculated as follows (in millions):
                        December 31,   December 31,
2012 2011
Debt $ 128.0 $ 125.0
Less: Cash and cash equivalents   (48.8 )   (68.9 )
Net debt $ 79.2   $ 56.1  
 

Net debt is not intended to represent debt as defined by GAAP. Net debt is utilized by management in evaluating the company's financial leverage and equity valuation, and the company believes that investors also may find net debt to be helpful for the same purposes.

 
(h)

Tredegar's presentation of income and diluted earnings per share from ongoing operations are non-GAAP financial measures that exclude the after-tax effects of gains or losses associated with plant shutdowns, asset impairments and restructurings, gains or losses from sale of assets and other items, goodwill impairment charges and operating results and gains or losses on sale for businesses divested that are included in discontinued operations, which have been presented separately and removed from net income (loss) and diluted earnings (loss) per share as reported under GAAP. Income and diluted earnings per share from ongoing operations are used by management to gauge the operating performance of Tredegar's ongoing operations. 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 net income (loss) or earnings (loss) per share from continuing operations as defined by GAAP. They exclude items that we believe do not relate to Tredegar's ongoing operations.

 
(i)

Business combination accounting principles under U.S. GAAP require that we adjust the inventory acquired in the acquisitions of Terphane and AACOA to fair value at the date of acquisition. In particular, finished goods inventory acquired was adjusted to reflect the cost of manufacturing plus a portion of the expected profit margin. The acquired inventory was sold in the fourth quarters of 2012 and 2011. We believe that the adjustment included in “Cost of goods sold” in the fourth quarters of 2012 and 2011 should be removed by investors as a means to determine profit and margins from ongoing operations, which reflect the operating trends of the acquired business.

 




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