x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2014 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Virginia | 54-1497771 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
1100 Boulders Parkway, Richmond, Virginia | 23225 | |
(Address of principal executive offices) | (Zip Code) |
Title of Each Class | Name of Each Exchange on Which Registered | |
Common Stock | New York Stock Exchange | |
Preferred Stock Purchase Rights | New York Stock Exchange |
Large accelerated filer | x | Accelerated filer | ¨ |
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
* | In determining this figure, an aggregate of 7,371,531 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 Composite Transactions on June 30, 2014. |
Page | |||
Part I | |||
Item 1. | Business | ||
Item 1A. | Risk Factors | ||
Item 1B. | Unresolved Staff Comments | ||
Item 2. | Properties | ||
Item 3. | Legal Proceedings | ||
Item 4. | Mine Safety Disclosures | ||
Part II | |||
Item 5. | Market for Tredegar’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 10-12 | |
Item 6. | Selected Financial Data | ||
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | ||
Item 8. | Financial Statements and Supplementary Data | ||
Item 9. | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure | ||
Item 9A. | Controls and Procedures | ||
Item 9B. | Other Information | ||
Part III | |||
Item 10. | Directors, Executive Officers and Corporate Governance* | ||
Item 11. | Executive Compensation | ||
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters* | ||
Item 13. | Certain Relationships and Related Transactions, and Director Independence | ||
Item 14. | Principal Accounting Fees and Services | ||
Part IV | |||
Item 15. | Exhibits and Financial Statement Schedules |
*Items | 11, 13 and 14 and portions of Items 10 and 12 are incorporated by reference from the Proxy Statement. |
Item 1. | BUSINESS |
• | Apertured film and laminate materials for use as topsheet in feminine hygiene products, baby diapers and adult incontinence products (including materials sold under the SoftQuilt™, ComfortQuilt™, ComfortAire™, ComfortFeel™, SoftAire™ and FreshFeel™ brand names); |
• | Breathable, embossed and elastic materials for use as components for baby diapers, adult incontinence products and feminine hygiene products (including elastic components sold under the ExtraFlex™, FabriFlex™, FlexAire™ and FlexFeel™ brand names); and |
• | Absorbent transfer layers for baby diapers and adult incontinence products sold under the AquiDry® and AquiDry Plus™ brand names. |
% of Film Products Net Sales by Market Segment * | ||||||||
2014 | 2013 | 2012 | ||||||
Personal care materials | 55 | % | 55 | % | 53 | % | ||
Flexible packaging films | 20 | % | 20 | % | 23 | % | ||
Surface protection films | 16 | % | 15 | % | 11 | % | ||
Polyethylene overwrap & polypropylene films | 8 | % | 9 | % | 10 | % | ||
Films for other markets | 1 | % | 1 | % | 3 | % | ||
Total | 100 | % | 100 | % | 100 | % | ||
* See previous discussion by market segment for comparison of net sales to the Company’s consolidated net sales for material market segments for each of the years presented. |
Major Markets | End-Uses | |
Building & construction - nonresidential | Commercial windows and doors, curtain walls, storefronts and entrances, walkway covers, ducts, louvers and vents, office wall panels, partitions and interior enclosures, acoustical walls and ceilings, point of purchase displays and pre-engineered structures | |
Building & construction - residential | Shower and tub enclosures, railing and support systems, venetian blinds, swimming pools and storm shutters | |
Consumer durables | Furniture, pleasure boats, refrigerators and freezers, appliances and sporting goods | |
Machinery & equipment | Material handling equipment, conveyors and conveying systems, industrial modular assemblies and medical equipment | |
Automotive | Automotive and light truck structural components, spare parts, after-market automotive accessories, travel trailers and recreation vehicles | |
Distribution (metal service centers specializing in stock and release programs and custom fabrications to small manufacturers) | Various custom profiles including storm shutters, pleasure boat accessories, theater set structures and various standard profiles (including rod, bar, tube and pipe) | |
Electrical | Lighting fixtures, solar panels, electronic apparatus and rigid and flexible conduits |
% of Aluminum Extrusions Net Sales by Market Segment (Continuing Operations) * | |||||||||
2014 | 2013 | 2012 | |||||||
Building and construction: | |||||||||
Nonresidential | 58 | % | 58 | % | 67 | % | |||
Residential | 6 | % | 7 | % | 10 | % | |||
Consumer durables | 13 | % | 13 | % | 5 | % | |||
Machinery & equipment | 8 | % | 7 | % | 4 | % | |||
Automotive | 6 | % | 6 | % | 5 | % | |||
Distribution | 5 | % | 4 | % | 6 | % | |||
Electrical | 4 | % | 5 | % | 3 | % | |||
Total | 100 | % | 100 | % | 100 | % | |||
* | Includes net sales for AACOA subsequent to being acquired on October 1, 2012. |
Item 1A. | RISK FACTORS |
• | Tredegar may not be able to successfully execute its acquisition strategy. New acquisitions, such as the October 2011 acquisition of Terphane Holdings LLC (“Terphane”) and the October 2012 acquisition of AACOA, can provide meaningful opportunities to grow the Company’s business and improve profitability. Acquired businesses may not achieve expected levels of revenue, profit or productivity, or otherwise perform as expected. Acquisitions involve special risks, including, without limitation, 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. While the Company’s strategy is to acquire businesses that will improve its competitiveness and profitability, acquisitions may not be successful or accretive to earnings. |
• | Tredegar’s performance is influenced by costs incurred by its operating companies, including, for example, the cost of raw materials and energy. These costs include, without limitation, the cost of resin, PTA and MEG (the raw materials on which Film Products primarily depends), aluminum (the raw material on which Aluminum Extrusions primarily depends), natural gas (the principal fuel necessary for Aluminum Extrusions’ plants to operate), electricity and diesel fuel. Resin, aluminum and natural gas prices are extremely volatile as shown in the charts on pages 34-36. The Company attempts to mitigate the effects of increased costs through price increases and contractual pass-through provisions, but there are no assurances that higher prices can effectively be passed through to customers or that Tredegar will be able to offset fully or on a timely basis the effects of higher raw material and energy costs through price increases or pass-through arrangements. Further, the Company’s cost control efforts may not be sufficient to offset any additional future declines in revenue or increases in raw material, energy or other costs. |
• | Noncompliance with any of the covenants in the Company’s $350 million credit facility could result in all debt under the agreement outstanding at such time becoming due and limiting its borrowing capacity, which could have a material adverse effect on financial condition and liquidity. The credit agreement governing Tredegar’s revolving credit facility contains restrictions and financial covenants that could restrict the Company’s operational and financial flexibility. Failure to comply with these covenants could result in an event of default, which if not cured or waived, would result in all outstanding debt under the credit facility at such time becoming due, which could have a material adverse effect on the Company’s financial condition and liquidity. Renegotiation of the covenant(s) through an amendment to the revolving credit facility may effectively cure the noncompliance, but may have a negative effect on the Company’s consolidated financial condition or liquidity depending upon how the amended covenant is renegotiated. |
• | Failure to continue to attract, develop and retain certain key officers or employees could adversely affect Tredegar’s businesses. The Company depends on its senior executive officers and other key personnel to run the businesses. The loss of any of these officers or other key personnel could have a material adverse effect on operations. Competition for qualified employees among companies that rely heavily on engineering and technology is intense, and the loss of qualified employees or an inability to attract, retain and motivate highly skilled employees required for the operation and expansion of Tredegar’s businesses could hinder its ability to improve manufacturing operations, conduct research activities successfully and develop marketable products. |
• | Tredegar is subject to various environmental laws and regulations and could become exposed to material liabilities and costs associated with such laws. The Company is subject to various environmental obligations and could become subject to additional obligations in the future. In the case of known potential liabilities, it is management’s judgment that the resolution of ongoing and/or pending environmental remediation obligations is not expected to have a material adverse effect on consolidated financial condition or liquidity. In any given period(s), however, it is possible such obligations or matters could have a material adverse effect on the results of operations. Changes in environmental laws and regulations, or their application, including, but not limited to, those relating to global climate change, could subject Tredegar to significant additional capital expenditures and operating expenses. Moreover, future developments in federal, state, local and international environmental laws and regulations are difficult to predict. Environmental laws have become and are expected to continue to become increasingly strict. As a result, Tredegar will be subject to new environmental laws and regulations. However, any such changes are uncertain and, therefore, it is not possible for the Company to predict with certainty the amount of additional capital expenditures or operating expenses that could be necessary for compliance with respect to any such changes. |
• | 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. A material disruption in one of the Company’s operating locations could negatively impact production and financial results. Such a disruption could be a result of any number of events, including but not limited to: an equipment failure with repairs requiring long lead times, labor stoppages or shortages, utility disruptions, constraints on the supply or delivery of critical raw materials, and severe weather conditions. |
• | An information technology system failure may adversely affect the business. Tredegar relies on information technology systems to transact its businesses. An information technology system failure due to computer viruses, internal or external security breaches, power interruptions, hardware failures, fire, natural disasters, human error, or other causes could disrupt operations and prevent the Company from being able to process transactions with its customers, operate its manufacturing facilities, and properly report those transactions in a timely manner. A significant, protracted information technology system failure may result in a material adverse effect on the Company’s financial condition, results of operations, or cash flows. |
• | Tredegar is subject to credit risk that is inherent with efforts to increase market share as the Company attempts to broaden its customer base. In the event of the deterioration of operating cash flows or diminished borrowing capacity of the Company’s customers, the collection of trade receivable balances may be delayed or deemed unlikely. Film Products’ credit risk exposure could increase as efforts to expand its business may lead to a broader, more diverse customer base. In addition, the operations of the customers for Aluminum Extrusions generally follow the cycles within the economy, resulting in greater credit risk from diminished operating cash flows and higher bankruptcy rates when the economy is deteriorating or in recession. |
• | Tredegar could be required to make additional cash contributions to its defined benefit (pension) plan. Tredegar sponsors a pension plan that covers certain hourly and salaried employees in the U.S. Tredegar has experienced a significant reduction in interest rates and fluctuations in plan asset investment returns in recent years. Cash contribution requirements for the pension plan are sensitive to changes in these market factors. Tredegar expects that it will be required to make a cash contribution of approximately $2.4 million to its underfunded pension plan in 2015, and the Company may be required to make additional cash contributions in future periods if current trends in interest rates continue, volatility in investment returns on plan assets persist or if plan asset investment returns lag market performance. |
• | Tredegar and its customers operate in highly competitive markets. Tredegar and its businesses compete on product innovation, quality, price and service, and its businesses and their customers operate in highly competitive markets. Global market conditions continue to exacerbate the Company’s exposure to margin compression due to competitive forces, especially as certain products move into the later stages of their product life cycles. Tredegar attempts to mitigate the effects of this trend through the introduction of new products, cost saving measures and manufacturing efficiency initiatives, but these efforts may not be sufficient to offset the impact of margin compression as a result of competitive pressure. |
• | An inability to renegotiate one of the Company’s collective bargaining agreements could adversely affect financial results. Some of the Company’s employees are represented by labor unions under various collective bargaining agreements with varying durations and expiration dates. Tredegar may not be able to satisfactorily renegotiate collective bargaining agreements when they expire, which could result in strikes or work stoppages or higher labor costs. In addition, existing collective bargaining agreements may not prevent a strike or work stoppage at the Company’s facilities in the future. Any such work stoppages (or potential work stoppages) could negatively impact Tredegar’s ability to manufacture its products and adversely affect results of operations. |
• | Tredegar’s investments (primarily $7.5 million of investments in kaléo and a $1.8 million net investment in Harbinger) have high risk. The value of the Company’s investment in a specialty pharmaceutical company, kaleo, Inc. (“kaléo”), which was formerly known as Intelliject, Inc., can fluctuate, primarily as a result of kaléo’s ability to meet its developmental and commercialization milestones within an anticipated time frame. Commercial sales of kaléo’s first licensed product commenced in the first quarter of 2013, and commercial sales of its second product commenced in the third quarter of 2014. As kaléo continues to invest in its product pipeline, it may require additional rounds of financing to have the opportunity to complete product pipeline development and bring its technology to market, which may never occur. The estimated fair value of this investment was $39.1 million at December 31, 2014. |
• | Film Products is highly dependent on sales associated with one customer, P&G. P&G comprised approximately 24% of Tredegar’s consolidated net sales from continuing operations in 2014, 28% in 2013 and 31% in 2012. The loss or significant reduction of sales associated with P&G could have a material adverse effect on the Company’s business. Other P&G-related factors that could adversely affect the business include, by way of example, (i) failure by P&G to achieve success or maintain share in markets in which P&G sells products containing Film Products’ materials, (ii) operational decisions by P&G that result in component substitution, inventory reductions and similar changes, (iii) delays in P&G rolling out products utilizing new technologies developed by Film Products and (iv) P&G rolling out products utilizing technologies developed by others that replace Film Products’ business with P&G. While Film Products has undertaken efforts to expand its customer base, there can be no assurance that such efforts will be successful, or that they will offset any delay or loss of sales and profits associated with P&G. |
• | Growth of Film Products depends on its ability to develop and deliver new products at competitive prices. Personal care materials, surface protection films and polyethylene overwrap and polypropylene films are now being made with a variety of new materials and the overall cycle for new product introduction has accelerated. While Film Products has substantial technological resources, there can be no assurance that its new products can be brought to market successfully, or if brought to market successfully, at the same level of profitability and market share of replaced films. A shift in customer preferences away from Film Products’ technologies, its inability to develop and deliver new profitable products, or delayed acceptance of its new products in domestic or foreign markets, could have a material adverse effect on the business, results of operations and cash flows. In the long term, growth will depend on Film Products’ ability to provide innovative products at a price that meets the customers’ needs. |
• | Failure of Film Products’ customers, who are subject to cyclical downturns, to achieve success or maintain market share could adversely impact its sales and operating margins. The Company’s plastic films serve as components for various consumer products sold worldwide. A customer’s ability to successfully develop, manufacture and market their products is integral to Film Products’ success. In addition, many customers are in industries that are cyclical in nature and sensitive to changes in general economic conditions. Downturns in the businesses that use the Company’s plastic film products can adversely affect sales and operating margins. |
• | Continued growth in Film Products’ sale of protective film products is not assured. A shift in customer preference to new or different products or new technology that displaces the need for protective films that currently utilize Film Products’ surface protection applications could have a material adverse effect on the sales of these protective films. Surface protection films accounted for approximately 10%, 10% and 8% of Tredegar’s consolidated net sales from continuing operations in 2014, 2013 and 2012, respectively. Unanticipated changes in the demand for the products of Film Products’ customers, a decline in the rate of growth for flat panel displays or improvements in the durability of flat panel displays could have a material adverse effect on protective film sales. |
• | Substantial international operations subject Film Products to risks of doing business in countries outside the U.S., which could adversely affect its business, financial condition and results of operations. Risks inherent in international operations include the following, by way of example: changes in general economic conditions or governmental policies, potential difficulty enforcing agreements and intellectual property rights, modifications in foreign tax laws and incentives, staffing and managing widespread operations and the challenges of complying with a wide variety of laws and regulations, restrictions on international trade or investment, restrictions on the repatriation of income, imposition of additional taxes on income generated outside the U.S., nationalization of private enterprises, unexpected adverse changes in international laws and regulatory requirements and fluctuations in exchange rates. In the countries where Film Products conducts its operations, significant fluctuations in the foreign currencies relative to the U.S. dollar could have a material impact on operating results. In addition, while expanding operations into emerging markets provides greater opportunities for growth, there are certain operating risks, as previously noted. |
• | 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 Film Products. Film Products operates in an industry where its significant customers and competitors have substantial intellectual property portfolios. The continued success of its business depends on its ability not only to protect its own technologies and trade secrets, but also to develop and sell new products that do not infringe upon existing patents or threaten existing customer relationships. Intellectual property litigation is very costly and could result in substantial expense and diversions of its resources, both of which could adversely affect its operations and financial condition and results. In addition, there may be no effective legal recourse against infringement of the Company’s intellectual property by third parties, whether due to limitations on enforcement of rights in foreign jurisdictions or as a result of other factors. An unfavorable outcome in any intellectual property litigation or similar proceeding could have a material adverse effect on the financial condition and results of operations in Film Products. |
• | U.S. and global economic conditions could have an adverse effect on the operating results of some or all of Film Products’ operations. As a global entity, the operating results and financial condition for Film Products could become more sensitive to changes in macroeconomic conditions, including fluctuations in exchange rates. Sales associated with new products and regions tend to more closely follow the cycles within the economy. Cost reductions and productivity improvements may not be sufficient to offset the adverse effects on profitability from lower customer demand in an economic downturn. Therefore, as such product offerings become a greater part of the film products business, the Company’s operating results and financial condition may be adversely impacted by seasonal slowdowns, cyclical downturns in the economy or changes in foreign currency rates. |
• | An unstable economic environment could have a disruptive impact on Film Products’ supply chain. Certain raw materials used in manufacturing the Company’s products are sourced from single suppliers, and Film Products may not be able to quickly or inexpensively re-source from other suppliers. The risk of damage or disruption to its supply chain has been exacerbated as different suppliers have consolidated their product portfolios or experienced financial distress. Failure to take adequate steps to effectively manage such events, which are intensified when a product is procured from a single supplier or location, could adversely affect Film Products’ business and results of operations, as well as require additional resources to restore its supply chain. |
• | Governmental failure to extend anti-dumping duties in Brazil on imported products or prevent competitors from circumventing such duties could adversely impact Film Products. In recent years, imports into Brazil, primarily from Asia, represented an increasing portion of the Brazilian flexible packaging films market. The Brazilian government currently applies anti-dumping duties on PET films imported from the UAE, Mexico, and Turkey, and these protective tariffs may be extended to other countries in Asia and the Middle East in the near future. In the absence of these anti-dumping duties, some suppliers may choose to sell excess inventory in Brazil, especially when markets for PET films in Europe and Asia are saturated. Additional supply in the Brazilian market could have a material adverse impact on pricing, thereby creating margin compression that Film Products may not be able to offset with cost savings measures and/or manufacturing efficiency initiatives. An inability to extend and/or expand anti-dumping duties on PET films in Brazil could have a material adverse effect on the operating results of Film Products. |
• | Sales volume and profitability of Aluminum Extrusions is cyclical and highly dependent on economic conditions of end-use markets in the U.S., particularly in the construction sector. Aluminum Extrusions’ end-use markets can be subject to seasonal slowdowns. Because of the high degree of operating leverage inherent in its operations (generally constant fixed costs until full capacity utilization is achieved), the percentage drop in operating profits in a cyclical downturn will likely exceed the percentage drop in volume. Any benefits associated with cost reductions and productivity improvements may not be sufficient to offset the adverse effects on profitability from pricing and margin pressure and higher bad debts (including a greater chance of loss associated with customers defaulting on fixed-price forward sales contracts) that usually accompany a downturn. In addition, higher energy costs can further reduce profits unless offset by price increases or cost reductions and productivity improvements. |
• | The markets for Aluminum Extrusions’ products are highly competitive with product quality, service, delivery performance and price being the principal competitive factors. Aluminum Extrusions has approximately 1,500 customers that are in a variety of end-use markets within the broad categories of building and construction, distribution, automotive and other transportation, machinery and equipment, electrical and consumer durables. No single customer exceeds 3% of Aluminum Extrusions’ net sales. Due to the diverse customer mix across many end-use markets, the Company believes the industry generally tracks the real growth of the overall economy. Future success and prospects depend on its ability to retain existing customers and participate in overall industry cross-cycle growth. |
• | Aluminum Extrusions’ efforts to expand into new market segments may not be successful. Aluminum Extrusions has made significant capital investments in recent years to execute on its market diversification strategy. Investments in new aluminum extrusion presses dedicated to serve automotive and light truck tier suppliers are intended to provide meaningful opportunities to grow Aluminum Extrusions and improve profitability. Efforts to expand product offerings and broaden the customer base are tied to successfully substituting the Company’s aluminum extrusions for current market alternatives. Additional volume and/or alternative products offered by Aluminum Extrusions may not be demanded or accepted by market participants. If customer purchases do not meet expectations, Aluminum Extrusions’ market diversification strategy may not be successful, which could have a material adverse effect on the operating results of Aluminum Extrusions. |
• | Failure to extend duties on imported products or prevent competitors from circumventing such duties could adversely impact Aluminum Extrusions. In previous years, imports into the U.S., primarily from China, represented an increasing portion of the U.S. aluminum extrusion market. However, due to an affirmative determination by the U.S. International Trade Commission in April 2011 that asserted that dumped and subsidized imports of aluminum extrusion from China unfairly and negatively impacted the domestic industry, the U.S. Department of Commerce has applied duties to these imported products. As a result, aluminum extrusion imports from China have decreased significantly. While the risk to the domestic industry has been abated for the time being, these protective duties are scheduled to expire in 2016. There are ongoing efforts within the U.S. aluminum extrusions industry to extend these protective duties. An unfavorable outcome could have a material adverse effect on the operating results of Aluminum Extrusions. |
Item 1B. | UNRESOLVED STAFF COMMENTS |
Item 2. | PROPERTIES |
Locations in the U.S. | Locations Outside the U.S. | Principal Operations | ||
Bloomfield, New York (technical center and production facility) Lake Zurich, Illinois Durham, North Carolina (technical center and production facility) (leased) Pottsville, Pennsylvania Richmond, Virginia (technical center) (leased) Terre Haute, Indiana (technical center and production facility) | Cabo de Santo Agostinho, Brazil Guangzhou, China Kerkrade, The Netherlands Pune, India Rétság, Hungary São Paulo, Brazil Shanghai, China | Production of plastic films and laminate materials |
Locations in the U.S. | Principal Operations | |||
Carthage, Tennessee Elkhart, Indiana Newnan, Georgia Niles, Michigan | Production of aluminum extrusions, fabrication and finishing | |||
Item 3. | LEGAL PROCEEDINGS |
Item 4. | MINE SAFETY DISCLOSURES |
Item 5. | MARKET FOR TREDEGAR’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
2014 | 2013 | ||||||||||||||
High | Low | High | Low | ||||||||||||
First quarter | $ | 28.45 | $ | 22.48 | $ | 30.70 | $ | 21.06 | |||||||
Second quarter | 25.08 | 19.65 | 30.16 | 24.23 | |||||||||||
Third quarter | 24.07 | 18.41 | 30.73 | 22.22 | |||||||||||
Fourth quarter | 22.49 | 16.76 | 29.74 | 23.86 |
*$100 invested on 12/31/09 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. Copyright© 2015 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved. Copyright© 2015 Russell Investment Group. All rights reserved. |
Item 6. | SELECTED FINANCIAL DATA |
Years Ended December 31 | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
(In Thousands, Except Per-Share Data) | ||||||||||||||||||||||||
Results of Operations (a): | ||||||||||||||||||||||||
Sales | $ | 951,826 | $ | 959,346 | $ | 882,188 | $ | 794,420 | $ | 738,200 | ||||||||||||||
Other income (expense), net | (6,697 | ) | (b) | 1,776 | (c) | 18,119 | (d) | 3,213 | (e) | (1,182 | ) | (f) | ||||||||||||
945,129 | 961,122 | 900,307 | 797,633 | 737,018 | ||||||||||||||||||||
Cost of goods sold | 778,113 | (b) | 784,675 | (c) | 712,660 | (d) | 654,087 | (e) | 594,987 | (f) | ||||||||||||||
Freight | 28,793 | 28,625 | 24,846 | 18,488 | 17,812 | |||||||||||||||||||
Selling, general & administrative expenses | 69,526 | 71,195 | (c) | 73,717 | (d) | 67,808 | (e) | 67,729 | ||||||||||||||||
Research and development expenses | 12,147 | 12,669 | 13,162 | 13,219 | 13,625 | |||||||||||||||||||
Amortization of intangibles | 5,395 | 6,744 | 5,806 | 1,399 | 466 | |||||||||||||||||||
Interest expense | 2,713 | 2,870 | 3,590 | 1,926 | 1,136 | |||||||||||||||||||
Asset impairments and costs associated with exit and disposal activities | 3,026 | (b) | 1,412 | (c) | 5,022 | (d) | 1,917 | (e) | 773 | (f) | ||||||||||||||
899,713 | 908,190 | 838,803 | 758,844 | 696,528 | ||||||||||||||||||||
Income from continuing operations before income taxes | 45,416 | 52,932 | 61,504 | 38,789 | 40,490 | |||||||||||||||||||
Income taxes | 9,387 | (b) | 16,995 | (c) | 18,319 | (d) | 10,244 | (e) | 13,649 | (f) | ||||||||||||||
Income from continuing operations (a) | 36,029 | 35,937 | 43,185 | 28,545 | 26,841 | |||||||||||||||||||
Income (loss) from discontinued operations, net of tax (a) | 850 | (a) | (13,990 | ) | (a) | (14,934 | ) | (a) | (3,690 | ) | (a) | 186 | (a) | |||||||||||
Net income | $ | 36,879 | $ | 21,947 | $ | 28,251 | $ | 24,855 | $ | 27,027 | ||||||||||||||
Diluted earnings (loss) per share (a): | ||||||||||||||||||||||||
Continuing operations | $ | 1.11 | $ | 1.10 | $ | 1.34 | $ | 0.89 | $ | 0.82 | ||||||||||||||
Discontinued operations | 0.02 | (a) | (0.43 | ) | (a) | (0.46 | ) | (a) | (0.12 | ) | (a) | 0.01 | (a) | |||||||||||
Net income | $ | 1.13 | $ | 0.67 | $ | 0.88 | $ | 0.77 | $ | 0.83 |
Years Ended December 31 | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||
(In Thousands, Except Per-Share Data) | ||||||||||||||||||||
Share Data: | ||||||||||||||||||||
Equity per share | $ | 11.47 | $ | 12.46 | $ | 11.61 | $ | 12.38 | $ | 13.10 | ||||||||||
Cash dividends declared per share | 0.34 | 0.28 | 0.96 | (j) | 0.18 | 0.16 | ||||||||||||||
Weighted average common shares outstanding during the period | 32,302 | 32,172 | 32,032 | 31,932 | 32,292 | |||||||||||||||
Shares used to compute diluted earnings (loss) per share during the period | 32,554 | 32,599 | 32,193 | 32,213 | 32,572 | |||||||||||||||
Shares outstanding at end of period | 32,422 | 32,305 | 32,069 | 32,057 | 31,883 | |||||||||||||||
Closing market price per share: | ||||||||||||||||||||
High | $ | 28.45 | $ | 30.73 | $ | 26.29 | $ | 23.00 | $ | 20.19 | ||||||||||
Low | 16.76 | 21.06 | 13.49 | 13.92 | 14.93 | |||||||||||||||
End of year | 22.49 | $ | 28.81 | 20.42 | 22.22 | 19.38 | ||||||||||||||
Total return to shareholders (g) | (20.8 | )% | 42.5 | % | (3.8 | )% | 15.6 | % | 23.5 | % | ||||||||||
Financial Position: | ||||||||||||||||||||
Total assets | $ | 788,626 | $ | 793,008 | $ | 783,165 | $ | 780,610 | $ | 580,342 | ||||||||||
Cash and cash equivalents | 50,056 | 52,617 | 48,822 | 68,939 | 73,191 | |||||||||||||||
Debt | 137,250 | 139,000 | 128,000 | 125,000 | 450 | |||||||||||||||
Shareholders’ equity (net book value) | 372,029 | 402,664 | 372,252 | 396,907 | 417,546 | |||||||||||||||
Equity market capitalization (h) | 729,173 | 930,711 | 654,857 | 712,307 | 617,893 |
Net Sales (i) | |||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||
(In Thousands) | |||||||||||||||||||
Film Products | $ | 578,687 | $ | 621,239 | $ | 611,877 | $ | 535,540 | $ | 520,749 | |||||||||
Aluminum Extrusions | 344,346 | 309,482 | 245,465 | 240,392 | 199,639 | ||||||||||||||
Total net sales | 923,033 | 930,721 | 857,342 | 775,932 | 720,388 | ||||||||||||||
Add back freight | 28,793 | 28,625 | 24,846 | 18,488 | 17,812 | ||||||||||||||
Sales as shown in Consolidated Statements of Income | $ | 951,826 | $ | 959,346 | $ | 882,188 | $ | 794,420 | $ | 738,200 | |||||||||
Identifiable Assets | |||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||
(In Thousands) | |||||||||||||||||||
Film Products | $ | 546,210 | $ | 556,873 | $ | 551,842 | $ | 574,571 | $ | 368,853 | |||||||||
Aluminum Extrusions | 143,328 | 134,928 | 129,279 | 78,661 | 81,731 | ||||||||||||||
AFBS (formerly Therics) | — | — | — | — | 583 | ||||||||||||||
Subtotal | 689,538 | 691,801 | 681,121 | 653,232 | 451,167 | ||||||||||||||
General corporate | 49,032 | 48,590 | 53,222 | 40,917 | 41,833 | ||||||||||||||
Cash and cash equivalents | 50,056 | 52,617 | 48,822 | 68,939 | 73,191 | ||||||||||||||
Identifiable assets from continuing operations | 788,626 | 793,008 | 783,165 | 763,088 | 566,191 | ||||||||||||||
Discontinued operations (a): | — | — | — | 17,522 | 14,151 | ||||||||||||||
Total | $ | 788,626 | $ | 793,008 | $ | 783,165 | $ | 780,610 | $ | 580,342 |
Operating Profit | ||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Film Products: | ||||||||||||||||||||||||
Ongoing operations | $ | 58,054 | $ | 70,966 | $ | 69,950 | $ | 59,493 | $ | 66,718 | ||||||||||||||
Plant shutdowns, asset impairments, restructurings and other | (12,827 | ) | (b) | (671 | ) | (c) | (109 | ) | (d) | (6,807 | ) | (e) | (758 | ) | (f) | |||||||||
Aluminum Extrusions: | ||||||||||||||||||||||||
Ongoing operations | 25,664 | 18,291 | 9,037 | 3,457 | (4,154 | ) | ||||||||||||||||||
Plant shutdowns, asset impairments, restructurings and other | (976 | ) | (b) | (2,748 | ) | (c) | (5,427 | ) | (d) | 58 | (e) | 493 | (f) | |||||||||||
Total | 69,915 | 85,838 | 73,451 | 56,201 | 62,299 | |||||||||||||||||||
Interest income | 588 | 594 | 418 | 1,023 | 709 | |||||||||||||||||||
Interest expense | 2,713 | 2,870 | 3,590 | 1,926 | 1,136 | |||||||||||||||||||
Gain (loss) on investment accounted for under the fair value method | 2,000 | (b) | 3,400 | (c) | 16,100 | (d) | 1,600 | (e) | (2,200 | ) | (f) | |||||||||||||
Gain on sale of investment property | 1,208 | (b) | — | — | — | — | ||||||||||||||||||
Unrealized loss on investment property | — | 1,018 | (c) | — | — | — | ||||||||||||||||||
Stock option-based compensation expense | 1,272 | 1,155 | 1,432 | 1,940 | 2,064 | |||||||||||||||||||
Corporate expenses, net | 24,310 | (b) | 31,857 | (c) | 23,443 | (d) | 16,169 | (e) | 17,118 | |||||||||||||||
Income from continuing operations before income taxes | 45,416 | 52,932 | 61,504 | 38,789 | 40,490 | |||||||||||||||||||
Income taxes | 9,387 | (b) | 16,995 | (c) | 18,319 | (d) | 10,244 | (e) | 13,649 | (f) | ||||||||||||||
Income from continuing operations | 36,029 | 35,937 | 43,185 | 28,545 | 26,841 | |||||||||||||||||||
Income (loss) from discontinued operations, net of tax (a) | 850 | (a) | (13,990 | ) | (a) | (14,934 | ) | (a) | (3,690 | ) | (a) | 186 | (a) | |||||||||||
Net income | $ | 36,879 | $ | 21,947 | $ | 28,251 | $ | 24,855 | $ | 27,027 |
Depreciation and Amortization | |||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||
(In Thousands) | |||||||||||||||||||
Film Products | $ | 30,730 | $ | 35,332 | $ | 39,202 | $ | 36,315 | $ | 34,448 | |||||||||
Aluminum Extrusions | 9,974 | 9,202 | 9,984 | 8,333 | 9,054 | ||||||||||||||
Subtotal | 40,704 | 44,534 | 49,186 | 44,648 | 43,502 | ||||||||||||||
General corporate | 114 | 121 | 73 | 75 | 74 | ||||||||||||||
Total continuing operations | 40,818 | 44,655 | 49,259 | 44,723 | 43,576 | ||||||||||||||
Discontinued operations (a): | — | — | 10 | 12 | 12 | ||||||||||||||
Total depreciation and amortization expense | $ | 40,818 | $ | 44,655 | $ | 49,269 | $ | 44,735 | $ | 43,588 | |||||||||
Capital Expenditures | |||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||
(In Thousands) | |||||||||||||||||||
Film Products | $ | 38,806 | $ | 64,867 | $ | 30,484 | $ | 13,107 | $ | 15,839 | |||||||||
Aluminum Extrusions | 6,092 | 14,742 | 2,332 | 2,697 | 4,339 | ||||||||||||||
Subtotal | 44,898 | 79,609 | 32,816 | 15,804 | 20,178 | ||||||||||||||
General corporate | — | 52 | 436 | 76 | 236 | ||||||||||||||
Capital expenditures for continuing operations | 44,898 | 79,661 | 33,252 | 15,880 | 20,414 | ||||||||||||||
Discontinued operations (a): | — | — | — | — | 4 | ||||||||||||||
Total capital expenditures | $ | 44,898 | $ | 79,661 | $ | 33,252 | 15,880 | 20,418 |
(a) | On November 20, 2012, Tredegar sold its membership interests in Falling Springs. All historical results for this business have been reflected in discontinued operations. In 2012, discontinued operations also includes an after-tax loss of $2.0 million from the sale of Falling Springs in addition to operating results through the closing date. In 2012, 2011 and 2010, net income of $0.5 million, $0.7 million and $0.2 million, respectively, have been reclassified to discontinued operations. On February 12, 2008, Tredegar sold its aluminum extrusions business in Canada. All historical results for this business have been reflected as discontinued operations. In 2014, accruals for indemnifications under the purchase agreement were adjusted, resulting in income from discontinued operations of $0.9 million. In 2013, 2012 and 2011, discontinued operations include after-tax charges of $14.0 million and $13.4 million and $4.4 million, respectively, to accrue for indemnifications under the purchase agreement related to environmental matters. |
(b) | Plant shutdowns, asset impairments, restructurings and other for 2014 include a charge of $10.0 million (included in “Other income (expense), net” in the consolidated statements of income) associated with the one-time, lump sum license payment to 3M after the Company settled all litigation issues associated with a patent infringement complaint; charges of $2.3 million for severance and other employee-related costs in connection with restructurings in Film Products ($2.3 million) and Aluminum Extrusions ($31,000); charges of $0.9 million related to expected future environmental costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statement of income); charges of $0.7 million associated with the shutdown of the film products manufacturing facility in Red Springs, North Carolina, which includes severance and other employee-related costs of $0.4 million and asset impairment and other shutdown-related charges of $0.3 million; gain of $0.1 million related to the sale of previously shutdown film products manufacturing facility in LaGrange, Georgia (included in “Other income (expense), net” in the consolidated statements of income); and charges of $54,000 associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana. The unrealized gain on the Company’s investment in kaléo of $2.0 million; the unrealized loss on the Company’s investment in Harbinger of $0.8 million and the gain on sale on a portion the Company’s investment property in Alleghany and Bath County, Virginia was $1.2 million in 2014 are included in “Other income (expense), net” in the consolidated statements of income. Income taxes from continuing operations in 2014 includes the recognition of a tax benefit for a portion of the Company’s capital loss carryforwards of $4.9 million. These capital loss carryforwards were previously offset by a valuation allowance associated with expected limitations on the utilization of these assumed capital losses. As a result of changes in the underlying basis of certain foreign subsidiaries, income taxes from continuing operations in 2014 also included an adjustment of $2.2 million to reverse previously accrued deferred tax liabilities arising from foreign currency translation adjustments. |
(c) | Plant shutdowns, asset impairments, restructurings and other for 2013 include a charge of $1.7 million related to expected future environmental costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statement of income); charges of $0.6 million associated with the shutdown of the Company’s aluminum extrusions manufacturing facility in Kentland, Indiana; charges of $0.5 million associated with the shutdown of the film products manufacturing facility in Red Springs, North Carolina, which includes severance and other employee-related costs of $0.3 million and asset impairment charges of $0.2 million; charges of $0.4 million for severance and other employee-related costs in connection with restructurings in Aluminum Extrusions ($0.3 million) and Film Products ($0.1 million); charges of $0.2 million for integration-related expenses and other nonrecurring transactions (included in “Selling, general and administrative expenses” in the consolidated statements of income) associated with the acquisition of AACOA by Aluminum Extrusions; and a loss of $0.1 million related to the sale of previously impaired machinery and equipment at the Company’s film products manufacturing facility in Shanghai, China (included in “Other income (expense), net” in the consolidated statements of income). The unrealized gain on the Company’s investment in kaléo of $3.4 million, the unrealized loss on the Company’s investment in Harbinger of $0.4 million and the unrealized loss on the Company’s investment property in Alleghany and Bath County, Virginia of $1.0 million in 2013 are included in “Other income (expense), net” in the consolidated statements of income. Income taxes for 2013 include the recognition of an additional valuation allowance of $0.4 million related to the expected limitations on the utilization of assumed capital losses on certain investments. |
(d) | Plant shutdowns, asset impairments, restructurings and other for 2012 include a net charge of $3.6 million associated with the shutdown of the Company’s aluminum extrusions manufacturing facility in Kentland, Indiana, which included accelerated depreciation for property and equipment of $2.4 million (included in “Cost of goods sold” in the consolidated statement of income), severance and other employee-related costs of $1.2 million and other shutdown-related charges of $2.3 million, partially offset by adjustments to inventories accounted for under the last-in, first-out method of $1.5 million (included in “Cost of goods sold” in the consolidated statements of income) and gains of $0.8 million (included in “Other income (expense), net” in the consolidated statements of income); a gain of $1.3 million in Film Products (included in “Other income (expense), net” in the consolidated statements of income) associated with an insurance recovery on idle equipment that was destroyed in a fire at an outside warehouse; charges of $1.3 million for acquisition-related expenses (included in “Selling, general and administrative expenses in the consolidated statements of income) associated with the acquisition of AACOA by Aluminum Extrusions; charges of $1.1 million for integration-related expenses and other nonrecurring transactions (included in “Selling, general and administrative expenses” in the consolidated statements of income) associated with the acquisition of Terphane by Film Products; gain of $1.1 million (included in “Other income (expense), net” in the consolidated statements of income) on the sale of assets associated with a previously shutdown film products manufacturing facility in LaGrange, Georgia; losses of $0.8 million for asset impairments associated with a previously shutdown film products manufacturing facility in LaGrange, Georgia; charges of $0.5 million for severance and other employee-related costs in connection with restructurings in Film Products ($0.3 million) and Aluminum Extrusions ($0.2 million); charges of $0.2 million for asset impairments in Film Products; charges of $0.2 million for integration-related expenses and other nonrecurring transactions (included in “Selling, general and administrative expenses” in the consolidated statements of income) associated with the acquisition of AACOA by Aluminum Extrusions; charges of $0.1 million associated with purchase accounting adjustments made to the value of inventory sold by Aluminum Extrusions after its acquisition of AACOA; and a charge of $0.1 million (included in “Costs of goods sold” in the consolidated statements of income) related to expected future environmental costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statement of income). The unrealized gain on the Company’s investment in kaléo of $16.1 million and the unrealized loss on the Company’s investment in Harbinger of $1.1 million in 2012 are included in “Other income (expense), net” in the consolidated statements of income. Income taxes for 2012 include the recognition of an additional valuation allowance of $1.3 million related to the expected limitations on the utilization of assumed capital losses on certain investments. |
(e) | Plant shutdowns, asset impairments, restructurings and other for 2011 include charges of $4.8 million for acquisition-related expenses (included in “Selling, general and administrative expenses” in the consolidated statements of income) associated with the acquisition of Terphane by Film Products; charges of $1.4 million for asset impairments in Films Products; a gain of $1.0 million on the disposition of the film products business in Roccamontepiano, Italy (included in “Other income (expense), net” in the consolidated statements of income), which includes the recognition of previously unrecognized foreign currency translation gains of $4.3 million that were associated with the business; charges of $0.7 million associated with purchase accounting adjustments made to the value of inventory sold by Films Products after its purchase of Terphane (included in “Cost of goods sold” in the consolidated statements of income); charges of $0.5 million for severance and other employee related costs in connection with restructurings in Film Products; charges of $0.4 million for integration-related expenses (included in “Selling, general and administrative expenses” in the consolidated statements of income) associated with the acquisition of Terphane by Film Products; and gains of $0.1 million associated with Aluminum Extrusions for timing differences between the recognition of realized losses on aluminum futures contracts and related revenues from the delayed fulfillment by customers of fixed-price forward purchase commitments (included in “Cost of goods sold” in the consolidated statements of income). The unrealized gain on the Company’s investment in kaléo of $1.6 million and the unrealized loss on the Company’s investment in Harbinger of $0.6 million in 2011 are included in “Other income (expense), net” in the consolidated statements of income. |
(f) | Plant shutdowns, asset impairments, restructurings and other for 2010 include gains of $0.9 million associated with Aluminum Extrusions for timing differences between the recognition of realized losses on aluminum futures contracts and related revenues from the delayed fulfillment by customers of fixed-price forward purchase commitments (included in “Cost of goods sold” in the consolidated statements of income); asset impairment charges of $0.6 million related to Films Products; a charge of $0.4 million related to expected future environmental costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statements of income); charges of $0.2 million for severance and other employee-related costs in connection with restructurings in Film Products; a gain of $0.1 million on the sale of previously impaired equipment (included in “Other income (loss), net” in the consolidated statements of income) at the film products manufacturing facility in Pottsville, Pennsylvania; and losses of $0.1 million on the disposal of equipment (included in “Other income (expense), net” in the consolidated statements of income) from a previously shutdown film products manufacturing facility in LaGrange, Georgia. The unrealized loss on the Company’s investment in kaléo of $2.2 million in 2010 is included in “Other income (expense), net” in the consolidated statements of income. Income taxes in 2010 include the recognition of an additional valuation allowance of $0.2 million related to the expected limitations on the utilization of assumed capital losses on certain investments. |
(g) | 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. |
(h) | Equity market capitalization is the closing market price per share for the period multiplied by the shares outstanding at the end of the period. |
(i) | Net sales represent gross sales less freight. Net sales is the measure used by the chief operating decision maker of each segment for purposes of assessing performance. |
(j) | In addition to quarterly dividends of 4 1/2 cents per share in the first and second quarters and 6 cents per share in the third and fourth quarters of 2012, there was a special one-time dividend of 75 cents per share paid to shareholders in December 2012. |
Item 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
(In thousands, except percentages) | Year Ended December 31 | Favorable/ (Unfavorable) | ||||||||
2014 | 2013 | % Change | ||||||||
Sales volume (pounds) | 247,267 | 270,463 | (8.6 | )% | ||||||
Net sales | $ | 578,687 | $ | 621,239 | (6.8 | )% | ||||
Operating profit from ongoing operations | $ | 58,054 | $ | 70,966 | (18.2 | )% |
(In thousands, except percentages) | Year Ended December 31 | Favorable/ (Unfavorable) | ||||||||
2014 | 2013 | % Change | ||||||||
Sales volume (pounds) | 153,843 | 143,684 | 7.1 | % | ||||||
Net sales | $ | 344,346 | $ | 309,482 | 11.3 | % | ||||
Operating profit from ongoing operations | $ | 25,664 | $ | 18,291 | 40.3 | % |
• | A second quarter charge of $10.0 million ($6.8 million after taxes) associated with a one-time, lump sum license payment to the 3M Company (“3M”) after the Company settled all litigation issues associated with a patent infringement complaint (included in “Other income (expense), net” in the consolidated statements of income; see Note 19 for additional detail on this legal matter); |
• | A fourth quarter charge of $0.5 million ($0.3 million after taxes), a third quarter charge of $0.4 million ($0.2 million after taxes), a second quarter charge of $0.6 million ($0.4 million after taxes) and a first quarter charge of $0.8 million ($0.5 million after taxes) in Film Products and a third quarter charge of $31,000 ($18,000 after taxes) in Aluminum Extrusions associated with severance and other employee-related costs associated with restructurings; |
• | A fourth quarter charge of $0.7 million ($0.4 million after taxes), a third quarter charge of $75,000 ($46,000 after taxes) and a second quarter charge of $0.2 million ($0.1 million after taxes) related to expected future environmental costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statements of income); |
• | A fourth quarter adjustment of previously accrued severance and other employee-related costs of $0.1 million ($63,000 after taxes) and a third quarter charge of $37,000 ($23,000 after taxes), a second quarter charge of $0.3 million ($0.2 million after taxes) and a first quarter charge of $0.5 million ($0.3 million after taxes) associated with the shutdown of the film products manufacturing facility in Red Springs, North Carolina, which includes net severance and other employee-related costs of $0.4 million and asset impairment and other shutdown-related charges of $0.3 million; |
• | A fourth quarter gain of $0.1 million ($73,000 after taxes) related to the sale of a previously shutdown film products manufacturing facility in LaGrange, Georgia (included in “Other income (expense), net” in the consolidated statements of income); and |
• | A fourth quarter charge of $11,000 ($7,000 after taxes), a third quarter charge of $20,000 ($12,000 after taxes) and a second quarter charge of $24,000 ($15,000 after taxes) associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana. |
(In Millions) | 2014 | 2013 | |||||
Floating-rate debt with interest charged on a rollover | |||||||
basis at one-month LIBOR plus a credit spread: | |||||||
Average outstanding debt balance | $ | 136.5 | $ | 133.5 | |||
Average interest rate | 2.0 | % | 1.9 | % | |||
Fixed-rate and other debt: | |||||||
Average outstanding debt balance | $ | — | $ | — | |||
Average interest rate | n/a | n/a | |||||
Total debt: | |||||||
Average outstanding debt balance | $ | 136.5 | $ | 133.5 | |||
Average interest rate | 2.0 | % | 1.9 | % |
• | A fourth quarter charge of $1.5 million ($0.9 million after taxes), a third quarter charge of $0.1 million ($62,000 after taxes) and a second quarter charge of $85,000 ($53,000 after taxes) related to expected future environmental costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statements of income); |
• | A third quarter charge of $45,000 ($28,000 after taxes), a second quarter charge of $0.4 million ($0.2 million after taxes) and a first quarter charge of $0.2 million ($94,000 after taxes) associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana; |
• | A fourth quarter charge of $0.3 million ($0.2 million after taxes) and a third quarter charge of $0.2 million ($83,000 after taxes) associated with the shutdown of the film products manufacturing facility in Red Springs, North Carolina, which includes severance and other employee related costs of $0.3 million and asset impairments of $0.2 million; |
• | A fourth quarter charge of $0.3 million ($0.2 million after taxes) in Aluminum Extrusions and a first quarter charge of $0.1 million ($67,000 after taxes) in Film Products associated with severance and other employee related costs in connection with restructurings; |
• | A second quarter charge of $90,000 ($54,000 after taxes) and a first quarter charge of $0.1 million ($63,000 after taxes) for integration-related expenses and other non-recurring transactions (included in “Selling, general and administrative expenses” in the consolidated statements of income) associated with the acquisition of AACOA by Aluminum Extrusions; and |
• | A second quarter loss of $91,000 ($91,000 after taxes) related to the sale of previously impaired machinery and equipment at the film products manufacturing facility in Shanghai, China (included in “Other income (expense), net” in the consolidated statements of income). |
(In Millions) | 2013 | 2012 | |||||
Floating-rate debt with interest charged on a rollover | |||||||
basis at one-month LIBOR plus a credit spread: | |||||||
Average outstanding debt balance | $ | 133.5 | $ | 112.1 | |||
Average interest rate | 1.9 | % | 2.1 | % | |||
Fixed-rate and other debt: | |||||||
Average outstanding debt balance | $ | — | $ | — | |||
Average interest rate | n/a | n/a | |||||
Total debt: | |||||||
Average outstanding debt balance | $ | 133.5 | $ | 112.1 | |||
Average interest rate | 1.9 | % | 2.1 | % |
• | Accounts and other receivables increased $14.1 million (14.2%). |
• | Accounts and other receivables in Film Products increased by $5.1 million due mainly to the timing of cash receipts. DSO (represents trailing 12 months net sales divided by a rolling 12-month average of accounts and other receivables balances) was approximately 46.2 days in 2014 and 43.2 days in 2013. |
• | Accounts and other receivables in Aluminum Extrusions increased by $9.0 million primarily due to higher sales. DSO was approximately 45.3 days in 2014 and 47.1 days in 2013. |
• | Inventories increased $3.6 million (5.2%). |
• | Inventories in Film Products increased by approximately $0.8 million primarily due to the timing of shipments at the end of the year. DIO (represents trailing 12 months costs of goods sold calculated on a first-in, first-out basis divided by a rolling 12-month average of inventory balances calculated on the first-in, first-out basis) was approximately 52.0 days in 2014 and 54.1 days in 2013. |
• | Inventories in Aluminum Extrusions increased by approximately $2.8 million as a result of new capacity at the Company’s manufacturing facility in Newnan, Georgia and higher sales volumes in 2014 versus 2013. DIO was approximately 24.1 days in 2014 and 25.0 days in 2013. |
• | Net property, plant and equipment decreased $12.6 million (4.5%) due primarily to depreciation of $35.4 million and a change in the value of the U.S. dollar relative to foreign currencies (a decrease of approximately $17.6 million), partially offset by capital expenditures of $44.9 million. |
• | Goodwill and other intangibles decreased by $11.2 million (4.9%) primarily due to amortization expense of $5.4 million and changes in the value of the U.S. dollar relative to the Brazilian Real. |
• | Accounts payable increased by $11.3 million (13.7%). |
• | Accounts payable in Film Products increased by $2.5 million primarily due to the timing of payments at the end of the year. DPO (represents trailing 12 months costs of goods sold calculated on a first-in, first-out basis divided by a rolling 12-month average of accounts payable balances) was approximately 36.0 days in 2014 and 36.8 days in 2013. |
• | Accounts payable in Aluminum Extrusions increased by $9.0 million, primarily due to higher inventory balances and the timing of payments. DPO was approximately 48.0 days in 2014 and 45.5 days in 2013. |
• | Accrued expenses decreased by $10.1 million (24.0%) from December 31, 2013. The decrease is related to various factors, including lower accruals for contractual indemnifications associated with the sale of the Company’s aluminum extrusions business in Canada, lower accruals for performance incentives and other employee benefits and the timing of payments for non-federal income and payroll related taxes. |
• | Other noncurrent liabilities increased by $58.4 million (105.3%) due primarily to the change in the funded status of the Company’s defined benefit plans. As of December 31, 2014, the funded status of the defined benefit pension plan was a net liability of $96.4 million compared with $42.5 million as of December 31, 2013, and the liability associated with the other post-employment benefits plan was $8.4 million as of December 31, 2014 compared to $7.9 million as of December 31, 2013. |
• | Net deferred income tax liabilities in excess of assets decreased by $34.8 million primarily due to numerous changes between years in the balance of the components shown in the December 31, 2014 and 2013 schedule of deferred income tax assets and liabilities provided in Note 17 beginning on page 76. The Company had an income tax receivable of $0.9 million at December 31, 2014 compared to a payable of $0.1 million at December 31, 2013. The change is primarily due to the timing of tax payments. |
Net Capitalization and Indebtedness as of December 31, 2014 | |||
(In Thousands) | |||
Net capitalization: | |||
Cash and cash equivalents | $ | 50,056 | |
Debt: | |||
$350 million revolving credit agreement maturing April 23, 2017 | 137,250 | ||
Other debt | — | ||
Total debt | 137,250 | ||
Debt net of cash and cash equivalents | 87,194 | ||
Shareholders’ equity | 372,029 | ||
Net capitalization | $ | 459,223 | |
Indebtedness as defined in revolving credit agreement: | |||
Total debt | $ | 137,250 | |
Face value of letters of credit | 2,884 | ||
Other | 230 | ||
Indebtedness | $ | 140,364 |
Pricing Under Revolving Credit Agreement (Basis Points) | ||||
Indebtedness-to-Adjusted EBITDA Ratio | Credit Spread Over LIBOR | Commitment Fee | ||
> 2.0x but <= 3.0x | 200 | 35 | ||
> 1.0x but <=2.0x | 175 | 30 | ||
<= 1.0x | 150 | 25 |
Computations of Adjusted EBITDA, Adjusted EBIT, Leverage Ratio and Interest Coverage Ratio as Defined in the Credit Agreement Along with Related Most Restrictive Covenants | |||
As of and for the Twelve Months Ended December 31, 2014 (In Thousands) | |||
Computations of adjusted EBITDA and adjusted EBIT as defined in revolving credit agreement for the twelve months ended December 31, 2014: | |||
Net income | $ | 36,879 | |
Plus: | |||
After-tax losses related to discontinued operations | — | ||
Total income tax expense for continuing operations | 9,387 | ||
Interest expense | 2,713 | ||
Depreciation and amortization expense for continuing operations | 40,818 | ||
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) | 10,993 | ||
Charges related to stock option grants and awards accounted for under the fair value-based method | 1,272 | ||
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 | (850 | ) | |
Total income tax benefits for continuing operations | — | ||
Interest income | (588 | ) | |
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 | (2,000 | ) | |
Plus cash dividends declared on investments accounted for under the equity method of accounting | — | ||
Plus or minus, as applicable, pro forma EBITDA adjustments associated with acquisitions and asset dispositions | — | ||
Adjusted EBITDA as defined in revolving credit agreement | 98,624 | ||
Less: Depreciation and amortization expense for continuing operations (including pro forma for acquisitions and asset dispositions) | (40,818 | ) | |
Adjusted EBIT as defined in revolving credit agreement | $ | 57,806 | |
Shareholders’ equity at December 31, 2014 as defined in revolving credit agreement | $ | 384,938 | |
Computations of leverage and interest coverage ratios as defined in revolving credit agreement at December 31, 2014: | |||
Leverage ratio (indebtedness-to-adjusted EBITDA) | 1.42x | ||
Interest coverage ratio (adjusted EBIT-to-interest expense) | 21.31x | ||
Most restrictive covenants as defined in revolving credit agreement: | |||
Maximum permitted aggregate amount of dividends that can be paid by Tredegar during the term of the revolving credit agreement ($100,000 plus 50% of net income generated beginning January 1, 2012) | $ | 143,539 | |
Minimum adjusted shareholders’ equity permitted ($320,000 plus 50% of net income generated, to the extent positive, beginning January 1, 2012) | $ | 363,539 | |
Maximum leverage ratio permitted: | 3.00x | ||
Minimum interest coverage ratio permitted | 2.50x |
Payments Due by Period | |||||||||||||||||||||||||||
(In Millions) | 2015 | 2016 | 2017 | 2018 | 2019 | Remainder | Total | ||||||||||||||||||||
Debt: | |||||||||||||||||||||||||||
Principal payments | $ | — | $ | — | $ | 137.3 | $ | — | $ | — | $ | — | $ | 137.3 | |||||||||||||
Estimated interest expense | 2.7 | 2.7 | 0.8 | — | — | — | 6.2 | ||||||||||||||||||||
Estimated contributions required (1) : | |||||||||||||||||||||||||||
Defined benefit plans | 2.4 | 5.9 | 5.0 | 12.2 | 11.8 | 50.6 | 87.9 | ||||||||||||||||||||
Other postretirement benefits | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 | 5.9 | 8.4 | ||||||||||||||||||||
Capital expenditure commitments | 4.9 | — | — | — | — | — | 4.9 | ||||||||||||||||||||
Operating leases | 2.4 | 1.9 | 1.9 | 1.8 | 0.7 | 1.3 | 10.0 | ||||||||||||||||||||
Estimated obligations relating to uncertain tax positions (2) | — | — | — | — | — | 2.8 | 2.8 | ||||||||||||||||||||
Other (3) | 1.8 | 0.3 | — | — | — | — | 2.1 | ||||||||||||||||||||
Total | $ | 14.7 | $ | 11.3 | $ | 145.5 | $ | 14.5 | $ | 13.0 | $ | 60.6 | $ | 259.6 |
(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 2015 through 2024 were determined under provisions of the Pension Protection Act of 2006 using the preliminary assumptions chosen by Tredegar for the 2015 plan year. Tredegar has determined that it is not practicable to present defined benefit contributions and other postretirement benefit payments beyond 2024. |
(2) | Amounts for which reasonable estimates about the timing of payments cannot be made are included in the remainder column. |
(3) | Includes contractual severance, the expected contingent earnout from the purchase of the assets of Bright View, and other miscellaneous contractual arrangements. |
Source: Quarterly averages computed by Tredegar using monthly data provided by Chemical Data Inc. (“CDI”). In January 2010, CDI reflected a 15 cents per pound non-market adjustment based on their estimate of the growth of discounts over the 2005 to 2009 period. The 4th quarter 2009 average rate of 61 cents per pound is shown on a pro forma basis as if the non-market adjustment was made in October 2009. |
Source: Quarterly averages computed by Tredegar using monthly data from CMAI Global Index data. |
Source: Quarterly averages computed by Tredegar using monthly data from CMAI Global Index data. |
Source: Quarterly averages computed by Tredegar using daily Midwest average prices provided by Platts. |
Source: Quarterly averages computed by Tredegar using monthly NYMEX settlement prices. |
Tredegar Corporation—Continuing Operations Percentage of Net Sales and Total Assets Related to Foreign Markets | ||||||||||||||||||||||||||
2014 | 2013 | 2012 | ||||||||||||||||||||||||
% of Total | % Total Assets - Foreign Oper- ations * | % of Total | % Total Assets - Foreign Oper- ations * | % of Total | % Total Assets - Foreign Oper- ations * | |||||||||||||||||||||
Net Sales * | Net Sales * | Net Sales * | ||||||||||||||||||||||||
Exports From U.S. | Foreign Oper- ations | Exports From U.S. | Foreign Oper- ations | Exports From U.S. | Foreign Oper- ations | |||||||||||||||||||||
Canada | 5 | — | — | 5 | — | — | 5 | — | — | |||||||||||||||||
Europe | 1 | 12 | 5 | 1 | 12 | 6 | 1 | 13 | 7 | |||||||||||||||||
Latin America | — | 11 | 27 | — | 12 | 24 | — | 14 | 23 | |||||||||||||||||
Asia | 8 | 4 | 4 | 9 | 4 | 4 | 7 | 4 | 4 | |||||||||||||||||
Total % exposure to foreign markets | 14 | 27 | 36 | 15 | 28 | 34 | 13 | 31 | 34 |
* | The percentages for foreign markets are relative to Tredegar’s consolidated net sales and total assets from continuing operations. |
Source: Quarterly averages computed by Tredegar using daily closing data provided by Bloomberg. |
Source: Quarterly averages computed by Tredegar using daily closing data provided by Bloomberg. |
Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Item 9A. | CONTROLS AND PROCEDURES |
• | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; |
• | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and |
• | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements. |
Item 9B. | OTHER INFORMATION |
Item 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Name | Age | Title | |||
Nancy M. Taylor | 55 | President and Chief Executive Officer | |||
Mary Jane Hellyar | 61 | President, Tredegar Film Products Corporation and Corporate Vice President | |||
A. Brent King | 46 | Vice President, General Counsel and Corporate Secretary | |||
Kevin A. O’Leary | 56 | Vice President, Chief Financial Officer and Treasurer |
Item 11. | EXECUTIVE COMPENSATION |
Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Column (a) | Column (b) | Column (c) | ||||||||
Plan Category | 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) | |||||||
Equity compensation plans approved by security holders | 1,481,891 | $ | 19.59 | 2,198,235 | ||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||
Total | 1,481,891 | $ | 19.59 | 2,198,235 |
* | 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 |
Item 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
• | Information on accounting fees and services to be included in the Proxy Statement under the heading “Audit Fees;” and |
• | Information on the Audit Committee’s procedures for pre-approving certain audit and non-audit services to be included in the Proxy Statement under the heading “Board Meetings, Meetings of Non-Management Directors and Board Committees—Audit Committee Matters.” |
Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) | List of documents filed as a part of the report: |
(1) | Financial statements: |
Page | |
Report of Independent Registered Public Accounting Firm | |
Financial Statements: | |
Consolidated Balance Sheets as of December 31, 2014 and 2013 | |
Consolidated Statements of Income for the Years Ended December 31, 2014, 2013 and 2012 | |
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2014, 2013 and 2012 | |
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012 | |
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2014, 2013 and 2012 | |
Notes to Financial Statements | 50-84 |
(2) | Financial statement schedules: |
(3) | Exhibits: |
December 31 | 2014 | 2013 | ||||||
(In Thousands, Except Share Data) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 50,056 | $ | 52,617 | ||||
Accounts and other receivables, net of allowance for doubtful accounts and sales returns of $2,610 in 2014 and $3,327 in 2013 | 113,341 | 99,246 | ||||||
Income taxes recoverable | 877 | — | ||||||
Inventories | 74,308 | 70,663 | ||||||
Deferred income taxes | 8,877 | 5,628 | ||||||
Prepaid expenses and other | 8,283 | 6,353 | ||||||
Total current assets | 255,742 | 234,507 | ||||||
Property, plant and equipment, at cost: | ||||||||
Land and land improvements | 11,814 | 12,093 | ||||||
Buildings | 135,015 | 109,125 | ||||||
Machinery and equipment | 643,793 | 677,621 | ||||||
Total property, plant and equipment | 790,622 | 798,839 | ||||||
Less accumulated depreciation | (520,665 | ) | (516,279 | ) | ||||
Net property, plant and equipment | 269,957 | 282,560 | ||||||
Goodwill and other intangibles | 215,129 | 226,300 | ||||||
Other assets and deferred charges | 47,798 | 49,641 | ||||||
Total assets | $ | 788,626 | $ | 793,008 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 94,131 | $ | 82,795 | ||||
Accrued expenses | 32,049 | 42,158 | ||||||
Income taxes payable | — | 114 | ||||||
Total current liabilities | 126,180 | 125,067 | ||||||
Long-term debt | 137,250 | 139,000 | ||||||
Deferred income taxes | 39,255 | 70,795 | ||||||
Other noncurrent liabilities | 113,912 | 55,482 | ||||||
Total liabilities | 416,597 | 390,344 | ||||||
Commitments and contingencies (Notes 3, 16 and 19) | ||||||||
Shareholders’ equity: | ||||||||
Common stock (no par value): | ||||||||
Authorized 150,000,000 shares; | ||||||||
Issued and outstanding—32,422,082 shares in 2014 and 32,305,145 in 2013 (including restricted stock) | 24,364 | 20,641 | ||||||
Common stock held in trust for savings restoration plan (66,255 shares in 2014 and 65,332 in 2013) | (1,440 | ) | (1,418 | ) | ||||
Accumulated other comprehensive income (loss): | ||||||||
Foreign currency translation adjustment | (47,270 | ) | (19,205 | ) | ||||
Gain (loss) on derivative financial instruments | 656 | 765 | ||||||
Pension and other postretirement benefit adjustments | (103,581 | ) | (71,848 | ) | ||||
Retained earnings | 499,300 | 473,729 | ||||||
Total shareholders’ equity | 372,029 | 402,664 | ||||||
Total liabilities and shareholders’ equity | $ | 788,626 | $ | 793,008 | ||||
Years Ended December 31 | 2014 | 2013 | 2012 | |||||||||
(In Thousands, Except Per-Share Data) | ||||||||||||
Revenues and other: | ||||||||||||
Sales | $ | 951,826 | $ | 959,346 | $ | 882,188 | ||||||
Other income (expense), net | (6,697 | ) | 1,776 | 18,119 | ||||||||
945,129 | 961,122 | 900,307 | ||||||||||
Costs and expenses: | ||||||||||||
Cost of goods sold | 778,113 | 784,675 | 712,660 | |||||||||
Freight | 28,793 | 28,625 | 24,846 | |||||||||
Selling, general and administrative | 69,526 | 71,195 | 73,717 | |||||||||
Research and development | 12,147 | 12,669 | 13,162 | |||||||||
Amortization of intangibles | 5,395 | 6,744 | 5,806 | |||||||||
Interest expense | 2,713 | 2,870 | 3,590 | |||||||||
Asset impairments and costs associated with exit and disposal activities | 3,026 | 1,412 | 5,022 | |||||||||
Total | 899,713 | 908,190 | 838,803 | |||||||||
Income from continuing operations before income taxes | 45,416 | 52,932 | 61,504 | |||||||||
Income taxes | 9,387 | 16,995 | 18,319 | |||||||||
Income from continuing operations | 36,029 | 35,937 | 43,185 | |||||||||
Income (loss) from discontinued operations, net of tax | 850 | (13,990 | ) | (14,934 | ) | |||||||
Net income | $ | 36,879 | $ | 21,947 | $ | 28,251 | ||||||
Earnings (loss) per share: | ||||||||||||
Basic: | ||||||||||||
Continuing operations | $ | 1.12 | $ | 1.12 | $ | 1.35 | ||||||
Discontinued operations | 0.02 | (0.44 | ) | (0.47 | ) | |||||||
Net income | $ | 1.14 | $ | 0.68 | $ | 0.88 | ||||||
Diluted: | ||||||||||||
Continuing operations | $ | 1.11 | $ | 1.10 | $ | 1.34 | ||||||
Discontinued operations | 0.02 | (0.43 | ) | (0.46 | ) | |||||||
Net income | $ | 1.13 | $ | 0.67 | $ | 0.88 |
Years Ended December 31 | 2014 | 2013 | 2012 | |||||||||
(In Thousands, Except Per-Share Data) | ||||||||||||
Net income | $ | 36,879 | $ | 21,947 | $ | 28,251 | ||||||
Other comprehensive income (loss): | ||||||||||||
Unrealized foreign currency translation adjustment (net of tax benefit of $2,396 in 2014, tax of $233 in 2013 and tax of $897 in 2012) | (28,065 | ) | (19,336 | ) | (11,562 | ) | ||||||
Derivative financial instruments adjustment (net of tax benefit of $112 in 2014, tax benefit of $133 in 2013 and tax of $818 in 2012) | (109 | ) | (228 | ) | 1,399 | |||||||
Pension & other post-retirement benefit adjustments | ||||||||||||
Net gains (losses) and prior service costs (net of tax benefit of $22,445 in 2014, tax of $13,231 in 2013 and tax benefit of $11,145 in 2012) | (38,730 | ) | 22,203 | (19,285 | ) | |||||||
Amortization of prior service costs and net gains or losses (net of tax of $3,582 in 2014, tax of $5,398 in 2013 and tax of $3,749 in 2012) | 6,997 | 9,420 | 6,486 | |||||||||
Other comprehensive income (loss) | (59,907 | ) | 12,059 | (22,962 | ) | |||||||
Comprehensive income (loss) | $ | (23,028 | ) | $ | 34,006 | $ | 5,289 |
Years Ended December 31 | 2014 | 2013 | 2012 | |||||||||
(In Thousands) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 36,879 | $ | 21,947 | $ | 28,251 | ||||||
Adjustments for noncash items: | ||||||||||||
Depreciation | 35,423 | 37,911 | 43,463 | |||||||||
Amortization of intangibles | 5,395 | 6,744 | 5,806 | |||||||||
Deferred income taxes | (11,489 | ) | (5,268 | ) | (762 | ) | ||||||
Accrued pension and postretirement benefits | 6,974 | 13,911 | 8,311 | |||||||||
(Gain) loss on an investment accounted for under the fair value method | (2,000 | ) | (3,400 | ) | (16,100 | ) | ||||||
Loss on asset impairments | 993 | 1,639 | 2,185 | |||||||||
(Gain) loss on sale of assets | (1,031 | ) | — | 1,219 | ||||||||
Changes in assets and liabilities, net of effects of acquisitions and divestitures: | ||||||||||||
Accounts and notes receivables | (18,696 | ) | (1,763 | ) | 9,454 | |||||||
Inventories | (8,803 | ) | 1,727 | (9,913 | ) | |||||||
Income taxes recoverable/payable | (906 | ) | 3,063 | 3,193 | ||||||||
Prepaid expenses and other | 496 | (651 | ) | 1,883 | ||||||||
Accounts payable and accrued expenses | 5,554 | 3,043 | 9,105 | |||||||||
Other, net | 2,446 | (2,188 | ) | (3,509 | ) | |||||||
Net cash provided by operating activities | 51,235 | 76,715 | 82,586 | |||||||||
Cash flows from investing activities: | ||||||||||||
Capital expenditures | (44,898 | ) | (79,661 | ) | (33,252 | ) | ||||||
Acquisitions, net of cash acquired | — | 561 | (57,936 | ) | ||||||||
Net proceeds from the sale of investment property (2014) and Fallings Springs, LLC (2013 & 2012) | 4,500 | 306 | 12,071 | |||||||||
Proceeds from the sale of assets and other | 2,125 | 1,190 | 3,557 | |||||||||
Net cash used in investing activities | (38,273 | ) | (77,604 | ) | (75,560 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Borrowings | 116,000 | 87,000 | 93,250 | |||||||||
Debt principal payments and financing costs | (117,779 | ) | (76,000 | ) | (91,604 | ) | ||||||
Dividends paid | (11,007 | ) | (9,040 | ) | (30,782 | ) | ||||||
Proceeds from exercise of stock options and other | 410 | 3,317 | 2,400 | |||||||||
Net cash provided by (used in) financing activities | (12,376 | ) | 5,277 | (26,736 | ) | |||||||
Effect of exchange rate changes on cash | (3,147 | ) | (593 | ) | (407 | ) | ||||||
Increase (decrease) in cash and cash equivalents | (2,561 | ) | 3,795 | (20,117 | ) | |||||||
Cash and cash equivalents at beginning of period | 52,617 | 48,822 | 68,939 | |||||||||
Cash and cash equivalents at end of period | $ | 50,056 | $ | 52,617 | $ | 48,822 | ||||||
Supplemental cash flow information: | ||||||||||||
Interest payments | $ | 3,320 | $ | 2,583 | $ | 2,992 | ||||||
Income tax payments (refunds), net | 20,890 | 19,480 | 14,721 |
Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||||||
Common Stock | Retained Earnings | Trust for Savings Restora-tion Plan | Foreign Currency Trans-lation | Gain (Loss) on Derivative Financial Instruments | Pension & Other Post- retirement Benefit Adjust. | Total Share- holders’ Equity | ||||||||||||||||||||||||
(In Thousands, Except Share and Per-Share Data) | Shares | Amount | ||||||||||||||||||||||||||||
Balance at January 1, 2012 | 32,057,281 | $ | 14,357 | $ | 463,278 | $ | (1,343 | ) | $ | 11,693 | $ | (406 | ) | $ | (90,672 | ) | $ | 396,907 | ||||||||||||
Net income | — | — | 28,251 | — | — | — | — | 28,251 | ||||||||||||||||||||||
Foreign currency translation adjustment (net of tax of $897) | — | — | — | — | (11,562 | ) | — | — | (11,562 | ) | ||||||||||||||||||||
Derivative financial instruments adjustment (net of tax of $818) | — | — | — | — | — | 1,399 | — | 1,399 | ||||||||||||||||||||||
Net gains or losses and prior service costs (net of tax benefit of $11,145) | — | — | — | — | — | — | (19,285 | ) | (19,285 | ) | ||||||||||||||||||||
Amortization of prior service costs and net gains or losses (net of tax of $3,749) | — | — | — | — | — | — | 6,486 | 6,486 | ||||||||||||||||||||||
Cash dividends declared ($0.96 per share) | — | — | (30,782 | ) | — | — | — | — | (30,782 | ) | ||||||||||||||||||||
Stock-based compensation expense | 78,299 | 2,516 | — | — | — | — | — | 2,516 | ||||||||||||||||||||||
Issued upon exercise of stock options (including related income tax benefit of $144) & other | 143,366 | 2,031 | — | — | — | — | — | 2,031 | ||||||||||||||||||||||
Shares received from the sale of Falling Springs, LLC | (209,576 | ) | (3,709 | ) | — | — | — | — | — | (3,709 | ) | |||||||||||||||||||
Tredegar common stock purchased by trust for savings restoration plan | — | — | 58 | (58 | ) | — | — | — | — | |||||||||||||||||||||
Balance at December 31, 2012 | 32,069,370 | 15,195 | 460,805 | (1,401 | ) | 131 | 993 | (103,471 | ) | 372,252 | ||||||||||||||||||||
Net income | — | — | 21,947 | — | — | — | — | 21,947 | ||||||||||||||||||||||
Foreign currency translation adjustment (net of tax of $233) | — | — | — | — | (19,336 | ) | — | — | (19,336 | ) | ||||||||||||||||||||
Derivative financial instruments adjustment (net of tax benefit of $133) | — | — | — | — | — | (228 | ) | — | (228 | ) | ||||||||||||||||||||
Net gains or losses and prior service costs (net of tax of $13,231) | — | — | — | — | — | — | 22,203 | 22,203 | ||||||||||||||||||||||
Amortization of prior service costs and net gains or losses (net of tax of $5,398) | — | — | — | — | — | — | 9,420 | 9,420 | ||||||||||||||||||||||
Cash dividends declared ($0.28 per share) | — | — | (9,040 | ) | (9,040 | ) | ||||||||||||||||||||||||
Stock-based compensation expense | 72,125 | 2,572 | — | — | — | — | — | 2,572 | ||||||||||||||||||||||
Issued upon exercise of stock options (including related income tax benefit of $188) & other | 163,650 | 2,874 | — | — | — | — | — | 2,874 | ||||||||||||||||||||||
Tredegar common stock purchased by trust for savings restoration plan | — | — | 17 | (17 | ) | — | — | — | — | |||||||||||||||||||||
Balance at December 31, 2013 | 32,305,145 | 20,641 | 473,729 | (1,418 | ) | (19,205 | ) | 765 | (71,848 | ) | 402,664 | |||||||||||||||||||
Net income | — | — | 36,879 | — | — | — | — | 36,879 | ||||||||||||||||||||||
Foreign currency translation adjustment (net of tax benefit of $2,396) | — | — | — | — | (28,065 | ) | — | — | (28,065 | ) | ||||||||||||||||||||
Derivative financial instruments adjustment (net of tax benefit of $112) | — | — | — | — | — | (109 | ) | — | (109 | ) | ||||||||||||||||||||
Net gains or losses and prior service costs (net of tax benefit of $22,445) | — | — | — | — | — | — | (38,730 | ) | (38,730 | ) | ||||||||||||||||||||
Amortization of prior service costs and net gains or losses (net of tax of $3,582) | — | — | — | — | — | — | 6,997 | 6,997 | ||||||||||||||||||||||
Cash dividends declared ($0.34 per share) | — | — | (11,007 | ) | — | — | — | — | (11,007 | ) | ||||||||||||||||||||
Stock-based compensation expense | 85,129 | 3,224 | — | — | — | — | — | 3,224 | ||||||||||||||||||||||
Shareholder Rights Plan redemption | — | — | (323 | ) | — | — | — | — | (323 | ) | ||||||||||||||||||||
Issued upon exercise of stock options (including related income tax benefit of $3) & other | 31,808 | 499 | — | — | — | — | — | 499 | ||||||||||||||||||||||
Tredegar common stock purchased by trust for savings restoration plan | — | 22 | (22 | ) | — | — | — | — | ||||||||||||||||||||||
Balance at December 31, 2014 | 32,422,082 | $ | 24,364 | $ | 499,300 | $ | (1,440 | ) | $ | (47,270 | ) | $ | 656 | $ | (103,581 | ) | $ | 372,029 |
1 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
2014 | 2013 | 2012 | ||||||
Weighted average shares outstanding used to compute basic earnings per share | 32,302,108 | 32,171,751 | 32,032,343 | |||||
Incremental shares attributable to stock options and restricted stock | 251,746 | 427,528 | 160,233 | |||||
Shares used to compute diluted earnings per share | 32,553,854 | 32,599,279 | 32,192,576 |
2014 | 2013 | 2012 | |||||||||
Dividend yield | 1.3 | % | 1.1 | % | 0.9 | % | |||||
Weighted average volatility percentage | 43.5 | % | 48.3 | % | 48.7 | % | |||||
Weighted average risk-free interest rate | 2.0 | % | 1.1 | % | 1.0 | % | |||||
Holding period (years): | |||||||||||
Officers | 6.0 | 6.0 | 6.0 | ||||||||
Management | 5.0 | 5.0 | 5.0 | ||||||||
Weighted average exercise price at date of grant (also weighted average market price at date of grant): | |||||||||||
Officers | $ | 22.49 | $ | 24.84 | $ | 19.30 | |||||
Management | 22.33 | 25.10 | 19.40 |
2014 | 2013 | 2012 | |||||||||
Stock options granted (number of shares): | |||||||||||
Officers | 87,820 | 94,400 | 99,600 | ||||||||
Management | 93,656 | 90,300 | 82,500 | ||||||||
Total | 181,476 | 184,700 | 182,100 | ||||||||
Estimated weighted average fair value of options per share at date of grant: | |||||||||||
Officers | $ | 9.21 | $ | 10.37 | $ | 8.07 | |||||
Management | 7.60 | 9.65 | 7.31 | ||||||||
Total estimated fair value of stock options granted (in thousands) | $ | 1,521 | $ | 1,850 | $ | 1,449 |
(In Thousands) | Foreign currency translation adjustment | Gain (loss) on derivative financial instruments | Pension and other post-retirement benefit adjustments | Total | |||||||||||
Beginning balance, January 1, 2014 | $ | (19,205 | ) | $ | 765 | $ | (71,848 | ) | $ | (90,288 | ) | ||||
Other comprehensive income (loss) before reclassifications | (28,065 | ) | 294 | (38,730 | ) | (66,501 | ) | ||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | — | (403 | ) | 6,997 | 6,594 | ||||||||||
Net other comprehensive income (loss) - current period | (28,065 | ) | (109 | ) | (31,733 | ) | (59,907 | ) | |||||||
Ending balance, December 31, 2014 | $ | (47,270 | ) | $ | 656 | $ | (103,581 | ) | $ | (150,195 | ) |
(In Thousands) | Foreign currency translation adjustment | Gain (loss) on derivative financial instruments | Pension and other post-retirement benefit adjustments | Total | |||||||||||
Beginning balance, January 1, 2013 | $ | 131 | $ | 993 | $ | (103,471 | ) | $ | (102,347 | ) | |||||
Other comprehensive income (loss) before reclassifications | (19,336 | ) | (590 | ) | 22,203 | 2,277 | |||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | — | 362 | 9,420 | 9,782 | |||||||||||
Net other comprehensive income (loss) - current period | (19,336 | ) | (228 | ) | 31,623 | 12,059 | |||||||||
Ending balance, December 31, 2013 | $ | (19,205 | ) | $ | 765 | $ | (71,848 | ) | $ | (90,288 | ) |
(In Thousands) | Amount reclassified from other comprehensive income | Location of gain (loss) reclassified from accumulated other comprehensive income to net income | |||
Gain (loss) on derivative financial instruments: | |||||
Aluminum future contracts, before taxes | $ | 631 | Cost of sales | ||
Foreign currency forward contracts, before taxes | 16 | Cost of sales | |||
Total, before taxes | 647 | ||||
Income tax expense (benefit) | 244 | Income taxes | |||
Total, net of tax | $ | 403 | |||
Amortization of pension and other post-retirement benefits: | |||||
Actuarial gain (loss) and prior service costs, before taxes | $ | (10,579 | ) | (a) | |
Income tax expense (benefit) | (3,582 | ) | Income taxes | ||
Total, net of tax | $ | (6,997 | ) | ||
(a) This component of accumulated other comprehensive income is included in the computation of net periodic pension cost (see Note 14 for additional detail). |
(In Thousands) | Amount reclassified from other comprehensive income | Location of gain (loss) reclassified from accumulated other comprehensive income to net income | |||
Gain (loss) on derivative financial instruments: | |||||
Aluminum future contracts, before taxes | $ | (583 | ) | Cost of sales | |
Foreign currency forward contracts, before taxes | — | ||||
Total, before taxes | (583 | ) | |||
Income tax expense (benefit) | (221 | ) | Income taxes | ||
Total, net of tax | $ | (362 | ) | ||
Amortization of pension and other post-retirement benefits: | |||||
Actuarial gain (loss) and prior service costs, before taxes | $ | (14,818 | ) | (a) | |
Income tax expense (benefit) | (5,398 | ) | Income taxes | ||
Total, net of tax | $ | (9,420 | ) | ||
(a) This component of accumulated other comprehensive income is included in the computation of net periodic pension cost (see Note 14 for additional detail). |
2 | ACQUISITIONS |
(In Thousands) | |||
Accounts receivable | $ | 12,477 | |
Inventories | 4,708 | ||
Property, plant & equipment | 15,116 | ||
Identifiable intangible assets: | |||
Customer relationships | 4,800 | ||
Trade names | 4,800 | ||
Proprietary technology | 3,400 | ||
Noncompete agreements | 1,600 | ||
Other assets (current & noncurrent) | 42 | ||
Trade payables & accrued expenses | (6,574 | ) | |
Total identifiable net assets | 40,369 | ||
Purchase price, net of cash received | 54,065 | ||
Goodwill | $ | 13,696 |
Identifiable Intangible Asset | Useful Life (Yrs) |
Customer relationships | 10 |
Proprietary technology | 6-10 |
Trade names | Indefinite |
Noncompete agreements | 2 |
(In Thousands, Except Per Share Data) | 2012 | |||
Sales | $ | 946,594 | ||
Income from continuing operations | 44,816 | |||
Earnings per share from continuing operations: | ||||
Basic | $ | 1.40 | ||
Diluted | 1.39 |
• | Adjustment for additional depreciation and amortization expense associated with the adjustments to property, plant and equipment, and intangible assets associated with purchase accounting; |
• | Additional interest expense and financing fees associated with borrowing arrangements used to fund the acquisition of AACOA and the elimination of historical interest expense associated with historical borrowings of AACOA that were not assumed by Tredegar; |
• | Adjustments to eliminate transactions-related expenses associated with the October 2012 acquisition of AACOA; |
• | Adjustments for the estimated net income tax benefit associated with the previously described adjustments; and |
• | Adjustments to income tax expense for AACOA as it had previously elected to be treated as an S-Corp for federal income tax purposes. |
3 | DISCONTINUED OPERATIONS |
4 | INVESTMENTS |
December 31, | December 31, | ||||||||||||||||
(In Thousands) | 2014 | 2013 | 2014 | 2013 | |||||||||||||
Assets: | Liabilities & Equity: | ||||||||||||||||
Cash & short-term investments | $ | 117,589 | $ | 33,560 | Long-term debt, net of discount, current portion | $ | — | $ | 5,414 | ||||||||
Restricted cash | 14,498 | — | Other current liabilities | 8,123 | 4,845 | ||||||||||||
Other current assets | 17,916 | 5,682 | Other noncurrent liabilities | 1,247 | 3,098 | ||||||||||||
Property & equipment | 10,824 | 10,559 | Long-term debt, net of discount | 149,471 | 9,372 | ||||||||||||
Patents | 2,702 | 2,433 | Redeemable preferred stock | 22,946 | 21,970 | ||||||||||||
Other long-term assets | 2,857 | 445 | Equity | (15,401 | ) | 7,980 | |||||||||||
Total assets | $ | 166,386 | $ | 52,679 | Total liabilities & equity | $ | 166,386 | $ | 52,679 |
2014 | 2013 | 2012 | |||||||||
Revenues & Expenses: | |||||||||||
Revenues | $ | 21,156 | $ | 15,305 | $ | 38,179 | |||||
Cost of goods sold | (3,801 | ) | — | — | |||||||
Expenses and other, net (a) | (48,447 | ) | (18,631 | ) | (13,073 | ) | |||||
Income tax (expense) benefit | 8,100 | 1,586 | (9,642 | ) | |||||||
Net income (loss) | $ | (22,992 | ) | $ | (1,740 | ) | $ | 15,464 |
5 | BUSINESS SEGMENTS |
Net Sales | ||||||||||||
(In Thousands) | 2014 | 2013 | 2012 | |||||||||
Film Products | $ | 578,687 | $ | 621,239 | $ | 611,877 | ||||||
Aluminum Extrusions | 344,346 | 309,482 | 245,465 | |||||||||
Total net sales | 923,033 | 930,721 | 857,342 | |||||||||
Add back freight | 28,793 | 28,625 | 24,846 | |||||||||
Sales as shown in consolidated statements of income | $ | 951,826 | $ | 959,346 | $ | 882,188 |
Operating Profit | ||||||||||||
(In Thousands) | 2014 | 2013 | 2012 | |||||||||
Film Products: | ||||||||||||
Ongoing operations | $ | 58,054 | $ | 70,966 | $ | 69,950 | ||||||
Plant shutdowns, asset impairments, restructurings and other (a) | (12,827 | ) | (671 | ) | (109 | ) | ||||||
Aluminum Extrusions: | ||||||||||||
Ongoing operations | 25,664 | 18,291 | 9,037 | |||||||||
Plant shutdowns, asset impairments, restructurings and other (a) | (976 | ) | (2,748 | ) | (5,427 | ) | ||||||
Total | 69,915 | 85,838 | 73,451 | |||||||||
Interest income | 588 | 594 | 418 | |||||||||
Interest expense | 2,713 | 2,870 | 3,590 | |||||||||
Gain on investment accounted for under the fair value method (a) | 2,000 | 3,400 | 16,100 | |||||||||
Gain on sale of investment property (a) | 1,208 | — | — | |||||||||
Unrealized loss on investment property (a) | — | 1,018 | — | |||||||||
Stock option-based compensation expense | 1,272 | 1,155 | 1,432 | |||||||||
Corporate expenses, net (a) | 24,310 | 31,857 | 23,443 | |||||||||
Income from continuing operations before income taxes | 45,416 | 52,932 | 61,504 | |||||||||
Income taxes (a) | 9,387 | 16,995 | 18,319 | |||||||||
Income from continuing operations | 36,029 | 35,937 | 43,185 | |||||||||
Income (loss) from discontinued operations (a) | 850 | (13,990 | ) | (14,934 | ) | |||||||
Net income | $ | 36,879 | $ | 21,947 | $ | 28,251 |
Identifiable Assets | ||||||||
(In Thousands) | 2014 | 2013 | ||||||
Film Products | $ | 546,210 | $ | 556,873 | ||||
Aluminum Extrusions | 143,328 | 134,928 | ||||||
Subtotal | 689,538 | 691,801 | ||||||
General corporate (b) | 49,032 | 48,590 | ||||||
Cash and cash equivalents (d) | 50,056 | 52,617 | ||||||
Total | $ | 788,626 | $ | 793,008 |
Depreciation and Amortization | Capital Expenditures | |||||||||||||||||||||||
(In Thousands) | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | ||||||||||||||||||
Film Products | $ | 30,730 | $ | 35,332 | $ | 39,202 | $ | 38,806 | $ | 64,867 | $ | 30,484 | ||||||||||||
Aluminum Extrusions | 9,974 | 9,202 | 9,984 | 6,092 | 14,742 | 2,332 | ||||||||||||||||||
Subtotal | 40,704 | 44,534 | 49,186 | 44,898 | 79,609 | 32,816 | ||||||||||||||||||
General corporate | 114 | 121 | 73 | — | 52 | 436 | ||||||||||||||||||
Continuing operations | 40,818 | 44,655 | 49,259 | 44,898 | 79,661 | 33,252 | ||||||||||||||||||
Discontinued operations | — | — | 10 | — | — | — | ||||||||||||||||||
Total | $ | 40,818 | $ | 44,655 | $ | 49,269 | $ | 44,898 | $ | 79,661 | $ | 33,252 |
Net Sales by Geographic Area (d) | ||||||||||||
(In Thousands) | 2014 | 2013 | 2012 | |||||||||
United States | $ | 542,395 | $ | 534,346 | $ | 480,041 | ||||||
Exports from the United States to: | ||||||||||||
Asia | 72,597 | 82,235 | 57,639 | |||||||||
Canada | 47,391 | 46,481 | 46,948 | |||||||||
Europe | 10,874 | 6,984 | 5,186 | |||||||||
Latin America | 3,116 | 3,505 | 3,145 | |||||||||
Operations outside the United States: | ||||||||||||
Brazil | 97,954 | 109,415 | 121,373 | |||||||||
The Netherlands | 74,329 | 68,471 | 67,758 | |||||||||
Hungary | 39,457 | 43,482 | 41,285 | |||||||||
China | 26,109 | 28,702 | 30,636 | |||||||||
India | 8,811 | 7,100 | 3,331 | |||||||||
Total (c) | $ | 923,033 | $ | 930,721 | $ | 857,342 |
Identifiable Assets by Geographic Area (d) | Property, Plant & Equipment, Net by Geographic Area (d) | |||||||||||||||
(In Thousands) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
United States (b) | $ | 409,272 | $ | 419,234 | $ | 115,189 | $ | 141,444 | ||||||||
Operations outside the United States: | ||||||||||||||||
Brazil | 212,186 | 191,415 | 119,066 | 99,956 | ||||||||||||
The Netherlands | 23,729 | 32,156 | 9,117 | 14,172 | ||||||||||||
China | 23,037 | 25,165 | 14,141 | 14,430 | ||||||||||||
Hungary | 13,440 | 17,681 | 5,829 | 7,461 | ||||||||||||
India | 7,874 | 6,150 | 5,575 | 4,007 | ||||||||||||
General corporate (b) | 49,032 | 48,590 | 1,040 | 1,090 | ||||||||||||
Cash and cash equivalents (d) | 50,056 | 52,617 | n/a | n/a | ||||||||||||
Total | $ | 788,626 | $ | 793,008 | $ | 269,957 | $ | 282,560 |
Net Sales by Product Group | ||||||||||||
(In Thousands) | 2014 | 2013 | 2012 | |||||||||
Film Products: | ||||||||||||
Personal care materials | $ | 317,080 | $ | 339,559 | $ | 327,161 | ||||||
Flexible packaging films | 114,348 | 125,712 | 138,028 | |||||||||
Surface protection films | 90,129 | 90,182 | 69,627 | |||||||||
Polyethylene overwrap and polypropylene films | 44,263 | 56,590 | 63,796 | |||||||||
Films for other markets | 12,867 | 9,196 | 13,265 | |||||||||
Subtotal | 578,687 | 621,239 | 611,877 | |||||||||
Aluminum Extrusions: | ||||||||||||
Nonresidential building & construction | 200,707 | 179,437 | 165,159 | |||||||||
Consumer durables | 44,897 | 39,565 | 12,259 | |||||||||
Machinery & equipment | 26,907 | 21,936 | 8,773 | |||||||||
Automotive | 22,272 | 19,919 | 11,757 | |||||||||
Residential building & construction | 21,470 | 22,055 | 23,555 | |||||||||
Distribution | 15,318 | 13,115 | 15,227 | |||||||||
Electrical | 12,775 | 13,455 | 8,735 | |||||||||
Subtotal | 344,346 | 309,482 | 245,465 | |||||||||
Total | $ | 923,033 | $ | 930,721 | $ | 857,342 |
(a) | See Notes 1, 3, 4 and 18 for more information on losses associated with plant shutdowns, asset impairments and restructurings, unusual items, gains or losses from sale of assets, gains or losses on an investment accounted for under the fair value method and other items. |
(b) | The balance sheets include the funded status of each of the Company’s defined benefit pension and other postretirement plans. The funded status of the Company’s defined benefit pension plan was a net liability of $96.4 million and $42.5 million as of December 31, 2014 and 2013, respectively. See Note 14 for more information on the Company’s pension and other postretirement plans. |
(c) | The difference between total consolidated sales as reported in the consolidated statements of income and segment, geographic and product group net sales reported in this note is freight of $28.8 million in 2014, $28.6 million in 2013 and $24.8 million in 2012. |
(d) | 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 $40.5 million and $38.6 million at December 31, 2014 and 2013, respectively. Export sales relate almost entirely to Film Products. Operations outside the U.S. in The Netherlands, Hungary, China, Brazil and India also relate to Film Products. Sales from locations in The Netherlands and Hungary are primarily to customers located in Europe. Sales from locations in China (Guangzhou and Shanghai) are primarily to customers located in China, but also include other customers in Asia. |
6 | ACCOUNTS AND OTHER RECEIVABLES |
(In Thousands) | 2014 | 2013 | ||||||
Trade, less allowance for doubtful accounts and sales returns of $2,610 in 2014 and $3,327 in 2013 | $ | 106,093 | $ | 94,684 | ||||
Other | 7,248 | 4,562 | ||||||
Total | $ | 113,341 | $ | 99,246 |
(In Thousands) | 2014 | 2013 | 2012 | |||||||||
Balance, beginning of year | $ | 3,327 | $ | 3,552 | $ | 3,539 | ||||||
Charges to expense | 1,344 | 1,874 | 1,589 | |||||||||
Recoveries | (1,654 | ) | (1,760 | ) | (1,076 | ) | ||||||
Write-offs | (153 | ) | (285 | ) | (588 | ) | ||||||
Foreign exchange and other | (254 | ) | (54 | ) | 88 | |||||||
Balance, end of year | $ | 2,610 | $ | 3,327 | $ | 3,552 |
7 | INVENTORIES |
(In Thousands) | 2014 | 2013 | ||||||
Finished goods | $ | 17,559 | $ | 14,953 | ||||
Work-in-process | 10,089 | 7,750 | ||||||
Raw materials | 25,227 | 24,477 | ||||||
Stores, supplies and other | 21,433 | 23,483 | ||||||
Total | $ | 74,308 | $ | 70,663 |
8 | GOODWILL AND OTHER INTANGIBLE ASSETS |
(In Thousands) | 2014 | 2013 | Amortization Periods | |||||||
Goodwill | $ | 169,687 | $ | 172,788 | Not amortized | |||||
Other identifiable intangibles: | ||||||||||
Customer relationships (cost basis of $29,117 in 2014 and $31,357 in 2013) | 21,620 | 25,962 | 10-12 years | |||||||
Proprietary technology (cost basis of $18,228 in 2014 and $18,851 in 2013) | 11,824 | 14,356 | Not more than 15 years | |||||||
Trade names | 11,998 | 12,594 | Indefinite life | |||||||
Non-compete agreements (cost basis of $4,154 in 2014 and 2013) | — | 600 | 2 years | |||||||
Total carrying value of other intangibles | 45,442 | 53,512 | ||||||||
Total carrying value of goodwill and other intangibles | $ | 215,129 | $ | 226,300 |
(In Thousands) | 2014 | 2013 | 2012 | |||||||||
Net carrying value of goodwill, beginning of year | $ | 172,788 | $ | 176,620 | $ | 165,372 | ||||||
Acquisitions | — | — | 13,695 | |||||||||
Increase (decrease) due to foreign currency translation | (3,101 | ) | (3,832 | ) | (2,447 | ) | ||||||
Net carrying value of goodwill, end of year | $ | 169,687 | $ | 172,788 | $ | 176,620 |
Year | Amount (In Thousands) | ||
2015 | $ | 4,741 | |
2016 | 4,702 | ||
2017 | 4,702 | ||
2018 | 4,702 | ||
2019 | 4,568 |
9 | FINANCIAL INSTRUMENTS |
December 31, 2014 | December 31, 2013 | ||||||||||
(In Thousands) | Balance Sheet Account | Fair Value | Balance Sheet Account | Fair Value | |||||||
Derivatives Designated as Hedging Instruments | |||||||||||
Asset derivatives: Aluminum futures contracts | Accrued expenses | $ | 82 | Accrued expenses | $ | 31 | |||||
Liability derivatives: Aluminum futures contracts | Accrued expenses | $ | (318 | ) | Accrued expenses | $ | (178 | ) | |||
Derivatives Not Designated as Hedging Instruments | |||||||||||
Asset derivatives: Aluminum futures contracts | Accrued expenses | $ | 7 | Accrued expenses | $ | — | |||||
Liability derivatives: Aluminum futures contracts | Accrued expenses | $ | (7 | ) | Accrued expenses | $ | — | ||||
Net asset (liability) | $ | (236 | ) | $ | (147 | ) |
December 31, 2014 | December 31, 2013 | ||||||||||
(In Thousands) | Balance Sheet Account | Fair Value | Balance Sheet Account | Fair Value | |||||||
Derivatives Designated as Hedging Instruments | |||||||||||
Asset derivatives: Foreign currency forward contracts | $ | — | Prepaid expenses and other | $ | 47 | ||||||
Net asset (liability) | $ | — | $ | 47 |
(In Thousands) | Cash Flow Derivative Hedges | ||||||||||||||||||||||
Aluminum Futures Contracts | Foreign Currency Forwards and Options | ||||||||||||||||||||||
Years Ended December 31, | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | |||||||||||||||||
Amount of pre-tax gain (loss) recognized in other comprehensive income | $ | 542 | $ | (868 | ) | $ | (232 | ) | $ | (120 | ) | $ | (77 | ) | $ | 1,421 | |||||||
Location of gain (loss) reclassified from accumulated other comprehensive income into net income (effective portion) | Cost of sales | Cost of sales | Cost of sales | Cost of sales | |||||||||||||||||||
Amount of pre-tax gain (loss) reclassified from accumulated other comprehensive income to net income (effective portion) | $ | 631 | $ | (583 | ) | $ | (1,026 | ) | $ | 16 | $ | — | $ | — |
10 | ACCRUED EXPENSES |
(In Thousands) | 2014 | 2013 | |||||
Vacation | $ | 7,266 | $ | 7,077 | |||
Payrolls, related taxes and medical and other benefits | 4,119 | 5,679 | |||||
Incentive compensation | 3,803 | 4,148 | |||||
Workers’ compensation and disabilities | 3,007 | 2,753 | |||||
Accrued utilities | 2,186 | 2,494 | |||||
Taxes other than federal income and payroll | 841 | 2,153 | |||||
Contractual indemnification claims (see note 3) | — | 2,604 | |||||
Other | 10,827 | 15,250 | |||||
Total | $ | 32,049 | $ | 42,158 |
(In Thousands) | Severance | Asset Impairments | Other (a) | Total | |||||||||||
Balance at January 1, 2012 | $ | 197 | $ | — | $ | — | $ | 197 | |||||||
For the year ended December 31, 2012: | |||||||||||||||
Charges | 1,562 | 1,077 | 2,255 | 4,894 | |||||||||||
Cash spend | (1,463 | ) | — | (1,670 | ) | (3,133 | ) | ||||||||
Charges against assets | — | (1,077 | ) | — | (1,077 | ) | |||||||||
Balance at December 31, 2012 | 296 | — | 585 | 881 | |||||||||||
For the year ended December 31, 2013: | |||||||||||||||
Charges | 671 | 172 | 569 | 1,412 | |||||||||||
Cash spend | (636 | ) | — | (798 | ) | (1,434 | ) | ||||||||
Charges against assets | — | (172 | ) | — | (172 | ) | |||||||||
Balance at December 31, 2013 | 331 | — | 356 | 687 | |||||||||||
For the year ended December 31, 2014: | |||||||||||||||
Charges | 2,668 | 227 | 131 | 3,026 | |||||||||||
Cash spend | (2,753 | ) | — | (286 | ) | (3,039 | ) | ||||||||
Charges against assets | — | (227 | ) | — | (227 | ) | |||||||||
Balance at December 31, 2014 | $ | 246 | $ | — | $ | 201 | $ | 447 |
(a) | Other includes other shutdown-related costs associated with the shutdown of the Company’s aluminum extrusions manufacturing facility in Kentland, Indiana. |
11 | DEBT AND CREDIT AGREEMENTS |
Pricing Under Credit Revolving Agreement (Basis Points) | ||||||
Indebtedness-to-Adjusted EBITDA Ratio | Credit Spread Over LIBOR | Commitment Fee | ||||
> 2.0x but <= 3.0x | 200 | 35 | ||||
> 1.0x but <=2.0x | 175 | 30 | ||||
<= 1.0x | 150 | 25 |
• | Maximum indebtedness-to-adjusted EBITDA of 3.0x; |
• | Minimum adjusted EBIT-to-interest expense of 2.5x; |
• | Maximum aggregate distributions to shareholders over the term of the Credit Agreement of $100 million plus, beginning with the fiscal quarter ended March 31, 2012, 50% of net income; and |
• | Minimum shareholders’ equity (as defined in the Credit Agreement) at any point during the term of the Credit Agreement of at least $320 million increased on a cumulative basis at the end of each fiscal quarter, beginning with the fiscal quarter ended March 31, 2012, by an amount equal to 50% of net income (to the extent positive). |
Debt Due and Outstanding at December 31, 2014 (In Thousands) | |||||||||||
Year Due | Credit Agreement | Other | Total Debt Due | ||||||||
2015 | $ | — | $ | — | $ | — | |||||
2016 | — | — | — | ||||||||
2017 | 137,250 | — | 137,250 | ||||||||
2018 | — | — | — | ||||||||
2019 | — | — | — | ||||||||
Total | $ | 137,250 | $ | — | $ | 137,250 |
12 | SHAREHOLDER RIGHTS AGREEMENT |
13 | STOCK OPTION AND STOCK AWARD PLANS |
Option Exercise Price/Share | ||||||||||||||||
Number of Options | Range | Weighted Average | ||||||||||||||
Outstanding at January 1, 2012 | 1,121,500 | $ | 14.06 | to | $ | 19.84 | $ | 17.40 | ||||||||
Granted | 182,100 | 18.51 | to | 19.40 | 19.34 | |||||||||||
Forfeited and Expired | (50,300 | ) | 15.80 | to | 19.84 | 19.34 | ||||||||||
Exercised | (176,600 | ) | 14.72 | to | 18.12 | 16.33 | ||||||||||
Outstanding at December 31, 2012 | 1,076,700 | 14.06 | to | 19.84 | 17.81 | |||||||||||
Granted | 184,700 | 24.84 | to | 30.01 | 24.97 | |||||||||||
Forfeited and Expired | (34,000 | ) | 15.11 | to | 24.84 | 21.10 | ||||||||||
Exercised | (180,600 | ) | 14.27 | to | 19.84 | 17.32 | ||||||||||
Outstanding at December 31, 2013 | 1,046,800 | 14.06 | to | 30.01 | 19.06 | |||||||||||
Granted | 181,476 | 19.84 | to | 22.49 | 22.41 | |||||||||||
Forfeited and Expired | (22,581 | ) | 15.80 | to | 24.84 | 21.42 | ||||||||||
Exercised | (41,575 | ) | 15.80 | to | 19.84 | 17.55 | ||||||||||
Outstanding at December 31, 2014 | 1,164,120 | $ | 14.06 | to | $ | 30.01 | $ | 19.59 |
Options Outstanding at December 31, 2014 | Options Exercisable at December 31, 2014 | |||||||||||||||||||||||||||||||
Weighted Average | Aggregate Intrinsic Value (In Thousands) | Aggregate Intrinsic Value (In Thousands) | ||||||||||||||||||||||||||||||
Range of Exercise Prices | Shares | Remaining Contractual Life (Years) | Exercise Price | Shares | Weighted Average Exercise Price | |||||||||||||||||||||||||||
$ | — | to | $ | 15.00 | 26,000 | 0.9 | $ | 14.06 | $ | 219 | 26,000 | $ | 14.06 | $ | 219 | |||||||||||||||||
15.01 | to | 17.50 | 314,500 | 1.2 | 16.53 | 1,873 | 314,500 | 16.53 | 1,873 | |||||||||||||||||||||||
17.51 | to | 20.00 | 488,870 | 3.3 | 19.03 | 1,693 | 417,550 | 18.97 | 1,470 | |||||||||||||||||||||||
20.01 | to | 25.00 | 330,250 | 8.7 | 23.61 | — | 40,875 | 24.84 | — | |||||||||||||||||||||||
25.01 | to | 30.01 | 4,500 | 8.6 | 30.01 | — | 1,125 | 30.01 | — | |||||||||||||||||||||||
Total | 1,164,120 | 4.2 | $ | 19.59 | $ | 3,785 | 800,050 | $ | 18.17 | $ | 3,562 |
Non-vested Restricted Stock | Maximum Non-vested Restricted Stock Units Issuable Upon Satisfaction of Certain Performance Criteria | ||||||||||||||||||||
Number of Shares | Weighted Avg. Grant Date Fair Value/Share | Grant Date Fair Value (In Thousands) | Number of Shares | Weighted Avg. Grant Date Fair Value/Share | Grant Date Fair Value (In Thousands) | ||||||||||||||||
Outstanding at January 1, 2012 | 126,150 | $ | 18.25 | $ | 2,302 | 85,000 | $ | 19.35 | $ | 1,645 | |||||||||||
Granted | 94,949 | 19.06 | 1,810 | 87,200 | 18.79 | 1,638 | |||||||||||||||
Vested | (60,357 | ) | 18.01 | (1,087 | ) | — | — | — | |||||||||||||
Forfeited | (16,842 | ) | 18.82 | (317 | ) | (80,400 | ) | 19.31 | (1,553 | ) | |||||||||||
Outstanding at December 31, 2012 | 143,900 | 18.82 | 2,708 | 91,800 | 18.85 | 1,730 | |||||||||||||||
Granted | 93,425 | 25.45 | 2,378 | 77,200 | 27.82 | 2,148 | |||||||||||||||
Vested | (58,175 | ) | 20.15 | (1,172 | ) | — | — | — | |||||||||||||
Forfeited | (21,300 | ) | 20.70 | (441 | ) | (36,700 | ) | 19.83 | (728 | ) | |||||||||||
Outstanding at December 31, 2013 | 157,850 | 22.00 | 3,473 | 132,300 | 23.81 | 3,150 | |||||||||||||||
Granted | 95,707 | 22.18 | 2,123 | 59,675 | 21.54 | 1,285 | |||||||||||||||
Vested | (54,921 | ) | 20.73 | (1,139 | ) | — | — | — | |||||||||||||
Forfeited | (10,578 | ) | 21.76 | (230 | ) | (62,262 | ) | 19.18 | (1,194 | ) | |||||||||||
Outstanding at December 31, 2014 | 188,058 | $ | 22.48 | $ | 4,227 | 129,713 | $ | 24.99 | $ | 3,241 |
14 | RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS |
Pension Benefits | Other Post- Retirement Benefits | ||||||||||||||||
(In Thousands) | 2014 | 2013 | 2014 | 2013 | |||||||||||||
Change in benefit obligation: | |||||||||||||||||
Benefit obligation, beginning of year | $ | 275,166 | $ | 302,285 | $ | 7,858 | $ | 8,879 | |||||||||
Service cost | 869 | 3,754 | 43 | 58 | |||||||||||||
Interest cost | 13,397 | 12,338 | 387 | 345 | |||||||||||||
Effect of actuarial (gains) losses related to the following: | |||||||||||||||||
Discount rate change | 32,089 | (26,848 | ) | 732 | (746 | ) | |||||||||||
Retirement rate assumptions and mortality table adjustments | 17,331 | (144 | ) | (131 | ) | — | |||||||||||
Retiree medical participation rate change | — | — | (390 | ) | — | ||||||||||||
Other | 490 | (3,058 | ) | 218 | (382 | ) | |||||||||||
Plan participant contributions | — | — | 681 | 683 | |||||||||||||
Benefits paid | (13,916 | ) | (13,161 | ) | (1,026 | ) | (979 | ) | |||||||||
Benefit obligation, end of year | $ | 325,426 | $ | 275,166 | $ | 8,372 | $ | 7,858 | |||||||||
Change in plan assets: | |||||||||||||||||
Plan assets at fair value, beginning of year | $ | 232,705 | $ | 219,035 | $ | — | $ | — | |||||||||
Actual return on plan assets | 7,466 | 21,657 | — | — | |||||||||||||
Employer contributions | 2,762 | 5,174 | 345 | 296 | |||||||||||||
Plan participant contributions | — | — | 681 | 683 | |||||||||||||
Benefits paid | (13,916 | ) | (13,161 | ) | (1,026 | ) | (979 | ) | |||||||||
Plan assets at fair value, end of year | $ | 229,017 | $ | 232,705 | $ | — | $ | — | |||||||||
Funded status of the plans | $ | (96,409 | ) | $ | (42,461 | ) | $ | (8,372 | ) | $ | (7,858 | ) | |||||
Amounts recognized in the consolidated balance sheets: | |||||||||||||||||
Accrued expenses (current) | $ | 130 | $ | — | $ | 456 | $ | — | |||||||||
Other noncurrent liabilities | 96,279 | 42,461 | 7,916 | 7,858 | |||||||||||||
Net amount recognized | $ | 96,409 | $ | 42,461 | $ | 8,372 | $ | 7,858 |
Pension Benefits | Other Post- Retirement Benefits | ||||||||||||||||||||||||
(In Thousands, Except Percentages) | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | |||||||||||||||||||
Weighted-average assumptions used to determine benefit obligations: | |||||||||||||||||||||||||
Discount rate | 4.17 | % | 4.99 | % | 4.21 | % | 4.11 | % | 4.88 | % | 4.10 | % | |||||||||||||
Weighted-average assumptions used to determine net periodic benefit cost: | |||||||||||||||||||||||||
Discount rate | 4.99 | % | 4.21 | % | 4.95 | % | 4.88 | % | 4.10 | % | 4.90 | % | |||||||||||||
Expected long-term return on plan assets | 7.75 | % | 7.75 | % | 8.00 | % | n/a | n/a | n/a | ||||||||||||||||
Components of net periodic benefit cost: | |||||||||||||||||||||||||
Service cost | $ | 869 | $ | 3,754 | $ | 3,657 | $ | 43 | $ | 58 | $ | 58 | |||||||||||||
Interest cost | 13,397 | 12,338 | 13,084 | 387 | 345 | 385 | |||||||||||||||||||
Expected return on plan assets | (18,301 | ) | (17,430 | ) | (19,108 | ) | — | — | — | ||||||||||||||||
Amortization of prior service costs and gains or losses | 10,688 | 15,028 | 10,377 | (190 | ) | (210 | ) | (241 | ) | ||||||||||||||||
Settlement/curtailment | 81 | 28 | 99 | — | — | — | |||||||||||||||||||
Net periodic benefit cost | $ | 6,734 | $ | 13,718 | $ | 8,109 | $ | 240 | $ | 193 | $ | 202 |
(In Thousands) | Pension Benefits | Other Post- Retirement Benefits | |||||
2015 | $ | 15,282 | $ | 456 | |||
2016 | 15,932 | 471 | |||||
2017 | 16,527 | 480 | |||||
2018 | 17,004 | 489 | |||||
2019 | 17,555 | 494 | |||||
2020—2024 | 93,535 | 2,511 |
Pension | Other Post-Retirement | ||||||||||||||||||||||
(In Thousands) | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | |||||||||||||||||
Prior service cost (benefit) | $ | 87 | $ | 270 | $ | (887 | ) | $ | — | $ | — | $ | — | ||||||||||
Net actuarial (gain) loss | 166,678 | 116,519 | 167,009 | (1,154 | ) | (1,773 | ) | (855 | ) |
(In Thousands) | Pension | Other Post- Retirement | |||||
Prior service cost (benefit) | $ | 24 | $ | — | |||
Net actuarial (gain) loss | 16,107 | (160 | ) |
% Composition of Plan Assets at December 31, | ||||||||
2014 | 2013 | 2012 | ||||||
Pension plans related to continuing operations: | ||||||||
Fixed income securities | 14.5 | % | 14.0 | % | 14.7 | % | ||
Large/mid-capitalization equity securities | 13.7 | 13.8 | 10.9 | |||||
Small-capitalization equity securities | 4.3 | 4.8 | 5.4 | |||||
International and emerging market equity securities | 11.0 | 11.7 | 10.0 | |||||
Total equity securities | 29.0 | 30.3 | 26.3 | |||||
Private equity and hedge funds | 51.2 | 48.3 | 50.0 | |||||
Other assets | 5.3 | 7.4 | 9.0 | |||||
Total for continuing operations | 100.0 | % | 100.0 | % | 100.0 | % |
Target % Composition of Plan Assets * | Expected Long-term Return % | ||||
Pension plans related to continuing operations: | |||||
Fixed income securities | 32.0 | % | 5.5 | % | |
Large/mid-capitalization equity securities | 10.0 | 8.8 | |||
Small-capitalization equity securities | 4.0 | 9.9 | |||
International and emerging market equity securities | 13.0 | 9.8 | |||
Total equity securities | 27.0 | 9.4 | |||
Private equity and hedge funds | 41.0 | 7.8 | |||
Total for continuing operations | 100.0 | % | 7.5 | % |
* | Target percentages for the composition of plan assets represents a neutral position within the approved range of |
allocations for such assets. |
(In Thousands) | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
Balances at December 31, 2014: | ||||||||||||||||
Large/mid-capitalization equity securities | $ | 31,401 | $ | 31,401 | $ | — | $ | — | ||||||||
Small-capitalization equity securities | 9,827 | 9,827 | — | — | ||||||||||||
International and emerging market equity securities | 25,224 | 11,471 | 13,753 | — | ||||||||||||
Fixed income securities | 33,281 | 12,661 | 20,620 | — | ||||||||||||
Private equity and hedge funds | 117,276 | — | 106,201 | 11,075 | ||||||||||||
Other assets | 1,741 | 1,741 | — | — | ||||||||||||
Total plan assets at fair value | $ | 218,750 | $ | 67,101 | $ | 140,574 | $ | 11,075 | ||||||||
Contracts with insurance companies | 10,267 | |||||||||||||||
Total plan assets, December 31, 2014 | $ | 229,017 | ||||||||||||||
Balances at December 31, 2013: | ||||||||||||||||
Large/mid-capitalization equity securities | $ | 32,134 | $ | 32,134 | $ | — | $ | — | ||||||||
Small-capitalization equity securities | 11,063 | 11,063 | — | — | ||||||||||||
International and emerging market equity securities | 27,271 | 13,488 | 13,783 | — | ||||||||||||
Fixed income securities | 32,601 | 17,770 | 14,831 | — | ||||||||||||
Private equity and hedge funds | 112,345 | — | 103,531 | 8,814 | ||||||||||||
Other assets | 7,871 | 7,871 | — | — | ||||||||||||
Total plan assets at fair value | $ | 223,285 | $ | 82,326 | $ | 132,145 | $ | 8,814 | ||||||||
Contracts with insurance companies | 9,420 | |||||||||||||||
Total plan assets, December 31, 2013 | $ | 232,705 |
(In Thousands) | Private equity and hedge funds | ||
Balance at January 1, 2013 | $ | 8,356 | |
Purchases | 2,864 | ||
Sales | — | ||
Distributions | (2,567 | ) | |
Actual return on plan assets still held at year end | 161 | ||
Transfers in and/or out of Level 3 | — | ||
Balance at December 31, 2013 | $ | 8,814 | |
Purchases | 4,142 | ||
Sales | — | ||
Distributions | (2,088 | ) | |
Actual return on plan assets still held at year end | 207 | ||
Transfers in and/or out of Level 3 | — | ||
Balance at December 31, 2014 | $ | 11,075 |
15 | SAVINGS PLAN |
• | The Company makes matching contributions to the savings plan of $1 for every $1 of employee contribution. The maximum matching contribution is currently 5% of base pay. |
• | The savings plan includes immediate vesting for active employees of past matching contributions as well as future matching contributions when made (compared with the previous 5-year graded vesting) and automatic enrollment at 3% of base pay unless the employee opts out or elects a different percentage. |
16 | RENTAL EXPENSE AND CONTRACTUAL COMMITMENTS |
Year | Amount (In Thousands) | |||
2015 | $ | 2,379 | ||
2016 | 1,908 | |||
2017 | 1,870 | |||
2018 | 1,787 | |||
2019 | 657 | |||
Remainder | 1,327 | |||
Total | $ | 9,928 |
17 | INCOME TAXES |
(In Thousands) | 2014 | 2013 | 2012 | |||||||||
Income from continuing operations before income taxes: | ||||||||||||
Domestic | $ | 38,402 | $ | 37,380 | $ | 35,488 | ||||||
Foreign | 7,014 | 15,552 | 26,016 | |||||||||
Total | $ | 45,416 | $ | 52,932 | $ | 61,504 | ||||||
Current income taxes: | ||||||||||||
Federal | $ | 14,568 | $ | 15,988 | $ | 10,905 | ||||||
State | 2,178 | 1,416 | 796 | |||||||||
Foreign | 4,102 | 4,737 | 7,372 | |||||||||
Total | 20,848 | 22,141 | 19,073 | |||||||||
Deferred income taxes: | ||||||||||||
Federal | (9,530 | ) | (2,933 | ) | 1,212 | |||||||
State | (417 | ) | (852 | ) | 163 | |||||||
Foreign | (1,514 | ) | (1,361 | ) | (2,129 | ) | ||||||
Total | (11,461 | ) | (5,146 | ) | (754 | ) | ||||||
Total income taxes | $ | 9,387 | $ | 16,995 | $ | 18,319 |
Percent of Income Before Income Taxes from Continuing Operations | ||||||||
2014 | 2013 | 2012 | ||||||
Income tax expense at federal statutory rate | 35.0 | 35.0 | 35.0 | |||||
State taxes, net of federal income tax benefit | 2.2 | 0.1 | 1.1 | |||||
Tax contingency accruals and tax settlements | 2.0 | 2.0 | (0.5 | ) | ||||
Non-deductible expenses | 0.9 | 0.6 | 0.3 | |||||
Foreign rate differences | (0.1 | ) | (0.7 | ) | (0.6 | ) | ||
Tax incentive | (0.1 | ) | (4.7 | ) | (7.0 | ) | ||
Valuation allowance for foreign operating loss carry-forwards | (0.4 | ) | 0.5 | (0.1 | ) | |||
Research and development tax credit | (0.6 | ) | (0.4 | ) | — | |||
Domestic Production Activities Deduction | (1.9 | ) | (1.4 | ) | (0.6 | ) | ||
Changes in estimates related to prior year tax provision | (2.3 | ) | (0.6 | ) | (0.5 | ) | ||
Unremitted earnings from foreign operations | (3.8 | ) | 0.9 | 0.6 | ||||
Valuation allowance for capital loss carry-forwards | (10.2 | ) | 0.8 | 1.9 | ||||
Other | — | — | 0.2 | |||||
Effective income tax rate for continuing operations | 20.7 | 32.1 | 29.8 |
(In Thousands) | 2014 | 2013 | |||||
Deferred tax liabilities: | |||||||
Amortization of goodwill and other intangibles | $ | 45,696 | $ | 46,738 | |||
Depreciation | 27,550 | 29,994 | |||||
Foreign currency translation gain adjustment | 4,233 | 8,620 | |||||
Derivative financial instruments | 316 | 432 | |||||
Total deferred tax liabilities | 77,795 | 85,784 | |||||
Deferred tax assets: | |||||||
Pensions | 34,214 | 14,813 | |||||
Employee benefits | 11,597 | 11,124 | |||||
Inventory | 6,221 | 2,292 | |||||
Excess capital losses and book/tax basis differences on investments | 3,282 | 4,316 | |||||
Tax benefit on state and foreign NOL and credit carryforwards | 2,967 | 1,871 | |||||
Asset write-offs, divestitures and environmental accruals | 1,593 | 3,734 | |||||
Timing adjustment for unrecognized tax benefits on uncertain tax positions, including portion relating to interest and penalties | 842 | 600 | |||||
Allowance for doubtful accounts | 479 | 639 | |||||
Other | 799 | 1,247 | |||||
Deferred tax assets before valuation allowance | 61,994 | 40,636 | |||||
Less: Valuation allowance | 14,577 | 20,019 | |||||
Total deferred tax assets | 47,417 | 20,617 | |||||
Net deferred tax liability | $ | 30,378 | $ | 65,167 | |||
Included in the balance sheet: | |||||||
Noncurrent deferred tax liabilities in excess of assets | $ | 39,255 | $ | 70,795 | |||
Current deferred tax assets in excess of liabilities | 8,877 | 5,628 | |||||
Net deferred tax liability | $ | 30,378 | $ | 65,167 |
Years Ended December 31, | ||||||||||||
(In Thousands) | 2014 | 2013 | 2012 | |||||||||
Balance at beginning of period | $ | 2,239 | $ | 910 | $ | 1,025 | ||||||
Increase (decrease) due to tax positions taken in: | ||||||||||||
Current period | 619 | 643 | 432 | |||||||||
Prior period | 397 | 686 | (21 | ) | ||||||||
Increase (decrease) due to settlements with taxing authorities | — | — | (398 | ) | ||||||||
Reductions due to lapse of statute of limitations | — | — | (128 | ) | ||||||||
Balance at end of period | $ | 3,255 | $ | 2,239 | $ | 910 |
Years Ended December 31, | ||||||||||||
(In Thousands) | 2014 | 2013 | 2012 | |||||||||
Gross unrecognized tax benefits on uncertain tax positions (reflected in current income tax and other noncurrent liability accounts in the balance sheet) | $ | 3,255 | $ | 2,239 | $ | 910 | ||||||
Deferred income tax assets related to unrecognized tax benefits on uncertain tax positions (reflected in deferred income tax accounts in the balance sheet) | (726 | ) | (540 | ) | (212 | ) | ||||||
Net unrecognized tax benefits on uncertain tax positions, which would impact the effective tax rate if recognized | 2,529 | 1,699 | 698 | |||||||||
Interest and penalties accrued on deductions taken relating to uncertain tax positions (approximately $150, $100 and $(300) reflected in income tax expense in the income statement in 2014, 2013 and 2012, respectively, with the balance shown in current income tax and other noncurrent liability accounts in the balance sheet) | 310 | 156 | 60 | |||||||||
Related deferred income tax assets recognized on interest and penalties | (116 | ) | (60 | ) | (23 | ) | ||||||
Interest and penalties accrued on uncertain tax positions net of related deferred income tax benefits, which would impact the effective tax rate if recognized | 194 | 96 | 37 | |||||||||
Total net unrecognized tax benefits on uncertain tax positions reflected in the balance sheet, which would impact the effective tax rate if recognized | $ | 2,723 | $ | 1,795 | $ | 735 |
18 | LOSSES ASSOCIATED WITH PLANT SHUTDOWNS, ASSET IMPAIRMENTS AND RESTRUCTURINGS, UNUSUAL ITEMS, GAINS FROM SALE OF ASSETS AND OTHER ITEMS |
• | A second quarter charge of $10.0 million ($6.8 million after taxes) associated with a one-time, lump sum license payment to the 3M Company (“3M”) after the Company settled all litigation issues associated with a patent |
• | A fourth quarter charge of $0.5 million ($0.3 million after taxes), a third quarter charge of $0.4 million ($0.2 million after taxes), a second quarter charge of $0.6 million ($0.4 million after taxes) and a first quarter charge of $0.8 million ($0.5 million after taxes) in Film Products and a third quarter charge of $31,000 ($18,000 after taxes) in Aluminum Extrusions associated with severance and other employee-related costs associated with restructurings; |
• | A fourth quarter charge of $0.7 million ($0.4 million after taxes), a third quarter charge of $75,000 ($46,000 after taxes) and a second quarter charge of $0.2 million ($0.1 million after taxes) related to expected future environmental costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statements of income); |
• | A fourth quarter adjustment of previously accrued severance and other employee-related costs of $0.1 million ($63,000 after taxes) and a third quarter charge of $37,000 ($23,000 after taxes), a second quarter charge of $0.3 million ($0.2 million after taxes) and a first quarter charge of $0.5 million ($0.3 million after taxes) associated with the shutdown of the film products manufacturing facility in Red Springs, North Carolina, which includes net severance and other employee-related costs of $0.4 million and asset impairment and other shutdown-related charges of $0.3 million; |
• | A fourth quarter gain of $0.1 million ($73,000 after taxes) related to the sale of a previously shutdown film products manufacturing facility in LaGrange, Georgia (included in “Other income (expense), net” in the consolidated statements of income); and |
• | A fourth quarter charge of $11,000 ($7,000 after taxes), a third quarter charge of $20,000 ($12,000 after taxes) and a second quarter charge of $24,000 ($15,000 after taxes) associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana. |
• | A fourth quarter charge of $1.5 million ($0.9 million after taxes), a third quarter charge of $0.1 million ($62,000 after taxes) and a second quarter charge of $85,000 ($53,000 after taxes) related to expected future environmental costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statements of income); |
• | A third quarter charge of $45,000 ($28,000 after taxes), a second quarter charge of $0.4 million ($0.2 million after taxes) and a first quarter charge of $0.2 million ($94,000 after taxes) associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana; |
• | A fourth quarter charge of $0.3 million ($0.2 million after taxes) and a third quarter charge of $0.2 million ($83,000 after taxes) associated with the shutdown of the film products manufacturing facility in Red Springs, North Carolina, which includes severance and other employee related costs of $0.3 million and asset impairments of $0.2 million; |
• | A fourth quarter charge of $0.3 million ($0.2 million after taxes) in Aluminum Extrusions and a first quarter charge of $0.1 million ($67,000 after taxes) in Film Products associated with severance and other employee related costs in connection with restructurings; |
• | A second quarter charge of $90,000 ($54,000 after taxes) and a first quarter charge of $0.1 million ($63,000 after taxes) for integration-related expenses and other non-recurring transactions (included in “Selling, general and administrative expenses” in the consolidated statements of income) associated with the acquisition of AACOA by Aluminum Extrusions; and |
• | A second quarter loss of $91,000 ($91,000 after taxes) related to the sale of previously impaired machinery and equipment at the film products manufacturing facility in Shanghai, China (included in “Other income (expense), net” in the consolidated statements of income). |
• | A fourth quarter charge of $0.9 million ($0.5 million after taxes), a third quarter charge of $0.8 million ($0.5 million after taxes), a second quarter charge of $1.0 million ($0.7 million after taxes) and a first quarter charge of $0.9 million ($0.5 million after taxes) associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana, which includes accelerated depreciation for property, plant and equipment of $2.4 million (included in “Cost of goods sold” in the consolidated statements of income), severance and other employee related expenses of $1.2 million and other shutdown-related charges of $2.3 million, partially offset by adjustments to inventories accounted for under the LIFO method of $1.5 million (included in “Cost of goods sold” in the consolidated statements of income) and gains on the sale of equipment of $0.8 million (included in “Other income (expense), net” in the consolidated statements of income); |
• | A fourth quarter gain of $1.3 million ($0.7 million after taxes) in Film Products (included in “Other income (expense), net” in the consolidated statements of income) associated with an insurance recovery on idle equipment that was destroyed in a fire at an outside warehouse; |
• | A fourth quarter charge of $0.9 million ($0.6 million after taxes) and a third quarter charge of $0.3 million ($0.2 million after taxes) for acquisition-related expenses (included in “Selling, general and administrative expenses” in the consolidated statements of income) associated with the acquisition of AACOA by Aluminum Extrusions (see discussion below for further detail); |
• | A fourth quarter charge of $0.1 million ($0.1 million after taxes), a third quarter charge of $0.1 million ($0.1 million after taxes), a second quarter charge of $0.6 million ($0.4 million after taxes) and a first quarter charge of $0.3 million ($0.2 million after taxes) for integration-related expenses (included in “Selling, general and administrative expenses” in the consolidated statements of income) associated with the Film Products acquisition of Terphane; |
• | A fourth quarter gain of $1.1 million ($0.6 million after taxes) related to the sale of assets associated with a previously shutdown film products manufacturing facility in LaGrange, Georgia; |
• | A second quarter charge of $0.8 million ($0.5 million after taxes) for asset impairments associated with a previously shutdown film products manufacturing facility in LaGrange, Georgia; |
• | A fourth quarter charge of $0.2 million ($0.1 million after taxes) and a second quarter charge of $0.1 million ($46,000 after taxes) in Film Products and a first quarter charge of $0.2 million ($0.1 million after taxes) in Aluminum Extrusions for severance and other employee-related costs in connection with restructurings; |
• | A fourth quarter charge of $0.2 million ($0.2 million after taxes) for asset impairments in Film Products; |
• | A fourth quarter charge of $0.2 million ($0.1 million after taxes) for integration-related expenses (included in “Selling, general and administrative expenses” in the consolidated statements of income) associated with the Aluminum Extrusions’ acquisition of AACOA; |
• | A fourth quarter charge of $0.1 million ($0.1 million after taxes) associated with purchase accounting adjustments made to the value of inventory sold by Aluminum Extrusions after its acquisition of AACOA (included in “Cost of goods sold” in the consolidated statements of income); and |
• | A fourth quarter charge of $0.1 million ($49,000 after taxes) related to expected future environmental costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statements of income). |
19 | CONTINGENCIES |
20 | SELECTED QUARTERLY FINANCIAL DATA |
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
For the year ended December 31, 2014 | |||||||||||||||
Sales | $ | 235,213 | $ | 236,965 | $ | 240,429 | $ | 239,219 | |||||||
Gross profit | 37,749 | 38,480 | 34,582 | 34,109 | |||||||||||
Income from continuing operations | 8,479 | 3,752 | 10,745 | 13,054 | |||||||||||
Income (loss) from discontinued operations | — | — | 850 | — | |||||||||||
Net income | $ | 8,479 | $ | 3,752 | $ | 11,595 | $ | 13,054 | |||||||
Earnings (loss) per share: | |||||||||||||||
Basic | |||||||||||||||
Continuing operations | $ | 0.26 | $ | 0.12 | $ | 0.33 | $ | 0.40 | |||||||
Discontinued operations | — | — | 0.03 | — | |||||||||||
Net income | $ | 0.26 | $ | 0.12 | $ | 0.36 | $ | 0.40 | |||||||
Diluted | |||||||||||||||
Continuing operations | $ | 0.26 | $ | 0.11 | $ | 0.33 | $ | 0.40 | |||||||
Discontinued operations | — | — | 0.03 | — | |||||||||||
Net income | $ | 0.26 | $ | 0.11 | $ | 0.36 | $ | 0.40 | |||||||
Shares used to compute earnings (loss) per share: | |||||||||||||||
Basic | 32,242 | 32,312 | 32,319 | 32,335 | |||||||||||
Diluted | 32,621 | 32,641 | 32,507 | 32,449 | |||||||||||
For the year ended December 31, 2013 | |||||||||||||||
Sales | $ | 241,526 | $ | 243,530 | $ | 243,194 | $ | 231,096 | |||||||
Gross profit | 36,836 | 37,540 | 37,253 | 34,417 | |||||||||||
Income from continuing operations | 9,517 | 9,590 | 7,428 | 9,402 | |||||||||||
Income (loss) from discontinued operations | (5,240 | ) | (8,300 | ) | (450 | ) | — | ||||||||
Net income (loss) | $ | 4,277 | $ | 1,290 | $ | 6,978 | $ | 9,402 | |||||||
Earnings (loss) per share: | |||||||||||||||
Basic | |||||||||||||||
Continuing operations | $ | 0.30 | $ | 0.30 | $ | 0.23 | $ | 0.29 | |||||||
Discontinued operations | (0.16 | ) | (0.26 | ) | (0.01 | ) | — | ||||||||
Net income (loss) | $ | 0.14 | $ | 0.04 | $ | 0.22 | $ | 0.29 | |||||||
Diluted | |||||||||||||||
Continuing operations | $ | 0.29 | $ | 0.29 | $ | 0.23 | $ | 0.29 | |||||||
Discontinued operations | (0.16 | ) | (0.25 | ) | (0.02 | ) | — | ||||||||
Net income (loss) | $ | 0.13 | $ | 0.04 | $ | 0.21 | $ | 0.29 | |||||||
Shares used to compute earnings (loss) per share: | |||||||||||||||
Basic | 32,076 | 32,187 | 32,201 | 32,222 | |||||||||||
Diluted | 32,480 | 32,635 | 32,658 | 32,622 |
TREDEGAR CORPORATION (Registrant) | ||||
Dated: | March 2, 2015 | By | /s/ Nancy M. Taylor | |
Nancy M. Taylor | ||||
President and Chief Executive Officer |
Signature | Title | ||
/s/ | Nancy M. Taylor | President, Chief Executive Officer and Director | |
(Nancy M. Taylor) | (Principal Executive Officer) | ||
/s/ | Kevin A. O’Leary | Vice President, Chief Financial Officer and Treasurer | |
(Kevin A. O’Leary) | (Principal Financial Officer) | ||
/s/ | Frasier W. Brickhouse, II | Corporate Controller and Assistant Treasurer | |
(Frasier W. Brickhouse, II) | (Principal Accounting Officer) | ||
/s/ | R. Gregory Williams | Chairman of the Board of Directors | |
(R. Gregory Williams) | |||
/s/ | William M. Gottwald | Vice Chairman of the Board of Directors | |
(William M. Gottwald) | |||
/s/ | Donald T. Cowles | Director | |
(Donald T. Cowles) | |||
/s/ | John D. Gottwald | Director | |
(John D. Gottwald) | |||
/s/ | George A. Newbill | Director | |
(George A. Newbill) | |||
/s/ | Kenneth R. Newsome | Director | |
(Kenneth R. Newsome) | |||
/s/ | Gregory A. Pratt | Director | |
(Gregory A. Pratt) | |||
/s/ | Thomas G. Snead, Jr. | Director | |
(Thomas G. Snead, Jr.) | |||
/s/ | Carl E. Tack, III | Director | |
(Carl E. Tack, III) |
2.1 | Stock Purchase Agreement, made as of October 1, 2012, by and among The William L. Bonnell Company, Inc., AACOA, Inc., the shareholders of AACOA, Inc., and Daniel G. Formsma, as the representative of the shareholders of AACOA, Inc. (filed as Exhibit 2.1 to Tredegar Corporation’s (“Tredegar’s”) Current Report on Form 8-K (File No. 1-10258), filed on October 3, 2012, and incorporated herein by reference). (Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Tredegar agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted exhibit or schedule upon request) |
2.2 | Membership Interest Purchase Agreement, dated as of October 14, 2011, by and among TAC Holdings, LLC, Gaucho Holdings B.V. and Tredegar Film Products Corporation (filed as Exhibit 2.1 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on October 19, 2011, and incorporated herein by reference). (Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Tredegar agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted exhibit or schedule upon request) |
3.1 | 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) |
3.1.1 | 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 |
3.2 | Amended and Restated Bylaws of Tredegar (filed as Exhibit 3.2 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on May 20, 2014, and incorporated herein by reference) |
3.3 | Articles of Amendment (filed as Exhibit 3.3 to Tredegar’s Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2004, and incorporated herein by reference) |
4.1 | Form of Common Stock Certificate (filed as Exhibit 4.1 to Tredegar’s Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2004, and incorporated herein by reference) |
4.2 | Second Amended and Restated Rights Agreement, dated as of November 18, 2013, by and between Tredegar and Computershare Trust Company, N.A., as Rights Agent (filed as Exhibit 1 to Amendment No. 4 to Tredegar’s Registration Statement on Form 8-A/A (File No. 1-10258) filed on November 19, 2013, and incorporated herein by reference) |
4.3 | Credit Agreement, dated as of April 23, 2012, among Tredegar Corporation, as borrower, the lenders named therein, JPMorgan Chase Bank, N.A., as administrative agent, SunTrust Bank, as syndication agent, and Citizens Bank of Pennsylvania, HSBC Bank USA, National Association, PNC Bank, National Association, and U.S. Bank National Association, as co-documentation agents (filed as Exhibit 4.1 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on April 26, 2012, and incorporated herein by reference) |
4.3.1 | Guaranty, dated as of April 23, 2012, by and among the subsidiaries of Tredegar Corporation listed on the signature pages thereto in favor of JPMorgan Chase Bank, N.A., as administrative agent, for the ratable benefit of the Holders of Guaranteed Obligations (filed as Exhibit 4.2 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on April 26, 2012, and incorporated herein by reference) |
4.4 | Credit Agreement, dated as of June 21, 2010, among Tredegar, as borrower, the lenders named therein, JPMorgan Chase Bank, N.A., as administrative agent, SunTrust Bank, as syndication agent, and Bank of America, N.A., HSBC Bank USA, National Association and U.S. Bank National Association, as co-documentation agents (filed as Exhibit 4.3 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on June 22, 2010, and incorporated herein by reference) |
10.1 | 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) |
*10.2 | 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) |
10.3 | 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) |
10.4 | 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) |
*10.5 | Tredegar Industries, Inc. Retirement Benefit Restoration Plan (filed as Exhibit 10.7 to Tredegar’s Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2004, and incorporated herein by reference) |
*10.5.1 | Amendment to the Tredegar Industries, Inc. Retirement Benefit Restoration Plan (filed as Exhibit 10.7.1 to Tredegar’s Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2004, and incorporated herein by reference) |
*10.6 | Tredegar Industries, Inc. Savings Plan Benefit Restoration Plan (filed as Exhibit 10.6 to Tredegar’s Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2013, and incorporated herein by reference) |
*10.6.1 | Resolutions of the Executive Committee of the Board of Directors of Tredegar Corporation adopted on December 28, 2004 (effective as of December 31, 2004) amending the Tredegar Corporation Retirement Savings Plan Benefit Restoration Plan (filed as Exhibit 10.9.1 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on December 30, 2004, and incorporated herein by reference) |
*10.7 | Tredegar Amended and Restated Incentive Plan (filed as Exhibit 10.9 to Tredegar’s Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2005, and incorporated herein by reference) |
*10.8 | 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) |
*10.9 | Transfer Agreement, by and between AFBS, Inc. and Therics, LLC, dated as of June 30, 2005 (filed as Exhibit 10.17 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on July 1, 2005, and incorporated herein by reference) |
10.10 | Intellectual Property Transfer Agreement, by and between AFBS, Inc. and Therics, LLC, dated as of June 30, 2005 (filed as Exhibit 10.18 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on July 1, 2005, and incorporated herein by reference) |
10.11 | Unit Purchase Agreement, by and between Therics, Inc., AFBS, LLC and Randall R. Theken, dated as of June 30, 2005 (filed as Exhibit 10.19 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on July 1, 2005, and incorporated herein by reference) |
10.12 | Payment Agreement, by and between AFBS, Inc. and Therics, LLC, dated as of June 30, 2005 (filed as Exhibit 10.20 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on July 1, 2005, and incorporated herein by reference) |
*10.13 | Form of Notice of Stock Award and Stock Award Terms and Conditions (filed as Exhibit 10.2 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on April 3, 2014, and incorporated herein by reference) |
*10.14 | Form of Notice of Stock Unit Award and Stock Unit Award Terms and Conditions (filed as Exhibit 10.1 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on April 3, 2014, and incorporated herein by reference) |
*10.15 | Form of Notice of Nonstatutory Stock Option Grant and Nonstatutory Stock Option Terms and Conditions (filed as Exhibit 10.3 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on April 3, 2014, and incorporated herein by reference) |
*10.16 | Amended and Restated Severance Agreement, effective as of February 3, 2014, between Tredegar and Nancy M. Taylor (filed as Exhibit 10.1 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed February 10, 2014, and incorporated herein by reference) |
*10.17 | Consulting Agreement, dated May 21, 2013, between Tredegar and Duncan A. Crowdis (filed as Exhibit 10.1 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on May 22, 2013, and incorporated herein by reference) |
*10.18 | Amended and Restated Severance Agreement, effective February 3, 2014, between the Company and Kevin A. O’Leary (filed as Exhibit 10.3 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on February 10, 2014, and incorporated herein by reference) |
*10.19 | Amended and Restated Severance Agreement, effective February 3, 2014, between the Company and A. Brent King (filed as Exhibit 10.4 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on February 10, 2014, and incorporated herein by reference) |
*10.20 | Amended and Restated Severance Agreement, effective February 3, 2014, between the Company and Mary Jane Hellyar (filed as Exhibit 10.2 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on February 10, 2014, and incorporated herein by reference) |
+*10.21 | Summary of Director Compensation for Fiscal 2014 |
10.22 | Agreement, dated as of February 19, 2014, by and amoung Tredegar Corporation, John D. Gottwald, William M. Gottwald and Floyd D. Gottwald, Jr. (filed as Exhibit 10.1 to to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on February 20, 2014, and incorporated herein by reference) |
+21 | Subsidiaries of Tredegar |
+23.1 | Consent of PricewaterhouseCoopers, LLC, Independent Registered Public Accounting Firm |
+23.2 | Consent of Dixon Hughes Goodman LLP, Independent Auditors |
+31.1 | Certification of Nancy M. Taylor, President and Chief Executive Officer of Tredegar Corporation, pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
+31.2 | Certification of Kevin A. O’Leary, Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) of Tredegar Corporation, pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
+32.1 | Certification of Nancy M. Taylor, President and Chief Executive Officer of Tredegar Corporation, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
+32.2 | Certification of Kevin A. O’Leary, Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) of Tredegar Corporation, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
+99 | kaléo, Inc., separate financial statements and Report of Independent Registered Accounting Firm |
+101 | XBRL Instance Document and Related Items |
* | Denotes compensatory plans or arrangements or management contracts. |
+ | Filed herewith |
Non-Employee Director | $ | 113,000 | |
Chairman of the Board | $ | 65,000 | |
Audit Committee Chairperson | $ | 16,000 | |
Non-Chair Member of the Audit Committee | $ | 9,500 | |
Executive Compensation Committee Chairperson | $ | 11,000 | |
Non-Chair Member of the Executive Compensation Committee | $ | 7,000 | |
Nominating and Governance Committee Chairperson | $ | 7,500 | |
Non-Chair Member of the Nominating and Governance Committee | $ | 4,500 | |
Strategic Finance Committee Chairperson | $ | 11,000 | |
Non-Chair Member of the Strategic Finance Committee Committee | $ | 7,000 | |
Member of the Investment Policy Committee | $ | 625 |
Tredegar Corporation | |
Entity | State of Incorporation |
Tredegar Corporation | Virginia |
AACOA, Inc. | Michigan |
AACOA Extrusions, Inc. | Michigan |
AFBS, Inc. | Virginia |
Bon L Aluminum LLC | Virginia |
Bon L Campo Limited Partnership | Virginia |
Bon L Holdings LLC | Virginia |
Bon L Manufacturing Company | Virginia |
The William L Bonnell Company, Inc. | Georgia |
Bright View Technologies Corporation | Virginia |
El Campo GP, LLC | Virginia |
Guangzhou Tredegar Film Products Company Limited | China |
Idlewood Properties, Inc. | Virginia |
Jackson River Mountain Properties, LLC | Virginia |
TAC Holdings LLC | Virginia |
Terphane Acquisition Corp. II | Cayman Islands |
Terphane Holdings LLC | Delaware |
Terphane Inc. | Delaware |
Terphane Limitada | Brazil |
TG Holdings International C.V. | The Netherlands |
Tredegar Brasil Industria de Plasticos Ltda. | Brazil |
Tredegar Capital Holdings LLC | Virginia |
Tredegar Far East Corporation | Virginia |
Tredegar Film Products B.V. | The Netherlands |
Tredegar Film Products Company Shanghai, Limited | China |
Tredegar Film Products Corporation | Virginia |
Tredegar Film Products (Europe), Inc. | Virginia |
Tredegar Film Products India Private Limited | India |
Tredegar Film Products Kft. | Hungary |
Tredegar Film Products (Korea), Inc. | Korea |
Tredegar Film Products - Lake Zurich, LLC | Virginia |
Tredegar Film Products (Latin America), Inc. | Virginia |
Tredegar Film Products (U.S.) LLC | Virginia |
Tredegar Films Development, Inc. | Virginia |
Tredegar Films RS Converting, LLC | Virginia |
Tredegar International Holdings Coöperatief U.A. | The Netherlands |
Tredegar Investments, Inc. | Virginia |
Tredegar Investments II, LLC | Virginia |
Tredegar Performance Films Inc. | Virginia |
Tredegar Real Estate Holdings, Inc. | Virginia |
(1) | I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2014, of Tredegar Corporation; |
(2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
(3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
(4) | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
(5) | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Nancy M. Taylor | |
Nancy M. Taylor President and Chief Executive Officer (Principal Executive Officer) |
(1) | I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2014, of Tredegar Corporation; |
(2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
(3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
(4) | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
(5) | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Kevin A. O’Leary | |
Kevin A. O’Leary, | |
Vice President, Chief Financial Officer and Treasurer | |
(Principal Financial Officer) |
/s/ Nancy M. Taylor | |
Nancy M. Taylor | |
President and Chief Executive Officer | |
(Principal Executive Officer) | |
March 2, 2015 |
/s/ Kevin A. O’Leary | |
Kevin A. O’Leary | |
Vice President, Chief Financial Officer and Treasurer | |
(Principal Financial Officer) | |
March 2, 2015 |
kaleo, Inc. and subsidiary | |||
Contents | |||
Page | |||
Independent Auditors' Report | 1 | ||
Consolidated Financial Statements | |||
Consolidated Balance Sheets | 2 | ||
Consolidated Statements of Operations | 3 | ||
Consolidated Statements of Comprehensive Income (Loss) | 4 | ||
Consolidated Statements of Changes in Shareholders' Equity (Deficit) | 5 | ||
Consolidated Statements of Cash Flows | 6 | ||
Notes to Consolidated Financial Statements | 7-27 | ||
kaleo, Inc. and subsidiary | |||||||||||
Consolidated Balance Sheets | |||||||||||
December 31, | 2014 | 2013 | |||||||||
Assets | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | 96,348,056 | $ | 33,560,082 | |||||||
Restricted cash | 14,498,442 | — | |||||||||
Short-term investments | 21,241,038 | — | |||||||||
Accounts receivable royalties | 2,315,483 | 2,886,068 | |||||||||
Income taxes receivable | 6,459,881 | 2,635,502 | |||||||||
Inventory, net | 8,576,517 | — | |||||||||
Prepaid expenses | 563,951 | 159,879 | |||||||||
Total current assets | 150,003,368 | 39,241,531 | |||||||||
Property and equipment, net | 10,823,808 | 10,559,001 | |||||||||
Other assets | |||||||||||
Security and other deposits | 15,492 | 15,492 | |||||||||
Patents, net | 2,701,683 | 2,432,688 | |||||||||
Debt issuance costs, net | 2,841,697 | 430,055 | |||||||||
Total other assets | 5,558,872 | 2,878,235 | |||||||||
Total assets | $ | 166,386,048 | $ | 52,678,767 | |||||||
2014 | 2013 | ||||||||||
Liabilities, Redeemable Preferred Stock, and Shareholders' Equity (Deficit) | |||||||||||
Current liabilities | |||||||||||
Accounts payable - trade | $ | 3,224,381 | $ | 1,256,367 | |||||||
Accrued expenses | 3,279,122 | 3,446,165 | |||||||||
Accrued interest | 1,619,267 | 142,083 | |||||||||
Current portion of long-term debt, net of discount for 2013 | — | 5,414,282 | |||||||||
Total current liabilities | 8,122,770 | 10,258,897 | |||||||||
Long-term liabilities | |||||||||||
Other long-term liabilities | 805,463 | 979,709 | |||||||||
Long-term debt, net of current portion and discount for 2013 | 149,470,833 | 9,371,513 | |||||||||
Deferred tax liability | — | 1,676,431 | |||||||||
Deferred compensation | 441,989 | 441,989 | |||||||||
Total long-term liabilities | 150,718,285 | 12,469,642 | |||||||||
Total liabilities | 158,841,055 | 22,728,539 | |||||||||
Commitments and contingencies - Note 10 | |||||||||||
Redeemable preferred stock | |||||||||||
Series B-1 Preferred Stock, redeemable and convertible | |||||||||||
($0.001 par value; 1,988,780 shares authorized; issued and outstanding-none) | — | — | |||||||||
Series A-4 Preferred Stock, redeemable and convertible | |||||||||||
($0.001 par value; 3,689,840 shares authorized; issued and outstanding-none) | — | — | |||||||||
Series B Preferred Stock, redeemable and convertible | |||||||||||
($0.001 par value; 1,988,780 shares authorized; issued and outstanding 1,906,254) | 6,825,786 | 6,521,622 | |||||||||
Series A-3 Preferred Stock, redeemable and convertible | |||||||||||
($0.001 par value; 3,689,840 shares authorized; issued and outstanding 3,689,840) | 11,557,455 | 11,071,312 | |||||||||
Series A-2 Preferred Stock, redeemable and convertible | |||||||||||
($0.001 par value; 2,737,380 shares authorized; issued and outstanding 2,737,380) | 4,562,509 | 4,377,273 | |||||||||
Total redeemable preferred stock | 22,945,750 | 21,970,207 | |||||||||
Shareholders' equity (deficit) | |||||||||||
Series A-1 Preferred Stock | |||||||||||
($0.001 par value; 462,000 shares authorized; issued and outstanding 462,000, with aggregate liquidation preferences of $607,502) | 462 | 462 | |||||||||
Common stock | |||||||||||
($0.001 par value; 16,939,140 shares authorized; issued and outstanding 6,772,159 and 6,527,851 at December 31, 2014 and 2013, respectively) | 6,772 | 6,528 | |||||||||
Paid-in capital | (8,241,216 | ) | (8,836,717 | ) | |||||||
Retained earnings | (7,157,815 | ) | 16,809,748 | ||||||||
Accumulated other comprehensive income (loss) | (8,960 | ) | — | ||||||||
Total shareholders' equity (deficit) | (15,400,757 | ) | 7,980,021 | ||||||||
Total liabilities, redeemable preferred stock, and shareholders' equity (deficit) | $ | 166,386,048 | $ | 52,678,767 | |||||||
The accompanying notes are an integral part of these consolidated financial statements. | |||||||||||
2 |
kaleo, Inc. and subsidiary | ||||||||||||||
Consolidated Statements of Operations | ||||||||||||||
Year Ended December 31, | 2014 | 2013 | 2012 | |||||||||||
Revenues | ||||||||||||||
Product sales, net | $ | 2,037,569 | $ | — | $ | — | ||||||||
Milestones revenues | — | — | 38,179,348 | |||||||||||
Royalties | 19,118,066 | 15,305,235 | — | |||||||||||
Total revenues | 21,155,635 | 15,305,235 | 38,179,348 | |||||||||||
Costs and expenses | ||||||||||||||
Cost of goods sold | 3,800,718 | — | — | |||||||||||
Research and development | 7,129,482 | 9,058,602 | 6,559,676 | |||||||||||
Selling, general and administrative | 24,790,399 | 8,009,823 | 5,333,875 | |||||||||||
Total costs and expenses | 35,720,599 | 17,068,425 | 11,893,551 | |||||||||||
Operating income (loss) | (14,564,964 | ) | (1,763,190 | ) | 26,285,797 | |||||||||
Other income (expense) | ||||||||||||||
Loss on disposal of equipment | — | (2,985 | ) | (49 | ) | |||||||||
Interest expense | (16,556,047 | ) | (1,559,656 | ) | (1,181,360 | ) | ||||||||
Interest income | 28,684 | — | 1,466 | |||||||||||
Other income (expense), net | (16,527,363 | ) | (1,562,641 | ) | (1,179,943 | ) | ||||||||
Income (loss) before income taxes | (31,092,327 | ) | (3,325,831 | ) | 25,105,854 | |||||||||
Income tax (expense) benefit | 8,100,307 | 1,585,557 | (9,642,141 | ) | ||||||||||
Net income (loss) | $ | (22,992,020 | ) | $ | (1,740,274 | ) | $ | 15,463,713 | ||||||
The accompanying notes are an integral part of these consolidated financial statements. | ||||||||||||||
3 |
kaleo, Inc. and subsidiary | |||||||||||||
Consolidated Statements of Comprehensive Income (Loss) | |||||||||||||
Year Ended December 31, | 2014 | 2013 | 2012 | ||||||||||
Net income (loss) | $ | (22,992,020 | ) | $ | (1,740,274 | ) | $ | 15,463,713 | |||||
Other comprehensive income (loss) | |||||||||||||
Unrealized loss on short-term investments | (8,960 | ) | — | — | |||||||||
Tax impact of adjustments to other comprehensive income | — | — | — | ||||||||||
Other comprehensive income (loss) | (8,960 | ) | — | — | |||||||||
Comprehensive income (loss) | $ | (23,000,980 | ) | $ | (1,740,274 | ) | $ | 15,463,713 | |||||
The accompanying notes are an integral part of these financial statements. | |||||||||||||
4 |
kaleo, Inc. and subsidiary | |||||||||||||||||||
Consolidated Statements of Changes in Shareholders' Equity (Deficit) | |||||||||||||||||||
Years ended December 31, 2014, 2013, and 2012 | |||||||||||||||||||
Series A-1 Preferred Stock | Common Stock | Paid-In Capital | Retained Earnings (Accumulated Deficit) | Accumulated Other Comprehensive Income / (Loss) | Total | ||||||||||||||
Balance (deficit) - December 31, 2011 | $ | 462 | $ | 5,370 | $ | (9,907,513 | ) | $ | 5,040,070 | $ | — | $ | (4,861,611 | ) | |||||
Dividends accrued on redeemable preferred stock | — | — | — | (978,217 | ) | — | (978,217 | ) | |||||||||||
Stock compensation | — | — | 150,678 | — | — | 150,678 | |||||||||||||
Proceeds from exercise of stock options/warrants | — | 152 | 84,442 | — | — | 84,594 | |||||||||||||
Net income | — | — | — | 15,463,713 | — | 15,463,713 | |||||||||||||
Balance (deficit) - December 31, 2012 | $ | 462 | $ | 5,522 | $ | (9,672,393 | ) | $ | 19,525,566 | $ | — | $ | 9,859,157 | ||||||
Dividends accrued on redeemable preferred stock | — | — | — | (975,544 | ) | — | (975,544 | ) | |||||||||||
Stock compensation | — | — | 204,676 | — | — | 204,676 | |||||||||||||
Proceeds from exercise of stock options/warrants, including related excess tax benefits of $138,080 | — | 1,006 | 631,000 | — | — | 632,006 | |||||||||||||
Net loss | — | — | — | (1,740,274 | ) | — | (1,740,274 | ) | |||||||||||
Balance (deficit) - December 31, 2013 | $ | 462 | $ | 6,528 | $ | (8,836,717 | ) | $ | 16,809,748 | — | $ | 7,980,021 | |||||||
Dividends accrued on redeemable preferred stock | — | — | — | (975,543 | ) | — | (975,543 | ) | |||||||||||
Stock compensation | — | — | 373,742 | — | — | 373,742 | |||||||||||||
Proceeds from exercise of stock options/warrants, including related excess tax benefits of $14,986 | — | 244 | 221,759 | — | — | 222,003 | |||||||||||||
Net loss | — | — | — | (22,992,020 | ) | — | (22,992,020 | ) | |||||||||||
Unrealized loss on short-term investments | — | — | — | — | (8,960 | ) | (8,960 | ) | |||||||||||
Balance (deficit) - December 31, 2014 | $ | 462 | $ | 6,772 | $ | (8,241,216 | ) | $ | (7,157,815 | ) | $ | (8,960 | ) | $ | (15,400,757 | ) | |||
The accompanying notes are an integral part of these consolidated financial statements. | |||||||||||||||||||
5 |
kaleo, Inc. and subsidiary | ||||||||||||||
Consolidated Statements of Cash Flows | ||||||||||||||
Year Ended December 31, | 2014 | 2013 | 2012 | |||||||||||
Cash flows from operating activities | ||||||||||||||
Net income (loss) | $ | (22,992,020 | ) | $ | (1,740,274 | ) | $ | 15,463,713 | ||||||
Adjustments to reconcile to net cash from operating activities: | ||||||||||||||
Depreciation | 2,197,136 | 669,438 | 240,157 | |||||||||||
Amortization of patents | 222,969 | 189,580 | 106,673 | |||||||||||
Amortization of rent inducement | (597 | ) | (26,979 | ) | (2,041 | ) | ||||||||
Amortization of debt discount | 214,205 | 90,192 | 56,370 | |||||||||||
Amortization of debt issuance costs | 673,556 | 58,952 | 36,845 | |||||||||||
Inventory reserve | 2,981,813 | — | — | |||||||||||
Loss on disposal of equipment | — | 2,985 | 49 | |||||||||||
Deferred taxes | (1,676,431 | ) | 1,191,737 | 215,319 | ||||||||||
Stock compensation | 373,742 | 204,676 | 150,678 | |||||||||||
Change in: | ||||||||||||||
Accounts receivable royalties | 570,585 | (2,886,068 | ) | — | ||||||||||
Other receivables | — | 4,427 | 61,913 | |||||||||||
Inventory | (11,558,330 | ) | — | — | ||||||||||
Prepaid expenses | (404,072 | ) | 521,884 | (259,160 | ) | |||||||||
Security and other deposits | — | 41,847 | 24,432 | |||||||||||
Accrued expenses | (167,044 | ) | 860,788 | 2,286,593 | ||||||||||
Accrued interest | 1,477,184 | — | 142,083 | |||||||||||
Accounts payable- trade | 1,968,014 | (2,675 | ) | 401,856 | ||||||||||
Income taxes (receivable)/ payable | (3,824,379 | ) | (12,026,977 | ) | 13,796,349 | |||||||||
Other long-term liabilities | (173,649 | ) | 456,789 | 135,174 | ||||||||||
Net cash from operating activities | (30,117,318 | ) | (12,389,678 | ) | 32,857,003 | |||||||||
Cash flows from investing activities | ||||||||||||||
Proceeds from disposal of equipment | — | 803 | — | |||||||||||
Short-term investments | (21,249,998 | ) | — | — | ||||||||||
Patent costs | (491,964 | ) | (470,826 | ) | (389,739 | ) | ||||||||
Purchase of property and equipment | (2,461,943 | ) | (7,210,348 | ) | (3,653,267 | ) | ||||||||
Net cash from investing activities | (24,203,905 | ) | (7,680,371 | ) | (4,043,006 | ) | ||||||||
Cash flows from financing activities | ||||||||||||||
Proceeds from exercise of stock options/warrants, including related excess tax benefits of $14,986 in 2014 and $138,080 for 2013 | 222,003 | 632,006 | 84,594 | |||||||||||
Proceeds from long-term borrowings | 150,000,000 | — | 15,000,000 | |||||||||||
Restricted cash from long-term borrowings | (20,000,000 | ) | — | — | ||||||||||
Change in restricted cash (net) | 5,501,558 | — | — | |||||||||||
Costs incurred for debt issuance | (3,085,197 | ) | (290,046 | ) | (235,806 | ) | ||||||||
Payments on long-term debt | (15,529,167 | ) | — | — | ||||||||||
Net cash from financing activities | 117,109,197 | 341,960 | 14,848,788 | |||||||||||
Net change in cash and cash equivalents | 62,787,974 | (19,728,089 | ) | 43,662,785 | ||||||||||
Cash and cash equivalents - beginning of year | 33,560,082 | 53,288,171 | 9,625,386 | |||||||||||
Cash and cash equivalents - end of year | $ | 96,348,056 | $ | 33,560,082 | $ | 53,288,171 | ||||||||
Supplemental disclosure of cash flow information | ||||||||||||||
Cash paid for interest (net of amounts capitalized) | $ | 13,268,490 | $ | 969,869 | $ | 805,437 | ||||||||
Cash paid for income taxes | $ | 5,681 | $ | 9,111,577 | $ | 35,347 | ||||||||
Cash received from refunds of income taxes paid | $ | 2,620,164 | $ | — | $ | 4,404,874 | ||||||||
Supplemental disclosure of noncash investing and financing activities | ||||||||||||||
Unrealized loss on short-term investments | $ | 8,960 | $ | — | $ | — | ||||||||
Allocation of long-term debt proceeds to warrant | $ | — | $ | — | $ | 360,767 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements. | ||||||||||||||
6 |
Furniture and equipment | 3-5 years |
Manufacturing equipment | 5 years |
Leasehold improvements | 3-7 years |
• | Product Sales - The Company generally sells its commercial products to wholesale distributors, its principal customer. Product sales revenue is recognized when title has transferred to the customer and the customer has assumed the risks and rewards of ownership, which typically occurs on delivery to the customer. The Company’s product revenues consist of U.S. sales of EVZIO and are recognized once it meets all four revenue recognition criteria: persuasive evidence of an arrangement exists, delivery of products has occurred, collectability is reasonably assured, and amounts payable are fixed or determinable. |
• | Product Sales Allowances - The Company recognizes product sales allowances as a reduction of product sales in the same period the related revenue is recognized. Product sales allowances are based on amounts owed or to be claimed on the related sales. These estimates take into consideration the terms of the Company’s agreements with customers, historical product returns, rebates or discounts taken, estimated levels of inventory in the distribution channel, the shelf life of the product, and specific known market events, such as competitive pricing and new product introductions. If actual future results vary from the Company’s estimates, the Company may need to adjust these estimates, which could have a material effect on product sales and earnings in the period of adjustment. |
◦ | Temporary Discounts - The Company offered certain discounts in connection with the launch and commercial availability of EVZIO in July 2014. These temporary discounts include off-invoice discounts to partners for purchases of EVZIO. |
◦ | Prompt Pay Discounts - The Company generally offers cash discounts to its customers, typically a percentage of the sales price, as an incentive for prompt payment. Based on the Company’s experience, it expects the customers to comply with the payment terms to earn the cash discount. The discount is typically reflected as a reduction to the cash payment made by the customer. |
◦ | Product Returns - Under certain conditions, the Company allows customers to return product for credit. |
◦ | Wholesaler Fees - The Company offers contractually determined fees to certain wholesale distributors that purchase directly from the Company. These fees are paid on a monthly or quarterly basis on a lag after the product is shipped to the customer. |
◦ | Chargebacks - The Company provides discounts to authorized users of the Federal Supply Schedule (FSS), Public Health Services (PHS) and certain other entities. These entities purchase products from the wholesale distributors at a discounted price, and the wholesale distributors then charge back to the Company the difference between the current retail price and the discounted price the entities paid for the product. Sales related to FSS contracts also incur an Industrial Funding Fee that the Company estimates based on estimated FSS sales. |
◦ | Managed Care Rebates - The Company offers discounts under contracts with certain managed care providers, including Medicare Part D plan sponsors, who do not purchase directly from the Company. The Company generally pays managed care rebates on a monthly or quarterly basis on a lag after the prescriptions subject to the rebate are filled. |
◦ | Medicaid Rebates - The Company participates in Medicaid rebate programs, which provide assistance to certain patients based on each individual state's guidelines regarding eligibility and services. Under the Medicaid rebate programs, the Company pays a rebate to each program within a participating state, generally 45 days after the end of a calendar quarter. |
◦ | Tricare - Tricare is a prescription drug benefit for military personnel, retirees and their dependents. The Company provides refunds to the Defense Health Agency (DHA) based on utilization reports prepared by DHA. The Company generally pays Tricare refunds 60 days after the end of a calendar quarter. |
◦ | Medicare Part D Coverage Gap Payments - The Company participates in the Medicare Part D Coverage Gap Discount Program under which the Company provides payments on prescriptions |
◦ | Patient Discount Programs - The Company offers patient discount co-pay assistance programs in which patients receive certain discounts off their prescription. The discounts, initially paid by a third party vendor, are reimbursed by the Company approximately one month after the prescriptions subject to the discount are filled. |
• | Upfront, licensing-type fees. Upfront, licensing-type payments are assessed to determine whether or not the licensee is able to obtain any stand-alone value from the license. Where this is not the case, the Company does not consider the license deliverable to be a separate unit of accounting, and the revenue is deferred with revenue recognition for the license fee being assessed in conjunction with the other deliverables that constitute the combined unit of accounting. |
• | Milestone payments. Milestone payments are assessed on an individual basis and revenue is recognized from these milestone payments when earned provided that (i) the milestone event is substantive and its achievability was not reasonably assured at the inception of the agreement, (ii) the milestone represents the culmination, or progress towards the culmination, of an earnings process and (iii) the milestone payment is non-refundable. Where separate milestones do not meet these criteria, the Company would default to a performance-based model, with revenue recognition following delivery of effort as compared to an estimate of total expected effort. |
• | Royalties. The Company recognizes revenue from royalties based on licensees’ sales of products or services using the Company’s licensed products under the respective licensing agreement. Royalties are recognized as earned in accordance with the contract terms when royalties from licensees can be reasonably estimated and collectability is reasonably assured. If the collectability of a royalty amount is not reasonably assured, royalties are recognized as revenue when the cash is received. |
• | Combined units of accounting. Where there are multiple deliverables combined as a single unit of accounting, revenues are deferred and recognized over the period during which the Company remains obligated to perform services or deliver product. The specific methodology for the recognition of the revenue (e.g., straight-line or according to specific performance criteria) is determined on a case-by-case basis according to the facts and circumstances applicable to a given contract. |
December 31, 2014 | ||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||
Cash and Cash Equivalents | $ | 96,348,056 | $ | 96,348,056 | $ | — | $ | — | ||||
Restricted Cash | 14,498,442 | 14,498,442 | — | — | ||||||||
Short-Term Investments | 21,241,038 | — | 21,241,038 | — | ||||||||
Total Cash, Cash Equivalents, Restricted Cash & Short-Term Investments | $ | 132,087,536 | $ | 110,846,498 | $ | 21,241,038 | $ | — | ||||
December 31, 2013 | ||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||
Cash and Cash Equivalents | $ | 33,560,082 | $ | 33,560,082 | $ | — | $ | — | ||||
Restricted Cash | — | — | — | — | ||||||||
Short-Term Investments | — | — | — | — | ||||||||
Total Cash, Cash Equivalents, Restricted Cash & Short-Term Investments | $ | 33,560,082 | $ | 33,560,082 | $ | — | $ | — |
2014 | 2013 | |||||
Finished Goods | $ | 4,987,959 | $ | — | ||
Semi-Finished Goods | 3,453,700 | — | ||||
Raw Materials | 3,116,671 | — | ||||
Inventory Reserve | (2,981,813 | ) | — | |||
$ | 8,576,517 | $ | — |
2014 | 2013 | |||
Furniture and equipment | $ | 287,880 | $ | 191,255 |
Manufacturing equipment | 13,404,410 | 6,449,555 | ||
Leasehold improvements | 130,651 | 130,651 | ||
Construction in progress | 484,303 | 5,073,840 | ||
14,307,244 | 11,845,301 | |||
Less – accumulated depreciation and amortization | (3,483,436) | (1,286,300) | ||
$ | 10,823,808 | $ | 10,559,001 |
2014 | 2013 | |||
Patents | $ | 3,874,588 | $ | 3,382,624 |
Less – accumulated amortization | (1,172,905) | (949,936) | ||
$ | 2,701,683 | $ | 2,432,688 |
8. | Debt |
Year | Principal Due | |||
2015 | $ | — | ||
2016 | — | |||
2017 | — | |||
2018 | — | |||
2019 | — | |||
Thereafter | 149,470,833 | |||
Total | $ | 149,470,833 |
9. | Income Taxes |
2014 | 2013 | 2012 | |||||||||||||
Current income taxes: | |||||||||||||||
Federal | $ | (5,443,928 | ) | $ | (2,596,915 | ) | $ | 8,205,979 | |||||||
State | (979,948 | ) | (180,379 | ) | 1,220,843 | ||||||||||
Total | (6,423,876 | ) | (2,777,294 | ) | 9,426,822 | ||||||||||
Deferred income taxes: | |||||||||||||||
Federal | (1,539,042 | ) | 1,122,404 | 175,854 | |||||||||||
State | (137,389 | ) | 69,333 | 39,465 | |||||||||||
Total | (1,676,431 | ) | 1,191,737 | 215,319 | |||||||||||
Total income tax expense (benefit) | $ | (8,100,307 | ) | $ | (1,585,557 | ) | $ | 9,642,141 |
2014 | 2013 | 2012 | ||||||||
Federal statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||
State income taxes, net of federal tax benefit | 3.5 | 3.5 | 3.3 | |||||||
Federal tax credits | 0.3 | 15.8 | - | |||||||
Valuation allowance | (11.9 | ) | - | - | ||||||
Other, principally share-based compensation and warrants | (0.8 | ) | (6.6 | ) | 0.1 | |||||
Effective income tax rate | 26.1 | % | 47.7 | % | 38.4 | % |
2014 | 2013 | |||||||
Deferred tax assets | ||||||||
Net operating losses (NOL) | $ | 3,851,344 | $ | — | ||||
Inventory adjustments | 1,908,532 | — | ||||||
Other | 723,103 | 288,044 | ||||||
Valuation allowance | (3,713,525 | ) | — | |||||
Net deferred tax asset | 2,769,454 | 288,044 | ||||||
Deferred tax liabilities | ||||||||
Property and equipment, primarily depreciation | (2,533,525 | ) | (1,889,411 | ) | ||||
Other | (235,929 | ) | (75,064 | ) | ||||
Total deferred tax liability | (2,769,454 | ) | (1,964,475 | ) | ||||
Net deferred tax asset (liability) | $ | — | $ | (1,676,431 | ) |
10. | Commitments and Contingencies |
Payments Due by Period (undiscounted) | |||||||||||||||
Less than | 1 to 3 | 3 to 5 | After | ||||||||||||
Total | 1 Year | Years | Years | 5 Years | |||||||||||
Operating leases (1) | $ | 1,224,600 | $ | 190,100 | $ | 395,600 | $ | 419,600 | $ | 219,300 | |||||
Purchase and other obligations (2) | 44,575,700 | 18,093,200 | 20,008,300 | 6,474,200 | — |
(1) | The Company leases property and equipment for use in its operations. The Company has a lease agreement for approximately 10,000 square feet of office space in Richmond, Virginia with an initial term through December 31, 2020; however, the lease also provides for early termination on March 31, 2018 provided that the Company gives the required notice, pays defined early termination fees, and meets certain other requirements. In addition to rent, the lease requires the Company to pay additional amounts for taxes, insurance, maintenance and other customary operating expenses. |
2015 | 2016 | 2017 | 2018 | 2019 | Beyond 2019 | |||||||||||||
Future Minimum Lease Payments | $ | 190,100 | $ | 194,900 | $ | 200,700 | $ | 206,700 | $ | 212,900 | $ | 219,300 |
(2) | Purchase and other obligations relate primarily to agreements for the development, manufacture and supply of the Company’s products which includes: (i) long-term supply agreements with third-party manufacturers, which are based on firm commitments for the purchase of production capacity; (ii) research and development commitments (including those related to clinical trials) for new and existing products; (iii) capital expenditures (including assembly lines for components and final products); and (iv) open purchase orders for the acquisition of goods and services in the ordinary course of business, including amounts in connection with services for a contract sales organization for commercial activities. The Company’s contracts include termination provisions that allow the Company to end the agreements early; however, the table above reflects amounts for the full term of each contract. |
12. | Redeemable Preferred Stock |
Redeemable & Convertible Preferred Stock Series (1) (2) | Original Issue Price | Accrued Cumulative Dividends Rate (per annum) | Redemption Percentage (3) | Conversion Percentage (4) | Accrued Dividends (5) | |||||||
December 31, | ||||||||||||
2014 | 2013 | |||||||||||
B/B-1 (6) | $2.62293 | 6% | 80.00% | 65.0% | $ | 1,825,815 | $ | 1,521,651 | ||||
A-3/A-4 (7) | $2.16579 | 6% | > | 50.00% | 65.0% | 3,566,015 | 3,079,872 | |||||
A-2 (8) | $1.11241 | 6% | 66.67% | 65.0% | 1,517,514 | 1,332,278 | ||||||
$ | 6,909,344 | $ | 5,933,801 |
(1) | Effective December 3, 2013, the Company completed a reincorporation from Delaware into Virginia and changed its name from Intelliject, Inc. to kaleo, Inc. The Virginia corporation was deemed to be the same entity as the Delaware corporation that existed prior to the reincorporation; there were no changes to the capitalization, business, assets or liabilities of the Company. |
(2) | At the option of the holder, the holder’s Preferred may be converted at any time into shares of Common on a one for one basis adjusted for any stock dividends, splits, and recapitalizations. No share of Preferred acquired by the Company by reason of redemption, purchase, conversion or otherwise may be reissued. |
(3) | At any time on or after January 1, 2013 but prior to January 1, 2016, the holders of at least the percentage noted of the then outstanding shares of each series of Preferred shall have the right to cause the Company to purchase and redeem all, but not less than all, of the Preferred in three equal installments for a per share purchase price equal to the Original Issue Price plus accrued dividends. The Series A-3/A-4 Preferred may not be redeemed prior to redemption of the Series B/B-1 Preferred without the prior written consent of at least 80% of the then outstanding shares of Series B/B-1 Preferred. The Series A-2 Preferred may not be redeemed prior to redemption of the Series B/B-1 and Series A-3/A-4 Preferred without the prior written consent of at least 80% of the then outstanding shares of Series B/B-1 Preferred and greater than 50% of the then outstanding shares of Series A-3/A-4 Preferred, respectively. |
(4) | All outstanding shares of Series B/B-1, A-3/A-4, and A-2 Preferred will automatically convert into Common at the then applicable conversion price (i) if holders of the percentage noted of the outstanding shares of Series B/B-1, A-3/A-4 and A-2 Preferred voting together as a single class elect to effect such conversion or (ii) upon the closing of a firmly underwritten public offering under the Securities Act of 1933, as amended, subject to certain requirements. |
(5) | The accrued dividends reflected in the table above have been recorded in shareholders’ equity as charges to retained earnings, but not paid. The amount reported on the consolidated balance sheet for each of these series of Preferred represents the proceeds from the original issuance of the applicable series of Preferred plus the amount of accrued but unpaid cumulative dividends since such issuance, which equals the redemption amount. |
(6) | Subject to certain exceptions, if the Company issues or sells additional shares of Common or Common deemed to be issued for an effective price less than the then effective Series B Preferred Conversion Price, the then existing Series B Preferred Conversion Price shall be reduced based on a weighted average formula. In the event any holder of shares of Series B Preferred does not participate in a financing triggering a reduction in the Series B Preferred Conversion Price, then each share of Series B Preferred shall automatically be converted into one share of Series B-1 Preferred and the Series B-1 Preferred Conversion Price shall not be reduced. No Series B-1 Preferred Stock has been issued. |
(7) | Subject to certain exceptions, if the Company issues or sells additional shares of Common or Common deemed to be issued for an effective price less than the then effective Series A-3 Preferred Conversion Price, the then existing Series A-3 Preferred Conversion Price shall be reduced based on a weighted average formula. If any holder of shares of Series A-3 Preferred does not participate in a financing triggering a reduction in the Series A-3 Preferred Conversion Price, then each share of Series A-3 Preferred held by such holder shall automatically be converted into a share of Series A-4 Preferred and the Series A-4 Preferred Conversion Price shall not be reduced. No Series A-4 Preferred Stock has been issued. |
(8) | The Series A-2 Preferred has no price based anti-dilution rights. |
Redeemable Preferred Stock | Series B Preferred Stock | Series A-3 Preferred Stock | Series A-2 Preferred Stock | Total Redeemable Preferred Stock | ||||||||||||
Balance at December 31, 2011 | $5,912,462 | $10,097,692 | $4,006,292 | $20,016,446 | ||||||||||||
Dividends accrued | 304,997 | 487,476 | 185,744 | 978,217 | ||||||||||||
Balance at December 31, 2012 | 6,217,459 | 10,585,168 | 4,192,036 | 20,994,663 | ||||||||||||
Dividends accrued | 304,163 | 486,144 | 185,237 | 975,544 | ||||||||||||
Balance at December 31, 2013 | 6,521,622 | 11,071,312 | 4,377,273 | 21,970,207 | ||||||||||||
Dividends accrued | 304,164 | 486,143 | 185,236 | 975,543 | ||||||||||||
Balance at December 31, 2014 | $6,825,786 | $11,557,455 | $4,562,509 | $22,945,750 |
Order of Liquidation | Stock Series | Liquidation Preference Amount |
1 | B/B-1 Preferred | Original Issue Price plus unpaid accrued dividends |
2 | A-3/A-4 Preferred | Original Issue Price plus unpaid accrued dividends |
3 | A-2 Preferred | Original Issue Price plus unpaid accrued dividends |
4 | A-1 Preferred | 2 times the Original Issue Price |
5 | Common Stock; B/B-1; A-3/A-4; A-2 | Assets distributed ratably to each series. Preferred series would be on an as-if-converted to Common Stock basis. |
14. | Share-Based Compensation |
Shares | Weighted Average Exercise Price | Weighted Average Fair Value | ||||
Nonvested – December 31, 2011 | 695,010 | $ | 0.89 | $ | 0.47 | |
Granted | 45,000 | $ | 1.85 | $ | 0.94 | |
Vested | (455,031) | $ | 0.70 | $ | 0.37 | |
Cancelled | (43,297) | $ | 1.52 | $ | 0.79 | |
Nonvested – December 31, 2012 | 241,682 | $ | 1.31 | $ | 0.69 | |
Granted | 251,000 | $ | 3.71 | $ | 2.05 | |
Vested | (209,033) | $ | 1.67 | $ | 0.89 | |
Nonvested – December 31, 2013 | 283,649 | $ | 3.17 | $ | 1.74 | |
Granted | 459,000 | $ | 5.44 | $ | 2.82 | |
Vested | (143,446) | $ | 2.96 | $ | 1.61 | |
Cancelled | (27,500) | $ | 4.48 | $ | 2.37 | |
Nonvested – December 31, 2014 | 571,703 | $ | 4.98 | $ | 2.61 |
Options Outstanding | Options Exercisable | ||||||||
Range of Exercise Price | Number of Options Outstanding | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Number of Options Vested and Exercisable | Weighted Average Exercise Price of Options Vested and Exercisable | Weighted Average Remaining Contractual Life (Years) | |||
$ 0.37 to $ 5.51 | 1,578,215 | 6.47 | $ | 2.61 | 1,006,512 | $ | 1.26 | 4.97 |
2014 | 2013 | 2012 | |||
Expected volatility (1) | 60% | 60% | 60% | ||
Expected term | 5 years | 6 years | 5 years | ||
Risk-free rate (2) | 1.5% to 1.8% | 1.0% to 2.0% | 0.8% to 0.9% |
(1) | The volatility was based on a range of small publicly traded medical device and drug delivery companies. |
(2) | The risk-free rate is the United States Treasury daily yield for the expected term of the award. |
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