x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
|
to
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Tredegar Corporation
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(Exact Name of Registrant as Specified in Its Charter)
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Virginia
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54-1497771
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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1100 Boulders Parkway
Richmond, Virginia
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23225
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(Address of Principal Executive Offices)
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(Zip Code)
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Large accelerated filer
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Accelerated filer
|
x
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||||
Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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June 30,
2010
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December 31,
2009
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|||||||
Assets
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
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$ | 52,670 | $ | 90,663 | ||||
Accounts and notes receivable, net of allowance for doubtful accounts and sales returns of $5,637 in 2010 and $5,299 in 2009
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93,167 | 74,014 | ||||||
Income taxes recoverable
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3,687 | 4,016 | ||||||
Inventories
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34,187 | 35,522 | ||||||
Deferred income taxes
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5,912 | 5,750 | ||||||
Prepaid expenses and other
|
3,346 | 5,335 | ||||||
Total current assets
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192,969 | 215,300 | ||||||
Property, plant and equipment, at cost
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653,174 | 674,286 | ||||||
Less accumulated depreciation
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441,592 | 443,410 | ||||||
Net property, plant and equipment
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211,582 | 230,876 | ||||||
Other assets and deferred charges
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49,823 | 45,561 | ||||||
Goodwill and other intangibles
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105,685 | 104,542 | ||||||
Total assets
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$ | 560,059 | $ | 596,279 | ||||
Liabilities and Shareholders' Equity
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
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$ | 60,387 | $ | 53,770 | ||||
Accrued expenses
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32,495 | 34,930 | ||||||
Current portion of long-term debt
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402 | 451 | ||||||
Total current liabilities
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93,284 | 89,151 | ||||||
Long-term debt
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539 | 712 | ||||||
Deferred income taxes
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52,997 | 59,052 | ||||||
Other noncurrent liabilities
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16,662 | 18,292 | ||||||
Total liabilities
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163,482 | 167,207 | ||||||
Commitments and contingencies (Notes 1 and 2)
|
||||||||
Shareholders' equity:
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||||||||
Common stock, no par value (issued and outstanding - 31,831,708 at June 30, 2010 and 33,887,550 at
December 31, 2009)
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7,519 | 41,137 | ||||||
Common stock held in trust for savings restoration plan
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(1,327 | ) | (1,322 | ) | ||||
Foreign currency translation adjustment
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18,786 | 26,250 | ||||||
Gain (loss) on derivative financial instruments
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(202 | ) | 758 | |||||
Pension and other postretirement benefit adjustments
|
(58,632 | ) | (60,028 | ) | ||||
Retained earnings
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430,433 | 422,277 | ||||||
Total shareholders' equity
|
396,577 | 429,072 | ||||||
Total liabilities and shareholders' equity
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$ | 560,059 | $ | 596,279 |
Three Months | Six Months | |||||||||||||||
Ended June 30
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Ended June 30
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|||||||||||||||
2010
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2009
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2010
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2009
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|||||||||||||
Revenues and other items:
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||||||||||||||||
Sales
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$ | 185,031 | $ | 158,115 | $ | 360,012 | $ | 311,181 | ||||||||
Other income (expense), net
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166 | 488 | 222 | 1,357 | ||||||||||||
185,197 | 158,603 | 360,234 | 312,538 | |||||||||||||
Costs and expenses:
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||||||||||||||||
Cost of goods sold
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150,326 | 125,615 | 291,698 | 250,873 | ||||||||||||
Freight
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4,747 | 3,870 | 8,692 | 7,099 | ||||||||||||
Selling, general and administrative
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17,809 | 14,267 | 33,750 | 29,039 | ||||||||||||
Research and development
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3,299 | 2,999 | 6,901 | 5,511 | ||||||||||||
Amortization of intangibles
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129 | 30 | 217 | 60 | ||||||||||||
Interest expense
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222 | 184 | 417 | 388 | ||||||||||||
Asset impairments and costs associated with exit and
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||||||||||||||||
disposal activities
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355 | (149 | ) | 411 | 1,482 | |||||||||||
Goodwill impairment charge
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- | - | - | 30,559 | ||||||||||||
Total
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176,887 | 146,816 | 342,086 | 325,011 | ||||||||||||
Income (loss) before income taxes
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8,310 | 11,787 | 18,148 | (12,473 | ) | |||||||||||
Income taxes
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3,350 | 5,300 | 7,406 | 9,857 | ||||||||||||
Net income (loss)
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$ | 4,960 | $ | 6,487 | $ | 10,742 | $ | (22,330 | ) | |||||||
Earnings (loss) per share:
|
||||||||||||||||
Basic
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$ | .15 | $ | .19 | $ | .33 | $ | (.66 | ) | |||||||
Diluted
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$ | .15 | $ | .19 | $ | .33 | $ | (.66 | ) | |||||||
Shares used to compute earnings (loss) per share:
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||||||||||||||||
Basic
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32,260 | 33,876 | 32,799 | 33,871 | ||||||||||||
Diluted
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32,450 | 33,971 | 32,979 | 33,871 | ||||||||||||
Dividends per share
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$ | .04 | $ | .04 | $ | .08 | $ | .08 | ||||||||
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Six Months
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||||||||
Ended June 30
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||||||||
2010
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2009
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|||||||
Cash flows from operating activities:
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||||||||
Net income (loss)
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$ | 10,742 | $ | (22,330 | ) | |||
Adjustments for noncash items:
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||||||||
Depreciation
|
21,716 | 19,663 | ||||||
Amortization of intangibles
|
217 | 60 | ||||||
Goodwill impairment charge
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- | 30,559 | ||||||
Deferred income taxes
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(2,436 | ) | 2,160 | |||||
Accrued pension and postretirement benefits
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349 | (1,267 | ) | |||||
Loss on asset impairments and divestitures
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355 | - | ||||||
Loss (gain) on sale of assets
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(15 | ) | (1,004 | ) | ||||
Changes in assets and liabilities, net of effects of acquisitions
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||||||||
and divestitures:
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||||||||
Accounts and notes receivable
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(21,877 | ) | 9,732 | |||||
Inventories
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27 | 8,055 | ||||||
Income taxes recoverable
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329 | 5,995 | ||||||
Prepaid expenses and other
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721 | 2,221 | ||||||
Accounts payable and accrued expenses
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5,646 | (522 | ) | |||||
Other, net
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421 | (1,333 | ) | |||||
Net cash provided by operating activities
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16,195 | 51,989 | ||||||
Cash flows from investing activities:
|
||||||||
Capital expenditures (including settlement of related accounts payable
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||||||||
of $1,709 in 2009)
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(7,629 | ) | (17,348 | ) | ||||
Acquisition
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(5,500 | ) | - | |||||
Proceeds from the sale of assets and property disposals
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120 | 1,118 | ||||||
Net cash used in investing activities
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(13,009 | ) | (16,230 | ) | ||||
Cash flows from financing activities:
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||||||||
Repurchases of Tredegar common stock
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(35,138 | ) | - | |||||
Dividends paid
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(2,591 | ) | (2,717 | ) | ||||
Debt principal payments and financing costs
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(2,325 | ) | (21,098 | ) | ||||
Proceeds from exercise of stock options
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247 | 187 | ||||||
Net cash used in financing activities
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(39,807 | ) | (23,628 | ) | ||||
Effect of exchange rate changes on cash
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(1,372 | ) | 552 | |||||
Increase (decrease) in cash and cash equivalents
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(37,993 | ) | 12,683 | |||||
Cash and cash equivalents at beginning of period
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90,663 | 45,975 | ||||||
Cash and cash equivalents at end of period
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$ | 52,670 | $ | 58,658 | ||||
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Accumulated Other
Comprehensive Income (Loss)
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||||||||||||||||||||||||||||
Common
Stock
|
Retained
Earnings
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Trust for
Savings
Restora-
tion Plan
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Foreign
Currency
Trans-
lation
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Gain
(Loss) on
Derivative
Financial
Instruments
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Pension &
Other Post-
retirement
Benefit
Adjust.
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Total
Share-
holders'
Equity
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||||||||||||||||||||||
Balance December 31, 2009
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$ | 41,137 | $ | 422,277 | $ | (1,322 | ) | $ | 26,250 | $ | 758 | $ | (60,028 | ) | $ | 429,072 | ||||||||||||
Comprehensive income (loss):
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||||||||||||||||||||||||||||
Net income
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- | 10,742 | - | - | - | - | 10,742 | |||||||||||||||||||||
Other comprehensive income (loss):
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||||||||||||||||||||||||||||
Foreign currency translation adjustment (net of tax benefit of $4,021)
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- | - | - | (7,464 | ) | - | - | (7,464 | ) | |||||||||||||||||||
Derivative financial instruments adjustment (net of tax benefit of $585)
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- | - | - | - | (960 | ) | - | (960 | ) | |||||||||||||||||||
Amortization of prior service costs and net gains or losses (net of tax of $785)
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- | - | - | - | - | 1,396 | 1,396 | |||||||||||||||||||||
Comprehensive income
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3,714 | |||||||||||||||||||||||||||
Cash dividends declared ($.08 per share)
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- | (2,591 | ) | - | - | - | - | (2,591 | ) | |||||||||||||||||||
Stock-based compensation expense & other
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1,282 | - | - | - | - | - | 1,282 | |||||||||||||||||||||
Issuance of common stock upon exercise of stock options (including related income tax benefits of $9)
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238 | - | - | - | - | - | 238 | |||||||||||||||||||||
Repurchased 2,124,700 shares of Tredegar common stock
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(35,138 | ) | - | - | - | - | - | (35,138 | ) | |||||||||||||||||||
Tredegar common stock purchased by trust for savings restoration plan
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- | 5 | (5 | ) | - | - | - | - | ||||||||||||||||||||
Balance June 30, 2010
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$ | 7,519 | $ | 430,433 | $ | (1,327 | ) | $ | 18,786 | $ | (202 | ) | $ | (58,632 | ) | $ | 396,577 |
1.
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In the opinion of management, the accompanying consolidated financial statements of Tredegar Corporation and Subsidiaries (“Tredegar,” “we,” “us” or “our”) contain all adjustments necessary to state fairly, in all material respects, Tredegar’s consolidated financial position as of June 30, 2010, the consolidated results of operations for the three and six months ended June 30, 2010 and 2009, the consolidated cash flows for the six months ended June 30, 2010 and 2009, and the consolidated changes in shareholders’ equity for the six months ended June 30, 2010. All such adjustments, unless otherwise detailed in the notes to consolidated interim financial statements, are deemed to be of a normal, recurring nature. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in Tredegar’s Annual Report on Form 10-K for the year ended December 31, 2009. The results of operations for the six months ended June 30, 2010, are not necessarily indicative of the results to be expected for the full year.
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2.
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Plant shutdowns, asset impairments, restructurings and other items in the second quarter of 2010 shown in the net sales and operating profit by segment table in Note 10 include:
|
·
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Pretax charge of $355,000 for an asset impairment in Film Products;
|
·
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Pretax gain of $120,000 on the sale of previously impaired equipment (included in “Other income (expense), net” in the consolidated statement of income) at our film products manufacturing facility in Pottsville, Pennsylvania;
|
·
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Pretax loss of $44,000 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; and
|
·
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Pretax gain of $23,000 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, see Note 8 on page 10 for additional detail).
|
·
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Pretax gains of $466,000 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, see Note 8 on page 10 for additional detail);
|
·
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Pretax charge of $355,000 for an asset impairment in Film Products;
|
·
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Pretax gain of $120,000 on the sale of previously impaired equipment (included in “Other income (expense), net” in the consolidated statement of income) at our film products manufacturing facility in Pottsville, Pennsylvania;
|
·
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Pretax losses of $105,000 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; and
|
·
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Pretax charge of $56,000 for severance and other employee-related costs in connection with restructurings in Film Products.
|
·
|
Pretax losses of $779,000 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, see Note 8 on page 10 for additional detail);
|
·
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Pretax gain of $276,000 related to the reduction of future environmental costs expected to be incurred by Aluminum Extrusions (included in “Cost of goods sold” in the consolidated statements of income);
|
·
|
Pretax gain of $175,000 on the sale of a previously shutdown aluminum extrusions manufacturing facility in El Campo, Texas (included in “Other income (expense), net” in the consolidated statements of income); and
|
·
|
Pretax gain of $149,000 related to the reversal to income of certain inventory impairment accruals in Film Products.
|
·
|
Pretax charges of $1.6 million for severance and other employee-related costs in connection with restructurings in Film Products ($1.1 million), Aluminum Extrusions ($369,000) and corporate headquarters ($178,000, included in “Corporate expenses, net” in the net sales and operating profit by segment table in Note 10);
|
·
|
Pretax losses of $1.4 million 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, see Note 8 on page 10 for additional detail);
|
·
|
Pretax gain of $276,000 related to the reduction of future environmental costs expected to be incurred by Aluminum Extrusions (included in “Cost of goods sold” in the consolidated statements of income);
|
·
|
Pretax gain of $275,000 on the sale of equipment (included in “Other income (expense), net” in the consolidated statements of income) from a previously shutdown films manufacturing facility in LaGrange, Georgia;
|
·
|
Pretax gain of $175,000 on the sale of a previously shutdown aluminum extrusions manufacturing facility in El Campo, Texas (included in “Other income (expense), net” in the consolidated statements of income); and
|
·
|
Pretax gain of $149,000 related to the reversal to income of certain inventory impairment accruals in Film Products.
|
(In Thousands)
|
Severance
|
Other (a)
|
Total
|
|||||||||
Balance at December 31, 2009
|
$ | 823 | $ | 3,158 | $ | 3,981 | ||||||
Changes in 2010:
|
||||||||||||
Charges
|
56 | 56 | ||||||||||
Cash spent
|
(480 | ) | (777 | ) | (1,257 | ) | ||||||
Balance at June 30, 2010
|
$ | 399 | $ | 2,381 | $ | 2,780 | ||||||
(a) Other includes primarily accrued losses on a sub-lease at a facility in Princeton, New Jersey.
|
||||||||||||
3.
|
On June 21, 2010, we entered into a $300 million four-year, unsecured revolving credit facility (the “Credit Agreement”), with an option to increase that amount by an additional $75 million. The Credit Agreement replaces our previous five-year, unsecured revolving credit facility that was due to expire on December 15, 2010. There were no outstanding borrowings under the previous revolving credit facility when it was replaced.
|
|
Borrowings under the Credit Agreement bear an interest rate of LIBOR plus a credit spread and commitment fees charged on the unused amount under the Credit Agreement at various indebtedness-to-adjusted-EBITDA levels as follows:
|
Pricing Under Revolving Credit Agreement (Basis Points)
|
||
Indebtedness-to-Adjusted
|
Credit Spread
|
Commitment
|
EBITDA Ratio
|
Over LIBOR
|
Fee
|
> 2.0x but <= 3.0x
|
250
|
40
|
> 1.0x but <=2.0x
|
225
|
35
|
<= 1.0x
|
200
|
30
|
·
|
Maximum aggregate dividends over the term of the Credit Agreement of $100 million plus, beginning with the fiscal quarter ending March 31, 2010, 50% of net income;
|
·
|
Minimum shareholders’ equity at any point during the term of the Credit Agreement of at least $300 million increased on a cumulative basis at the end of each fiscal quarter, beginning with the fiscal quarter ending March 31, 2010, by an amount equal to 50% of net income (to the extent positive);
|
·
|
Maximum indebtedness-to-adjusted EBITDA of 3.0x; and
|
·
|
Minimum adjusted EBIT-to-interest expense of 2.5x.
|
4.
|
We assess goodwill for impairment when events or circumstances indicate that the carrying value may not be recoverable, or, at a minimum, on an annual basis (December 1st of each year). Our reporting units include Film Products and Aluminum Extrusions, each of which have separately identifiable operating net assets (operating assets including goodwill and intangible assets net of operating liabilities). We estimate the fair value of our reporting units using discounted cash flow analysis and comparative enterprise value-to-EBITDA multiples. Based on the severity of the economic downturn in 2009 and its impact on the sales volumes of our aluminum extrusions business (a 36.8% decline in sales volume in the first quarter of 2009 compared with 2008), the resulting operating loss, possible future losses and the uncertainty in the amount and timing of an economic recovery, we determined that impairment indicators existed. Upon completing the impairment analysis as of March 31, 2009, a goodwill impairment charge of $30.6 million ($30.6 million after tax) was recognized in Aluminum Extrusions. This impairment charge represented the entire amount of goodwill associated with the Aluminum Extrusions reporting unit.
|
June 30,
|
December 31,
|
|||||||
(In Thousands)
|
2010
|
2009
|
||||||
Finished goods
|
$ | 6,553 | $ | 6,080 | ||||
Work-in-process
|
2,475 | 2,740 | ||||||
Raw materials
|
11,174 | 12,249 | ||||||
Stores, supplies and other
|
13,985 | 14,453 | ||||||
Total
|
$ | 34,187 | $ | 35,522 |
6.
|
Basic earnings (loss) per share is computed by dividing net income or loss by the weighted average number of shares of common stock outstanding. Diluted earnings (loss) per share is computed by dividing net income or loss by the weighted average common and potentially dilutive common equivalent shares outstanding, determined as follows:
|
|
|
Three Months
|
Six Months
|
|||||||||||||||
Ended June 30
|
Ended June 30
|
|||||||||||||||
(In Thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Weighted average shares outstanding used
|
||||||||||||||||
to compute basic earnings (loss) per share
|
32,260 | 33,876 | 32,799 | 33,871 | ||||||||||||
Incremental dilutive shares attributable to stock
|
||||||||||||||||
options and restricted stock (a)
|
190 | 95 | 180 | - | ||||||||||||
Shares used to compute diluted earnings (loss)
|
||||||||||||||||
per share
|
32,450 | 33,971 | 32,979 | 33,871 | ||||||||||||
(a) The dilutive effect of shares attributed to stock options and restricted stock is not recognized in periods in which a net loss has occurred.
|
||||||||||||||||
|
|
Incremental shares attributable to stock options and restricted stock are computed using the average market price during the related period. During the three and six months ended June 30, 2010 and three and six months ended June 30, 2009, 459,067, 464,317, 582,833 and 390,300, respectively, of anti-dilutive options to purchase shares were excluded from the calculation of incremental shares attributable to stock options and restricted stock.
|
7.
|
Our investment in Harbinger Capital Partners Special Situations Fund, L.P. (“Harbinger Fund”) had a reported capital account value of $13.6 million at June 30, 2010, compared with $14.5
|
8.
|
We use derivative financial instruments for the purpose of hedging margin exposure from fixed-price forward sales contracts in Aluminum Extrusions and currency exchange rate exposures that exist due to specific transactions. Our derivative financial instruments are designated as and qualify as cash flow hedges and are recognized in the consolidated balance sheet at fair value. A change in the fair value of derivatives that are highly effective as and that are designated and qualify as cash flow hedges are recorded in other comprehensive income (loss). Gains and losses accumulated in other comprehensive income (loss) are reclassified to earnings in the periods in
|
June 30, 2010
|
December 31, 2009 | |||||||||
(In Thousands)
|
Balance Sheet
Account |
Fair
Value |
Balance Sheet
Account |
Fair
Value |
||||||
Derivatives Designated as Hedging Instruments
|
||||||||||
Asset derivatives:
|
Prepaid expenses
|
|||||||||
Aluminum futures contracts
|
Accrued expenses
|
$ | 196 |
and other
|
$ | 1,184 | ||||
Liability derivatives:
|
||||||||||
Aluminum futures contracts
|
Accrued expenses
|
$ | 586 | $ | - | |||||
Derivatives Not Designated as Hedging Instruments
|
||||||||||
Asset derivatives:
|
Prepaid expenses
|
|||||||||
Aluminum futures contracts
|
Accrued expenses
|
$ | 145 |
and other
|
$ | 614 | ||||
Liability derivatives:
|
Prepaid expenses
|
|||||||||
Aluminum futures contracts
|
Accrued expenses
|
$ | 145 |
and other
|
$ | 614 |
|
||||||||||
June 30, 2010
|
December 31, 2009 | |||||||||
(In Thousands)
|
Balance Sheet
Account |
Fair
Value |
Balance Sheet
Account |
Fair
Value |
||||||
Derivatives Designated as Hedging Instruments
|
||||||||||
Asset derivatives:
|
Prepaid expenses
|
|||||||||
Foreign currency forward contracts
|
$ | - |
and other
|
$ | 35 | |||||
Derivatives Not Designated as Hedging Instruments
|
||||||||||
Liability derivatives:
|
||||||||||
Foreign currency forward contracts
|
$ | - |
Accrued expenses
|
$ | 41 |
U.S. Dollar Equivalent Strike
Prices of Options Bought and
Sold on USD/EUR
|
||||||||||||
Period Covered
by Contract
|
Notional Amount
(In Thousands)
|
Call Options
Sold
|
Put Options
Bought
|
|||||||||
3rd Qtr 2010
|
$ | 3,400 | $ | 1.27 | $ | 1.20 | ||||||
4th Qtr 2010
|
3,400 | 1.27 | 1.20 |
June 30, 2010
|
December 31, 2009 | |||||||||
(In Thousands)
|
Balance Sheet
Account |
Fair
Value |
Balance Sheet
Account |
Fair
Value |
||||||
Derivatives Designated as Hedging Instruments
|
||||||||||
Asset derivatives:
|
Prepaid expenses
|
|||||||||
Foreign currency option contracts
|
and other
|
$ | 116 | $ | - | |||||
Liability derivatives:
|
Prepaid expenses
|
|||||||||
Foreign currency option contracts
|
and other
|
$ | 66 | $ | - |
(In Thousands)
|
Cash Flow Derivative Hedges
|
|||||||||||||||
Aluminum Futures
Contracts |
Foreign Currency
Forwards and
Options |
|||||||||||||||
Three Months Ended June 30,
|
||||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Amount of pre-tax gain (loss) recognized in
|
||||||||||||||||
other comprehensive income
|
$ | (928 | ) | $ | 1,367 | $ | 50 | $ | (49 | ) | ||||||
Location of gain (loss) reclassified from
|
||||||||||||||||
accumulated other comprehensive income
|
Cost of
|
Cost of
|
||||||||||||||
into net income (effective portion)
|
sales
|
sales
|
||||||||||||||
Amount of pre-tax gain (loss) reclassified
|
||||||||||||||||
from accumulated other comprehensive
|
||||||||||||||||
income to net income (effective portion)
|
$ | 140 | $ | (4,257 | ) | $ | - | $ | - |
(In Thousands)
|
Cash Flow Derivative Hedges
|
|||||||||||||||
Aluminum Futures
Contracts
|
Foreign Currency
Forwards and
Options
|
|||||||||||||||
Six Months Ended June 30,
|
||||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Amount of pre-tax gain (loss) recognized in
|
||||||||||||||||
other comprehensive income
|
$ | (1,088 | ) | $ | (642 | ) | $ | 37 | $ | (249 | ) | |||||
Location of gain (loss) reclassified from
|
||||||||||||||||
accumulated other comprehensive income
|
Cost of
|
Cost of
|
||||||||||||||
into net income (effective portion)
|
sales
|
sales
|
||||||||||||||
Amount of pre-tax gain (loss) reclassified
|
||||||||||||||||
from accumulated other comprehensive
|
||||||||||||||||
income to net income (effective portion)
|
$ | 485 | $ | (8,861 | ) | $ | - | $ | - |
9.
|
The components of net periodic benefit income (cost) for our pension and other post-retirement benefit programs reflected in consolidated results are shown below:
|
|
||||||||||||||||
Pension
|
Other Post-Retirement
|
|||||||||||||||
Benefits for Three Months
|
Benefits for Three Months
|
|||||||||||||||
Ended June 30
|
Ended June 30
|
|||||||||||||||
(In Thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Service cost
|
$ | (797 | ) | $ | (783 | ) | $ | (18 | ) | $ | (18 | ) | ||||
Interest cost
|
(3,288 | ) | (3,344 | ) | (122 | ) | (129 | ) | ||||||||
Expected return on plan assets
|
5,133 | 5,189 | - | - | ||||||||||||
Amortization of prior service costs, gains or
|
||||||||||||||||
losses and net transition asset
|
(1,092 | ) | (305 | ) | 9 | 24 | ||||||||||
Net periodic benefit income (cost)
|
$ | (44 | ) | $ | 757 | $ | (131 | ) | $ | (123 | ) | |||||
Pension
|
Other Post-Retirement
|
|||||||||||||||
Benefits for Six Months
|
Benefits for Six Months
|
|||||||||||||||
Ended June 30
|
Ended June 30
|
|||||||||||||||
(In Thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Service cost
|
$ | (1,594 | ) | $ | (1,566 | ) | $ | (36 | ) | $ | (36 | ) | ||||
Interest cost
|
(6,577 | ) | (6,688 | ) | (243 | ) | (257 | ) | ||||||||
Expected return on plan assets
|
10,265 | 10,378 | - | - | ||||||||||||
Amortization of prior service costs, gains or
|
||||||||||||||||
losses and net transition asset
|
(2,182 | ) | (610 | ) | 18 | 46 | ||||||||||
Net periodic benefit income (cost)
|
$ | (88 | ) | $ | 1,514 | $ | (261 | ) | $ | (247 | ) |
10.
|
In February 2010, we added a fourth segment, Other, comprised of the start-up operations of Bright View Technologies Corporation (“Bright View”) and Falling Springs, LLC (“Falling Springs”). Bright View, whose assets were acquired on February 3, 2010, is a developer and producer of high-value microstructure-based optical films for the LED (light emitting diode) and fluorescent lighting markets. Falling Springs develops, owns and operates multiple mitigation banks. Through the establishment of perpetual easements to restore, enhance and preserve wetland, stream or other protected environmental resources, these mitigation banks create saleable credits that are used by the purchaser of credits to offset the negative environmental impacts from private and public development projects. In 2009, net sales and income (loss) from ongoing operations for Falling Springs (which were immaterial) have been included in “Corporate expense, net” and identifiable assets for this business have been included in “General corporate” in order to reflect the strategic view and structure of operations during this time period.
|
|
Information by business segment is reported below. There are no accounting transactions between segments and no allocations to segments. Net sales (sales less freight) and operating profit from ongoing operations are the measures of sales and operating profit used by the chief
|
Three Months | Six Months | |||||||||||||||
Ended June 30 | Ended June 30 | |||||||||||||||
(In Thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Net Sales
|
||||||||||||||||
Film Products
|
$ | 126,499 | $ | 107,804 | $ | 252,367 | $ | 212,587 | ||||||||
Aluminum Extrusions
|
52,671 | 46,441 | 97,470 | 91,495 | ||||||||||||
Other
|
1,114 | - | 1,483 | - | ||||||||||||
Total net sales
|
180,284 | 154,245 | 351,320 | 304,082 | ||||||||||||
Add back freight
|
4,747 | 3,870 | 8,692 | 7,099 | ||||||||||||
Sales as shown in the Consolidated Statements of Income
|
$ | 185,031 | $ | 158,115 | $ | 360,012 | $ | 311,181 | ||||||||
Operating Profit (Loss)
|
||||||||||||||||
Film Products:
|
||||||||||||||||
Ongoing operations
|
$ | 14,604 | $ | 14,214 | $ | 32,904 | $ | 27,228 | ||||||||
Plant shutdowns, asset impairments, restructurings and other
|
(279 | ) | 149 | (396 | ) | (660 | ) | |||||||||
Aluminum Extrusions:
|
||||||||||||||||
Ongoing operations
|
235 | 634 | (2,758 | ) | (1,163 | ) | ||||||||||
Goodwill impairment charge
|
- | - | - | (30,559 | ) | |||||||||||
Plant shutdowns, asset impairments, restructurings and other
|
23 | (328 | ) | 466 | (1,306 | ) | ||||||||||
AFBS:
|
||||||||||||||||
Gain on sale of investments in Theken Spine and Therics, LLC
|
- | - | - | 150 | ||||||||||||
Other:
|
||||||||||||||||
Ongoing operations
|
(1,458 | ) | - | (2,094 | ) | - | ||||||||||
Total
|
13,125 | 14,669 | 28,122 | (6,310 | ) | |||||||||||
Interest income
|
166 | 175 | 334 | 434 | ||||||||||||
Interest expense
|
222 | 184 | 417 | 388 | ||||||||||||
Gain on sale of corporate assets
|
- | - | - | 404 | ||||||||||||
Stock option-based compensation costs
|
494 | 541 | 1,012 | 803 | ||||||||||||
Corporate expenses, net
|
4,265 | 2,332 | 8,879 | 5,810 | ||||||||||||
Income (loss) before income taxes
|
8,310 | 11,787 | 18,148 | (12,473 | ) | |||||||||||
Income taxes
|
3,350 | 5,300 | 7,406 | 9,857 | ||||||||||||
Net income (loss)
|
$ | 4,960 | $ | 6,487 | $ | 10,742 | $ | (22,330 | ) |
June 30,
|
December 31,
|
|||||||
(In Thousands)
|
2010
|
2009
|
||||||
Film Products
|
$ | 363,549 | $ | 371,639 | ||||
Aluminum Extrusions
|
83,001 | 82,429 | ||||||
AFBS (formerly Therics)
|
1,147 | 1,147 | ||||||
Other
|
15,730 | - | ||||||
Subtotal
|
463,427 | 455,215 | ||||||
General corporate
|
43,962 | 50,401 | ||||||
Cash and cash equivalents
|
52,670 | 90,663 | ||||||
Total
|
$ | 560,059 | $ | 596,279 |
11.
|
The effective tax rate for the first six months of 2010 was 40.8% compared to (79.0)% for the first six months of 2009. The significant differences between the U.S. federal statutory rate and the effective income tax rates for the six months ended June 30, 2010 and 2009 are as follows:
|
Percent of Income (Loss)
|
||||||||
Before Income Taxes
|
||||||||
Six Months Ended June 30
|
2010
|
2009
|
||||||
Income tax expense at federal statutory rate
|
35.0 | 35.0 | ||||||
Reserve for uncollectible tax indemnification receivable
|
4.1 | - | ||||||
Unremitted earnings from foreign operations
|
2.9 | (5.6 | ) | |||||
Income tax contingency accruals/reversals
|
1.5 | - | ||||||
State taxes, net of federal income tax benefit
|
1.4 | (1.7 | ) | |||||
Non-deductible expenses
|
0.2 | (0.2 | ) | |||||
Valuation allowance for foreign operating loss carry-forwards
|
0.2 | (0.5 | ) | |||||
Goodwill impairment charge
|
- | (85.8 | ) | |||||
Research and development tax credit
|
- | 0.9 | ||||||
Valuation allowance for capital loss carry-forwards
|
(0.8 | ) | (30.0 | ) | ||||
Domestic production activities deduction
|
(1.2 | ) | - | |||||
Foreign rate differences
|
(1.7 | ) | 8.8 | |||||
Other
|
(0.8 | ) | 0.1 | |||||
Effective income tax rate | 40.8 | (79.0 | ) |
Six Months Ended
|
||||||||
June 30
|
||||||||
(In Thousands)
|
2010
|
2009
|
||||||
Balance at beginning of period
|
$ | 996 | $ | 2,553 | ||||
Increase (decrease) due to tax
|
||||||||
positions taken in:
|
||||||||
Current period
|
34 | 48 | ||||||
Prior period
|
- | 10 | ||||||
Increase (decrease) due to settlements
|
||||||||
with taxing authorities
|
- | (1,440 | ) | |||||
Reductions due to lapse of statute
|
||||||||
of limitations
|
- | - | ||||||
Balance at end of period
|
$ | 1,030 | $ | 1,171 |
12.
|
The Financial Accounting Standards Board (FASB) Emerging Issues Task Force issued a consensus updating accounting standards for revenue recognition for multiple-deliverable arrangements in October 2009. The stated objective of the accounting standards update was to address the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. The revision of current FASB guidance provides amended methodologies for separating consideration in multiple-deliverable arrangements and expands disclosure requirements. The accounting standards update
|
|
The FASB issued guidance in January 2010 that requires new disclosures for fair value measurements and provides clarification for existing disclosure requirements. More specifically, this update will require (a) an entity to disclose separately the amounts of significant transfers in and out of Levels 1 and 2 fair value measurements and to describe the reasons for such transfers; and (b) information about purchases, sales, issuances and settlements to be presented separately (i.e. present the activity on a gross basis rather than net) in the reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs). This update also clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value and requires disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements using Level 2 and Level 3 inputs. The new disclosures and clarifications of existing disclosures were effective for interim and annual reporting periods beginning after December 15, 2009, except for disclosures about the purchase, sale, issuance and settlement activity of Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for the interim periods in that year. We do not anticipate that the adoption of these new disclosures and clarifications of existing disclosures will materially expand our current financial statement footnote disclosures.
|
|
Executive Summary
|
Three Months | Six Months | |||||||||||||||
Ended June 30 | Ended June 30 | |||||||||||||||
(In Thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Net Sales
|
||||||||||||||||
Film Products
|
$ | 126,499 | $ | 107,804 | $ | 252,367 | $ | 212,587 | ||||||||
Aluminum Extrusions
|
52,671 | 46,441 | 97,470 | 91,495 | ||||||||||||
Other
|
1,114 | - | 1,483 | - | ||||||||||||
Total net sales
|
180,284 | 154,245 | 351,320 | 304,082 | ||||||||||||
Add back freight
|
4,747 | 3,870 | 8,692 | 7,099 | ||||||||||||
Sales as shown in the Consolidated Statements of Income
|
$ | 185,031 | $ | 158,115 | $ | 360,012 | $ | 311,181 | ||||||||
Operating Profit (Loss)
|
||||||||||||||||
Film Products:
|
||||||||||||||||
Ongoing operations
|
$ | 14,604 | $ | 14,214 | $ | 32,904 | $ | 27,228 | ||||||||
Plant shutdowns, asset impairments, restructurings and other
|
(279 | ) | 149 | (396 | ) | (660 | ) | |||||||||
Aluminum Extrusions:
|
||||||||||||||||
Ongoing operations
|
235 | 634 | (2,758 | ) | (1,163 | ) | ||||||||||
Goodwill impairment charge
|
- | - | - | (30,559 | ) | |||||||||||
Plant shutdowns, asset impairments, restructurings and other
|
23 | (328 | ) | 466 | (1,306 | ) | ||||||||||
AFBS:
|
||||||||||||||||
Gain on sale of investments in Theken Spine and Therics, LLC
|
- | - | - | 150 | ||||||||||||
Other:
|
||||||||||||||||
Ongoing operations
|
(1,458 | ) | - | (2,094 | ) | - | ||||||||||
Total
|
13,125 | 14,669 | 28,122 | (6,310 | ) | |||||||||||
Interest income
|
166 | 175 | 334 | 434 | ||||||||||||
Interest expense
|
222 | 184 | 417 | 388 | ||||||||||||
Gain on sale of corporate assets
|
- | - | - | 404 | ||||||||||||
Stock option-based compensation costs
|
494 | 541 | 1,012 | 803 | ||||||||||||
Corporate expenses, net
|
4,265 | 2,332 | 8,879 | 5,810 | ||||||||||||
Income (loss) before income taxes
|
8,310 | 11,787 | 18,148 | (12,473 | ) | |||||||||||
Income taxes
|
3,350 | 5,300 | 7,406 | 9,857 | ||||||||||||
Net income (loss)
|
$ | 4,960 | $ | 6,487 | $ | 10,742 | $ | (22,330 | ) | |||||||
|
Critical Accounting Policies
|
|
Results of Operations
|
|
Second Quarter 2010 Compared with Second Quarter 2009
|
·
|
Pretax charge of $355,000 for an asset impairment in Film Products;
|
·
|
Pretax gain of $120,000 on the sale of previously impaired equipment (included in “Other income (expense), net” in the consolidated statement of income) at our film products manufacturing facility in Pottsville, Pennsylvania;
|
·
|
Pretax loss of $44,000 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; and
|
·
|
Pretax gain of $23,000 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, see Note 8 on page 10 for additional detail).
|
·
|
Pretax losses of $779,000 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, see Note 8 on page 10 for additional detail);
|
·
|
Pretax gain of $276,000 related to the reduction of future environmental costs expected to be incurred by Aluminum Extrusions (included in “Cost of goods sold” in the consolidated statements of income);
|
·
|
Pretax gain of $175,000 on the sale of a previously shutdown aluminum extrusions manufacturing facility in El Campo, Texas (included in “Other income (expense), net” in the consolidated statements of income); and
|
·
|
Pretax gain of $149,000 related to the reversal to income of certain inventory impairment accruals in Film Products.
|
Three Months
|
|||||||
Ended June 30
|
|||||||
(In Millions)
|
2010
|
2009
|
|||||
Floating-rate debt with interest charged on a
|
|||||||
rollover basis at one-month LIBOR plus a
|
|||||||
credit spread:
|
|||||||
Average outstanding debt balance
|
$ | - | $ | 3.8 | |||
Average interest rate
|
n/a | 1.3 | % | ||||
Fixed-rate and other debt:
|
|||||||
Average outstanding debt balance
|
$ | 1.0 | $ | 1.6 | |||
Average interest rate
|
3.6 | % | 2.5 | % | |||
Total debt:
|
|||||||
Average outstanding debt balance
|
$ | 1.0 | $ | 5.4 | |||
Average interest rate
|
3.6 | % | 1.7 | % |
|
First Six Months of 2010 Compared with First Six Months of 2009
|
·
|
Pretax gains of $466,000 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, see Note 8 on page 10 for additional detail);
|
·
|
Pretax charge of $355,000 for an asset impairment in Film Products;
|
·
|
Pretax gain of $120,000 on the sale of previously impaired equipment (included in “Other income (expense), net” in the consolidated statement of income) at our film products manufacturing facility in Pottsville, Pennsylvania;
|
·
|
Pretax losses of $105,000 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; and
|
·
|
Pretax charge of $56,000 for severance and other employee-related costs in connection with restructurings in Film Products.
|
·
|
Pretax charges of $1.6 million for severance and other employee-related costs in connection with restructurings in Film Products ($1.1 million), Aluminum Extrusions ($369,000) and corporate headquarters ($178,000, included in “Corporate expenses, net” in the net sales and operating profit by segment table in Note 10);
|
·
|
Pretax losses of $1.4 million 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, see Note 8 on page 10 for additional detail);
|
·
|
Pretax gain of $276,000 related to the reduction of future environmental costs expected to be incurred by Aluminum Extrusions (included in “Cost of goods sold” in the consolidated statements of income);
|
·
|
Pretax gain of $275,000 on the sale of equipment (included in “Other income (expense), net” in the consolidated statements of income) from a previously shutdown films manufacturing facility in LaGrange, Georgia;
|
·
|
Pretax gain of $175,000 on the sale of a previously shutdown aluminum extrusions manufacturing facility in El Campo, Texas (included in “Other income (expense), net” in the consolidated statements of income); and
|
·
|
Pretax gain of $149,000 related to the reversal to income of certain inventory impairment accruals in Film Products.
|
Six Months
|
|||||||
Ended June 30
|
|||||||
(In Millions)
|
2010
|
2009
|
|||||
Floating-rate debt with interest charged on a
|
|||||||
rollover basis at one-month LIBOR plus a
|
|||||||
credit spread:
|
|||||||
Average outstanding debt balance
|
$ | - | $ | 10.0 | |||
Average interest rate
|
n/a | 1.2 | % | ||||
Fixed-rate and other debt:
|
|||||||
Average outstanding debt balance
|
$ | 1.1 | $ | 1.6 | |||
Average interest rate
|
3.4 | % | 2.4 | % | |||
Total debt:
|
|||||||
Average outstanding debt balance
|
$ | 1.1 | $ | 11.6 | |||
Average interest rate
|
3.4 | % | 1.4 | % |
·
|
Accounts receivable increased $19.2 million (25.9%).
|
-
|
Accounts receivable in Film Products increased by $9.0 million. Days sales outstanding (“DSO”) increased to 47 at June 30, 2010 compared with 43 at December 31, 2009, which is within the range experienced over the past twelve months.
|
-
|
Accounts receivable in Aluminum Extrusions increased by $9.2 million. DSO was 41 at June 30, 2010 compared with 44 at December 31, 2009, which is within the range experienced over the past twelve months.
|
-
|
Accounts receivable in Other increased $1.0 million primarily as a result of timing of sales.
|
·
|
Inventories decreased $1.3 million (3.8%).
|
-
|
Inventories in Film Products increased by approximately $3.2 million. The increase can be attributed to increased demand for surface protection and personal care materials.
|
-
|
Inventories in Aluminum Extrusions decreased by approximately $4.6 million. The decrease can be primarily attributed to efforts to reduce inventory levels in light of current economic conditions.
|
·
|
Net property, plant and equipment decreased $19.3 million (8.4%) due primarily to depreciation of $21.7 million, capital expenditures of $7.6 million, machinery and equipment of $3.1 million acquired as part of the Bright View transaction and a change in the value of the U.S. Dollar relative to foreign currencies (decrease of approximately $7.8 million).
|
·
|
Goodwill and other intangibles increased by $1.1 million (1.1%) primarily due to the acquisition of the assets of Bright View, partially offset by changes in the value of the U.S. Dollar relative to foreign currencies ($1.3 million decrease). Identifiable intangible assets purchased as a part of the acquisition were $2.4 million. There was no goodwill recorded from the acquisition of the assets of Bright View.
|
·
|
Other assets increased by $4.3 million (9.4%) primarily due to additional investments in mitigation banking properties and an increase in deferred debt issuance costs related to the completion of our new revolving credit facility in June 2010.
|
·
|
Accounts payable increased by $6.6 million (12.3%).
|
-
|
Accounts payable in Film Products increased by $7.7 million, or 28.1%, primarily due to higher sales volume and higher average resin costs.
|
-
|
Accounts payable in Aluminum Extrusions decreased by $1.6 million, or 6.5%, due to the timing of aluminum purchases.
|
-
|
Accounts payable increased in corporate and other segment businesses by $532,000 due to the normal volatility associated with the timing of payments.
|
·
|
Accrued expenses decreased by $2.4 million (7.0%) primarily due to the payment of year end performance-based incentive accruals.
|
·
|
Net deferred income tax liabilities in excess of assets decreased by $6.2 million due primarily to non-cash adjustments to deferred taxes for items included in other comprehensive income (loss). Income taxes recoverable decreased $329,000 to $3.7 million at June 30, 2010.
|
Net Capitalization and Indebtedness as of June 30, 2010
|
||||
(In Thousands)
|
||||
Net capitalization:
|
||||
Cash and cash equivalents
|
$ | 52,670 | ||
Debt:
|
||||
$300 million revolving credit agreement maturing
|
||||
June 21, 2014
|
- | |||
Other debt
|