x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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) |
Large accelerated filer | ¨ | Accelerated filer | x | Smaller reporting company | ¨ | ||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Emerging growth company | ¨ |
Item 1. | Financial Statements. |
June 30, | December 31, | ||||||
2018 | 2017 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 62,321 | $ | 36,491 | |||
Accounts and other receivables, net of allowance for doubtful accounts and sales returns of $3,026 in 2018 and $3,304 in 2017 | 128,301 | 120,135 | |||||
Income taxes recoverable | 5,572 | 32,080 | |||||
Inventories | 84,890 | 86,907 | |||||
Prepaid expenses and other | 8,776 | 8,224 | |||||
Total current assets | 289,860 | 283,837 | |||||
Property, plant and equipment, at cost | 772,222 | 770,892 | |||||
Less accumulated depreciation | (554,926 | ) | (547,801 | ) | |||
Net property, plant and equipment | 217,296 | 223,091 | |||||
Investment in kaléo (cost basis of $7,500) | 68,000 | 54,000 | |||||
Identifiable intangible assets, net | 38,225 | 40,552 | |||||
Goodwill | 128,205 | 128,208 | |||||
Deferred income taxes | 3,946 | 16,636 | |||||
Other assets | 8,957 | 9,419 | |||||
Total assets | $ | 754,489 | $ | 755,743 | |||
Liabilities and Shareholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 121,266 | $ | 108,391 | |||
Accrued expenses | 40,192 | 42,433 | |||||
Total current liabilities | 161,458 | 150,824 | |||||
Long-term debt | 123,000 | 152,000 | |||||
Pension and other postretirement benefit obligations, net | 94,335 | 98,837 | |||||
Deferred income taxes | — | 2,123 | |||||
Other noncurrent liabilities | 8,287 | 8,179 | |||||
Total liabilities | 387,080 | 411,963 | |||||
Commitments and contingencies (Notes 1 and 13) | |||||||
Shareholders’ equity: | |||||||
Common stock, no par value (issued and outstanding - 33,189,073 shares at June 30, 2018 and 33,017,422 shares at December 31, 2017) | 37,654 | 34,747 | |||||
Common stock held in trust for savings restoration plan (72,170 shares at June 30, 2018 and 71,309 shares at December 31, 2017) | (1,544 | ) | (1,528 | ) | |||
Accumulated other comprehensive income (loss): | |||||||
Foreign currency translation adjustment | (95,083 | ) | (86,178 | ) | |||
Gain on derivative financial instruments | (731 | ) | 459 | ||||
Pension and other post-retirement benefit adjustments | (85,727 | ) | (90,950 | ) | |||
Retained earnings | 512,840 | 487,230 | |||||
Total shareholders’ equity | 367,409 | 343,780 | |||||
Total liabilities and shareholders’ equity | $ | 754,489 | $ | 755,743 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenues and other items: | |||||||||||||||
Sales | $ | 263,759 | $ | 247,347 | $ | 522,470 | $ | 468,372 | |||||||
Other income (expense), net | 5,857 | 34,735 | 14,089 | 38,022 | |||||||||||
269,616 | 282,082 | 536,559 | 506,394 | ||||||||||||
Costs and expenses: | |||||||||||||||
Cost of goods sold | 210,667 | 195,286 | 413,856 | 375,047 | |||||||||||
Freight | 8,440 | 7,912 | 17,229 | 16,218 | |||||||||||
Selling, general and administrative | 20,946 | 21,184 | 42,775 | 41,133 | |||||||||||
Research and development | 4,646 | 5,014 | 8,957 | 9,572 | |||||||||||
Amortization of identifiable intangibles | 1,025 | 1,652 | 2,054 | 2,893 | |||||||||||
Pension and postretirement benefits | 2,578 | 2,632 | 5,156 | 5,264 | |||||||||||
Interest expense | 1,577 | 1,642 | 3,221 | 2,822 | |||||||||||
Asset impairments and costs associated with exit and disposal activities, net of adjustments | 468 | (271 | ) | 590 | 293 | ||||||||||
Total | 250,347 | 235,051 | 493,838 | 453,242 | |||||||||||
Income before income taxes | 19,269 | 47,031 | 42,721 | 53,152 | |||||||||||
Income taxes | 4,547 | 2,827 | 9,834 | 5,246 | |||||||||||
Net income | $ | 14,722 | $ | 44,204 | $ | 32,887 | $ | 47,906 | |||||||
Earnings per share: | |||||||||||||||
Basic | $ | 0.45 | $ | 1.34 | $ | 1.00 | $ | 1.45 | |||||||
Diluted | $ | 0.44 | $ | 1.34 | $ | 1.00 | $ | 1.45 | |||||||
Shares used to compute earnings per share: | |||||||||||||||
Basic | 33,074 | 32,961 | 33,028 | 32,941 | |||||||||||
Diluted | 33,108 | 33,051 | 33,048 | 32,999 | |||||||||||
Dividends per share | $ | 0.11 | $ | 0.11 | $ | 0.22 | $ | 0.22 |
Three Months Ended June 30, | |||||||
2018 | 2017 | ||||||
Net income | $ | 14,722 | $ | 44,204 | |||
Other comprehensive income (loss): | |||||||
Foreign currency translation adjustment (net of tax of $0 in 2018 and tax of $173 in 2017) | (10,811 | ) | (1,958 | ) | |||
Derivative financial instruments adjustment (net of tax of $164 in 2018 and tax benefit of $248 in 2017) | (905 | ) | (412 | ) | |||
Amortization of prior service costs and net gains or losses (net of tax of $761 in 2018 and tax of $1,111 in 2017) | 2,611 | 1,950 | |||||
Other comprehensive income (loss) | (9,105 | ) | (420 | ) | |||
Comprehensive income (loss) | $ | 5,617 | $ | 43,784 | |||
Six Months Ended June 30, | |||||||
2018 | 2017 | ||||||
Net income | $ | 32,887 | $ | 47,906 | |||
Other comprehensive income (loss): | |||||||
Unrealized foreign currency translation adjustment (net of tax of $0 in 2018 and tax of $230 in 2017) | (8,905 | ) | 2,674 | ||||
Derivative financial instruments adjustment (net of tax of $20 in 2018 and tax benefit of $24 in 2017) | (1,190 | ) | (38 | ) | |||
Amortization of prior service costs and net gains or losses (net of tax of $1,523 in 2018 and tax of $2,222 in 2017) | 5,223 | 3,900 | |||||
Other comprehensive income (loss) | (4,872 | ) | 6,536 | ||||
Comprehensive income (loss) | $ | 28,015 | $ | 54,442 |
Six Months Ended June 30, | |||||||
2018 | 2017 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 32,887 | $ | 47,906 | |||
Adjustments for noncash items: | |||||||
Depreciation | 14,688 | 15,993 | |||||
Amortization of identifiable intangibles | 2,054 | 2,893 | |||||
Deferred income taxes | 8,996 | 2,000 | |||||
Accrued pension and post-retirement benefits | 5,156 | 5,264 | |||||
(Gain)/loss on investment in kaléo accounted for under the fair value method | (14,000 | ) | (24,800 | ) | |||
(Gain)/loss on asset impairments and divestitures | — | 50 | |||||
Net (gain)/loss on disposal of assets | (109 | ) | 307 | ||||
Changes in assets and liabilities, net of effects of acquisitions and divestitures: | |||||||
Accounts and other receivables | (15,205 | ) | (20,197 | ) | |||
Inventories | (810 | ) | (7,261 | ) | |||
Income taxes recoverable/payable | 26,277 | (6,120 | ) | ||||
Prepaid expenses and other | (2,057 | ) | 735 | ||||
Accounts payable and accrued expenses | 13,879 | 6,178 | |||||
Pension and postretirement benefit plan contributions | (2,912 | ) | (2,106 | ) | |||
Other, net | 2,926 | 1,126 | |||||
Net cash provided by operating activities | 71,770 | 21,968 | |||||
Cash flows from investing activities: | |||||||
Capital expenditures | (14,528 | ) | (26,692 | ) | |||
Acquisition | — | (87,110 | ) | ||||
Return of escrowed funds relating to acquisition earn-out | 4,250 | — | |||||
Proceeds from the sale of assets and other | 1,095 | 95 | |||||
Net cash used in investing activities | (9,183 | ) | (113,707 | ) | |||
Cash flows from financing activities: | |||||||
Borrowings | 28,000 | 148,750 | |||||
Debt principal payments | (57,000 | ) | (56,500 | ) | |||
Dividends paid | (7,293 | ) | (7,268 | ) | |||
Proceeds from exercise of stock options and other | 926 | 695 | |||||
Net cash provided by (used in) financing activities | (35,367 | ) | 85,677 | ||||
Effect of exchange rate changes on cash | (1,390 | ) | 577 | ||||
Increase (decrease) in cash and cash equivalents | 25,830 | (5,485 | ) | ||||
Cash and cash equivalents at beginning of period | 36,491 | 29,511 | |||||
Cash and cash equivalents at end of period | $ | 62,321 | $ | 24,026 |
Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||||||||||
Common Stock | Retained Earnings | Trust for Savings Restoration Plan | Foreign Currency Translation | Gain (Loss) on Derivative Financial Instruments | Pension & Other Post-retirement Benefit Adjustment | Total Shareholders’ Equity | |||||||||||||||||||||
Balance at January 1, 2018 | $ | 34,747 | $ | 487,230 | $ | (1,528 | ) | $ | (86,178 | ) | $ | 459 | $ | (90,950 | ) | $ | 343,780 | ||||||||||
Net income | — | 32,887 | — | — | — | — | 32,887 | ||||||||||||||||||||
Other comprehensive income (loss): | |||||||||||||||||||||||||||
Foreign currency translation adjustment (net of tax of $0) | — | — | — | (8,905 | ) | — | — | (8,905 | ) | ||||||||||||||||||
Derivative financial instruments adjustment (net of tax of $20) | — | — | — | — | (1,190 | ) | — | (1,190 | ) | ||||||||||||||||||
Amortization of prior service costs and net gains or losses (net of tax of $1,523) | — | — | — | — | — | 5,223 | 5,223 | ||||||||||||||||||||
Cash dividends declared ($0.22 per share) | — | (7,293 | ) | — | — | — | — | (7,293 | ) | ||||||||||||||||||
Stock-based compensation expense | 1,981 | — | — | — | — | — | 1,981 | ||||||||||||||||||||
Issued upon exercise of stock options & other | 926 | — | — | — | — | — | 926 | ||||||||||||||||||||
Tredegar common stock purchased by trust for savings restoration plan | — | 16 | (16 | ) | — | — | — | — | |||||||||||||||||||
Balance at June 30, 2018 | $ | 37,654 | $ | 512,840 | $ | (1,544 | ) | $ | (95,083 | ) | $ | (731 | ) | $ | (85,727 | ) | $ | 367,409 |
1. | In the opinion of management, the accompanying consolidated financial statements of Tredegar Corporation and its subsidiaries (“Tredegar,” “the Company,” “we,” “us” or “our”) contain all adjustments necessary to state fairly, in all material respects, Tredegar’s consolidated financial position as of June 30, 2018, the consolidated results of operations for the three and six months ended June 30, 2018 and 2017, the consolidated cash flows for the six months ended June 30, 2018 and 2017, and the consolidated changes in shareholders’ equity for the six months ended June 30, 2018. All such adjustments, unless otherwise detailed in the notes to the consolidated interim financial statements, are deemed to be of a normal, recurring nature. |
June 30, | December 31, | |||||||
(In thousands) | 2018 | 2017 | ||||||
Customer receivables | $ | 126,598 | $ | 113,556 | ||||
Other accounts and notes receivable | 4,729 | 9,883 | ||||||
Total accounts and other receivables | 131,327 | 123,439 | ||||||
Less: Allowance for bad debts and sales returns | (3,026 | ) | (3,304 | ) | ||||
Total accounts and other receivables, net | $ | 128,301 | $ | 120,135 |
2. | On February 15, 2017, Bonnell Aluminum acquired 100% of the stock of Futura Industries Corporation (“Futura”) on a net debt-free basis for approximately $92 million. The amount actually funded in cash at the transaction date was approximately $87 million, which was net of preliminary closing adjustments for working capital and seller transaction-related obligations assumed and subsequently paid by Bonnell Aluminum. In addition, the Company was refunded $5 million in the first quarter of 2018 since Futura did not meet certain performance requirements for the 2017 fiscal year (“Earnout Provision”). The acquisition, which was funded using Tredegar’s existing revolving credit facility, was treated as an asset purchase for U.S. federal income tax purposes. |
(In Thousands) | |||
Accounts receivable | $ | 6,680 | |
Inventories | 10,342 | ||
Prepaid expenses and other current assets | 240 | ||
Property, plant & equipment | 32,662 | ||
Identifiable intangible assets: | |||
Customer relationships | 24,000 | ||
Trade names | 6,700 | ||
Trade payables & accrued expenses | (8,135 | ) | |
Total identifiable net assets | 72,489 | ||
Adjusted Net Purchase Price | 82,860 | ||
Goodwill | $ | 10,371 |
3. | Plant shutdowns, asset impairments, restructurings and other items are shown in the net sales and operating profit by segment table in Note 10 and are also included in “Asset impairments and costs associated with exit and disposal activities, net of adjustments” in the consolidated statements of income, unless otherwise noted below. |
• | Pretax charges of $0.6 million related to estimated excess costs associated with the ramp-up of new product offerings and additional expenses related to strategic capacity expansion projects by PE Films (included in “Cost of goods sold” in the consolidated statements of income); and |
• | Pretax charges of $0.7 million associated with the shutdown of PE Films’ manufacturing facility in Shanghai, China, which consists of severance and other employee-related accrued costs of $0.4 million, accelerated depreciation of $0.1 million (included in “Cost of goods sold” in the consolidated statements of income) and other facility consolidation-related expenses of $0.2 million. |
• | Pretax charges of $1.5 million related to estimated excess costs associated with the ramp-up of new product offerings and additional expenses related to strategic capacity expansion projects by PE Films (included in “Cost of goods sold” in the consolidated statements of income); |
• | Pretax charges of $0.3 million for professional fees associated with the Terphane Limitada worthless stock deduction, the impairment of assets of Flexible Packaging Films and determining the effect of the new U.S. |
• | Pretax charges of $0.7 million associated with the shutdown of PE Films’ manufacturing facility in Shanghai, China, which consists of severance and other employee-related accrued costs of $0.4 million, accelerated depreciation of $0.1 million (included in “Cost of goods sold” in the consolidated statements of income) and other facility consolidation-related expenses of $0.2 million. |
• | Pretax income of $11.9 million related to the settlement of an escrow arrangement established upon the acquisition of Terphane in 2011 (included in “Other income (expense), net” in the consolidated statements of income). In settling the escrow arrangement, the Company assumed the risk of the claims (and associated legal fees) against which the escrow previously secured the Company. While the ultimate amount of such claims is unknown, the Company believes that it is reasonably possible that it could be liable for some portion of these claims, and currently estimates the amount of such future claims at approximately $3.5 million; |
• | Pretax charges of $1.0 million related to estimated excess costs associated with the ramp-up of new product offerings and additional expenses related to strategic capacity expansion projects by PE Films of $0.9 million and by Bonnell of $0.1 million (included in “Cost of goods sold” in the consolidated statements of income); |
• | Pretax income of $0.9 million related to the explosion that occurred in the second quarter of 2016 at the aluminum extrusions manufacturing facility in Newnan, Georgia, for the expected recovery of excess production costs of $0.6 million incurred in 2016 and $0.3 million incurred in the first quarter of 2017 for which recovery from insurance carriers was not previously considered to be reasonably assured (included in “Cost of goods sold” in the consolidated statements of income); |
• | Pretax income of $0.7 million related to the fair valuation of an earnout provision from the acquisition of Futura (included in “Other income (expense), net” in the consolidated statements of income); |
• | Pretax charges of $0.6 million associated with a business development project (included in “Selling, general and administrative expense” in the consolidated statements of income); and |
• | Pretax charges of $0.3 million associated with the consolidation of domestic PE Films’ manufacturing facilities, which consists of facility consolidation-related expenses of $0.2 million and accelerated depreciation of $0.1 million (included in “Cost of goods sold” in the consolidated statements of income), offset by pretax income of $0.3 million related to a reduction of severance and other employee-related accrued costs. |
• | Pretax income of $11.9 million related to the settlement of an escrow arrangement established upon the acquisition of Terphane in 2011 (included in “Other income (expense), net” in the consolidated statements of income). In settling the escrow arrangement, the Company assumed the risk of the claims (and associated legal fees) against which the escrow previously secured the Company. While the ultimate amount of such claims is unknown, the Company believes that it is reasonably possible that it could be liable for some portion of these claims, and currently estimates the amount of such future claims at approximately $3.5 million; |
• | Pretax charges of $3.3 million related to the acquisition of Futura, i) associated with accounting adjustments of $1.7 million made to the value of inventory sold by Aluminum Extrusions after its acquisition of Futura (included in “Cost of goods sold” in the consolidated statements of income), ii) acquisition costs of $1.5 million and, iii) integration costs of $0.1 million (included in “Selling, general and administrative expenses” in the consolidated statements of income), offset by pretax income of $0.7 million related to the fair valuation of an earnout provision (included in “Other income (expense), net” in the consolidated statements of income); |
• | Pretax charges of $2.8 million related to estimated excess costs associated with the ramp-up of new product offerings and additional expenses related to strategic capacity expansion projects by PE Films of $2.4 million and by Aluminum Extrusions of $0.4 million (included in “Cost of goods sold” in the consolidated statements of income); |
• | Pretax income of $0.5 million related to the explosion that occurred in the second quarter of 2016 at the aluminum extrusions manufacturing facility in Newnan, Georgia, which includes the expected recovery of excess production costs of $0.6 million incurred in 2016 for which recovery from insurance carriers was not |
• | Pretax charges of $0.7 million associated with the consolidation of domestic PE Films’ manufacturing facilities, which consists of asset impairments of $0.1 million, accelerated depreciation of $0.2 million (included in “Cost of goods sold” in the consolidated statements of income) and other facility consolidation-related expenses of $0.4 million ($0.3 million included in “Cost of goods sold” in the consolidated statements of income), offset by pretax income of $0.1 million related to a reduction of severance and other employee-related accrued costs; |
• | Pretax charges of $0.3 million related to expected future environmental costs at the aluminum extrusions manufacturing facility in Carthage, Tennessee (included in “Cost of goods sold” in the consolidated statements of income); |
• | Pretax charges of $0.9 million associated with a business development project (included in “Selling, general and administrative expense” in the consolidated statements of income); and |
• | Pretax charges of $0.3 million for severance and other employee-related costs associated with restructurings in Corporate. |
(In thousands) | Severance (a) | Asset Impairments | Other (b) | Total | |||||||||||
Balance at January 1, 2018 | $ | 627 | $ | — | $ | 476 | $ | 1,103 | |||||||
Changes in 2018: | |||||||||||||||
Charges | 685 | — | 22 | 707 | |||||||||||
Cash spent | (846 | ) | — | (268 | ) | (1,114 | ) | ||||||||
Charges against assets | — | 117 | — | 117 | |||||||||||
Reversed to income | (117 | ) | (117 | ) | |||||||||||
Balance at June 30, 2018 | $ | 466 | $ | — | $ | 230 | $ | 696 | |||||||
(a) Severance cash spent includes severance payments associated with the consolidation of North American PE Films manufacturing facilities. (b) Other primarily includes other restructuring costs associated with Aluminum Extrusions. |
4. | The components of inventories are as follows: |
June 30, | December 31, | |||||||
(In thousands) | 2018 | 2017 | ||||||
Finished goods | $ | 23,986 | $ | 20,281 | ||||
Work-in-process | 12,420 | 11,958 | ||||||
Raw materials | 29,591 | 35,909 | ||||||
Stores, supplies and other | 18,893 | 18,759 | ||||||
Total | $ | 84,890 | $ | 86,907 |
5. | Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing net income by the weighted average common and potentially dilutive common equivalent shares outstanding, determined as follows: |
Three Months Ended | Six Months Ended | ||||||||||
June 30, | June 30, | ||||||||||
(In thousands) | 2018 | 2017 | 2018 | 2017 | |||||||
Weighted average shares outstanding used to compute basic earnings per share | 33,074 | 32,961 | 33,028 | 32,941 | |||||||
Incremental dilutive shares attributable to stock options and restricted stock | 34 | 90 | 20 | 58 | |||||||
Shares used to compute diluted earnings per share | 33,108 | 33,051 | 33,048 | 32,999 |
6. | The following table summarizes the after-tax changes in accumulated other comprehensive income (loss) for the six months ended June 30, 2018: |
(In thousands) | Foreign currency translation adjustment | Gain (loss) on derivative financial instruments | Pension and other post-retirement benefit adjustments | Total | |||||||||||
Beginning balance, January 1, 2018 | $ | (86,178 | ) | $ | 459 | $ | (90,950 | ) | $ | (176,669 | ) | ||||
Other comprehensive income (loss) before reclassifications | (8,905 | ) | (829 | ) | — | (9,734 | ) | ||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | — | (361 | ) | 5,223 | 4,862 | ||||||||||
Net other comprehensive income (loss) - current period | (8,905 | ) | (1,190 | ) | 5,223 | (4,872 | ) | ||||||||
Ending balance, June 30, 2018 | $ | (95,083 | ) | $ | (731 | ) | $ | (85,727 | ) | $ | (181,541 | ) |
(In Thousands) | Foreign currency translation adjustment | Gain (loss) on derivative financial instruments | Pension and other post-retirement benefit adjustments | Total | |||||||||||
Beginning balance, January 1, 2017 | $ | (93,970 | ) | $ | 863 | $ | (90,127 | ) | $ | (183,234 | ) | ||||
Other comprehensive income (loss) before reclassifications | 2,674 | 335 | — | 3,009 | |||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | — | (373 | ) | 3,900 | 3,527 | ||||||||||
Net other comprehensive income (loss) - current period | 2,674 | (38 | ) | 3,900 | 6,536 | ||||||||||
Ending balance, June 30, 2017 | $ | (91,296 | ) | $ | 825 | $ | (86,227 | ) | $ | (176,698 | ) |
(In Thousands) | Amount reclassified from other comprehensive income (loss) | Location of gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (loss) | |||
Gain (loss) on derivative financial instruments: | |||||
Aluminum future contracts, before taxes | $ | 712 | Cost of sales | ||
Foreign currency forward contracts, before taxes | (378 | ) | Selling, general & administrative | ||
Foreign currency forward contracts, before taxes | 16 | Cost of sales | |||
Total, before taxes | 350 | ||||
Income tax expense (benefit) | 142 | Income taxes | |||
Total, net of tax | $ | 208 | |||
Amortization of pension and other post-retirement benefits: | |||||
Actuarial gain (loss) and prior service costs, before taxes | $ | (3,372 | ) | (a) | |
Income tax expense (benefit) | (761 | ) | Income taxes | ||
Total, net of tax | $ | (2,611 | ) |
(In thousands) | Amount reclassified from other comprehensive income (loss) | Location of gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (loss) | |||
Gain (loss) on derivative financial instruments: | |||||
Aluminum future contracts, before taxes | $ | 944 | Cost of sales | ||
Foreign currency forward contracts, before taxes | (419 | ) | Selling, general & administrative | ||
Foreign currency forward contracts, before taxes | 31 | Cost of sales | |||
Total, before taxes | 556 | ||||
Income tax expense (benefit) | 195 | Income taxes | |||
Total, net of tax | $ | 361 | |||
Amortization of pension and other post-retirement benefits: | |||||
Actuarial gain (loss) and prior service costs, before taxes | $ | (6,746 | ) | (a) | |
Income tax expense (benefit) | (1,523 | ) | Income taxes | ||
Total, net of tax | $ | (5,223 | ) |
(a) | This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost (see Note 9 for additional detail). |
(In Thousands) | Amount reclassified from other comprehensive income (loss) | Location of gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (loss) | |||
Gain (loss) on derivative financial instruments: | |||||
Aluminum future contracts, before taxes | $ | 321 | Cost of sales | ||
Foreign currency forward contracts, before taxes | 16 | Cost of sales | |||
Total, before taxes | 337 | ||||
Income tax expense (benefit) | 125 | Income taxes | |||
Total, net of tax | $ | 212 | |||
Amortization of pension and other post-retirement benefits: | |||||
Actuarial gain (loss) and prior service costs, before taxes | $ | (3,061 | ) | (a) | |
Income tax expense (benefit) | (1,111 | ) | Income taxes | ||
Total, net of tax | $ | (1,950 | ) |
(a) | This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost (see Note 9 for additional detail). |
(In thousands) | Amount reclassified from other comprehensive income (loss) | Location of gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (loss) | |||
Gain (loss) on derivative financial instruments: | |||||
Aluminum future contracts, before taxes | $ | 554 | Cost of sales | ||
Foreign currency forward contracts, before taxes | 31 | Cost of sales | |||
Total, before taxes | 585 | ||||
Income tax expense (benefit) | 212 | Income taxes | |||
Total, net of tax | $ | 373 | |||
Amortization of pension and other post-retirement benefits: | |||||
Actuarial gain (loss) and prior service costs, before taxes | $ | (6,122 | ) | (a) | |
Income tax expense (benefit) | (2,222 | ) | Income taxes | ||
Total, net of tax | $ | (3,900 | ) |
(a) | This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost (see Note 9 for additional detail). |
7. | In August 2007 and December 2008, the Company made an aggregate investment of $7.5 million in kaléo, a privately held specialty pharmaceutical company dedicated to building innovative solutions for serious and life-threatening medical conditions. The mission of kaléo is to provide products that empower patients to confidently take control of their medical conditions. Tredegar owns Series A-3 Preferred Stock and Series B Preferred Stock in kaléo that, taken together, represents on a fully-diluted basis an approximate 20% interest in kaléo. Tredegar accounts for its investment in kaléo under the fair value method. At the time of the initial investment, the Company elected the fair value option of accounting since its investment objectives were similar to those of venture capitalists, which typically do not have controlling financial interests. |
8. | Tredegar uses derivative financial instruments for the purpose of hedging margin exposure from fixed-price forward sales contracts in Aluminum Extrusions and exposure from currency volatility that exist as part of ongoing business operations (primarily in Flexible Packaging Films). These derivative financial instruments are designated as and qualify as cash flow hedges and are recognized in the consolidated balance sheet at fair value. The fair value of derivative instruments recorded on the consolidated balance sheets are based upon Level 2 inputs. If individual derivative instruments with the same counterparty can be settled on a net basis, the Company records the corresponding derivative fair values as a net asset or net liability. |
June 30, 2018 | December 31, 2017 | ||||||||||
(In thousands) | Balance Sheet Account | Fair Value | Balance Sheet Account | Fair Value | |||||||
Derivatives Designated as Hedging Instruments | |||||||||||
Asset derivatives: Aluminum futures contracts | Accrued Expenses | $ | 999 | Prepaid expenses and other | $ | 578 | |||||
Liability derivatives: Aluminum futures contracts | Accrued Expenses | (316 | ) | Prepaid expenses and other | $ | (16 | ) | ||||
Net asset (liability) | $ | 683 | $ | 562 |
June 30, 2018 | December 31, 2017 | ||||||||||
(In Thousands) | Balance Sheet Account | Fair Value | Balance Sheet Account | Fair Value | |||||||
Derivatives Designated as Hedging Instruments | |||||||||||
Asset derivatives: Foreign currency forward contracts | Accrued Expenses | $ | — | Accrued Expenses | $ | — | |||||
Liability derivatives: Foreign currency forward contracts | Accrued Expenses | (1,948 | ) | Accrued Expenses | (558 | ) | |||||
Net asset (liability) | $ | (1,948 | ) | $ | (558 | ) |
(In thousands) | Cash Flow Derivative Hedges | |||||||||||||||||
Three Months Ended June 30, | ||||||||||||||||||
Aluminum Futures Contracts | Foreign Currency Forwards | |||||||||||||||||
2018 | 2017 | 2018 | 2018 | 2017 | ||||||||||||||
Amount of pretax gain (loss) recognized in other comprehensive income (loss) | $ | 1,457 | $ | (322 | ) | $ | — | $ | (1,849 | ) | $ | — | ||||||
Location of gain (loss) reclassified from accumulated other comprehensive income (loss) into net income (effective portion) | Cost of sales | Cost of sales | Cost of sales | Selling, general & admin | Cost of sales | |||||||||||||
Amount of pretax gain (loss) reclassified from accumulated other comprehensive income (loss) to net income effective portion) | $ | 712 | $ | 321 | $ | 16 | $ | (378 | ) | $ | 16 | |||||||
Six Months Ended June 30, | ||||||||||||||||||
Aluminum Futures Contracts | Foreign Currency Forwards | |||||||||||||||||
2018 | 2017 | 2018 | 2018 | 2017 | ||||||||||||||
Amount of pre-tax gain (loss) recognized in other comprehensive income (loss) | $ | 1,065 | $ | 524 | $ | — | $ | (1,679 | ) | $ | — | |||||||
Location of gain (loss) reclassified from accumulated other comprehensive income (loss) into net income (effective portion) | Cost of sales | Cost of sales | Cost of sales | Selling, general & admin | Cost of sales | |||||||||||||
Amount of pre-tax gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (effective portion) | $ | 944 | $ | 554 | $ | 31 | $ | (419 | ) | $ | 31 |
9. | The Company sponsors noncontributory defined benefit (pension) plans covering certain current and former employees. The plan for salaried and hourly employees currently in effect is based on a formula using the participant’s years of service and compensation or using the participant’s years of service and a dollar amount. The plan was closed to new participants and pay for active plan participants for benefit calculations was frozen as of December 31, 2007. As of January 31, 2018, the plan no longer accrued benefits associated with crediting employees for service, thereby freezing future benefits under the plan. |
Pension Benefits | Other Post-Retirement Benefits | ||||||||||||||
Three Months Ended June 30, | Three Months Ended June 30, | ||||||||||||||
(In thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Service cost | $ | 5 | $ | 58 | $ | 10 | $ | 9 | |||||||
Interest cost | 2,882 | 3,164 | 69 | 77 | |||||||||||
Expected return on plan assets | (3,761 | ) | (3,737 | ) | — | — | |||||||||
Amortization of prior service costs, gains or losses and net transition asset | 3,428 | 3,122 | (54 | ) | (62 | ) | |||||||||
Net periodic benefit cost | $ | 2,554 | $ | 2,607 | $ | 25 | $ | 24 | |||||||
Pension Benefits | Other Post-Retirement Benefits | ||||||||||||||
Six Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Service cost | $ | 10 | $ | 116 | $ | 20 | $ | 18 | |||||||
Interest cost | 5,764 | 6,328 | 138 | 153 | |||||||||||
Expected return on plan assets | (7,522 | ) | (7,473 | ) | — | — | |||||||||
Amortization of prior service costs, (gains) losses and net transition asset | 6,856 | 6,245 | (108 | ) | (123 | ) | |||||||||
Net periodic benefit cost | $ | 5,108 | $ | 5,216 | $ | 50 | $ | 48 |
10. | Other income (expense), net consists of the following: |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
(In thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Gain (loss) on investment in kaléo accounted for under fair value method | $ | 5,800 | $ | 21,500 | $ | 14,000 | $ | 24,800 | |||||||
Gain associated with the settlement of an escrow agreement | — | 11,856 | — | 11,856 | |||||||||||
Other | 57 | 1,379 | 89 | 1,366 | |||||||||||
Total | $ | 5,857 | $ | 34,735 | $ | 14,089 | $ | 38,022 |
11. | The Company’s business segments are PE Films, Flexible Packaging Films and Aluminum Extrusions. 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 operating decision maker for purposes of assessing performance. |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
(In thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Net Sales | |||||||||||||||
PE Films | $ | 82,457 | $ | 89,639 | $ | 175,707 | $ | 176,050 | |||||||
Flexible Packaging Films | 28,304 | 26,588 | 56,741 | 53,297 | |||||||||||
Aluminum Extrusions | 144,558 | 123,208 | 272,793 | 222,807 | |||||||||||
Total net sales | 255,319 | 239,435 | 505,241 | 452,154 | |||||||||||
Add back freight | 8,440 | 7,912 | 17,229 | 16,218 | |||||||||||
Sales as shown in the Consolidated Statements of Income | $ | 263,759 | $ | 247,347 | $ | 522,470 | $ | 468,372 | |||||||
Operating Profit (Loss) | |||||||||||||||
PE Films: | |||||||||||||||
Ongoing operations | $ | 8,678 | $ | 10,682 | $ | 22,712 | $ | 19,713 | |||||||
Plant shutdowns, asset impairments, restructurings and other | (1,135 | ) | (904 | ) | (2,187 | ) | (2,972 | ) | |||||||
Flexible Packaging Films: | |||||||||||||||
Ongoing operations | 1,294 | (319 | ) | 3,008 | (2,317 | ) | |||||||||
Plant shutdowns, asset impairments, restructurings and other | — | 11,856 | — | 11,856 | |||||||||||
Aluminum Extrusions: | |||||||||||||||
Ongoing operations | 13,156 | 11,772 | 23,355 | 21,601 | |||||||||||
Plant shutdowns, asset impairments, restructurings and other | (46 | ) | 1,571 | (99 | ) | (2,769 | ) | ||||||||
Total | 21,947 | 34,658 | 46,789 | 45,112 | |||||||||||
Interest income | 228 | 55 | 284 | 129 | |||||||||||
Interest expense | 1,577 | 1,642 | 3,221 | 2,822 | |||||||||||
Gain (loss) on investment in kaléo accounted for under fair value method | 5,800 | 21,500 | 14,000 | 24,800 | |||||||||||
Stock option-based compensation costs | 305 | 38 | 391 | 41 | |||||||||||
Corporate expenses, net | 6,824 | 7,502 | 14,740 | 14,026 | |||||||||||
Income before income taxes | 19,269 | 47,031 | 42,721 | 53,152 | |||||||||||
Income taxes | 4,547 | 2,827 | 9,834 | 5,246 | |||||||||||
Net income | $ | 14,722 | $ | 44,204 | $ | 32,887 | $ | 47,906 |
(In thousands) | June 30, 2018 | December 31, 2017 | |||||
PE Films | $ | 283,536 | $ | 289,514 | |||
Flexible Packaging Films | 48,845 | 49,915 | |||||
Aluminum Extrusions | 274,577 | 268,127 | |||||
Subtotal | 606,958 | 607,556 | |||||
General corporate | 85,210 | 111,696 | |||||
Cash and cash equivalents | 62,321 | 36,491 | |||||
Total | $ | 754,489 | $ | 755,743 |
Net Sales by Geographic Area (b) | ||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(In thousands) | 2018 | 2017 | 2018 | 2017(c) | ||||||||||||
United States | $ | 171,185 | $ | 154,710 | $ | 330,747 | $ | 284,611 | ||||||||
Exports from the United States to: | ||||||||||||||||
Asia | 18,884 | 21,165 | 42,476 | 39,887 | ||||||||||||
Canada | 14,239 | 11,510 | 27,537 | 24,602 | ||||||||||||
Europe | 1,697 | 2,275 | 3,519 | 4,633 | ||||||||||||
Latin America | 3,654 | 3,991 | 6,706 | 7,721 | ||||||||||||
Operations outside the United States: | ||||||||||||||||
Brazil | 23,659 | 21,294 | 46,811 | 42,653 | ||||||||||||
The Netherlands | 11,394 | 12,927 | 23,322 | 25,687 | ||||||||||||
Hungary | 8,519 | 6,138 | 17,337 | 11,329 | ||||||||||||
China | 1,692 | 2,710 | 3,966 | 6,115 | ||||||||||||
India | 396 | 2,715 | 2,820 | 4,916 | ||||||||||||
Total (a) | $ | 255,319 | $ | 239,435 | $ | 505,241 | $ | 452,154 |
Net Sales by Product Group | ||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
(In thousands) | 2018 | 2017 | 2018 | 2017(c) | ||||||||
PE Films: | ||||||||||||
Personal care materials | 55,985 | 62,790 | 117,629 | 124,088 | ||||||||
Surface protection films | 24,918 | 24,996 | 54,733 | 48,437 | ||||||||
LED lighting products & other films | 1,555 | 1,853 | 3,345 | 3,526 | ||||||||
Subtotal | 82,458 | 89,639 | 175,707 | 176,051 | ||||||||
Flexible Packaging Films | 28,304 | 26,588 | 56,741 | 53,297 | ||||||||
Aluminum Extrusions: | ||||||||||||
Nonresidential building & construction | 72,442 | 61,173 | 137,629 | 114,347 | ||||||||
Consumer durables | 17,161 | 14,024 | 32,309 | 25,766 | ||||||||
Distribution | 12,031 | 9,408 | 22,961 | 15,842 | ||||||||
Automotive | 11,157 | 10,112 | 20,787 | 20,265 | ||||||||
Residential building & construction | 12,343 | 13,068 | 21,813 | 19,528 | ||||||||
Machinery & equipment | 9,867 | 8,606 | 19,144 | 15,545 | ||||||||
Electrical | 9,556 | 6,817 | 18,150 | 11,513 | ||||||||
Subtotal | 144,557 | 123,208 | 272,793 | 222,806 | ||||||||
Total | 255,319 | 239,435 | 505,241 | 452,154 |
(a) | 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 $8.4 million and $17.2 million in the three months and six months ended June 30, 2018 and $7.9 million and $16.2 million in the three months and six months ended June 30, 2017, respectively. |
(b) | Export sales relate almost entirely to PE Films. Operations outside the U.S. in The Netherlands, Hungary, China and India also relate to PE Films. Operations in Brazil are primarily related to Flexible Packaging Films, but also include PE Films operations. Sales from locations in The Netherlands and Hungary are primarily to customers located in Europe. Sales from locations in China (Guangzhou and Shanghai) are primarily to customers located in China, but also include other customers in Asia. |
(c) | As disclosed in Note 1, prior period amounts have not been adjusted under the modified retrospective method. |
12. | The Tax Cuts and Jobs Act (the “TCJA”) makes broad and complex changes to the U.S. tax code, including but not limited to: (i) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (ii) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (iii) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (iv) creating new taxes on certain foreign earnings; (v) eliminating certain deductions; and (vi) providing the option to full expensing of qualified property. |
(In thousands, except percentages) | 2018 | 2017 | |||||||||||
Six Months Ended June 30, | Amount | % | Amount | % | |||||||||
Income tax expense at federal statutory rate | $ | 8,971 | 21.0 | $ | 18,603 | 35.0 | |||||||
U.S. Tax on Foreign Branch Income | 736 | 1.7 | — | — | |||||||||
Foreign rate differences | 669 | 1.6 | 876 | 1.8 | |||||||||
State taxes, net of federal income tax benefit | 537 | 1.2 | 615 | 1.2 | |||||||||
Stock-based compensation | 176 | 0.4 | 182 | 0.3 | |||||||||
Non-deductible expenses | 123 | 0.3 | 229 | 0.4 | |||||||||
Tax contingency accruals and tax settlements | 100 | 0.2 | 118 | 0.2 | |||||||||
Valuation allowance for capital loss carry-forwards | 91 | 0.2 | — | — | |||||||||
Changes in estimates related to prior year tax provision | (34 | ) | (0.1 | ) | 132 | 0.2 | |||||||
Unremitted earnings from foreign operations | — | — | (113 | ) | (0.2 | ) | |||||||
Domestic production activities deduction | — | — | (390 | ) | (0.7 | ) | |||||||
Remitted earnings from foreign operations | — | — | (413 | ) | (0.8 | ) | |||||||
Increase in value of kaleo investment held abroad | — | — | (2,326 | ) | (4.4 | ) | |||||||
Settlement of Terphane acquisition escrow | — | — | (4,200 | ) | (7.9 | ) | |||||||
Worthless stock deduction | — | — | (8,057 | ) | (15.2 | ) | |||||||
Research and development tax credit | (188 | ) | (0.4 | ) | (285 | ) | (0.5 | ) | |||||
Foreign Derived Intangible Income (FDII) | (309 | ) | (0.7 | ) | — | — | |||||||
Valuation allowance due to foreign losses and impairments | (383 | ) | (0.9 | ) | 275 | 0.5 | |||||||
Foreign tax incentives | (655 | ) | (1.5 | ) | — | — | |||||||
Effective income tax rate | $ | 9,834 | 23.0 | $ | 5,246 | 9.9 |
13. | In 2011, Tredegar was notified by U.S. Customs and Border Protection (“U.S. Customs”) that certain film products exported by Terphane Ltda. to the U.S. since November 6, 2008 could be subject to duties associated with an antidumping duty order on imported PET films from Brazil. The Company contested the applicability of these antidumping duties to the films exported by Terphane Ltda., and it filed a request with the U.S. Department of Commerce (“Commerce”) for clarification about whether the film products at issue are within the scope of the antidumping duty order. On January 8, 2013, Commerce issued a scope ruling confirming that the films are not subject to the order, provided that Terphane Ltda. can establish to the satisfaction of U.S. Customs that the performance enhancing layer on those films is greater than 0.00001 inches thick. The films at issue are manufactured to specifications that exceed that threshold. On February 6, 2013, certain U.S. producers of PET film filed a summons with the U.S. Court of International Trade to appeal the scope ruling from Commerce. In December 2014, the U.S. International Trade Commission voted to revoke the anti-dumping duty order on imported PET films from Brazil. The revocation, as a result of the vote by the U.S. International Trade Commission, was effective as of November 2013. On February 20, 2015, certain U.S. producers of PET films filed a summons with the U.S. Court of International Trade to appeal the determination by the U.S. International Trade Commission. The Court granted a motion by the plaintiffs to stay the appeal of the revocation decision pending the resolution of the scope appeal. On June 8, 2017, the U.S. Court of International Trade remanded the scope determination to Commerce for re-consideration of certain scope issues. On October 20, 2017, Commerce filed its Remand Redetermination Results with the U.S. Court of International Trade, and again found that Terphane Ltda.’s films are outside of the scope of the antidumping duty order. Commerce’s decision will now be reviewed by the U.S. Court of International Trade. On June 19, 2018, the United States Court of International Trade sustained Commerce’s determination that Terphane Ltda.’s films are outside the scope of anti-dumping duty order. The plaintiffs have until August 19, 2018 to appeal the court’s ruling. |
14. | In May 2014, the Financial Accounting Standards Board (“FASB”) and International Accounting Standards Board (“IASB”) issued their converged standard on revenue recognition. The revised revenue standard contains principles that an entity will apply to direct the measurement of revenue and timing of when it is recognized. The core principle of the guidance is that the recognition of revenue should depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods and services. To achieve that core principle, an entity will utilize a principle-based five-step approach model. The converged standard also includes more robust disclosure requirements which will require entities to provide sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In March 2016, amended guidance was issued regarding clarifying the implementation guidance on principal versus agent considerations and in April 2016, clarifying guidance was issued relating to identifying performance obligations and licensing implementation. The Company adopted the new standard effective January 1, 2018, using the modified retrospective approach applied to all contracts as of the date of adoption. Comparative periods have not been adjusted and continue to be reported under the accounting standards in effect for those periods. The adoption of ASU 2014-09, as amended, had no material impact on the Company’s consolidated financial position, results of operations, equity or cash flows as of the adoption date or for the three months ended March 31, 2018. The Company has included the disclosures required by ASU 2014-09. |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
• | loss or gain of sales to significant customers on which our business is highly dependent; |
• | ability to achieve sales to new customers to replace lost business; |
• | ability to develop, efficiently manufacture and deliver new products at competitive prices; |
• | failure of our customers to achieve success or maintain market share; |
• | failure to protect our intellectual property rights; |
• | risks of doing business in countries outside the U.S. that affect our substantial international operations; |
• | political, economic, and regulatory factors concerning our products; |
• | uncertain economic conditions in countries in which we do business; |
• | competition from other manufacturers, including manufacturers in lower-cost countries and manufacturers benefiting from government subsidies; |
• | impact of fluctuations in foreign exchange rates; |
• | a change in the amount of our underfunded defined benefit (pension) plan liability; |
• | an increase in the operating costs incurred by our operating companies, including, for example, the cost of raw materials and energy; |
• | inability to successfully identify, complete or integrate strategic acquisitions; failure to realize the expected benefits of such acquisitions; and assumption of unanticipated risks in such acquisitions; |
• | disruption to our manufacturing facilities; |
• | occurrence or threat of extraordinary events, including natural disasters and terrorist attacks; |
• | an information technology system failure or breach; |
• | volatility and uncertainty of the valuation of our cost-basis investment in kaléo; |
• | the impact of the imposition of tariffs and sanctions on imported aluminum ingot used in our aluminum extrusions; |
• | An unrealized after-tax gain on the Company’s investment in kaléo of $15.7 million ($0.47 per share); |
• | An after-tax gain of $11.9 million ($0.36 per share) from the settlement of an escrow agreement related to the Terphane acquisition in 2011; and |
• | An income tax benefit of $8.1 million ($0.25 per share) associated with the write-off of the stock basis of one of the Company’s U.S. subsidiaries. |
Three Months Ended | Favorable/ (Unfavorable) % Change | Six Months Ended | Favorable/ (Unfavorable) % Change | ||||||||||||||||||
(In thousands, Except Percentages) | June 30, | June 30, | |||||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
Sales volume (lbs) | 30,099 | 34,166 | (11.9 | )% | 64,922 | 69,222 | (6.2 | )% | |||||||||||||
Net sales | $ | 82,457 | $ | 89,639 | (8.0 | )% | $ | 175,707 | $ | 176,050 | (0.2 | )% | |||||||||
Operating profit from ongoing operations | $ | 8,678 | $ | 10,682 | (18.8 | )% | $ | 22,712 | $ | 19,713 | 15.2 | % |
• | Lower contribution to profits from personal care films, primarily due to lower volume as noted above ($2.0 million) and higher variable costs due to timing of resin pass-through ($0.3 million), partially offset by improved pricing on certain products ($0.6 million), net favorable impact from the change in U.S. Dollar value of currencies for operations outside of the U.S. ($0.6 million) and lower sales, general and administrative costs ($0.5 million); |
• | Lower contribution to profits from surface protection films, primarily due to a sales return reserve for a quality claim ($1.5 million), manufacturing inefficiencies ($0.8 million) and inventory adjustments ($0.3 million), partially offset by improved mix ($0.9 million); |
• | Additional costs of $0.5 million associated with business development activities related to optical films; and |
• | Realized cost savings associated with the previously announced project to consolidate domestic manufacturing facilities in PE Films ($0.8 million). |
• | Higher contribution to profits from surface protection films, primarily due to higher volume and improved mix ($3.8 million), partially offset by a sales return reserve for a quality claim ($1.5 million); |
• | Lower contribution to profits from personal care films, primarily due to lower volume in topsheet, elastics and other products ($3.4 million), partially offset by improved pricing on certain products ($1.3 million), net favorable impact from the change in U.S. Dollar value of currencies for operations outside of the U.S. ($0.9 million) and lower sales, general and administrative costs ($0.5 million); |
• | Additional costs of $0.5 million associated with business development activities related to optical films; and |
• | Realized cost savings associated with the previously announced project to consolidate domestic manufacturing facilities in PE Films ($1.8 million). |
Three Months Ended | Favorable/ (Unfavorable) % Change | Six Months Ended | Favorable/ (Unfavorable) % Change | ||||||||||||||||||
(In thousands, Except Percentages) | June 30, | June 30, | |||||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
Sales volume (lbs) | 23,701 | 21,966 | 7.9 | % | 47,018 | 44,028 | 6.8 | % | |||||||||||||
Net sales | $ | 28,304 | $ | 26,588 | 6.5 | % | $ | 56,741 | $ | 53,297 | 6.5 | % | |||||||||
Operating profit (loss) from ongoing operations | $ | 1,294 | $ | (319 | ) | NA | $ | 3,008 | $ | (2,317 | ) | NA |
• | Significantly lower depreciation and amortization of $2.2 million resulting from the $101 million non-cash asset impairment loss recognized in the fourth quarter of 2017; |
• | A benefit of $0.6 million primarily from higher volume and favorable foreign currency translation of Real-denominated operating costs, partially offset by a $0.4 million loss on foreign currency forward contracts that partially hedged Real-denominated operating costs; |
• | One-time costs of $0.4 million related to the restarting of the idled production line referenced above; and |
• | Net foreign currency transaction losses of $0.5 million (losses of $0.3 million in 2018 versus gains of $0.2 million in 2017). |
• | Significantly lower depreciation and amortization of $4.5 million resulting from the $101 million non-cash asset impairment loss recognized in the fourth quarter of 2017; |
• | A benefit of $1.9 million primarily from higher volume and favorable foreign currency translation of Real-denominated operating costs, partially offset by a $0.4 million loss on foreign currency forward contracts that partially hedged Real-denominated operating costs; |
• | One-time costs of $0.5 million related to the restarting of the idled production line referenced above; and |
• | Net foreign currency transaction losses of $0.3 million (losses of $0.4 million in 2018 versus $0.1 million in 2017). |
Three Months Ended | Favorable/ (Unfavorable) % Change | Six Months Ended | Favorable/ (Unfavorable) % Change | ||||||||||||||||||
(In thousands, Except Percentages) | June 30, | June 30, | |||||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
Sales volume (lbs) * | 55,057 | 51,976 | 5.9 | % |