Company Quick10K Filing
Tredegar
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 33 $660
10-Q 2019-11-06 Quarter: 2019-09-30
10-Q 2019-08-08 Quarter: 2019-06-30
10-Q 2019-05-09 Quarter: 2019-03-31
10-K 2019-03-18 Annual: 2018-12-31
10-Q 2018-11-09 Quarter: 2018-09-30
10-Q 2018-08-01 Quarter: 2018-06-30
10-Q 2018-05-01 Quarter: 2018-03-31
10-K 2018-02-22 Annual: 2017-12-31
10-Q 2017-11-01 Quarter: 2017-09-30
10-Q 2017-08-02 Quarter: 2017-06-30
10-Q 2017-05-02 Quarter: 2017-03-31
10-K 2017-02-22 Annual: 2016-12-31
10-Q 2016-11-02 Quarter: 2016-09-30
10-Q 2016-08-02 Quarter: 2016-06-30
10-Q 2016-05-03 Quarter: 2016-03-31
10-K 2016-02-29 Annual: 2015-12-31
10-Q 2015-11-09 Quarter: 2015-09-30
10-Q 2015-07-30 Quarter: 2015-06-30
10-Q 2015-05-05 Quarter: 2015-03-31
10-K 2015-03-02 Annual: 2014-12-31
10-Q 2014-11-06 Quarter: 2014-09-30
10-Q 2014-08-08 Quarter: 2014-06-30
10-Q 2014-05-01 Quarter: 2014-03-31
10-K 2014-02-28 Annual: 2013-12-31
10-Q 2013-11-04 Quarter: 2013-09-30
10-Q 2013-08-02 Quarter: 2013-06-30
10-Q 2013-05-03 Quarter: 2013-03-31
10-K 2013-03-01 Annual: 2012-12-31
10-Q 2012-11-02 Quarter: 2012-09-30
10-Q 2012-08-02 Quarter: 2012-06-30
10-Q 2012-05-04 Quarter: 2012-03-31
10-K 2012-03-02 Annual: 2011-12-31
10-Q 2011-11-03 Quarter: 2011-09-30
10-Q 2011-08-04 Quarter: 2011-06-30
10-Q 2011-05-05 Quarter: 2011-03-31
10-K 2011-03-04 Annual: 2010-12-31
10-Q 2010-11-03 Quarter: 2010-09-30
10-Q 2010-08-04 Quarter: 2010-06-30
10-Q 2010-05-05 Quarter: 2010-03-31
10-K 2010-03-04 Annual: 2009-12-31
8-K 2019-11-06 Earnings, Exhibits
8-K 2019-10-08 Other Events, Exhibits
8-K 2019-08-08 Earnings, Exhibits
8-K 2019-06-28 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2019-05-10 Earnings, Exhibits
8-K 2019-05-02 Shareholder Vote, Regulation FD, Exhibits
8-K 2019-03-19 Earnings, Exhibits
8-K 2019-02-22 Officers
8-K 2018-11-09 Earnings, Exhibits
8-K 2018-11-01 Other Events
8-K 2018-08-16 Officers, Exhibits
8-K 2018-08-02 Earnings, Exhibits
8-K 2018-06-04 Exit Costs
8-K 2018-05-10 Officers
8-K 2018-05-02 Earnings, Exhibits
8-K 2018-05-01 Accountant, Officers, Shareholder Vote, Regulation FD, Exhibits
8-K 2018-02-22 Earnings, Exhibits
8-K 2018-02-19 Officers
TG 2019-09-30
Part I - Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1A. Risk Factors.
Item 6. Exhibits.
EX-31.1 tg-ex311_20190930x10q.htm
EX-31.2 tg-ex312_20190930x10q.htm
EX-32.1 tg-ex321_20190930x10q.htm
EX-32.2 tg-ex322_20190930x10q.htm

Tredegar Earnings 2019-09-30

TG 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
CSTM 930 3,901 4,015 0 0 0 0 766 0%
CIR 910 1,713 1,218 1,139 329 -51 96 1,561 29% 16.2 -3%
NCS 758 5,654 4,746 3,482 757 21 299 4,008 22% 13.4 0%
BRSS 750 721 516 1,724 190 61 119 952 11% 8.0 8%
WFT 703 6,381 10,770 5,528 308 -2,211 -1,070 7,451 6% -7.0 -35%
NR 666 934 368 911 116 20 86 783 13% 9.1 2%
TG 660 730 342 0 48 26 70 693 9.9 4%
NX 614 680 319 898 104 -9 59 795 12% 13.4 -1%
FET 397 1,822 802 1,062 250 -408 -333 838 24% -2.5 -22%
NNBR 379 1,572 1,194 840 0 -259 -112 1,245 0% -11.1 -16%

10-Q 1 tg-20190930x10q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 1-10258 
 
Tredegar Corporation
(Exact Name of Registrant as Specified in Its Charter)
 
 
Virginia
 
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)
Registrant’s Telephone Number, Including Area Code: (804) 330-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, no par value
TG
New York Stock Exchange
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
¨
Accelerated filer
x
Smaller reporting company
 
¨
 
 
 
 
 
 
Non-accelerated filer
 
¨ 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
The number of shares of Common Stock, no par value, outstanding as of November 1, 2019: 33,350,128




PART I - FINANCIAL INFORMATION
 
Item 1.
Financial Statements.
Tredegar Corporation
Consolidated Balance Sheets
(In Thousands, Except Share Data)
(Unaudited)
 
September 30,
 
December 31,
 
2019
 
2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
36,886

 
$
34,397

Restricted cash
7,766

 

Accounts and other receivables, net of allowance for doubtful accounts and sales returns of $3,140 in 2019 and $2,937 in 2018
115,661

 
124,727

Income taxes recoverable
5,263

 
6,783

Inventories
85,315

 
93,810

Prepaid expenses and other
9,438

 
9,564

Total current assets
260,329

 
269,281

Property, plant and equipment, at cost
796,829

 
793,072

Less accumulated depreciation
(560,493
)
 
(564,703
)
Net property, plant and equipment
236,336

 
228,369

Right-of-use leased assets
19,526

 

Investment in kaléo (cost basis of $7,500)
95,500

 
84,600

Identifiable intangible assets, net
31,010

 
36,295

Goodwill
81,404

 
81,404

Deferred income taxes
1,740

 
3,412

Other assets
5,089

 
4,012

Total assets
$
730,934

 
$
707,373

Liabilities and Shareholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
103,926

 
$
112,758

Accrued expenses
47,677

 
42,495

Lease liability, short-term
2,842

 

Total current liabilities
154,445

 
155,253

Lease liability, long-term
18,197

 

Long-term debt
68,000

 
101,500

Pension and other postretirement benefit obligations, net
80,665

 
88,124

Deferred income taxes
6,816

 

Other noncurrent liabilities
4,976

 
7,639

Total liabilities
333,099

 
352,516

Shareholders’ equity:
 
 
 
Common stock, no par value (issued and outstanding - 33,350,128 shares at September 30, 2019 and 33,176,024 shares at December 31, 2018)
42,708

 
38,892

Common stock held in trust for savings restoration plan (74,338 shares at September 30, 2019 and 72,883 shares at December 31, 2018)
(1,583
)
 
(1,559
)
Accumulated other comprehensive income (loss):
 
 
 
Foreign currency translation adjustment
(103,231
)
 
(96,940
)
Gain (loss) on derivative financial instruments
(2,457
)
 
(1,601
)
Pension and other post-retirement benefit adjustments
(75,210
)
 
(81,446
)
Retained earnings
537,608

 
497,511

Total shareholders’ equity
397,835

 
354,857

Total liabilities and shareholders’ equity
$
730,934

 
$
707,373


2



See accompanying notes to financial statements.

3



Tredegar Corporation
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenues and other items:
 
 
 
 
 
 
 
Sales
$
243,217

 
$
267,294

 
$
739,931

 
$
789,765

Other income (expense), net
10,634

 
(2,557
)
 
34,840

 
11,532

 
253,851

 
264,737

 
774,771

 
801,297

Costs and expenses:
 
 
 
 
 
 
 
Cost of goods sold
191,565

 
217,378

 
584,799

 
631,235

Freight
8,986

 
9,438

 
26,893

 
26,667

Selling, general and administrative
23,130

 
20,676

 
69,006

 
63,452

Research and development
4,942

 
5,150

 
14,877

 
14,107

Amortization of identifiable intangibles
3,400

 
1,022

 
5,182

 
3,076

Pension and postretirement benefits
2,415

 
2,653

 
7,246

 
7,809

Interest expense
859

 
1,318

 
3,354

 
4,539

Asset impairments and costs associated with exit and disposal activities, net of adjustments
1,464

 
1,209

 
3,595

 
1,799

Goodwill impairment

 
46,792

 

 
46,792

Total
236,761

 
305,636

 
714,952

 
799,476

Income (loss) before income taxes
17,090

 
(40,899
)
 
59,819

 
1,821

Income tax expense (benefit)
(43
)
 
(6,699
)
 
8,424

 
3,135

Net income (loss)
$
17,133

 
$
(34,200
)
 
$
51,395

 
$
(1,314
)
 
 
 
 
 
 
 
 
Earnings (loss) per share:
 
 
 
 
 
 
 
Basic
$
0.51

 
$
(1.03
)
 
$
1.55

 
$
(0.04
)
Diluted
$
0.51

 
$
(1.03
)
 
$
1.55

 
$
(0.04
)
Shares used to compute earnings (loss) per share:
 
 
 
 
 
 
 
Basic
33,271

 
33,110

 
33,222

 
33,056

Diluted
33,285

 
33,110

 
33,230

 
33,056

Dividends per share
$
0.12

 
$
0.11

 
$
0.34

 
$
0.33

See accompanying notes to financial statements.


4



Tredegar Corporation
Consolidated Statements of Comprehensive Income (Loss)
(In Thousands)
(Unaudited)

 
Three Months Ended September 30,
 
2019
 
2018
Net income (loss)
$
17,133

 
$
(34,200
)
  Other comprehensive income (loss):
 
 
 
Unrealized foreign currency translation adjustment (net of tax benefit of $775 in 2019 and tax of $0 in 2018)
(6,008
)
 
(2,666
)
Derivative financial instruments adjustment (net of tax of $75 in 2019 and tax benefit of $336 in 2018)
(1,124
)
 
(1,701
)
Amortization of prior service costs and net gains or losses (net of tax of $593 in 2019 and tax of $789 in 2018)
2,078

 
2,703

Other comprehensive income (loss)
(5,054
)
 
(1,664
)
Comprehensive income (loss)
$
12,079

 
$
(35,864
)
 
 
 
 
 
Nine Months Ended September 30,
 
2019
 
2018
Net income (loss)
$
51,395

 
$
(1,314
)
  Other comprehensive income (loss):
 
 
 
Unrealized foreign currency translation adjustment (net of tax benefit of $775 in 2019 and tax benefit of $0 in 2018)
(6,291
)
 
(11,571
)
Derivative financial instruments adjustment (net of tax of $24 in 2019 and tax benefit of $316 in 2018)
(856
)
 
(2,891
)
Amortization of prior service costs and net gains or losses (net of tax of $1,778 in 2019 and tax of $2,312 in 2018)
6,236

 
7,926

Other comprehensive income (loss)
(911
)
 
(6,536
)
Comprehensive income (loss)
$
50,484

 
$
(7,850
)
See accompanying notes to financial statements.


5



Tredegar Corporation
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)

 
Nine Months Ended September 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income (loss)
$
51,395

 
$
(1,314
)
Adjustments for noncash items:
 
 
 
Depreciation
22,572

 
22,272

Amortization of identifiable intangibles
5,182

 
3,076

Amortization of right-of-use lease asset
1,899

 

Goodwill impairment

 
46,792

Deferred income taxes
7,404

 
1,152

Accrued pension and post-retirement benefits
7,246

 
7,809

(Gain)/loss on investment in kaléo accounted for under the fair value method
(10,900
)
 
(11,900
)
(Gain)/loss on asset impairments and divestitures
519

 
185

Net (gain)/loss on disposal of assets
(6,328
)
 
(86
)
Changes in assets and liabilities, net of effects of acquisitions and divestitures:
 
 
 
Accounts and other receivables
7,715

 
(13,020
)
Inventories
6,625

 
(9,204
)
Income taxes recoverable/payable
1,439

 
25,912

Prepaid expenses and other
14

 
(1,655
)
Accounts payable and accrued expenses
(223
)
 
29,452

Lease liability
(1,991
)
 

Pension and postretirement benefit plan contributions
(6,692
)
 
(7,182
)
Other, net
447

 
705

Net cash provided by operating activities
86,323

 
92,994

Cash flows from investing activities:
 
 
 
Capital expenditures
(37,214
)
 
(25,078
)
Return of escrowed funds relating to acquisition earn-out

 
4,250

Proceeds from the sale of assets and other
10,931

 
1,108

Net cash used in investing activities
(26,283
)
 
(19,720
)
Cash flows from financing activities:
 
 
 
Borrowings
53,000

 
34,750

Debt principal payments
(86,500
)
 
(95,750
)
Dividends paid
(11,322
)
 
(10,943
)
Debt financing costs
(1,817
)
 

Proceeds from exercise of stock options and other
(854
)
 
1,004

Net cash used in financing activities
(47,493
)
 
(70,939
)
Effect of exchange rate changes on cash
(2,292
)
 
(2,050
)
Increase in cash, cash equivalents and restricted cash
10,255

 
285

Cash, cash equivalents and restricted cash at beginning of period
34,397

 
36,491

Cash, cash equivalents and restricted cash at end of period
$
44,652

 
$
36,776

See accompanying notes to financial statements.


6



Tredegar Corporation
Consolidated Statement of Shareholders’ Equity
(In Thousands, Except Share and Per Share Data)
(Unaudited)

The following summarizes the changes in shareholders’ equity for the three month period ended September 30, 2019:
 
 
 
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 July 1, 2019
$
41,227

 
$
524,468

 
$
(1,575
)
 
$
(97,223
)
 
$
(1,333
)
 
$
(77,288
)
 
$
388,276

Net income

 
17,133

 

 

 

 

 
17,133

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment (net of tax benefit of $775)

 

 

 
(6,008
)
 

 

 
(6,008
)
Derivative financial instruments adjustment (net of tax of $75)

 

 

 

 
(1,124
)
 

 
(1,124
)
Amortization of prior service costs and net gains or losses (net of tax of $593)

 

 

 

 

 
2,078

 
2,078

Cash dividends declared ($0.12 per share)

 
(4,001
)
 

 

 

 

 
(4,001
)
Stock-based compensation expense
1,481

 

 

 

 

 

 
1,481

Issued upon exercise of stock options & other

 

 

 

 

 

 

Tredegar common stock purchased by trust for savings restoration plan

 
8

 
(8
)
 

 

 

 

Balance at September 30, 2019
$
42,708

 
$
537,608

 
$
(1,583
)
 
$
(103,231
)
 
$
(2,457
)
 
$
(75,210
)
 
$
397,835


7



The following summarizes the changes in shareholders’ equity for the nine month period ended September 30, 2019:
 
 
 
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, 2019
$
38,892

 
$
497,511

 
$
(1,559
)
 
$
(96,940
)
 
$
(1,601
)
 
$
(81,446
)
 
$
354,857

Net income

 
51,395

 

 

 

 

 
51,395

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment (net of tax benefit of $775)

 

 

 
(6,291
)
 

 

 
(6,291
)
Derivative financial instruments adjustment (net of tax of $24)

 

 

 

 
(856
)
 

 
(856
)
Amortization of prior service costs and net gains or losses (net of tax of $1,778)

 

 

 

 

 
6,236

 
6,236

Cash dividends declared ($0.34 per share)

 
(11,322
)
 

 

 

 

 
(11,322
)
Stock-based compensation expense
4,670

 

 

 

 

 

 
4,670

Issued upon exercise of stock options & other
(854
)
 

 

 

 

 

 
(854
)
Tredegar common stock purchased by trust for savings restoration plan

 
24

 
(24
)
 

 

 

 

Balance at September 30, 2019
$
42,708

 
$
537,608

 
$
(1,583
)
 
$
(103,231
)
 
$
(2,457
)
 
$
(75,210
)
 
$
397,835



8



The following summarizes the changes in shareholders’ equity for the three month period ended September 30, 2018:
 
 
 
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 July 1, 2018
$
37,654

 
$
512,840

 
$
(1,544
)
 
$
(95,083
)
 
$
(731
)
 
$
(85,727
)
 
$
367,409

Net income (loss)

 
(34,200
)
 

 

 

 

 
(34,200
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment (net of tax of $0)

 

 

 
(2,666
)
 

 

 
(2,666
)
Derivative financial instruments adjustment (net of tax benefit of $336)

 

 

 

 
(1,701
)
 

 
(1,701
)
Amortization of prior service costs and net gains or losses (net of tax of $789)

 

 

 

 

 
2,703

 
2,703

Cash dividends declared ($0.11 per share)

 
(3,651
)
 

 

 

 

 
(3,651
)
Stock-based compensation expense
799

 

 

 

 

 

 
799

Issued upon exercise of stock options & other
78

 

 

 

 

 

 
78

Tredegar common stock purchased by trust for savings restoration plan

 
8

 
(8
)
 

 

 

 

Balance at September 30, 2018
$
38,531

 
$
474,997

 
$
(1,552
)
 
$
(97,749
)
 
$
(2,432
)
 
$
83,024

 
$
328,771


9



The following summarizes the changes in shareholders’ equity for the nine month period ended September 30, 2018:
 
 
 
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 (loss)

 
(1,314
)
 

 

 

 

 
(1,314
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment (net of tax of $0)

 

 

 
(11,571
)
 

 

 
(11,571
)
Derivative financial instruments adjustment (net of tax benefit of $316)

 

 

 

 
(2,891
)
 

 
(2,891
)
Amortization of prior service costs and net gains or losses (net of tax of $2,312)

 

 

 

 

 
7,926

 
7,926

Cash dividends declared ($0.33 per share)

 
(10,943
)
 

 

 

 

 
(10,943
)
Stock-based compensation expense
2,780

 

 

 

 

 

 
2,780

Issued upon exercise of stock options & other
1,004

 

 

 

 

 

 
1,004

Tredegar common stock purchased by trust for savings restoration plan

 
24

 
(24
)
 

 

 

 

Balance at September 30, 2018
$
38,531

 
$
474,997

 
$
(1,552
)
 
$
(97,749
)
 
$
(2,432
)
 
$
83,024

 
$
328,771


See accompanying notes to financial statements.


10



TREDEGAR CORPORATION
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
 
1
BASIS OF PRESENTATION
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 September 30, 2019, the consolidated results of operations for the three and nine months ended September 30, 2019 and 2018, the consolidated cash flows for the nine months ended September 30, 2019 and 2018, and the consolidated changes in shareholders’ equity for the nine months ended September 30, 2019 and 2018, in accordance with U.S. generally accepted accounting principles (“GAAP”). All such adjustments, unless otherwise detailed in the notes to the consolidated interim financial statements, are deemed to be of a normal, recurring nature.
The Company operates on a calendar fiscal year except for the Aluminum Extrusions segment, which operates on a 52/53-week fiscal year basis.  As such, the fiscal third quarter for 2019 and 2018 for this segment references 13-week periods ended September 29, 2019 and September 23, 2018, respectively.  The Company does not believe the impact of reporting the results of this segment as stated above is material to the consolidated financial results.
The financial position data as of December 31, 2018 that is included herein was derived from the audited consolidated financial statements provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”) but does not include all disclosures required by GAAP. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the 2018 Form 10-K. The results of operations for the three and nine months ended September 30, 2019, are not necessarily indicative of the results to be expected for the full year. Certain prior year balances have been reclassified to conform with current year presentation.
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the consolidated statements of cash flows:
 
 
September 30,
 
December 31,
(In thousands)
2019
 
2018
Cash and cash equivalents
$
36,886

 
$
34,397

Restricted cash
7,766

 

      Total cash, cash equivalents and restricted cash
$
44,652

 
$
34,397

Restricted cash as of September 30, 2019 consists of funds received in the second and third quarters of 2019 for the sale of the PE Films idle manufacturing facility in Shanghai, China. The sale of the facility closed in the third quarter of 2019, and a pre-tax gain of $6.3 million was recognized. The Company is in the process of liquidating the legal entity that previously operated the Shanghai facility and received the funds from the sale. Chinese government regulations limit the use of these funds to the purposes of the liquidating entity until the completion of the liquidation process, which the Company expects to be concluded within the next six months.

11



Trade Name Accelerated Amortization
On October 30, 2019, Bonnell Aluminum announced a rebranding initiative. Bonnell and its subsidiaries, AACOA and Futura, will now all fall under the Bonnell Aluminum brand. The usage of the AACOA and Futura trade names will be discontinued at the end of 2019. In September 2019, management committed to implement the rebranding initiative. Prior to this commitment, the AACOA trade name had an indefinite useful life and a remaining net book value of $4.8 million, and the Futura trade name had an estimated remaining useful life of approximately 10.5 years and a remaining net book value of $5.4 million. As a result of the rebranding initiative, there was a change in estimate in the useful lives for both trade names to 4 months, the point at which the rebranding initiative is estimated to be substantially complete. The non-cash amounts amortized and to be amortized in the third and fourth quarters of 2019, respectively, related to these trade names are as follows:
(in millions)
Three Months Ended
 
September 30, 2019
December 31, 2019
AACOA - accelerated
$
1.2

$
3.6

Futura - accelerated
1.3

3.9

Futura - ongoing1
0.1

0.1

  Total amortization
$
2.6

$
7.6

1.
Amortization based on original useful life.

2
REVENUE RECOGNITION
As of September 30, 2019 and December 31, 2018, accounts receivable and other receivables, net, were $115.7 million and $124.7 million, respectively, made up of the following:
 
 
September 30,
 
December 31,
(In thousands)
2019
 
2018
Customer receivables
$
114,112

 
$
122,182

Other accounts and notes receivable
4,689

 
5,482

      Total accounts and other receivables
118,801

 
127,664

Less: Allowance for bad debts and sales returns
(3,140
)
 
(2,937
)
Total accounts and other receivables, net
$
115,661

 
$
124,727

For the three and nine months ended September 30, 2019, the Company had no material bad-debt expense and there were no material contract assets, contract liabilities or deferred contract costs recorded on the consolidated balance sheets as of September 30, 2019. Payment terms start from the date of satisfaction of the performance obligation and vary from COD (cash on delivery) to 120 days. The Company’s contracts generally include one performance obligation, which is satisfied at a point in time.
For the three and nine months ended September 30, 2019, revenue recognized from performance obligations related to prior periods (for example, changes in transaction price) was not material.
Revenue expected to be recognized in any future period related to remaining performance obligations, excluding i) revenue pertaining to contracts that have an original expected duration of one year or less, ii) contracts where revenue is recognized as invoiced and iii) variable consideration related to unsatisfied performance obligations, is not expected to materially impact the Company’s financial results. 
3
ASSET IMPAIRMENTS AND COSTS ASSOCIATED WITH EXIT AND DISPOSAL ACTIVITIES
The Company plans to close its PE Films manufacturing facility in Lake Zurich, Illinois, which produces elastic materials. Production at the Lake Zurich plant is expected to cease during the fourth quarter of 2019 with product transfers to the new elastic production line at Terre Haute, Indiana (“Lake Zurich plant shutdown”). As a result of the Lake Zurich plant shutdown, the Company expects to recognize pre-tax cash costs of $7.6 million comprised of (i) customer-related costs ($0.7 million), (ii) severance and other employee related costs ($1.8 million), and (iii) asset disposal and other cash costs ($5.1 million).  In addition, the Company expects non-cash asset write-offs and accelerated depreciation of $1.6 million. Total expenses associated with the Lake Zurich plant shutdown are $1.9 million since

12



project inception. Cash expenditures were $0.2 million and $0.2 million in the three and nine months ended September 30, 2019, respectively. Proceeds from the expected sale of Lake Zurich’s real property are estimated at approximately $5 million. The Company anticipates that the Lake Zurich plant shutdown will be completed by the end of 2020.
The Company plans to consolidate the production of certain PE Films personal care products in Europe over the next twelve months (“PC Europe consolidation”). As a result of this consolidation, the Company expects to recognize pre-tax cash costs of $1.7 million, primarily for severance and customer-related costs. Total expenses associated with the PC Europe consolidation are $0.7 million since project inception. Cash expenditures were $0.1 million in the three and nine months ended September 30, 2019.
In June 2018, the Company announced plans to close its facility in Shanghai, China, which primarily produced plastic films used as components for personal care products (“Shanghai plant shutdown”).  Production ceased at this plant during the fourth quarter of 2018.  Total expenses associated with the Shanghai transition are $4.0 million since project inception. Cash expenditures were $0.2 million and $0.7 million in the three and nine months ended September 30, 2019, respectively, and $3.2 million since project inception. The plant facilities were sold in the third quarter of 2019, resulting in a pre-tax gain of $6.3 million, reported in “Other income (expense), net” in the consolidated statements of income.
Other pre-tax charges include restructuring costs in PE Films for severance in the amounts of $0.1 million and $0.6 million, in the three and nine months ended September 30, 2019, respectively, the write-off of inventory at PE Films’ Personal Care facility in Restag, Hungary in the amount of $0.2 million in the three months ended September 30, 2019, and the write-off of a Personal Care production line at the Guangzhou, China facility in the amount of $0.4 million in the nine months ended September 30, 2019.
A reconciliation of the beginning and ending balances of accrued expenses associated with exit and disposal activities and charges associated with asset impairments and reported as “Asset impairments and costs associated with exit and disposal activities, net of adjustments” in the consolidated statements of income for the nine months ended September 30, 2019 is as follows.
(In thousands)
Severance
 
Asset Impairments
 
Other 
 
Total
Balance at January 1, 2019
$
616

 
$

 
$
160

 
$
776

Changes in 2019:
 
 
 
 
 
 
Charges:
 
 
 
 
 
 
 
Shanghai plant shutdown
101

 

 
625

 
726

Lake Zurich plant shutdown
720

 
206

 

 
926

PC Europe consolidation
594

 
96

 

 
690

Other restructuring charges(a)
628

 
573

 
52

 
1,253

 
2,043

 
875

 
677

 
3,595

Cash payments
(1,212
)
 

 
(721
)
 
(1,933
)
Charges against assets

 
(875
)
 

 
(875
)
Balance at September 30, 2019
$
1,447

 
$

 
$
116

 
$
1,563

(a) Asset impairments not related to restructuring or exit and disposal activities are described in a paragraph above.
    
4
INVENTORIES
The components of inventories are as follows:
 
 
September 30,
 
December 31,
(In thousands)
2019
 
2018
Finished goods
$
22,638

 
$
24,938

Work-in-process
13,565

 
15,648

Raw materials
29,014

 
33,741

Stores, supplies and other
20,098

 
19,483

Total
$
85,315

 
$
93,810

 

13



5
EARNINGS PER SHARE
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
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands)
2019
 
2018
 
2019
 
2018
Weighted average shares outstanding used to compute basic earnings per share
33,271

 
33,110

 
33,222

 
33,056

Incremental dilutive shares attributable to stock options and restricted stock
14

 

 
8

 

Shares used to compute diluted earnings per share
33,285

 
33,110

 
33,230

 
33,056

Incremental shares attributable to stock options and restricted stock are computed under the treasury stock method using the average market price during the related period. For the three and nine months ended September 30, 2019, average out-of-the-money options to purchase shares that were excluded from the calculation of incremental shares attributable to stock options and restricted stock were 1,222,000 and 1,224,222, respectively. For the three and nine months ended September 30, 2018, average out-of-the-money options to purchase shares that were excluded from the calculation of incremental shares attributable to stock options and restricted stock were 178,676 and 236,138, respectively.

6
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes the after-tax changes in accumulated other comprehensive income (loss) for the nine months ended September 30, 2019:
(In thousands)
Foreign
currency
translation
adjustment
 
Gain (loss) on
derivative
financial
instruments
 
Pension and
other
post-retirement
benefit
adjustments
 
Total
Beginning balance, January 1, 2019
$
(96,940
)
 
$
(1,601
)
 
$
(81,446
)
 
$
(179,987
)
Other comprehensive income (loss) before reclassifications
(6,291
)
 
(3,065
)
 

 
(9,356
)
Amounts reclassified from accumulated other comprehensive income (loss)

 
2,209

 
6,236

 
8,445

Net other comprehensive income (loss) - current period
(6,291
)
 
(856
)
 
6,236

 
(911
)
Ending balance, September 30, 2019
$
(103,231
)
 
$
(2,457
)
 
$
(75,210
)
 
$
(180,898
)
    
The following table summarizes the after-tax changes in accumulated other comprehensive income (loss) for the nine months ended September 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
(11,571
)
 
(3,045
)
 

 
(14,616
)
Amounts reclassified from accumulated other comprehensive income (loss)

 
154

 
7,926

 
8,080

Net other comprehensive income (loss) - current period
(11,571
)
 
(2,891
)
 
7,926

 
(6,536
)
Ending balance, September 30, 2018
$
(97,749
)
 
$
(2,432
)
 
$
(83,024
)
 
$
(183,205
)

14



Reclassifications of balances out of accumulated other comprehensive income (loss) into net income (loss) for the three months ended September 30, 2019 are summarized as follows:
(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
$
(816
)
 
Cost of sales
Foreign currency forward contracts, before taxes
(101
)
 
Selling, general & administrative
Foreign currency forward contracts, before taxes
15

 
Cost of sales
Total, before taxes
(902
)
 
 
Income tax expense (benefit)
(179
)
 
Income taxes
Total, net of tax
$
(723
)
 
 
Amortization of pension and other post-retirement benefits:
 
 
 
Actuarial gain (loss) and prior service costs, before taxes
$
(2,672
)
 
(a)
Income tax expense (benefit)
(593
)
 
Income taxes
Total, net of tax
$
(2,079
)
 
 
(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).
Reclassifications of balances out of accumulated other comprehensive income (loss) into net income (loss) for the nine months ended September 30, 2019 are summarized as follows:
(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
$
(2,039
)
 
Cost of sales
Foreign currency forward contracts, before taxes
(661
)
 
Selling, general & administrative
Foreign currency forward contracts, before taxes
46

 
Cost of sales
Total, before taxes
(2,654
)
 
 
Income tax expense (benefit)
(445
)
 
Income taxes
Total, net of tax
$
(2,209
)
 
 
Amortization of pension and other post-retirement benefits:
 
 
 
Actuarial gain (loss) and prior service costs, before taxes
$
(8,014
)
 
(a)
Income tax expense (benefit)
(1,778
)
 
Income taxes
Total, net of tax
$
(6,236
)
 
 
(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).
Reclassifications of balances out of accumulated other comprehensive income (loss) into net income for the three months ended September 30, 2018 are summarized as follows:

15



(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
$
300

 
Cost of sales
Foreign currency forward contracts, before taxes
(807
)
 
Selling, general & administrative
Foreign currency forward contracts, before taxes
15

 
Cost of sales
Total, before taxes
(492
)
 
 
Income tax expense (benefit)
23

 
Income taxes
Total, net of tax
$
(515
)
 
 
Amortization of pension and other post-retirement benefits:
 
 
 
Actuarial gain (loss) and prior service costs, before taxes
$
(3,492
)
 
(a)
Income tax expense (benefit)
(789
)
 
Income taxes
Total, net of tax
$
(2,703
)
 
 
(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).
Reclassifications of balances out of accumulated other comprehensive income (loss) into net income for the nine months ended September 30, 2018 are summarized as follows:
(In thousands)
Amount
reclassified from
other
comprehensive
income (loss)
 
Location of gain
(loss) reclassified
from accumulated
other
comprehensive
income to net
income
Gain (loss) on derivative financial instruments:
 
 
 
Aluminum future contracts, before taxes
$
1,244

 
Cost of sales
Foreign currency forward contracts, before taxes
(1,226
)
 
Selling, general & administrative
Foreign currency forward contracts, before taxes
46

 
Cost of sales
Total, before taxes
64

 
 
Income tax expense (benefit)
218

 
Income taxes
Total, net of tax
$
(154
)
 
 
Amortization of pension and other post-retirement benefits:
 
 
 
Actuarial gain (loss) and prior service costs, before taxes
$
(10,238
)
 
(a)
Income tax expense (benefit)
(2,312
)
 
Income taxes
Total, net of tax
$
(7,926
)
 
 
 
 
 
 
(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
INVESTMENTS
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. Tredegar owns Series A-3 Preferred Stock and Series B Preferred Stock in kaléo that, taken together, represents on a fully-diluted basis an approximate 18.4% interest in kaléo. Tredegar accounts for its investment in kaléo under the fair value option. At the time of the initial investment, the Company elected the fair

16



value option of accounting since its investment objectives were similar to those of venture capitalists, which typically do not have controlling financial interests.
The estimated fair value of the Company’s investment was $95.5 million as of September 30, 2019 and $84.6 million as of December 31, 2018. The Company recognized net appreciation on its investment in kaléo of $4.3 million ($3.4 million after taxes) in the third quarter of 2019. The net appreciation on its investment of $28.5 million ($23.4 million after taxes) in the first nine months of 2019 included Tredegar’s $17.6 million share of a cash dividend declared by kaléo on March 29, 2019 and paid on April 30, 2019. Future dividends are subject to the discretion of kaléo’s board of directors. Amounts recognized associated with the Company’s investment in kaléo are included in “Other income (expense), net” in the consolidated statements of income and separately stated in the segment operating profit table in Note 11.
The Company estimated the fair value of its investment in kaléo at September 30, 2019 by: (i) computing the weighted average estimated enterprise value (“EV”) utilizing both the discounted cash flow method (the “DCF Method”) and the application of a market multiple to earnings before interest, taxes, depreciation and amortization (the “EBITDA Multiple Method”), (ii) applying adjustments for any surplus or deficient working capital and estimates of contingent liabilities, (iii) adding cash and cash equivalents, (iv) subtracting interest-bearing debt, (v) subtracting a private company liquidity discount estimated at 10% of the net result of (i) through (iv), and (vi) applying liquidation preferences and fully diluted ownership percentages to the estimated equity value computed in (i) through (v).
The Company’s estimate of kaléo’s EV as of September 30, 2019 was determined by weighting the EBITDA Multiple Method by 80% and the DCF Method by 20%, which was consistent with the weighting applied at December 31, 2018. The heavier weighting towards the EBITDA Multiple Method was due to its heuristic nature versus the hypothetical nature of the projections used in the DCF Method. The DCF Method projections rely on numerous assumptions and Level 3 inputs, including estimating market growth, market share, pricing, net margins (after allowances for temporary discounts, prompt pay discounts, product returns, wholesaler fees, chargebacks, rebates and copays), selling expenses, R&D expenses, general and administrative expenses, income taxes on unlevered pretax income, working capital, capital expenditures and the risk-adjusted discount rate. In addition, there are various regulatory and legal enforcement efforts, including an ongoing Department of Justice investigation related to kaléo’s Evzio business, which could have a material adverse effect on kaléo’s business that require assessment in any valuation method applied.
The table below provides a sensitivity analysis of the estimated fair value at September 30, 2019, of the Company’s investment in kaléo for changes in the EBITDA multiple used in applying the EBITDA Multiple Method and the changes in the weighting of the DCF Method.
($ Millions)
 
EV-to-Adjusted EBITDA Multiple
 
 
7.0 x

8.0 x

9.0 x

10.0x

11.0x

Weighting to DCF Method
50
%
$
85.2

$
91.4

$
97.6

$
103.8

$
109.9

40
%
$
82.1

$
89.5

$
96.9

$
104.3

$
111.7

30
%
$
78.9

$
87.6

$
96.2

$
104.9

$
113.5

20
%
$
75.8

$
85.6

$
95.5

$
105.4

$
115.3

10
%
$
72.6

$
83.7

$
94.8

$
106.0

$
117.1

0
%
$
69.5

$
81.8

$
94.2

$
106.5

$
118.9


The estimated fair value increased from $91.2 million at the Company’s prior valuation date of June 30, 2019, to $95.5 million at the current valuation date of September 30, 2019. This increase of $4.3 million was mainly due to lower deficient working capital, a reduction in the liquidity discount from 15% to 10% and an increase in the EBITDA multiple supported by higher projected growth, partially offset by lower current EBITDA applied to the EBITDA multiple.
The ultimate value of the Company’s ownership interest in kaléo will be determined and realized only if and when a liquidity event occurs, and the ultimate value could be materially different from the $95.5 million estimated fair value reflected in the Company’s financial statements at September 30, 2019.


17



8
DERIVATIVE FINANCIAL INSTRUMENTS
Tredegar uses derivative financial instruments for the purpose of hedging margin exposure from fixed-price forward sales contracts in Aluminum Extrusions and exposure from currency volatility that exist as part of ongoing business operations (primarily in Flexible Packaging Films). These derivative financial instruments are designated as and qualify as cash flow hedges and are recognized in the consolidated balance sheet at fair value. The fair value of derivative instruments recorded on the consolidated balance sheets are based upon Level 2 inputs. If individual derivative instruments with the same counterparty can be settled on a net basis, the Company records the corresponding derivative fair values as a net asset or net liability.
In the normal course of business, Aluminum Extrusions enters into fixed-price forward sales contracts with certain customers for the future sale of fixed quantities of aluminum extrusions at scheduled intervals. In order to hedge margin exposure created from the fixing of future sales prices relative to volatile raw material (aluminum) costs, Aluminum Extrusions enters into a combination of forward purchase commitments and futures contracts to acquire or hedge aluminum, based on the scheduled purchases for the firm sales commitments. The fixed-price firm sales commitments and related hedging instruments generally have durations of not more than 12 months, and the notional amount of aluminum futures contracts that hedged future purchases of aluminum to meet fixed-price forward sales contract obligations was $20.2 million (19.1 million pounds of aluminum) at September 30, 2019 and $25.4 million (22.5 million pounds of aluminum) at December 31, 2018.
The table below summarizes the location and gross amounts of aluminum futures contract fair values (Level 2) in the consolidated balance sheets as of September 30, 2019 and December 31, 2018:
 
September 30, 2019
 
December 31, 2018
(In thousands)
Balance Sheet
Account
 
Fair
Value
 
Balance Sheet
Account
 
Fair
Value
Derivatives Designated as Hedging Instruments
 
 
 
 
 
 
 
Asset derivatives:
Aluminum futures contracts
Accrued expenses
 
$

 
Accrued expenses
 
$
20

Liability derivatives:
Aluminum futures contracts
Accrued expenses
 
(1,478
)
 
Accrued expenses
 
(1,650
)
Net asset (liability)
 
 
$
(1,478
)
 
 
 
$
(1,630
)
In the event that a counterparty to an aluminum fixed-price forward sales contract chooses not to take delivery of its aluminum extrusions, the customer is contractually obligated to compensate Aluminum Extrusions for any losses on the related aluminum futures and/or forward contracts through the date of cancellation.

18



The table below summarizes the location and gross amounts of foreign currency forward contract fair values (Level 2) in the consolidated balance sheets as of September 30, 2019 and December 31, 2018:
    
 
September 30, 2019
 
December 31, 2018
(In Thousands)
Balance Sheet
Account
 
Fair
Value
 
Balance Sheet
Account
 
Fair
Value
Derivatives Designated as Hedging Instruments
 
 
 
 
 
 
 
Asset derivatives:
Foreign currency forward contracts
Prepaid expenses and other
 
$

 
Prepaid expenses and other
 
$
37

Liability derivatives:
Foreign currency forward contracts
Accrued expenses
 
(1,857
)
 
Accrued expenses
 
(1,090
)
Net asset (liability)
 
 
$
(1,857
)
 
 
 
$
(1,053
)
The Company's earnings are exposed to foreign currency exchange risk primarily through the translation of the financial statements of subsidiaries that have a functional currency other than the U.S. Dollar. The Company estimates that the net mismatch translation exposure between Flexible Packaging Films business unit in Brazil, Terphane Ltda.'s (“Terphane Ltda.”) U.S. Dollar quoted or priced sales and underlying Brazilian Real (“R$”) quoted or priced operating costs (excluding depreciation and amortization) is annual net costs of R$130 million at September 30, 2019. Terphane Ltda. has the following outstanding foreign exchange average forward rate contracts to purchase Brazilian Real and sell U.S. Dollars:
USD Notional Amount (000s)
Average Forward Rate Contracted on USD/BRL
R$ Equivalent Amount (000s)
Applicable Month
Estimated % of Terphane Ltda. R$ Operating Cost Exposure Hedged
 
 
 
 
 
$1,800
3.9203
R$7,056
Oct-19
67%
$1,800
3.9331
R$7,080
Nov-19
67%
$1,800
3.9455
R$7,102
Dec-19
73%
$1,400
3.7966
R$5,315
Jan-20
50%
$1,400
3.8041
R$5,326
Feb-20
51%
$1,400
3.8086
R$5,332
Mar-20
48%
$1,400
3.8163
R$5,343
Apr-20
49%
$1,400
3.8244
R$5,354
May-20
50%
$1,400
3.8323
R$5,365
Jun-20
49%
$1,400
3.8426
R$5,380
Jul-20
47%
$1,400
3.8545
R$5,396
Aug-20
49%
$1,400
3.8656
R$5,412
Sep-20
48%
$1,400
3.8769
R$5,428
Oct-20
49%
$1,400
3.8877
R$5,443
Nov-20
49%
$1,400
3.8997
R$5,460
Dec-20
53%
$22,200
3.8645
R$85,792
 
53%
These foreign currency exchange contracts have been designated and qualify as cash flow hedges of Terphane Ltda.’s forecasted sales to customers quoted or priced in U.S. Dollars over that period. By changing the currency risk associated with these U.S. Dollar sales, the derivatives have the effect of offsetting operating costs quoted or priced in Brazilian Real and decreasing the net exposure to Brazilian Real in the consolidated statements of income. The net fair value of the open forward contracts was a negative $1.9 million as of September 30, 2019.
These derivative contracts involve elements of market risk that are not reflected on the consolidated balance sheet, including the risk of dealing with counterparties and their ability to meet the terms of the contracts. The counterparties to any forward purchase commitments are major aluminum brokers and suppliers, and the counterparties to any aluminum futures contracts are major financial institutions. Fixed-price forward sales contracts are only made available

19



to the best and most credit-worthy customers. The counterparties to the Company’s foreign currency cash flow hedge contracts are major financial institutions.
The pretax effect on net income (loss) and other comprehensive income (loss) of derivative instruments classified as cash flow hedges and described in the previous paragraphs for the three and nine month periods ended September 30, 2019 and 2018 is summarized in the table below:
(In thousands)
Cash Flow Derivative Hedges
 
Three Months Ended September 30,
 
Aluminum Futures Contracts
 
Foreign Currency Forwards
 
2019
 
2018
 
2019
2019
 
2018
 
2018
Amount of pretax gain (loss) recognized in other comprehensive income (loss)
$
(449
)
 
$
(1,176
)
 
$

$
(1,501
)
 
$

 
(1,353
)
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

 
Selling, general & admin
Amount of pretax gain (loss) reclassified from accumulated other comprehensive income (loss) to net income effective portion)
$
(816
)
 
$
300

 
$
15

$
(101
)
 
$
15

 
(807
)
 
Nine Months Ended September 30,
 
Aluminum Futures Contracts
 
Foreign Currency Forwards
 
2019
 
2018
 
2019
2019
 
2018
 
2018
Amount of pre-tax gain (loss) recognized in other comprehensive income (loss)
$
(1,887
)
 
$
(111
)
 
$

$
(1,598
)
 
$

 
(3,032
)
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

 
Selling, general & admin
Amount of pre-tax gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (effective portion)
$
(2,039
)
 
$
1,244

 
$
46

$
(661
)
 
$
46

 
(1,226
)
As of September 30, 2019, the Company expects $1.0 million of unrealized after-tax losses on derivative instruments reported in accumulated other comprehensive income (loss) to be reclassified to earnings within the next 12 months. For the three and nine month periods ended September 30, 2019 and 2018, net gains or losses realized, from previously unrealized net gains or losses on hedges that had been discontinued, were not material.
 

20



9
PENSION AND OTHER POSTRETIREMENT BENEFITS
Tredegar sponsors a noncontributory defined benefit (pension) plan covering certain current and former U.S. 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 is closed to new participants and pay for active plan participants for benefit calculations was frozen as of December 31, 2007. As of January 31, 2018, the plan no longer accrued benefits associated with crediting employees for service, thereby freezing all future benefits under the plan.
The components of net periodic benefit cost for the pension and other postretirement benefit programs reflected in the consolidated statements of income are shown below:
 
Pension Benefits
 
Other Post-Retirement Benefits
 
Three Months Ended September 30,
 
Three Months Ended September 30,
(In thousands)
2019
 
2018
 
2019
 
2018
Service cost
$

 
$
7

 
$
9

 
$
7

Interest cost
3,067

 
2,818

 
72

 
65

Expected return on plan assets
(3,404
)
 
(3,736
)
 

 

Amortization of prior service costs, (gains) losses and net transition asset
2,729

 
3,565

 
(58
)
 
(75
)
Net periodic benefit cost
$
2,392

 
$
2,654

 
$
23

 
$
(3
)
 
 
 
 
 
 
 
 
 
Pension Benefits
 
Other Post-Retirement Benefits
 
Nine Months Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
2019
 
2018
 
2019
 
2018
Service cost
$

 
$
17

 
$
25

 
$
27

Interest cost
9,202

 
8,582

 
218

 
203

Expected return on plan assets
(10,212
)
 
(11,258
)
 

 

Amortization of prior service costs, (gains) losses and net transition asset
8,188

 
10,421

 
(173
)
 
(183
)
Net periodic benefit cost
$
7,178

 
$
7,762

 
$
70

 
$
47

Pension and other postretirement liabilities were $81.3 million and $88.8 million at September 30, 2019 and December 31, 2018, respectively ($0.6 million included in “Accrued expenses” at September 30, 2019 and December 31, 2018, with the remainder included in “Pension and other postretirement benefit obligations, net” in the consolidated balance sheets). The Company’s required contributions are expected to be $8.1 million in 2019. Contributions to the pension plan during the first nine months of 2019 were $6.7 million. Tredegar funds its other postretirement benefits (life insurance and health benefits) on a claims-made basis; for 2019, the Company anticipates the amount will be consistent with amounts paid for the year ended December 31, 2018, or $0.3 million.
 
10
OTHER INCOME (EXPENSE), NET
Other income (expense), net consists of the following:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
2019
 
2018
 
2019
 
2018
Gain (loss) on investment in kaléo accounted for under fair value method
$
4,300

 
$
(2,100
)
 
$
28,482

 
$
11,900

Gain on sale of manufacturing plant in Shanghai, China
6,316

 

 
6,316

 

Other
18

 
(457
)
 
42

 
(368
)
Total
$
10,634

 
$
(2,557
)
 
$
34,840

 
$
11,532

The gain on investment in kaléo accounted for under fair value method shown above for the nine months ended September 30, 2019, includes a cash dividend of $17.6 million from kaléo. See Note 7 for more details on the investment in kaléo.

21




11
BUSINESS SEGMENTS
The Company’s business segments are Aluminum Extrusions, PE Films, and Flexible Packaging Films. 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.
The following table presents net sales and operating profit by segment for the three and nine months ended September 30, 2019 and 2018:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
2019
 
2018
 
2019
 
2018
Net Sales
 
 
 
 
 
 
 
Aluminum Extrusions
$
129,506

 
$
147,661

 
$
405,310

 
$
420,455

PE Films
69,837

 
76,470

 
205,778

 
252,177

Flexible Packaging Films
34,888

 
33,725

 
101,950

 
90,466

Total net sales
234,231

 
257,856

 
713,038

 
763,098

Add back freight
8,986

 
9,438

 
26,893

 
26,667

Sales as shown in the Consolidated Statements of Income
$
243,217

 
$
267,294

 
$
739,931

 
$
789,765

Operating Profit (Loss)