Tredegar Corporation — FY2023 Form 10-K
Reporting period: Year ended December 31, 2023; filed March 15, 2024. This is an annual report, not a standalone fourth-quarter report. Tredegar manufactures aluminum extrusions, polyethylene films, and flexible packaging films. It announced an agreement to sell its Terphane flexible packaging business, which was still reported as a continuing operation at year-end.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Sales | $704.8 million | $938.6 million |
| Net income (loss) | $(105.9) million; $(3.10) diluted EPS | $28.5 million; $0.84 diluted EPS |
| Gross profit margin | 11.2% | 14.9% |
| Cash from operating activities | $24.0 million | $(20.8) million |
| Cash used in investing activities | $(26.2) million | $(35.5) million |
| Cash, cash equivalents and restricted cash, year-end | $13.5 million | $19.2 million |
Net sales, the revenue measure used for segments, fell 25.0% to $677.9 million. Operating cash flow improved mainly because pension contributions were lower ($27.7 million versus $50.0 million in 2022) and working capital improved. Capital expenditures were $26.4 million.
At December 31, 2023, debt comprised $126.3 million under the secured asset-based revolving facility and $20.0 million under the Terphane Brazil loan. ABL availability was $22.9 million after letters of credit and the minimum-liquidity covenant. The ABL facility was in a Cash Dominion Period; the company reported compliance with all debt covenants. The ABL commitment is scheduled to decline from $180 million to $125 million on the earlier of receipt of Terphane sale proceeds or March 31, 2025. The company said existing availability, cash and operating cash flow should cover short-term needs for at least 12 months.
Segments and changes from prior year
| Segment | 2023 net sales | 2023 EBITDA from ongoing operations | Change in EBITDA vs. 2022 |
|---|---|---|---|
| Aluminum Extrusions | $474.8 million | $38.0 million | Down $28.8 million |
| PE Films | $76.8 million | $11.2 million | Down $0.7 million |
| Flexible Packaging Films | $126.3 million | $4.4 million | Down $23.1 million |
Sales declined across all segments. Aluminum Extrusions volume fell 20.7%, with lower demand and lower metal-cost pass-through reducing sales; its open orders fell about 65% year over year to $48 million. PE Films sales fell 21.3%, principally from weak consumer-electronics demand and customer inventory corrections; Surface Protection volume declined 22%. Flexible Packaging Films sales fell 24.9%, amid lower volume, price and margin pressure, excess global capacity, and competition from imports in Brazil.
Interest expense increased to $11.6 million from $5.0 million, reflecting higher debt balances and interest rates, plus a $1.1 million write-off of financing fees. SG&A and R&D declined in dollars but rose to 11.3% of sales from 9.1% as revenue contracted.
Unusual items, outlook and risks
- The company recorded a $92.3 million pretax pension settlement loss. The defined-benefit plan termination was completed in November 2023, transferring the relevant obligation to Massachusetts Mutual Life Insurance Company after a $27.7 million company contribution.
- A $34.9 million noncash partial goodwill impairment was recorded for PE Films’ Surface Protection reporting unit ($27.0 million after deferred tax benefits). Management cited weak electronics demand, uncertain recovery timing and cautious new-product expectations.
- Tredegar agreed to sell Terphane to Oben Group and estimated after-tax proceeds of $85 million, subject to closing conditions and taxes, escrow and transaction costs. Colombian regulatory clearance was obtained in early February 2024; Brazil’s review remained ongoing, with a stated maximum deadline of November 18, 2024. The sale was not assured.
- Projected 2024 capital expenditures were $9 million for Aluminum Extrusions, $2 million for PE Films and $4 million for Flexible Packaging Films. The filing does not provide company-wide earnings guidance. PE Films expects $3.4 million in net annual cash savings from closing its Richmond technical center; closure was expected by the end of Q1 2024.
- Dividend payments and share repurchases are prohibited under the ABL facility for fiscal quarters ending September 30, 2023 through December 31, 2024. No shares were repurchased in 2023.
- Key risks include weak or cyclical end markets, pricing pressure and competition; volatile raw-material, energy and foreign-exchange costs; ABL borrowing-base, covenant and refinancing risk; and the uncertain timing or completion of the Terphane sale. The ERP/MES project has cost approximately $21 million to date, is delayed, and has an earliest expected go-live of 2025.
- Environmental remediation and other legal matters are described as contingencies; management stated it was accrued for known probable losses, while unexpected environmental costs could materially affect results. No material cybersecurity incident had been experienced to date. Previously reported internal-control material weaknesses were deemed remediated, and management and KPMG reported effective internal control as of year-end.
Most important facts for investors to verify
- Whether and when the Terphane sale closes, actual net proceeds, and the resulting effect on debt and ABL availability.
- Monthly ABL covenant and liquidity compliance, borrowing-base availability, and the effect of the scheduled commitment reduction.
- Recovery in aluminum extrusion orders and consumer-electronics demand, and whether segment margins stabilize.
- Whether the Surface Protection goodwill assumptions remain supportable and whether further impairment is required.
- Execution of the ERP/MES implementation and delivery of PE Films’ projected cost savings.
- The timing and impact of the dividend restriction and the company’s capacity to resume distributions after restrictions expire.