TREDEGAR CORP 10-Q

Item 1. Financial Statements. Tredegar Corporation Condensed Consolidated Balance Sheets (In Thousands, Except Share Data) (Unaudited) September 30, December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 30,253 $ 11,846 Accounts and other receivables, net 97,185 86,327 Income taxes recoverable 2,013 2,807 Inventories 85,686 66,437 Prepaid expenses and other 13,502 19,679 Current assets of discontinued operations 151 1,339 Total current assets 228,790 188,435 Property, plant and equipment, at cost 493,094 475,619 Less accumulated depreciation ( 325,141 ) ( 309,074 ) Net property, plant and equipment 167,953 166,545 Right-of-use leased assets 14,453 16,037 Investment in kaléo (cost basis of $ 7,500 ) 35,479 34,600 Identifiable intangible assets, net 16,608 18,820 Goodwill 67,708 67,708 Deferred income taxes 12,101 19,068 Other assets 2,591 3,506 Non-current assets of discontinued operations 151 151 Total assets $ 545,834 $ 514,870 Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $ 115,879 $ 89,702 Accrued expenses 31,672 40,741 Lease liability, short-term 2,086 2,082 Income taxes payable 56 706 Current liabilities of discontinued operations 370 7,521 Total current liabilities 150,063 140,752 Lease liability, long-term 13,376 14,949 Long-term debt 127,000 134,000 Pension and other postretirement benefit obligations, net 102,970 110,585 Other non-current liabilities 6,146 5,529 Total liabilities 399,555 405,815 Shareholders’ equity: Common stock, no par value (issued and outstanding 33,727,317 shares at September 30, 2021 and 33,457,176 shares at December 31, 2020) 53,906 50,066 Common stock held in trust for savings restoration plan ( 107,397 shares at September 30, 2021 and 105,067 shares at December 31, 2020) ( 2,122 ) ( 2,087 ) Accumulated other comprehensive income (loss): Foreign currency translation adjustment ( 85,592 ) ( 84,149 ) Gain (loss) on derivative financial instruments 2,779 2,264 Pension and other postretirement benefit adjustments ( 86,565 ) ( 96,519 ) Retained earnings 263,873 239,480 Total shareholders’ equity 146,279 109,055 Total liabilities and shareholders’ equity $ 545,834 $ 514,870 See accompanying notes to financial statements. 2 Tredegar Corporation Condensed Consolidated Statements of Income (Loss) (In Thousands, Except Per Share Data) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Revenues and other items: Sales $ 209,517 $ 184,370 $ 605,468 $ 562,766 Other income (expense), net 391 ( 37,934 ) 9,272 ( 63,898 ) 209,908 146,436 614,740 498,868 Costs and expenses: Cost of goods sold 170,756 136,008 470,733 415,212 Freight 7,264 6,453 20,531 19,222 Selling, general and administrative 16,767 20,420 55,422 61,654 Research and development 1,613 1,656 4,770 6,063 Amortization of identifiable intangibles 724 753 2,170 2,264 Pension and postretirement benefits 3,540 3,567 10,622 10,701 Interest expense 842 494 2,555 1,598 Asset impairments and costs associated with exit and disposal activities, net of adjustments 265 3 633 74 Goodwill impairment — — — 13,696 Total 201,771 169,354 567,436 530,484 Income (loss) from continuing operations before income taxes 8,137 ( 22,918 ) 47,304 ( 31,616 ) Income tax expense (benefit) 1,908 ( 5,942 ) 10,728 ( 8,308 ) Net income (loss) from continuing operations 6,229 ( 16,976 ) 36,576 ( 23,308 ) Income (loss) from discontinued operations, net of tax ( 26 ) ( 48,237 ) ( 104 ) ( 53,031 ) Net income (loss) $ 6,203 $ ( 65,213 ) $ 36,472 $ ( 76,339 ) Earnings (loss) per share: Basic: Continuing operations $ 0.19 $ ( 0.51 ) $ 1.09 $ ( 0.70 ) Discontinued operations — ( 1.44 ) — ( 1.59 ) Basic earnings (loss) per share $ 0.19 $ ( 1.95 ) $ 1.09 $ ( 2.29 ) Diluted: Continuing operations $ 0.19 $ ( 0.51 ) $ 1.09 $ ( 0.70 ) Discontinued operations — ( 1.44 ) — ( 1.59 ) Diluted earnings (loss) per share $ 0.19 $ ( 1.95 ) $ 1.09 $ ( 2.29 ) Shares used to compute earnings (loss) per share: Basic 33,620 33,439 33,541 33,396 Diluted 33,649 33,439 33,678 33,396 See accompanying notes to financial statements. 3 Tredegar Corporation Condensed Consolidated Statements of Comprehensive Income (Loss) (In Thousands) (Unaudited) Three Months Ended September 30, 2021 2020 Net income (loss) $ 6,203 $ ( 65,213 ) Other comprehensive income (loss): Unrealized foreign currency translation adjustment (net of tax benefit of $ 294 in 2021 and net of tax benefit of $ 19 in 2020) ( 2,788 ) 927 Derivative financial instruments adjustment (net of tax benefit of $ 174 in 2021 and net of tax of $ 618 in 2020) ( 717 ) 2,213 Amortization of prior service costs and net gains or losses (net of tax of $ 927 in 2021 and net of tax of $ 836 in 2020) 3,317 2,931 Other comprehensive income (loss) ( 188 ) 6,071 Comprehensive income (loss) $ 6,015 $ ( 59,142 ) Nine Months Ended September 30, 2021 2020 Net income (loss) $ 36,472 $ ( 76,339 ) Other comprehensive income (loss): Unrealized foreign currency translation adjustment (net of tax benefit of $ 103 in 2021 and net of tax benefit of $ 1,125 in 2020) ( 1,443 ) ( 11,076 ) Derivative financial instruments adjustment (net of tax of $ 185 in 2021 and net of tax benefit of $ 269 in 2020) 515 ( 304 ) Amortization of prior service costs and net gains or losses (net of tax of $ 2,773 in 2021 and net of tax of $ 2,507 in 2020) 9,954 8,793 Other comprehensive income (loss) 9,026 ( 2,587 ) Comprehensive income (loss) $ 45,498 $ ( 78,926 ) See accompanying notes to financial statements. 4 Tredegar Corporation Condensed Consolidated Statements of Cash Flows (In Thousands) (Unaudited) Nine Months Ended September 30, 2021 2020 Cash flows from operating activities: Net income (loss) $ 36,472 $ ( 76,339 ) Adjustments for noncash items: Depreciation 16,169 23,218 Amortization of identifiable intangibles 2,170 2,264 Reduction of right-of-use lease asset 1,582 2,102 Goodwill impairment — 13,696 Deferred income taxes 4,120 ( 19,492 ) Accrued pension and post-retirement benefits 10,622 10,701 Stock-based compensation expense 3,227 4,120 (Gain) loss on investment in kaléo accounted for under the fair value method ( 879 ) 61,000 Held for sale impairment loss on divested assets — 45,054 Changes in assets and liabilities: Accounts and other receivables ( 11,379 ) 4,961 Inventories ( 19,902 ) ( 2,761 ) Income taxes recoverable/payable 111 5,332 Prepaid expenses and other 3,422 ( 5,305 ) Accounts payable and accrued expenses 12,078 ( 2,112 ) Lease liability ( 1,566 ) ( 2,245 ) Pension and postretirement benefit plan contributions ( 5,510 ) ( 2,254 ) Other, net 750 4,386 Net cash provided by operating activities 51,487 66,326 Cash flows from investing activities: Capital expenditures ( 19,576 ) ( 13,416 ) Proceeds from the sale of assets 4,749 — Net cash used in investing activities ( 14,827 ) ( 13,416 ) Cash flows from financing activities: Borrowings 69,250 25,000 Debt principal payments ( 76,250 ) ( 60,000 ) Dividends paid ( 12,114 ) ( 12,048 ) Other 915 ( 586 ) Net cash used in financing activities ( 18,199 ) ( 47,634 ) Effect of exchange rate changes on cash ( 54 ) ( 1,676 ) Increase in cash & cash equivalents 18,407 3,600 Cash and cash equivalents at beginning of period 11,846 31,422 Cash and cash equivalents at end of period $ 30,253 $ 35,022 See accompanying notes to financial statements. 5 Tredegar Corporation Condensed Consolidated Statements 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, 2021: 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 July 1, 2021 $ 52,940 $ 261,699 $ ( 2,109 ) $ ( 82,804 ) $ 3,496 $ ( 89,882 ) $ 143,340 Net income (loss) — 6,203 — — — — 6,203 Foreign currency translation adjustment (net of tax benefit of $ 294 ) — — — ( 2,788 ) — — ( 2,788 ) Derivative financial instruments adjustment (net of tax benefit of $ 174 ) — — — — ( 717 ) — ( 717 ) Amortization of prior service costs and net gains or losses (net of tax of $ 927 ) — — — — — 3,317 3,317 Cash dividends declared ($ 0.12 per share) — ( 4,042 ) — — — — ( 4,042 ) Stock-based compensation expense 966 — — — — — 966 Tredegar common stock purchased by trust for savings restoration plan — 13 ( 13 ) — — — — Balance September 30, 2021 $ 53,906 $ 263,873 $ ( 2,122 ) $ ( 85,592 ) $ 2,779 $ ( 86,565 ) $ 146,279 6 The following summarizes the changes in shareholders’ equity for the nine month period ended September 30, 2021: 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 January 1, 2021 $ 50,066 $ 239,480 $ ( 2,087 ) $ ( 84,149 ) $ 2,264 $ ( 96,519 ) $ 109,055 Net income (loss) — 36,472 — — — — 36,472 Foreign currency translation adjustment (net of tax benefit of $ 103 ) — — — ( 1,443 ) — — ( 1,443 ) Derivative financial instruments adjustment (net of tax of $ 185 ) — — — — 515 — 515 Amortization of prior service costs and net gains or losses (net of tax of $ 2,773 ) — — — — — 9,954 9,954 Cash dividends declared ($ 0.36 per share) — ( 12,114 ) — — — — ( 12,114 ) Stock-based compensation expense 2,925 — — — — — 2,925 Issued upon exercise of stock options 915 — — — — — 915 Tredegar common stock purchased by trust for savings restoration plan — 35 ( 35 ) — — — — Balance September 30, 2021 $ 53,906 $ 263,873 $ ( 2,122 ) $ ( 85,592 ) $ 2,779 $ ( 86,565 ) $ 146,279 7 The following summarizes the changes in shareholders’ equity for the three month period ended September 30, 2020: 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 July 1, 2020 $ 47,448 $ 511,345 $ ( 1,610 ) $ ( 112,666 ) $ ( 3,824 ) $ ( 89,819 ) $ 350,874 Net income (loss) — ( 65,213 ) — — — — ( 65,213 ) Foreign currency translation adjustment (net of tax benefit of $ 19 ) — — — 927 — — 927 Derivative financial instruments adjustment (net of tax of $ 618 ) — — — — 2,213 — 2,213 Amortization of prior service costs and net gains or losses (net of tax of $ 836 ) — — — — — 2,931 2,931 Cash dividends declared ($ 0.12 per share) — ( 4,023 ) — — — — ( 4,023 ) Stock-based compensation expense 1,600 — — — — — 1,600 Tredegar common stock purchased by trust for savings restoration plan — 9 ( 9 ) — — — — Balance September 30, 2020 $ 49,048 $ 442,118 $ ( 1,619 ) $ ( 111,739 ) $ ( 1,611 ) $ ( 86,888 ) $ 289,309 8 The following summarizes the changes in shareholders’ equity for the nine month period ended September 30, 2020: 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, 2020 $ 45,514 $ 530,478 $ ( 1,592 ) $ ( 100,663 ) $ ( 1,307 ) $ ( 95,681 ) $ 376,749 Net income (loss) — ( 76,339 ) — — — — ( 76,339 ) Foreign currency translation adjustment (net of tax benefit of $ 1,125 ) — — — ( 11,076 ) — — ( 11,076 ) Derivative financial instruments adjustment (net of tax benefit of $ 269 ) — — — — ( 304 ) — ( 304 ) Amortization of prior service costs and net gains or losses (net of tax of $ 2,507 ) — — — — — 8,793 8,793 Cash dividends declared ($ 0.36 per share) — ( 12,048 ) — — — — ( 12,048 ) Stock-based compensation expense 4,120 — — — — — 4,120 Repurchase of employee common stock for tax withholdings ( 586 ) — — — — — ( 586 ) Tredegar common stock purchased by trust for savings restoration plan — 27 ( 27 ) — — — — Balance at September 30, 2020 $ 49,048 $ 442,118 $ ( 1,619 ) $ ( 111,739 ) $ ( 1,611 ) $ ( 86,888 ) $ 289,309 See accompanying notes to financial statements. 9 TREDEGAR CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1 BASIS OF PRESENTATION In the opinion of management, the accompanying condensed 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, 2021, the consolidated results of operations for the three and nine months ended September 30, 2021 and 2020, the consolidated cash flows for the nine months ended September 30, 2021 and 2020, and the consolidated changes in shareholders’ equity for the three and nine months ended September 30, 2021 and 2020, in accordance with U.S. generally accepted accounting principles (“GAAP”). All such adjustments, unless otherwise detailed in the notes to the condensed consolidated 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 2021 and 2020 for this segment references 13-week periods ended September 25, 2021 and September 27, 2020. 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 Company may fund or receive cash from the Aluminum Extrusions segment based on Aluminum Extrusion’s cash flows from operations during the intervening period from Aluminum Extrusion’s fiscal quarter end and the Company’s fiscal quarter end. There was no intercompany funding with Aluminum Extrusions between September 25, 2021 and September 30, 2021. As of September 30, 2021 and December 31, 2020, the Company’s cash and cash equivalents declined by $ 0.5 million and $ 3.8 million, respectively, since the Company made payments to the Aluminum Extrusions segment to fund its working capital during the intervening period. The financial position data as of December 31, 2020 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, 2020 (“2020 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 2020 Form 10-K. On October 30, 2020, the Company completed the sale of its personal care films business (“Personal Care Films”), which was part of its PE Films segment. The transaction excluded the packaging film lines and related operations located at the Pottsville, Pennsylvania manufacturing site (“Pottsville Packaging”), which are now being reported within the Surface Protection component of PE Films. All historical results for Personal Care Films have been presented as discontinued operations. On December 31, 2020, the Company completed the sale of Bright View Technologies, which was part of its PE Films segment. The sale did not represent a strategic shift nor did it have a major effect on the Company's historical and ongoing operations, thus all financial information for Bright View Technologies has been presented in continuing operations. The results of operations for the three and nine months ended September 30, 2021, are not necessarily indicative of the results to be expected for the full year. Accounting Standards Adopted: In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2019-12, which simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, hybrid taxes and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. In the first quarter of 2021, the Company adopted ASU 2019-12, which did not have a material impact on the Company's consolidated financial statements. 2 DIVESTITURES AND ASSETS HELD FOR SALE Divestitures Personal Care Films In 2020, the Company completed the sale of Personal Care Films for an aggregate purchase price of $ 60.5 million, subject to customary adjustments. The Company agreed to provide certain transition services related to finance, human resources and information technology ("IT") that ended during the second quarter of 2021, resulting in final cash proceeds of $ 64.1 million. Personal Care Films was previously reported in the PE Films segment. 10 The following table summarizes the financial results of discontinued operations reflected in the consolidated statements of income for the three and nine months ended September 30, 2021 and 2020: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2021 2020 2021 2020 Revenues and other items: Sales $ — $ 29,509 $ — $ 98,053 Other income (expense), net — ( 37 ) — ( 298 ) — 29,472 — 97,755 Costs and expenses: Cost of goods sold — 25,481 — 83,408 Freight — 1,436 — 4,711 Selling, general and administrative 33 6,502 1,251 13,649 Research and development — 3,138 — 8,451 Asset impairments and costs associated with exit and disposal activities, net of adjustments — 801 — 1,327 Adjustment to the fair value estimates used in the disposal of Personal Care Films (a) — — ( 1,118 ) — Held for sale impairment loss on divested assets — 45,054 — 45,054 Total 33 82,412 133 156,600 Income (loss) from discontinued operations before income taxes ( 33 ) ( 52,940 ) ( 133 ) ( 58,845 ) Income tax expense (benefit) ( 7 ) ( 4,703 ) ( 29 ) ( 5,814 ) Income (loss) from discontinued operations, net of tax $ ( 26 ) $ ( 48,237 ) $ ( 104 ) $ ( 53,031 ) (a) Represents a net increase to the estimated fair value of Personal Care Films primarily due to lower costs associated with IT transition-related services to provide the seller developed assets, which did not exist at the time of the sale, to support the seller's IT infrastructure. The assets and liabilities of the discontinued operations reflected in the consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively, were as follows: September 30, December 31, (In thousands) 2021 2020 Assets Prepaid expenses and other (a) $ 151 $ 1,339 Other non-current assets 151 151 Total assets of discontinued operations $ 302 $ 1,490 Liabilities Accrued expenses (a) $ 370 $ 7,521 (a) The consolidated balance sheet of discontinued operations as of September 30, 2021 includes $ 0.2 million of other receivables related to the settlement of customary post-closing adjustments, accrued severance of $ 0.3 million, and other miscellaneous accrued expenses of $ 0.1 million. The consolidated balance sheet of discontinued operations as of December 31, 2020 includes $ 0.4 million of other receivables related to the settlement of customary post-closing adjustments, deferred assets of $ 0.9 million and deferred obligations of $ 5.3 million related to transition services, accrued severance of $ 2.1 million, and other miscellaneous accrued expenses of $ 0.2 million. 11 The following table provides significant operating and investing cash flow information for discontinued operations: Nine Months Ended September 30, (In thousands) 2021 2020 Operating activities Depreciation and amortization $ — $ 6,625 Held for sale impairment loss on divested assets — 45,054 Other ( 1,118 ) — Total ( 1,118 ) 51,679 Investing activities Capital expenditures $ — $ 2,989 Assets Held For Sale In July 2019, the Company committed to a plan to close its manufacturing facility in Lake Zurich, Illinois, which historically was reported by the Company within the Personal Care Films component of its PE Films segment. During the third quarter of 2020, the disposal group carrying value of $ 4.6 million was reported in "Prepaid expenses and other" in the consolidated balance sheet as the held for sale criteria was met. During the third quarter of 2021, the Company completed the sale of the remaining assets in Lake Zurich, Illinois resulting in total cash proceeds of $ 4.7 million. 3 LONG-LIVED ASSETS & GOODWILL IMPAIRMENT The Company assesses its long-lived assets for impairment when events and circumstances indicate that the carrying amount of the assets may not be recoverable. Long-lived assets consist primarily of buildings, machinery and equipment. During the three months ended September 30, 2021, the Company did not identify any indicators of impairment for long-lived assets. The Company annually assesses goodwill for impairment on December 1st of each year or more frequently when events or circumstances indicate that the carrying amount of a reporting unit that includes goodwill exceeds its fair value. The Company evaluated whether triggering events occurred during the three months ended September 30, 2021 and 2020 for all reporting units that include goodwill and determined no events or circumstances existed that indicated the fair value of the reporting units are below their carrying amounts. During the first three months of 2020, the Company determined that trigger events did occur for the Aluminum Extrusions’ reporting units created as a result of acquisitions in 2012 (“AACOA”) and in 2017 (“Futura”). As a result of the impairment testing performed, the Company recognized a goodwill impairment charge of $ 13.7 million ($ 10.5 million after taxes), which represented the entire amount of goodwill associated with the AACOA reporting unit. No impairment was identified for Futura. The Company continues to monitor developments related to the coronavirus ("COVID-19") pandemic and may perform updated event-driven analyses during 2021, as necessary. 4 INVENTORIES The components of inventories are as follows: (In thousands) September 30, 2021 December 31, 2020 Finished goods $ 21,614 $ 15,251 Work-in-process 12,586 9,098 Raw materials 32,836 25,913 Stores, supplies and other 18,650 16,175 Total $ 85,686 $ 66,437 12 5 EARNINGS PER SHARE Basic earnings per share is computed by dividing net income (loss) from continuing and discontinued operations by the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing net income (loss) from continuing and discontinued operations 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) 2021 2020 2021 2020 Weighted average shares outstanding used to compute basic earnings per share 33,620 33,439 33,541 33,396 Incremental dilutive shares attributable to stock options and restricted stock 29 — 137 — Shares used to compute diluted earnings per share 33,649 33,439 33,678 33,396 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. The 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 2,433,213 and 1,280,376 , respectively, for the three and nine months ended September 30, 2021. The Company had a net loss from continuing operations for the three and nine months ended September 30, 2020, so there was no dilutive impact for such shares. If the Company had reported net income from continuing operations for the three and nine months ended September 30, 2020, 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 1,509,429 and 1,253,278 , respectively. 6 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Reclassifications of balances out of accumulated other comprehensive income (loss) into net income (loss) for the three months ended September 30, 2021 are summarized as follows: (In thousands) Amount reclassified from accumulated 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 $ 2,160 Cost of goods sold Foreign currency forward contracts, before taxes ( 34 ) Selling, general & administrative Foreign currency forward contracts, before taxes 15 Cost of goods sold Total, before taxes 2,141 Income tax expense (benefit) 476 Income tax expense (benefit) Total, net of tax $ 1,665 Amortization of pension and other post-retirement benefits: Actuarial gain (loss) and prior service costs, before taxes $ ( 4,244 ) (a) Income tax expense (benefit) ( 927 ) Income tax expense (benefit) Total, net of tax $ ( 3,317 ) (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). 13 Reclassifications of balances out of accumulated other comprehensive income (loss) into net income (loss) for the nine months ended September 30, 2021 are summarized as follows: (In thousands) Amount reclassified from accumulated 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 $ 4,172 Cost of goods sold Foreign currency forward contracts, before taxes ( 183 ) Selling, general & administrative Foreign currency forward contracts, before taxes 48 Cost of goods sold Total, before taxes 4,037 Income tax expense (benefit) 880 Income tax expense (benefit) Total, net of tax $ 3,157 Amortization of pension and other post-retirement benefits: Actuarial gain (loss) and prior service costs, before taxes $ ( 12,727 ) (a) Income tax expense (benefit) ( 2,773 ) Income tax expense (benefit) Total, net of tax $ ( 9,954 ) (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, 2020 are summarized as follows: (In thousands) Amount reclassified from accumulated 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 $ ( 575 ) Cost of goods sold Foreign currency forward contracts, before taxes ( 1,767 ) Selling, general & administrative Foreign currency forward contracts, before taxes 15 Cost of goods sold Total, before taxes ( 2,327 ) Income tax expense (benefit) ( 496 ) Income tax expense (benefit) Total, net of tax $ ( 1,831 ) Amortization of pension and other post-retirement benefits: Actuarial gain (loss) and prior service costs, before taxes $ ( 3,767 ) (a) Income tax expense (benefit) ( 836 ) Income tax expense (benefit) Total, net of tax $ ( 2,931 ) (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). 14 Reclassifications of balances out of accumulated other comprehensive income (loss) into net income for the nine months ended September 30, 2020 are summarized as follows: (In thousands) Amount reclassified from accumulated 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 $ ( 2,766 ) Cost of goods sold Foreign currency forward contracts, before taxes ( 4,359 ) Selling, general & administrative Foreign currency forward contracts, before taxes 46 Cost of goods sold Total, before taxes ( 7,079 ) Income tax expense (benefit) ( 1,523 ) Income tax expense (benefit) Total, net of tax $ ( 5,556 ) Amortization of pension and other post-retirement benefits: Actuarial gain (loss) and prior service costs, before taxes $ ( 11,300 ) (a) Income tax expense (benefit) ( 2,507 ) Income tax expense (benefit) Total, net of tax $ ( 8,793 ) (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 The Company's aggregate investment of $ 7.5 million, for an approximate 18 % ownership interest, in kaleo, Inc. (“kaléo”), a privately held specialty pharmaceutical company dedicated to building innovative solutions for serious and life-threatening medical conditions, is accounted for under the fair value method in the condensed consolidated financial statements. The estimated fair value of the Company’s investment was $35.5 million as of September 30, 2021 and $34.6 million as of December 31, 2020. kaléo’s stock is not publicly traded. The ultimate value of the Company’s ownership interest in kaléo could be materially different from the estimated fair value and will ultimately be determined and realized only if and when a liquidity event occurs. 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 net sales and earnings before interest, taxes, depreciation and amortization ("EBITDA") from ongoing operations by segment table in Note 11. The Company estimated the fair value of its investment in kaléo at September 30, 2021 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 EBITDA (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 approximately 20 % at September 30, 2021 (consistent with 20 % at both December 31, 2020 and September 30, 2020) 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, 2021 and December 31, 2020 was determined by weighting the EBITDA Multiple Method by 20 % and the DCF Method by 80 %. A heavier weighting towards the DCF Method was used since kaléo’s projections better reflect ongoing pricing pressures and expected changes in market access. The DCF Method projections rely on numerous assumptions and Level 3 inputs. In addition, there are various regulatory and legal enforcement efforts, including an ongoing Department of Justice investigation related to kaléo’s discontinued Evzio business, which could have a material adverse effect on kaléo’s business that require assessment in any valuation method applied. 8 DERIVATIVES 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 exists as part of ongoing business operations 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 is recorded on the consolidated balance sheets. 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 15 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. The notional amount of aluminum futures contracts that hedged future purchases of aluminum to meet fixed-price forward sales contract obligations was $ 18.7 million ( 13.9 million pounds of aluminum) at September 30, 2021 and $ 12.1 million ( 13.0 million pounds of aluminum) at December 31, 2020. 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, 2021 and December 31, 2020: September 30, 2021 December 31, 2020 (In thousands) Balance Sheet Account Fair Value Balance Sheet Account Fair Value Derivatives Designated as Hedging Instruments Asset derivatives: Aluminum futures contracts Prepaid expenses and other $ 3,996 Prepaid expenses and other $ 1,560 Liability derivatives: Aluminum futures contracts Accrued expenses ( 1 ) Accrued expenses ( 22 ) Net asset $ 3,995 $ 1,538 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. 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 for the Flexible Packaging Film's business unit in Brazil (“Terphane Ltda.”) of its sales and raw materials quoted or priced in U.S. Dollars and its variable conversion, fixed conversion and sales, general and administrative costs (before depreciation and amortization) quoted or priced in Brazilian Real ("R$") is annual net costs of R$ 150 million. 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 $ 1,400 5.5100 R$ 7,714 Oct-21 78 % $ 1,495 5.5224 R$ 8,256 Nov-21 83 % $ 1,170 5.5060 R$ 6,442 Dec-21 65 % $ 1,677 5.3360 R$ 8,948 Jan-22 72 % $ 1,751 5.3631 R$ 9,391 Feb-22 75 % $ 1,662 5.3905 R$ 8,959 Mar-22 72 % $ 1,615 5.4247 R$ 8,761 Apr-22 70 % $ 1,647 5.4545 R$ 8,984 May-22 72 % $ 1,596 5.4890 R$ 8,760 Jun-22 70 % $ 1,719 5.5200 R$ 9,489 Jul-22 76 % $ 1,708 5.5560 R$ 9,489 Aug-22 76 % $ 1,780 5.5915 R$ 9,953 Sep-22 80 % $ 1,793 5.6264 R$ 10,088 Oct-22 81 % $ 1,784 5.6597 R$ 10,097 Nov-22 81 % $ 1,659 5.6962 R$ 9,450 Dec-22 76 % $ 24,456 5.5112 R$ 134,781 75 % 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 16 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. Pre-tax accumulated gains of $ 0.9 million related to the net fair value of the open forward contracts is reported in accumulated other comprehensive income (loss) as of September 30, 2021. 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, 2021 and December 31, 2020: September 30, 2021 December 31, 2020 (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 $ 99 Prepaid expenses and other $ 853 Liability derivatives: Foreign currency forward contracts Accrued expenses ( 891 ) Accrued expenses ( 466 ) Net asset (liability) $ ( 792 ) $ 387 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 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, 2021 and 2020 is summarized in the table below: Cash Flow Derivative Hedges Three Months Ended September 30, Aluminum Futures Contracts Foreign Currency Forwards (In thousands) 2021 2020 2021 2020 Amount of pretax gain (loss) recognized in other comprehensive income (loss) $ 2,919 $ 1,158 $ — $ ( 1,670 ) $ — $ ( 655 ) Location of gain (loss) reclassified from accumulated other comprehensive income (loss) into net income (effective portion) Cost of goods sold Cost of goods sold Cost of goods sold Selling, general & admin Cost of goods sold Selling, general & admin Amount of pretax gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (effective portion) $ 2,160 $ ( 575 ) $ 15 $ ( 34 ) $ 15 $ ( 1,767 ) Nine Months Ended September 30, Aluminum Futures Contracts Foreign Currency Forwards 2021 2020 2021 2020 Amount of pre-tax gain (loss) recognized in other comprehensive income (loss) $ 6,629 $ ( 1,637 ) $ — $ ( 1,892 ) $ — $ ( 6,015 ) Location of gain (loss) reclassified from accumulated other comprehensive income (loss) into net income (effective portion) Cost of goods sold Cost of goods sold Cost of goods sold Selling, general & admin Cost of goods sold Selling, general & admin Amount of pre-tax gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (effective portion) $ 4,172 $ ( 2,766 ) $ 48 $ ( 183 ) $ 46 $ ( 4,359 ) 17 As of September 30, 2021, the Company expects $ 2.9 million of unrealized after-tax gains on Aluminum Extrusions 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, 2021 and 2020, net gains or losses realized, from previously unrealized net gains or losses on hedges that had been discontinued, were not material. 9 PENSION AND OTHER POSTRETIREMENT BENEFITS Tredegar sponsors a noncontributory defined benefit (pension) plan covering certain current and former U.S. employees. 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 for the three and nine months ended September 30, 2021 and 2020, are shown below: Pension Benefits Other Post-Retirement Benefits Three Months Ended September 30, Three Months Ended September 30, (In thousands) 2021 2020 2021 2020 Service cost $ — $ — $ 9 $ 9 Interest cost 2,101 2,535 50 60 Expected return on plan assets ( 2,862 ) ( 2,804 ) — — Amortization of prior service costs, (gains) losses and net transition asset 4,268 3,814 ( 24 ) ( 47 ) Net periodic benefit cost $ 3,507 $ 3,545 $ 35 $ 22 Pension Benefits Other Post-Retirement Benefits Nine Months Ended September 30, Nine Months Ended September 30, (In thousands) 2021 2020 2021 2020 Service cost $ — $ — $ 26 $ 28 Interest cost 6,305 7,605 151 180 Expected return on plan assets ( 8,587 ) ( 8,412 ) — — Amortization of prior service costs, (gains) losses and net transition asset 12,799 11,441 ( 72 ) ( 141 ) Net periodic benefit cost $ 10,517 $ 10,634 $ 105 $ 67 Pension and other postretirement liabilities were $ 103.7 million and $ 111.3 million at September 30, 2021 and December 31, 2020, respectively ($ 0.7 million included in “Accrued expenses” at September 30, 2021 and December 31, 2020, with the remainder included in “Pension and other postretirement benefit obligations, net” in the consolidated balance sheets). As of December 31, 2020, the required minimum pension contributions were $ 11.7 million for 2021. Contributions to the pension plan during the first nine months of 2021 were $ 5.1 million. In addition, the United States government enacted the American Rescue Plan Act of 2021 in March 2021, which, among other impacts, has reduced the Company's 2021 required minimum pension contributions to zero as a result of the Company's election of the interest rate relief used in the present value of the pension obligation and extension of the shortfall amortization period that is used to determine the minimum pension funding requirements. Tredegar funds its other postretirement benefits on a claims-made basis; for 2021, the Company anticipates the amount will be consistent with amounts paid for the year ended December 31, 2020, or approximately $ 0.5 million. 18 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) 2021 2020 2021 2020 Gain (loss) on investment in kaléo accounted for under fair value method (a) $ 279 $ ( 36,200 ) $ 1,197 $ ( 61,000 ) One-time tax credit in Brazil for unemployment/social security insurance non-income taxes resulting from a favorable decision by Brazil’s Supreme Court regarding the calculation of such tax (b) — — 8,486 — Transition service fees, net of corporate costs associated with the divested Personal Care business ( 85 ) ( 1,130 ) 486 ( 1,130 ) COVID-19-related expenses, net of relief (c) ( 159 ) ( 494 ) ( 594 ) ( 1,594 ) Write-down of investment in Harbinger Capital Partners Special Situations Fund (d) ( 6 ) ( 115 ) ( 517 ) ( 296 ) Gain associated with the sale of Lake Zurich manufacturing facility assets 377 — 377 — Other ( 15 ) 5 ( 163 ) 122 Total $ 391 $ ( 37,934 ) $ 9,272 $ ( 63,898 ) (a) The gain in the first nine months of 2021 includes a $ 0.3 million dividend received from kaléo in the first quarter of 2021. (b) See Note 13 for additional information. (c) Costs associated with operating under COVID-19 conditions include employee overtime expenses associated with absenteeism, personal protective equipment supplies and facility maintenance. (d) Represents the unrealized loss on the Company’s investment in Harbinger Capital Partners Special Situations Fund L.P. that had a fair value of $ 0.2 million and $ 0.8 million as of September 30, 2021 and 2020, respectively, and $ 0.7 million as of December 31, 2020 reported in "Other assets" in the condensed consolidated balance sheet. 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. All historical results for Personal Care Films have been presented as discontinued operations. The Surface Protection component of the PE Films segment now includes Pottsville Packaging. The Company’s reportable segments are based on its method of internal reporting, which is generally segregated by differences in products. Accounting standards for presentation of segments require an approach based on the way the Company organizes the segments for making operating decisions and how the chief operating decision maker (“CODM”) assesses performance. EBITDA from ongoing operations is the key profitability measure used by the CODM (Tredegar’s President and Chief Executive Officer) for purposes of assessing financial performance. The Company uses sales less freight (“net sales”) from continuing operations as its measure of revenues from external customers at the segment level. This measure is separately included in the financial information regularly provided to the CODM. 19 The following table presents net sales and EBITDA from ongoing operations by segment for the three and nine months ended September 30, 2021 and 2020: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2021 2020 2021 2020 Net Sales Aluminum Extrusions $ 137,086 $ 115,621 $ 394,492 $ 339,566 PE Films 28,501 26,440 87,885 103,444 Flexible Packaging Films 36,666 35,856 102,560 100,534 Total net sales 202,253 177,917 584,937 543,544 Add back freight 7,264 6,453 20,531 19,222 Sales as shown in the consolidated statements of income $ 209,517 $ 184,370 $ 605,468 $ 562,766 EBITDA from Ongoing Operations Aluminum Extrusions: Ongoing operations: EBITDA $ 12,038 $ 16,540 $ 45,062 $ 41,496 Depreciation & amortization ( 3,900 ) ( 4,251 ) ( 12,062 ) ( 12,632 ) EBIT 8,138 12,289 33,000 28,864 Plant shutdowns, asset impairments, restructurings and other ( 160 ) ( 720 ) ( 223 ) ( 2,637 ) Goodwill impairment — — — ( 13,696 ) PE Films: Ongoing operations: EBITDA 4,821 6,041 21,035 33,928 Depreciation & amortization ( 1,591 ) ( 1,785 ) ( 4,681 ) ( 4,868 ) EBIT 3,230 4,256 16,354 29,060 Plant shutdowns, asset impairments, restructurings and other ( 182 ) ( 56 ) ( 457 ) ( 225 ) Flexible Packaging Films: Ongoing operations: EBITDA 7,396 9,546 25,296 22,594 Depreciation & amortization ( 493 ) ( 443 ) ( 1,466 ) ( 1,306 ) EBIT 6,903 9,103 23,830 21,288 Plant shutdowns, asset impairments, restructurings and other ( 7 ) ( 3 ) 8,407 ( 14 ) Total 17,922 24,869 80,911 62,640 Interest income 8 11 40 43 Interest expense 842 494 2,555 1,598 Gain (loss) on investment in kaléo accounted for under fair value method 279 ( 36,200 ) 1,197 ( 61,000 ) Stock option-based compensation costs 675 518 1,819 1,786 Corporate expenses, net 8,555 10,586 30,470 29,915 Income (loss) from continuing operations before income taxes 8,137 ( 22,918 ) 47,304 ( 31,616 ) Income tax expense (benefit) 1,908 ( 5,942 ) 10,728 ( 8,308 ) Income (loss) from continuing operations 6,229 ( 16,976 ) 36,576 ( 23,308 ) Income (loss) from discontinued operations, net of tax ( 26 ) ( 48,237 ) ( 104 ) ( 53,031 ) Net income (loss) $ 6,203 $ ( 65,213 ) $ 36,472 $ ( 76,339 ) 20 The following table presents identifiable assets by segment at September 30, 2021 and December 31, 2020: (In thousands) September 30, 2021 December 31, 2020 Aluminum Extrusions $ 274,183 $ 244,560 PE Films 111,690 119,013 Flexible Packaging Films 72,626 66,453 Subtotal 458,499 430,026 General corporate 56,780 71,508 Cash and cash equivalents 30,253 11,846 Discontinued operations 302 1,490 Total $ 545,834 $ 514,870 The following tables disaggregate the Company’s revenue by geographic area and product group for the three and nine months ended September 30, 2021 and 2020: Net Sales by Geographic Area (a) Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2021 2020 2021 2020 United States $ 157,969 $ 129,654 $ 447,585 $ 395,207 Exports from the United States to: Asia 12,609 14,255 43,129 59,816 Latin America 1,170 465 3,630 1,953 Canada 4,107 7,200 14,145 13,359 Europe 1,343 1,468 3,323 4,272 Operations outside the United States: Brazil 25,055 24,875 73,125 68,937 Total $ 202,253 $ 177,917 $ 584,937 $ 543,544 (a) Export sales relate entirely to PE Films. Operations in Brazil are related to Flexible Packaging Films. The Company’s facilities in Pottsville, PA (“PV”) and Guangzhou, China (“GZ”) have a tolling arrangement whereby certain surface protection films are manufactured in GZ for a fee with raw materials supplied from PV that are then shipped by GZ directly to customers principally in the Asian market, but paid by customers directly to PV. Amounts associated with this intercompany tolling arrangement are reported in the table above as export sales from the U.S. to Asia, and include net sales of $ 7.4 million and $ 5.9 million in the third quarters of 2021 and 2020, respectively, and $ 25.0 million and $ 25.1 million in the first nine months of 2021 and 2020, respectively. 21 Net Sales by Product Group Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2021 2020 2021 2020 Aluminum Extrusions: Nonresidential building & construction $ 68,590 $ 62,611 $ 195,941 $ 190,476 Consumer durables 12,873 11,160 39,611 31,491 Automotive 10,150 10,332 32,750 25,375 Residential building & construction 13,154 10,149 39,755 29,016 Electrical 8,015 5,992 24,767 18,006 Machinery & equipment 11,611 7,581 31,190 23,147 Distribution 12,693 7,796 30,478 22,055 Subtotal 137,086 115,621 394,492 339,566 PE Films: Surface protection films 20,905 19,868 65,997 79,919 Packaging 7,596 5,042 21,888 17,262 LED lighting products — 1,530 — 6,263 Subtotal 28,501 26,440 87,885 103,444 Flexible Packaging Films 36,666 35,856 102,560 100,534 Total $ 202,253 $ 177,917 $ 584,937 $ 543,544 12 INCOME TAXES Tredegar recorded tax expense of $ 10.7 million pretax income from continuing operations of $ 47.3 million in the first nine months of 2021. Therefore, the effective tax rate in the first nine months of 2021 was 22.7 %, compared to 26.2 % in the first nine months of 2020. The quarterly effective tax rate is an estimate based on a proration of the components of the Company’s estimated annual effective tax rate and discrete items recorded during the first nine months of the year. The significant differences between the U.S. federal statutory rate and the effective income tax rate for the nine months ended September 30, 2021 and 2020 are as follows: (In thousands, except percentages) 2021 2020 Nine Months Ended September 30, Amount % Amount % Income tax (benefit) expense at federal statutory rate $ 9,934 21.0 % $ ( 6,639 ) 21.0 % Foreign rate differences 4,787 10.1 % 2,772 ( 8.8 ) % U.S. Tax on Foreign Branch Income 4,124 8.7 % 656 ( 2.1 ) % State taxes, net of federal income tax benefit 829 1.8 % ( 537 ) 1.7 % Stock-based compensation 616 1.3 % 240 ( 0.8 ) % Non-deductible expenses 544 1.2 % 312 ( 1.0 ) % Valuation allowance for capital loss carry-forwards 74 0.2 % 61 ( 0.2 ) % Unremitted earnings from foreign operations 117 0.2 % — — % Tax contingency accruals and tax settlements — — % ( 148 ) 0.5 % Tax impact of dividend received ( 33 ) ( 0.1 ) % — — % Changes in estimates related to prior year tax provision ( 501 ) ( 1.1 ) % ( 1,001 ) 3.2 % Research and development tax credit ( 925 ) ( 2.0 ) % ( 612 ) 1.9 % Foreign tax incentives ( 8,838 ) ( 18.7 ) % ( 3,412 ) 10.8 % Income tax expense (benefit) at effective income tax rate $ 10,728 22.7 % $ ( 8,308 ) 26.2 % Tredegar accrues U.S. federal income taxes on unremitted earnings of foreign subsidiaries where required. However, due to changes in the taxation of dividends under the U.S. Tax Cuts and Jobs Act of 2017, Tredegar will only record U.S. federal income taxes on unremitted earnings of its foreign subsidiaries where Tredegar cannot take steps to eliminate any potential tax on future distributions from its foreign subsidiaries. 22 The Brazilian federal statutory income tax rate is a composite of 34.0 % ( 25.0 % of income tax and 9.0 % of social contribution on income). Terphane Ltda.’s manufacturing facility in Brazil is the beneficiary of certain income tax incentives that allow for a reduction in the statutory Brazilian federal income tax rate to 15.25 % levied on the operating profit on certain of its products. The incentives have been granted for a 13-year period, from the commencement date of January 1, 2015. The benefit from the tax incentives was $ 8.8 million and $ 3.4 million in the first nine months of 2021 and 2020, respectively. Tredegar and its subsidiaries file income tax returns in the U.S., various states, and jurisdictions outside the U.S. With exceptions for some U.S. states and non-U.S. jurisdictions, Tredegar and its subsidiaries are no longer subject to U.S. federal, state or non-U.S. income tax examinations by tax authorities for years before 2018. 13 ACCOUNTS AND OTHER RECEIVABLES As of September 30, 2021 and December 31, 2020, accounts receivable and other receivables include the following: September 30, December 31, (In thousands) 2021 2020 Customer receivables $ 95,773 $ 85,274 Other receivables 3,984 3,850 Total accounts and other receivables 99,757 89,124 Less: Allowance for bad debts and sales returns ( 2,572 ) ( 2,797 ) Total accounts and other receivables, net $ 97,185 $ 86,327 As of September 30, 2021, other receivables include $ 1.5 million related to a one-time tax credit in Brazil for unemployment/social security insurance non-income taxes ("PIS/COFINS") that is available and expected to be applied to future required Brazilian federal tax payments in 2021. In May 2021, the Brazil Supreme Court ruled in a leading case related to the amount of Brazilian value-added tax to exclude from the calculation of PIS/COFINS. As a result, in the second quarter of 2021, the Company recorded a pre-tax gain of $ 8.5 million for certain excess PIS/COFINS paid from 2003 to 2021, that included applicable interest, which the Company expects to apply to future required Brazilian federal tax payments. The pretax gain was recorded in “Other income (expense), net” in the condensed consolidated statements of income. 23