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Item 2. Management’s Discussion and Analysis

2022-05-09 compared with 2021-11-05 · 212 added, 286 removed, 162 unchanged (75% of the section changed)

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Forward-looking and Cautionary Statements

Some of the information contained in this Quarterly Report on Form 10-Q ("Form 10-Q") may constitute “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

Some of the information contained in this Quarterly Report on Form 10-Q ("Form 10-Q") press release may constitute “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

When the Company uses the words “believe,” “estimate,” “anticipate,” “appear to,” “expect,” “project,” “plan,” “likely,” “may” and similar expressions, it does so to identify forward-looking statements.

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It is possible that the Company's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in or implied by these forward-looking statements.

In addition, the Company's current projections for its businesses could be materially affected by the highly uncertain impact of the coronavirus ("COVID-19") pandemic.

In addition, the Company's current projections for its businesses could be materially affected by the highly uncertain impact of the COVID-19 pandemic.

As a consequence, the Company's results could differ significantly from its projections, depending on, among other things, the ultimate impact of the pandemic on employees, supply chains, customers and the U.S.

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• political, economic, and regulatory factors concerning the Company’s products;

• uncertain economic conditions in countries in which the Company does business;

• uncertain economic conditions in countries in which the Company does business, including rising inflation and the effects of the Russian invasion of Ukraine;

• competition from other manufacturers, including manufacturers in lower-cost countries and manufacturers benefiting from government subsidies;

• impact of fluctuations in foreign exchange rates;

• a change in the amount of the Company's underfunded defined benefit pension plan liability;

• movement of pension plan assets and liabilities up through initiating hedging activities to fix underfunding amounts and assumptions thereafter relating to differences between the ultimate settlement benefit obligation and the projected benefit obligation, census data, administrative costs, the effectiveness of hedging activities and discounts required to liquidate non-public securities held by the plan;

• an increase in the operating costs incurred by the Company’s business units, including, for example, the cost of raw materials and energy;

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• an information technology system failure or breach;

• volatility and uncertainty of the valuation of the Company's investment in kaleo, Inc.

• the impact of the imposition of tariffs and sanctions on imported aluminum ingot used by Bonnell Aluminum;

• the impact of new tariffs, duties or other trade restrictions imposed as a result of rising trade tensions between the U.S.

• the impact of new tariffs, duties or other trade restrictions imposed as a result of trade tensions between the U.S.

and other countries;

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Unless otherwise stated or indicated, all comparisons are to the prior year period.

References to "Notes" are to notes to our consolidated financial statements found in Part I, Item 1 of this Form 10-Q.

Executive Summary

References to "Notes" are to notes to our condensed consolidated financial statements found in Part I, Item 1 of this Form 10-Q.

Critical Accounting Policies and Estimates

In the ordinary course of business, the Company makes a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of financial statements in conformity with GAAP.

The Company believes the estimates, assumptions and judgments described in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in the 2021 Form 10-K have the greatest potential impact on our financial statements, so Tredegar considers these to be its critical accounting policies.

Since December 31, 2021, there have been no changes in these policies that have had a material impact on our results of operations or financial position.

Business Overview

Tredegar Corporation is an industrial manufacturer with three primary businesses:

custom aluminum extrusions for the North American building & construction, automotive and specialty end-use markets through its Aluminum Extrusions segment;

custom aluminum extrusions for the North American building and construction ("B&C"), automotive and specialty end-use markets through its Aluminum Extrusions segment;

surface protection films for high-technology applications in the global electronics industry through its PE Films segment;

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With approximately 2,400 employees, the Company operates manufacturing facilities in North America, South America, and Asia.

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.

Third quarter 2021 net income from continuing operations was $6.2 million ($0.19 per diluted share) compared with net loss from continuing operations of $17.0 million ($0.51 per diluted share) in the third quarter of 2020.

Third quarter 2021 results include:

• An after-tax gain on the Company’s investment in kaléo of $0.2 million ($0.01 per share), which is accounted for under the fair value method (see Note 7 for more details).

Third quarter 2020 results include:

• An after-tax loss on the Company’s investment in kaléo of $28.2 million ($0.84 per diluted share).

Other losses related to asset impairments and costs associated with exit and disposal activities for continuing operations were not material for the three and nine months ended September 30, 2021 and 2020, respectively.

Gains and losses associated with plant shutdowns, asset impairments, restructurings and other items are described in Results of Operations .

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) from ongoing operations is the measure of profit and loss used by Tredegar’s chief operating decision maker ("CODM") for purposes of assessing financial performance.

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) from ongoing operations is the measure of segment profit and loss used by Tredegar’s chief operating decision maker ("CODM") 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.

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We believe that EBIT is a widely understood and utilized metric that is meaningful to certain investors and that including this financial metric in the reconciliation of management’s performance metric, EBITDA from ongoing operations, provides useful information to those investors that primarily utilize EBIT to analyze the Company’s core operations.

THE IMPACT OF COVID-19 AND RELATED FINANCIAL CONSIDERATIONS

Essential Business and Employee Considerations

The Company’s priorities during the COVID-19 pandemic continue to be to protect the health and safety of employees while keeping its manufacturing sites open due to the essential nature of many of its products.

The Company has continued to manufacture the full range of products at its facilities.

The Company’s protocols to protect the health and well-being of its employees from COVID-19 continue to evolve as the Centers for Disease Control ("CDC"), the Office of the Surgeon General and other state and local health departments learn more about the virus and its variants.

Consistent with recommendations and mandates from government agencies and health authorities, the Company has implemented multiple layers of COVID-19 protections and interventions.

The Company has engaged in an education campaign that provides employees with the most accurate and up-to-date information related to COVID-19 vaccines and has offered different monetary and/or time-away-from-work incentives to encourage employees to get vaccinated.

While the Company believes that these efforts have encouraged employees to be vaccinated, vaccination rates in its U.S.

manufacturing sites vary widely, ranging from 23% to 78%, with most U.S.

sites having vaccination rates above 50%.

The Company will continue to monitor available information to assess safeguards that may be taken to try to prevent a COVID-19 outbreak in the workplace.

Bonnell Aluminum continues to experience higher than normal absenteeism and hiring difficulties, which it attributes to COVID-19-related factors.

While the average number of direct labor employees at Bonnell Aluminum facilities increased approximately 6% in the third quarter of 2021, compared with the abnormally low levels related to the pandemic i n the second and third quarters of 2020, there continues to be a shortage of labor to meet existing demand and desired shipment levels.

Moreover, onboarding new employees has resulted in higher hiring and training costs in 2021 versus last year.

All three of the Company's business segments are managing through supply chain disruptions and escalating costs, including raw material cost increases, shortages, tra nsportation cost increases and delays.

To offset growing cost pressures, Bonnell Aluminum implemented its second selling price increase in 2021, which became effective April 26, 2021, and is preparing for an upcoming price increase effective January 3, 2022.

In response to unprecedented cost increases and supply issues for polyethylene and polypropylene resin, PE Films implemented a quarterly resin cost pass-through mechanism, effective July 1, 2021, for all products and customers not previously covered by such arrangements.

Terphane, the Company's flexible packaging business headquartered in Brazil, continues to monitor cost escalations to adjust selling prices as market dynamics permit.

Financial Considerations

Approximately 62% of Bonnell Aluminum’s sales volume in 2020 was related to building and construction (“B&C”) markets (non-residential B&C of 55% and residential B&C of 7%).

Non-residential B&C volume started to decline in the fourth quarter of 2020 after the fulfillment of contracts that existed at the start of the COVID-19 pandemic.

Recently, market demand in this sector has been strong but was not reflected in Bonnell Aluminum's third quarter 2021 results, due to pandemic-related labor shortages and resulting production inefficiencies.

Non-residential B&C volume declined 13.1% versus the third quarter of last year.

However, current bookings and backlog remain at record high levels which we believe will bode well for future operations and results when production constraints are alleviated.

The Surface Protection component of PE Films had record EBITDA from ongoing operations in 2020 but is experiencing a decline in volume in 2021, primarily related to a previously disclosed customer product transition unrelated to the pandemic.

In addition, the lag in the pass-through of significant pandemic-related increases in resin costs, and some of such cost increases incurred prior to mid-year that will not be recovered even on a lagging basis, have adversely impacted PE Films' profitability in 2021.

At Terphane, the Company believes that the pandemic-related surge in demand for flexible packaging films that began in early 2020 returned to lower pre-pandemic levels during the second quarter of 2021.

Also, production and sales volumes for Terphane during the third quarter of 2021 were adversely impacted by an equipment failure on a manufacturing line that was unrelated to the pandemic and supply chain restrictions, which Terphane believes are impacting others in the industry as well.

While the equipment failure is not expected to be fixed until early in 2022, Terphane has adjusted operations for the interim period to meet anticipated customer demand.

OPERATIONS REVIEW

First Quarter Financial Results Highlights

First quarter 2022 net income from continuing operations was $16.5 million ($0.49 per diluted share) compared with net income from continuing operations of $9.6 million ($0.29 per diluted share) in the first quarter of 2021.

• EBITDA from ongoing operations for Aluminum Extrusions of $23.9 million was $10.6 million higher than the first quarter of 2021

• EBITDA from ongoing operations for PE Films of $7.0 million was $0.2 million lower than the first quarter of 2021

• EBITDA from ongoing operations for Flexible Packaging Films of $5.0 million was $4.6 million lower than the first quarter of 2021

All three of the Company's business segments continue to manage through supply chain disruptions and inflationary cost pressures, including raw material cost increases, shortages, transportation cost increases and delays.

Refer to Quantitative and Qualitative Disclosures About Market Risk below for additional information on raw material price trends.

The Company attempts to mitigate the effects of increased costs through price increases and contractual pass-through provisions.

At Bonnell Aluminum, labor shortages associated with the COVID-19 operating environment have resulted in production challenges and inefficiencies.

However, current bookings and backlog remain at record high levels.

Other losses related to asset impairments and costs associated with exit and disposal activities for continuing operations were not material for the three months ended March 31, 2022 and 2021, respectively.

Gains and losses associated with plant shutdowns, asset impairments, restructurings and other items are described in Results of Operations below.

Results of Operations

First Quarter of 2022 Compared with the First Quarter of 2021

The following table presents a bridge of consolidated net income (loss) from continuing operations from first quarter of 2021 to first quarter of 2022 with related management's discussion and analysis below the table.

(In thousands)

Net income from continuing operations for the three months ended March 31, 2021 $ 9,618

Income tax expense (benefit) 3,097

Income (loss) from continuing operations before income taxes 12,715

Increase (decrease) in income from increases (decreases) in the following items:

Other income (expense), net (1,027)

Increase (decrease) in income from (increases) decreases in the following items:

Cost of goods sold (41,975)

Freight (1,858)

Selling, general and administrative (2,898)

Total (46,197)

Income (loss) from continuing operations before income taxes 17,235

Income tax expense (benefit) 778

Net income from continuing operations for the three months ended March 31, 2022 $ 16,457

Sales in the first quarter of 2022 increased by $51.7 million compared with the first quarter of 2021.

Net sales (sales less freight) in Aluminum Extrusions increased $40.0 million, primarily due to an increase in average selling prices to cover significantly higher aluminum raw material costs and higher operating costs, partially offset by lower sales volume.

Net sales increased $3.2 million in PE Films, primarily due to higher volume in Surface Protection and higher selling prices for overwrap films.

Net sales in Flexible Packaging Films increased $6.7 million, primarily due to higher selling prices from the pass-through of higher resin costs and favorable product mix, partially offset by lower sales volume.

For more information on net sales and volume, see the Segment Operations Review below.

Other income decreased $1.0 million in the first quarter of 2022 compared to the first quarter of 2021, primarily due to a 2021 gain on the Company's investment in kaléo inc., which was historically accounted for under the fair value option and sold in the fourth quarter of 2021, and the non-recurring 2021 transition service fee income, net of corporate costs associated with the divested Personal Care Films business.

See Note 5 for additional information.

Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales (gross profit margin) was 19.1% in the first quarter of 2022 compared to 20.2% in the first quarter of 2021.

The gross profit margin in Aluminum Extrusions increased primarily due to an increase in average selling prices to cover significantly higher aluminum raw material costs and higher operating costs.

The gross profit margin in PE Films decreased primarily due to lower Surface Protection sales related to previously disclosed customer product transitions, pricing pressures for products unrelated to the customer product transitions, higher freight expense, partially offset by higher volume, favorable mix and the pass-through lag associated with resin costs.

The gross profit margin in Flexible Packaging Films decreased primarily due to higher raw material costs, higher variable costs and lower sales volume, partially offset by higher selling prices from the pass-through of higher resin costs, favorable absorption of fixed costs and favorable product mix.

As a percentage of sales, selling, general and administrative (“SG&A”) and research and development ("R&D") expenses were 9.6% in the first quarter of 2022, compared with 10.9% in the first quarter of 2021.

SG&A expenses and net sales increased year-over-year, while R&D expenses remained consistent with prior year.

Increased SG&A spending is primarily due to higher employee-related compensation, higher professional fees associated with business development activities, higher professional fees associated with internal controls over financial reporting, net unfavorable foreign currency translation of Real-denominated operating costs, partially offset by lower stock-based compensation.

The effective tax rate used to compute income taxes for continuing operations in the first three months of 2022 was 4.5%, compared to 24.4% in the first three months of 2021.

The decrease in the effective tax rate for continuing operations is primarily due to a discrete benefit recorded in the first quarter of 2022 resulting from the implementation of new U.S.

tax regulations associated with foreign tax credits published by the U.S.

Treasury and Internal Revenue Service on January 4, 2022.

These regulations overhaul various components of the foreign tax credit regime including the determination of creditable foreign taxes and limit the amount of foreign taxes that are creditable against U.S.

income taxes.

This one-time discrete benefit is expected to reduce the effective tax rate for the remainder of 2022, which will be offset by an expected increase to the effective tax rate as the result of Brazilian income tax no longer being creditable in the U.S.

for the foreseeable future.

See Note 9 for additional information.

Pre-tax gains and losses associated with plant shutdowns, asset impairments, restructurings and other items for continuing operations in the first quarters of 2022 and 2021 detailed below are shown in the statements of net sales and EBITDA from ongoing operations by segment table in Note 10 and are included in “Asset impairments and costs associated with exit and disposal activities, net of adjustments” in the condensed consolidated statements of income, unless otherwise noted.

Three Months Ended March 31,

($ in millions) 2022 2021

Aluminum Extrusions:

(Gains) losses from sale of assets, investment writedowns and other items:

COVID-19-related expenses, net of relief 2

Total for Aluminum Extrusions $ 0.1 $ (0.2)

(Gains) losses from sale of assets, investment writedowns and other items:

COVID-19-related expenses 2

Total for PE Films $ 0.1 $ 0.2

(Gains) losses associated with plant shutdowns, asset impairments and restructurings:

(Gain), net of costs associated with the sale of the Lake Zurich manufacturing facility assets $ — 0.2

(Gains) losses from sale of assets, investment writedowns and other items:

Professional fees associated with business development activities and other 1

Professional fees associated with internal control over financial reporting 1

Write-down of investment in Harbinger Capital Partners Special Situations Fund 2

Stock compensation expense associated with the fair value remeasurement of awards granted at the time of the 2020 special dividend 1

Transition service fees, net of corporate costs associated with the divested Personal Care Films business 2

Net periodic benefit cost for the frozen defined benefit pension plan in process of termination 4

Total for Corporate $ 5.3 $ 1.4

Included in “Selling, general and administrative expenses” in the condensed consolidated statements of income.

Included in “Other income (expense), net” in the condensed consolidated statements of income.

Included in “Cost of goods sold” in the condensed consolidated statements of income.

Prior to the $50 million contribution made to the pension plan ("Special Contribution") (see “Corporate Expenses, Interest, & Other” section of this report), GAAP pension expense was a reasonable proxy for the Company’s required minimum cash contribution to the pension plan.

The Company estimates that, with the Special Contribution, there will be no required minimum cash contributions until final settlement.

Pension expense under GAAP is projected to be approximately $14 million in 2022, which is mainly comprised of non-cash amortization of deferred net actuarial losses reflected in the Company’s shareholders’ equity as accumulated other comprehensive losses.

Beginning in 2022, and consistent with no expected required minimum cash contributions, no pension expense is included in calculating earnings before interest, taxes, depreciation and amortization as defined in the Company’s revolving credit agreement, which is used to compute certain borrowing ratios.

See Note 4 for additional information.

Average debt outstanding and interest rates were as follows:

Three Months Ended March 31,

(In millions) 2022 2021

Floating-rate debt with interest charged on a rollover basis at one-month LIBOR plus a credit spread:

Average outstanding debt balance $ 103.4 $ 138.1

Average interest rate 1.9 % 1.7 %

Segment Operations Review

Aluminum Extrusions

A summary of results for Aluminum Extrusions is provided below:

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% Change Nine Months Ended Favorable/

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(In thousands, except percentages) September 30, September 30,

2021 2020 2021 2020

(In thousands, except percentages) March 31,

Sales volume (lbs) 43,010 44,365 (3.1)%

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*See the table in Note 10, "Business Segments," of this Form 10-Q ("Note 10") for a reconciliation of this non-GAAP measure to the most comparable measure calculated in accordance with GAAP.

Third Quarter 2021 Results vs.

Third Quarter 2020 Results

Net sales (sales less freight) in the third quarter of 2021 increased versus the third quarter of 2020, primarily due to the pass-through of higher metal costs and an increase in average selling prices to cover higher operating costs, partially offset by lower volume.

Sales volume in the third quarter of 2021 decreased by 7.1% v ersus the third quarter of 2020.

Sales volume associated with the non-residential B&C market, which represented 55% of volume in 2020, declined 13.1% in the third quarter of 2021 versus the third quarter of 2020.

Sales volume associated with specialty markets, which represented 31% of total volume in 2020 , increased 11.4% in the third quarter of 2021 versus the third quarter of 2020, and sales volume associated with the automotive market, which represented 9% of total volume in 2020, decreased 34.9% in the t hird quarter of 2021 versus the third quarter of 2020.

A portion of the decline in automotive sales was attributed to the supply chain issues in the automotive industry.

See “ The Impact o f COVID-19 and Related Financial Considerations ” section for more information on business conditions.

EBITDA from ongoing operations in the third quarter of 2021 decreased by $4.5 million in comparison to the third quarter of 2020, primarily due to lower volume ($1.8 million), increased labor and employee-related costs ($2.4 million), other operating costs ($4.0 million), freight expenses ($1.3 million) and higher general, selling and administrative expenses ($0.3 million), partially offset by higher pricing ($5.5 million).

First Quarter 2022 Results vs.

First Quarter 2021 Results

Net sales (sales less freight) in the first quarter of 2022 increased by 33.8 % versus 2021 primarily due to an increase in average selling prices to cover significantly higher aluminum raw material costs and higher operating costs, partially offset by lower sales volume.

Sales volume in the first quarter of 2022 decreased by 3.1% versus 2021.

Sales volume in the specialty market, which represented 34% of total volume in 2021, decreased 5.2% in the first quarter of 2022 versus 2021.

Sales volume in the automotive market, which represented 8% of total volume in 2021, declined 20.0% versus the first quarter of 2021.

Non-residential B&C sales volume, which represented 51 % o f 2021 volume, increased 1.3% in the first quarter of 2022 versus 2021.

Strong market demand in this sector has not been fully reflected in Bonnell Aluminum's first quarter 2022 results, due to pandemic-related labor shortages and resulting production inefficiencies.

While the average number of direct labor employees at Bonnell Aluminum facilities increased approximately 5% and 3% in the first quarter of 2022 compared to the first and fourth quarters of 2021, respectively, the estimated average labor shortage levels was 143, 133 and 147 workers in the first quarter of 2022 and first and fourth quarters of 2021, respectively.

Moreover, onboarding new employees has resulted in higher hiring and training costs in 2022 versus last year.

However, current bookings and backlog remain at record high levels.

EBITDA from ongoing operations in the first quarter of 2022 increased by $10.6 million in comparison to the first quarter of 2021 primarily due to:

• Higher pricing ($14.7 million, net of the pass-through of aluminum raw material costs), partially offset by:

lower volume ($0.4 million);

higher labor and employee-related costs ($1.3 million) and lower labor productivity ($1.1 million);

higher maintenance costs ($1.1 million);

higher supply expense, including significant price increases in paint, chemicals, packaging and other supplies ($3.8 million);

higher freight rates ($1.1 million);

and increased selling, general and administrative expenses ($1.5 million);

• The timing of the flow through under the first-in first-out method of aluminum raw material costs passed through to customers, previously acquired at lower prices in a quickly rising commodity pricing environment, resulted in a benefit of $7.1 million in the first quarter of 2022 versus a benefit of $1.0 million in the first quarter of 2021.

The benefit in the first quarter of 2022 was net of an adverse impact from the lag in pricing ($1.8 million), in which products promised to customers at a specified price were shipped in a later period.

Aluminum Extrusions believes that it has adequate supply agreements for aluminum raw materials in 2022 and is in the process of securing supply sources to meet expected needs in 2023.

R efer to Item 3.

Q uantitative and Qualitative Disclosures About Market Risk of this Form 10-Q f or additional information on aluminum prices.

First Nine Months of 2021 Results vs.

First Nine Months 2020 Results

Net sales in the first nine months of 2021 increased versus the first nine months of 2020, primarily due to the pass-through of higher metal costs and an increase in average selling prices to cover higher operating costs, partially offset by lower volume.

Sales volume in the first nine months of 2021 decreased by 0.9% versus the first nine months of 2020.

EBITDA from ongoing operations in the first nine months of 2021 increased by $3.6 million in comparison to the first nine months of 2020 due to higher pricing ($10.2 million), partially offset by higher labor and employee-related costs ($5.4 million) and other operational costs ($5.3 million), higher general, administrative and selling expenses ($1.3 million) and higher freight costs ($2.3 million).

In addition, inventories accounted for under the first-in first-out method resulted in a benefit of $5.8 million in the first nine months of 2021 versus a charge of $1.9 million in the first nine months of 2020.

Q uantitative and Qualitative Disclosures About Market Risk in this Form 10-Q f or additional information on aluminum prices.

Projected Capital Expenditures and Depreciation & Amortization

Capital expenditures for Bonnell Aluminum are projected to be $19 million in 2021, including $3 million for infrastructure upgrades at the Carthage, Tennessee and Newnan, Georgia facilities and $5 million for strategic projects.

In addition, approximately $11 million will be required to support continuity of current operations.

Capital expenditures for Bonnell Aluminum are projected to be $31 million in 2022, including $15 million for new enterprise resource planning and manufacturing execution systems ("ERP/MES"), $6 million for infrastructure upgrades at the facilities located in Niles, Michigan, Carthage, Tennessee and Newnan, Georgia and $3 million for other strategic projects.

The ERP/MES project is expected to cost $28 million over a two-year time span.

In addition to strategic projects, approximately $7 million will be required to support continuity of current operations.

Depreciation expense is projected to be $14 million in 2022.

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% Change Nine Months Ended Favorable/

(Unfavorable)

(In thousands, except percentages) September 30, September 30,

2021 2020 2021 2020

(In thousands, except percentages) March 31,

Sales volume (lbs) 10,553 10,244 3.0%

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* See the table in Note 10 for a reconciliation of this non-GAAP measure to the most comparable measure calculated in accordance with GAAP.

Third Quarter 2021 Results vs.

Third Quarter 2020 Results

Net sales increased by $2.1 million in the third quarter of 2021 versus the third quarter of 2020, primarily due to higher pricing associated with the pass-through of increased resin costs, partially offset by lower volume associated with the previously disclosed customer product transitions in Surface Protection.

EBITDA from ongoing operations in the third quarter of 2021 decreased by $1.2 million versus the third quarter of 2020, primarily due to:

• A $1.3 million decrease from Surface Protection related to lower sales associated with the customer product transitions ($1.6 million), margin erosion associated with higher resin costs that occurred before the resin index pricing plan was fully implemented ($0.5 million) and the pass-through lag associated with higher resin costs ($0.3 million), partially offset by higher sales for products unrelated to the customer product transitions ($0.3 million), lower fixed costs ($0.5 million) and lower selling, general, and administrative expenses ($0.3 million);

• A $0.4 million decrease from Pottsville Packaging primarily related to the pass-through lag associated with higher resin costs;

• A $0.9 million favorable variance associated with the divestiture of Bright View Technologies at the end of 2020.

First Quarter 2022 Results vs.

First Quarter 2021 Results

Net sales increased by $3.2 million in the first quarter of 2022 versus the first quarter of 2021 primarily due to higher volume in Surface Protection and higher selling prices for overwrap films.

Sales volume in Surface Protection increased 5% versus the first quarter of 2021.

EBITDA from ongoing operations in the first quarter of 2022 decreased by $0.2 million versus the first quarter of 2021, primarily due to:

• A $0.9 million decrease from Surface Protection associated with lower sales related to previously disclosed customer product transitions ($1.5 million), competitive pricing pressures for products unrelated to the customer product transitions ($1.4 million) and higher freight expense ($0.2 million), partially offset by higher volume, favorable mix ($1.0 million) and the pass-through lag associated with resin costs (benefit of $0.6 million in the first quarter of 2022 vs.

charge of $0.5 million in the first quarter of 2021);

• A $0.7 million increase from overwrap films primarily related to a benefit from the pass-through lag associated with resin costs (benefit of $0.3 million in the first quarter of 2022 versus a charge of $0.3 million in the first quarter of 2021) and favorable selling, general and administrative expenses ($0.4 million), partially offset by unfavorable mix ($0.2 million).

R efer to Item 3.

Q uantitative and Qualitative Disclosures About Market Risk of this Form 10-Q f or additional information on resin prices.

Q uantitative and Qualitative Disclosures About Market Risk in this Form 10-Q f or additional information on resin prices.

Customer Product Transitions and Other Factors in Surface Protection

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The Company previously reported the risk that a portion of its film products used in surface protection applications would be made obsolete by customer product transitions to less costly alternative processes or materials.

The Company estimates that these transitions, which principally relate to one customer, adversely impacted EBITDA from ongoing operations for PE Films by $14.6 million during the first nine months of 2021 versus 2020.

No additional adverse impacts from the transitions are anticipated during the fourth quarter of 2021 versus 2020.

However, a further decline of $7 million in EBITDA from ongoing operations due to the transitions is expected in 2022 versus 2021, at which time the transitions are expected to be complete.

The Surface Protection business is also experiencing competitive pricing pressures, unrelated to the customer product transitions, that are expected to adversely impact EBITDA from ongoing operations by approximately $6 million in 2022 versus 2021.

The Company estimates that these transitions, which principally relate to one customer, adversely impacted pre-tax income from continuing operations as reported under GAAP and EBITDA from ongoing operations for PE Films by $14.8 million during 2021 versus 2020.

A total decline of $7 million in pre-tax income from continuing operations as reported under GAAP and EBITDA from ongoing operations due to the transitions is expected in 2022 versus 2021, at which time the transitions are expected to be complete.

The Surface Protection business is also experiencing competitive pricing pressures, unrelated to the customer product transitions, that are expected to adversely impact pre-tax income from continuing operations as reported under GAAP and

EBITDA from ongoing operations by approximately $6 million for full year 2022 versus 2021.

To offset the expected adverse impact of the customer transitions and pricing pressures, the Company is aggressively pursuing and making progress in generating contribution from sales of new surface protection products, applications and customers and driving production efficiencies and cost savings.

Annual contribution to EBITDA from ongoing operations for PE Films from sales of new surface protection products, applications and customers has increased by approximately $12 million during the past two calendar years.

First Nine Months of 2021 Results vs.

First Nine Months 2020 Results

Net sales in the first nine months of 2021 decreased versus the first nine months 2020, primarily due to lower volume and unfavorable mix associated with the previously disclosed customer product transitions in Surface Protection, partially offset by higher pricing associated with the pass-through of increased resin costs.

EBITDA from ongoing operations in the first nine months of 2021 decreased by $12.9 million versus the first nine months of 2020 primarily due to:

• A $12.5 million decrease from Surface Protection primarily related to lower sales and unfavorable mix associated with the customer product transitions ($14.6 million), margin erosion associated with higher resin costs that occurred before the resin index pricing plan was fully implemented ($1.4 million) and the pass-through lag associated with higher resin costs ($1.0 million), partially offset by higher sales of products unrelated to the customer product transitions ($0.9 million) and production efficiencies and cost savings ($2.8 million);

• A $1.4 million decrease from Pottsville Packaging primarily related to the pass-through lag associated with higher resin costs;

• A $1.6 million favorable variance associated with the divestiture of Bright View Technologies at the end of 2020.

Annual contribution to pre-tax income from continuing operations as reported under GAAP and EBITDA from ongoing operations for PE Films from sales of products unrelated to previously disclosed customer product transitions increased $7 million for the two-year period ended December 31, 2021, which excludes the impact of resin pass-through lag but includes the adverse impact of customer inventory corrections, customer production slowdowns associated with COVID-19-related factors, and a slowdown in the television market in the fourth quarter of 2021.

Projected Capital Expenditures and Depreciation & Amortization

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(Unfavorable)

% Change Nine Months Ended Favorable/

(Unfavorable)

(In thousands, except percentages) September 30, September 30,

2021 2020 2021 2020

(In thousands, except percentages) March 31,

Sales volume (lbs) 26,005 27,408 (5.1)%

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* See the table in Note 10 for a reconciliation of this non-GAAP measure to the most comparable measure calculated in accordance with GAAP.

Third Quarter 2021 Results vs.

Third Quarter 2020 Results

Sales volume declined by 10.2% during the third quarter of 2021 versus the third quarter of 2020, primarily due to lower demand, reduced production capacity as a result of an equipment failure on a production line and supply chain restrictions, which Terphane believes are impacting others in the industry as well.

While the equipment failure is not expected to be fixed until early in 2022, Terphane has adjusted operations for the interim period to meet anticipated customer demand.

Net sales in the third quarter of 2021 increased 2.3% compared to the third quarter of 2020, primarily due to higher selling prices from the pass-through of higher resin costs and favorable product mix, partially offset by lower sales volume.

EBITDA from ongoing operations in the third quarter of 2021 decreased by $2.2 million versus the third quarter of 2020 primarily due to:

• Lower sales volume ($1.8 million), higher raw material costs ($4.8 million) and higher selling and general administration expenses ($0.1 million), partially offset by higher selling prices ($3.4 million) from the pass-through of higher resin costs;

• Net favorable foreign currency translation of Real-denominated operating costs ($1.1 million);

• Higher foreign currency transaction gains ($0.2 million) in the third quarter of 2021 versus the third quarter of 2020.

First Nine Months of 2021 Results vs.

First Nine Months 2020 Results

Sales volume declined by 7.5% during the first nine months of 2021 versus the first nine months of 2020, primarily due to temporary resin supply issues, an equipment failure impacting production and lower demand.

The Company believes that the pandemic-related surge in demand that began in early 2020 returned to lower pre-pandemic levels during the second quarter of 2021.

Net sales in the first nine months of 2021 increased 2.0% compared to the first nine months of 2020, primarily due to higher selling prices from the pass-through of higher resin costs and favorable product mix, partially offset by lower sales volume.

EBITDA from ongoing operations in the first nine months of 2021 increased by $2.7 million versus the first nine months of 2020 primarily due to:

• Favorable product mix ($1.7 million), higher selling prices from the pass-through of higher resin costs ($0.8 million), and lower selling and general administration expenses ($0.4 million), offset by lower sales volume ($3.5 million) and higher fixed ($0.8 million) and variable ($0.4 million) costs;

• Net favorable currency translation of Real-denominated operating costs ($4.7 million);

• Higher foreign currency transaction gains ($0.3 million) in the first nine months of 2021 versus 2020;

• Lower value-added tax credits received in the first nine months of 2021 ($0.5 million) compared with the first nine months of 2020 ($1.2 million).

First Quarter 2022 Results vs.

First Quarter 2021 Results

Sales volume declined by 5.1% during the first quarter of 2022 versus the first quarter of 2021, which reflected the surge in pandemic-related demand.

Net sales in the first quarter of 2022 increased 20.7% compared to the first quarter of 2021, primarily due to higher selling prices from the pass-through of higher resin costs and favorable product mix, partially offset by lower sales volume.

EBITDA from ongoing operations in the first quarter of 2022 decreased by $4.6 million versus the first quarter of 2021 primarily due to:

• Higher raw material costs ($6.0 million), higher variable costs ($1.6 million) and lower sales volume ($0.8 million), partially offset by higher selling prices ($4.9 million) from the pass-through of higher resin costs, favorable absorption of fixed costs ($0.4 million) and favorable product mix ($0.3 million);

• Net unfavorable foreign currency translation of Real-denominated operating costs ($0.3 million);

• Foreign currency transaction losses ($0.9 million) in the first quarter of 2022 compared to foreign currency transaction gains ($0.4 million) in the first quarter of 2021.

Refer to Item 3.

Quantitative and Qualitative Disclosures About Market Risk in this Form 10-Q f or additional information on polyester fiber and component price trends.

Projected Capital Expenditures and Depreciation & Amortization

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Amortization expense is projected to be $0.4 million in 2022.

Corporate Expenses, Interest, Taxes & Other

Corporate expenses, net, increased in the first nine months of 2021 versus the first nine months of 2020, primarily due to higher professional fees related to remediation activities of previously disclosed material weaknesses in the Company’s internal control over financial reporting ($0.6 million).

Interest expense was $2.6 million in the first nine months of 2021 in comparison to $1.6 million in the first nine months of 2020, primarily due to higher average debt levels.

The effective tax rate used to compute income taxes for continuing operations in the first nine months of 2021 was 22.7%, compared to 26.2% in the first nine months of 2020.

The differences between the U.S.

federal statutory rate and the effective tax rate for the first nine months of 2021 and 2020 are shown in the table provided in Note 12.

Pension expense was $10.5 million in the first nine months of 2021, a favorable change of $0.1 million compared to the first nine months of 2020.

The impact on earnings from pension expense is reflected in “Corporate expenses, net” in the net sales and EBITDA from ongoing operations by segment table.

Pension expense is projected to be $14 million in 2021, which is determined at the beginning of the year based on the funded status of the Company’s defined benefit pension plan and actuarial assumptions at that time.

Corporate Expenses, Interest & Other

Corporate expenses, net in the first three months of 2022 remained consistent with the first three months of 2021 as lower stock-based compensation ($0.8 million) was substantially offset by higher professional fees associated with remediation

activities related to the Company's previously disclosed material weaknesses in internal control over financial reporting ($0.3 million), non-recurring 2021 transition service fee income, net of corporate costs associated with the divested Personal Care Films business ($0.3 million) and higher professional fees associated with business development activities ($0.1 million).

Interest expense of $0.8 million in the first three months of 2022 remained consistent with the first three months of 2021 as lower average debt levels were offset by higher average interest rates.

Pension expense under GAAP of $3.5 million in the first three months of 2022 remained consistent with the first three months of 2021.

On February 10, 2022, Tredegar announced the initiation of a process to terminate and settle its frozen defined benefit pension plan, which could take up to 24 months to complete.

In connection therewith, the Company borrowed funds under its revolving credit agreement and made a $50 million contribution to the pension plan (the “Special Contribution”) to reduce its underfunding and as part of a program within the pension plan to hedge or fix the expected future contributions that will be needed by the Company through the settlement process.

The Company expects to realize income tax cash benefits on the Special Contribution of approximately $11 million in 2022.

Administrative costs for the pension plan through the settlement process are estimated at $4 to $5 million.

Tredegar’s frozen defined benefit pension plan was underfunded on a GAAP basis by $69 million at December 31, 2021, comprised of investments at fair value of $245 million and a projected benefit obligation (“PBO”) of $314 million.

GAAP accounting requires adjustment for changes in values of assets and the PBO only at the end of each year, even though these values change daily.

The Company estimates that changes to the values of pension plan assets and liabilities resulted in a decrease in the underfunding from $103 million at December 31, 2020 to approximately $73 million at September 30, 2021.

Tredegar owns approximately 18% of kaléo, which makes and sells an epinephrine delivery device under the name AUVI-Q ® .

The Company accounts for its investment in kaléo using a fair value method.

The Company’s estimate of the fair value of its interest in kaléo at September 30, 2021 was $35.5 million ($30.3 million after taxes), essentially unchanged from the balance at June 30, 2021 of $35.2 million ($30.1 million after taxes) and December 31, 2020 of $34.6 million ($29.7 million after taxes).

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.

See Note 7 for more information on this investment.

Net capitalization and other credit measures are provided in Liquidity and Capital Resources .

Critical Accounting Policies

The Company believes the estimates, assumptions and judgments described in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” of the 2020 Form 10-K have the greatest potential impact on our financial statements, so Tredegar considers these to be its critical accounting policies.

These policies include accounting for impairment of long-lived assets and goodwill, investment accounted for under the fair value method, pension benefits and income taxes.

These policies require management to exercise judgments that are often difficult, subjective and complex due to the necessity of estimating the effect of matters that are inherently uncertain.

Actual results could differ significantly from those estimates under different assumptions and conditions.

The Company believes the consistent application of these policies enables it to provide readers of the financial statements with useful and reliable information about

our operating results and financial condition.

Since December 31, 2020, there have been no changes in these policies that have had a material impact on results of operations or financial position.

For more information on new accounting pronouncements, see Note 1.

Results of Operations

Third Quarter of 2021 Compared with the Third Quarter of 2020

Sales in the third quarter of 2021 increased by 13.6% compared with the third quarter of 2020.

Net sales in Aluminum Extrusions increased 18.6% due to the pass-through of higher metal costs and an increase in average selling prices to cover higher operating costs, partially offset by lower volume.

Net sales increased 7.8% in PE Films, primarily due to higher pricing associated with the pass-through of increased resin costs, partially offset by lower volume associated with the previously disclosed customer product transitions in Surface Protection.

Net sales in Flexible Packaging Films increased 2.3% primarily due to higher selling prices from the pass-through of higher resin costs and favorable product mix, partially offset by lower sales volume.

For more information on net sales and volume, see the Executive Summary .

Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales (gross profit margin) was 15.0% in the third quarter of 2021 compared to 22.7% in the third quarter of 2020.

The gross profit margin in Aluminum Extrusions decreased primarily due to lower volume, increased operating costs and freight expenses, partially offset by higher pricing.

The gross profit margin in PE Films decreased primarily due to lower sales associated with the customer product transitions and the pass-throu gh lag associated with higher resin costs, partially offset by higher sales for products unrelated to the customer product transitions.

The gross profit margin in Flexible Packaging Films decreased due to a lower sales volume and higher raw material costs, partially offset by higher selling prices from the pass-through of higher resin costs.

As a percentage of sales, selling, general and administrative (“SG&A”) and research and development ("R&D") expenses were 8.8% in the third quarter of 2021, compared with 12.0% in the third quarter of last year.

SG&A expenses were down year-over-year, while net sales increased.

Decreased SG&A spending is primarily due to nonrecurring corporate costs associated with the divested Personal Care Films business, lower professional fees associated with business development activities and nonrecurring SG&A expenses related to Bright View Technologies in the third quarter of 2020.

R&D expense remained consistent with prior year.

Pre-tax gains and losses associated with plant shutdowns, asset impairments, restructurings and other items for continuing operations in the third quarters of 2021 and 2020 detailed below are shown in the statements of net sales and EBITDA from ongoing operations by segment table in Note 11 and are included in “Asset impairments and costs associated with exit and disposal activities, net of adjustments” in the consolidated statements of income, unless otherwise noted.

Three Months Ended September 30,

($ in millions) 2021 2020

Aluminum Extrusions:

(Gains) losses from sale of assets, investment writedowns and other items:

Consulting expenses for enterprise resource planning feasibility study 1

Environmental charges at Newnan, Georgia plant 3

COVID-19-related expenses, net of relief 2

Total for Aluminum Extrusions $ 0.2 $ 0.8

(Gains) losses associated with plant shutdowns, asset impairments and restructurings:

Other restructuring costs - severance $ 0.1 $ —

(Gains) losses from sale of assets, investment writedowns and other items:

COVID-19-related expenses 2

Total for PE Films $ 0.2 $ —

(Gains) losses associated with plant shutdowns, asset impairments and restructurings:

(Gain), net of costs associated with the sale of the Lake Zurich manufacturing facility assets $ (0.2) $ —

(Gains) losses from sale of assets, investment writedowns and other items:

Professional fees associated with:

remediation activities and other costs relating to the Company’s material weaknesses in internal control over financial reporting;

and business development activities 1

Write-down of investment in Harbinger Capital Partners Special Situations Fund 2

Stock compensation expense associated with the fair value remeasurement of awards granted at the time of the 2020 special dividend 1

Transition service fees, net of corporate costs associated with the divested Personal Care Films business 2

Total for Corporate $ 1.3 $ 1.8

Included in “Selling, general and administrative expenses” in the consolidated statements of income.

Included in “Other income (expense), net” in the consolidated statements of income.

Included in “Cost of goods sold” in the consolidated statements of income.

Average debt outstanding and interest rates were as follows:

Three Months Ended September 30,

(In millions) 2021 2020

Floating-rate debt with interest charged on a rollover basis at one-month LIBOR plus a credit spread:

Average outstanding debt balance $ 122.5 $ 24.3

Average interest rate 1.8 % 1.7 %

First Nine Months of 2021 Results vs.

First Nine Months 2020 Results

Sales in the first nine months of 2021 increased by 7.6% compared with the first nine months of 2020.

Net sales increased 16.2% in Aluminum Extrusions due to the pass-through of higher metal costs and an increase in average selling prices to cover higher operating costs, partially offset by lower volume.

Net sales decreased 15.0% in PE Films primarily due to lower volume and unfavorable mix associated with the previously disclosed customer product transitions in Surface Protection.

Net sales in Flexible Packaging Films increased 2.0% primarily due to higher selling prices from the pass-through of higher resin costs and favorable product mix, partially offset by lower sales volume.

For more information on net sales and volume, see the Executive Summary .

Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales (gross profit margin) was 18.9% in the first nine months of 2021 compared to 22.8% in the first nine months of 2020.

The gross profit margin in Aluminum Extrusions decreased primarily due to higher freight, labor and employee-related costs and other operational costs.

The gross profit margin in PE Films decreased primarily due to lower sales and unfavorable mix associated with the customer product transitions in Surface Protection and margin erosion associated with higher resin costs that occurred before the resin index pricing plan was fully implemented, partially offset by higher sales of products unrelated to the customer product transitions and production efficiencies and cost savings.

The gross profit margin in Flexible Packaging Films decreased due to lower sales volume and higher fixed and variable costs partially offset by favorable product mix.

As a percentage of sales, SG&A and R&D expenses were 9.9% in the first nine months of 2021, compared with 12.0% in the first nine months of last year.

SG&A and R&D expenses were down year-over-year, while net sales increased.

Decreased spending is primarily due to nonrecurring corporate costs associated with the divested Personal Care Films business, lower R&D spending, and nonrecurring SG&A expenses related to Bright View Technologies in the first nine months of 2020.

Pre-tax gains and losses associated with plant shutdowns, asset impairments, restructurings and other items for continuing operations in the first nine months of 2021 and 2020 detailed below are shown in the statements of net sales and EBITDA from ongoing operations by segment table in Note 11 and are included in “Asset impairments and costs associated with exit and disposal activities, net of adjustments” in the consolidated statements of income, unless otherwise noted.

Nine Months Ended September 30,

($ in millions) 2021 2020

Aluminum Extrusions:

(Gains) losses from sale of assets, investment writedowns and other items:

Consulting expenses for enterprise resource planning feasibility study 1

Environmental charges at Newnan, Georgia plant 3

COVID-19-related expenses, net of relief 2

Total for Aluminum Extrusions $ 0.2 $ 2.6

(Gains) losses associated with plant shutdowns, asset impairments and restructurings:

Other restructuring costs - severance $ 0.1 $ 0.1

(Gains) losses from sale of assets, investment writedowns and other items:

COVID-19-related expenses 2

Total for PE Films $ 0.5 $ 0.3

Flexible Packaging Films:

(Gains) losses from sale of assets, investment writedowns and other items:

One-time tax credit in Brazil for PIS/COFINS social contribution non-income taxes resulting from a favorable decision by Brazil’s Supreme Court regarding the calculation of such taxes 2,4

COVID-19-related expenses 2

Total for Flexible Packaging Films $ (8.4) $ —

(Gains) losses associated with plant shutdowns, asset impairments and restructurings:

Costs, net of gain associated with the sale of the Lake Zurich manufacturing facility assets $ 0.1 $ —

(Gains) losses from sale of assets, investment writedowns and other items:

Professional fees associated with:

remediation activities and other costs relating to the Company’s material weaknesses in internal control over financial reporting;

and business development activities 1

Write-down of investment in Harbinger Capital Partners Special Situations Fund 2

Stock compensation expense associated with the fair value remeasurement of awards granted at the time of the 2020 special dividend 1

Transition service fees, net of corporate costs associated with the divested Personal Care Films business 2

Accelerated recognition of stock-based compensation expense 1

Total for Corporate $ 4.8 $ 5.6

Included in “Selling, general and administrative expenses” in the consolidated statements of income.

Included in “Other income (expense), net” in the consolidated statements of income.

Included in “Cost of goods sold” in the consolidated statements of income.

See Note 13 to the Consolidated Financial Statements.

Average debt outstanding and interest rates were as follows:

Nine Months Ended September 30,

(In millions) 2021 2020

Floating-rate debt with interest charged on a rollover basis at one-month LIBOR plus a credit spread:

Average outstanding debt balance $ 131.5 $ 37.0

Average interest rate 1.7 % 2.5 %

The Company estimates that the Special Contribution and changes to the values of pension plan assets and liabilities resulted in a decrease in the underfunding on a GAAP basis from $69 million at December 31, 2021 to approximately $13 million at March 31, 2022.

The ultimate settlement benefit obligation may differ from the PBO, depending on market factors for buyers of pension obligations at the time of settlement.

Prior to the Special Contribution, GAAP pension expense was a reasonable proxy for the Company’s required minimum cash contribution to the pension plan.

The Company estimates that, with the Special Contribution, there will be no required minimum cash contributions until final settlement.

Net capitalization and other credit measures are provided in Liquidity and Capital Resources below.

Liquidity and Capital Resources

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Measures such as days sales outstanding (“DSO”), days inventory outstanding (“DIO”) and days payables outstanding (“DPO”) are used to evaluate changes in working capital.

Changes in operating assets and liabilities from continuing operations from December 31, 2020 to September 30, 2021 are summarized below.

Cash flows for discontinued operations have not been separately disclosed in the consolidated statements of cash flows.

Changes in operating assets and liabilities from continuing operations from December 31, 2021 to March 31, 2022 are summarized below.

Cash flows for discontinued operations have not been separately disclosed in the condensed consolidated statements of cash flows.

• Accounts and other receivables increased $26.2 million (25.4%).

◦ Accounts and other receivables in Aluminum Extrusions increased by $13.8 million primarily due to higher selling prices from the pass-through of higher metal costs and an increase in average selling prices to cover higher operating costs, partially offset by lower volume and improved collection efforts during the nine months ended 2021.

DSO (represents trailing 12 months net sales divided by a rolling 12-month average of accounts and other receivables balances) was approximately 47.2 days for the 12 months ended September 30, 2021 and 47.5 days for the 12 months ended December 31, 2020.

◦ Accounts and other receivables in PE Films decreased by $3.4 million due to lower volume and unfavorable mix associated with the previously disclosed customer product transitions in Surface Protection, partially offset by higher pricing associated with the pass-through of increased resin costs.

DSO was approximately 28.7 days for the 12 months ended September 30, 2021 and 30.2 days for the 12 months ended December 31, 2020.

◦ Accounts and other receivables in Flexible Packaging Films increased by $1.1 million primarily due to a one-time tax credit in Brazil for unemployment/social security insurance non-income taxes ("PIS/COFINS") received during the second quarter of 2021.

DSO was approximately 39.8 days for the 12 months ended September 30, 2021 and 41.0 days for the 12 months ended December 31, 2020.

◦ Accounts and other receivables in Aluminum Extrusions increased by $20.1 million primarily due to an increase in average selling prices to cover significantly higher aluminum raw material costs and higher operating costs, partially offset by lower sales volume.

DSO (represents trailing 12 months net sales divided by a rolling 12-month average of accounts and other receivables balances) was approximately 48.2 days for the 12 months ended March 31, 2022 and 47.6 days for the 12 months ended December 31, 2021.

◦ Accounts and other receivables in PE Films increased by $1.9 million due to higher volume in Surface Protection and the timing of cash receipts.

DSO was approximately 27.9 days for the 12 months ended March 31, 2022 and 28.5 days for the 12 months ended December 31, 2021.

◦ Accounts and other receivables in Flexible Packaging Films increased by $4.3 million primarily due to higher selling prices from the pass-through of higher resin costs and favorable product mix, partially offset by lower sales volume.

DSO was approximately 41.4 days for the 12 months ended March 31, 2022 and 40.0 days for the 12 months ended December 31, 2021.

• Inventories increased $16.0 million (18.1%).

◦ Inventories in Aluminum Extrusions increased by $8.1 million due to higher average aluminum prices and the impact of COVID-19-related operational and production inefficiencies on the timing of shipments.

DIO (represents trailing 12 months costs of goods sold calculated on a first-in first-out basis divided by a rolling 12-month average of inventory balances calculated on the first-in first-out basis) was approximately 40.0 days for the 12 months ended September 30, 2021 and 39.3 days for the 12 months ended December 31, 2020.

◦ Inventories in PE Films decreased $1.2 million due to lower planned raw material and finished good levels due to declining sales volume relative to 2020, partially offset by increased resin costs.

DIO of approximately 62.4 days for the 12 months ended September 30, 2021 was higher compared 59.2 days for the 12 months ended December 31, 2020 due to the lower Surface Protection 12-month average of costs of goods sold as a result of lower sales volume.

◦ Inventories in Flexible Packaging Films increased by $5.1 million primarily due to higher finished good levels due to lower than anticipated sales volume and higher planned raw material levels due to anticipated freight delays.

DIO was approximately 94.4 days for the 12 months ended September 30, 2021 and 89.4 days for the 12 months ended December 31, 2020.

• Net property, plant and equipment increased $1.4 million primarily due to capital expenditures of $19.0 million, partially offset by depreciation expense of $16.2 million, disposals, net of cash proceeds of $0.5 million and unfavorable changes in foreign exchange rates of $0.6 million.

DIO (represents trailing 12 months costs of goods sold calculated on a first-in first-out basis divided by a rolling 12-month average of inventory balances calculated on the first-in first-out basis) was approximately 43.9 days for the 12 months ended March 31, 2022 and 41.4 days for the 12 months ended December 31, 2021.

◦ Inventories in PE Films increased $1.2 million due to higher planned raw material levels.

DIO (represents trailing 12 months costs of goods sold calculated on a first-in first-out basis divided by a rolling 12-month average of inventory balances calculated on the first-in first-out basis) was approximately 59.2 days for the 12 months ended March 31, 2022 and 62.8 days for the 12 months ended December 31, 2021.

◦ Inventories in Flexible Packaging Films increased by $6.7 million primarily due to the impact of higher average resin prices on raw materials and higher finished good levels due to lower than anticipated sales demand.

DIO was approximately 95.0 days for the 12 months ended March 31, 2022 and 93.1 days for the 12 months ended December 31, 2021.

• Net property, plant and equipment increased $2.2 million primarily due to capital expenditures of $4.7 million and a change in the value of the U.S.

dollar relative to foreign currencies (an increase of approximately $3.5 million), partially offset by depreciation expense of $5.8 million.

• Identifiable intangible assets, net decreased by $0.5 million (3.7%) due to amortization expense.

• Deferred income tax assets decreased $4.3 million during the first quarter of 2022 compared to December 31, 2021 primarily due to changes in other comprehensive income and the projected utilization of foreign tax credits partially offset by the change in the deferred tax liability as a result of the implementation of new U.S.

tax regulations associated with foreign tax credits published by the U.S.

Treasury and Internal Revenue Service on January 4, 2022.

See Note 9 for additional information.

• Accounts payable increased $20.8 million (16.8%).

◦ Accounts payable in Aluminum Extrusions increased by $22.0 million primarily due to higher average aluminum prices and favorable payment terms with certain vendors.

DPO (represents trailing 12 months costs of goods sold calculated on a first-in first-out basis divided by a rolling 12-month average of accounts payable balances) was

approximately 58.7 days for the 12 months ended September 30, 2021 and 53.1 days for the 12 months ended December 31, 2020.

◦ Accounts payable in PE Films increased by $4.2 million primarily due to higher resin costs and favorable payment terms with certain vendors.

DPO was approximately 38.7 days for the 12 months ended September 30, 2021 and 36.8 days for the 12 months ended December 31, 2020.

◦ Accounts payable in Flexible Packaging Films increased $1.5 million due to higher resin costs and favorable payment terms with certain vendors.

DPO was approximately 68.2 days for the 12 months ended September 30, 2021 and 61.7 days for the 12 months ended December 31, 2020.

Net cash provided by operating activities was $51.5 million in the first nine months of 2021 compared to $66.3 million in the first nine months of 2020.

The decrease was primarily due to lower net working capital ($10.6 million) and lower EBITDA for business segments of $6.6 million in the first nine months of 2021 versus the first nine months months of 2020.

Net cash used in investing activities increased during the first nine months of 2021 compared to the first nine months of 2020 due to higher capital expenditure spending of $6.2 million, partially offset by $4.7 million cash proceeds from the sale of the Lake Zurich manufacturing facility assets.

Net cash used in financing activities of $18.2 million in the first nine months of 2021, compared to $47.6 million in the first nine months of 2020, decreased primarily due to higher net repayments ($28.0 million) in 2020 under the Credit Agreement (as defined below), partially offset by $0.9 million of proceeds from the exercise of stock options in the first nine months of 2021 and repurchases of employee common stock for tax withholdings of $0.6 million in the first nine months of 2020.

◦ Accounts payable in Aluminum Extrusions increased by $15.7 million primarily due to higher average aluminum prices.

DPO (represents trailing 12 months costs of goods sold calculated on a first-in first-out basis divided by a rolling 12-month average of accounts payable balances) was approximately 61.0 days for the 12 months ended March 31, 2022 and 60.1 days for the 12 months ended December 31, 2021.

◦ Accounts payable in PE Films increased by $2.8 million primarily due to higher resin costs related to raw material purchases.

DPO was approximately 47.0 days for the 12 months ended March 31, 2022 and 44.0 days for the 12 months ended December 31, 2021.

◦ Accounts payable in Flexible Packaging Films increased $3.0 million due to higher resin costs related to raw material purchases and the impact from the change in the U.S.

dollar value of currencies related to operations outside of the U.S.

DPO was approximately 69.2 days for the 12 months ended March 31, 2022 and 68.2 days for the 12 months ended December 31, 2021.

Net cash used in operating activities was $54.7 million in the first three months of 2022 compared to net cash provided by operating activities of $9.9 million in the first three months of 2021.

The change in operating activities is primarily due to the Special Contribution ($50 million) to the pension plan and lower net working capital ($16.0 million).

Net cash used in investing activities decreased during the first three months of 2022 compared to the first three months of 2021 due to lower capital expenditure spending ($0.2 million).

Net cash provided by financing activities of $53.8 million in the first three months of 2022, compared to $5.9 million in the first three months of 2021, increased primarily due to higher net borrowings ($49.3 million) under the Credit Agreement (as defined below) to fund the $50 million Special Contribution to the pension plan.

The Company believes that existing borrowing availability, current cash balances and cash flow from operations will be sufficient to satisfy short term material cash requirements related to working capital, capital expenditure, debt repayments and dividend requirements for at least the next twelve months.

In the longer term, liquidity will depend on many factors, including results of operations, the timing and extent of capital expenditures, changes in operating plans, or other events that would cause the Company to seek additional financing in future periods.

At March 31, 2022, the Company had cash and cash equivalents of $25.6 million, including cash and cash equivalents held by locations outside the U.S.

of $8.4 million.

Tredegar has a five-year secured revolving credit agreement (the “Credit Agreement”) providing for aggregate borrowings in an amount of $375 million, which matures in June 2024.

Net capitalization and indebtedness as defined under the Credit Agreement as of September 30, 2021 were as follows:

Net Capitalization and Indebtedness as of September 30, 2021

Net capitalization and indebtedness as defined under the Credit Agreement as of March 31, 2022 were as follows:

Net Capitalization and Indebtedness as of March 31, 2022

(In thousands)

17 unchanged sentences

<= 1.0x 150.0 20

At September 30, 2021, the interest rate on debt under the Credit Agreement existing at that date was priced at one-month LIBOR plus the applicable credit spread of 162.5 basis points.

At March 31, 2022, the interest rate on debt under the Credit Agreement existing at that date was priced at one-month LIBOR plus the applicable credit spread of 150.0 basis points.

The most restrictive covenants in the Credit Agreement include:

4 unchanged sentences

The Credit Agreement is secured by substantially all of the Company’s and its domestic subsidiaries’ assets, including equity in certain material first-tier foreign subsidiaries.

At September 30, 2021, based upon the most restrictive covenant within the Credit Agreement, available credit under the Credit Agreement was approximately $248 million.

Total debt outstanding was $127 million and $134 million as of September 30, 2021 and December 31, 2020, respectively.

At March 31, 2022, based upon the most restrictive covenant within the Credit Agreement, available credit under the Credit Agreement was approximately $244 million.

Total debt outstanding was $131 million and $73 million as of March 31, 2022 and December 31, 2021, respectively.

Credit EBITDA is not intended to represent net income (loss) or cash flow from operations as defined by GAAP and should not be considered as an alternative to either net income (loss) or to cash flow.

The computations of Credit EBITDA and the leverage ratio and interest coverage ratio as defined in the Credit Agreement are presented below.

Computations of Credit EBITDA and Leverage Ratio and Interest Coverage Ratio as Defined in the Credit Agreement Along with Related Most Restrictive Covenants as of and for the Twelve Months Ended September 30, 2021 (In Thousands)

Computation of Credit EBITDA for the twelve months ended September 30, 2021:

Computation of Credit EBITDA for the twelve months ended March 31, 2022:

Net income (loss) $ 65,217

18 unchanged sentences

Credit EBITDA as defined in Credit Agreement $ 109,934

Computations of leverage and interest coverage ratios as defined in the Credit Agreement at September 30, 2021:

Computations of leverage and interest coverage ratios as defined in the Credit Agreement at March 31, 2022:

Leverage ratio (indebtedness-to-Credit EBITDA) 1.19x

4 unchanged sentences

Minimum interest coverage ratio permitted 3.00x

Tredegar was in compliance with all of its debt covenants as of September 30, 2021.

Tredegar was in compliance with all of its debt covenants as of March 31, 2022.

Noncompliance with any of the debt covenants may have a material adverse effect on its financial condition or liquidity, in the event such noncompliance cannot be cured or should the Company be unable to obtain a waiver from the lenders.

Renegotiation of the covenant through an amendment to the Credit Agreement may effectively cure the noncompliance, but may have an effect on its financial condition or liquidity depending upon how the covenant is renegotiated.

At September 30, 2021, the Company had cash and cash equivalents of $30.3 million, including cash and cash equivalents held by locations outside the U.S.

of $17.7 million.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis