What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-09 compared with 2022-08-08 · 189 added, 186 removed, 322 unchanged (54% of the section changed)

5 unchanged sentences

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 COVID-19 pandemic.

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

and world economies.

Accordingly, you should not place undue reliance on these forward-looking statements.

8 unchanged sentences

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

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

• uncertain economic conditions in countries in which the Company does business, including continued high 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;

13 unchanged sentences

• failure to establish and maintain effective internal control over financial reporting;

and the other factors discussed in the reports Tredegar files with or furnishes to the Securities and Exchange Commission (the “SEC”) from time to time, including the risks and important factors set forth in additional detail in Part I, Item 1A of Tredegar’s

Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”).

Readers are urged to review and consider carefully the disclosures Tredegar makes in its filings with the SEC.

6 unchanged sentences

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.

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

Business Overview

10 unchanged sentences

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.

Second Quarter Financial Results Highlights

Second quarter 2022 net income from continuing operations was $14.8 million ($0.44 per diluted share) compared with net income from continuing operations of $20.7 million ($0.61 per diluted share) in the second quarter of 2021.

• EBITDA from ongoing operations for Aluminum Extrusions of $21.9 million was $2.2 million higher than the second quarter of 2021

• EBITDA from ongoing operations for PE Films of $7.1 million was $1.9 million lower than the second quarter of 2021

• EBITDA from ongoing operations for Flexible Packaging Films of $7.6 million was $0.6 million lower than the second 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 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 ended June 30, 2022 and 2021, respectively.

Third Quarter Financial Results Highlights

Third quarter 2022 net income from continuing operations was $1.0 million ($0.03 per diluted share) compared with net income from continuing operations of $6.2 million ($0.19 per diluted share) in the third quarter of 2021.

• EBITDA from ongoing operations for Aluminum Extrusions of $12.1 million was consistent with the third quarter of 2021

• EBITDA from ongoing operations for PE Films of $0.4 million was $4.4 million lower than the third quarter of 2021

• EBITDA from ongoing operations for Flexible Packaging Films of $7.8 million was $0.4 million higher than the third quarter of 2021

Given recessionary concerns and recent customer inventory corrections during the third quarter of 2022, the outlook for demand for Aluminum Extrusions’ and PE Films’ products remains uncertain.

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

Second Quarter of 2022 Compared with the Second Quarter of 2021

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

Third Quarter of 2022 Compared with the Third Quarter of 2021

The following table presents a bridge of consolidated net income (loss) from continuing operations from third quarter of 2021 to third 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 June 30, 2021

Net income from continuing operations for the three months ended September 30, 2021

Income tax expense (benefit) 1,908

Income (loss) from continuing operations before income taxes for the three months ended June 30, 2021

Income (loss) from continuing operations before income taxes for the three months ended September 30, 2021

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

5 unchanged sentences

Total (34,697)

Income (loss) from continuing operations before income taxes for the three months ended June 30, 2022

Income (loss) from continuing operations before income taxes for the three months ended September 30, 2022

Income tax expense (benefit) 1,125

Net income from continuing operations for the three months ended June 30, 2022

Sales in the second quarter of 2022 increased by $63.2 million compared with the second quarter of 2021.

Net sales (sales less freight) in Aluminum Extrusions increased $51.0 million, primarily due to an increase in average selling prices to cover significantly higher aluminum raw material costs and higher operating costs.

Net sales were flat in PE Films.

Net sales in Flexible Packaging Films increased $8.2 million, primarily due to higher sales volume and higher selling prices from the pass-through of higher resin costs.

Net income from continuing operations for the three months ended September 30, 2022

Sales in the third quarter of 2022 increased by $29.0 million compared with the third quarter of 2021.

Net sales (sales less freight) in Aluminum Extrusions increased $24.6 million, primarily due to an increase in average selling prices to cover higher operating costs, partially offset by the pass-through of lower metal costs.

Net sales in PE Films decreased $8.4 million, primarily due to weakening market demand, competitive pricing and unfavorable product mix.

Net sales in Flexible Packaging Films increased $10.6 million, primarily due to higher sales volume and higher selling prices from the pass-through of higher resin costs, higher sales volume and favorable product mix.

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

Other income decreased $6.9 million in the second quarter of 2022 compared to the second quarter of 2021, primarily due to a 2021 gain of $8.5 million associated with a 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, partially offset by a gain realized during the three months ended June 30, 2022 related to additional cash consideration of $1.4 million received in connection with the Company's sale of its investment interests in kaleo, Inc.

("kaléo") due to customary post-closing adjustments.

Other income (expense), net for the third quarter ended September 30, 2022 remained consistent with the third quarter of 2021.

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 16.5% in the second quarter of 2022 compared to 21.5% in the second quarter of 2021.

Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales (gross profit margin) was 11.9% in the third quarter of 2022 compared to 15.0% in the third quarter of 2021.

The gross profit margin in Aluminum Extrusions decreased primarily due to higher labor and employee-related costs, lower labor productivity, higher supply expense, higher utility costs and higher freight rates.

Additionally, 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 higher prices in a quickly changing commodity pricing environment, resulted in a charge in the second quarter of 2022 versus a benefit in the second quarter of 2021.

The gross profit margin in PE Films decreased primarily due to lower Surface Protection contribution margin related to previously disclosed customer product transitions and pricing pressures for products unrelated to the customer product transitions, partially offset by higher contribution margin related to non-transitioning products.

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

As a percentage of sales, selling, general and administrative (“SG&A”) and research and development ("R&D") expenses were 7.5% in the second quarter of 2022, compared with 10.3% in the second quarter of 2021.

While second quarter SG&A expenses declined and sales increased year-over-year, R&D expenses remained consistent with prior year.

Lower SG&A spending is primarily due to lower stock-based compensation and lower professional fees associated with business development activities.

The effective tax rate used to compute income taxes for continuing operations in the second quarter of 2022 was 27.3%, compared to 21.9% in the second quarter of 2021.

Additionally, 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 higher prices in a quickly changing commodity pricing environment, resulted in a charge in the third quarter of 2022 versus a benefit in the third quarter of 2021.

In addition, the Company recorded an out-of-period adjustment of $2.5 million related to inventory and accrued labor costs.

The gross profit margin in PE Films decreased primarily due to lower Surface Protection contribution margin for non-transitioning products associated with a market slowdown and customer inventory corrections, competitive pricing and previously disclosed customer product transitions.

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

As a percentage of sales, selling, general and administrative (“SG&A”) and research and development ("R&D") expenses were 8.6% in the third quarter of 2022, compared with 8.8% in the third quarter of 2021.

While third quarter SG&A expenses increased and sales increased year-over-year, R&D expenses remained consistent with prior year.

Higher SG&A spending is primarily due to higher professional fees associated with remediation activities related to the Company's previously disclosed material weaknesses in internal control over financial reporting and higher employee-related compensation.

The effective tax rate used to compute income taxes for continuing operations in the third quarter of 2022 was 52.6%, compared to 23.5% in the third quarter of 2021.

The increase in the effective tax rate for continuing operations is primarily due to the implementation of new U.S.

3 unchanged sentences

income taxes.

The effective tax rate increases as the result of Brazilian income tax no longer being creditable in the U.S.

Brazilian income tax is no longer creditable in the U.S.

for the foreseeable future under these regulations.

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 second 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 June 30,

Pre-tax gains and losses associated with plant shutdowns, asset impairments, restructurings and other items for continuing operations in the third 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 September 30,

(In millions) 2022 2021

1 unchanged sentence

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

Environmental charges at Newnan, Georgia plant 3

COVID-19-related expenses, net of relief 1

Total for Aluminum Extrusions $ — $ 0.2

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

Other restructuring costs - severance $ 0.5 $ 0.1

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

1 unchanged sentence

Total for PE Films $ 0.5 $ 0.2

Flexible Packaging Films:

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

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 taxes 1,4

Total for Flexible Packaging Films $ — $ (8.5)

(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)

Other restructuring costs - severance 0.1 —

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

1 unchanged sentence

Professional fees associated with internal control over financial reporting 2

Write-down of investment in Harbinger Capital Partners Special Situations Fund 1

Stock-based compensation expense associated with the fair value remeasurement of awards granted at the time of the 2020 special dividend 2

4 unchanged sentences

Included in “Selling, general and administrative expenses” 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 Form 10-Q), 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.

See Note 5 for additional information.

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

See “Corporate Expenses, Interest, & Other” below and Note 4 for additional information.

Average debt outstanding and interest rates were as follows:

Three Months Ended June 30,

Three Months Ended September 30,

(In millions, except percentages) 2022 2021

2 unchanged sentences

Average interest rate 3.8 % 1.8 %

In connection with the Second Amended and Restated Credit Agreement dated June 29, 2022 as defined below, borrowings bear an interest rate equal to Secured Overnight Financing Rate ("SOFR") plus a credit spread adjustment of 10 basis points and an amount depending on the type of borrowing and commitment fees charged on the unused amount under the Credit Agreement.

Prior to Second Amended and Restated Credit Agreement, the interest rate was based on London Inter-Bank Offered Rate ("LIBOR") plus an applicable credit spread.

See " Liquidity and Capital Resources " section below for additional information.

First Six Months of 2022 Results vs.

First Six Months of 2021 Results

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

Following the entry into the Second Amended and Restated Credit Agreement on June 29, 2022, borrowings bear an interest rate equal to Secured Overnight Financing Rate ("SOFR") plus a credit spread adjustment of 10 basis points and an amount depending on the type of borrowing and commitment fees charged on the unused amount under the Second Amended and Restated Credit Agreement.

Prior to entry into the Second Amended and Restated Credit Agreement, the interest rate was based on London Inter-Bank Offered Rate ("LIBOR") plus an applicable credit spread.

See " Liquidity and Capital Resources " below for additional information.

First Nine Months of 2022 Results vs.

First Nine Months of 2021 Results

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

(In thousands)

Net income from continuing operations for the first six months ended June 30, 2021

Net income from continuing operations for the first nine months ended September 30, 2021

Income tax expense (benefit) 10,728

Income (loss) from continuing operations before income taxes for the first six months ended June 30, 2021

Income (loss) from continuing operations before income taxes for the first nine months ended September 30, 2021

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

7 unchanged sentences

Total (143,378)

Income (loss) from continuing operations before income taxes for the first six months ended June 30, 2022

Income (loss) from continuing operations before income taxes for the first nine months ended September 30, 2022

Income tax expense (benefit) 7,460

Net income from continuing operations for the first six months ended June 30, 2022

Sales in the first six months of 2022 increased by $115.0 million compared with the first six months of 2021.

Net sales (sales less freight) in Aluminum Extrusions increased $91.0 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 an increase in average selling prices associated with the pass-through of higher market-driven raw material costs.

Net income from continuing operations for the first nine months ended September 30, 2022

Sales in the first nine months of 2022 increased by $143.9 million compared with the first nine months of 2021.

Net sales (sales less freight) in Aluminum Extrusions increased $115.6 million, primarily due to an increase in average selling prices to cover higher aluminum raw material costs and higher operating costs, partially offset by lower sales volume.

Net sales decreased $5.3 million in PE Films, primarily due to lower volume in Surface Protection and overwrap films, partially offset by an increase in average selling prices associated with the pass-through of higher market-driven raw material costs.

Net sales in Flexible Packaging Films increased $25.6 million, primarily due to higher selling prices from the pass-through of higher resin costs, favorable product mix and higher sales volume.

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

Other income decreased $7.9 million in the first six months of 2022 compared to the first six months of 2021, primarily due to a 2021 gain of $8.5 million associated with a 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 and a decline in unrealized losses of $0.5 million on the Company’s investment in Harbinger Capital Partners Special Situations Fund L.P., partially offset by a gain realized during the three months ended June 30, 2022 related to additional cash consideration of $1.4 million received in connection with the Company's sale of its investment interests kaléo due to customary post-closing adjustments.

Other income decreased $8.2 million in the first nine months of 2022 compared to the first nine months of 2021, primarily due to a 2021 gain of $8.5 million associated with a 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.

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 17.7% in the first six months of 2022 compared to 20.9% in the first six months of 2021.

The gross profit margin in Aluminum Extrusions increased primarily due to higher pricing, net of the pass-through of aluminum raw material costs, partially offset by lower volume, higher labor and employee-related costs, lower labor productivity, higher maintenance costs, higher supply expense, higher utilities, and higher freight rates.

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

Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales (gross profit margin) was 15.9% in the first nine months of 2022 compared to 18.9% in the first nine months of 2021.

The gross profit margin in Aluminum Extrusions remained flat compared to the first nine months of 2021.

The gross profit margin in PE Films decreased primarily due to lower Surface Protection contribution margin related to previously disclosed customer product transitions and for non-transitioning products associated with a market slowdown and customer inventory corrections and competitive pricing pressures, partially offset by the pass-through lag associated with resin costs.

As a percentage of SG&A and R&D expenses were 8.5% in the first six months of 2022, compared with 10.6% in the first six months 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.

The effective tax rate used to compute income taxes for continuing operations in the first six months of 2022 was 16.9%, compared to 22.5% in the first six months of 2021.

As a percentage of SG&A and R&D expenses were 8.5% in the first nine months of 2022, compared with 9.9% in the first nine months of 2021.

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

Increased SG&A spending is primarily due to higher professional fees associated with remediation activities related to the Company's previously disclosed material weaknesses in internal control over financial reporting and higher employee-related compensation.

The effective tax rate used to compute income taxes for continuing operations in the first nine months of 2022 was 18.8%, compared to 22.7% in the first nine 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.

6 unchanged sentences

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 six months 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.

Six Months Ended June 30,

Pre-tax gains and losses associated with plant shutdowns, asset impairments, restructurings and other items for continuing operations in the first nine months 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.

Nine Months Ended September 30,

(In millions) 2022 2021

1 unchanged sentence

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

Environmental charges at Newnan, Georgia plant 3

COVID-19-related expenses, net of relief 1

Total for Aluminum Extrusions $ 0.1 $ 0.2

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

Other restructuring costs - severance $ 0.5 $ 0.1

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

19 unchanged sentences

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

Prior to the Special Contribution (see “Corporate Expenses, Interest, & Other” section of this Form 10-Q), 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.

See Note 4 for additional information.

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

See “Corporate Expenses, Interest, & Other” below and see Note 4 for additional information.

See Note 5 for additional information.

Average debt outstanding and interest rates were as follows:

Six Months Ended June 30,

Nine Months Ended September 30,

(In millions, except percentages) 2022 2021

2 unchanged sentences

Average interest rate 2.7 % 1.7 %

In connection with the Second Amended and Restated Credit Agreement dated June 29, 2022 as defined below, borrowings bear an interest rate equal to SOFR plus a credit spread adjustment of 10 basis points and an amount depending on the type of borrowing and commitment fees charged on the unused amount under the Credit Agreement.

Prior to Second Amended and Restated Credit Agreement, the interest rate was based on LIBOR plus an applicable credit spread.

See " Liquidity and Capital Resources " section below for additional information.

Following the entry into the Second Amended and Restated Credit Agreement on June 29, 2022, borrowings bear an interest rate equal to SOFR plus a credit spread adjustment of 10 basis points and an amount depending on the type of borrowing and commitment fees charged on the unused amount under the Second Amended and Restated Credit Agreement.

Prior to entry into the Second Amended and Restated Credit Agreement, the interest rate was based on LIBOR plus an applicable credit spread.

See " Liquidity and Capital Resources " below for additional information.

Segment Operations Review

3 unchanged sentences

(Unfavorable)

% Change Six Months Ended Favorable/

% Change Nine Months Ended Favorable/

(Unfavorable)

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

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

2022 2021 2022 2021

7 unchanged sentences

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

Second Quarter 2022 Results vs.

Second Quarter 2021 Results

Net sales (sales less freight) in the second quarter of 2022 increased by 36.6% versus 2021 primarily due to an increase in average selling prices to cover significantly higher aluminum raw material costs and higher operating costs.

Sales volume in the second quarter of 2022 was flat versus 2021.

Sales volume in the specialty market, which represented 34% of total volume in 2021, decreased 8.8% in the second quarter of 2022 versus 2021.

Sales volume in the automotive market, which represented 8% of total volume in 2021, declined 6.6% versus the second quarter of 2021.

Nonresidential B&C sales volume, which represented 51% of 2021 volume, increased 5.6% in the second quarter of 2022 versus 2021.

The Company believes that actual sales volume during the first six months of 2022 was lower than demand due to pandemic-related labor shortages and resulting production inefficiencies.

While the average number of direct labor employees at Bonnell Aluminum facilities increased approximately 9% in t he second quarter of 2022 compared to the second quarter of 2021, the estimated average labor shortage levels were 101, 171 and 203 w orkers in the second and first quarters of 2022 and second quarter of 2021, respectively.

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

Although bookings have slowed in the second quarter of 2022 versus the first quarter of 2022 and the second quarter of 2021, backlog remains at historically high levels.

EBITDA from ongoing operations in the second quarter of 2022 increased by $2.2 million in comparison to the second quarter of 2021 primarily due to:

Third Quarter 2022 Results vs.

Third Quarter 2021 Results

Net sales (sales less freight) in the third quarter of 2022 increased 17.9% versus 2021 primarily due to an increase in average selling prices to cover higher operating costs, partially offset by the pass-through of lower metal costs.

Sales volume in the third quarter of 2022 was flat versus 2021.

Sales volume in the specialty market, which represented 34% of total volume in 2021, decreased 11.0% in the third quarter of 2022 versus 2021, primarily as a result of exiting lower-margin business.

Sales volume in the automotive market, which represented 8% of total volume in 2021, increased 5.3% versus the third quarter of 2021.

No nresidential B&C sales volume, which represented 51% of 2021 volume, increased 8.5% in the third quarter of 2022 versus 2021.

The Company has observed slowing order input and order cancellations as customers report high inventory levels.

In addition, given the recent slowdown in orders, average labor shortage levels have been significantly diminished.

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

With a reduced level of incoming orders in the third quarter of 2022, overall open orders at the end of the quarter were 59 million lbs.

versus 86 million lbs.

at the end of the second quarter of 2022.

EBITDA from ongoing operations in the third quarter of 2022 was flat versus the third quarter of 2021 primarily due to:

• Higher pricing ($19.6 million, net of the pass-through of aluminum raw material costs), partially offset by:

4 unchanged sentences

and increased selling, general and administrative ("SG&A") expenses ($0.8 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 higher prices in a quickly changing commodity pricing environment, resulted in a charge of $1.6 million in the second quarter of 2022 versus a benefit of $3.1 million in the second quarter of 2021.

The charge in the second quarter of 2022 was net of a favorable impact from the lag in pricing ($0.3 million), in which products committed to customers at a specified price were shipped in a later period.

First Six Months of 2022 Results vs.

First Six Months of 2021 Results

Net sales in the first six months of 2022 increased by 35.4% 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 six months of 2022 decreased by 1.5% versus 2021.

EBITDA from ongoing operations in the first six months of 2022 increased by $12.8 million in comparis on to the first six months of 2021 prim arily due to:

• 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 higher prices in a quickly changing commodity pricing environment, resulted in a charge of $3.8 million in the third quarter of 2022 versus a benefit of $1.7 million in the third quarter of 2021.

In addition, the Company recorded an out-of-period adjustment of $2.5 million related to inventory and accrued labor costs.

First Nine Months of 2022 Results vs.

First Nine Months of 2021 Results

Net sales in the first nine months of 2022 increased 29.3% versus 2021 primarily due to an increase in average selling prices to cover higher aluminum raw material costs and higher operating costs, partially offset by lower sales volume.

Sales volume in the first nine months of 2022 decreased by 1.0% versus 2021.

EBITDA from ongoing operations in the first nine months of 2022 increased $12.8 million in comparison to the first nine months of 2021, primarily due to:

• Higher pricing ($53.7 million, net of the pass-through of aluminum raw material costs), partially offset by:

6 unchanged sentences

and increased SG&A expenses ($3.2 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 changing commodity pricing environment, resulted in a benefit of $5.5 million in the first six months of 2022 versus a benefit of $4.2 million in the first six months of 2021.

The benefit in the first six months of 2022 was net of an adverse impact from the lag in pricing ($1.5 million), in which products committed 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.

• 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 changing commodity pricing environment, resulted in a benefit of $1.7 million in the first nine months of 2022 versus a benefit of $5.8 million in the first nine months of 2021.

The bene fit in the first nine months of 2022 was net of an adverse impact from the lag in pricing during the first half of 2022 ($0.3 million), in which products committed to customers at a specified price were shipped in a later period.

In addition, the Company recorded an out-of-period adjustment of $2.5 million related to inventory and accrued labor costs.

Aluminum Extrusions has adequate supply agreements for aluminum raw materials in 2022 and continues to secure supply sources to meet expected needs in 2023.

R efer to Item 3.

9 unchanged sentences

(Unfavorable)

% Change Six Months Ended Favorable/

% Change Nine Months Ended Favorable/

(Unfavorable)

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

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

2022 2021 2022 2021

7 unchanged sentences

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

Second Quarter 2022 Results vs.

Second Quarter 2021 Results

Net sales were flat in the second quarter of 2022 compared to the second quarter of 2021;

s ales volume decreased in both Surface Protection and overwrap films versus the second quarter of 2021.

EBITDA from ongoing operations in the second quarter of 2022 decreased by $1.9 million versus the second quarter of 2021, primarily due to:

• A $1.6 million decrease from Surface Protection associated with lower contribution margin related to previously disclosed customer product transitions ($2.2 million) and competitive pricing pressures for products unrelated to the customer product transitions ($1.9 million), partially offset by higher sales related to non-transitioning products ($1.8 million) and a foreign currency transaction gain of $0.5 million in the second quarter of 2022 versus a charge of $0.1 million in the second quarter of 2021;

• A $0.3 million decrease from overwrap films primarily due to lower sales volume ($0.3 million) and higher SG&A expenses ($0.4 million), partially offset by a benefit from the pass-through lag associated with resin costs (charge of $0.2 million in the second quarter of 2022 versus a charge of $0.6 million in the second quarter of 2021).

First Six Months of 2022 Results vs.

First Six Months of 2021 Results

Net sale s increased by $3.2 million in the first six months of 2022 versus the first six months of 2021 primarily due to an increase in average selling prices associated with the pass-through of higher market-driven raw material costs .

Sales volume declined in overwrap films and revenue and volume in Surface Protection were flat versus the first six months of 2021.

EBITDA from ongoing operations in the first six months of 2022 decreased by $2.1 million versus the first six months of 2021, primarily due to:

• A $2.5 million decrease from Surface Protection associated with lower contribution margin related to previously disclosed customer product transitions ($3.7 million) and competitive pricing pressures for products unrelated to the customer product transitions ($3.3 million), partially offset by higher contribution margin for non-transitioning products ($2.5 million), lower SG&A expenses ($0.3 million), foreign currency transaction gain ($0.5 million) in the first six months of 2022 versus a charge ($0.1 million) in the first six months of 2021, and the pass-through lag associated with resin costs (benefit of $0.3 million in the first six months of 2022 versus a charge of $0.7 million in the first six months of 2021);

• A $0.4 million increase from overwrap films primarily related to a benefit from the pass-through lag associated with resin costs (benefit of $0.2 million in the first six months of 2022 versus a charge of $0.9 million in the first six months of 2021), partially offset by lower sales volume ($0.3 million) and higher freight and other operating expenses ($0.3 million).

Third Quarter 2022 Results vs.

Third Quarter 2021 Results

Net sales in the third quarter of 2022 decreased 29.6% compared to the third quarter of 2021.

Sales volume decreased in both Surface Protection and overwrap films versus the third quarter of 2021.

Surface Protection sales volume declined 26% versus the third quarter of 2021 and 37% versus the second quarter of 2022.

Surface Protection sales have been adversely impacted by weak market demand and competitive pricing.

Consumer demand for electronics has significantly softened, causing manufacturers in the supply chain to experience reduced capacity utilization and inventory corrections.

In addition, these market conditions are adversely impacting mix through reduced sales to our highest value-added customers and products.

EBITDA from ongoing operations in the third quarter of 2022 decreased $4.4 million versus the third quarter of 2021, primarily due to:

• A $4.7 million decrease from Surface Protection:

◦ Lower contribution margin for non-transitioning products associated with a market slowdown and customer inventory corrections ($4.0 million) and competitive pricing ($1.1 million);

and for previously disclosed customer product transitions ($1.1 million), partially offset by lower SG&A expenses ($0.4 million);

◦ A foreign currency transaction gain of $0.5 million in the third quarter of 2022 versus no gains or losses in the third quarter of 2021;

◦ The pass-through lag associated with resin costs (no benefit or charge in the third quarter of 2022 versus a charge of $0.6 million in the third quarter of 2021).

• A $0.3 million increase from overwrap films primarily due to a benefit from the pass-through lag associated with resin costs (no benefit or charge in the third quarter of 2022 versus a charge of $0.4 million in the third quarter of 2021), partially offset by lower sales volume ($0.1 million).

First Nine Months of 2022 Results vs.

First Nine Months of 2021 Results

Net sales in the first nine months of 2022 decreased 6% versus the first nine months of 2021 due to lower volume in Surface Protection and overwrap films.

Sales volume and revenue declined 7% and 11%, respectively, in Surface Protection.

Despite a decline of 11% in sales volume in overwrap films, revenue increased 9% as a result of the pricing impact associated with the pass-through of resin costs.

EBITDA from ongoing operations in the first nine months of 2022 decreased $6.5 million versus the first nine months of 2021, primarily due to:

• A $7.2 million decrease from Surface Protection:

◦ Lower contribution margin related to previously disclosed customer product transitions ($4.8 million) and for non-transitioning products associated with a market slowdown and customer inventory corrections ($1.6 million) and competitive pricing pressures ($4.4 million), partially offset by lower SG&A expenses ($0.7 million);

◦ A foreign currency transaction gain ($1.0 million) in the first nine months of 2022 versus a charge ($0.1 million) in the first nine months of 2021;

◦ The pass-through lag associated with resin costs (benefit of $0.3 million in the first nine months of 2022 versus a charge of $1.3 million in the first nine months 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 $0.2 million in the first nine months of 2022 versus a charge of $1.3 million in the first nine months of 2021), partially offset by lower sales volume and unfavorable mix ($0.6 million).

R efer to Item 3.

5 unchanged sentences

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 continuing to experience 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 approximatel y $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.

The transitions, which were complete as of the second quarter of 2022, have resulted in a total decline of $7 million in pre-tax income from continuing operations as reported under GAAP and EBITDA from ongoing operations versus 2021.

these competitive prici ng pressures are being exacerbated for the Company's exports to Asia with the strengthening of the U.S.

Dollar versus the local currencies of competitors in the region.

In addition, the timing of a recovery in the consumer electronics market is highly uncertain.

To offset the expected adverse impact of the c ustomer transitions and pricing pressures, the Company is aggressively pursuing sales of new surface protection products, applications and customers and driving production efficiencies and cost savings.

Projected Capital Expenditures and Depreciation & Amortization

6 unchanged sentences

(Unfavorable)

% Change Six Months Ended Favorable/

% Change Nine Months Ended Favorable/

(Unfavorable)

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

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

2022 2021 2022 2021

7 unchanged sentences

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

Second Quarter 2022 Results vs.

Second Quarter 2021 Results

Net sales in the second quarter of 2022 increased 24.6% compared to the second quarter of 2021, primarily due to higher sales volume and higher selling prices from the pass-through of higher resin costs.

EBITDA from ongoing operations in the second quarter of 2022 decreased by $0.6 million versus the second quarter of 2021 primarily due to:

• Higher raw material costs ($5.4 million), higher SG&A expenses ($0.7 million), and higher fixed ($0.6 million) and variable costs ($0.3 million), partially offset by higher selling prices ($4.2 million) from the pass-through of higher resin costs, higher sales volume ($1.7 million), and favorable product mix ($0.5 million);

Third Quarter 2022 Results vs.

Third Quarter 2021 Results

Net sales in the third quarter of 2022 increased 28.9% compared to the third quarter of 2021, primarily due to higher selling prices from the pass-through of higher resin costs, higher sales volume and favorable product mix.

EBITDA from ongoing operations in the third quarter of 2022 increased by $0.4 million versus the third quarter of 2021, primarily due to:

• Higher selling prices ($6.9 million) from the pass-through of higher resin costs, higher sales volume ($0.9 million), favorable product mix ($0.5 million), and lower variable costs ($0.4 million), partially offset by higher raw material costs ($5.6 million), higher fixed costs ($0.6 million) and higher SG&A expenses ($0.4 million);

• Net unfavorable foreign currency translation of Real-denominated operating costs ($1.2 million);

• Foreign currency transaction gains ($0.6 million) in the second quarter of 2022 compared to foreign currency transaction losses ($0.5 million) in the second quarter of 2021.

First Six Months of 2022 Results vs.

First Six Months of 2021 Results

Net sales in the first six months of 2022 increased 22.7% compared to the first six months of 2021, primarily due to higher selling prices from the pass-through of higher resin costs, favorable product mix and higher sales volume.

EBITDA from ongoing operations in the first six months of 2022 decreased by $5.2 million versus the first six months of 2021 primarily due to:

• Foreign currency transaction gains ($0.1 million) in the third quarter of 2022 compared to foreign currency transaction gains ($0.6 million) in the third quarter of 2021.

First Nine Months of 2022 Results vs.

First Nine Months of 2021 Results

Net sales in the first nine months of 2022 increased 24.9% compared to the first nine months of 2021, primarily due to higher selling prices from the pass-through of higher resin costs, favorable product mix and higher sales volume.

EBITDA from ongoing operations in the first nine months of 2022 decreased by $4.8 million versus the first nine months of 2021, primarily due to:

• Higher raw material costs ($16.3 million), higher fixed ($0.7 million) and variable costs ($1.5 million), and higher SG&A expenses ($1.0 million), partially offset by higher selling prices ($15.5 million) from the pass-through of higher resin costs, higher sales volume ($1.9 million) and favorable product mix ($1.3 million);

• Net unfavorable foreign currency translation of Real-denominated operating costs ($3.1 million);

• Foreign currency transaction losses ($0.3 million) in the first six months of 2022 compared to foreign currency transaction losses ($0.1 million) in the first six months of 2021.

• Foreign currency transaction losses ($0.3 million) in the first nine months of 2022 compared to foreign currency transaction gains ($0.6 million) in the first nine months of 2021.

Refer to Item 3.

5 unchanged sentences

Corporate Expenses, Interest & Other

Corporate expenses, net in the first six months of 2022 decreased $1.4 million compared to first six months of 2021 primarily due to lower stock-based compensation ($1.0 million) and lower professional fees associated with remediation activities related to the Company's previously disclosed material weaknesses in internal control over financial reporting ($0.5 million).

Interest expense of $2.0 million in the first six months of 2022 increased $0.3 million compared to the first six months of 2021 due to higher average interest rates during the second quarter of 2022, partially offset by lower average debt levels.

Pension expense under GAAP of $6.9 million in the first six months of 2022 remained consistent with the first six months of 2021.

Corporate expenses, net in the first nine months of 2022 decreased $0.3 million compared to the first nine months of 2021 primarily due to lower professional fees associated with business development activities ($1.6 million) and lower stock-

based compensation ($1.2 million), offset by higher professional fees associated with remediation activities related to the Company's previously disclosed material weaknesses in internal control over financial reporting ($2.3 million).

Interest expense of $3.2 million in the first nine months of 2022 increased $0.6 million compared to the first nine months of 2021 due to higher average interest rates during the first nine months of 2022, partially offset by lower average debt levels.

Pension expense under GAAP of $10.4 million in the first nine months of 2022 remained consistent with the first nine 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.

4 unchanged sentences

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 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 $12 million at June 30, 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.

7 unchanged sentences

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, 2021 to June 30, 2022 are summarized below.

Changes in operating assets and liabilities from continuing operations from December 31, 2021 to September 30, 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 $6.8 million (6.5%).

◦ Accounts and other receivables in Aluminum Extrusions increased $21.5 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 June 30, 2022 and 47.6 days for the 12 months ended December 31, 2021.

◦ Accounts and other receivables in PE Films decreased $0.9 million due to lower sales volume in both overwrap films and surface protection films.

DSO was approximately 28.4 days for the 12 months ended June 30, 2022 remained flat in comparison to the DSO for the 12 months ended December 31, 2021.

◦ Accounts and other receivables in Flexible Packaging Films increased $4.1 million primarily due to higher sales volume and higher selling prices from the pass-through of higher resin costs.

DSO was approximately 41.8 days for the 12 months ended June 30, 2022 and 40.0 days for the 12 months ended December 31, 2021.

◦ Accounts and other receivables in Aluminum Extrusions increased $7.3 million primarily due to an increase in average selling prices to cover 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 48.3 days for the 12 months ended September 30, 2022 and 47.6 days for the 12 months ended December 31, 2021.

◦ Accounts and other receivables in PE Films decreased $6.8 million due to lower sales volume in both Surface Protection and overwrap films, partially offset by increased overwrap films sales as a result of the pricing impact associated with the pass-through of resin costs.

DSO was approximately 29.4 days for the 12 months ended September 30, 2022 and 28.5 days for the 12 months ended December 31, 2021.

◦ Accounts and other receivables in Flexible Packaging Films increased $6.2 million primarily due to higher selling prices from the pass-through of higher resin costs, favorable product mix and higher sales volume.

DSO was approximately 40.8 days for the 12 months ended September 30, 2022 and 40.0 days for the 12 months ended December 31, 2021.

• Inventories increased $25.5 million (28.8%).

◦ Inventories in Aluminum Extrusions increased $19.8 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 45.9 days for the 12 months ended June 30, 2022 and 41.4 days for the 12 months ended December 31, 2021.

◦ Inventories in PE Films increased $5.9 million due to lower sales volume and higher planned raw material levels.

DIO was approximately 60.1 days for the 12 months ended June 30, 2022 was lower compared to 62.8 days for the 12 months ended December 31, 2021 due to the higher Surface Protection 12-month average of costs of goods sold as a result of higher resin costs.

◦ Inventories in Flexible Packaging Films increased $7.1 million primarily due to the impact of higher average resin prices on raw materials, higher finished good levels due to lower than anticipated sales demand and the impact from the change in the U.S.

◦ Inventories in Aluminum Extrusions increased $12.8 million due to increased raw material levels due to slowing order input, order cancellations as customers report high inventory levels, and increased aluminum supplier costs.

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 48.3 days for the 12 months ended September 30, 2022 and 41.4 days for the 12 months ended December 31, 2021.

◦ Inventories in PE Films increased $2.9 million due to lower sales volume and higher planned raw material levels from the first half of 2022.

DIO was approximately 62.6 days for the 12 months ended September 30, 2022 and 62.8 days for the 12 months ended December 31, 2021.

◦ Inventories in Flexible Packaging Films increased $9.8 million primarily due to the impact of higher average resin prices on raw materials, higher planned finished good levels and the impact from the change in the U.S.

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

DIO was approximately 95.1 days for the 12 months ended June 30, 2022 and 93.1 days for the 12 months ended December 31, 2021.

• Net property, plant and equipment increased $3.4 million primarily due to capital expenditures of $15.2 million, partially offset by depreciation expense of $11.5 million.

DIO was approximately 96.7 days for the 12 months ended September 30, 2022 and 93.1 days for the 12 months ended December 31, 2021.

• Net property, plant and equipment increased $9.1 million primarily due to capital expenditures of $28.5 million, partially offset by depreciation expense of $17.5 million and a $1.1 million unfavorable change in the value of the U.S.

dollar relative to foreign currencies.

• Identifiable intangible assets, net decreased $2.0 million (13.8%) due to amortization expense.

4 unchanged sentences

• Accounts payable increased $3.1 million (2.5%).

◦ Accounts payable in Aluminum Extrusions increased $42.7 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 63.6 days for the 12 months ended June 30, 2022 and 60.1 days for the 12 months ended December 31, 2021.

◦ Accounts payable in PE Films increased $4.4 million primarily due to higher resin costs related to raw material purchases.

DPO was approximately 50.7 days for the 12 months ended June 30, 2022 and 44.0 days for the 12 months ended December 31, 2021.

◦ Accounts payable in Flexible Packaging Films increased $2.8 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 67.2 days for the 12 months ended June 30, 2022 and 68.2 days for the 12 months ended December 31, 2021.

Net cash used in operating activities was $9.4 million in the first six months of 2022 compared to net cash provided by operating activities of $41.5 million in the first six months of 2021.

The change in operating activities is primarily due to the Special Contribution ($50 million).

Net cash used in investing activities increased during the first six months of 2022 compared to the first six months of 2021 due to higher capital expenditure spending ($2.2 million), partially offset by a gain realized during the three months ended June 30, 2022 related to additional cash consideration of $1.4 million received in connection with the Company's sale of its investment interests kaléo due to customary post-closing adjustments.

Net cash provided by financing activities was $18.7 million in the first six months of 2022, compared to net cash used in financing activities of $24.2 million in the first six months of 2021.

The change in financing activities is primarily due to higher net borrowings ($45.5 million) under the Credit Agreement (as defined below) to fund the $50 million Special Contribution to the pension plan and higher deferred financing costs ($1.2 million).

◦ Accounts payable in Aluminum Extrusions increased $4.8 million primarily due to the timing of purchasing raw materials at higher aluminum prices and higher aluminum supplier costs.

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 63.3 days for the 12 months ended September 30, 2022 and 60.1 days for the 12 months ended December 31, 2021.

◦ Accounts payable in PE Films decreased $2.5 million primarily due to lower raw material purchases.

DPO was approximately 51.9 days for the 12 months ended September 30, 2022 and 44.0 days for the 12 months ended December 31, 2021.

◦ Accounts payable in Flexible Packaging Films remained flat compared to the prior year.

DPO was approximately 69.5 days for the 12 months ended September 30, 2022 and 68.2 days for the 12 months ended December 31, 2021.

Net cash used in operating activities was $23.2 million in the first nine months of 2022 compared to net cash provided by operating activities of $51.5 million in the first nine months of 2021.

The change in operating activities is primarily due to the Special Contribution ($50 million) and higher working capital due to factors discussed earlier in this section relating to accounts and other receivables, inventories and accounts payable.

Net cash used in investing activities increased during the first nine months of 2022 compared to the first nine months of 2021 due to higher capital expenditure spending ($6.0 million) and cash proceeds received during the three months ended September 30, 2021 from the sale of the Lake Zurich manufacturing facility assets ($4.7 million), partially offset by a gain related to additional cash consideration received during the first nine months of 2022 in connection with the Company's sale of its investment interests kaléo ($1.4 million).

Net cash provided by financing activities was $36.8 million in the first nine months of 2022, compared to net cash used in financing activities of $18.2 million in the first nine months of 2021.

The change in financing activities is primarily due to higher net borrowings ($58.0 million) under the Credit Agreement (as defined below) to fund the $50 million Special Contribution to the pension plan, higher deferred financing costs ($1.2 million), repurchases of employee common stock for tax withholdings of $0.4 million in the first nine months of 2022, and $0.9 million of proceeds from the exercise of stock options in the first nine months of 2021.

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 expenditures, 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 June 30, 2022, the Company had cash and cash equivalents of $27.5 million, including cash and cash equivalents held in locations outside the U.S.

At September 30, 2022, the Company had cash and cash equivalents of $19.3 million, including cash and cash equivalents held in locations outside the U.S.

of $8.5 million.

1 unchanged sentence

The Credit Agreement is a five-year, revolving, secured credit facility that permits aggregate borrowings of $375 million and matures on June 29, 2027.

Net capitalization and indebtedness as defined under the Credit Agreement as of June 30, 2022 were as follows:

Net Capitalization and Indebtedness as of June 30, 2022

Net capitalization and indebtedness as defined under the Credit Agreement as of September 30, 2022 were as follows:

Net Capitalization and Indebtedness as of September 30, 2022

(In thousands)

16 unchanged sentences

>3.5x 200.0 40

At June 30, 2022, $101.5 million of the outstanding debt was principally priced at an interest rate equal to the Adjusted Term SOFR Rate plus the applicable credit spread of 150.0 basis points.

At September 30, 2022, $124.0 million of the outstanding debt was principally priced at an interest rate equal to the Adjusted Term SOFR Rate plus the applicable credit spread of 150.0 basis points.

Prior to the Credit Agreement, the interest rate was based on LIBOR plus an applicable credit spread.

2 unchanged sentences

• Interest Coverage Ratio of 3.00x;

stock repurchases for the term of the Credit Agreement at $75 million (provided that the $75 million basket will reset at the end of each fiscal quarter when the Total Net Leverage ratio is less than or equal to 2.00x).

• Unlimited payments for dividends and stock repurchases during the term of the Credit Agreement so long as the Total Net Leverage Ratio is equal to or less than 2.00x, and otherwise restrictions on payments for dividends and stock repurchases for the term of the Credit Agreement at $75 million (provided that the $75 million basket will reset at the end of each fiscal quarter when the Total Net Leverage ratio is less than or equal to 2.00x).

Under the Credit Agreement:

2 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 June 30, 2022, based upon the restrictive covenants within the Credit Agreement, available credit under the Credit Agreement was approximately $273 million.

Total debt outstanding was $101.5 million and $73.0 million as of June 30, 2022 and December 31, 2021, respectively.

At September 30, 2022, based upon the restrictive covenants within the Credit Agreement, available credit under the Credit Agreement was approximately $249 million.

Total debt outstanding was $124.0 million and $73.0 million as of September 30, 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, the Total Net Leverage Ratio and Interest Coverage Ratio as defined in the Credit Agreement are presented below.

Computations of Credit EBITDA, Total Net Leverage Ratio and Interest Coverage Ratio (in each case, as Defined in the Credit Agreement) Along with Related Primary Restrictive Covenants as of and for the Twelve Months Ended June 30, 2022

Computation of Credit EBITDA for the twelve months ended June 30, 2022 (In Thousands):

Computation of Credit EBITDA for the twelve months ended September 30, 2022 (In Thousands):

Net income (loss) $ 53,676

18 unchanged sentences

Credit EBITDA $ 95,470

Computations of Total Net Leverage Ratio and Interest Coverage Ratio at June 30, 2022:

Computations of Total Net Leverage Ratio and Interest Coverage Ratio at September 30, 2022:

Total Net Leverage Ratio 1.1x

4 unchanged sentences

Minimum Interest Coverage Ratio permitted 3.00x

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

Tredegar was in compliance with all of its debt covenants as of September 30, 2022.

Noncompliance with any of the debt covenants could 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 could effectively cure the noncompliance, but could have an effect on its financial condition or liquidity depending upon how the covenant is renegotiated.

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