Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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. 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. Such statements are based on the Company's then current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. 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. Accordingly, you should not place undue reliance on these forward-looking statements. Factors that could cause actual results to differ materially from expectations include, without limitation, the following:
• loss or gain of sales to significant customers on which the Company’s business is highly dependent;
• inability to achieve sales to new customers to replace lost business;
• inability to develop, efficiently manufacture and deliver new products at competitive prices;
• failure of the Company’s customers to achieve success or maintain market share;
• failure to protect our intellectual property rights;
• risks of doing business in countries outside the U.S. that affect our international operations;
• political, economic, and regulatory factors concerning the Company’s products;
• 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;
• impact of fluctuations in foreign exchange rates;
• 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;
• inability to successfully identify, complete or integrate strategic acquisitions; failure to realize the expected benefits of such acquisitions and assumption of unanticipated risks in such acquisitions;
• disruptions to the Company’s manufacturing facilities, including those resulting from labor shortages;
• failure to continue to attract, develop and retain certain key officers or employees;
• the impact of public health epidemics on employees, production and the global economy, such as the COVID-19 pandemic;
• an information technology system failure or breach;
• 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 trade tensions between the U.S. and other countries;
• the termination of anti-dumping duties on products imported to Brazil that compete with products produced by Flexible Packaging;
• 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.
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Tredegar does not undertake, and expressly disclaims any duty, to update any forward-looking statement to reflect any change in management’s expectations or any change in conditions, assumptions or circumstances on which such statements are based, except as required by applicable law.
References herein to “Tredegar,” “the Company,” “we,” “us” and “our” are to Tredegar Corporation and its subsidiaries, collectively, unless the context otherwise indicates or requires.
Unless otherwise stated or indicated, all comparisons are to the prior year period. 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 or estimates 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 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; and specialized polyester films primarily for the Latin American flexible packaging market through its Flexible Packaging Films segment. With approximately 2,300 employees, the Company operates manufacturing facilities in North America, South America, and Asia.
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. This measure is separately included in the financial information regularly provided to the CODM.
Earnings before interest and taxes ("EBIT") from ongoing operations is a non-GAAP financial measure included in the reconciliation of segment financial information to consolidated results for the Company. It is not intended to represent the stand-alone results for Tredegar's ongoing operations under generally accepted accounting standards in the United States ("GAAP") and should not be considered as an alternative to net income as defined by GAAP. 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.
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.
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Results of Operations
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 September 30, 2021
$ 6,229
Income tax expense (benefit) 1,908
Income (loss) from continuing operations before income taxes for the three months ended September 30, 2021
8,137
Increase (decrease) in income from increases (decreases) in the following items:
Sales 28,969
Other income (expense), net (272)
Total 28,697
Increase (decrease) in income from (increases) decreases in the following items:
Cost of goods sold (29,826)
Freight (2,236)
Selling, general and administrative (2,251)
Other (384)
Total (34,697)
Income (loss) from continuing operations before income taxes for the three months ended September 30, 2022
2,137
Income tax expense (benefit) 1,125
Net income from continuing operations for the three months ended September 30, 2022
$ 1,012
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 (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 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 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.
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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. 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. 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 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
Aluminum Extrusions:
(Gains) losses from sale of assets, investment writedowns and other items:
Environmental charges at Newnan, Georgia plant 3
$ — $ 0.1
COVID-19-related expenses, net of relief 1
— 0.1
Total for Aluminum Extrusions $ — $ 0.2
PE Films:
(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:
COVID-19-related expenses 1
— 0.1
Total for PE Films $ 0.5 $ 0.2
Corporate:
(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 2
— 0.7
Professional fees associated with internal control over financial reporting 2
0.8 0.8
Stock-based compensation expense associated with the fair value remeasurement of awards granted at the time of the 2020 special dividend 2
(0.1) (0.1)
Transition service fees, net of corporate costs associated with the divested Personal Care Films business 1
— 0.1
Net periodic benefit cost for the frozen defined benefit pension plan in process of termination 4
3.5 —
Total for Corporate $ 4.2 $ 1.3
1. Included in “Other income (expense), net” in the condensed consolidated statements of income.
2. Included in “Selling, general and administrative expenses” in the condensed consolidated statements of income.
3. Included in “Costs of goods sold” in the condensed consolidated statements of income.
4. See “Corporate Expenses, Interest, & Other” below and Note 4 for additional information.
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Average debt outstanding and interest rates were as follows:
Three Months Ended September 30,
(In millions, except percentages) 2022 2021
Floating-rate debt with interest charged on a rollover basis plus a credit spread 1 :
Average outstanding debt balance $ 111.1 $ 122.5
Average interest rate 3.8 % 1.8 %
1. 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 nine months ended September 30, 2021
$ 36,576
Income tax expense (benefit) 10,728
Income (loss) from continuing operations before income taxes for the first nine months ended September 30, 2021
47,304
Increase (decrease) in income from increases (decreases) in the following items:
Sales 143,947
Other income (expense), net (8,159)
Total 135,788
Increase (decrease) in income from (increases) decreases in the following items:
Cost of goods sold (131,197)
Freight (8,088)
Selling, general and administrative (3,738)
Other (355)
Total (143,378)
Income (loss) from continuing operations before income taxes for the first nine months ended September 30, 2022
39,714
Income tax expense (benefit) 7,460
Net income from continuing operations for the first nine months ended September 30, 2022
$ 32,254
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 $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.
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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. 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 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. 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.
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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
Aluminum Extrusions:
(Gains) losses from sale of assets, investment writedowns and other items:
Environmental charges at Newnan, Georgia plant 3
$ — $ 0.1
COVID-19-related expenses, net of relief 1
0.1 0.1
Total for Aluminum Extrusions $ 0.1 $ 0.2
PE Films:
(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:
COVID-19-related expenses 1
0.2 0.4
Total for PE Films $ 0.7 $ 0.5
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 1,5
$ — $ (8.5)
COVID-19-related expenses 1
0.1 0.1
Total for Flexible Packaging Films $ 0.1 $ (8.4)
Corporate:
(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 $ — $ 0.1
Other restructuring costs - severance 0.1 —
(Gains) losses from sale of assets, investment writedowns and other items:
Professional fees associated with business development activities and other 2
1.6 2.4
Professional fees associated with internal control over financial reporting 2
2.0 2.0
Write-down of investment in Harbinger Capital Partners Special Situations Fund 1
— 0.5
Stock-based compensation expense associated with the fair value remeasurement of awards granted at the time of the 2020 special dividend 2
(0.3) 0.3
Transition service fees, net of corporate costs associated with the divested Personal Care Films business 1
— (0.5)
Net periodic benefit cost for the frozen defined benefit pension plan in process of termination 4
10.4 —
Total for Corporate $ 13.8 $ 4.8
1. Included in “Other income (expense), net” in the condensed consolidated statements of income.
2. Included in “Selling, general and administrative expenses” in the condensed consolidated statements of income.
3. Included in “Costs of goods sold” in the condensed consolidated statements of income.
4. See “Corporate Expenses, Interest, & Other” below and see Note 4 for additional information.
5. See Note 5 for additional information.
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Average debt outstanding and interest rates were as follows:
Nine Months Ended September 30,
(In millions, except percentages) 2022 2021
Floating-rate debt with interest charged on a rollover basis plus a credit spread 1 :
Average outstanding debt balance $ 108.3 $ 131.5
Average interest rate 2.7 % 1.7 %
1. 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
Aluminum Extrusions
A summary of results for Aluminum Extrusions is provided below:
Three Months Ended Favorable/
(Unfavorable)
% Change Nine Months Ended Favorable/
(Unfavorable)
% Change
(In thousands, except percentages) September 30, September 30,
2022 2021 2022 2021
Sales volume (lbs) 45,457 45,407 0.1% 137,427 138,793 (1.0)%
Net sales $ 161,649 $ 137,086 17.9% $ 510,066 $ 394,492 29.3%
Ongoing operations:
EBITDA $ 12,071 $ 12,038 0.3% $ 57,885 $ 45,062 28.5%
Depreciation & amortization (4,416) (3,900) (13.2)% (12,846) (12,062) (6.5)%
EBIT* $ 7,655 $ 8,138 (5.9)% $ 45,039 $ 33,000 36.5%
Capital expenditures $ 8,218 $ 5,183 $ 15,089 $ 11,956
*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 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: higher labor and employee-related costs ($2.1 million) and lower labor productivity ($1.3 million); higher supply expense, including significant price increases in paint, chemicals, packaging and other supplies ($3.6 million); higher utility costs ($2.0 million); higher freight rates ($1.3 million); and increased selling, general and administrative ("SG&A") expenses ($0.8 million); and
• 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.
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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: lower volume ($0.7 million); higher labor and employee-related costs ($6.0 million) and lower labor productivity ($4.6 million); higher maintenance costs ($1.4 million); higher supply expense, including significant price increases in paint, chemicals, packaging and other supplies ($10.1 million); higher utilities ($2.7 million); higher freight rates ($5.2 million); and increased SG&A expenses ($3.2 million); and
• 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. 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 $30 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 $6 million will be required to support continuity of current operations. Depreciation expense is projected to be $15 million in 2022. Amortization expense is projected to be $2 million in 2022.
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PE Films
A summary of results for PE Films is provided below:
Three Months Ended Favorable/
(Unfavorable)
% Change Nine Months Ended Favorable/
(Unfavorable)
% Change
(In thousands, except percentages) September 30, September 30,
2022 2021 2022 2021
Sales volume (lbs) 7,081 9,283 (23.7)% 27,273 30,066 (9.3)%
Net sales $ 20,059 $ 28,501 (29.6)% $ 82,613 $ 87,885 (6.0)%
Ongoing operations:
EBITDA $ 431 $ 4,821 (91.1)% $ 14,543 $ 21,035 (30.9)%
Depreciation & amortization (1,579) (1,591) 0.8% (4,733) (4,681) (1.1)%
EBIT* $ (1,148) $ 3,230 (135.5)% $ 9,810 $ 16,354 (40.0)%
Capital expenditures $ 793 $ 1,023 $ 2,537 $ 2,757
* 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 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; and
◦ 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; and
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◦ 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. 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
The Surface Protection component of PE Films supports manufacturers of optical and other specialty substrates used in flat panel display products. These films are primarily used by customers to protect components of displays in the manufacturing and transportation processes and then discarded.
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 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. 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.
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 approximately $5 million for full year 2022 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
Capital expenditures for PE Films are projected to be $3 million in 2022, including $2 million for productivity projects and $1 million for capital expenditures required to support continuity of current operations. Depreciation expense is projected to be $6 million in 2022. There is no amortization expense for PE Films.
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Flexible Packaging Films
A summary of results for Flexible Packaging Films is provided below:
Three Months Ended Favorable/
(Unfavorable)
% Change Nine Months Ended Favorable/
(Unfavorable)
% Change
(In thousands, except percentages) September 30, September 30,
2022 2021 2022 2021
Sales volume (lbs) 28,889 27,029 6.9% 82,210 78,666 4.5%
Net sales $ 47,278 $ 36,666 28.9% $ 128,117 $ 102,560 24.9%
Ongoing operations:
EBITDA $ 7,830 $ 7,396 5.9% $ 20,495 $ 25,296 (19.0)%
Depreciation & amortization (590) (493) (19.7)% (1,723) (1,466) (17.5)%
EBIT* $ 7,240 $ 6,903 4.9% $ 18,772 $ 23,830 (21.2)%
Capital expenditures $ 2,501 $ 1,895 $ 7,310 $ 4,283
* 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 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); and
• 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); and
• 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. 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
Capital expenditures for Flexible Packaging Films are projected to be $8 million in 2022, including $4 million for new capacity for value-added products and productivity projects and $4 million for capital expenditures required to support continuity of current operations. Depreciation expense is projected to be $2 million in 2022. Amortization expense is projected to be $0.4 million in 2022.
Corporate Expenses, Interest & Other
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-
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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. 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 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 $10 million at September 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.
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. 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 ("Credit EBITDA").
Net capitalization and other credit measures are provided in Liquidity and Capital Resources below.
Liquidity and Capital Resources
The Company continues to focus on improving working capital management. 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 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 $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 $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.
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◦ 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 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.
• Deferred income tax assets decreased $3.9 million 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 $3.1 million (2.5%).
◦ 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 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.
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On June 29, 2022, Tredegar entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”) that replaced its existing $375 million five-year, secured revolving credit facility that was due to expire on June 28, 2024. 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 September 30, 2022 were as follows:
Net Capitalization and Indebtedness as of September 30, 2022
(In thousands)
Net capitalization:
Cash and cash equivalents $ 19,250
Debt:
Credit Agreement 124,000
Debt, net of cash and cash equivalents 104,750
Shareholders’ equity 207,058
Net capitalization $ 311,808
Indebtedness as defined in Credit Agreement:
Total debt $ 124,000
Indebtedness $ 124,000
Borrowings under the Credit Agreement bear an interest rate equal to Secured Overnight Financing Rate ("SOFR") plus a credit spread adjustment of 10 basis points ("Adjusted Term SOFR Rate") and an amount depending on the type of borrowing and commitment fees charged on the unused amount under the Credit Agreement at various Total Net Leverage Ratio levels as follows:
Pricing Under the Credit Agreement (Basis Points)
Total Net Leverage Ratio Term Benchmark Spread Commitment
Fee
<= 1.0x 150.0 20
>1.0x but <=2.0x 162.5 25
>2.0x but <=3.0x 175.0 30
>3.0x but <=3.5x 187.5 35
>3.5x 200.0 40
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.
The primary restrictive covenants in the Credit Agreement include:
• Total Net Leverage Ratio of 4.00x;
• Interest Coverage Ratio of 3.00x; and
• 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:
• Total Net Leverage Ratio is defined as the ratio of (a)(i) total indebtedness minus (ii) liquidity (the lesser of $50,000,000 and the aggregate amount of cash and cash equivalents) to (b) Credit EBITDA; and
• Interest Coverage Ratio is defined as the ratio of (a) Credit EBITDA to (b) interest expense.
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, 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.
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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 September 30, 2022
Computation of Credit EBITDA for the twelve months ended September 30, 2022 (In Thousands):
Net income (loss) $ 53,676
Plus:
After-tax losses related to discontinued operations —
Total income tax expense for continuing operations 6,016
Interest expense 3,989
Depreciation and amortization expense for continuing operations 24,966
All non-cash losses and expenses, plus cash losses and expenses not to exceed $10,000, for continuing operations that are classified as unusual, extraordinary or which are related to plant shutdowns, asset impairments and/or restructurings (cash-related of $8,225) 8,253
Charges related to stock option grants and awards accounted for under the fair value-based method 1,829
Losses related to the application of the equity method of accounting —
Losses related to adjustments in the estimated fair value of assets accounted for under the fair value method of accounting —
Minus:
After-tax income related to discontinued operations (61)
Total income tax benefits for continuing operations —
Interest income (74)
All non-cash gains and income, plus cash gains and income in excess of $10,000, for continuing operations that are classified as unusual, extraordinary or which are related to plant shutdowns, asset impairments and/or restructurings (3,859)
Income related to changes in estimates for stock option grants and awards accounted for under the fair value-based method —
Income related to the application of the equity method of accounting —
Income related to adjustments in the estimated fair value of assets accounted for under the fair value method of accounting (12,989)
Plus cash dividends declared on investments in an amount not to exceed $10,000 for such period —
Plus or minus, as applicable, pro forma EBITDA adjustments associated with acquisitions and asset dispositions —
Plus or minus, as applicable, pro forma EBITDA adjustments to pension expense associated with the early payment of pension obligations 13,724
Credit EBITDA $ 95,470
Computations of Total Net Leverage Ratio and Interest Coverage Ratio at September 30, 2022:
Total Net Leverage Ratio 1.1x
Interest Coverage Ratio 23.93x
Primary restrictive covenants:
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
Unlimited
Maximum Total Net Leverage Ratio permitted 4.00x
Minimum Interest Coverage Ratio permitted 3.00x
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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.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.