What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-03-16 compared with 2022-03-11 · 381 added, 361 removed, 161 unchanged (82% of the section changed)

3 unchanged sentences

This section provides discussion and a year-to-year comparison for the years ended December 31, 2022, 2021 and 2020.

Discussion regarding our results of operations for the year ended December 31, 2019 and a year-to-year comparison between the years ended December 31, 2020 and 2019 can be found in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020.

Executive Summary

Business Overview

Tredegar Corporation is an industrial manufacturer with three primary businesses:

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

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

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

1 unchanged sentence

With approximately 2,300 employees, the Company operates manufacturing facilities in North America, South America, and Asia.

On October 30, 2020, the Company completed the sale of Personal Care Films.

The transaction excluded the packaging film lines and related operations located at Pottsville Packaging, which are now being reported within the Surface Protection component of PE Films.

Commencing in the third quarter of 2020, all historical results for Personal Care Films have been presented as discontinued operations.

For more information on these transactions, see Note 17 to the Consolidated Financial Statements in Item 15.

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 in Note 13 “Business Segments” to the Consolidated Financial Statements in Item 15.

EBIT is not intended to represent the stand-alone results for Tredegar's ongoing operations under GAAP and should not be considered as an alternative to net income (loss) 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.

Sales were $938.6 million in 2022 compared to $826.5 million in 2021.

Net income from continuing operations was $57.9 million ($1.72 per diluted share) in 2021, compared with net loss from continuing operations of $16.8 million ($0.51 per diluted share) in 2020.

The 2021 results include:

• An after-tax gain of $10.0 million ($0.30 per diluted share) on the sale of the Company’s investment in kaléo on December 27, 2021 resulting in total cash proceeds of $47.1 million (see Note 9 to the Consolidated Financial Statements in Item 15 for more details).

The 2020 results include:

• An after-tax loss on the Company’s investment in kaléo of $47.6 million ($1.42 per diluted share), which was accounted for under the fair value method (see Note 9 to the Consolidated Financial Statements in Item 15 for more details);

• An impairment of the total goodwill balance of Aluminum Extrusions' reporting unit acquired in the AACOA acquisition in 2012 was recorded in the after-tax amount of $10.5 million ($0.32 per diluted share).

Net income from continuing operations was $28.4 million ($0.84 per diluted share) in 2022, compared with net income from continuing operations of $57.9 million ($1.72 per diluted share) in 2021.

2022 Financial Results Highlights

• EBITDA from ongoing operations for Aluminum Extrusions of $66.8 million was $10.9 million higher than the year of 2021

• EBITDA from ongoing operations for PE Films of $11.9 million was $15.7 million lower than the year of 2021

• EBITDA from ongoing operations for Flexible Packaging Films of $27.5 million was $4.2 million lower than the year of 2021

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

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

EBITDA from ongoing operations is the measure of profit and loss used by Tredegar’s chief operating decision maker (“CODM”) for purposes of assessing financial performance.

The Company uses 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 GAAP and should not be considered as an alternative to net income as defined by GAAP.

We believe 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.

See the table in Note 13 to the Consolidated Financial Statements in Item 15 for a reconciliation of this non-GAAP measure to GAAP.

THE IMPACT OF COVID-19 AND RELATED FINANCIAL CONSIDERATIONS

Essential Business and Employee Considerations

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

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

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

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

The Company has engaged in an education campaign that provides employees with the most accurate and up-to-date information related to COVID-19 vaccines and has offered different monetary and/or time-away-from-work incentives to encourage employees to get vaccinated with the primary dose(s) and to get a booster shot once eligible.

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

Aluminum Extrusions, also known as Bonnell Aluminum, continues to experience higher than normal absenteeism and hiring difficulties, which it attributes to COVID-19-related factors, including high COVID-19 transmission rates in the geographic areas where its plants are located.

While the average number of direct labor employees at Bonnell Aluminum facilities increased approximately 9% in the fourth quarter of 2021, compared with the abnormally low levels related to the pandemic in the second and third quarters of 2020, there continues to be a shorta ge of labor to meet existing demand and desired shipment levels.

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

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

To offset growing cost pressures, Bonnell Aluminum implemented a selling price increase effective January 3, 2022, which followed two price increases in 2021.

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

Flexible Packaging Films, which is also known as Terphane, which is headquartered in Brazil, continues to monitor cost escalations to adjust selling prices as market dynamics permit.

Financial Considerations

Approximately 58% of Bonnell Aluminum’s sales volume in 2021 was related to building and construction (“B&C”) markets (non-residential B&C of 51% and residential B&C of 7%).

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

Market demand in this sector has recently been strong but not fully realized in Bonnell Aluminum's fourth quarter and full year 2021 results due to pandemic-related labor shortages and resulting production inefficiencies.

Non-residential B&C volume declined 4% versus the fourth quarter of 2020 and 11% versus full year 2020.

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

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

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

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

OPERATIONS REVIEW

Segment Analysis.

A summary of results for 2021 versus 2020 for each of the Company’s reporting segments is shown below.

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

Results of Operations

2022 versus 2021

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

(In thousands)

Net income (loss) from continuing operations for the year ended December 31, 2021

Income tax expense (benefit) 9,284

Income (loss) from continuing operations before income taxes for the year ended December 31, 2021

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

Sales 112,109

Other income (expense), net (19,441)

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

Cost of goods sold (114,352)

Freight (6,750)

Selling, general and administrative (3,826)

Other (2,191)

Total (127,119)

Income (loss) from continuing operations before income taxes for the year ended December 31, 2022

Income tax expense (benefit) 4,389

Net income (loss) from continuing operations for the year ended December 31, 2022

Sales in 2022 increased by 13.6% compared with 2021.

Net sales increased 18.3% in Aluminum Extrusions 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 18.0% in PE Films primarily due to lower volume, partially offset by higher pricing associated with the pass-through of increased resin costs.

Net sales increased in Flexible Packaging Films by 20.1% 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 changes in net sales and volume, see the Segment Operations Review section below.

Other income (expense), net decreased $19.4 million compared to 2021, primarily due to 2021 gains of $12.8 million on the investment in kaléo and $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 9 “Other Income (Expense), net” to the Consolidated Financial Statements in Item 15 for additional information.

Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales (gross profit margin) was 14.9% in 2022 versus 18.0% in 2021.

The gross profit margin in Aluminum Extrusions remained flat compared to 2021.

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

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

For more information on changes in operating costs and expenses, see the Segment Operations Review section below.

As a percentage of sales, selling, general and administrative (“SG&A”) and R&D expenses were 9.1% in 2022 compared with 9.8% in 2021.

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

Increased SG&A spending is primarily due to higher professional fees associated with the internal and external audits of the Company and higher employee-related compensation.

The effective tax rate used to compute income taxes for continuing operations for the year of 2022 was 13.4%, compared to 13.8% in 2021.

The decrease in the effective tax rate for continuing operations is primarily due to a discrete tax 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 (“IRS”) 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 discrete benefit was partially offset by an increase to the effective tax rate as the result of the Brazilian income tax no longer being creditable in the U.S.

for the foreseeable future.

Lastly, the effective tax rate changed due to foreign rate differences pertaining to the Company’s foreign operations and the

benefit from tax incentives in Brazil.

See Note 12 “Income Taxes” to the Consolidated Financial Statements in Item 15 for additional information.

Pre-tax gains and losses associated with plant shutdowns, asset impairments, restructurings and other items for continuing operations in 2022 detailed below are shown in the statements of net sales and EBITDA from ongoing operations by segment table in Note 13 “Business Segments” to the Consolidated Financial Statements in Item 15 and are included in “Asset impairments and costs associated with exit and disposal activities, net of adjustments” in the consolidated statements of income, unless otherwise noted.

($ in millions) Q1 Q2 Q3 Q4 2022

Aluminum Extrusions:

A summary of results for Aluminum Extrusions is provided below:

Year Ended Favorable/

(In thousands, except percentages) December 31, (Unfavorable)

2021 2020 % Change

Sales volume (lbs) 183,367 186,391 (1.6) %

Net sales $ 539,325 $ 455,711 18.3 %

Ongoing operations:

EBITDA $ 55,948 $ 55,137 1.5 %

Depreciation & amortization (16,272) (17,403) 6.5 %

EBIT $ 39,676 $ 37,734 5.1 %

Capital expenditures $ 18,914 $ 10,260

Net sales in 2021 increased by 18.3% versus 2020.

The annual increase in net sales was 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 2021 decreased by 1.6% versus 2020.

Increased shipments in the specialty sector were offset by declines in B&C and automotive markets.

All end markets served within the specialty sector experienced growth.

The Company believes that declines in the non-residential B&C market resulted mainly from COVID-19-related labor shortages, with a portion of the decline in automotive sales volume associated with supply chain issues in the automotive industry.

EBITDA from ongoing operations in 2021 increased by $0.8 million versus 2020 due to higher pricing ($13.6 million net of the pass-through of aluminum raw materials costs), partially offset by higher labor and employee-related costs ($7.2 million) and other inflationary operating costs such as higher supply expenses ($6.4 million), lower labor productivity ($1.6 million), higher freight expenses ($3.2 million) and higher selling, general and administrative costs ($3.2 million).

In addition, the timing of the flow through under the first-in first-out method of aluminum raw material costs passed through to customers, previously acquired at lower prices in a quickly rising commodity pricing environment, resulted in a benefit of $6.9 million in 2021 versus a charge of $1.3 million in 2020.

Projected Capital Expenditures and Depreciation & Amortization

Capital expenditures are projected to be $30 million in 2022, including $15 million for new 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 $14 million in 2022.

Amortization expense is projected to be $3 million in 2022.

A summary of results for PE Films is provided below:

Year Ended Favorable/

(In thousands, except percentages) December 31, (Unfavorable)

2021 2020 % Change

Sales volume (lbs) 39,429 45,175 (12.7) %

Net sales $ 118,920 $ 139,288 (14.6) %

Ongoing operations:

EBITDA $ 27,694 $ 45,107 (38.6) %

Depreciation & amortization (6,263) (6,762) 7.4 %

EBIT $ 21,431 $ 38,345 (44.1) %

Capital expenditures $ 2,997 $ 6,024

Net sales in 2021 decreased by $20.4 million versus 2020, primarily due to lower volume and unfavorable mix associated with the previously disclosed customer product transitions in Surface Protection, partially offset by higher pricing associated with the pass-through of increased resin costs.

EBITDA from ongoing operations in 2021 decreased by $17.4 million versus 2020 primarily due to:

• A $19.4 million decrease from Surface Protection primarily related to lower sales and unfavorable mix associated with the customer product transitions ($14.8 million), lower sales and unfavorable mix for products unrelated to customer product transitions ($3.4 million), margin erosion associated with higher resin costs that occurred before the resin index pricing plan was fully implemented ($1.4 million), the pass-through lag associated with higher resin costs ($1.4 million), and higher freight expense ($1.0 million), partially offset by production efficiencies and cost savings ($1.9 million) and lower research and development spend ($0.4 million);

• A $0.1 million increase from Pottsville Packaging;

• A $2.7 million favorable variance associated with the divestiture of Bright View Technologies at the end of 2020.

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 EBITDA from ongoing operations for PE Films by $14.8 million during 2021 versus 2020.

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

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

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

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

Projected Capital Expenditures and Depreciation & Amortization

Capital expenditures are projected to be $5 million in 2022, including:

$3 million for productivity projects and $2 million for capital expenditures required to support continuity of current operations.

Depreciation expense is projected to be $7 million in 2022.

There is no amortization expense for PE Films.

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

COVID-19-related expenses, net of relief 2

$ 0.1 $ — $ — $ — $ 0.1

Environmental charges at Newnan, Georgia plant 3

— — — 0.1 0.1

Storm damage to the Newnan, Georgia plant 1

— — — 0.1 0.1

Total for Aluminum Extrusions $ 0.1 $ — $ — $ 0.2 $ 0.3

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

Other restructuring costs - severance $ — $ — $ 0.5 $ — $ 0.5

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

COVID-19-related expenses 2

0.1 0.1 — — 0.2

Total for PE Films $ 0.1 $ 0.1 $ 0.5 $ — $ 0.7

Flexible Packaging Films:

A summary of results for Flexible Packaging Films is provided below:

Year Ended Favorable/

(Unfavorable)

(In thousands, except percentages) December 31,

Sales volume (lbs) 104,569 113,115 (7.6) %

Net sales $ 139,978 $ 134,605 4.0 %

Ongoing operations:

EBITDA $ 31,684 $ 30,645 3.4 %

Depreciation & amortization (1,988) (1,761) (12.9) %

EBIT $ 29,696 $ 28,884 2.8 %

Capital expenditures $ 5,603 $ 4,959

Sales volume declined by 7.6% in 2021 versus 2020, primarily due to lower demand, resin supply issues, and an equipment failure impacting production.

Net sales in 2021 increased 4.0% compared to 2020, primarily due to higher selling prices from the pass-through of higher resin costs and favorable product mix, partially offset by lower sales volume.

EBITDA from ongoing operations in 2021 increased by $1.0 million versus 2020 primarily due to:

• Higher selling prices from the pass-through of higher resin costs ($11.2 million), favorable product mix ($2.0 million) and lower selling, general, and administration expenses ($0.7 million), partially offset by higher raw material costs ($12.8 million), lower sales volume ($4.9 million) and higher variable costs ($1.7 million);

• Net favorable currency translation of Real-denominated operating costs ($5.9 million);

• Higher foreign currency transaction gains ($1.2 million) in 2021 versus 2020;

• Lower value-added tax credits received in 2021 ($0.5 million) versus 2020.

Projected Capital Expenditures and Depreciation & Amortization

Capital expenditures 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 and Income Taxes

Corporate expenses, net, decreased $1.1 million in 2021 versus 2020, primarily due to higher transition service fees, net of corporate costs associated with the 2020 divestiture of the Personal Care Films business ($1.1 million).

Interest expense increased to $3.4 million in 2021 from $2.6 million in 2020, primarily due to higher average debt levels.

The effective tax rate used to compute income taxes for continuing operations in 2021 was 13.8% compared to 32.8% in 2020.

The differences between the U.S.

federal statutory rate and the effective tax rate for 2021 and 2020 are shown in Note 12 to the Consolidated Financial Statements in Item 15.

Pension expense was $14.1 million in 2021, a favorable change of $0.5 million from 2020.

The impact on earnings from pension expense is reflected in “Corporate expenses, net” in the net sales and operating profit by segment statements in Note 13 to the Consolidated Financial Statements in Item 15.

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 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 benefits on the Special Contribution of approximately $11 million.

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

As of December 31, 2021 (and before the Special Contribution), the estimated pension plan underfunding under GAAP was $69 million, comprised of investments at fair value of $245 million and a projected benefit obligation (“PBO”) of $314 million.

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

Pension expense is projected to be approximately $14 million under GAAP in 2022 and zero for calculating earnings before interest, taxes, depreciation and amortization as defined in the Company’s revolving credit agreement (“Credit EBITDA”), which is used to compute certain borrowing ratios.

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

Total debt was $73.0 million at December 31, 2021, compared to $134.0 million at December 31, 2020.

Net debt (debt in excess of cash and cash equivalents), a non-GAAP financial measure, was $42.5 million at December 31, 2021, compared to $122.2 million at December 31, 2020.

The year-over-year decline in net debt of $79.7 million includes proceeds of $47.1 million from the sale of the Company’s investment in kaleo, Inc (“kaléo”).

on December 27, 2021.

The Company’s revolving credit agreement allows borrowings of up to $375 million and matures in June 2024.

The Company believes that its most restrictive covenant (computed quarterly) is the leverage ratio, which permits maximum borrowings of up to 4x Credit EBITDA.

The Company had Credit EBITDA and a leverage ratio (calculated in the “ Liquidity and Capital Resources ” below) of $90.0 million and 0.81x, respectively, at December 31, 2021.

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

Forward-looking and Cautionary Statements

Some of the information contained in this Form 10-K may constitute “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

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

Such statements are based on Tredegar’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 Tredegar’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 significantly 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.

For risks and important factors that could cause actual results to differ from expectations, refer to the reports that Tredegar files with or furnishes the SEC from time-to-time, including the risks and important factors set forth in Item 1A.

Readers are urged to review and consider carefully the disclosures Tredegar makes in the reports Tredegar files with or furnishes to the SEC.

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.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures.

Certain accounting policies, as described below, are considered "critical accounting policies" because they are particularly dependent on estimates made by management about matters that are inherently uncertain and could have a material impact on the Company’s consolidated financial statements.

Estimates and judgments are based on historical experience, forecasted events and various other assumptions that management believes are reasonable under the circumstances.

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

A summary of all of our significant accounting policies is included in Note 1 to the Consolidated Financial Statements in Item 15.

Impairment of Goodwill

The Company assesses goodwill for impairment when events or circumstances indicate that the carrying value may not be recoverable, or, at a minimum, on an annual basis (December 1 st of each year).

When assessing goodwill for impairment, accounting guidance allows the Company to first perform a qualitative assessment about the likelihood of the carrying value of a reporting unit exceeding its fair value, referred to as the Step 0 assessment.

The Step 0 assessment requires the evaluation of certain qualitative factors, including macroeconomic conditions, industry and market considerations, cost factors and overall financial performance, as well as company and reporting unit factors.

If the Company's Step 0 analysis indicates that it is more likely than not that the fair value of a reporting unit is less than the carrying amount, then the Company would perform a quantitative impairment test.

As of December 1, 2021, the Company’s reporting units with goodwill were Surface Protection in PE Films and Futura in Aluminum Extrusions.

Both of these reporting units have separately identifiable operating net assets (operating assets including goodwill and identifiable intangible assets net of operating liabilities).

In addition, 2021 the Company applied the Step 0 goodwill assessment to Surface Protection and Futura;

both had fair values significantly in excess of their carrying amounts when last tested using the quantitative impairment test.

The Company's Step 0 analyses in 2021 of these reporting units concluded that it is not more likely than not that the fair values of each reporting unit was less than its carrying amount.

Therefore, the quantitative goodwill impairment tests for these reporting units were not necessary in 2021.

The Surface Protection and Futura reporting units had goodwill in the amounts of $57.3 million and $13.3 million, respectively, at December 31, 2021.

Pension Benefits

Tredegar sponsors noncontributory defined benefit (pension) plans that have resulted in varying amounts of net pension income or expense, as developed from actuarial valuations.

Inherent in these valuations are key assumptions including discount rates and the expected return on plan assets.

The Company is required to consider current market conditions, including changes in interest rates and plan asset investment returns, in determining these assumptions.

Actuarial assumptions may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants.

These differences may result in a significant impact to the amount of net pension income or expense recorded in future periods.

The discount rate is used to determine the present value of future payments.

The discount rate is the single rate that, when applied to expected benefit payments, provides a present value equal to the present value of expected benefit payments determined by using the AA-rated bond yield curve.

In general, the pension liability increases as the discount rate decreases and vice versa.

The weighted average discount rate utilized was 2.90%, 2.57% and 3.27% at the end of 2021, 2020 and 2019, respectively, with changes between periods due to changes in market interest rates.

Pay for active participants of the plan was frozen as of December 31, 2007.

As of January 31, 2018, the plan no longer accrued benefits associated with crediting employees for service, thereby freezing all future benefits under the plan.

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.

As the settlement process occurs, the Company expects to recognize a non-cash reclassification adjustment to net income or loss of other comprehensive net actuarial losses associated with the pension plan currently reflected directly in shareholders’ equity.

Other comprehensive net actuarial losses associated with the pension plan were approximately $109 million on a pretax basis as of December 31, 2021.

A lower expected return on plan assets increases the amount of expense and vice versa.

Decreases in the level of actual plan assets will also serve to increase the amount of pension expense.

The total return on plan assets (net of fees and plan expenses), which is primarily affected by the change in fair value of plan assets, current year contributions and current year payments to participants, was approximately 10.4% in 2021, 10.9% in 2020 and 11.8% in 2019.

The expected long-term rate return of 3.05%, 5.00% and 6.00% in 2021, 2020 and 2019 was developed through consultation with the Company’s investment advisors.

Several factors were considered, including prevailing and planned strategic asset allocations, current and expected future market conditions, inflation-adjusted historical returns, volatilities, risk premiums and managed asset premiums.

The Company anticipates that its expected long-term return on plan assets will be 3.05% for 2022.

See Note 8 to the Consolidated Financial Statements in Item 15 for more information on expected long-term return on plan assets and asset mix.

See the Executive Summary section above for further discussion regarding the financial impact of the Company’s pension plans.

Current tax liabilities and assets are recognized for the estimated taxes payable or refundable, respectively, on the tax returns for the current year.

Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Accordingly, accounting for income taxes represents the Company’s best estimate of various events and transactions.

Tax laws are often complex and may be subject to differing interpretations by the taxpayer and the relevant governmental taxing authorities.

In establishing a provision for income tax expense, Tredegar must make judgments and interpretations about the application of tax laws.

The Company must also make estimates about when in the future certain items will affect taxable income in the various taxing jurisdictions.

A valuation allowance is recorded in the period when the Company determines that it is more likely than not that all or a portion of deferred income tax assets may not be realized.

The establishment and removal of a valuation allowance requires the Company to consider all positive and negative evidence and make a judgmental decision regarding the amount of valuation allowance required as of a reporting date.

Tredegar may be required to change its provision for income taxes when estimates used in determining valuation allowances on deferred tax assets significantly change, or when new information indicates the need for adjustment in valuation allowances.

Additionally, future events, such as changes in tax laws, tax regulations, or interpretations of such laws or regulations, could have an impact on the provision for income tax and the effective tax rate.

Any such changes could significantly affect the amounts reported in the financial statements in the year these changes occur.

See Note 12 to the Consolidated Financial Statements in Item 15 for additional information on income taxes.

Results of Operations

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

COVID-19-related expenses 2

$ — $ — $ — $ 0.1 $ 0.1

Total for Flexible Packaging Films $ — $ — $ — $ 0.1 $ 0.1

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

Other restructuring costs - severance $ — $ 0.1 $ — $ — $ 0.1

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

Professional fees associated with business development activities 1

1.5 0.1 — 0.8 2.4

Professional fees associated with remediation activities related to internal control over financial reporting 1

0.4 0.8 0.8 0.6 2.6

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

— (0.2) (0.1) — (0.3)

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

3.4 3.5 3.5 4.0 14.4

Total for Corporate $ 5.3 $ 4.3 $ 4.2 $ 5.4 $ 19.2

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

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

Included in "Costs of goods sold" in the consolidated statements of income.

For more information, see “Corporate Expenses, Interest and Other” below and Note 8 “Retirement Plans and Other Postretirement Benefits” to the Consolidated Financial Statements in Item 15.

Average debt outstanding and interest rates were as follows:

(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 $ 114.5 $ 128.8

Average interest rate 3.5 % 1.8 %

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.

2021 versus 2020

The following table presents a bridge of consolidated net income (loss) from continuing operations from the year of 2020 to the year of 2021 with related management’s discussion and analysis below the table.

(In thousands)

Net income (loss) from continuing operations for the year ended December 31, 2020

Income tax expense (benefit) (8,213)

Income (loss) from continuing operations before income taxes for the year ended December 31, 2020

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

Other income (expense), net 87,670

Total 158,835

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

Cost of goods sold (90,723)

Freight (2,546)

Selling, general and administrative 9,282

Research and development 2,051

Amortization of intangibles 1,313

Goodwill impairment 13,696

Total (66,568)

Income (loss) from continuing operations before income taxes for the year ended December 31, 2021

Income tax expense (benefit) 9,284

Net income (loss) from continuing operations for the year ended December 31, 2021

Sales in 2021 increased by 9.4% compared with 2020.

2 unchanged sentences

Net sales increased in Flexible Packaging Films by 4.0% primarily due to higher selling prices from the pass-through of higher resin costs and favorable product mix, partially offset by lower sales volume.

For more information on changes in net sales and volume, see the Executive Summary section above.

Operating Costs and Expenses.

Other income (expense), net increased $87.7 million compared to 2020, 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 gain of $12.8 million on the Company’s investment in kaléo recognized in the full year ended December 31, 2021 compared to a loss of $60.9 million in the full year ended December 31, 2020.

Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales (gross profit margin) was 18.0% in 2021 versus 22.6% in 2020.

2 unchanged sentences

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

For more information on changes in operating costs and expenses, see the Executive Summary section above.

Selling, General and Administrative.

As a percentage of sales, selling, general and administrative (“SG&A”) and R&D expenses were 9.8% in 2021 compared with 12.3% in 2020.

As a percentage of sales, SG&A and R&D expenses were 9.8% in 2021 compared with 12.3% in 2020.

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

Decreased spending is primarily due to non-recurring corporate costs associated with the divested Personal

Care Films business, lower R&D spending in PE Films, lower stock-based compensation, and nonrecurring SG&A expenses related to the Bright View Technologies divestiture at the end of 2020.

Plant shutdowns, asset impairments, restructurings and other.

Pre-tax losses associated with plant shutdowns, asset impairments, restructurings and other items for continuing operations in 2021 detailed below are shown in the statements of net sales and EBITDA from ongoing operations by segment table in Note 13 to the Consolidated Financial Statements in Item 15 and are included in “Asset impairments and costs associated with exit and disposal activities, net of adjustments” in the consolidated statements of income, unless otherwise noted.

A discussion of unrealized gains and losses on investments can also be found in Note 16 to the Financial Statements in Item 15 and additional information on restructuring costs can be found in Note 17 to the Consolidated Financial Statements in Item 15.

Decreased spending is primarily due to non-recurring corporate costs associated with the divested Personal Care Films business, lower R&D spending in PE Films, lower stock-based compensation, and nonrecurring SG&A expenses related to the Bright View Technologies divestiture at the end of 2020.

Amortization of intangible assets decreased $1.3 million compared to 2020 primarily due to an out-of-period adjustment of $0.9 million in connection with the original valuation of intangible assets and goodwill related to the acquisition of Futura in February 2017.

During the first three months of 2020, the Company performed goodwill impairment tests and recognized a goodwill impairment charge of $13.7 million ($10.5 million after taxes), which represented the entire amount of goodwill associated with Aluminum Extrusions’ AACOA reporting unit.

See Note 1 “Nature of Operations and Summary of Significant Accounting Policies” to the Consolidated Financial Statements in Item 15 for additional details.

The effective tax rate used to compute income taxes for continuing operations for the year of 2021 was 13.8%, compared to 32.8% in 2020.

The decrease in the effective tax rate for continuing operations is primarily due to the strong earnings of Terphane Ltda, which are included in Tredegar’s U.S.

consolidated tax return and, the tax impact of the local statutory tax rates of Tredegar’s foreign subsidiaries being higher than the current U.S.

tax rate of 21%, the benefit of tax incentives in Brazil and the release of the valuation allowance for capital loss carryforwards.

Pre-tax gains and losses associated with plant shutdowns, asset impairments, restructurings and other items for continuing operations in 2021 detailed below are shown in the statements of net sales and EBITDA from ongoing operations by segment table in Note 13 “Business Segments” to the Consolidated Financial Statements in Item 15 and are included in “Asset impairments and costs associated with exit and disposal activities, net of adjustments” in the consolidated statements of income, unless otherwise noted.

($ in millions) Q1 Q2 Q3 Q4 2021

31 unchanged sentences

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

Professional fees associated with business development activities and other 2

Professional fees associated with business development activities 1

0.8 0.8 0.7 1.6 3.9

Professional fees associated with internal control over financial reporting 2

Professional fees associated with remediation activities related to internal control over financial reporting 1

0.2 0.9 0.8 1.2 3.1

11 unchanged sentences

Included in "Costs of goods sold" in the consolidated statements of income.

For more information, see Note 9 to the consolidated financial statements in Item 15.

For more information, see Note 6 to the consolidated financial statements in Item 15.

For more information, see Note 9 “Other Income (Expense), net” to the consolidated financial statements in Item 15.

For more information, see Note 6 “Accrued Expenses” to the consolidated financial statements in Item 15.

Included in “Amortization of identifiable intangibles” in the consolidated statements of income.

Interest Expense.

Interest expense, which is net of amounts capitalized and included in property, plant and equipment ($0.1 million and $0.1 million capitalized in 2021 and 2020, respectively), was $3.4 million in 2021, compared to $2.6 million for 2020.

Average debt outstanding and interest rates were as follows:

3 unchanged sentences

Average interest rate 1.8 % 2.3 %

Segment Operations Review

Aluminum Extrusions

A summary of results for Aluminum Extrusions is provided below:

Year Ended Favorable/

(In thousands, except percentages) December 31, (Unfavorable)

2022 2021 % Change

Sales volume (lbs) 174,670 183,367 (4.7) %

Net sales $ 637,872 $ 539,325 18.3 %

Ongoing operations:

EBITDA $ 66,800 $ 55,948 19.4 %

Depreciation & amortization ( 17,414 ) ( 16,272 ) (7.0) %

EBIT $ 49,386 $ 39,676 24.5 %

Capital expenditures $ 23,664 $ 18,914

Net sales in 2022 increased 18.3% versu s 2021.

The annual increase in net sales was primarily du e to an increase in average selling prices to cover higher average aluminum raw material costs and higher operating costs, partially offset by lower sales volume.

Sales volu me in 2022 decreased 4.7% versus 2021, primarily due to lower shipments in the specialty and automotive segments which declined 14.3% and 4.2%, respectively .

Shipments for non-residential B&C in 2022 increased by 1.6% ve rsus 2021.

EBITDA from ongoing operations increased $10.9 million in 2022 versus 2021, primarily due to:

• Higher pricing ($69.6 million, net of the pass-through of aluminum raw materials costs), partially offset by:

lower volume ($5.6 million);

higher labor and employee-related costs ($7.2 million) and lower labor productivity ($5.6 million);

higher supply expenses ($15.3 million), including significant price increases in paint, chemicals, packaging and other supplies;

higher freight expenses ($6.3 million);

higher utility rates ($3.1 million);

higher maintenance expenses ($1.4 million);

and higher SG&A ($3.0 million);

• Inventories accounted for under the last in, first out (“LIFO”) method resulted in a charge of $2.9 million in 2022 versus a benefit of $0.6 million in 2021.

In addition, inventories accounted for under the first in, first out (“FIFO”) method resulted in no charge or benefit in 2022 versus a benefit of $6.7 million in 2021, which related to the timing of the flow through of aluminum raw material costs passed through to customers previously acquired at higher prices in a quickly changing commodity pricing environm ent.

Also, the Company recorded unfavorable net out-of-period adjustments totaling $0.6 million for charges related to inventory, accrued labor costs and accounts payable in 2022.

Aluminum Extrusions has secured supply sources to meet expected needs for aluminum raw materials in 2023.

See discussion of quantitative and qualitative disclosures about market risk in Item 7a in this Form 10-K for additional information on aluminum price trends.

Projected Capital Expenditures and Depreciation & Amortization

Capital expenditures are projected to be $26 million in 2023, include $11 million for a new ERP/MES, $6 million for infrastructure upgrades at the facilities located in Niles, Michigan, Carthage, Tennessee and Newnan, Georgia, and $2 million for other strategic projects.

The ERP/MES project commenced in 2022 and is expected to cost a total of approximately $30 million over a two-year time span.

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

Depreciation expense is projected to be $15 million in 2023.

Amortization expense is projected to be $2 million in 2023.

A summary of results for PE Films is provided below:

Year Ended Favorable/

(In thousands, except percentages) December 31, (Unfavorable)

2022 2021 % Change

Sales volume (lbs) 32,873 39,429 (16.6) %

Net sales $ 97,571 $ 118,920 (18.0) %

Ongoing operations:

EBITDA $ 11,949 $ 27,694 (56.9) %

Depreciation & amortization ( 6,280 ) ( 6,263 ) (0.3) %

EBIT $ 5,669 $ 21,431 (73.5) %

Capital expenditures $ 3,289 $ 2,997

Net sales in 2022 decreased 18% versus 2021, primarily due to lower volume in Surface Protection and overwrap films.

Sales volume and net sales declined 15% and 23%, respectively, in Surface Protection.

Sales volume and net sales declined 19% and 4%, respectively, in overwrap films, with volume declines partially offset by the pricing impact associated with the pass-through of resin costs.

EBITDA from ongoing operations in 2022 decreased $15.7 million versus 2021 primarily due to:

• A $14.6 million decrease from Surface Protection as a result of:

◦ Lower contribution for:

non-transitioning products associated with a market slowdown and customer inventory corrections ($7.3 millio n), competitive pricing ($5.5 million), lower productivity ($0.6 million) and previously disclosed customer product transitions ($6.6 million), partially offset by lower SG&A and research and development expenses ($1.4 million);

◦ The pass-through lag associated with resin costs (a benefit of $0.5 million in 2022 versus a charge of $2.2 million in 2021);

◦ A foreign currency transaction gain of $0.8 million in 2022 versus a loss of $0.2 million in 2021;

◦ Inventories accounted for under the LIFO method resulted in a charge of $0.1 million in 2022 versus a charge of $0.6 million in 2021.

• A $1.1 million decrease from overwrap films primarily due to lower volume ($1.9 million).

The pass-through lag associated with resin costs resulted in a benefit of $0.4 million in 2022 versus a charge of $1.3 million in 2021.

In addition, inventories accounted for under the LIFO method resulted in a charge of $0.4 million in 2022 versus a benefit of $0.5 million in 2021.

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, which principally relate to one customer, to less costly alternative processes or material s.

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

The Surface Protection business is continuing to experience competitive pricing pressures, unrelated to the customer product transitions, that adversely impacted pre-tax income from continuing operations as reported under GAAP and EBITDA from ongoing operations by approximately $5.5 million in 2022 versus 2021.

To offset the adverse impact of the customer transitions and pricing pressures, the Company is aggressively pursuing sales of new s urface protection products, applications and customers and driving production efficiencies and cost savings.

Projected Capital Expenditures and Depreciation & Amortization

Capital expenditures are projected to be $4 million in 2023, including:

$2 million for productivity projects and $2 million for capital expenditures required to support continuity of current operations.

Depreciation expense is projected to be $7 million in 2023.

There is no amortization expense for PE Films.

Flexible Packaging Films

A summary of results for Flexible Packaging Films is provided below:

Year Ended Favorable/

(Unfavorable)

(In thousands, except percentages) December 31,

Sales volume (lbs) 106,685 104,569 2.0 %

Net sales $ 168,139 $ 139,978 20.1 %

Ongoing operations:

EBITDA $ 27,452 $ 31,684 (13.4) %

Depreciation & amortization ( 2,444 ) ( 1,988 ) (22.9) %

EBIT $ 25,008 $ 29,696 (15.8) %

Capital expenditures $ 8,151 $ 5,603

Net sales in 2022 increased 20.1% compared to 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 2022 decreased by $4.2 million versus 2021, primarily due to:

• Higher raw material costs ($17.9 million), higher fixed costs ($1.5 million), and higher SG&A expenses ($1.4 million), offset by higher selling prices from the pass-through of higher resin costs ($18.3 million), higher sales volume ($1.1 million), favorable product mix ($1.6 million), and lower variable costs ($0.1 million);

• Net unfavorable foreign currency translation of Real-denominated operating costs ($3.7 million) in 2022 versus 2021;

• Foreign currency transaction losses ($0.2 million) in 2022 compared to foreign currency transaction gains ($0.7 million) in 2021.

Projected Capital Expenditures and Depreciation & Amortization

Capital expenditures are projected to be $8 million in 2023, including $2 million for new capacity for value-added products and productivity projects and $6 million for capital expenditures required to support continuity of current operations.

Depreciation expense is projected to be $3 million in 2023.

Amortization expense is projected to be $0.1 million in 2023.

Corporate Expenses, Interest and Other

Corporate expenses, net in 2022 decreased by $0.6 million compared 2021, primarily due to lower professional fees associated with business development activities ($1.1 million), employee-related compensation ($0.9 million) and stock-based compensation ($0.6 million), partially offset by increased professional fees associated with the internal and external audits of the Company ($2.2 million).

Interest expense was $5.0 million in 2022 in comparison to $3.4 million in 2021, primarily due to higher interest rates.

Pension expense under GAAP was $14.4 million in 2022, an unfavorable change of $0.5 million from 2021.

In February 2022, Tredegar announced the initiation of a process to terminate and settle its frozen defined benefit pension plan.

In connection therewith, the Company borrowed funds under its revolving credit agreement and made 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 settlement process has been delayed because of longer-than-expected review times with the IRS.

The Company does not expect issues with receiving approval from the IRS and is hopeful that the entire process will be completed by the end of 2023.

The Company realized income tax benefits on the Special Contribution of $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 G AAP basis (also estimated settlement basis) by $28 million at December 31, 2022, comprised of investments at fair value of $218 million and a PBO of $246 million .

The ultimate underfunded amount at settlement may differ from amounts existing at the end of 2022, depending on changes in market factors, including 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 expects there will be no required minimum cash contributions until final settlement.

Pension expense under GAAP is projected to be approximately $14 million in 2023, 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

3 unchanged sentences

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

• Accounts and other receivables increased $17.0 million or 19.7%.

◦ Accounts and other receivables in Aluminum Extrusions increased by $17.1 million primarily due to an increase in average selling prices to cover significantly higher aluminum raw material costs and higher operating costs, partially offset by lower sales volume and improved collection efforts in 2021.

• Accounts and other receivables decreased $18.8 million or 18.2%.

◦ Accounts and other receivables in Aluminum Extrusions decreased by $10.4 million primarily due to lower sales volume and the pass-through of lower metal costs, partially offset by an increase in average selling prices to cover higher operating costs in the fourth quarter of 2022 versus 2021.

DSO (computed using trailing 12 months net sales and a rolling 12-month average of accounts and other receivables balances) was approximately 48.7 days in 2022 and 47.6 days in 2021.

◦ Accounts and other receivables in PE Films decreased by $0.6 million primarily due to lower volume and unfavorable mix associated with the previously disclosed customer product transitions in Surface Protection, partially offset by higher pricing associated with the pass-through of increased resin costs.

◦ Accounts and other receivables in PE Films decreased by $6.5 million primarily 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 higher resin costs.

DSO was approximately 30.3 days in 2022 and 28.5 days in 2021.

◦ Accounts and other receivables in Flexible Packaging Films increased by $1.3 million primarily due to higher selling prices from the pass-through of higher resin costs and favorable product mix, partially offset by lower sales volume.

◦ Accounts and other receivables in Flexible Packaging Films decreased by $1.7 million primarily due to lower sales volume in the fourth quarter of 2022 versus 2021.

DSO was approximately 41.1 days in 2022 and 40.0 days in 2021.

• Inventories increased $39.2 million or 44.3%.

◦ Inventories in Aluminum Extrusions increased by $17.4 million primarily due to higher average aluminum prices and COVID-19-related operational and production inefficiencies.

DIO (computed using trailing 12 months costs of goods sold calculated on a first in, first out basis and a rolling 12-month average of inventory balances calculated on the first-in, first-out basis) was approximately 41.4 days in 2021 and 39.3 days in 2020.

◦ Inventories in PE Films decreased by $2.1 million primarily due to lower planned raw material levels as a result of lower sales volume in 2021 compared to 2020.

DIO was approximately 62.8 days in 2021 and 59.2 days in 2020.

◦ Inventories in Flexible Packaging Films increased by $6.8 million primarily related to higher average resin prices, higher finished good levels due to lower than anticipated sales demand and higher planned raw material levels due to resin supply issues.

◦ Inventories in Aluminum Extrusions increased by $16.8 million primarily due to increased raw material levels due to lower than anticipated customer orders, order cancellations as customers report high inventory levels, and increased aluminum supplier costs.

DIO (computed using trailing 12 months costs of goods sold calculated on a FIFO basis and a rolling 12-month average of inventory balances calculated on the FIFO basis) was approximately 53.6 days in 2022 and 41.4 days in 2021.

◦ Inventories in PE Films has remained consistent with prior year.

The DIO of approximately 62.8 days in 2021 increased to 66.8 days in 2022 primarily due to the weak market demand for Surface Protection’s products.

◦ Inventories in Flexible Packaging Films increased by $22.5 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 108.0 days in 2022 and 93.1 days in 2021.

• Net property, plant and equipment increased by $3.8 million (2.3%) primarily due to capital expenditures of $27.8 million, partially offset by depreciation expense of $22.1 million and a reduction from the effect of changes in foreign exchange rates of $0.8 million.

• Goodwill and identifiable intangible assets, net decreased by $1.8 million (2.0%) primarily due to amortization expense.

• Accounts payable increased by $34.1 million or 38.0%.

◦ Accounts payable in Aluminum Extrusions increased by $23.7 million, primarily due to higher average aluminum prices and favorable payment terms with certain vendors.

DPO (computed using trailing 12 months costs of goods sold calculated on a first in, first out basis and a rolling 12-month average of accounts payable balances) was approximately 60.1 days in 2021 and 53.1 days in 2020.

◦ Accounts payable in PE Films increased by $4.4 million primarily due to higher resin costs related to raw material purchases in 2021.

• Net property, plant and equipment increased by $16.0 million or 9.4% primarily due to capital expenditures of $40.1 million, partially offset by depreciation expense of $23.9 million.

• Identifiable intangible assets, net decreased by $2.5 million or 17.7% primarily due to amortization expense.

• Deferred income tax assets decreased $1.8 million or 11.6% primarily due to changes in other comprehensive income and the projected utilization for foreign tax credits, partially offset by the change in 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 IRS on January 4, 2022.

See Note 12 “Income Taxes” to the Consolidated Financial Statements in Item 15 for additional information.

• Accounts payable decreased by $8.8 million or 7.1%.

◦ Accounts payable in Aluminum Extrusions decreased by $11.3 million, primarily due to lower raw material purchases due to higher than anticipated on-hand inventory quantities, partially offset by favorable payment terms with certain vendors.

DPO (computed using trailing 12 months costs of goods sold calculated on a FIFO basis and a rolling 12-month average of accounts payable balances) was approximately 64.2 days in 2022 and 60.1 days in 2021.

◦ Accounts payable in PE Films decreased by $3.7 million primarily due to lower raw material purchases.

DPO was approximately 51.0 days in 2022 and 44.0 days in 2021.

1 unchanged sentence

DPO was approximately 72.4 days in 2022 and 68.2 days in 2021.

Net cash provided by operating activities was $70.6 million in 2021 compared to $74.4 million in 2020.

The decrease was primarily due to higher net working capital ($13.8 million), partially offset by lower pension and postretirement benefit plan contributions ($7.0 million) and lower operating lease payments ($1.1 million) in 2021 compared to 2020.

Net cash provided by investing activities was $24.5 million in 2021 compared to $32.9 million in 2020.

The decrease was primarily due to higher capital expenditure spending of $4.0 million in 2021 and cash proceeds from the sale of Personal Care Films ($55.1 million) and Bright View Technologies ($1.1 million) in 2020, partially offset by cash proceeds received in 2021 in connection with the sale of the Company’s investment in kaléo ($47.1 million) and the sale of the Lake Zurich manufacturing facility assets ($4.7 million).

Net cash used in financing activities was $76.8 million in 2021 compared to $125.6 million in 2020.

The decrease was primarily due to a special dividend of $200 million paid to shareholders in 2020, partially offset by higher net borrowings ($153.0 million) in 2020 under the Credit Agreement (as defined below).

Net cash used in operating activities was $20.8 million in 2022 compared to net cash provided by operating activities of $70.6 million in 2021.

The change in operating activities is primarily due to the Special Contribution ($50 million), higher income taxes paid during 2022 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 was $35.5 million in 2022 compared to net cash provided by investing activities of $24.5 million in 2021.

The change in investing activities is primarily due to higher capital expenditure spending ($9.5 million), cash proceeds received in 2021 in connection with the sale of the Company’s investment in kaléo ($47.1 million) and the sale of the Lake Zurich manufacturing facility assets in 2021 ($4.7 million).

Net cash provided by financing activities was $45.4 million in 2022 compared to net cash used in financing activities of $76.8 million in 2021.

The change in financing activities is primarily due to higher net borrowings ($125.0 million) under the Credit Agreement (as defined below) to fund the $50 million Special Contribution to the pension plan and working capital, higher deferred financing costs ($1.2 million) associated with the refinancing of the Credit Agreement in June 2022, repurchases of employee common stock for tax withholdings of $0.4 million in 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 expenditure, debt repayments and dividend requirements for at least the next twelve months.

2 unchanged sentences

of $10.3 million.

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

On June 29, 2022, Tredegar entered into a Second Amended and Restated Credit Agreement (“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 December 31, 2022 were as follows:

10 unchanged sentences

Indebtedness $ 137,000

The credit spread and commitment fees charged on the unused amount under the Credit Agreement at various indebtedness-to-Credit EBITDA levels are as follows:

Pricing Under Credit Agreement (Basis Points)

Indebtedness-to-Credit EBITDA Ratio Credit Spread

Over LIBOR Commitment

> 3.5x but <= 4.0x 200.0 40

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

<= 1.0x 150.0 20

>1.0x but <=2.0x 162.5 25

2 unchanged sentences

>3.5x 200.0 40

At December 31, 2021, the interest rate on debt under the Credit Agreement existing at that date was priced at one-month LIBOR plus the applicable credit spread of 150.0 basis points.

The most restrictive covenants in the Credit Agreement include:

• Maximum indebtedness-to-Credit EBITDA (“Leverage Ratio”) of 4.00x;

• Minimum Credit EBITDA-to-interest expense of 3.00x;

• Maximum aggregate distributions to shareholders over the remaining term of the Credit Agreement of $75 million;

provided, that if the Leverage Ratio of equal to or greater than 3.00x, a limitation on such payments for the succeeding quarter at the greater of (i) $4.75 million and (ii) 50% of consolidated net income for the most recent fiscal quarter.

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 December 31, 2022, $137.0 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 162.5 basis points.

Prior to the Credit Agreement, the interest rate on borrowings 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;

• 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;

• Interest Coverage Ratio is defined as the ratio of Credit EBITDA to interest expense.

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

At December 31, 2022, based upon the most restrictive covenant within the Credit Agreement, available credit under the Credit Agreement was approximately $201 million.

Total debt outstanding was $137.0 million and $73.0 million as of December 31, 2022 and 2021, respectively.

The computations of Credit EBITDA, the leverage ratio and interest coverage ratio as defined in the Credit Agreement are presented below along with the related most restrictive covenants.

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

Computations of Credit EBITDA, Leverage Ratio and Interest Coverage Ratio as Defined in the Credit Agreement Along with Related Most Restrictive Covenants

As of and for the Twelve Months Ended December 31, 2021 (In thousands)

Computations of Credit EBITDA as defined in Credit Agreement for the twelve months ended December 31, 2021

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 December 31, 2022

Computations of Credit EBITDA for the twelve months ended December 31, 2022 (in thousands):

Net income (loss) $ 28,455

17 unchanged sentences

Plus or minus, as applicable, pro forma EBITDA adjustments to pension expense associated with the early payment of pension obligations 14,400

Credit EBITDA as defined in Credit Agreement $ 90,045

Credit EBITDA $ 84,448

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

Leverage ratio (indebtedness-to-Credit EBITDA) 0.81x

Interest coverage ratio (Credit EBITDA-to-interest expense) 26.59x

Total Net Leverage Ratio 1.39x

Interest Coverage Ratio 16.92x

Most restrictive covenants as defined in Credit Agreement:

Available balance of maximum permitted aggregate amount of dividends that can be paid by Tredegar during the remaining term of the Credit Agreement ($75,000 minus $20,187 of dividends paid after December 1, 2020)

Maximum leverage ratio permitted 4.00x

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

Maximum Total Net Leverage Ratio permitted 4.00x

Minimum Interest Coverage Ratio permitted 3.00x

8 unchanged sentences

Pension and other postretirement obligations

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 February 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, on February 9, 2022, the Company borrowed funds under its revolving credit agreement and contributed a $50 million Special Contribution to the pension plan 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 estimates that, with the Special Contribution, there will be no required minimum contributions to the pension plan until final settlement.

Tredegar has determined that it is not practicable to estimate additional cash requirements beyond 2022 as the ultimate settlement of the benefit obligation may differ from the projected benefit obligation of $314 million as of December 31, 2021.

Tredegar expects that the final settlement funding will be approximately $28 million but may differ from this expectation based on changes in market factors, including from buyers of pension obligations at the time of settlement.

Tredegar also has a non-qualified supplemental pension plan covering certain employees.

Effective December 31, 2005, further participation in this plan was terminated and benefit accruals for existing participants were frozen.

The plan was designed to restore all or a part of the pension benefits that would have been payable to designated participants from the principal pension plans if it were not for limitations imposed by income tax regulations.

The projected benefit obligation relating to this unfunded plan was $1.7 million, of which the Company expects to pay $0.2 million in the next 12 months.

In addition to providing pension benefits, the Company provides postretirement life insurance and health care benefits for certain groups of employees.

1 unchanged sentence

Capital expenditure commitments

See “ Projected Capital Expenditures and Depreciation & Amortization ” within “ Operations Overview ” above in this Item 7 for discussion of the Company’s planned investment in capital expenditures in 2022, a portion of which represents contractual commitments that existed as of December 31, 2021.

See “ Projected Capital Expenditures and Depreciation & Amortization ” within “ Segment Operations Overview ” above in this Item 7 for discussion of the Company’s planned investment in capital expenditures in 2023, of which $13.3 million contractual commitments that existed as of December 31, 2022.

Operating Leases

The Company enters into various operating leases primarily for real estate, office equipment and vehicles.

See Note 4 to the consolidated financial statements for additional information.

See Note 4 “Leases” to the Consolidated Financial Statements in Item 15 for additional information.

Uncertain Tax Positions

3 unchanged sentences

Therefore, the Company is unable to make a reasonably reliable estimate of the timing of payments beyond 12 months.

See Note 12 to the Consolidated Financial Statements in Item 15 for additional information.

See Note 12 “Income Taxes” to the Consolidated Financial Statements in Item 15 for additional information.

Off-Balance Sheet Arrangements

5 unchanged sentences

For these reasons, the Company is unable to estimate the maximum potential amount of the potential future liability under the indemnity provisions of these agreements.

Tredegar does, however, accrue for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable and the amount is reasonably estimable.

Tredegar does, however, accrue for losses for any known contingent liability,

including those that may arise from indemnification provisions, when future payment is probable and the amount is reasonably estimable.

The Company discloses contingent liabilities if the probability of loss is reasonably possible and material.

Quantitative and Qualitative Disclosures about Market Risk

Tredegar has exposure to the volatility of interest rates, polyethylene and polypropylene resin prices, PTA and MEG prices, aluminum ingot and scrap prices, energy prices, foreign currencies and emerging markets.

See Liquidity and Capital Resources regarding interest rate exposures related to borrowings under the Credit Agreement.

Profit margins in Aluminum Extrusions are sensitive to fluctuations in aluminum ingot and scrap prices as well as natural gas prices (natural gas is the principal energy source used to operate its casting furnaces).

Changes in polyethylene resin prices and the timing of those changes could have a significant impact on profit margins in PE Films.

Changes in polyester resin, PTA and MEG prices, and the timing of those changes, could have a significant impact on profit margins in Flexible Packaging Films.

There is no assurance of the Company’s ability to pass through higher raw material and energy costs to its customers.

In the normal course of business, Aluminum Extrusions enters into fixed-price forward sales contracts with certain customers for the sale of fixed quantities of aluminum extrusions at scheduled intervals.

In order to hedge its exposure to aluminum price volatility (see the chart below) under these fixed-price arrangements, which generally have a duration of not more than 12 months, the Company enters into a combination of forward purchase commitments and futures contracts to acquire or hedge aluminum, based on the scheduled deliveries.

See Note 10 to the Consolidated Financial Statements in Item 15 for additional information.

The volatility of quarterly average aluminum prices is shown in the chart below.

Quarterly averages computed by the Company using daily Midwest average prices provided by Platts.

The volatility of quarterly average natural gas prices is shown in the chart below.

Quarterly averages computed by Tredegar using monthly NYMEX settlement prices.

The volatility of average quarterly prices of polyethylene resin in the U.S.

(a primary raw material for PE Films products) is shown in the chart below:

Quarterly averages computed by Tredegar using monthly data provided by IHS, Inc.

In February 2020, IHS reflected a 32 cents per pound non-market adjustment based on their estimate of the growth of discounts in prior periods.

The 4th quarter 2019 average rate of $0.51 per pound is shown on a pro forma basis as if the non-market adjustment was made in the fourth quarter of 2019.

The price of resin is driven by several factors, including supply and demand and the price of oil, ethylene and natural gas.

Selling prices to customers are set considering numerous factors, including the expected volatility of resin prices.

In certain situations, PE Films has index-based pass-through raw material cost arrangements with customers.

However, under certain agreements, changes in resin prices are not passed through for a period of 90 days or more.

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

Pricing on the remainder of the business is based upon raw material costs and supply/demand dynamics within the markets that the Company competes.

Polyester resins, MEG and PTA used in flexible packaging films produced in Brazil are primarily purchased domestically, with other sources available mostly from Asia and the U.S.

Given the nature of these products as commodities, pricing is

derived from Asian pricing indexes.

The volatility of the average quarterly prices for polyester fibers in Asia, which is representative of polyester resin (a primary raw material for Flexible Packaging Films) pricing trends, is shown in the chart below:

Quarterly averages computed by Tredegar using monthly data from CMAI Global Index data.

The volatility of average quarterly prices of PTA and MEG in Asia (raw materials used in the production of polyester resins produced by Flexible Packaging Films) is shown in the chart below:

Quarterly averages computed by Tredegar using monthly data from CMAI Global Index data.

The Company sells to customers in foreign markets through its foreign operations and through exports from U.S.

The percentage of sales and total assets for manufacturing operations related to foreign markets for 2021, 2020 and 2019 are as follows:

Tredegar Corporation

Percentage of Net Sales and Total Assets Related to Foreign Markets*

2021 2020 2019

% of Total % Total

Assets - Foreign Operations % of Total % Total

Assets - Foreign

Operations % of Total % Total

Assets -Foreign

Net Sales Net Sales Net Sales

Foreign Operations Exports

Foreign Operations

Canada 2 — — 2 — — 2 — —

Europe 1 — — 1 — — 1 — —

Latin America 1 12 10 — 13 10 1 12 7

Asia 7 — 3 11 — 4 10 — 3

Total 11 12 13 14 13 14 14 12 10

* The percentages for foreign markets are relative to Tredegar’s consolidated net sales and total assets .

Tredegar attempts to match the pricing and cost of its products in the same currency and generally views the volatility of foreign currencies and the corresponding impact on earnings and cash flow as part of the overall risk of operating in a global environment (for additional information, see trends for the Brazilian Real and Chinese Yuan in the charts on the following page).

Exports from the U.S.

are generally denominated in U.S.

The Company’s foreign currency exposure on income from continuing foreign operations relates to the Chinese Yuan and the Brazilian Real.

PE Films is generally able to match the currency of its sales and costs for its product lines.

For flexible packaging films produced in Brazil, selling prices and key raw material costs are principally determined in U.S.

Dollars and are impacted by local economic conditions and local and global competitive dynamics.

Flexible Packaging Films is exposed to foreign exchange translation risk (its functional currency is the Brazilian Real) because almost 90% of the sales of Flexible Packaging Films business unit in Brazil (“Terphane Ltda.”) and substantially all of its related raw material costs are quoted or priced in U.S.

Dollars while its variable conversion, fixed conversion and sales, general and administrative costs before depreciation & amortization (collectively “Terphane Ltda.

Operating Costs”) are quoted or priced in Brazilian Real.

This mismatch, together with a variety of economic variables impacting currency exchange rates, causes volatility that could negatively or positively impact EBITDA from ongoing operations for Flexible Packaging Films.

The Company estimates annual net costs of R$150 million for the net mismatch translation exposure between Terphane Ltda.’s U.S.

Dollar quoted or priced sales and raw material costs and underlying Brazilian Real quoted or priced Terphane Ltda.

Operating Costs.

Terphane Ltda.

has outstanding foreign exchange average forward rate contracts to purchase Brazilian Real and sell U.S.

Dollars to hedge its exposure.

See Note 10 to the Consolidated Financial Statements in Item 15 for more information on outstanding hedging contracts and this hedging program.

Tredegar estimates that the change in the value of foreign currencies relative to the U.S.

Dollar on PE Films had a favorable impact on EBITDA from ongoing operations in PE Films of $0.3 million in 2021 compared to 2020 and an unfavorable impact on EBITDA from ongoing operations of $0.7 million in 2020 compared with 2019.

Trends for the Brazilian Real and Chinese Yuan are shown in the chart below:

Quarterly averages computed by Tredegar using daily closing data provided by Bloomberg.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See discussion of Quantitative and Qualitative Disclosures about Market Risk in Item 7.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item 8 is set forth in Item 15 and is hereby incorporated herein by reference.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Critical Accounting Policies and Estimates

Estimates and judgments are based on historical experience, forecasted events and various other assumptions that management believes are reasonable under the circumstances.

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

A summary of all of our significant accounting policies is included in Note 1 “Nature of Operations and Summary of Significant Accounting Policies” to the Consolidated Financial Statements in Item 15.

Impairment of Goodwill

The Company assesses goodwill for impairment when events or circumstances indicate that the carrying value may not be recoverable, or, at a minimum, on an annual basis (December 1st of each year).

When assessing goodwill for impairment, accounting guidance allows the Company to first perform a qualitative assessment (“Step 0 analysis”), which evaluates certain qualitative factors, including macroeconomic conditions, industry and market considerations, cost factors and overall financial performance, as well as company and reporting unit factors.

If the Company's Step 0 analysis indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company would perform a quantitative impairment test (“Step 1 analysis”).

During the three months ended September 30, 2022, events and circumstances indicated that the Surface Protection reporting unit (“Surface Protection”), which is also the asset group, might be impaired.

The Company performed a Step 1 analysis and long-lived impairment analysis for Surface Protection and determined that the fair value of Surface Protection exceeded its carrying value by 18.6%.

The Company estimated the fair value of Surface Protection at September 30, 2022 by:

(i) computing a weighted average estimated enterprise value (“EV”) utilizing both the discounted cash flow (the “DCF Method”) and market multiple (the “Market Multiple Method”) methods, (ii) applying adjustments for any surplus or deficient working capital, (iii) adding cash and cash equivalents, and (iv) subtracting interest-bearing debt.

The Company’s estimate of Surface Protection’s EV as of September 30, 2022 was determined by weighting the Market Multiple Method by 20% and the DCF Method by 80%.

A heavier weighting towards the DCF Method was used since Surface Protection’s projections better reflect recovery from the weak market demand, competitive pricing and cash flows associated with new surface protection products, applications, customers, production efficiencies, and cost savings.

Key financial assumptions utilized to determine the fair value of the reporting unit includes revenue growth projections and a weighted average cost of capital assumption.

At September 30, 2022, the effect of a ten percent decrease in the revenue growth projections and a one percent increase to the weighted average cost of capital assumption would further decrease the fair value of the reporting unit’s fair value by approximately $5 million and $6 million, respectively.

Customer demand for electronics has continued to deteriorate since the third quarter of 2022, causing manufacturers in the supply chain to experience reduced capacity utilization and inventory corrections.

In addition, these depressed market conditions, which are expected to continue through the first half of 2023, are adversely impacting mix through reduced sales to our highest value-added customers and products.

Given the uncertain demand for Surface Protections products, it is reasonably possible that the cash flow estimates used in deriving such fair value measurements may change in the future.

As of December 1, 2022, the Company’s reporting units with goodwill were Surface Protection in PE Films and Futura in Aluminum Extrusions.

Both of these reporting units have separately identifiable operating net assets (operating assets including goodwill and identifiable intangible assets net of operating liabilities).

The Company's Step 0 analyses as of December 1, 2022 of these reporting units concluded that it is not more likely than not that the fair values of each reporting unit was less than its carrying amount.

Therefore, the Step 1 quantitative goodwill impairment tests for these reporting units were not necessary as of December 1, 2022.

The Surface Protection and Futura reporting units had goodwill in the amounts of $57.3 million and $13.3 million, respectively, at December 31, 2022.

See Note 1 “Nature of Operations and Summary of Significant Accounting Policies” to the Consolidated Financial Statements in Item 15 for additional information on the analysis of goodwill impairment.

Pension Benefits

Tredegar sponsors a noncontributory defined benefit (pension) plan covering certain current and former U.S.

The plan is closed to new participants and pay for active plan participants for benefit calculations was frozen as of December 31, 2007.

As of January 31, 2018, the plan no longer accrued benefits associated with crediting employees for service, thereby freezing all future benefits under the plan.

On February 10, 2022, Tredegar announced the initiation of a process to terminate and settle its frozen defined benefit pension plan, which is expected to be completed by the end of 2023.

The Company’s pension plan has resulted in varying amounts of net pension income or expense, as developed from actuarial valuations and the application of GAAP.

Inherent in the valuation are key assumptions including discount rates and the expected return on plan assets.

Inherent in the application of GAAP includes the amortization of deferred non-cash actuarial gains or losses.

Net periodic pension benefit cost under GAAP during 2022, 2021 and 2020 was $14.4 million, $14.0 million and $14.6 million, respectively, including non-cash amortization of net actuarial losses of $13.7 million, $17.0 million and $15.5 million, respectively.

The Company is required to consider current market conditions, including changes in interest rates and plan asset investment returns, in determining actuarial valuation assumptions.

Assumptions may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants.

These differences are deferred in accumulated other comprehensive income or loss directly in shareholders’ equity and subsequently amortized in net periodic pension benefit cost.

Other comprehensive net actuarial losses reflected directly in shareholders’ equity was $103.6 million, $109.2 million and $149.5 million on a pre-tax basis as of December 31, 2022, 2021 and 2020, respectively, which have resulted in the significant non-cash amortization costs as noted above.

Following the announcement to terminate and settle the pension plan, the Company contributed $50 million to the pension plan and implemented (through consultation with its investment advisors) a liability-matching bond portfolio investment strategy (including a derivative overlay) that hedged the estimated settlement funding gap, which was approximately $24 million (before plan administration costs) at that time.

The overall objective of this hedging program is to minimize the volatility of the estimated settlement funding gap such that, as applicable interest rates move up or down causing a decrease or increase in the estimated value of the settlement liability, the value of the matching bond portfolio and derivative overlay decreases or increases by a similar amount.

The discount rate is used to determine the present value of future payments (i.e., the estimated settlement liability).

In general, the estimated settlement liability increases as the discount rate decreases and vice versa.

The discount rate is the single rate that, when applied to expected benefit payments, provides a present value equal to the present value of expected benefit payments, which prior to the planned termination and settlement was determined by using the AA-rated bond yield curve.

Given the anticipated termination and settlement of the pension plan, the Company determined an appropriate discount rate as of December 31, 2022, based on the weighted average of lump sum settlement interest rates and estimated annuity purchase settlement rates.

The weighted average discount rate utilized was 5.07%, 2.90% and 2.57% at the end of 2022, 2021 and 2020, respectively, with changes between periods due to changes in market interest rates and in 2022 also the change to a settlement discount rate estimating methodology.

A 100 basis point increase in the discount rate assumption would have decreased the projected benefit obligation / estimated settlement liability and the net periodic pension cost for the pension plan by approximately $23 million and $2 million, respectively.

A 100 basis point decrease in the discount rate assumption would have increased the projected benefit obligation / estimated settlement liability and the net periodic pension cost for the pension plan by approximately $24 million and $2 million, respectively.

In both assumption situations, as a result of the hedging program, the Company would expect a similar overall change in the liability matching bond portfolio and derivative overlay.

A lower expected return on plan assets increases the amount of expense and vice versa.

Decreases in the level of actual plan assets will also serve to increase the amount of pension expense.

The expected long-term rate return of 5.00% used in both 2021 and 2020 were determined at the end of 2020 and 2019 and therefore did not contemplate the liability-driven investment strategy discussed above, however, the expected long-term rate return of 3.05% used in 2022 and 4.99% for 2023 does contemplate the liability-driven investment strategy discussed above.

See Note 8 “Retirement Plans and Other Postretirement Benefits” to the Consolidated Financial Statements in Item 15 for more information on expected long-term return on plan assets and asset mix.

Net periodic benefit cost, which excludes the impact of the expected plan settlement, for 2023 under GAAP is expected to be approximately $14 million, including non-cash amortization of other comprehensive net actuarial losses of approximately $12 million.

The Company has been monitoring the estimated settlement funding gap and the effectiveness of its liability-matching bond portfolio investment strategy through an online tool provided by its investment advisors, which increased to approximately $28 million at December 31, 2022 primarily due to administrative costs incurred by the plan.

As the settlement process occurs, the Company expects to recognize a non-cash reclassification adjustment to net income or loss of the entire remaining balance of other comprehensive net actuarial losses reflected directly in shareholders’ equity, which was approximately $104 million on a pre-tax basis at December 31, 2022.

See the Segment Operations Review section above for further discussion regarding the financial impact of the Company’s pension plans.

Current tax liabilities and assets are recognized for the estimated taxes payable or refundable, respectively, on the tax returns for the current year.

Accordingly, accounting for income taxes represents the Company’s best estimate of various events and transactions.

Tax laws are often complex and may be subject to differing interpretations by the taxpayer and the relevant governmental taxing authorities.

In establishing a provision for income tax expense, Tredegar must make judgments and interpretations about the application of tax laws.

The Company must also make estimates about when in the future certain items will affect taxable income in the various taxing jurisdictions.

A valuation allowance is recorded in the period when the Company determines that it is more likely than not that all or a portion of deferred income tax assets may not be realized.

Any such changes could significantly affect the amounts reported in the financial statements in the year these changes occur.

See Note 12 “Income Taxes” to the Consolidated Financial Statements in Item 15 for additional information on income taxes.

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-K

Item 7. Management’s Discussion and Analysis