TREDEGAR CORP 10-K

Item 1. BUSINESS Description of Business Tredegar Corporation (“Tredegar”) is engaged, through its subsidiaries, in the manufacture of aluminum extrusions, polyethylene (“PE”) plastic films and polyester (“PET”) films. Unless the context requires otherwise, all references herein to “Tredegar,” “the Company,” “we,” “us” or “our” are to Tredegar Corporation and its consolidated subsidiaries. The Company's reportable business segments are Aluminum Extrusions, PE Films and Flexible Packaging Films. On October 30, 2020, the Company completed the sale of its personal care films business (“Personal Care Films”). The transaction excluded the packaging film lines and related operations located at the Pottsville, Pennsylvania manufacturing site (“Pottsville Packaging”), which are now being reported with 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 this transaction, see Note 15 “Discontinued Operations” to the Consolidated Financial Statements included in Item 15. “Exhibits and Financial Statement Schedules” (“Item 15”) of this Annual Report on Form 10-K for the year ended December 31, 2022 (“Form 10-K”). Aluminum Extrusions Aluminum Extrusions, also referred to as Bonnell Aluminum, produces high-quality, soft and medium strength alloyed aluminum extrusions, custom fabricated and finished, for the building and construction, automotive and transportation, consumer durables goods, machinery and equipment, electrical and renewable energy, and distribution markets. Bonnell Aluminum has manufacturing facilities located in the United States (“U.S.”). Aluminum Extrusions manufactures mill (unfinished), machined, anodized and painted, and thermally improved aluminum extrusions for sale directly to fabricators and distributors. It also manufactures and sells branded product lines: Futura Transitions TM by Bonnell Aluminum (flooring trims) and TSLOTS TM by Bonnell Aluminum (structural aluminum framing systems). Aluminum Extrusions competes primarily on the basis of product quality, service and price. Sales are made predominantly in the U.S. The end-use markets for Aluminum Extrusions are cyclical and seasonal in nature. The end-uses in each of Aluminum Extrusions’ primary market segments include: Major Markets End-Uses Building & construction - nonresidential Commercial windows and doors, curtain walls, storefronts and entrances, automatic entry doors, walkway covers, ducts, louvers and vents, office wall panels, partitions and interior enclosures, acoustical walls and ceilings, point of purchase displays, pre-engineered structures, and flooring trims (Futura Transitions TM by Bonnell Aluminum) Building & construction - residential Residential windows and doors, shower and tub enclosures, railing and support systems, venetian blinds, and swimming pools Automotive & transportation Automotive and light truck structural components, battery enclosures for electric vehicles, after-market automotive accessories, grills for heavy trucks, travel trailers and recreation vehicles Consumer durables Office furniture, pleasure boats, refrigerators and freezers, appliances and sporting goods Machinery & equipment Material handling equipment, conveyor systems, medical equipment, industrial fans and aluminum framing systems (TSLOTS TM by Bonnell Aluminum) Distribution (metal service centers specializing in stock and release programs and custom fabrications to small manufacturers) Various custom profiles including storm shutters, pleasure boat accessories, theater set structures and various standard profiles (including rod, bar, tube and pipe) Electrical & renewable energy Lighting fixtures, electronic apparatus, solar panel brackets and rigid and flexible conduits 1 Aluminum Extrusions’ net sales (sales less freight) by market segment for the years ended December 31, 2022, 2021 and 2020 is shown below: % of Aluminum Extrusions Net Sales 1 by Market Segment 2022 2021 2020 Building and construction: Nonresidential 53% 50% 56% Residential 10% 10% 9% Automotive 8% 8% 8% Specialty: Consumer durables 10% 10% 10% Machinery & equipment 10% 8% 7% Electrical 4% 6% 4% Distribution 5% 8% 6% Total 100% 100% 100% 1. The Company uses net sales from continuing operations as its measure of revenues from external customers at the segment level. For more business segment information, see Note 13 “Business Segments” to the Consolidated Financial Statements in Item 15. In 2022, 2021 and 2020, Aluminum Extrusions net sales accounted for approximately 71%, 67% and 63% of Tredegar’s consolidated net sales, respectively. Open Orders . Overall open orders in Aluminum Extrusions was approximately $136.0 million, or 41 million pounds, at December 31, 2022 compared to approximately $306.4 million, or 97 million pounds, at December 31, 2021, a decrease of $170.4 million, or approximately 56%. The reduction in open orders in 2022 compared to 2021 is primarily due to order cancellations as customers report high inventory levels. During the second half of 2022, the Company has observed order cancellations as customers report high inventory levels. Aluminum Extrusions expects the confluence of orders, cancellations and shipments to drive open orders to pre-COVID-19, normalized levels during the first half of 2023. The outlook for demand and shipments in 2023 remains uncertain given recessionary concerns. Sales volume for Aluminum Extrusions, which the Company believes is cyclical and seasonal in nature due to its end-use markets, was 174.7 million pounds in 2022, 183.4 million pounds in 2021 and 186.4 million pounds in 2020. Raw Materials . The primary raw materials used by Aluminum Extrusions consist of aluminum ingot, aluminum scrap and various alloys, which are purchased from domestic and foreign producers in open-market purchases and under annual contracts. Refer to Item 7a. "Quantitative and Qualitative Disclosures About Market Risk” of this Form 10-K (“Item 7a”) for additional information on aluminum price trends. Aluminum Extrusions believes that it has adequate supply agreements for aluminum raw materials in 2023 despite continued supply chain cost increases related to paint, chemicals, packaging and other non-aluminum raw materials. PE Films PE Films produces surface protection films, polyethylene overwrap films and films for other markets. Tredegar’s Surface Protection unit produces single- and multi-layer surface protection films sold under the UltraMask®, ForceField™, ForceField PEARL ® , Pearl A™, Lithyn™ and Obsidian™ brand names. These films, which are manufactured at facilities in the U.S. and China, support manufacturers of optical and other specialty substrates used in high-technology applications, most notably protecting high-value components of flat panel and flexible displays used in televisions, monitors, notebooks, smartphones, tablets, e-readers, digital signage, semiconductors and automobiles during the manufacturing and transportation process. Tredegar’s Lithyn™ Series represents a new class of tapes for wafer thinning, singulation and transportation designed to enable customers’ to overcome processing challenges and reduce costs. The Obsidian™ series of products is designed for usage in automotive applications. In 2022, 2021 and 2020, PE Films accounted for approximately 11%, 15% and 19% of Tredegar’s consolidated net sales, respectively. In October 2020, the Surface Protection unit assumed responsibility for Pottsville Packaging, which was previously reported within the Personal Care component of PE Films. Pottsville Packaging produces thin-gauge films as overwrap for bathroom tissue and paper towels. 2 Raw Materials . The primary raw materials used by PE Films are polyethylene and polypropylene resins. These raw materials are obtained from domestic and foreign suppliers at competitive prices. Refer to Item 7a for additional information on resin price trends. PE Films believes that there will be an adequate supply of polyethylene and polypropylene resins in the foreseeable future. Research and Development . Tredegar’s spending for research and development (“R&D”) activities in 2022, 2021 and 2020 was primarily related to PE Films. R&D spending by the PE Films was approximately $5.3 million, $5.7 million and $7.7 million in 2022, 2021 and 2020, respectively. Customers. PE Films’ products are sold primarily in the U.S. and Asia, with the top four customers, collectively, comprising 88%, 88% and 84% of its net sales in 2022, 2021 and 2020, respectively. No single PE Films customer exceeds 10% of Tredegar’s consolidated net sales. For additional information, see Item 1A. “Risk Factors” of this Form 10-K (“Item 1A”). Flexible Packaging Films Flexible Packaging Films is comprised of Terphane Holdings LLC (“Terphane”). Flexible Packaging Films produces PET-based films for use in packaging applications that have specialized properties, such as heat resistance, strength, barrier protection and the ability to accept high-quality print graphics. These differentiated, high-value films are primarily manufactured in Brazil and sold in Latin America and the U.S. under the Terphane ® , Sealphane ® and Ecophane ® brand names. Major end uses include food packaging and industrial applications. Flexible Packaging Films competes in all of its markets on the basis of product quality, service and price. In 2022, 2021 and 2020, Terphane accounted for approximately 19%, 18% and 18% of Tredegar’s consolidated net sales, respectively. Raw Materials . The primary raw materials used by Flexible Packaging Films to produce polyester resins are purified terephthalic acid (“PTA”) and monoethylene glycol (“MEG”). Flexible Packaging Films also purchases other polyester resins directly from suppliers. These raw materials are obtained from Brazilian and foreign suppliers at competitive prices. Terphane c ontinues to monitor cost escalations to adjust selling prices as market dynamics permit and believes that there will be an adequate supply of polyester resins, PTA and MEG in the foreseeable future. Refer to Item 7a for additional information on resin price trends. General Intellectual Property . Tredegar considers patents, licenses and trademarks to be material to PE Films. On December 31, 2022, PE Films held 43 patents (including 6 U.S. patents), and 76 registered trademarks (including 4 U.S. registered trademarks). Flexible Packaging Films held 1 U.S. patent and 17 registered trademarks (including 4 U.S. registered trademarks). Aluminum Extrusions held no U.S. patents and 3 U.S. registered trademarks. As of December 31, 2022, these patents had remaining terms of 1.5 to 17 years. Government Regulation . The Company’s operations are subject to various local, state, federal and foreign government regulations, including environmental, privacy and anti-corruption and anti-bribery laws and regulations. U.S. laws concerning the environment to which the Company’s domestic operations are or may be subject to include the Clean Water Act, the Clean Air Act, the Resource Conservation and Recovery Act, the Occupational Safety and Health Act, the National Environmental Policy Act, the Toxic Substances Control Act, the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), regulations promulgated under these acts, and other federal, state or local laws or regulations governing environmental matters. Compliance with these laws is an important consideration because Tredegar uses hazardous materials in some of its operations, is a generator of hazardous waste, and wastewater from the Company’s operations is discharged to various types of wastewater management systems. Under CERCLA and other laws, Tredegar may be subject to financial exposure for costs associated with waste management and disposal, even if the Company fully complies with applicable environmental laws. The U.S. Environmental Protection Agency has adopted regulations under the Clean Air Act relating to emissions of carbon dioxide and other greenhouse gases (“GHG”), including mandatory reporting and permitting requirements. Several of the Company’s manufacturing operations result in emissions of carbon dioxide or GHG and are subject to the current GHG regulations. The Company’s compliance with environmental regulations has yet to require significant capital expenditures; however, environmental standards tend to become more stringent over time. Therefore, in order to comply with current or future environmental legislation or regulations, the Company may be subject to additional capital expenditures, operating expenses or other compliance costs, the amounts and timing of which are not presently determinable but which could be significant, including constructing new facilities or modifying existing facilities. Like environmental regulations, current or future privacy and anti-corruption and anti-bribery legislation or regulations may subject the Company to additional capital expenditures, operating expenses or other compliance costs, the amounts and timing of which are not presently determinable but could be significant. Any failure to comply with current or future laws and regulations, including environmental, privacy and anti-corruption and anti-bribery laws and regulations, could subject Tredegar 3 to substantial penalties, fines, costs and expenses. For further discussion regarding certain environmental, privacy and anti-corruption and anti-bribery laws and regulations to which the Company is subject, see Item 1A below. Human Capital Management. Overview Tredegar employed approximately 2,300 people at December 31, 2022 located in the U.S., Brazil, and Asia, of which 80% are located in the U.S. Approximately 18% of the Company’s employees are represented by labor unions located in the U.S. under various collective bargaining agreements with varying durations and expiration dates, none of which expire before 2025. All of Tredegar’s Brazilian employees are represented by a national labor union. Generally, the total number of employees of Tredegar does not significantly fluctuate throughout the year. However, acquisition or divestiture activity, or changes in the level of business activity may impact employee levels. Health and Safety Tredegar has continuously exceeded the industry standards for safety. The Company uses various forms of employee safety metrics to assess the health and safety performance of its Aluminum Extrusions, PE Films and Flexible Packaging operations, including employee safety data which is available on the Company’s website at https://tredegar.com/about-tredegar/our-broader-commitments/committed-to-our-employees/ . Additionally, Aluminum Extrusions has on-site health clinics at its Carthage and Clearfield facilities. These clinics allow Aluminum Extrusions to invest in its people, provide more personal and more thorough healthcare to employees, and enhance the employer-employee relationship. The Carthage and Clearfield clinics serve over 500 and 300 employees, respectively. Talent and Development The Company believes its employees are its most valuable asset and are critical to the success of the Company. The Company seeks to retain employees by offering competitive wages, benefits and training opportunities. To assess and monitor employee retention and engagement, the Company surveys employees and takes actions to address areas of employee concern. The annual employee engagement survey results are presented to Tredegar’s Board of Directors (“Board”). Additionally, the objectives of our executive compensation programs are to attract, motivate and retain highly qualified executive officers. To accomplish these objectives, the Company relies on a pay strategy that emphasizes performance-based compensation through annual and long-term incentives. The Company believes that this pay strategy creates a strong link between pay and performance and aligns with our business strategy of generating strong operating results and shareholder value creation while controlling fixed costs. The Company is committed to holistically supporting our employees both at work and in their communities by: • Strictly following all applicable health, safety and non-discrimination laws in each country; • Promoting the highest standards for employee health and safety through innovative programs; and • Providing opportunities for community outreach and supporting programs that enhance the lives of children and families. Inclusion and Diversity Tredegar strictly complies with all applicable state, local and international laws governing nondiscrimination in employment in every location where Tredegar and its businesses have facilities to ensure healthy and positive working conditions. This applies to all terms and conditions of employment, including recruiting, hiring, job assignments, promotion, termination, layoff, recall, transfer, leaves of absence, compensation and training. All applicants and employees are treated with the same high level of respect regardless of their race, creed, color, religion, sex, sexual orientation, gender identity, age, pregnancy, national origin, ethnicity, political affiliation, union membership, marital status, citizenship status, veteran status, disability or other protected category. Employees who experience or witness discriminatory behavior are encouraged to report such behavior to their supervisor, Human Resources or Tredegar’s toll-free anonymous reporting hotline. Additionally, the Company spends significant resources in developing its employees. Among the five core principles of the “The Tredegar Way” that the Company uses to guide its organization, the “Leadership” principle is focused on building a team of motivated and engaged leaders at every level of the Company. Each business unit has identified specific action plans to promote the Leadership principle among its employees. Action plans include talent development, skills training, reinforcement of strong cultural values, and robust systems to ensure a safe working environment. Information About Our Executive Officers. See Item 10. “Directors, Executive Officers and Corporate Governance” of this Form 10-K. Available Information and Corporate Governance Documents. Tredegar’s website address is www.tredegar.com . The Company makes available, through its website, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after such documents are electronically filed 4 with, or furnished to, the Securities and Exchange Commission (“SEC”). Information filed electronically with the SEC can be accessed on its website at www.sec.gov . In addition, the Company’s Corporate Governance Guidelines, Code of Conduct, the charters of the Audit, Executive Compensation, Nominating and Governance Committees and Climate Change Risk Assessment and many other corporate policies are available on Tredegar’s website and are available in print to any shareholder upon request by contacting Tredegar’s Corporate Secretary at 1100 Boulders Parkway, Richmond, Virginia 23225. The information on or that can be accessed through the Company’s website is not, and shall not be deemed to be, a part of this Form 10-K or incorporated into other filings it makes with the SEC. 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 the Company uses the words “believe,” “estimate,” “anticipate,” “appear to,” “expect,” “project,” “plan,” “likely,” “may” and similar expressions, it does so to identify forward-looking statements. Such statements are based on the Company's then current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. It is possible that the Company's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these forward-looking statements. 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.