What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-08 compared with 2022-11-09 · 145 added, 287 removed, 224 unchanged (66% of the section changed)

18 unchanged sentences

• impact of fluctuations in foreign exchange rates;

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

• movement of pension plan assets and liabilities relating to differences between the ultimate settlement benefit obligation and the projected benefit obligation, census data, administrative costs, and the effectiveness of hedging activities;

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

• unanticipated problems or delays with the implementation of an enterprise resource planning and manufacturing executions systems, or security breaches and other disruptions to the Company's information technology infrastructure;

• inability to successfully identify, complete or integrate strategic acquisitions;

8 unchanged sentences

• the termination of anti-dumping duties on products imported to Brazil that compete with products produced by Flexible Packaging;

• impairment of the Surface Protection reporting unit's goodwill;

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

6 unchanged sentences

Critical Accounting Policies and Estimates

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

The Company believes the estimates, assumptions and judgments described in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in the 2022 Form 10-K have the greatest potential impact on our financial statements, so Tredegar considers these to be its critical accounting policies.

7 unchanged sentences

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.

The Company uses sales less freight (“net sales”) as its measure of revenues from external customers at the segment level.

This measure is separately included in the financial information regularly provided to the CODM.

Earnings before interest and taxes ("EBIT") from ongoing operations is a non-GAAP financial measure included in the reconciliation of segment financial information to consolidated results for the Company.

It is not intended to represent the stand-alone results for Tredegar's ongoing operations under generally accepted accounting standards in the United States ("GAAP") and should not be considered as an alternative to net income as defined by GAAP.

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

Third Quarter Financial Results Highlights

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

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

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

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

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

Other losses related to asset impairments and costs associated with exit and disposal activities for continuing operations were not material for the three ended September 30, 2022 and 2021, respectively.

First quarter 2023 net income (loss) was $(1.0) million ($(0.03) per diluted share) compared with net income of $16.4 million ($0.49 per diluted share) in the first quarter of 2022.

First Quarter Financial Results Highlights

• EBITDA from ongoing operations for Aluminum Extrusions of $14.6 million declined $9.3 million primarily due to an abnormally strong first quarter of 2022.

Sales volume of 37.6 million pounds was consistent with the weak fourth quarter of 2022.

• EBITDA from ongoing operations for PE Films of $1.8 million was $5.2 million lower than the strong first quarter of 2022.

Sales volume of 7.4 million pounds improved by 1.0 million pounds compared with the weak average third and fourth quarter volume levels in 2022.

• EBITDA from ongoing operations for Flexible Packaging Films of $1.4 million was $3.7 million lower than the first quarter of 2022 mainly due to soft market demand during the first quarter of 2023.

A significant slowdown in the Company’s businesses and markets has been exacerbated by customer inventory corrections.

The timing of recovery for our businesses, particularly Aluminum Extrusions and PE Films, remains uncertain.

Excess inventories, lower sales and lower EBITDA from ongoing operations have resulted in negative cash flow from operations after capital expenditures and dividends in each of the last three quarters, resulting in higher debt, net of cash, and an increase in the net leverage ratio.

Other losses related to asset impairments and costs associated with exit and disposal activities were not material for the three months ended March 31, 2023 and 2022, respectively.

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

Results of Operations

Third Quarter of 2022 Compared with the Third Quarter of 2021

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

(In thousands)

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

Income tax expense (benefit) 1,908

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

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

Other income (expense), net (272)

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

Cost of goods sold (29,826)

Freight (2,236)

Selling, general and administrative (2,251)

Total (34,697)

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

Income tax expense (benefit) 1,125

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

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

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

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

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

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

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

See Note 5 for additional information.

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

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

Additionally, the timing of the flow through under the first-in first-out method of aluminum raw material costs passed through to customers, previously acquired at higher prices in a quickly changing commodity pricing environment, resulted in a charge in the third quarter of 2022 versus a benefit in the third quarter of 2021.

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

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

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

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

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

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

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

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

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

Treasury and Internal Revenue Service on January 4, 2022.

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

income taxes.

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

for the foreseeable future under these regulations.

See Note 9 for additional information.

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

Three Months Ended September 30,

(In millions) 2022 2021

Aluminum Extrusions:

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

Environmental charges at Newnan, Georgia plant 3

COVID-19-related expenses, net of relief 1

Total for Aluminum Extrusions $ — $ 0.2

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

Other restructuring costs - severance $ 0.5 $ 0.1

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

COVID-19-related expenses 1

Total for PE Films $ 0.5 $ 0.2

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

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

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

Professional fees associated with business development activities and other 2

Professional fees associated with internal control over financial reporting 2

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

Transition service fees, net of corporate costs associated with the divested Personal Care Films business 1

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

Total for Corporate $ 4.2 $ 1.3

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

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

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

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

Average debt outstanding and interest rates were as follows:

Three Months Ended September 30,

(In millions, except percentages) 2022 2021

Floating-rate debt with interest charged on a rollover basis plus a credit spread 1 :

Average outstanding debt balance $ 111.1 $ 122.5

Average interest rate 3.8 % 1.8 %

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

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

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

First Nine Months of 2022 Results vs.

First Nine Months of 2021 Results

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

First Quarter of 2023 Compared with the First Quarter of 2022

The following table presents a bridge of consolidated net income (loss) from the first quarter of 2022 to the first quarter of 2023 with management's related discussion and analysis below the table.

(In thousands)

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

Net income (loss) for the three months ended March 31, 2022

Income tax expense (benefit) 778

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

Income (loss) before income taxes for the three months ended March 31, 2022

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

6 unchanged sentences

Selling, general and administrative 2,275

Total (143,378)

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

Other (1,065)

Income (loss) before income taxes for the three months ended March 31, 2023

Income tax expense (benefit) 331

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

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

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

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

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

Net income (loss) for the three months ended March 31, 2023

Sales in the first quarter of 2023 decreased by $45.4 million compared with the first quarter of 2022.

Net sales (sales less freight) in Aluminum Extrusions decreased $24.7 million, primarily due to lower sales volume and the pass-through of lower metal costs, partially offset by an increase in selling prices to cover higher operating costs.

Net sales in PE Films decreased $10.9 million, primarily due to weakening market demand and unfavorable product mix.

Net sales in Flexible Packaging Films decreased $7.7 million, primarily due to lower sales volume, partially offset by favorable product mix and higher selling prices from the pass-through of higher resin costs.

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

Other income decreased $8.2 million in the first nine months of 2022 compared to the first nine months of 2021, primarily due to a 2021 gain of $8.5 million associated with a one-time tax credit in Brazil for unemployment/social security insurance non-income taxes resulting from a favorable decision by Brazil's Supreme Court regarding the calculation of such tax.

Other income (expense), net was $0.3 million in the first three months of 2023 compared to other income (expense), net of $(0.3) million in the first three months of 2022.

The change in other income (expense), net is primarily due to lower COVID-19-related expenses of $0.2 million and additional cash consideration of $0.3 million received in the first three months of 2023 related to the customary post-closing adjustments on the sale of the investment in kaleo, Inc, which was sold in December 2021.

See Note 5 for additional information.

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

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

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

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

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

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

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

The effective tax rate used to compute income taxes for continuing operations in the first nine months of 2022 was 18.8%, compared to 22.7% in the first nine months of 2021.

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

Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales (gross profit margin) was 13.4% in the first quarter of 2023 compared to 19.1% in the first quarter of 2022.

The gross profit margin in Aluminum Extrusions decreased primarily due to lower sales volume, higher labor and employee-related costs, lower labor productivity, higher supply expense, unfavorable inflationary costs for other supplies, higher utility costs, and higher freight rates, partially offset by higher pricing.

Additionally, the timing of the flow through under the first-in first-out method of aluminum raw material costs passed through to customers, previously acquired at lower prices in a quickly changing commodity pricing environment, resulted in a benefit of $1.7 million in the first quarter of 2023 versus a benefit of $7.1 million in the first quarter of 2022.

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

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

As a percentage of sales, selling, general and administrative (“SG&A”) and research and development ("R&D") expenses were 10.6% in the first quarter of 2023, compared with 9.6% in the first quarter of 2022.

While first quarter SG&A expenses and sales decreased year-over-year, R&D expenses remained relatively consistent with the prior year period.

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

The effective tax rate used to compute income taxes for the first quarter of 2023 was (48.8)%, compared to 4.5% in the first quarter of 2022.

The change in the effective tax rate is primarily due to a pre-tax loss in first three months of 2023 versus pre-tax income in first three months of 2022, lower Brazil tax incentives, and a large discrete benefit recorded in the first quarter of 2022, resulting from the implementation of new U.S.

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

Treasury and Internal Revenue Service on January 4, 2022.

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

income taxes.

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

for the foreseeable future.

See Note 9 for additional information.

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

Nine Months Ended September 30,

Pre-tax gains and losses associated with plant shutdowns, asset impairments, restructurings and other items for the first quarters of 2023 and 2022 detailed below are shown in the statements of net sales and EBITDA from ongoing operations by segment table in Note 10 and are included in “Asset impairments and costs associated with exit and disposal activities, net of adjustments” in the condensed consolidated statements of income, unless otherwise noted.

Three Months Ended March 31,

(In millions) 2023 2022

1 unchanged sentence

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

Environmental charges at Newnan, Georgia plant 3

Storm damage to the Newnan, Georgia plant 2

COVID-19-related expenses, net of relief 1

Total for Aluminum Extrusions $ 0.6 $ 0.1

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

Other restructuring costs - severance $ 0.5 $ 0.1

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

2 unchanged sentences

Flexible Packaging Films:

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

One-time tax credit in Brazil for unemployment/social security insurance non-income taxes resulting from a favorable decision by Brazil's Supreme Court regarding the calculation of such taxes 1,5

COVID-19-related expenses 1

Total for Flexible Packaging Films $ 0.1 $ (8.4)

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

(Gain), net of costs associated with the sale of the Lake Zurich manufacturing facility assets $ — $ 0.1

Other restructuring costs - severance $ 0.1 $ —

Total for Flexible Packaging Films $ 0.1 $ —

(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 internal control over financial reporting 2

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

Professional fees associated with business development activities 2

Professional fees associated with remediation activities related to internal control over financial reporting 2

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

Transition service fees, net of corporate costs associated with the divested Personal Care Films business 1

Net periodic benefit cost for the frozen defined benefit pension plan in process of termination 3

2 unchanged sentences

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

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

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

See Note 5 for additional information.

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

Average debt outstanding and interest rates were as follows:

Nine Months Ended September 30,

Three Months Ended March 31,

(In millions, except percentages) 2023 2022

2 unchanged sentences

Average interest rate 6.3 % 1.9 %

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.

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

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

4 unchanged sentences

(Unfavorable)

% Change Nine Months Ended Favorable/

(Unfavorable)

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

2022 2021 2022 2021

(In thousands, except percentages) March 31,

Sales volume (lbs) 37,562 43,010 (12.7)%

6 unchanged sentences

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

Third Quarter 2022 Results vs.

Third Quarter 2021 Results

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

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

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

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

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

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

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

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

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

versus 86 million lbs.

at the end of the second quarter of 2022.

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

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

higher labor and employee-related costs ($2.1 million) and lower labor productivity ($1.3 million);

higher supply expense, including significant price increases in paint, chemicals, packaging and other supplies ($3.6 million);

First Quarter 2023 Results vs.

First Quarter 2022 Results

Net sales (sales less freight) in the first quarter of 2023 decreased 15.6% versus the first quarter of 2022 primarily due to lower sales volume and the pass-through of lower metal costs, partially offset by an increase in prices to cover higher operating costs.

Sales volume in the first quarter of 2023 declined 12.7% versus the first quarter of 2022.

No nresidential B&C sales volume, which represented 53% of 2022 volume, was relatively flat in the first quarter of 2023 versus the first quarter of 2022.

Sales volume in the specialty market, which represented 29% of total volume in 2022, decreased 30.5% in the first quarter of 2023 versus the first quarter of 2022.

Sales volume in the automotive market, which represented 8% of total volume in 2022, decreased 8.2% in the first quarter of 2023 versus the first quarter of 2022.

The Company has observed slowing order input and order cancellations as customers continue to report high inventory level s.

With a reduced level of incoming orders, overall open orders at the end of the first quarter of 2023 were 27 million pounds, which is at the high end of the pre-pandemic range of 21 to 27 million pounds quarterly in 2019, versus 41 million pounds at the end of the fourth quarter of 2022.

EBITDA from ongoing operations in the first quarter of 2023 decreased $9.3 million versus the first quarter of 2022 primarily due to:

• Lower volume ($4.2 million), higher labor and employee-related costs ($1.7 million) and lower labor productivity ($0.5 million);

higher supply expense, including higher paint expense associated with a shift to more painted product and inflationary costs for other supplies ($2.1 million);

higher utility costs ($0.5 million);

higher freight rates ($0.7 million);

and increased selling, general and administrative ("SG&A") expenses ($0.8 million);

• The timing of the flow through under the first-in first-out method of aluminum raw material costs passed through to customers, previously acquired at higher prices in a quickly changing commodity pricing environment, resulted in a charge of $3.8 million in the third quarter of 2022 versus a benefit of $1.7 million in the third quarter of 2021.

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

First Nine Months of 2022 Results vs.

First Nine Months of 2021 Results

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

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

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

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

lower volume ($0.7 million);

higher labor and employee-related costs ($6.0 million) and lower labor productivity ($4.6 million);

higher maintenance costs ($1.4 million);

higher supply expense, including significant price increases in paint, chemicals, packaging and other supplies ($10.1 million);

higher utilities ($2.7 million);

higher freight rates ($5.2 million);

and increased SG&A expenses ($3.2 million);

• The timing of the flow through under the first-in first-out method of aluminum raw material costs passed through to customers, previously acquired at lower prices in a quickly changing commodity pricing environment, resulted in a benefit of $1.7 million in the first nine months of 2022 versus a benefit of $5.8 million in the first nine months of 2021.

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

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

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

and increased SG&A expenses ($0.8 million), partially offset by higher pricing ($6.6 million);

• The timing of the flow-through under the first-in first-out method of aluminum raw material costs passed through to customers, previously acquired at lower prices in a quickly changing commodity pricing environment, resulted in a benefit of $1.7 million in the first quarter of 2023 versus a benefit of $7.1 million in the first quarter of 2022.

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

R efer to Item 3.

1 unchanged sentence

Projected Capital Expenditures and Depreciation & Amortization

Capital expenditures for Bonnell Aluminum are projected to be $30 million in 2022, including $15 million for new enterprise resource planning and manufacturing execution systems ("ERP/MES"), $6 million for infrastructure upgrades at the facilities located in Niles, Michigan, Carthage, Tennessee and Newnan, Georgia and $3 million for other strategic projects.

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

Capital expenditures for Bonnell Aluminum are projected to be $26 million in 2023, including $11 million for the multi-year implementation of a new enterprise resource planning and manufacturing execution systems ("ERP/MES"), $6 million for infrastructure upgrades at the facilities located in Niles, Michigan, Carthage, Tennessee and Newnan, Georgia and $2 million for other strategic projects.

The ERP/MES project commenced in 2022 and is expected to cost approximately $30 million.

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

4 unchanged sentences

(Unfavorable)

% Change Nine Months Ended Favorable/

(Unfavorable)

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

2022 2021 2022 2021

(In thousands, except percentages) March 31,

Sales volume (lbs) 7,368 10,553 (30.2)%

6 unchanged sentences

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

Third Quarter 2022 Results vs.

Third Quarter 2021 Results

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

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

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

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

First Quarter 2023 Results vs.

First Quarter 2022 Results

Net sales in the first quarter of 2023 decreased 35.2% compared to the first quarter of 2022.

Sales volume decreased in both Surface Protection and overwrap films versus the first quarter of 2022.

Surface Protection sales volume in the first quarter of 2023 declined 36% versus the first quarter of 2022 but was in the range of the volume levels for the third and fourth quarters of 2022.

Surface Protection sales continue to be adversely impacted by weak market demand which began in the third quarter of last year.

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

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

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

• A $4.7 million decrease from Surface Protection:

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

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

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

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

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

First Nine Months of 2022 Results vs.

First Nine Months of 2021 Results

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

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

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

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

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

EBITDA from ongoing operations in the first quarter of 2023 decreased $5.2 million v ersus the first quarter of 2022, primarily due to:

• A $4.9 million decrease from Surface Protection:

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

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

◦ The pass-through lag associated with resin costs (benefit of $0.3 million in the first nine months of 2022 versus a charge of $1.3 million in the first nine months of 2021).

• A $0.7 million increase from overwrap films primarily related to a benefit from the pass-through lag associated with resin costs (benefit of $0.2 million in the first nine months of 2022 versus a charge of $1.3 million in the first nine months of 2021), partially offset by lower sales volume and unfavorable mix ($0.6 million).

◦ Lower contribution margin for non-transitioning products associated with a market slowdown and customer inventory corrections ($4.1 million) and for previously disclosed customer product transitions ($0.7 million), partially offset by lower SG&A and other employee-related expenses ($0.6 million);

◦ The pass-through lag associated with resin costs ($0.1 million charge in the first quarter of 2023 versus a benefit of $0.5 million in the first quarter of 2022).

• A $0.3 million decrease from overwrap films primarily due to the pass-through lag associated with resin costs (a charge of $0.1 million in the first quarter of 2023 versus a benefit of $0.3 million in the first quarter of 2022) and lower volume ($0.1 million), partially offset by lower fixed costs ($0.2 million).

R efer to Item 3.

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

Customer Product Transitions and Other Factors in Surface Protection

Customer Product Transitions in Surface Protection

The Surface Protection component of PE Films supports manufacturers of optical and other specialty substrates used in flat panel display products.

These films are primarily used by customers to protect components of displays in the manufacturing and transportation processes and then discarded.

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

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

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

The Surface Protection business is continuing to experience competitive pricing pressures, unrelated to the customer product transitions, that are expected to adversely impact pre-tax income from continuing operations as reported under GAAP and EBITDA from ongoing operations by approximately $5 million for full year 2022 versus 2021;

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

Dollar versus the local currencies of competitors in the region.

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

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

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 as reported under GAAP and EBITDA from ongoing operations during 2022 versus 2021.

Projected Capital Expenditures and Depreciation & Amortization

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(Unfavorable)

% Change Nine Months Ended Favorable/

(Unfavorable)

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

2022 2021 2022 2021

(In thousands, except percentages) March 31,

Sales volume (lbs) 19,845 26,005 (23.7)%

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

Third Quarter 2022 Results vs.

Third Quarter 2021 Results

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

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

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

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

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

First Nine Months of 2022 Results vs.

First Nine Months of 2021 Results

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

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

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

First Quarter 2023 Results vs.

First Quarter 2022 Results

Net sales in the first quarter of 2023 decreased 19.7% compared to the first quarter of 2022, primarily due to lower sales volume, partially offset by favorable product mix and higher selling prices from the pass-through of higher resin costs.

The Company believes that lower sales volume was primarily due to soft market demand, which is projected to improve from existing levels for the remainder of the year.

EBITDA from ongoing operations in the first quarter of 2023 decreased by $3.7 million versus the first quarter of 2022, primarily due to:

• Lower sales volume ($3.1 million) and higher fixed ($0.9 million) and variable ($0.6 million) costs, partially offset by favorable product mix ($0.4 million), lower raw material costs ($0.2 million), and lower SG&A expenses ($0.1 million);

• Net unfavorable foreign currency translation of Real-denominated operating costs ($0.5 million);

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

• Partially offset by lower foreign currency transaction losses ($0.1 million) in the first quarter of 2023 compared to foreign currency transaction losses ($0.9 million) in the first quarter of 2022.

Refer to Item 3.

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Corporate Expenses, Interest & Other

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

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

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

Pension expense under GAAP of $10.4 million in the first nine months of 2022 remained consistent with the first nine months of 2021.

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

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

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

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

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

Corporate expenses, net in the first three months of 2023 decreased $1.8 million compared to the first three months of 2022 primarily due to lower accruals for employee-related compensation ($0.8 million), lower professional fees associated with business development activities ($0.8 million) and lower stock-based compensation ($0.4 million).

Interest expense of $2.3 million in the first three months of 2023 increased $1.5 million compared to the first three months of 2022 due to higher average debt levels and interest rates.

Pension expense under GAAP of $3.4 million in the first three months of 2023 remained consistent with the first three months of 2022.

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 ("Credit Agreement") and made a $50 million contribution to the pension plan (the “Special Contribution”) to reduce its underfunding and as part of a program within the pension plan to hedge or fix the expected future contributions that will be needed by the Company through the settlement process.

The settlement process has been delayed because of a longer-than-expected review time 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 cash benefits on the Special Contribution of $11 million in the fourth quarter of 2022.

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

The estimated underfunding of Tredegar’s frozen defined benefit pension plan was approximately $28 million as of both March 31, 2023 and December 31, 2022.

As of December 31, 2022, the underfunding was comprised of investments at fair value of $218 million and a projected benefit obligation (“PBO”) of $246 million.

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

The Company estimates that the Special Contribution and changes to the values of pension plan assets and liabilities resulted in a decrease in the underfunding on a GAAP basis from $69 million at December 31, 2021 to approximately $10 million at September 30, 2022.

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

The ultimate underfunded amount at settlement may differ from the current amounts, depending on changes in market factors, including with respect to 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.

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

Changes in operating assets and liabilities from continuing operations from December 31, 2021 to September 30, 2022 are summarized below.

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

Changes in operating assets and liabilities from December 31, 2022 to March 31, 2023 are summarized below.

• Accounts and other receivables increased $4.6 million (5.4%).

◦ Accounts and other receivables in Aluminum Extrusions increased $7.3 million primarily due to an increase in average selling prices to cover higher operating costs, partially offset by lower sales volume.

DSO (represents trailing 12 months net sales divided by a rolling 12-month average of accounts and other receivables balances) was approximately 48.3 days for the 12 months ended September 30, 2022 and 47.6 days for the 12 months ended December 31, 2021.

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

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

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

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

• Inventories increased $25.5 million (28.8%).

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

DIO (represents trailing 12 months costs of goods sold calculated on a first-in first-out basis divided by a rolling 12-month average of inventory balances calculated on the first-in first-out basis) was approximately 48.3 days for the 12 months ended September 30, 2022 and 41.4 days for the 12 months ended December 31, 2021.

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

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

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

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

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

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

dollar relative to foreign currencies.

◦ Accounts and other receivables in Aluminum Extrusions increased $6.7 million primarily due to the pass-through of higher metal costs and relatively flat sales volume in the first quarter of 2023 versus the fourth quarter of 2022.

DSO (represents trailing 12 months net sales divided by a rolling 12-month average of accounts and other receivables balances) was approximately 48.8 days for the 12 months ended March 31, 2023 and 48.7 days for the 12 months ended December 31, 2022.

◦ Accounts and other receivables in PE Films decreased $0.2 million due to adverse market conditions resulting in unfavorable product mix, partially offset by higher sales volume in the first quarter of 2023 versus the fourth quarter of 2022.

DSO was approximately 29.1 days for the 12 months ended March 31, 2023 and 30.3 days for the 12 months ended December 31, 2022.

◦ Accounts and other receivables in Flexible Packaging Films decreased $1.9 million primarily due to lower sales volume in the first quarter of 2023 versus the fourth quarter of 2022.

DSO was approximately 40.2 days for the 12 months ended March 31, 2023 and 41.1 days for the 12 months ended December 31, 2022.

• Inventories decreased $14.1 million (11.1%).

◦ Inventories in Aluminum Extrusions decreased $4.9 million due to decreased raw material levels as a result of slowing order input and order cancellations as customers continue to report high inventory levels.

DIO (represents trailing 12 months costs of goods sold calculated on a first-in first-out basis divided by a rolling 12-month average of inventory balances calculated on the first-in first-out basis) was approximately 55.6 days for the 12 months ended March 31, 2023 and 53.6 days for the 12 months ended December 31, 2022.

◦ Inventories in PE Films decreased $1.2 million due to lower raw materials and finished goods as a result of weak market demand for Surface Protection’s products.

DIO was approximately 68.9 days for the 12 months ended March 31, 2023 and 66.8 days for the 12 months ended December 31, 2022.

◦ Inventories in Flexible Packaging Films decreased $8.0 million primarily due to lower raw material purchases and lower finished goods levels as a result of soft market demand for Flexible Packaging Films products.

approximately 119.6 days for the 12 months ended March 31, 2023 and 108.0 days for the 12 months ended December 31, 2022.

• Net property, plant and equipment increased $0.6 million primarily due to capital expenditures of $6.2 million and a $0.8 million favorable change in the value of the U.S.

dollar relative to foreign currencies, partially offset by depreciation expense of $6.3 million.

• Identifiable intangible assets, net decreased $0.5 million (4.1%) due to amortization expense.

• Deferred income tax assets decreased $3.9 million primarily due to changes in other comprehensive income and the projected utilization of foreign tax credits partially offset by the change in the deferred tax liability as a result of the implementation of new U.S.

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

Treasury and Internal Revenue Service on January 4, 2022.

• Deferred income tax assets decreased $2.2 million primarily due to changes in other comprehensive income.

See Note 9 for additional information.

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

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

DPO (represents trailing 12 months costs of goods sold calculated on a first-in first-out basis divided by a rolling 12-month average of accounts payable balances) was approximately 63.3 days for the 12 months ended September 30, 2022 and 60.1 days for the 12 months ended December 31, 2021.

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

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

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

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

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

• Accounts payable decreased $22.7 million (19.7%).

◦ Accounts payable in Aluminum Extrusions decreased $6.3 million primarily due to lower raw material purchases.

DPO (represents trailing 12 months costs of goods sold calculated on a first-in first-out basis divided by a rolling 12-month average of accounts payable balances) was approximately 62.3 days for the 12 months ended March 31, 2023 and 64.2 days for the 12 months ended December 31, 2022.

◦ Accounts payable in PE Films increased $0.7 million primarily due to higher inventory purchases in the first quarter of 2023 versus the fourth quarter of 2022.

DPO was approximately 49.5 days for the 12 months ended March 31, 2023 and 51.0 days for the 12 months ended December 31, 2022.

◦ Accounts payable in Flexible Packaging Films decreased $16.5 million primarily due to lower raw material purchases.

DPO was approximately 70.1 days for the 12 months ended March 31, 2023 and 72.4 days for the 12 months ended December 31, 2022.

Net cash used in operating activities was $9.1 million in the first three months of 2023 compared to net cash used in operating activities of $54.7 million in the first three months of 2022.

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

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

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

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

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

Net cash used in investing activities was $8.8 million in the first three months of 2023 compared to net cash used in investing activities of $5.1 million the first three months of 2022 due to higher capital expenditures ($3.9 million), partially offset by a gain realized during the first quarter of 2023 related to additional cash consideration of $0.3 million received in connection with the Company's sale of its investment interests in kaléo in December 2021 due to customary post-closing adjustments.

Net cash provided by financing activities was $13.6 million in the first three months of 2023, compared to net cash provided by financing activities of $53.8 million in the first three months of 2022.

The change in financing activities is primarily due to lower net borrowings ($40.3 million) under the Credit Agreement during the first three months of 2023 as compared to the first three months of 2022 when the Company borrowed funds and made a $50 million Special Contribution to the pension plan in February 2022.

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

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

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

At March 31, 2023, the Company had cash and cash equivalents of $15.0 million, including cash and cash equivalents held in locations outside the U.S.

of $7.3 million.

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

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

Net Capitalization and Indebtedness as of September 30, 2022

Net capitalization and indebtedness as defined under the Credit Agreement as of March 31, 2023 were as follows:

Net Capitalization and Indebtedness as of March 31, 2023

(In thousands)

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Indebtedness $ 155,000

Borrowings under the Credit Agreement bear an interest rate equal to Secured Overnight Financing Rate ("SOFR") plus a credit spread adjustment of 10 basis points ("Adjusted Term SOFR Rate") and an amount depending on the type of borrowing and commitment fees charged on the unused amount under the Credit Agreement at various Total Net Leverage Ratio levels as follows:

Borrowings under the Credit Agreement bear an interest rate equal to 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)

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>3.5x 200.0 40

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

At March 31, 2023, $155.0 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 was based on LIBOR plus an applicable credit spread.

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• 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 (a) Credit EBITDA to (b) interest expense.

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

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

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

Total debt outstanding was $124.0 million and $73.0 million as of September 30, 2022 and December 31, 2021, respectively.

At March 31, 2023, based upon the restrictive covenants within the Credit Agreement, available credit under the Credit Agreement was approximately $113 million.

Total debt outstanding was $155.0 million and $137.0 million as of March 31, 2023 and December 31, 2022, respectively.

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

The computations of Credit EBITDA, the Total Net Leverage Ratio and Interest Coverage Ratio as defined in the Credit Agreement are presented below.

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

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

Computation of Credit EBITDA for the twelve months ended March 31, 2023 (In Thousands):

Net income (loss) $ 11,024

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Credit EBITDA $ 67,068

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

Computations of Total Net Leverage Ratio and Interest Coverage Ratio at March 31, 2023:

Total Net Leverage Ratio 2.09x

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Minimum Interest Coverage Ratio permitted 3.00x

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

Tredegar was in compliance with all of its debt covenants as of March 31, 2023.

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

1 unchanged sentence

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis