What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-09 compared with 2023-05-08 · 269 added, 134 removed, 235 unchanged (63% of the section changed)

25 unchanged sentences

• failure to continue to attract, develop and retain certain key officers or employees;

• noncompliance with any of the financial and other restrictive covenants in the Company's revolving credit facility;

• the impact of public health epidemics on employees, production and the global economy, such as the COVID-19 pandemic;

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

and the other factors discussed in the reports Tredegar files with or furnishes to the Securities and Exchange Commission (the “SEC”) from time to time, including the risks and important factors set forth in additional detail in Part I, Item 1A of Tredegar’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).

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

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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.

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.

Second quarter 2023 net income (loss) was $(18.9) million ($(0.56) per diluted share) compared with net income (loss) of $14.9 million ($0.44 per diluted share) in the second quarter of 2022.

Second Quarter Financial Results Highlights

• EBITDA from ongoing operations for Aluminum Extrusions was $10.2 million in the second quarter of 2023 versus $21.9 million in the second quarter of last year.

EBITDA from ongoing operations during the last four quarters has been weak, in a range of $8.9 to $14.6 million.

◦ Sales volume of 35.5 million pounds in the second quarter of 2023 was relatively consistent with the first quarter of 2023 and the fourth quarter of 2022 but declined significantly versus 49.0 million pounds in the second quarter of last year.

◦ Open orders at the end of the second quarter of 2023 were 20 million pounds (versus 27 million pounds at the end of the first quarter of 2023), which is below the quarterly range of 21 to 27 million pounds in 2019 before pandemic-related disruptions that resulted in excessive open orders, which peaked in the first quarter of 2022 at approximately 100 million pounds.

◦ While open orders have declined over the past year, Aluminum Extrusions has realized three sequential quarters of net booking growth.

• EBITDA from ongoing operations for PE Films was $0.8 million in the second quarter of 2023 versus $7.1 million in the second quarter of 2022 as very weak conditions persisted in the consumer electronics market.

EBITDA from ongoing operations during the last four quarters has been low with a range of negative $2.6 million to positive $1.8 million.

• EBITDA from ongoing operations for Flexible Packaging Films was $0.2 million during the second quarter of 2023 versus $7.6 million in the second quarter of 2022 primarily due to lower sales volume, which the Company believes is mainly due to customer inventory corrections, lower margins and unfavorable cost variances.

The Company recognized a net loss for the second quarter of 2023, with all business segments and their respective markets experiencing depressed conditions, which the Company believes can be traced to the residual impact of the pandemic.

The timing of recovery for our businesses remains uncertain and has been slow in occurring.

Debt, net of cash, declined during the quarter as a result of improvements in working capital, with further improvements anticipated by year end.

Other losses related to asset impairments and costs associated with exit and disposal activities were not material for the three and six months ended June 30, 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

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.

Second Quarter of 2023 Compared with the Second Quarter of 2022

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

(In thousands)

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

Net income (loss) for the three months ended June 30, 2022

Income tax expense (benefit) 5,556

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

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

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

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Selling, general and administrative 1,973

Goodwill impairment (15,413)

Income (loss) before income taxes for the three months ended June 30, 2023

Income tax expense (benefit) (3,331)

Net income (loss) for the three months ended June 30, 2023

Sales in the second quarter of 2023 decreased by $96.2 million compared with the second quarter of 2022.

Net sales (sales less freight) in Aluminum Extrusions decreased $68.5 million, 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.

Net sales in PE Films decreased $15.5 million, primarily due to continuing weak market demand and unfavorable product mix.

Net sales in Flexible Packaging Films decreased $8.4 million, primarily due to lower sales volume, lower selling prices from the pass-through of lower resin costs and unfavorable product mix.

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

Other income (expense), net was $(20) thousand in the second quarter of 2023 compared to other income (expense), net of $1.3 million in the second quarter of 2022.

The change in other income (expense), net is primarily due to cash consideration of $1.4 million received in May 2022 related to the customary post-closing adjustments on the sale of the investment in kaleo, Inc.

("kaléo"), 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 9.9% in the second quarter of 2023 compared to 16.5% in the second 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, lower pricing and higher supply expense associated with inflationary costs, partially offset by lower utility costs and lower 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 of $1.3 million in the second quarter of 2023 versus a charge of $1.6 million in the second quarter of 2022.

The gross profit margin in PE Films decreased primarily due to a lower Surface Protection contribution margin associated with a market slowdown, customer inventory corrections and the pass-through lag associated with resin costs, partially offset by overwrap films favorable pricing and mix.

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

As a percentage of sales, selling, general and administrative (“SG&A”) and research and development ("R&D") expenses were 10.3% in the second quarter of 2023 compared with 7.5% in the second quarter of 2022.

While second 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 and lower stock-based compensation, partially offset by higher professional fees associated with business development activities.

In the second quarter of 2023, a non-cash partial goodwill impairment of $15.4 million was recognized, see the PE Films section in Segment Operations Review below for more information.

The effective tax rate used to compute income taxes for the second quarter of 2023 was 15.0%, compared to 27.3% in the second quarter of 2022.

The change in the effective tax rate is primarily due to a pre-tax loss in the three months ending June 30, 2023 versus pre-tax income in the three months ending June 30, 2022, lower Brazil tax incentives and a discrete charge in the second quarter of 2023 for a Brazil tax law change.

See Note 9 for additional information.

Pre-tax gains and losses associated with plant shutdowns, asset impairments, restructurings and other items for the second 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 June 30,

(In millions) 2023 2022

Aluminum Extrusions:

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

Storm damage to the Newnan, Georgia plant 2

Total for Aluminum Extrusions $ (0.2) $ —

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

COVID-19-related expenses 1

Goodwill impairment 15.4 —

Total for PE Films $ 15.4 $ 0.1

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

Other restructuring costs - severance $ — $ 0.1

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

Professional fees associated with business development activities 2

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

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

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

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

Total for Corporate $ 5.6 $ 4.3

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.

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

Average debt outstanding and interest rates were as follows:

Three Months Ended June 30,

(In millions, except percentages) 2023 2022

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

Average outstanding debt balance $ 150.0 $ 109.9

Average interest rate 6.9 % 2.4 %

First Six Months of 2023 Compared with the First Six Months of 2022

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

(In thousands)

Net income (loss) for the six months ended June 30, 2022

Income tax expense (benefit) 6,334

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

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

Sales (141,640)

Other income (expense), net (781)

Total (142,421)

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

Cost of goods sold 88,556

Freight 5,875

Selling, general and administrative 4,249

Goodwill impairment (15,413)

Other (1,406)

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

Income (loss) before income taxes for the six months ended June 30, 2023

Income tax expense (benefit) (3,000)

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.

Net income (loss) for the six months ended June 30, 2023

Sales in the first six months of 2023 decreased by $141.6 million compared with the first six months of 2022.

Net sales (sales less freight) in Aluminum Extrusions decreased $93.2 million, 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.

Net sales in PE Films decreased $26.5 million, primarily due to continuing weak market demand and unfavorable product mix.

Net sales in Flexible Packaging Films decreased $16.1 million, primarily due to lower sales volume and lower selling prices from the pass-through of lower resin costs, partially offset by favorable product mix.

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

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.

Other income (expense), net was $0.3 million in the first six months of 2023 compared to other income (expense), net of $1.0 million in the first six months of 2022.

The change in other income (expense), net is primarily due to cash consideration of $0.3 million received in January 2023 compared to $1.4 million received in May 2022 related to the customary post-closing adjustments on the sale of the investment in kaléo, 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 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.

Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales (gross profit margin) was 11.7% in the first six months of 2023 compared to 17.7% in the first six months 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 and higher supply expense, including higher paint expense associated with a shift to more painted product in the first quarter of 2023 and inflationary costs for other supplies, partially offset by higher pricing and lower utility costs.

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 $0.4 million in the first six months of 2023 versus a benefit of $5.5 million in the first six months of 2022.

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

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

As a percentage of sales, SG&A and R&D expenses were 10.4% in the first six months of 2023, compared with 8.5% in the first six months of 2022.

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

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

In the first half of 2023, a non-cash partial goodwill impairment of $15.4 million was recognized, see the PE Films section in Segment Operations Review below for more information.

The effective tax rate used to compute income taxes for the first six months of 2023 was 13.1%, compared to 16.9% in the first six months of 2022.

The change in the effective tax rate is primarily due to a pre-tax loss in first six months of 2023 versus pre-tax income in first six months of 2022, lower Brazil tax incentives, a discrete charge in the second quarter of 2023 for a Brazil tax law change 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.

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See Note 9 for additional information.

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,

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

Six Months Ended June 30,

(In millions) 2023 2022

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COVID-19-related expenses 1

Goodwill Impairment 15.4 —

Total for PE Films $ 15.4 $ 0.2

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Total for Flexible Packaging Films $ 0.1 $ —

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

Other restructuring costs - severance $ — $ 0.1

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

1 unchanged sentence

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

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

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

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Average debt outstanding and interest rates were as follows:

Three Months Ended March 31,

Six Months Ended June 30,

(In millions, except percentages) 2023 2022

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Average interest rate 6.6 % 2.1 %

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

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

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

Segment Operations Review

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(Unfavorable)

(In thousands, except percentages) March 31,

% Change Six Months Ended Favorable/

(Unfavorable)

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

2023 2022 2023 2022

Sales volume (lbs) 35,492 48,960 (27.5)% 73,054 91,970 (20.6)%

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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.

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 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.

Second Quarter 2023 Results vs.

Second Quarter 2022 Results

Net sales (sales less freight) in the second quarter of 2023 decreased 36.0% versus the second 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 second quarter of 2023 declined 27.5% versus the second quarter of 2022.

No nresidential B&C sales volume, which represented 53% of 2022 volume, declined 23.8% in the second quarter of 2023 versus the second quarter of 2022.

Sales volume in the specialty market, which represented 29% of total volume in 2022, decreased 32.7% in the second quarter of 2023 versus the second quarter of 2022.

Sales volume in the automotive market, which represented 8% of total volume in 2022, decreased 7.8% in the second quarter of 2023 versus the second quarter of 2022.

Beginning in the third quarter of 2022, the Company observed slowing order input and order cancellations as customers continued to report high inventory levels, which carried into 2023.

Open orders at the end of the second quarter of 2023 were 20 million pounds (versus 27 million pounds at the end of the first quarter of 2023 and 86 million pounds at the end of the second quarter 2022).

This level is below the quarterly range of 21 to 27 million pounds in 2019 before pandemic-related disruptions that resulted in long lead times driving a peak in open orders of approximately 100 million pounds during the first quarter of 2022.

In addition, data indicates that aluminum extrusion imports have increased significantly in recent years, and some of Bonnell Aluminum’s customers may have sourced, and continue to source, aluminum extrusions from producers outside of the United States.

The Company is closely monitoring the situation and is prepared to work with the U.S.

Government to ensure a fairly traded market.

Nonetheless, Bonnell Aluminum has experienced three sequential quarters of net booking growth.

Net bookings were 16.9, 19.0, 20.4 and 28.2 million pounds in the third quarter of 2022 through the second quarter of 2023, respectively.

EBITDA from ongoing operations in the second quarter of 2023 decreased $11.7 million or 53.3% versus the second quarter of 2022 primarily due to:

• Lower volume ($11.9 million), higher labor and employee-related costs ($0.7 million), lower labor productivity ($0.5 million), lower pricing ($1.0 million) and higher supply expense associated with inflationary costs ($0.8 million), partially offset by lower utility costs ($1.0 million), lower freight rates ($0.3 million) and lower SG&A expenses ($1.6 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 higher prices in a quickly changing commodity pricing environment, resulted in a charge of $1.3 million in the second quarter of 2023 versus a charge of $1.6 million in the second quarter of 2022.

First Six Months of 2023 Results v.

First Six Months of 2022 Results

Net sales in the first six months of 2023 decreased 26.8% versus the first six months 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 six months of 2023 decreased by 20.6% versus t he first six months of 2022.

EBITDA from ongoing operations in the first six months of 2023 decreased $21.0 million or 45.7% in comparis on to the first six months of 2022 prim arily due to:

• Lower volume ($16.1 million), higher labor and employee-related costs ($2.4 million), lower labor productivity ($1.0 million) and higher supply expense, including higher paint expense associated with a shift to more painted product in

the first six months of 2023, and inflationary costs for other supplies ($3.0 million), partially offset by higher pricing ($5.6 million), lower utility costs ($0.6 million) and lower 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 lower prices in a quickly changing commodity pricing environment, resulted in a benefit of $0.4 million in the first six months of 2023 versus a benefit of $5.5 million in the first six months of 2022.

R efer to Item 3.

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Projected Capital Expenditures and Depreciation & Amortization

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.

Capital expenditures for Bonnell Aluminum are projected to be $19 million in 2023 versus the previously disclosed projection of $26 million.

The Company has implemented stringent spending measures to control its financial leverage (see “Net Debt, Financial Leverage and Debt Covenants” section for more information).

In this regard, Bonnell Aluminum has reduced projected capital expenditures in the second half of 2023 to $5 million to mainly support continuity of current operations versus broader spending of $14 million during the first half of the year.

The most significant reduction relates to the multi-year implementation of new enterprise resource planning and manufacturing execution systems ("ERP/MES").

This project is being reorganized with an extended implementation period that increases the utilization of existing dedicated internal resources over a longer period in place of more costly external consultants.

As a result, the earliest “go-live” date for the new ERP/MES is likely in 2025.

The ERP/MES project commenced in 2022, with spending to-date of approximately $21 million.

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

3 unchanged sentences

(Unfavorable)

(In thousands, except percentages) March 31,

% Change Six Months Ended Favorable/

(Unfavorable)

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

2023 2022 2023 2022

Sales volume (lbs) 6,245 9,639 (35.2)% 13,613 20,192 (32.6)%

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.

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.

Second Quarter 2023 Results vs.

Second Quarter 2022 Results

Net sales in the second quarter of 2023 decreased 49.3% compared to the second quarter of 2022.

Sales volume in the second quarter of 2023 decreased in both Surface Protection and overwrap films versus the second quarter of 2022.

Surface Protection sales volume in the second quarter of 2023 declined 54.2% versus the second quarter of 2022 and 26.9% versus the first quarter of 2023.

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

Manufacturers in the supply chain are experiencing reduced capacity utilization and inventory corrections.

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:

The timing of a recovery in Surface Protection remains uncertain.

EBITDA from ongoing operations in the second quarter of 2023 decreased $6.3 million v ersus the second quarter of 2022, primarily due to:

• A $7.7 million decrease from Surface Protection:

◦ 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).

◦ Lower contribution margin associated with a market slowdown and customer inventory corrections ($8.6 million), partially offset by lower SG&A and operating efficiencies ($0.7 million);

◦ The pass-through lag associated with resin costs ($0.1 million charge in the second quarter of 2023 versus a charge of $0.3 million in the second quarter of 2022).

• A $1.4 million increase from overwrap films primarily due to cost improvements.

First Six Months of 2023 Results v.

First Six Months of 2022 Results

Net sale s in the first six months of 2023 decreased 42.3% compared to the first six months of 2022 primarily due to a decrease in sales volume in Surface Protection, as a result of the factors noted above.

Sales volume declined 45.4% in Surface Protection in the first six months of 2023.

EBITDA from ongoing operations in the first six months of 2023 decreased by $11.4 million versus the first six months of 2022, primarily due to:

• A $12.6 million decrease from Surface Protection:

◦ Lower contribution margin for non-transitioning products associated with a market slowdown and customer inventory corrections ($12.7 million) and for previously disclosed customer product transitions ($0.7 million), partially offset by lower SG&A and other employee-related expenses and operating efficiencies ($1.2 million);

◦ The pass-through lag associated with resin costs ($0.2 million charge in the second quarter of 2023 versus a benefit of $0.2 million in the second quarter of 2022).

• A $1.1 million increase from overwrap films primarily due to cost improvements ($1.5 million), partially offset by the pass-through lag associated with resin costs (a charge of $0.2 million in the first six months of 2023 versus a benefit of $0.2 million in the first six months of 2022).

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 in Surface Protection

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

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

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

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

Closure of PE Films Technical Center

On August 3, 2023, the Company adopted a plan to close the PE Films technical center in Richmond, VA and reduce its efforts to develop and sell films supporting the semiconductor market.

Future research & development activities for PE Films will be performed at the facility in Pottsville, PA.

PE Films continues to have new business opportunities primarily relating to surface protection films that protect components of flat panel and flexible displays.

The Company anticipates all activities to cease at the PE Films technical center in Richmond, VA, by the end of 2023.

The Company expects to recognize cash costs associated with exit activities of $1.8 million for:

(i) severance and related costs ($0.9 million), (ii) vacating the facility lease ($0.6 million payable through June 2025), and (iii) building closure costs ($0.3 million).

In addition, the Company expects non-cash asset write-offs and accelerated depreciation of up to $4.5 million.

Net annual cash savings of $3.4 million are anticipated, beginning in the fourth quarter of 2023.

Goodwill Impairment in Surface Protection

Manufacturers in the supply chain for consumer electronics continue to experience reduced capacity utilization and inventory corrections.

In light of the continued uncertainty about the timing of a recovery for this market and the expected adverse future impact to the Surface Protection business, the Company performed a goodwill impairment analysis of the Surface Protection component of PE Films using projections that contemplate the expected market recovery and business conditions.

The analysis concluded that the fair value of Surface Protection was less than its carrying value, thus a non-cash partial goodwill impairment of $15.4 million ($11.9 million after deferred income tax benefits) was recognized during the second quarter of 2023.

Projected Capital Expenditures and Depreciation & Amortization

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(Unfavorable)

(In thousands, except percentages) March 31,

% Change Six Months Ended Favorable/

(Unfavorable)

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

2023 2022 2023 2022

Sales volume (lbs) 23,724 27,315 (13.1)% 43,569 53,321 (18.3)%

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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.

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);

Second Quarter 2023 Results vs.

Second Quarter 2022 Results

Net sales in the second quarter of 2023 decreased 20.1% compared to the second quarter of 2022 primarily due to lower sales volume, lower selling prices from the pass-through of lower resin costs and unfavorable product mix.

The Company believes that lower sales volume was primarily due to customer inventory corrections.

While sales volume in the second quarter of 2023 was still below expected normalized levels, it improved 20% over the first quarter of the year.

EBITDA from ongoing operations in the second quarter of 2023 decreased $7.4 million versus the second quarter of 2022, primarily due to:

• Lower selling prices from the pass-through of lower resin costs and margin pressures ($2.9 million), lower sales volume ($1.9 million), higher fixed costs ($1.1 million, primarily due to under absorption from lower production volumes), higher variable costs ($1.8 million, including higher costs resulting from quality issues and other costs associated with the shutdown of production lines to adjust production volumes to sales levels) and unfavorable product mix ($0.6 million), partially offset by lower raw material costs ($1.3 million) and lower SG&A expenses ($0.1 million);

• Foreign currency transaction losses ($0.2 million) in the second quarter of 2023 compared to foreign currency transaction gains ($0.6 million) in the second quarter of 2022;

• Net favorable foreign currency translation of Real-denominated operating costs ($0.2 million).

First Six Months of 2023 Results v.

First Six Months of 2022 Results

Net sales in the first six months of 2023 decreased 19.9% compared to the first six months of 2022 primarily due to lower sales volume and lower selling prices from the pass-through of lower resin costs, partially offset by favorable product mix.

EBITDA from ongoing operations in the first six months of 2023 decreased $11.1 million versus the first six months of 2022 primarily due to:

• Lower sales volume ($4.9 million), lower selling prices from the pass-through of lower resin costs and margin pressures ($3.6 million), higher fixed costs ($2.1 million, primarily due to under absorption from lower production volumes), higher variable costs ($0.7 million, including higher costs resulting from quality issues) and unfavorable product mix ($1.3 million), partially offset by lower raw material costs ($1.6 million) and lower SG&A expenses ($0.1 million);

• Net unfavorable foreign currency translation of Real-denominated operating costs ($0.1 million);

• 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.

• Foreign currency transaction losses ($0.2 million) in the second quarter of 2023 compared to foreign currency transaction losses ($0.3 million) in the second quarter of 2022.

Refer to Item 3.

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Corporate Expenses, Interest & Other

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.

Corporate expenses, net in the first six months of 2023 decreased $2.0 million compared to the first six months of 2022 primarily due to lower accruals for employee-related compensation ($2.1 million) and lower stock-based compensation ($0.4 million), partially offset by higher professional fees associated with business development activities ($0.6 million).

Interest expense of $4.7 million in the first six months of 2023 increased $2.7 million compared to the first six months of 2022 due to higher average debt levels and interest rates.

Pension expense under GAAP of $6.8 million in the first six months of 2023 remained consistent with the first six 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.

The funds borrowed for the Special Contribution were effectively made available with proceeds received in December 2021 from the sale of the Company’s investment in kaléo.

In addition, the Company realized income tax cash benefits on the Special Contribution of $11 million in the fourth quarter of 2022.

During the second quarter of 2023, the Company received a favorable IRS determination letter, and government agencies and the Company expect the completion of the settlement process on or about October 31, 2023.

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

The estimated underfunding of Tredegar’s frozen defined benefit pension plan was approximately $30 million at June 30, 2023.

As of December 31, 2022, the estimated underfunding of $28 million 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.

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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 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 $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.

Changes in operating assets and liabilities from December 31, 2022 to June 30, 2023 are summarized below.

• Accounts and other receivables decreased $5.4 million (6.4%).

◦ Accounts and other receivables in Aluminum Extrusions decreased $6.8 million primarily due to lower sales volume and the pass-through of lower metal costs.

DSO (represents trailing 12 months net sales divided by a rolling 12-month average of accounts and other receivables balances) was approximately 48.9 days for the 12 months ended June 30, 2023 and 48.7 days for the 12 months ended December 31, 2022.

◦ Accounts and other receivables in PE Films remained relatively flat.

DSO was approximately 28.8 days for the 12 months ended June 30, 2023, which was lower compared to 30.3 days for the 12 months ended December 31, 2022 due to shorter customer repayment terms associated with sales of lower margin product during the second quarter of 2023.

◦ Accounts and other receivables in Flexible Packaging Films increased $1.0 million primarily due to sales to customers in 2023 that contain unfavorable terms.

DSO was approximately 39.0 days for the 12 months ended June 30, 2023 and 41.1 days for the 12 months ended December 31, 2022.

• Inventories decreased $41.1 million (32.2%).

◦ Inventories in Aluminum Extrusions decreased $23.9 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.

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 57.5 days for the 12 months ended June 30, 2023 and 53.6 days for the 12 months ended December 31, 2022.

◦ Inventories in PE Films decreased $2.3 million due to lower raw materials and finished goods for overwrap films.

DIO was approximately 68.3 days for the 12 months ended June 30, 2023 and 66.8 days for the 12 months ended December 31, 2022.

◦ Inventories in Flexible Packaging Films decreased $14.8 million primarily due to lower raw material purchases and lower finished goods levels as a result of lower sales volume.

DIO was approximately 122.8 days for the 12 months ended June 30, 2023 and 108.0 days for the 12 months ended December 31, 2022.

• Net property, plant and equipment increased $3.5 million primarily due to capital expenditures of $14.5 million and a $1.7 million favorable change in the value of the U.S.

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• Identifiable intangible assets, net decreased $0.9 million (7.7%) due to amortization expense.

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

• Deferred income tax assets increased $0.7 million primarily due to changes in other comprehensive income, increase in net operational losses, and a decrease in the deferred tax liability related to the goodwill impairment.

See Note 9 for additional information.

• Accounts payable decreased $32.6 million (28.4%).

◦ 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 Aluminum Extrusions decreased $21.2 million primarily due to lower raw material purchases and favorable vendor terms.

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 56.8 days for the 12 months ended June 30, 2023 and 64.2 days for the 12 months ended December 31, 2022.

◦ Accounts payable in PE Films remained relatively flat.

DPO was approximately 43.9 days for the 12 months ended June 30, 2023 and 51.0 days for the 12 months ended December 31, 2022.

◦ Accounts payable in Flexible Packaging Films decreased $11.4 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 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.

DPO was approximately 64.3 days for the 12 months ended June 30, 2023 and 72.4 days for the 12 months ended December 31, 2022.

Net cash provided by operating activities was $22.7 million in the first six months of 2023 compared to net cash used in operating activities of $9.4 million in the first six months of 2022.

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

Net cash used in investing activities was $15.6 million in the first six months of 2023 compared to net cash used in investing activities of $12.1 million the first six months of 2022.

The increase was due to higher capital expenditures ($2.4 million), partially offset by cash consideration of $0.3 million received in January 2023 compared to $1.4 million received in the May 2022 related to the customary post-closing adjustments on the sale of the investment in kaléo, which was sold in December 2021.

Net cash used in financing activities was $4.9 million in the first six months of 2023, compared to net cash provided by financing activities of $18.7 million in the first six months of 2022.

The change in financing activities was primarily due to

lower net borrowings ($24.5 million) under the Credit Agreement during the first six months of 2023 as compared to the first six months of 2022 when the Company borrowed funds and made a $50 million Special Contribution to the pension plan in February 2022 and lower deferred financing costs ($1.2 million).

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 and debt repayments 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 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.

At June 30, 2023, the Company had cash and cash equivalents of $21.2 million, including cash and cash equivalents held in locations outside the U.S.

of $13.9 million.

On June 29, 2022, Tredegar entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”) that replaced its existing $375 million five-year, secured revolving credit facility that was due to expire on June 28, 2024.

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

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

Net Capitalization and Indebtedness as of March 31, 2023

As of June 30, 2023, Tredegar had a five-year, revolving, secured credit facility that permits aggregate borrowings of $375 million and matures on June 29, 2027.

Net capitalization and indebtedness as defined under the Credit Agreement as of June 30, 2023 were as follows:

Net Capitalization and Indebtedness as of June 30, 2023

(In thousands)

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>3.5x 200.0 40

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.

The primary restrictive covenants in the Credit Agreement include:

At June 30, 2023, $141.0 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 175.0 basis points.

The primary financial restrictive covenants in the Credit Agreement include:

• Total Net Leverage Ratio of 4.00x;

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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 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.

At June 30, 2023, based upon the restrictive covenants within the Credit Agreement, available credit under the Credit Agreement was approximately $33 million.

Total debt outstanding was $141.0 million and $137.0 million as of June 30, 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 March 31, 2023

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

Computation of Credit EBITDA for the twelve months ended June 30, 2023 (In Thousands):

Net income (loss) $ (22,772)

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Credit EBITDA $ 43,484

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

Computations of Total Net Leverage Ratio and Interest Coverage Ratio at June 30, 2023:

Total Net Leverage Ratio 2.76x

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Minimum Interest Coverage Ratio permitted 3.00x

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

The Company had Credit EBITDA and a Total Net Leverage Ratio of $43.5 million and 2.76x, respectively, at June 30, 2023, which had significantly deteriorated from the Credit EBITDA and Total Net Leverage Ratio at December 31, 2022 of $84.4 million and 1.39x, respectively.

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

Renegotiation of the covenant through an amendment to the Credit Agreement could effectively cure the noncompliance, but could have an effect on its financial condition or liquidity depending upon how the covenant is renegotiated.

In addition, the Company’s projections indicate further deterioration of the Total Net Leverage Ratio without paying dividends to between 4.0x and 5.0x through the quarter ending March 31, 2024.

Subsequent to June 30, 2023, the Company amended the Credit Agreement.

To reduce the risk of potential violations of the primary financial restrictive covenants in the Credit Agreement while the Company's businesses and markets are experiencing a downturn, the Company (i) suspended its regular quarterly dividend (which had an annual cash outlay of approximately $17.7 million) and (ii) amended the Credit Agreement, effective August 3, 2023, to:

Change the fiscal quarter maximum Total Net Leverage Ratio covenant from 4.0x to:

(i) 5.0x for the quarters ending September 30, 2023 through March 31, 2024, (ii) 4.75x for the quarter ending June 30, 2024, (iii) 4.25 for the quarter ending September 30, 2024, and (iv) 4.0x for the quarter ending December 31, 2024 and thereafter.

Change the fiscal quarter minimum Interest Coverage Ratio covenant from 3.0x to:

(i) 2.50x for the quarters ending September 30, 2023 through June 30, 2024, (ii) 2.75x for the quarter ending September 30, 2024, and (iii) 3.0x for the quarter ending December 31, 2024 and thereafter.

Reduce the maximum borrowing availability from $375 million to $200 million.

Increase the drawn spread by 25 basis points across all levels of the interest rate pricing grid, beginning the quarter ending September 30, 2023.

Amend the restricted payments covenant to prohibit dividends and share repurchases during fiscal quarters ending September 30, 2023 through December 31, 2024.

To further decrease the risk of a debt covenant violation during a severe cyclical downturn, the Company is investigating the replacement of the existing EBITDA-based credit facility by the end of 2023 with other financing alternatives, including borrowings that would be permitted based on the level of secured receivables, inventories and machinery and equipment and sale and leaseback of existing Company-owned property.

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