What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-09 · 262 added, 227 removed, 277 unchanged (64% of the section changed)

18 unchanged sentences

• impact of fluctuations in foreign exchange rates;

• 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;

5 unchanged sentences

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

• the anticipated amendment to the Credit Agreement to implement the Company’s transition to a senior secured asset-based revolving credit facility has not been finalized and remains subject to satisfactory documentation, may not be completed by the end of 2023;

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

3 unchanged sentences

and other countries;

• inability to successfully complete strategic dispositions, including the Contingent Terphane Sale, failure to realize the expected benefits of such dispositions and assumption of unanticipated risks in such dispositions;

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

1 unchanged sentence

• 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”) and Part II, Item 1A of this Form 10-Q.

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

19 unchanged sentences

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.

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.

Third quarter 2023 net income (loss) was $(50.4) million ($(1.47) per diluted share) compared with net income (loss) of $1.0 million ($0.03 per diluted share) in the third quarter of 2022.

Third Quarter Financial Results Highlights

• EBITDA from ongoing operations for Aluminum Extrusions was $5.1 million in the third quarter of 2023 versus $12.1 million in the third quarter of last year due to sluggish market conditions.

EBITDA from ongoing operations during the last four quarters has been weak, in a range of $5.1 million to $14.6 million.

◦ Sales volume of 32.5 million pounds in the third quarter of 2023 declined significantly versus 45.5 million pounds in the third quarter of last year.

◦ Open orders at the end of the third quarter of 2023 were approximately 17 million pounds (versus 20 million pounds at the end of the second 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.

• EBITDA from ongoing operations for PE Films was $4.0 million in the third quarter of 2023 versus $0.4 million in the third quarter of 2022.

EBITDA from ongoing operations during the last four quarters has been low with a range of negative $2.6 million to positive $4.0 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.

• EBITDA from ongoing operations for Flexible Packaging Films (also referred to as "Terphane") was $0.5 million during the third quarter of 2023 versus $7.8 million in the third quarter of 2022 primarily due to lower sales volume and lower margins that the Company believes were driven by customer inventory corrections earlier in the year and now are being driven by global excess capacity and competition in Brazil from imports.

See the Status of Current Corporate Strategic Initiatives in Results of Operations below for information on the planned sale of Terphane.

The Company recognized a net loss for the third quarter of 2023, with all business segments continuing to suffer from severe down cycles in their respective markets, which the Company believes can be traced to the residual impact of the pandemic.

The timing of recovery for our businesses remains uncertain.

The Company has made progress in corporate strategic initiatives, which include:

entering a definitive agreement to sell Terphane, as announced on September 1, 2023;

partial pension plan obligation settlement, with the final settlement expected to be complete in November 2023;

and taking steps to restructure its revolving credit facility by investigating asset based revolving credit facilities.

See the Status of Current Corporate Strategic Initiatives in Results of Operations below.

For information related to other losses related to asset impairments and costs associated with exit and disposal activities for the three and nine months ended September 30, 2023 and 2022, see Note 1.

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

Results of Operations

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.

Third Quarter of 2023 Compared with the Third Quarter of 2022

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

(In thousands)

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

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

Income tax expense (benefit) 1,125

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

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

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

6 unchanged sentences

Selling, general and administrative (2,332)

Pension settlement loss (25,612)

Goodwill impairment (19,478)

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

Other (4,748)

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

Income tax expense (benefit) (13,307)

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.

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

Sales in the third quarter of 2023 decreased by $72.3 million compared with the third quarter of 2022.

Net sales (sales less freight) in Aluminum Extrusions decreased $52.2 million, primarily due to lower sales volume and the pass-through of lower metal costs.

Net sales in PE Films was relatively flat, primarily due unfavorable product mix, offset by increased volume.

Net sales in Flexible Packaging Films decreased $17.2 million, primarily due to lower sales volume and lower selling prices that the Company believes are from excess offers in the market, driven by excess global capacity and competition in Brazil from imports, and the pass-through of lower resin costs.

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.

Other income (expense), net for the third quarter of 2023 remained consistent with the third quarter of 2022.

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.

Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales (gross profit margin) was 9.0% in the third quarter of 2023 compared to 11.9% in the third quarter of 2022.

The gross profit margin in Aluminum Extrusions decreased primarily due to lower sales volume, higher labor and employee-related costs, 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 $1.2 million in the third quarter of 2023 versus a charge of $3.8 million in the third quarter of 2022.

The gross profit margin in PE Films increased due to a higher Surface Protection contribution margin associated with favorable pricing and operating efficiencies and cost improvements associated with overwrap films.

The gross profit margin in Flexible Packaging Films decreased primarily due to lower selling prices and lower sales volume, partially offset by lower raw material costs and lower fixed costs.

As a percentage of sales, selling, general and administrative (“SG&A”) and research and development ("R&D") expenses were 13.3% in the third quarter of 2023 compared with 8.6% in the third quarter of 2022.

While third quarter SG&A expenses and sales increased year-over-year, R&D expenses decreased due to lower R&D spend as a result of the PE Films technical center closure.

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

During the third quarter of 2023, the Company remeasured the pension plan, which resulted in a pre-tax pension settlement loss in the condensed consolidated results of operation of $25.6 million.

The remeasurement of the pension benefit obligation and plan assets was triggered by $64.5 million of lump sum distributions from the pension plan assets which exceeded the pension plan's service and interest cost.

See the Status of Current Corporate Strategic Initiatives below for more information.

In the third quarter of 2023, a non-cash partial goodwill impairment of $19.5 million was recognized, see the PE Films section in Segment Operations Review below for more information.

Other expenses increased to $4.7 million during the third quarter of 2023 due to the closure of the PE Films technical center in Richmond, Virginia and higher interest expense due to higher average debt levels and interest rates.

See Note 1 and Note 12 for additional information.

The effective tax rate used to compute income taxes for the third quarter of 2023 was 20.9%, compared to 52.6% in the third quarter of 2022.

The change in the effective tax rate is primarily due to a pre-tax loss in the three months ending September 30, 2023 versus pre-tax income in the three months ending September 30, 2022, and tax benefits related to the goodwill impairment, the pension settlement loss, and the treatment of Brazil income tax as creditable in the nine months ended September 30, 2023.

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,

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

(In millions) 2023 2022

Aluminum Extrusions:

(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:

Consulting expenses for ERP/MES project 1

Storm damage to the Newnan, Georgia plant 1

Total for Aluminum Extrusions $ 1.4 $ —

(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:

Write-down of Richmond, Virginia Technical Center assets 3

Richmond, Virginia Technical Center closure expenses 3

Other restructuring costs - severance 0.8 0.5

Goodwill impairment 19.5 —

Total for PE Films $ 24.0 $ 0.5

(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 1

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 1

Net periodic benefit cost for the frozen defined benefit pension plan in process of termination 2

Pension settlement loss 2

Total for Corporate $ 31.8 $ 4.2

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.

See “Status of Current Corporate Strategic Initiatives” below and Note 4 for additional information.

For more information, see "PE Films" section below.

Average debt outstanding and interest rates were as follows:

Three Months Ended June 30,

Three Months Ended September 30,

(In millions, except percentages) 2023 2022

2 unchanged sentences

Average interest rate 7.4 % 3.8 %

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.

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

The following table presents a bridge of consolidated net income (loss) from the first nine months of 2022 to the first nine 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

Net income (loss) for the nine months ended September 30, 2022

Income tax expense (benefit) 7,460

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

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

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

6 unchanged sentences

Selling, general and administrative 1,916

Pension settlement loss (25,612)

Goodwill impairment (34,891)

Other (6,151)

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

Income (loss) before income taxes for the nine months ended September 30, 2023

Income tax expense (benefit) (16,307)

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.

Net income (loss) for the nine months ended September 30, 2023

Sales in the first nine months of 2023 decreased by $213.9 million compared with the first nine months of 2022.

Net sales (sales less freight) in Aluminum Extrusions decreased $145.5 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 during the first half of 2023.

Net sales in PE Films decreased $26.6 million, primarily due to a decrease in sales volume in Surface Protection, resulting from weak demand in the consumer electronics market and customer inventory corrections in the first six months of 2023.

Net sales in Flexible Packaging Films decreased $33.3 million, primarily due to lower sales volume and lower selling prices that the Company believes were mainly driven by customer inventory corrections earlier in the year and now are driven by excess offers in the market from global excess capacity and competition in Brazil from imports, and 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 six months of 2023 compared to other income (expense), net of $1.0 million in the first six months of 2022.

Other income (expense), net was $0.2 million in the first nine months of 2023 compared to other income (expense), net of $1.2 million in the first nine 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 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.

Treasury and Internal Revenue Service on January 4, 2022.

Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales (gross profit margin) was 10.9% in the first nine months of 2023 compared to 15.9% in the first nine months of 2022.

The gross profit margin in Aluminum Extrusions decreased primarily due to lower sales volume, higher labor and employee-related costs 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, and higher freight costs, 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 charge of $0.8 million in the first nine months of 2023 versus a benefit of $1.7 million in the first nine months of 2022.

In addition, the Company recorded an unfavorable out-of-period adjustment of $2.5 million related to inventory and accrued labor costs in the third quarter of 2022.

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

As a percentage of sales, SG&A and R&D expenses were 11.3% in the first nine months of 2023, compared with 8.5% in the first nine months of 2022.

While SG&A and R&D expenses decreased 3.2% and 30.5% year-over-year, sales decreased $213.9 million or 28.5% compared with the prior year period.

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

During the first nine months of 2023, the Company remeasured the pension plan, which resulted in a pre-tax pension settlement loss in the condensed consolidated results of operation of $25.6 million.

See the Status of Current Corporate Strategic Initiatives below for more information.

In the first nine months of 2023, a non-cash partial goodwill impairment of $34.9 million was recognized, see the PE Films section in Segment Operations Review below for more information.

Other expenses increased to $6.2 million during the first nine months of 2023 due to the closure of the PE Films technical center in Richmond, Virginia and higher interest expense due to higher average debt levels and interest rates.

See Note 1 and Note 12 for additional information.

The effective tax rate used to compute income taxes for the first nine months of 2023 was 18.8%, unchanged compared to the effective tax rate in the first nine months of 2022.

The effective tax rate in the first nine months of 2023 was impacted by tax benefits related to the goodwill impairment, the pension settlement loss, and the treatment of Brazil income tax as creditable in 2022 and 2023.

These benefits were offset by the reversal of the discrete tax benefit recorded in the first quarter of 2022 and an increase in the valuation allowance related to deferred tax assets.

See Note 9 for additional information.

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,

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

Nine Months Ended September 30,

(In millions) 2023 2022

Aluminum Extrusions:

(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:

Consulting expenses for ERP/MES project 2

Storm damage to the Newnan, Georgia plant 2

1 unchanged sentence

Total for Aluminum Extrusions $ 1.8 $ 0.1

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

Write-down of Richmond, Virginia Technical Center assets 4

Richmond, Virginia Technical Center closure expenses 4

Other restructuring costs - severance 0.8 0.5

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

5 unchanged sentences

Other restructuring costs - severance $ 0.1 $ —

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

COVID-19-related expenses 1

Total for Flexible Packaging Films $ 0.1 $ 0.1

7 unchanged sentences

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

Pension settlement loss 25.6 —

Total for Corporate $ 41.5 $ 13.8

1 unchanged sentence

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.

See “Status of Current Corporate Strategic Initiatives” below and Note 4 for additional information.

For more information, see "PE Films" section below.

Average debt outstanding and interest rates were as follows:

Six Months Ended June 30,

Nine Months Ended September 30,

(In millions, except percentages) 2023 2022

7 unchanged sentences

(Unfavorable)

% Change Six Months Ended Favorable/

% Change Nine Months Ended Favorable/

(Unfavorable)

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

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

2023 2022 2023 2022

7 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.

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).

Third Quarter 2023 Results vs.

Third Quarter 2022 Results

Net sales (sales less freight) in the third quarter of 2023 decreased 32.3% versus the third quarter of 2022 primarily due to lower sales volume and the pass-through of lower metal costs.

Sales volume in the third quarter of 2023 declined 28.6% versus the third quarter of 2022.

Nonresidential B&C sales volume, which represented 53% of 2022 volume, declined 28.9% in the third quarter of 2023 versus the third quarter of 2022.

Sales volume in the specialty market, which represented 29% of total volume in 2022, decreased 35.6% in the third quarter of 2023 versus the third quarter of 2022, primarily due to lower volume in the consumer durables sector.

Sales volume in the automotive market, which represented 8% of total volume in 2022, increased 14.2% in the third quarter of 2023 versus the third quarter of 2022.

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

Currently, the Company is experiencing sluggish demand in most markets.

Open orders at the end of the third quarter of 2023 were 17 million pounds (versus 20 million pounds at the end of the second quarter of 2023 and 59 million pounds at the end of the third 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.

The Company is participating as part of a coalition of members of the Aluminum Extruders Council who have filed a trade case against 15 countries in response to alleged large and increasing volumes of unfairly priced imports of aluminum extrusions since 2019.

EBITDA from ongoing operations in the third quarter of 2023 decreased $7.0 million or 57.6% v ersus the third quarter of 2022 primarily due to:

• Lower volume ($9.9 million), higher labor and employee-related costs ($1.4 million), lower pricing ($1.0 million), higher supply expense associated with inflationary costs ($0.1 million), higher SG&A expenses ($0.5 million) and higher freight rates ($0.4 million), partially offset by lower utility costs ($1.0 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 $1.2 million in the third quarter of 2023 versus a charge of $3.8 million in the third quarter of 2022.

In addition, the Company recorded an unfavorable out-of-period adjustment of $2.5 million related to inventory and accrued labor costs in the third quarter of 2022.

First Nine Months of 2023 Results v.

First Nine Months of 2022 Results

Net sales in the first nine months of 2023 decreased 28.5% versus the first nine 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 in the first half of 2023.

Sales volume in the first nine months of 2023 decreas ed by 23.2% versus the first nine months of 2022.

EBITDA from ongoing operations in the first nine months of 2023 decreased $27.9 million or 48.2% in comparison to the first nine months of 2022 primarily due to:

• Lower volume ($26.0 million), higher labor and employee-related costs ($3.5 million), lower labor productivity ($1.0 million), high er 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 ($3.1 million) and higher freight rates ($0.8 million), partially offset by higher pricing ($4.6 million), lower utility costs ($1.6 million) and lower SG&A expenses ($0.3 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 $0.8 million in the first nine months of 2023 versus a benefit of $1.7 million in the first nine months of 2022.

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

Capital expenditures for Bonnell Aluminum are projected to be $19 million in 2023, consistent with the previously disclosed projection.

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

In this regard, Bonnell Aluminum 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.

This project has been reorganized with an extended implementation period.

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

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

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(Unfavorable)

% Change Six Months Ended Favorable/

% Change Nine Months Ended Favorable/

(Unfavorable)

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

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

2023 2022 2023 2022

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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.

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.

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 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).

Third Quarter 2023 Results vs.

Third Quarter 2022 Results

Net sales in the third quarter of 2023 were relatively flat compared to the third quarter of 2022, with volume increases in both Surface Protection and overwrap films .

Surface Protection sales volume in the third quarter of 2023 increased 1% versus the third quarter of 2022 and 39% versus the second quarter of 2023.

The Company is projecting lower Surface Protection sales volume in the fourth quarter of 2023, in line with typical seasonality.

EBITDA from ongoing operations in the third quarter of 2023 increased $3.6 million v ersus the third quarter of 2022, primarily due to:

• A $1.7 million increase from Surface Protection:

◦ Higher contribution margin associated with favorable pricing ($0.5 million), lower SG&A ($0.5 million), operating efficiencies ($0.5 million), and lower fixed costs ($0.8 million);

◦ No foreign currency transaction gain or loss in the third quarter of 2023 versus a gain of $0.5 million in the third quarter of 2022.

• A $1.9 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:

First Nine Months of 2023 Results v.

First Nine Months of 2022 Results

Net sale s in the first nine months of 2023 decreased 32.2% compared to the first nine months of 2022 primarily due to a decrease in sales volume in Surface Protection, resulting from weak demand in the consumer electronics market and customer inventory corrections in the first six months of 2023.

Sales volume declined 34.2% in Surface Protection in the first nine months of 2023.

EBITDA from ongoing operations in the first nine months of 2023 decreased $7.8 million versus the first nine months of 2022, primarily due to:

• A $10.9 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).

◦ Lower contribution margin for non-transitioning products associated with a market slowdown and customer inventory corrections ($12.8 million) and for previously disclosed customer product transitions ($0.7 million), partially offset by favorable pricing ($0.3 million), lower SG&A and other employee-related expenses and operating efficiencies ($2.1 million) and lower fixed costs ($1.3 million);

◦ The pass-through lag associated with resin costs ($0.1 million charge in the first nine months of 2023 versus a benefit of $0.3 million in the first nine months of 2022);

◦ A foreign currency transaction gain of $0.3 million in the first nine months of 2023 versus a gain of $1.0 million in the first nine months of 2022.

• A $3.1 million increase from overwrap films primarily due to cost improvements and mix.

R efer to Item 3.

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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 ncluding costs incurred through the first nine months ended September 30, 2023, the Company expects to recognize cash costs associated with exit activities of $1.7 million for:

(i) severance and related costs ($0.8 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.

In addition, the Company expects non-cash asset write-downs and accelerated depreciation of up to $3.7 million.

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

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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.

The analysis concluded that the fair value of Surface Protection was less than its carrying value, thus a non-cash partial goodwill impairment of $19.5 million ($15.1 million after deferred income tax benefits) was recognized during the third quarter of 2023 and $34.9 million ($27.0 million after deferred income tax benefits) during the first nine months of 2023.

The Surface Protection reporting unit had goodwill of $22.4 million and $57.3 million as of September 30, 2023 and December 31, 2022, respectively.

Projected Capital Expenditures and Depreciation & Amortization

6 unchanged sentences

(Unfavorable)

% Change Six Months Ended Favorable/

% Change Nine Months Ended Favorable/

(Unfavorable)

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

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

2023 2022 2023 2022

7 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.

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);

Third Quarter 2023 Results vs.

Third Quarter 2022 Results

Net sales in the third quarter of 2023 decreased 36.3% compared to the third quarter of 2022 primarily due to lower sales volume, lower selling prices that the Company believes are driven by excess global capacity and competition in Brazil from Asian imports, and the pass-through of lower resin costs.

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

• Lower selling prices from the pass-through of lower resin costs and margin pressures ($6.9 million) and lower sales volume ($3.7 million), partially offset by lower raw material costs ($2.3 million), lower fixed costs ($0.8 million) and lower SG&A expenses ($0.7 million);

• Foreign currency transaction gains ($0.2 million) in the third quarter of 2023 compared to foreign currency transaction gains ($0.1 million) in the third quarter of 2022;

• Net unfavorable foreign currency translation of Real-denominated operating costs ($0.6 million).

• 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.

First Nine Months of 2023 Results v.

First Nine Months of 2022 Results

Net sales in the first nine months of 2023 decreased 26.0% compared to the first nine months of 2022 primarily due to lower sales volume, lower selling prices that the Company believes are driven by excess global capacity and competition in Brazil from Asian imports, and the pass-through of lower resin costs, partially offset by favorable product mix.

EBITDA from ongoing operations in the first nine months of 2023 decreased $18.4 million versus the first nine months of 2022 primarily due to:

• Lower sales volume ($8.3 million), lower selling prices from the pass-through of lower resin costs and margin pressures ($11.1 million), higher fixed costs ($1.1 million, primarily due to under absorption from lower production volumes) and higher variable costs ($2.0 million, including higher costs resulting from quality issues), partially offset by lower raw material costs ($3.9 million), favorable product mix ($0.4 million) and lower SG&A expenses ($0.9 million);

• Foreign currency transaction losses ($0.1 million) in the first nine months of 2023 compared to foreign currency transaction losses ($0.3 million) in the first nine months of 2022;

• Net unfavorable foreign currency translation of Real-denominated operating costs ($1.1 million).

Refer to Item 3.

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Corporate Expenses, Interest & Other

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 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.

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.

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

Pension expense under GAAP is projected to be approximately $14 million in 2023, which is mainly comprised of non-cash amortization of deferred net actuarial losses reflected in the Company’s shareholders’ equity as accumulated other comprehensive losses.

Beginning in 2022, and consistent with no expected required minimum cash contributions, no pension expense is included in calculating earnings before interest, taxes, depreciation and amortization as defined in the Company’s revolving Credit Agreement ("Credit EBITDA").

Corporate expenses, net in the first nine months of 2023 remained flat compared to the first nine months of 2022 primarily due to higher professional fees associated with business development activities ($3.3 million), offset by lower accruals for employee-related compensation ($2.5 million) and lower external and internal audit fees ($0.6 million).

Interest expense of $7.8 million in the first nine months of 2023 increased $4.6 million compared to the first nine months of 2022 due to higher average debt levels and interest rates.

Status of Current Corporate Strategic Initiatives

The status of current corporate strategic initiatives is as follows:

Agreement to Sell Terphane

On September 1, 2023, the Company announced that it had entered into a definitive agreement to sell Terphane to Oben Group (the “Contingent Terphane Sale”).

Completion of the sale is contingent upon the satisfaction of customary closing conditions, including the receipt of certain competition filing approvals by authorities in Brazil and Columbia.

On October 27, 2023, the Company filed the requisite competition forms with the Administrative Council for Economic Defense (“CADE”) in Brazil.

CADE published related materials for public comment on November 6, 2023.

CADE’s deadline for completing its review is no later than September 23, 2024.

As of September 30, 2023, the Company has reported results for Terphane as a continuing operation, given the early stage of the approval process by authorities.

If the sale transaction is completed, the Company expects to realize after-tax cash proceeds of $85 million after deducting projected Brazil withholding taxes, escrow funds, U.S.

capital gains taxes and transaction costs.

Actual after-tax proceeds may differ from estimates due to possible changes in deductions and the Company's tax situation during the potentially lengthy interim period to the closing date.

Pension Plan Termination

On September 27, 2023, the Company borrowed $30 million under the Credit Agreement in anticipation of the final funding expected for terminating its defined benefit pension plan obligation.

On October 31, 2023, the Company used this cash to contribute $27.7 million to fully fund the pension plan with the amount necessary to allow for the subsequent transfer of the final annuity premium to Massachusetts Mutual Life Insurance Company, the selected insurer for the plan.

On November 3, 2023, the pension plan termination and settlement process for the Company was completed, and the relevant pension plan obligation was transferred to Massachusetts Mutual Life Insurance Company.

This completed the pension plan termination process that began in February 2022.

As of September 30, 2023, the remaining unrecognized pre-tax actuarial losses reported in the accumulated other comprehensive income (loss) was $69.0 million.

Pension expense (all non-cash) under GAAP was $10.0 million in the first nine months of 2023 consistent with the first nine months of 2022, and is reflected in “Corporate expenses, net” in the accompanying net sales and EBITDA from ongoing operations by segment tables.

Beginning in 2022, and consistent with no expected required minimum cash contributions, no pension expense has been included in calculating earnings before interest, taxes, depreciation and amortization as defined in the Credit Agreement (“Credit EBITDA”).

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

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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 June 30, 2023 are summarized below.

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

• Accounts and other receivables decreased $14.2 million (16.8%).

◦ 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 Aluminum Extrusions decreased $13.7 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 .

DSO (represents trailing 12 months net sales divided by a rolling 12-month average of accounts and other receivables balances) was approximately 47.5 days for the 12 months ended September 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.

DSO was approximately 28.1 days for the 12 months ended September 30, 2023, which was lower compared to 30.3 days for the 12 months ended December 31, 2022 due to the mix of sales to customers with shorter customer repayment terms during the first nine months of 2023.

◦ Accounts and other receivables in Flexible Packaging Films decreased $1.4 million primarily due to lower volume and improved collection efforts during the nine months ended 2023.

DSO was approximately 38.9 days for the 12 months ended September 30, 2023 and 41.1 days for the 12 months ended December 31, 2022.

• Inventories decreased $48.5 million (37.9%).

◦ 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 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 Aluminum Extrusions decreased $27.7 million due to decreased raw material levels to align with demand and working capital targets.

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 57.0 days for the 12 months ended September 30, 2023 and 53.6 days for the 12 months ended December 31, 2022.

◦ Inventories in PE Films decreased $1.5 million due to lower raw materials associated with overwrap films.

DIO was approximately 63.3 days for the 12 months ended September 30, 2023 and 66.8 days for the 12 months ended December 31, 2022.

◦ Inventories in Flexible Packaging Films decreased $19.2 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.

dollar relative to foreign currencies, partially offset by depreciation expense of $12.4 million.

DIO of approximately 126.8 days for the 12 months ended September 30, 2023 was higher compared 108.0 days for the 12 months ended December 31, 2022 due to the lower Flexible Packaging Films 12-month average of costs of goods sold as a result of lower sales volume.

• Net property, plant and equipment decreased $0.6 million primarily due to depreciation expense of $19.5 million, the write-down of Richmond Technical Center assets of $3.4 million and a $0.7 million favorable change in the value of the U.S.

dollar relative to foreign currencies, partially offset by capital expenditures of $22.2 million.

• Identifiable intangible assets, net decreased $1.4 million (12.0%) due to amortization expense.

• 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.

• Deferred income tax assets increased $7.9 million primarily due to changes in other comprehensive income, a pre-tax loss, and a decrease in the deferred tax liability related to the goodwill impairment.

See Note 9 for additional information.

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◦ Accounts payable in Aluminum Extrusions decreased $12.4 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.

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 53.6 days for the 12 months ended September 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.

DPO was approximately 41.8 days for the 12 months ended September 30, 2023 and 51.0 days for the 12 months ended December 31, 2022.

◦ Accounts payable in Flexible Packaging Films decreased $7.4 million primarily due to lower raw material purchases.

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.

DPO was approximately 63.0 days for the 12 months ended September 30, 2023 and 72.4 days for the 12 months ended December 31, 2022.

Net cash provided by operating activities was $44.2 million in the first nine months of 2023 compared to net cash used in operating activities of $23.2 million in the first nine months of 2022.

The change in operating activities is primarily due to the contribution to the pension plan ($50 million) in 2022 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 $22.0 million in the first nine months of 2023 compared to net cash used in investing activities of $24.1 million the first nine months of 2022.

The decrease was due to lower capital expenditures ($3.3 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 provided by financing activities was $7.7 million in the first nine months of 2023, compared to net cash provided by financing activities of $36.8 million in the first nine months of 2022.

The change in financing activities was primarily due to lower net borrowings ($33.0 million) under the Credit Agreement during the first nine months of 2023 as compared to the first nine months of 2022 and lower dividends paid during the first nine months of 2023.

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, pension plan contributions, 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 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.

At September 30, 2023, the Company had cash and cash equivalents of $48.6 million, including cash and cash equivalents held in locations outside the U.S.

of $12.5 million.

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

On June 29, 2022, Tredegar entered into a Second Amended and Restated Credit Agreement, which is a five-year, revolving, secured credit facility that matures on June 29, 2027.

On August 3, 2023, the Company entered into Amendment No.

2 to the Second Amended and Restated Credit Agreement (collectively "the Credit Agreement"), which amended the primary restrictive covenants and decreased aggregate borrowings from $375 million to $200 million.

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

Net Capitalization and Indebtedness as of September 30, 2023

(In thousands)

8 unchanged sentences

Indebtedness $ 155,000

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:

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"), plus a credit spread depending on the type of borrowings 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)

5 unchanged sentences

>3.5x 225.0 40

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;

• Interest Coverage Ratio of 3.00x;

• Unlimited payments for dividends and stock repurchases during the term of the Credit Agreement so long as the Total Net Leverage Ratio is equal to or less than 2.00x, and otherwise restrictions on payments for dividends and stock repurchases for the term of the Credit Agreement at $75 million (provided that the $75 million basket will reset at the end of each fiscal quarter when the Total Net Leverage ratio is less than or equal to 2.00x).

At September 30, 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 200.0 basis points.

The primary restrictive covenants in the Credit Agreement include:

• Total Net Leverage Ratio covenant of:

(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;

• Interest Coverage Ratio covenant of:

(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;

• Prohibiting dividend payments and share repurchases during fiscal quarters ending September 30, 2023 through December 31, 2024.

Under the Credit Agreement:

2 unchanged sentences

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 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.

At September 30, 2023, based upon the restrictive covenants within the Credit Agreement, available credit under the Credit Agreement was approximately $4.7 million.

Total debt outstanding was $155.0 million and $137.0 million as of September 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 June 30, 2023

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

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

Net income (loss) $ (74,182)

18 unchanged sentences

Credit EBITDA $ 31,937

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

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

Total Net Leverage Ratio 3.33x

1 unchanged sentence

Primary restrictive covenants:

Unlimited payments for dividends and stock repurchases during the term of the Credit Agreement so long as the Total Net Leverage Ratio is equal to or less than 2.00x, and otherwise restrictions on payments for dividends and stock repurchases for the term of the Credit Agreement at $75 million

Maximum Total Net Leverage Ratio permitted 4.00x

Minimum Interest Coverage Ratio permitted 3.00x

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:

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

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.

Prohibiting dividend payments and share repurchases during fiscal quarters ending September 30, 2023 through December 31, 2024.

Maximum Total Net Leverage Ratio permitted as of September 30, 2023 5.00x

Minimum Interest Coverage Ratio permitted as of September 30, 2023 2.50x

The Company had Credit EBITDA and a Total Net Leverage Ratio of $31.9 million and 3.33x (and 4.21x pro forma for final funding to terminate the pension plan), respectively, at September 30, 2023, versus the Credit EBITDA and Total Net Leverage Ratio at December 31, 2022 of $84.4 million and 1.39x, respectively.

The Company previously disclosed its intent to reduce the risk of a debt covenant violation during a severe cyclical downturn impacting all of its businesses at the same time (like the Company is currently experiencing) by investigating a transition from the existing “cash flow” based revolving credit facility (which uses Credit EBITDA) to an asset based revolving credit facility (“ABL”).

The Company took its first step in the planned migration to ABL financing on October 26, 2023, when Terphane Limitada, the Company’s wholly owned subsidiary in Brazil, borrowed $20 million secured by certain of its assets (the

“Terphane Brazil Loan”).

Dollar borrowing has a maturity date in five years, on October 30, 2028, with interest payable quarterly at an annual floating interest rate of the SOFR plus 5.99%.

The SOFR rate was 5.31% as of October 26, 2023.

Quarterly principal payments of $1.7 million begin starting in year 3 of the loan.

There are no prepayment penalties.

The Company expects that the Terphane Brazil Loan will be repaid (and collateral released) upon a closing of the Contingent Terphane Sale.

On October 26, 2023, the Company borrowed $20 million from Terphane Brazil (the “Intercompany Loan”) at the same interest rate as the Terphane Brazil Loan, thereby transferring the funds to the U.S.

The Company will repay the Intercompany Loan in conjunction with the closing of the Contingent Terphane Sale.

Between the dates of November 4, 2023 and November 8, 2023, the Company oversaw the execution of consent advice letters by a majority of the lending group to the Credit Agreement (collectively, the “Advice Letters”).

Pursuant to the Advice Letters, subject only to satisfactory documentation, these lending group members confirmed their agreement to consent to an amendment to the Credit Agreement (the “Credit Agreement Amendment”) that amends the Credit Agreement to implement a senior secured asset-based revolving credit facility (the “ABL Credit Facility”), which would expire on June 30, 2026.

The permitted borrowings under the ABL Credit Facility will be based on a portion of eligible receivables, inventories, property, plant and equipment and cash and cash equivalents, as reduced by certain reserves.

The Company is targeting the execution of the Credit Agreement Amendment by the end of 2023.

The agreement to consent to the Credit Agreement Amendment by the majority of the lender group members expires on December 31, 2023.

See Note 13 for additional information.

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