TREDEGAR CORP 10-Q

Item 1. Financial Statements. Tredegar Corporation Condensed Consolidated Balance Sheets (In Thousands, Except Share Data) (Unaudited) September 30, December 31, 2023 2022 Assets Current assets: Cash and cash equivalents $ 48,604 $ 19,232 Accounts and other receivables, net 70,344 84,544 Income taxes recoverable 1,700 733 Inventories 79,301 127,771 Prepaid expenses and other 11,683 10,304 Total current assets 211,632 242,584 Property, plant and equipment, at cost 538,156 531,921 Less: accumulated depreciation ( 352,358 ) ( 345,510 ) Net property, plant and equipment 185,798 186,411 Right-of-use leased assets 11,954 14,021 Identifiable intangible assets, net 10,290 11,690 Goodwill 35,717 70,608 Deferred income taxes 21,798 13,900 Other assets 2,328 2,879 Total assets $ 479,517 $ 542,093 Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $ 94,712 $ 114,938 Accrued expenses 21,835 31,603 Lease liability, short-term 2,216 2,035 Income taxes payable 426 1,137 Total current liabilities 119,189 149,713 Lease liability, long-term 11,083 12,738 Long-term debt 155,000 137,000 Pension and other postretirement benefit obligations, net 35,660 35,046 Other non-current liabilities 4,394 5,834 Total liabilities 325,326 340,331 Shareholders’ equity: Common stock, no par value (authorized shares 150,000,000 , issued and outstanding 34,384,677 shares at September 30, 2023 and 34,000,642 shares at December 31, 2022) 60,827 58,824 Common stock held in trust for savings restoration plan ( 118,543 shares at September 30, 2023 and 113,316 shares at December 31, 2022) ( 2,233 ) ( 2,188 ) Accumulated other comprehensive income (loss): Foreign currency translation adjustment ( 85,156 ) ( 86,079 ) Gain (loss) on derivative financial instruments ( 774 ) ( 2,480 ) Pension and other postretirement benefit adjustments ( 32,041 ) ( 59,036 ) Retained earnings 213,568 292,721 Total shareholders’ equity 154,191 201,762 Total liabilities and shareholders’ equity $ 479,517 $ 542,093 See accompanying notes to the condensed consolidated financial statements. 2 Tredegar Corporation Condensed Consolidated Statements of Income (Loss) (In Thousands, Except Per Share Data) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues and other items: Sales $ 166,192 $ 238,486 $ 535,481 $ 749,415 Other income (expense), net ( 51 ) 140 210 1,181 166,141 238,626 535,691 750,596 Costs and expenses: Cost of goods sold 144,539 200,582 457,332 601,930 Freight 6,733 9,500 19,977 28,619 Selling, general and administrative 21,350 19,018 57,244 59,160 Research and development 794 1,576 3,375 4,855 Amortization of identifiable intangibles 465 653 1,433 1,982 Pension and postretirement benefits 3,118 3,506 9,955 10,489 Interest expense 3,106 1,138 7,791 3,158 Asset impairments and costs associated with exit and disposal activities, net of adjustments 4,633 495 4,702 621 Pension settlement loss 25,612 — 25,612 — Goodwill impairment 19,478 — 34,891 — Total 229,828 236,468 622,312 710,814 Income (loss) before income taxes ( 63,687 ) 2,158 ( 86,621 ) 39,782 Income tax expense (benefit) ( 13,307 ) 1,125 ( 16,307 ) 7,460 Net income (loss) $ ( 50,380 ) $ 1,033 $ ( 70,314 ) $ 32,322 Earnings (loss) per share: Basic $ ( 1.47 ) $ 0.03 $ ( 2.06 ) $ 0.96 Diluted $ ( 1.47 ) $ 0.03 $ ( 2.06 ) $ 0.96 Shares used to compute earnings (loss) per share: Basic 34,264 33,870 34,081 33,780 Diluted 34,264 33,871 34,081 33,808 See accompanying notes to the condensed consolidated financial statements. 3 Tredegar Corporation Condensed Consolidated Statements of Comprehensive Income (Loss) (In Thousands) (Unaudited) Three Months Ended September 30, 2023 2022 Net income (loss) $ ( 50,380 ) $ 1,033 Other comprehensive income (loss): Unrealized foreign currency translation adjustment (net of tax expense of $ 25 in 2023 and net of tax benefit of $ 148 in 2022) ( 1,818 ) ( 2,340 ) Derivative financial instruments adjustment (net of tax benefit of $ 538 in 2023 and net of tax benefit of $ 818 in 2022) 69 ( 2,547 ) Pension & other postretirement benefit adjustment: Net gains (losses) and prior service costs 442 — Recognition in earnings of net actuarial loss for pension settlement and related tax of $ 5,581 20,031 — Amortization of prior service costs and net gains or losses (net of tax expense of $ 637 in 2023 and net of tax expense of $ 712 in 2022) 1,949 2,556 Other comprehensive income (loss) 20,673 ( 2,331 ) Comprehensive income (loss) $ ( 29,707 ) $ ( 1,298 ) Nine Months Ended September 30, 2023 2022 Net income (loss) $ ( 70,314 ) $ 32,322 Other comprehensive income (loss): Unrealized foreign currency translation adjustment (net of tax expense of $ 640 in 2023 and net of tax expense of $ 98 in 2022) 923 ( 2,034 ) Derivative financial instruments adjustment (net of tax expense of $ 798 in 2023 and net of tax benefit of $ 1,261 in 2022) 1,706 ( 5,778 ) Pension & other postretirement benefit adjustment: Net gains (losses) and prior service costs 442 — Recognition in earnings of net actuarial loss for pension settlement and related tax of $ 5,581 20,031 — Amortization of prior service costs and net gains or losses (net of tax expense of $ 1,911 in 2023 and net of tax expense of $ 2,136 in 2022) 6,522 7,650 Other comprehensive income (loss) 29,624 ( 162 ) Comprehensive income (loss) $ ( 40,690 ) $ 32,160 See accompanying notes to the condensed consolidated financial statements. 4 Tredegar Corporation Condensed Consolidated Statements of Cash Flows (In Thousands) (Unaudited) Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net income (loss) $ ( 70,314 ) $ 32,322 Adjustments for noncash items: Depreciation 19,516 17,538 Amortization of identifiable intangibles 1,433 1,982 Reduction of right-of-use lease asset 1,633 1,590 Goodwill impairment 34,891 — Deferred income taxes ( 16,820 ) 3,078 Accrued pension and post-retirement benefits 9,955 10,519 Pension settlement loss 25,612 — Stock-based compensation expense 1,196 2,575 Gain on investment in kaléo ( 262 ) ( 1,406 ) Write-down of Richmond, Virginia Technical Center assets 3,387 — Changes in assets and liabilities: Accounts and other receivables 14,630 ( 7,222 ) Inventories 49,589 ( 24,855 ) Income taxes recoverable/payable ( 1,688 ) ( 7,227 ) Prepaid expenses and other ( 142 ) ( 5,365 ) Accounts payable and accrued expenses ( 27,970 ) 3,624 Lease liability ( 1,669 ) ( 1,737 ) Pension and postretirement benefit plan contributions ( 455 ) ( 50,503 ) Other, net 1,716 1,935 Net cash provided by (used in) operating activities 44,238 ( 23,152 ) Cash flows from investing activities: Capital expenditures ( 22,270 ) ( 25,527 ) Proceeds from the sale of kaléo 262 1,406 Net cash provided by (used in) investing activities ( 22,008 ) ( 24,121 ) Cash flows from financing activities: Borrowings 87,000 279,250 Debt principal payments ( 69,000 ) ( 228,250 ) Dividends paid ( 8,884 ) ( 12,552 ) Debt financing costs ( 1,404 ) ( 1,245 ) Other — ( 396 ) Net cash provided by (used in) financing activities 7,712 36,807 Effect of exchange rate changes on cash ( 570 ) ( 805 ) Increase (decrease) in cash & cash equivalents 29,372 ( 11,271 ) Cash and cash equivalents at beginning of period 19,232 30,521 Cash and cash equivalents at end of period $ 48,604 $ 19,250 See accompanying notes to the condensed consolidated financial statements. 5 Tredegar Corporation Condensed Consolidated Statements of Shareholders’ Equity (In Thousands, Except Share and Per Share Data) (Unaudited) The following summarizes the changes in shareholders’ equity for the three month period ended September 30, 2023: Common Stock Retained Earnings Trust for Savings Restoration Plan Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Balance July 1, 2023 $ 60,078 $ 263,933 $ ( 2,218 ) $ ( 138,644 ) $ 183,149 Net income (loss) — ( 50,380 ) — — ( 50,380 ) Foreign currency translation adjustment — — — ( 1,818 ) ( 1,818 ) Derivative financial instruments adjustment — — — 69 69 Amortization of prior service costs and net gains or losses — — — 1,949 1,949 Net gains or (losses) and prior service costs — — — 442 442 Recognition in earnings of net actuarial loss for pension settlement — — — 20,031 20,031 Cash dividends declared ($ — per share) — — — — — Stock-based compensation expense 749 — — — 749 Tredegar common stock purchased by trust for savings restoration plan — 15 ( 15 ) — — Balance September 30, 2023 $ 60,827 $ 213,568 $ ( 2,233 ) $ ( 117,971 ) $ 154,191 The following summarizes the changes in shareholders’ equity for the nine month period ended September 30, 2023: Common Stock Retained Earnings Trust for Savings Restoration Plan Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Balance January 1, 2023 $ 58,824 $ 292,721 $ ( 2,188 ) $ ( 147,595 ) $ 201,762 Net income (loss) — ( 70,314 ) — — ( 70,314 ) Foreign currency translation adjustment — — — 923 923 Derivative financial instruments adjustment — — — 1,706 1,706 Amortization of prior service costs and net gains or losses — — — 6,522 6,522 Net gains or (losses) and prior service costs — — — 442 442 Recognition in earnings of net actuarial loss for pension settlement — — — 20,031 20,031 Cash dividends declared ($ 0.26 per share) — ( 8,884 ) — — ( 8,884 ) Stock-based compensation expense 2,257 — — — 2,257 Repurchase of employee common stock for tax withholdings ( 254 ) — — — ( 254 ) Tredegar common stock purchased by trust for savings restoration plan — 45 ( 45 ) — — Balance September 30, 2023 $ 60,827 $ 213,568 $ ( 2,233 ) $ ( 117,971 ) $ 154,191 6 The following summarizes the changes in shareholders’ equity for the three month period ended September 30, 2022: Common Stock Retained Earnings Trust for Savings Restoration Plan Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Balance at July 1, 2022 $ 56,911 $ 304,370 $ ( 2,161 ) $ ( 147,335 ) $ 211,785 Net income (loss) — 1,033 — — 1,033 Foreign currency translation adjustment — — — ( 2,340 ) ( 2,340 ) Derivative financial instruments adjustment — — — ( 2,547 ) ( 2,547 ) Amortization of prior service costs and net gains or losses — — — 2,556 2,556 Cash dividends declared ($ 0.13 per share) — ( 4,420 ) — — ( 4,420 ) Stock-based compensation expense 991 — — — 991 Tredegar common stock purchased by trust for savings restoration plan — 13 ( 13 ) — — Balance at September 30, 2022 $ 57,902 $ 300,996 $ ( 2,174 ) $ ( 149,666 ) $ 207,058 The following summarizes the changes in shareholders’ equity for the nine month period ended September 30, 2022: Common Stock Retained Earnings Trust for Savings Restoration Plan Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Balance at January 1, 2022 $ 55,174 $ 281,187 $ ( 2,135 ) $ ( 149,504 ) $ 184,722 Net income (loss) — 32,322 — — 32,322 Foreign currency translation adjustment — — — ( 2,034 ) ( 2,034 ) Derivative financial instruments adjustment — — — ( 5,778 ) ( 5,778 ) Amortization of prior service costs and net gains or losses — — — 7,650 7,650 Cash dividends declared ($ 0.37 per share) — ( 12,552 ) — — ( 12,552 ) Stock-based compensation expense 3,124 — — — 3,124 Repurchase of employee common stock for tax withholdings ( 396 ) — — — ( 396 ) Tredegar common stock purchased by trust for savings restoration plan — 39 ( 39 ) — — Balance at September 30, 2022 $ 57,902 $ 300,996 $ ( 2,174 ) $ ( 149,666 ) $ 207,058 See accompanying notes to the condensed consolidated financial statements. 7 TREDEGAR CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION In the opinion of management, the accompanying condensed consolidated financial statements of Tredegar Corporation and its subsidiaries (“Tredegar,” “the Company,” “we,” “us” or “our”) contain all adjustments necessary to state fairly, in all material respects, Tredegar’s condensed consolidated financial position as of September 30, 2023, the condensed consolidated results of operations for the three and nine months ended September 30, 2023 and 2022, the condensed consolidated cash flows for the nine months ended September 30, 2023 and 2022, and the condensed consolidated changes in shareholders’ equity for the nine months ended September 30, 2023 and 2022, in accordance with U.S. generally accepted accounting principles (“GAAP”). All such adjustments, unless otherwise detailed in the notes to the condensed consolidated financial statements, are deemed to be of a normal, recurring nature. The Company operates on a calendar fiscal year except for the Aluminum Extrusions segment, which operates on a 52/53-week fiscal year basis. As such, the fiscal third quarter for 2023 and 2022 for this segment references 13-week periods ended September 24, 2023 and September 25, 2022, respectively. The Company does not believe the impact of reporting the results of this segment as stated above is material to the consolidated financial results. The Company may fund or receive cash from the Aluminum Extrusions segment based on Aluminum Extrusion’s cash flows from operations during the intervening period from Aluminum Extrusion’s fiscal quarter end and the Company’s fiscal quarter end. There was no intercompany funding with Aluminum Extrusions between September 24, 2023 and September 30, 2023. The condensed consolidated financial statements as of December 31, 2022 that is included herein was derived from the audited consolidated financial statements provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”) but does not include all disclosures required by GAAP. These financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the 2022 Form 10-K. The results of operations for the three and nine months ended September 30, 2023, are not necessarily indicative of the results to be expected for the full year. Sale of Flexible Packaging Films On September 1, 2023, the Company announced that it had entered into a definitive agreement to sell its flexible packaging films business (“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. 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 production 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. Including 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-downs and accelerated depreciation of up to $ 3.7 million. 8 A reconciliation of the beginning and ending balances of accrued expense associated with exit and disposal activities and charges associated with asset impairments reported as "Asset impairments and costs associated with exit and disposal activities, net of adjustments" in the condensed consolidated statements of income for the three and nine months ended September 30, 2023 is shown below. (in thousands) Severance Asset write-downs Other Total Balance at January 1, 2023 $ — $ — $ — $ — Richmond Technical Center 846 3,387 340 4,573 Charges 846 3,387 340 4,573 Cash Spend 236 — 149 385 Charges against assets — 3,387 — 3,387 Balance at September 30, 2023 $ 610 $ — $ 191 $ 801 Impairment of Goodwill The Company assesses goodwill for impairment when events or circumstances indicate that the carrying value may not be recoverable, or, at a minimum, on an annual basis (December 1st of each year). As of September 30, 2023, the Company’s reporting units with goodwill were Surface Protection in PE Films ("Surface Protection") and Futura in Aluminum Extrusions (“Futura”). No events or circumstances were identified during the third quarter of 2023 that indicate that Futura’s fair value is more likely than not less than its carrying amount. Uncertainty about the timing of a recovery in the consumer electronics market persists, and manufacturers in the supply chain for consumer electronics continue to experience reduced capacity utilization and inventory corrections. In light of the limited visibility on the timing of a recovery and the expected adverse future impact to the Surface Protection business, coupled with a cautious outlook on new product development opportunities, the Company performed a Step 1 goodwill impairment analysis of the Surface Protection component of PE Films. This analysis utilized projections that contemplate the expected market recovery and business conditions, including for its three significant customers, as these events indicated Surface Protection’s fair value is more likely than not less than its carrying amount. The Company estimated the fair value of Surface Protection at September 30, 2023 by: (i) computing an estimated enterprise value (“EV”) utilizing the discounted cash flow method (the “DCF Method”), (ii) applying adjustments for any surplus or deficient working capital, (iii) adding cash and cash equivalents, and (iv) subtracting interest-bearing debt. The DCF Method was used, incorporating Surface Protection’s latest projections which reflect updated expected market recovery levels, feasibility of launching new product applications, competitive pricing and cash flows associated with production efficiencies, as well as consideration of cost savings and inventory corrections. 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. Given the uncertain demand for Surface Protections products, it is reasonably possible that the cash flow estimates used in deriving such fair value measurements may change in the future. 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. Accounting Standards Adopted In July 2023, the Financial Accounting Standard Board issued Accounting Standards Updated ("ASU") 2023-03 to amend various SEC paragraphs in the Accounting Standards Codification to primarily reflect the issuance of SEC Staff Accounting Bulletin No. 120. ASU No. 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 Emerging Issues Task Force ("EITF") Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock.” ASU 2023-03 amends the ASC for SEC updates pursuant to SEC Staff Accounting Bulletin No. 120; SEC Staff Announcement at the March 24, 2022 EITF Meeting; and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. These updates were immediately effective and did not have a material impact to the Company's consolidated financial statements. 9 2. ACCOUNTS AND OTHER RECEIVABLES As of September 30, 2023 and December 31, 2022, accounts and other receivables, net include the following: (In thousands) September 30, 2023 December 31, 2022 Customer receivables $ 69,945 $ 83,667 Other receivables 2,326 3,874 Total accounts and other receivables 72,271 87,541 Less: Allowance for bad debts ( 1,927 ) ( 2,997 ) Total accounts and other receivables, net $ 70,344 $ 84,544 3. INVENTORIES The components of inventories are as follows: (In thousands) September 30, 2023 December 31, 2022 Finished goods $ 28,664 $ 34,686 Work-in-process 9,569 15,604 Raw materials 20,314 58,262 Stores, supplies and other 20,754 19,219 Total $ 79,301 $ 127,771 4. PENSION AND OTHER POSTRETIREMENT BENEFITS Tredegar sponsors a noncontributory defined benefit (pension) plan covering certain current and former U.S. employees. As of January 31, 2018, the plan no longer accrued benefits associated with crediting employees for service, thereby freezing all future benefits under the plan. On February 10, 2022, Tredegar announced the initiation of a process to terminate and settle its frozen defined benefit pension plan through lump sum distributions and the purchase of annuity contracts. In connection therewith, on February 9, 2022, the Company contributed $ 50 million to the pension plan. 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. On September 27, 2023, the Company borrowed $ 30 million under its revolving credit agreement in anticipation of the final funding expected for terminating its defined benefit pension plan obligation. On October 31, 2023, the Company contributed $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. As of September 30, 2023, the remaining unrecognized pre-tax actuarial losses reported in the accumulated other comprehensive income (loss) was $ 69.0 million. Tredegar also has a non-qualified supplemental pension plan covering certain employees. Effective December 31, 2005, further participation in this plan was terminated and benefit accruals for existing participants were frozen. Pension expense recognized for this plan was immaterial in the three and nine months ended September 30, 2023 and 2022. This information has been included in the pension benefit table below. 10 The components of net periodic benefit cost for the pension and other postretirement benefit programs reflected in the condensed consolidated statements of income for the three and nine months ended September 30, 2023 and 2022, are shown below: Pension Benefits Other Post-Retirement Benefits Three Months Ended September 30, Three Months Ended September 30, (In thousands) 2023 2022 2023 2022 Service cost $ — $ — $ 3 $ 5 Interest cost 2,786 2,226 71 51 Expected return on plan assets ( 2,328 ) ( 2,044 ) — — Pension settlement loss (a) 25,612 — — — Amortization of prior service costs, (gains) losses and net transition asset 2,644 3,301 ( 58 ) ( 33 ) Net periodic benefit cost $ 28,714 $ 3,483 $ 16 $ 23 Pension Benefits Other Post-Retirement Benefits Nine Months Ended September 30, Nine Months Ended September 30, (In thousands) 2023 2022 2023 2022 Service cost $ — $ — $ 9 $ 15 Interest cost 8,842 6,676 213 153 Expected return on plan assets ( 7,542 ) ( 6,141 ) — — Pension settlement loss (a) 25,612 — — — Amortization of prior service costs, (gains) losses and net transition asset 8,609 9,887 ( 176 ) ( 101 ) Net periodic benefit cost $ 35,521 $ 10,422 $ 46 $ 67 (a)Pension settlement loss, included in the condensed consolidated statements of operation, represents pension settlement charges due to lump sum payments to participants. Pension and other postretirement liabilities were $ 36.3 million and $ 35.7 million at September 30, 2023 and December 31, 2022, respectively ($ 0.7 million included in “Accrued expenses” at September 30, 2023 and December 31, 2022, respectively, with the remainder included in “Pension and other postretirement benefit obligations, net” in the condensed consolidated balance sheets). Tredegar funds its other postretirement benefits on a claims-made basis; for 2023, the Company anticipates the amount will be consistent with amounts paid for the year ended December 31, 2022, or approximately $ 0.5 million. 5. OTHER INCOME (EXPENSE), NET Other income (expense), net consists of the following: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2023 2022 2023 2022 Gain on investment in kaléo (a) $ — $ — $ 262 $ 1,406 Other ( 51 ) 140 ( 52 ) ( 225 ) Total $ ( 51 ) $ 140 $ 210 $ 1,181 (a) In January 2023, additional cash consideration of $ 0.3 million was received related to the customary post-closing adjustments on the sale of the investment in kaleo, Inc ("kaléo"), which was sold in December 2021. 11 6. EARNINGS PER SHARE Basic earnings per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing net income (loss) by the weighted average common and potentially dilutive common equivalent shares outstanding, determined as follows: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2023 2022 2023 2022 Weighted average shares outstanding used to compute basic earnings per share 34,264 33,870 34,081 33,780 Incremental dilutive shares attributable to stock options and restricted stock — 1 — 28 Shares used to compute diluted earnings per share 34,264 33,871 34,081 33,808 Incremental shares attributable to stock options and restricted stock are computed under the treasury stock method using the average market price during the related period. The Company had a net loss for the three and nine months ended September 30, 2023, so there is no dilutive impact for such shares. If the Company had reported net income for the three and nine months ended September 30, 2023, average out-of-the-money options to purchase shares that were excluded from the calculation of incremental shares attributable to stock options and restricted stock would have been 3,019,333 and 2,893,677 , respectively. The average out-of-the-money options to purchase shares that were excluded from the calculation of incremental shares attributable to stock options and restricted stock were 2,932,378 and 2,645,063 for the three and nine months ended September 30, 2022, respectively. 7. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The changes in accumulated other comprehensive income (loss) by component for the three months ended September 30, 2023. (In thousands) Foreign Currency Translation Gain (Loss) on Derivative Financial Instruments Pension & Other Postretirement Benefit Adjust Total Accumulated Other Comprehensive Income (Loss) Balance at July 1, 2023 $ ( 83,338 ) $ ( 843 ) $ ( 54,463 ) $ ( 138,644 ) Other comprehensive income (loss) ( 1,793 ) 2,287 442 936 Income tax (expense) benefit ( 25 ) ( 197 ) — ( 222 ) Other comprehensive income (loss), net of tax ( 1,818 ) 2,090 442 714 Reclassification adjustment to net income (loss) — ( 2,756 ) 28,198 25,442 Income tax (expense) benefit — 735 ( 6,218 ) ( 5,483 ) Reclassification adjustment to net income (loss), net of tax — ( 2,021 ) 21,980 19,959 Other comprehensive income (loss), net of tax ( 1,818 ) 69 22,422 20,673 Balance at September 30, 2023 $ ( 85,156 ) $ ( 774 ) $ ( 32,041 ) $ ( 117,971 ) 12 The changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2023. (In thousands) Foreign Currency Translation Gain (Loss) on Derivative Financial Instruments Pension & Other Postretirement Benefit Adjust Total Accumulated Other Comprehensive Income (Loss) Balance at January 1, 2023 $ ( 86,079 ) $ ( 2,480 ) $ ( 59,036 ) $ ( 147,595 ) Other comprehensive income (loss) 1,563 7,852 442 9,857 Income tax (expense) benefit ( 640 ) ( 2,228 ) — ( 2,868 ) Other comprehensive income (loss), net of tax 923 5,624 442 6,989 Reclassification adjustment to net income (loss) — ( 5,350 ) 34,045 28,695 Income tax (expense) benefit — 1,432 ( 7,492 ) ( 6,060 ) Reclassification adjustment to net income (loss), net of tax — ( 3,918 ) 26,553 22,635 Other comprehensive income (loss), net of tax 923 1,706 26,995 29,624 Balance at September 30, 2023 $ ( 85,156 ) $ ( 774 ) $ ( 32,041 ) $ ( 117,971 ) The changes in accumulated other comprehensive income (loss) by component for the three months ended September 30, 2022. (In thousands) Foreign Currency Translation Gain (Loss) on Derivative Financial Instruments Pension & Other Postretirement Benefit Adjust Total Accumulated Other Comprehensive Income (Loss) Balance at July 1, 2022 $ ( 85,486 ) $ ( 2,330 ) $ ( 59,519 ) $ ( 147,335 ) Other comprehensive income (loss) ( 2,488 ) ( 2,205 ) — ( 4,693 ) Income tax (expense) benefit 148 522 — 670 Other comprehensive income (loss), net of tax ( 2,340 ) ( 1,683 ) — ( 4,023 ) Reclassification adjustment to net income (loss) — ( 1,159 ) 3,268 2,109 Income tax (expense) benefit — 295 ( 712 ) ( 417 ) Reclassification adjustment to net income (loss), net of tax — ( 864 ) 2,556 1,692 Other comprehensive income (loss), net of tax ( 2,340 ) ( 2,547 ) 2,556 ( 2,331 ) Balance at September 30, 2022 $ ( 87,826 ) $ ( 4,877 ) $ ( 56,963 ) $ ( 149,666 ) 13 The changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2022. (In thousands) Foreign Currency Translation Gain (Loss) on Derivative Financial Instruments Pension & Other Postretirement Benefit Adjust Total Accumulated Other Comprehensive Income (Loss) Balance at January 1, 2022 $ ( 85,792 ) $ 901 $ ( 64,613 ) $ ( 149,504 ) Other comprehensive income (loss) ( 1,936 ) ( 3,883 ) — ( 5,819 ) Income tax (expense) benefit ( 98 ) 442 — 344 Other comprehensive income (loss), net of tax ( 2,034 ) ( 3,441 ) — ( 5,475 ) Reclassification adjustment to net income (loss) — ( 3,156 ) 9,786 6,630 Income tax (expense) benefit — 819 ( 2,136 ) ( 1,317 ) Reclassification adjustment to net income (loss), net of tax — ( 2,337 ) 7,650 5,313 Other comprehensive income (loss), net of tax ( 2,034 ) ( 5,778 ) 7,650 ( 162 ) Balance at September 30, 2022 $ ( 87,826 ) $ ( 4,877 ) $ ( 56,963 ) $ ( 149,666 ) The amounts reclassified out of accumulated other comprehensive income (loss) related to pension and other postretirement benefits is included in the computation of net periodic pension costs. See Note 4 for additional details. 8. DERIVATIVES Tredegar uses derivative financial instruments for the purpose of hedging margin exposure from fixed-price forward sales contracts in Aluminum Extrusions and exposure from currency volatility that exists as part of ongoing business operations in Flexible Packaging Films. These derivative financial instruments are designated as and qualify as cash flow hedges and are recognized in the condensed consolidated balance sheet at fair value. If individual derivative instruments with the same counterparty can be settled on a net basis, the Company records the corresponding derivative fair values as a net asset or net liability. In the normal course of business, Aluminum Extrusions enters into fixed-price forward sales contracts with a small subset of its customers for the future sale of fixed quantities of aluminum extrusions at scheduled intervals. In order to hedge margin exposure created from the fixing of future sales prices relative to volatile raw material (aluminum) costs, Aluminum Extrusions enters into a combination of forward purchase commitments and futures contracts to acquire or hedge aluminum, based on the scheduled purchases for the firm sales commitments. The fixed-price firm sales commitments and related hedging instruments have durations generally no longer than 12 months. The notional amount of aluminum futures contracts that hedged future purchases of aluminum to meet fixed-price forward sales contract obligations was $ 10.9 million ( 7.4 million pounds of aluminum) at September 30, 2023 and $ 30.7 million ( 20.3 million pounds of aluminum) at December 31, 2022. The table below summarizes the location and gross amounts of aluminum futures contract fair values (Level 2) in the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022: September 30, 2023 December 31, 2022 (In thousands) Balance Sheet Account Fair Value Balance Sheet Account Fair Value Derivatives Designated as Hedging Instruments Asset derivatives: Aluminum futures contracts Prepaid expenses and other $ — Prepaid expenses and other $ 48 Liability derivatives: Aluminum futures contracts Accrued expenses ( 1,830 ) Accrued expenses ( 3,260 ) Aluminum futures contracts Other non-current liabilities ( 149 ) Other non-current liabilities ( 369 ) Net asset (liability) $ ( 1,979 ) $ ( 3,581 ) In the event that a counterparty to an aluminum fixed-price forward sales contract chooses not to take delivery of its aluminum extrusions, the customer is contractually obligated to compensate Aluminum Extrusions for any losses on the related aluminum futures and/or forward contracts through the date of cancellation. 14 The Company's earnings are exposed to foreign currency exchange risk primarily through the translation of the financial statements of subsidiaries that have a functional currency other than the U.S. Dollar. The Company estimates that the net mismatch translation exposure for the Flexible Packaging Film's business unit in Brazil (“Terphane Ltda.”) of its sales and raw materials quoted or priced in U.S. Dollars and its variable conversion, fixed conversion and sales, general and administrative costs (before depreciation and amortization) quoted or priced in Brazilian Real ("R$") will result in an annual net cost of R$ 177 million for the full year of 2023. Terphane Ltda. had the following outstanding foreign exchange average forward rate contracts to purchase Brazilian Real and sell U.S. Dollars as of September 30, 2023: USD Notional Amount (000s) Average Forward Rate Contracted on USD/BRL R$ Equivalent Amount (000s) Applicable Month Estimated % of Terphane Ltda. R$ Operating Cost Exposure Hedged $ 2,013 5.7556 R$ 11,586 Oct-23 79 % $ 2,018 5.7836 R$ 11,671 Nov-23 79 % $ 1,786 5.8312 R$ 10,414 Dec-23 71 % $ 1,784 5.2993 R$ 9,454 Jan-24 73 % $ 1,766 5.3188 R$ 9,393 Feb-24 72 % $ 1,781 5.3346 R$ 9,501 Mar-24 73 % $ 1,827 5.3373 R$ 9,751 Apr-24 75 % $ 1,798 5.3588 R$ 9,635 May-24 74 % $ 1,812 5.3708 R$ 9,732 Jun-24 75 % $ 1,804 5.3848 R$ 9,714 Jul-24 75 % $ 1,806 5.4014 R$ 9,755 Aug-24 75 % $ 1,857 5.4107 R$ 10,048 Sep-24 77 % $ 1,851 5.4225 R$ 10,037 Oct-24 77 % $ 1,837 5.4403 R$ 9,994 Nov-24 77 % $ 1,801 5.4580 R$ 9,830 Dec-24 76 % $ 27,541 5.4651 R$ 150,515 75 % These foreign currency exchange contracts have been designated and qualify as cash flow hedges of Terphane Ltda.’s forecasted sales to customers quoted or priced in U.S. Dollars over that period. By changing the currency risk associated with these U.S. Dollar sales, the derivatives have the effect of offsetting operating costs quoted or priced in Brazilian Real and decreasing the net exposure to Brazilian Real in the condensed consolidated statements of income. The table below summarizes the location and gross amounts of foreign currency forward contract fair values (Level 2) in the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022: September 30, 2023 December 31, 2022 (In thousands) Balance Sheet Account Fair Value Balance Sheet Account Fair Value Derivatives Designated as Hedging Instruments Asset derivatives: Foreign currency forward contracts Prepaid expenses and other $ 1,806 Prepaid expenses and other $ 781 Foreign currency forward contracts Other assets 329 Other assets 33 Liability derivatives: Foreign currency forward contracts Accrued expenses ( 109 ) Other non-current liabilities ( 3 ) Foreign currency forward contracts Other non-current liabilities (89) Other non-current liabilities — Net asset (liability) $ 1,937 $ 811 15 These derivative contracts involve elements of market risk that are not reflected on the condensed consolidated balance sheet, including the risk of dealing with counterparties and their ability to meet the terms of the contracts. The counterparties to any forward purchase commitments are major aluminum brokers and suppliers, and the counterparties to any aluminum futures contracts are major financial institutions. Fixed-price forward sales contracts are only made available to the best and most credit-worthy customers. The counterparties to the Company’s foreign currency cash flow hedge contracts are major financial institutions. The pre-tax effect on net income (loss) and other comprehensive income (loss) of derivative instruments classified as cash flow hedges and described in the previous paragraphs for the three and nine month periods ended September 30, 2023 and 2022 is summarized in the table below: Cash Flow Derivative Hedges Three Months Ended September 30, Aluminum Futures Contracts Foreign Currency Forwards (In thousands) 2023 2022 2023 2022 Amount of pre-tax gain (loss) recognized in other comprehensive income (loss) $ 2,908 $ ( 2,320 ) $ — $ ( 621 ) $ — $ 115 Location of gain (loss) reclassified from accumulated other comprehensive income (loss) into net income (effective portion) Cost of goods sold Cost of goods sold Cost of goods sold Selling, general & admin Cost of goods sold Selling, general & admin Amount of pre-tax gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (effective portion) $ 1,716 $ 837 $ 16 $ 1,024 $ 16 $ 306 Nine Months Ended September 30, Aluminum Futures Contracts Foreign Currency Forwards 2023 2022 2023 2022 Amount of pre-tax gain (loss) recognized in other comprehensive income (loss) $ 4,867 $ ( 6,060 ) $ — $ 2,985 $ — $ 2,177 Location of gain (loss) reclassified from accumulated other comprehensive income (loss) into net income (effective portion) Cost of goods sold Cost of goods sold Cost of goods sold Selling, general & admin Cost of goods sold Selling, general & admin Amount of pre-tax gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (effective portion) $ 3,273 $ 2,135 $ 46 $ 2,031 $ 46 $ 975 As of September 30, 2023, the Company expects $ 1.1 million of unrealized after-tax losses on aluminum and foreign currency derivative instruments reported in accumulated other comprehensive income (loss) to be reclassified to earnings within the next 12 months. For the three and nine month periods ended September 30, 2023 and 2022, net gains or losses realized, from previously unrealized net gains or losses on hedges that had been discontinued, were not material. 9. INCOME TAXES Tredegar recorded tax benefit of $ 16.3 million on pre-tax loss of $ 86.6 million in the first nine months of 2023. Therefore, the effective tax rate in 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 2022 was impacted by a large discrete benefit recorded in the first quarter of 2022, resulting from the implementation of new U.S. tax regulations associated with foreign tax credits published by the U.S. Treasury and Internal Revenue Service on January 4, 2022. These regulations overhauled various components of the foreign tax credit regime including the determination of creditable foreign taxes and limit the amount of foreign taxes that are creditable against U.S. income taxes. As the result of these regulations, future Brazilian income tax under Brazil tax law in place at that time would have been deductible, but not creditable, in the U.S. The accounting rules require a reduction of the U.S. deferred tax liability previously established related to anticipated future income from Brazil. The tax effect of the reduction of the U.S. deferred tax liability resulted in the discrete tax benefit described above. In the second quarter of 2023, Brazil enacted new tax legislation that causes the Brazil income tax to once again be creditable after 2023. This law change caused a reversal of the discrete tax benefit recognized in the first quarter of 2022 described above, which increased the deferred tax liability related to anticipated future income from Brazil. In the third quarter of 2023, the Internal Revenue Service released Notice 2023-55 which provides temporary relief for tax years 2022 and 2023 from the regulations published by the U.S. Treasury and Internal Revenue Service on January 4, 2022. Notice 2023-55 allows Tredegar to treat Brazil income tax as creditable in 2022 and 2023. 16 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. Total deferred tax assets increased during the first nine months of 2023 compared to December 31, 2022 primarily due to changes in other comprehensive income, the pre-tax loss, and decrease in deferred tax liability related to the goodwill impairment incurred during the first nine months of 2023. Tredegar accrues U.S. federal income taxes on unremitted earnings of foreign subsidiaries where required. However, due to changes in the taxation of dividends under the U.S. Tax Cuts and Jobs Act of 2017, Tredegar will only record U.S. federal income taxes on unremitted earnings of its foreign subsidiaries where Tredegar cannot take steps to eliminate any potential tax on future distributions from its foreign subsidiaries. The Brazilian federal statutory income tax rate is a composite of 34.0 % ( 25.0 % of income tax and 9.0 % of social contribution on income). Terphane Ltda.’s manufacturing facility in Brazil is the beneficiary of certain income tax incentives that allow for a reduction in the statutory Brazilian federal income tax rate to 15.25 % levied on the operating profit on certain of its products. The incentives have been granted for a 10-year period, from the commencement date of January 1, 2015 and expiring at the end of 2024. The benefit from the tax incentives was $ 0.5 million and $ 2.6 million in the first nine months of 2023 and 2022, respectively. Tredegar and its subsidiaries file income tax returns in the U.S., various states, and jurisdictions outside the U.S. With exceptions for some U.S. states and non-U.S. jurisdictions, Tredegar and its subsidiaries as of September 30, 2023 are no longer subject to U.S. federal, state or non-U.S. income tax examinations by tax authorities for years before 2019 . 10. BUSINESS SEGMENTS The Company’s business segments are Aluminum Extrusions, PE Films, and Flexible Packaging Films. Information by business segment is reported below. There are no accounting transactions between segments and no allocations to segments. The Company’s reportable segments are based on its method of internal reporting, which is generally segregated by differences in products. Accounting standards for presentation of segments require an approach based on the way the Company organizes the segments for making operating decisions and how the chief operating decision maker (“CODM”) assesses performance. EBITDA from ongoing operations is the key profitability measure used by the CODM (Tredegar’s President and Chief Executive Officer) for purposes of assessing financial performance. The Company uses sales less freight (“net sales”) as its measure of revenues from external customers at the segment level. This measure is separately included in the financial information regularly provided to the CODM. 17 The following table presents net sales and EBITDA from ongoing operations by segment for the three and nine months ended September 30, 2023 and 2022: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2023 2022 2023 2022 Net Sales Aluminum Extrusions $ 109,410 $ 161,649 $ 364,607 $ 510,066 PE Films 19,938 20,059 56,036 82,613 Flexible Packaging Films 30,111 47,278 94,861 128,117 Total net sales 159,459 228,986 515,504 720,796 Add back freight 6,733 9,500 19,977 28,619 Sales as shown in the condensed consolidated statements of income (loss) $ 166,192 $ 238,486 $ 535,481 $ 749,415 EBITDA from Ongoing Operations Aluminum Extrusions: Ongoing operations: EBITDA $ 5,113 $ 12,071 $ 29,968 $ 57,885 Depreciation & amortization ( 4,683 ) ( 4,416 ) ( 13,252 ) ( 12,846 ) EBIT 430 7,655 16,716 45,039 Plant shutdowns, asset impairments, restructurings and other ( 1,483 ) ( 32 ) ( 1,821 ) ( 120 ) PE Films: Ongoing operations: EBITDA 4,037 431 6,700 14,543 Depreciation & amortization ( 2,111 ) ( 1,579 ) ( 5,305 ) ( 4,733 ) EBIT 1,926 ( 1,148 ) 1,395 9,810 Plant shutdowns, asset impairments, restructurings and other ( 4,566 ) ( 498 ) ( 4,565 ) ( 650 ) Goodwill impairment ( 19,478 ) — ( 34,891 ) — Flexible Packaging Films: Ongoing operations: EBITDA 477 7,830 2,076 20,495 Depreciation & amortization ( 704 ) ( 590 ) ( 2,115 ) ( 1,723 ) EBIT ( 227 ) 7,240 ( 39 ) 18,772 Plant shutdowns, asset impairments, restructurings and other — ( 6 ) ( 79 ) ( 86 ) Total ( 23,398 ) 13,211 ( 23,284 ) 72,765 Interest income 62 9 135 41 Interest expense 3,106 1,138 7,791 3,158 Gain on investment in kaléo — — 262 1,406 Stock option-based compensation costs — 271 231 1,153 Pension settlement loss 25,612 — 25,612 — Corporate expenses, net 11,633 9,653 30,100 30,119 Income (loss) before income taxes ( 63,687 ) 2,158 ( 86,621 ) 39,782 Income tax expense (benefit) ( 13,307 ) 1,125 ( 16,307 ) 7,460 Net income (loss) $ ( 50,380 ) $ 1,033 $ ( 70,314 ) $ 32,322 18 The following table presents identifiable assets by segment at September 30, 2023 and December 31, 2022: (In thousands) September 30, 2023 December 31, 2022 Aluminum Extrusions $ 256,671 $ 293,308 PE Films 58,459 102,431 Flexible Packaging Films 82,789 103,448 Subtotal 397,919 499,187 General corporate 32,994 23,674 Cash and cash equivalents 48,604 19,232 Total $ 479,517 $ 542,093 The following tables disaggregate the Company’s revenue by geographic area and product group for the three and nine months ended September 30, 2023 and 2022: Net Sales by Geographic Area (a) Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2023 2022 2023 2022 United States $ 125,407 $ 181,405 $ 409,433 $ 577,496 Exports from the United States to: Asia 7,873 7,437 19,082 34,582 Latin America 1,764 2,138 5,440 4,824 Canada 3,640 4,065 12,879 12,431 Europe 282 1,016 1,414 3,464 Operations outside the United States: Brazil 20,351 32,925 66,954 87,999 Asia 142 — 302 — Total $ 159,459 $ 228,986 $ 515,504 $ 720,796 (a) Export sales relate mostly to PE Films. Operations in Brazil relate to Flexible Packaging Films. The Company’s facilities in Pottsville, PA (“PV”) and Guangzhou, China (“GZ”) have a tolling arrangement whereby certain surface protection films are manufactured in GZ for a fee with raw materials supplied from PV that are then shipped by GZ directly to customers principally in the Asian market, but paid by customers directly to PV. Amounts associated with this intercompany tolling arrangement are reported in the table above as export sales from the U.S. to Asia, and include net sales of $ 4.8 million and $ 4.4 million in the third quarter of 2023 and 2022, respectively, and $ 11.7 million and $ 16.1 million in the first nine months of 2023 and 2022, respectively. 19 Net Sales by Product Group Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2023 2022 2023 2022 Aluminum Extrusions: Nonresidential building & construction $ 59,476 $ 86,659 $ 203,889 $ 266,882 Consumer durables 8,662 16,714 30,723 52,409 Automotive 13,025 11,543 36,916 39,857 Residential building & construction 7,999 15,136 29,658 52,549 Electrical 2,016 4,730 16,223 21,704 Machinery & equipment 14,202 20,028 36,008 48,902 Distribution 4,030 6,839 11,190 27,763 Subtotal 109,410 161,649 364,607 510,066 PE Films: Surface protection films 12,755 13,018 34,251 58,839 Overwrap packaging 7,183 7,041 21,785 23,774 Subtotal 19,938 20,059 56,036 82,613 Flexible Packaging Films 30,111 47,278 94,861 128,117 Total $ 159,459 $ 228,986 $ 515,504 $ 720,796 11. SUPPLY CHAIN FINANCING The Company has supply chain finance service agreements with third-party financial institutions to provide platforms that facilitate the ability of participating suppliers to finance payment obligations from the Company with the third-party financial institution. The Company’s obligations to its suppliers, including amounts due and scheduled payment dates, are not affected by suppliers’ decisions to finance amounts under the supply chain finance agreements. As of September 30, 2023 and December 31, 2022, $ 14.2 million and $ 25.9 million, respectively, of the Company’s accounts payable were financed by participating suppliers through third-party financial institutions. 12. DEBT 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. Borrowings under the Credit Agreement bear an interest rate equal to Secured Overnight Financing Rate ("SOFR") plus a credit spread adjustment of 10 basis points ("Adjusted Term SOFR Rate"), 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) Total Net Leverage Ratio Term Benchmark Spread Commitment Fee <= 1.0x 175.0 20 >1.0x but <=2.0x 187.5 25 >2.0x but <=3.0x 200.0 30 >3.0x but <=3.5x 212.5 35 >3.5x 225.0 40 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: 20 • Total Net Leverage Ratio covenant of: (i) 5.0 x for the quarters ending September 30, 2023 through March 31, 2024, (ii) 4.75 x 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) 2.50 x for the quarters ending September 30, 2023 through June 30, 2024, (ii) 2.75 x for the quarter ending September 30, 2024, and (iii) 3.0 x for the quarter ending December 31, 2024 and thereafter; and • Prohibiting dividend payments and share repurchases during fiscal quarters ending September 30, 2023 through December 31, 2024. Under the Credit Agreement: • Total Net Leverage Ratio is defined as the ratio of (a)(i) total indebtedness minus (ii) liquidity (the lesser of $ 50,000,000 and the aggregate amount of cash and cash equivalents) to (b) EBITDA (as defined in the Credit Agreement as "Credit EBITDA"); and • Interest Coverage Ratio is defined as the ratio of Credit EBITDA to interest expense. The Credit Agreement is secured by substantially all assets of the Company and its domestic subsidiaries, including equity in certain material first-tier foreign subsidiaries. At September 30, 2023, based upon the most restrictive covenants within the Credit Agreement, available credit under the Credit Agreement was approximately $ 4.7 million. Tredegar was in compliance with all of its debt covenants as of September 30, 2023. 13. SUBSEQUENT EVENTS 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 has contemplated this strategic transition, as described further below, as part of its on-going evaluation of liquidity, as required by ASC 205-40, Presentation of Financial Statements – Going Concern. 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”). This U.S. 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. Financial highlights of the ABL Credit Facility include the following: • Initial borrowing availability under the ABL Credit Facility of $ 180 million, which will be reduced to $ 125 million upon the earlier of March 31, 2025 and the date the Company receives the proceeds from the Contingent Terphane Sale (the “ABL Adjustment Date”). • Outstanding borrowings to accrue interest at the rates elected by the Company depending on the type of loan and denomination of such borrowing: ◦ With respect to revolving loans denominated in U.S. Dollars, the Company may elect interest rates at ABR plus the Applicable Margin (defined below) or the Adjusted Term SOFR Rate plus the Applicable Margin. ◦ The “Applicable Margin” is a set margin prior to the ABL Adjustment Date; on and after the ABL Adjustment Date, the margin is determined in accordance with an excess availability-based pricing grid. ◦ Interest rate indices for select non-U.S. dollar borrowings, including borrowings denominated in euro, Pounds Sterling, Swiss Francs and Japanese Yen, will be consistent with the existing Credit Agreement. • Debt covenants including, among others: 21 ◦ until the ABL Adjustment Date, the ABL Credit Facility will contain financial covenants that require the Company to maintain (i) a minimum consolidated EBITDA (as defined by the Credit Agreement), as of the end of each fiscal month for the twelve month period then ended, of the following: Minimum EBITDA (In thousands) November 2023 $ 22,060 December 2023 $ 21,070 January 2024 $ 21,110 February 2024 $ 18,750 March 2024 $ 16,640 April 2024 $ 19,780 May 2024 $ 19,660 June 2024 $ 19,450 July 2024 $ 21,860 August 2024 $ 22,830 September 2024 $ 25,370 October 2024 $ 26,070 November 2024 $ 27,640 December 2024 $ 29,640 January 2025 $ 29,740 February 2025 $ 29,850 March 2025 $ 29,980 and (ii) a minimum liquidity of $ 10 million (defined as the sum of a portion of eligible receivables, inventories and property, plant and equipment under the ABL Credit Facility plus domestic unrestricted and unencumbered cash and cash equivalents). • Following the ABL Adjustment Date, the forgoing financial covenants will cease to exist and will be replaced with a minimum fixed charge coverage ratio of 1.00:1.00 that will be triggered in the event that availability is less than 10% of the ABL Credit Facility commitment amount and continuing thereafter until availability is greater than 10% of the ABL Credit Facility commitment amount for 30 consecutive days. 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. 22