TREDEGAR CORP 10-Q

Item 1. Financial Statements. Tredegar Corporation Condensed Consolidated Balance Sheets (In Thousands, Except Share Data) (Unaudited) March 31, December 31, 2024 2023 Assets Current assets: Cash and cash equivalents $ 3,493 $ 9,660 Restricted cash 1,299 3,795 Accounts and other receivables, net 73,032 67,938 Income taxes recoverable 793 1,182 Inventories 86,822 82,037 Prepaid expenses and other 9,438 12,065 Total current assets 174,877 176,677 Property, plant and equipment, at cost 540,856 541,046 Less: accumulated depreciation ( 362,884 ) ( 357,591 ) Net property, plant and equipment 177,972 183,455 Right-of-use leased assets 16,761 11,848 Identifiable intangible assets, net 9,364 9,851 Goodwill 35,717 35,717 Deferred income taxes 24,320 25,034 Other assets 3,520 3,879 Total assets $ 442,531 $ 446,461 Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $ 84,925 $ 95,023 Accrued expenses 23,083 24,442 Lease liability, short-term 2,871 2,107 ABL revolving facility (matures June 30, 2026) 128,330 126,322 Income taxes payable 225 1,210 Total current liabilities 239,434 249,104 Lease liability, long-term 15,318 10,942 Long-term debt 20,000 20,000 Pension and other postretirement benefit obligations, net 6,582 6,643 Other non-current liabilities 4,382 4,119 Total liabilities 285,716 290,808 Shareholders’ equity: Common stock, no par value (authorized shares 150,000,000 , issued and outstanding 34,533,870 shares at March 31, 2024 and 34,408,638 shares at December 31, 2023) 61,959 61,606 Common stock held in trust for savings restoration plan ( 118,543 shares at March 31, 2024 and 118,543 shares at December 31, 2023) ( 2,233 ) ( 2,233 ) Accumulated other comprehensive income (loss): Foreign currency translation adjustment ( 84,985 ) ( 83,037 ) Gain (loss) on derivative financial instruments 297 801 Pension and other postretirement benefit adjustments 512 539 Retained earnings 181,265 177,977 Total shareholders’ equity 156,815 155,653 Total liabilities and shareholders’ equity $ 442,531 $ 446,461 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 March 31, 2024 2023 Revenues and other items: Sales $ 175,736 $ 191,122 Other income (expense), net 8 280 175,744 191,402 Costs and expenses: Cost of goods sold 142,043 159,525 Freight 6,666 6,043 Selling, general and administrative 18,258 19,006 Research and development 352 1,205 Amortization of identifiable intangibles 464 503 Pension and postretirement benefits 54 3,418 Interest expense 3,455 2,311 Asset impairments and costs associated with exit and disposal activities, net of adjustments 507 69 Total 171,799 192,080 Income (loss) before income taxes 3,945 ( 678 ) Income tax expense (benefit) 657 331 Net income (loss) $ 3,288 $ ( 1,009 ) Earnings (loss) per share: Basic $ 0.10 $ ( 0.03 ) Diluted $ 0.10 $ ( 0.03 ) Shares used to compute earnings (loss) per share: Basic 34,323 33,895 Diluted 34,323 33,895 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 March 31, 2024 2023 Net income (loss) $ 3,288 $ ( 1,009 ) Other comprehensive income (loss): Unrealized foreign currency translation adjustment (net of tax expense of $ 221 in 2024 and net of tax expense of $ 436 in 2023) ( 1,948 ) 1,120 Derivative financial instruments adjustment (net of tax benefit of $ 140 in 2024 and net of tax expense of $ 836 in 2023) ( 504 ) 1,269 Amortization of prior service costs and net gains or losses (net of tax benefit of $ 8 in 2024 and net of tax expense of $ 637 in 2023) ( 27 ) 2,287 Other comprehensive income (loss) ( 2,479 ) 4,676 Comprehensive income (loss) $ 809 $ 3,667 See accompanying notes to the condensed consolidated financial statements. 4 Tredegar Corporation Condensed Consolidated Statements of Cash Flows (In Thousands) (Unaudited) Three Months Ended March 31, 2024 2023 Cash flows from operating activities: Net income (loss) $ 3,288 $ ( 1,009 ) Adjustments for noncash items: Depreciation 6,252 6,340 Amortization of identifiable intangibles 464 503 Reduction of right-of-use lease asset 610 551 Deferred income taxes 623 411 Accrued pension and post-retirement benefits 54 3,418 Stock-based compensation expense 686 186 Gain on investment in kaléo — ( 262 ) Changes in assets and liabilities: Accounts and other receivables ( 5,337 ) ( 4,320 ) Inventories ( 5,481 ) 14,840 Income taxes recoverable/payable ( 580 ) ( 1,156 ) Prepaid expenses and other 1,890 1,816 Accounts payable and accrued expenses ( 10,306 ) ( 28,977 ) Lease liability ( 689 ) ( 558 ) Pension and postretirement benefit plan contributions ( 158 ) ( 154 ) Other, net 965 ( 737 ) Net cash provided by (used in) operating activities ( 7,719 ) ( 9,108 ) Cash flows from investing activities: Capital expenditures ( 2,461 ) ( 9,025 ) Proceeds from the sale of kaléo — 262 Proceeds from the sale of assets 83 — Net cash provided by (used in) investing activities ( 2,378 ) ( 8,763 ) Cash flows from financing activities: Borrowings 179,248 37,250 Debt principal payments ( 177,240 ) ( 19,250 ) Dividends paid — ( 4,419 ) Net cash provided by (used in) financing activities 2,008 13,581 Effect of exchange rate changes on cash ( 574 ) 83 Increase (decrease) in cash, cash equivalents and restricted cash ( 8,663 ) ( 4,207 ) Cash, cash equivalents and restricted cash at beginning of period 13,455 19,232 Cash, cash equivalents and restricted cash at end of period $ 4,792 $ 15,025 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 March 31, 2024: Common Stock Retained Earnings Trust for Savings Restoration Plan Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Balance January 1, 2024 $ 61,606 $ 177,977 $ ( 2,233 ) $ ( 81,697 ) $ 155,653 Net income (loss) — 3,288 — — 3,288 Foreign currency translation adjustment — — — ( 1,948 ) ( 1,948 ) Derivative financial instruments adjustment — — — ( 504 ) ( 504 ) Amortization of prior service costs and net gains or losses — — — ( 27 ) ( 27 ) Stock-based compensation expense 579 — — — 579 Repurchase of employee common stock for tax withholdings (226) — — — (226) Balance March 31, 2024 $ 61,959 $ 181,265 $ ( 2,233 ) $ ( 84,176 ) $ 156,815 The following summarizes the changes in shareholders’ equity for the three month period ended March 31, 2023: Common Stock Retained Earnings Trust for Savings Restoration Plan Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Balance at January 1, 2023 $ 58,824 $ 292,721 $ ( 2,188 ) $ ( 147,595 ) $ 201,762 Net income (loss) — ( 1,009 ) — — ( 1,009 ) Foreign currency translation adjustment — — — 1,120 1,120 Derivative financial instruments adjustment — — — 1,269 1,269 Amortization of prior service costs and net gains or losses — — — 2,287 2,287 Cash dividends declared ($ 0.13 per share) — ( 4,419 ) — — ( 4,419 ) Stock-based compensation expense 853 — — — 853 Repurchase of employee common stock for tax withholdings (254) (254) Tredegar common stock purchased by trust for savings restoration plan — 15 ( 15 ) — — Balance at March 31, 2023 $ 59,423 $ 287,308 $ ( 2,203 ) $ ( 142,919 ) $ 201,609 See accompanying notes to the condensed consolidated financial statements. 6 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 March 31, 2024, the condensed consolidated results of operations for the three months ended March 31, 2024 and 2023, the condensed consolidated cash flows for the three months ended March 31, 2024 and 2023, and the condensed consolidated changes in shareholders’ equity for the three months ended March 31, 2024 and 2023, 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 first quarter for 2024 and 2023 for this segment references 13-week periods ended March 31, 2024 and March 26, 2023, 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. The condensed consolidated financial statements as of December 31, 2023 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, 2023 (“2023 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 2023 Form 10-K. The results of operations for the three months ended March 31, 2024, 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 (also referred to as "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 Colombia. On October 27, 2023, the Company filed the requisite competition forms with the Administrative Council for Economic Defense (“CADE”) in Brazil. The regulatory review process is ongoing and in line with the Company’s expectations. CADE’s maximum deadline for completing its review is no later than November 18, 2024. The merger review regarding the transaction was cleared by the Colombian authority in early February 2024. Closure of PE Films Technical Center In August 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. All activities ceased at the PE Films technical center in Richmond, VA as of the end of the first quarter of 2024. The Company recognized expense incurred through March 31, 2024 associated with the exit activities of $ 0.2 million for building closure costs. In addition, the Company recognized a non-cash loss on the lease abandonment ($ 0.3 million). 7 Supply Chain Financing As of March 31, 2024 and December 31, 2023, $ 8.8 million and $ 15.8 million, respectively, of the Company’s accounts payable were financed by participating suppliers through third-party financial institutions. Accounting standards not yet adopted In October 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-06 to amend various paragraphs in the Accounting Standards Codification ("ASC") to primarily reflect the issuance of U.S. Securities and Exchange Commission ("SEC") Staff Bulletin No. 33-10532. ASU 2023-06 will impact various disclosure areas, including the statement of cash flows, accounting changes and error corrections, earnings per share, debt, equity, derivatives, and transfers of financial assets. The amendments in this ASU 2023-06 will be effective on the date the related disclosures are removed from Regulation S-X or Regulation S-K by the SEC and will no longer be effective if the SEC has not removed the applicable disclosure requirement by June 30, 2027. Early adoption is not permitted. The Company does not expect a material impact from the adoption of this standard on our consolidated financial statements and related disclosures. In November 2023, the FASB issued ASU 2023-07 to improve reportable segment disclosure and requirements, primarily through the enhanced disclosures about significant segment expenses. ASU 2023-07 expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. This ASU is effective for fiscal years beginning after December 15, 2023 and interim period beginning after December 15, 2024, with early adoption permitted. The amendments in this ASU are to be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of this standard on our consolidated financial statements and related disclosures. In December 2023, the FASB issued ASU 2023-09 to improve the income tax disclosures related to the rate reconciliation and income taxes paid information and to improve the effectiveness of income tax disclosures. The amendments in this ASU will require the Company to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 will also require the Company to disaggregate its income taxes paid disclosure by federal, state and foreign taxes, with further disaggregation required for significant individual jurisdictions. This ASU is effective for annual periods beginning after December 15, 2024; early adoption is permitted. The Company is currently evaluating the impact of this standard on our consolidated financial statements and related disclosures. 2. ACCOUNTS AND OTHER RECEIVABLES As of March 31, 2024 and December 31, 2023, accounts and other receivables, net include the following: (In thousands) March 31, 2024 December 31, 2023 Customer receivables $ 73,333 $ 67,183 Other receivables 1,754 3,056 Total accounts and other receivables 75,087 70,239 Less: Allowance for bad debts ( 2,055 ) ( 2,301 ) Total accounts and other receivables, net $ 73,032 $ 67,938 3. INVENTORIES The components of inventories are as follows: (In thousands) March 31, 2024 December 31, 2023 Finished goods $ 28,939 $ 29,821 Work-in-process 9,835 7,830 Raw materials 25,182 21,939 Stores, supplies and other 22,866 22,447 Total $ 86,822 $ 82,037 8 4. PENSION AND OTHER POSTRETIREMENT BENEFITS Tredegar sponsored 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. On November 3, 2023, the pension plan termination and settlement process for the Company was completed, and the remaining pension plan obligation was transferred to Massachusetts Mutual Life Insurance Company. During 2023, the Company recognized a pre-tax pension settlement loss of $ 92.3 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 months ended March 31, 2024 and 2023. This information has been included in the pension benefit table below. 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 months ended March 31, 2024 and 2023, are shown below: Pension Benefits Other Post-Retirement Benefits Three Months Ended March 31, Three Months Ended March 31, (In thousands) 2024 2023 2024 2023 Service cost $ — $ — $ 3 $ 3 Interest cost 19 3,027 67 71 Expected return on plan assets — ( 2,607 ) — — Amortization of prior service costs, (gains) losses and net transition asset 5 2,983 ( 40 ) ( 59 ) Net periodic benefit cost $ 24 $ 3,403 $ 30 $ 15 Pension and other postretirement liabilities were $ 7.2 million and $ 7.3 million at March 31, 2024 and December 31, 2023, respectively ($ 0.6 million and $ 0.7 million included in “Accrued expenses” at March 31, 2024 and December 31, 2023, 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 2024, the Company anticipates the amount will be consistent with amounts paid for the year ended December 31, 2023, or approximately $ 0.4 million. 5. 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 March 31, (In thousands) 2024 2023 Weighted average shares outstanding used to compute basic earnings per share 34,323 33,895 Incremental dilutive shares attributable to stock options and restricted stock — — Shares used to compute diluted earnings per share 34,323 33,895 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. 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 2,870,670 for the three months ended March 31, 2024. If the Company had reported net income for the three months ended March 31, 2023, 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 would have been 2,645,365 . 9 6. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The changes in accumulated other comprehensive income (loss) by component for the three months ended March 31, 2024. (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, 2024 $ ( 83,037 ) $ 801 $ 539 $ ( 81,697 ) Other comprehensive income (loss) ( 1,727 ) 282 — ( 1,445 ) Income tax (expense) benefit ( 221 ) ( 112 ) — ( 333 ) Other comprehensive income (loss), net of tax ( 1,948 ) 170 — ( 1,778 ) Reclassification adjustment to net income (loss) — ( 927 ) ( 35 ) ( 962 ) Income tax (expense) benefit — 253 8 261 Reclassification adjustment to net income (loss), net of tax — ( 674 ) ( 27 ) ( 701 ) Other comprehensive income (loss), net of tax ( 1,948 ) ( 504 ) ( 27 ) ( 2,479 ) Balance at March 31, 2024 $ ( 84,985 ) $ 297 $ 512 $ ( 84,176 ) The changes in accumulated other comprehensive income (loss) by component for the three months ended March 31, 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) 1,557 3,078 — 4,635 Income tax (expense) benefit ( 437 ) ( 1,087 ) — ( 1,524 ) Other comprehensive income (loss), net of tax 1,120 1,991 — 3,111 Reclassification adjustment to net income (loss) — ( 973 ) 2,924 1,951 Income tax (expense) benefit — 251 ( 637 ) ( 386 ) Reclassification adjustment to net income (loss), net of tax — ( 722 ) 2,287 1,565 Other comprehensive income (loss), net of tax 1,120 1,269 2,287 4,676 Balance at March 31, 2023 $ ( 84,959 ) $ ( 1,211 ) $ ( 56,749 ) $ ( 142,919 ) 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. 7. 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 10 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 $ 6.8 million ( 5.1 million pounds of aluminum) at March 31, 2024 and $ 7.7 million ( 5.6 million pounds of aluminum) at December 31, 2023. 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 March 31, 2024 and December 31, 2023: March 31, 2024 December 31, 2023 (In thousands) Balance Sheet Account Fair Value Balance Sheet Account Fair Value Derivatives Designated as Hedging Instruments Asset derivatives: Aluminum futures contracts Other assets 28 Other assets — Liability derivatives: Aluminum futures contracts Accrued expenses ( 318 ) Accrued expenses ( 483 ) Aluminum futures contracts Other non-current liabilities — Other non-current liabilities ( 9 ) Net asset (liability) $ ( 290 ) $ ( 492 ) 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. 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$") will result in an annual net cost of R$ 139 million for the full year of 2024. Terphane Ltda. had the following outstanding foreign exchange average forward rate contracts to purchase Brazilian Real and sell U.S. Dollars as of March 31, 2024: 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 $ 1,827 5.3373 R$ 9,751 Apr-24 84 % $ 1,798 5.3588 R$ 9,635 May-24 83 % $ 1,812 5.3708 R$ 9,732 Jun-24 84 % $ 1,804 5.3848 R$ 9,714 Jul-24 84 % $ 1,806 5.4014 R$ 9,755 Aug-24 84 % $ 1,857 5.4107 R$ 10,048 Sep-24 87 % $ 1,851 5.4225 R$ 10,037 Oct-24 87 % $ 1,837 5.4403 R$ 9,994 Nov-24 86 % $ 1,801 5.4580 R$ 9,830 Dec-24 85 % $ 16,393 5.3984 R$ 88,496 84 % 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. 11 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 March 31, 2024 and December 31, 2023: March 31, 2024 December 31, 2023 (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 $ 1,154 Prepaid expenses and other $ 2,050 Foreign currency forward contracts Other assets — Other assets 146 Liability derivatives: Foreign currency forward contracts Accrued expenses ( 6 ) Other non-current liabilities — Foreign currency forward contracts Other non-current liabilities ( 2 ) Other non-current liabilities — Net asset (liability) $ 1,146 $ 2,196 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 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 month periods ended March 31, 2024 and 2023 is summarized in the table below: Cash Flow Derivative Hedges Three Months Ended March 31, Aluminum Futures Contracts Foreign Currency Forwards (In thousands) 2024 2023 2024 2023 Amount of pre-tax gain (loss) recognized in other comprehensive income (loss) $ 721 $ 1,402 $ — $ ( 439 ) $ — $ 1,676 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) $ 519 $ 672 $ 15 $ 393 $ 15 $ 286 As of March 31, 2024, the Company expects $ 0.4 million of unrealized after-tax gains 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 month periods ended March 31, 2024 and 2023, net gains or losses realized, from previously unrealized net gains or losses on hedges that had been discontinued, were not material. 8. INCOME TAXES Tredegar recorded tax expense (benefit) of $ 0.7 million on pre-tax income (loss) of $ 3.9 million in the first three months of 2024. The effective tax rate in the first three months of 2024 was 16.7 % and ( 48.8 )% in the first three months of 2023. The change in effective tax rate was primarily due to pre-tax income in the first quarter of 2024 versus a pre-tax loss in the first three months of 2023. The effective tax rate for the first three months of 2024 varies from the 21% statutory rate primarily due to foreign rate differences and non-deductible expenses offset by Brazilian tax incentives and federal tax credits. Brazil income tax was deemed deductible but not creditable in the U.S. in the first three months of 2023. As a result of guidance released by the U.S. Treasury and Internal Revenue Service ("IRS") in the fourth quarter of 2023, and new Brazil tax legislation effective January 1, 2024, Brazil income tax is deemed creditable in the U.S. for 2024. 12 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. 9. 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 CODM assesses performance. Earnings before interest, taxes, depreciation and amortization ("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. The following table presents net sales and EBITDA from ongoing operations by segment for the three months ended March 31, 2024 and 2023: 13 Three Months Ended March 31, (In thousands) 2024 2023 Net Sales Aluminum Extrusions $ 114,222 $ 133,370 PE Films 24,735 20,182 Flexible Packaging Films 30,113 31,527 Total net sales 169,070 185,079 Add back freight 6,666 6,043 Sales as shown in the condensed consolidated statements of income (loss) $ 175,736 $ 191,122 EBITDA from Ongoing Operations Aluminum Extrusions: Ongoing operations: EBITDA $ 12,540 $ 14,638 Depreciation & amortization ( 4,542 ) ( 4,411 ) EBIT 7,998 10,227 Plant shutdowns, asset impairments, restructurings and other ( 1,167 ) ( 493 ) PE Films: Ongoing operations: EBITDA 6,904 1,849 Depreciation & amortization ( 1,329 ) ( 1,643 ) EBIT 5,575 206 Plant shutdowns, asset impairments, restructurings and other ( 504 ) 2 Flexible Packaging Films: Ongoing operations: EBITDA 1,963 1,350 Depreciation & amortization ( 751 ) ( 700 ) EBIT 1,212 650 Plant shutdowns, asset impairments, restructurings and other — ( 78 ) Total 13,114 10,514 Interest income 22 44 Interest expense 3,455 2,311 Gain on investment in kaleo, Inc. — 262 Stock option-based compensation costs — 231 Corporate expenses, net 5,736 8,956 Income (loss) before income taxes 3,945 ( 678 ) Income tax expense (benefit) 657 331 Net income (loss) $ 3,288 $ ( 1,009 ) The following table presents identifiable assets by segment at March 31, 2024 and December 31, 2023: (In thousands) March 31, 2024 December 31, 2023 Aluminum Extrusions $ 264,300 $ 255,756 PE Films 57,925 56,536 Flexible Packaging Films 81,290 84,062 Subtotal 403,515 396,354 General corporate 34,224 36,652 Cash, cash equivalents and restricted cash 4,792 13,455 Total $ 442,531 $ 446,461 14 The following tables disaggregate the Company’s revenue by geographic area and product group for the three months ended March 31, 2024 and 2023: Net Sales by Geographic Area (a) Three Months Ended March 31, (In thousands) 2024 2023 United States $ 132,627 $ 150,611 Exports from the United States to: Asia 8,825 5,732 Latin America 1,331 1,859 Canada 4,539 4,284 Europe 255 860 Operations outside the United States: Brazil 21,331 21,628 Asia 162 105 Total $ 169,070 $ 185,079 (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 $ 6.1 million and $ 3.4 million in the first quarter of 2024 and 2023, respectively. Net Sales by Product Group Three Months Ended March 31, (In thousands) 2024 2023 Aluminum Extrusions: Nonresidential building & construction $ 66,347 $ 78,629 Consumer durables 7,984 10,347 Automotive 10,606 12,122 Residential building & construction 7,902 11,603 Electrical 5,836 8,129 Machinery & equipment 12,195 10,724 Distribution 3,352 1,816 Subtotal 114,222 133,370 PE Films: Surface protection films 17,011 12,855 Overwrap packaging 7,724 7,327 Subtotal 24,735 20,182 Flexible Packaging Films 30,113 31,527 Total $ 169,070 $ 185,079 10. DEBT ABL Facility On December 27, 2023, the Company entered into Amendment No. 3 (the “ABL Facility”) to the Second Amended and Restated Credit Agreement, which provides the Company with a $ 180 million senior secured asset-based revolving credit facility that will expire on June 30, 2026. On April 16, 2024, the Company entered into Amendment No. 4 (the "Amendment") that, among other items: (i) moves the ABL Adjustment Date (defined below) from March 31, 2025 to September 30, 2025 and (ii) requires weekly reporting of the borrowing base financial covenant. The ABL Facility is secured by substantially all assets of the Company and its domestic subsidiaries, including equity in certain material first-tier foreign subsidiaries. Availability for 15 borrowings under the ABL Facility is governed by a borrowing base, determined by the application of specified advance rates against eligible assets, including a portion of trade accounts receivable, inventory, cash and cash equivalents, owned real properties, and owned machinery and equipment. Upon the earlier of September 30, 2025 or the date the Company receives the proceeds from the sale of Terphane (the “ABL Adjustment Date”), the $ 180 million ABL Facility will be reduced to $ 125 million. As of March 31, 2024, availability under the ABL Facility was $ 22.2 million, after reducing the borrowing base by the aggregate outstanding borrowings of $ 128.3 million, standby letters of credit of $ 13.1 million, and the Minimum Liquidity (as defined in the ABL Facility) financial covenant. Outstanding borrowings 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: • Alternate Base Rate (“ABR”) plus 2.50 % before the ABL Adjustment Date and the applicable ABR Spread (as defined in the ABL Facility) after the ABL Adjustment Date are determined in accordance with an excess availability-based pricing grid. ABR is defined, in part, as the greater of (a) the Prime Rate in effect on such day, (b) the Federal Reserve Bank of New York Rate in effect on such day plus ½ of 1% and (c) the Adjusted Term SOFR Rate (defined below) for a one-month period plus 1%; or • The Adjusted Term Secured Overnight Financing Rate ("SOFR") Rate plus 3.50 % before the ABL Adjustment Date and the applicable Term Benchmark Spread (as defined in the ABL Facility) are determined in accordance with an excess availability-based pricing grid after the ABL Adjustment Date. Adjusted Term SOFR Rate is defined as the Term SOFR Rate plus 0.10%, subject to an initial Floor (as defined in the ABL Facility) of 0%. Interest rate indices for select non-U.S. dollar borrowings, including borrowings denominated in Euro, Pounds Sterling, Swiss Francs and Japanese Yen, remain consistent with the Second Amended and Restated Credit Agreement. Based upon the quarterly average of daily availability under the ABL Facility, the interest rate pricing grid applicable after the ABL Adjustment Date will be as follows: Pricing under the ABL Facility (Basis Points) Quarter Average of Daily Availability Term Benchmark Spread ABR Spread Commitment Fee* > 66% of $125 million aggregate commitment 225.0 125.0 40.0 ≤ 66% but > 33% of $125 million aggregate commitment 250.0 150.0 40.0 ≤ 33% of $125 million aggregate commitment 275.0 175.0 40.0 * The Commitment Fee before the ABL Adjustment Date and after the ABL Adjustment Date remain the same as reflected in this table. Under the terms of the ABL Facility, certain domestic bank accounts are subject to blocked account agreements, each of which contains a springing feature whereby the lenders may exercise control over those accounts during a cash dominion period (any such period, a “Cash Dominion Period”). A Cash Dominion Period was implemented on the date of the closing of the ABL Facility and will remain in effect at all times prior to the ABL Adjustment Date. After the ABL Adjustment Date, a Cash Dominion Period goes into effect if availability under the ABL Facility falls below 12.5 % or an Event of Default (as defined in the ABL Facility) occurs. The Company would then be subject to the Cash Dominion Period until the Event of Default is waived or ABL Facility availability is above 12.5 % of the $ 125 million aggregate commitment for 30 consecutive days. Receipts that have not yet been applied to the ABL Facility are classified as restricted cash in the Company’s consolidated balance sheets. The financial covenants in the ABL Facility are as follows: • Until the ABL Adjustment Date, the Company is required to maintain (i) a minimum Credit EBITDA (as defined in the ABL Facility), as of the end of each fiscal month for the 12-month period then ended (presented below) and (ii) a Minimum Liquidity (as defined in the ABL Facility) of $ 10.0 million. 16 Minimum Credit EBITDA (In thousands) 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 April 2025 30,340 May 2025 30,700 June 2025 31,030 July 2025 31,370 August 2025 31,710 September 2025 $ 32,080 • Following the ABL Adjustment Date, the foregoing 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 $ 125 million commitment amount and continuing thereafter until availability is greater than 10 % of the $ 125 million commitment amount for 30 consecutive days. In addition to the financial covenants, the ABL Facility contains restrictive covenants, including covenants that restrict the Company’s ability to pay dividends and repurchase shares of its common stock. If at any time the availability under the ABL facility after the ABL Adjustment Date is less than 20% of the maximum aggregate principal amount in effect at such time or an Event of Default occurs, the Company’s current weekly reporting requirements to lenders will continue until the Event of Default is waived, cured or the availability under the ABL facility is above 20% of the maximum aggregate principal amount for 30 consecutive days. The ABL Facility has customary representations and warranties including, as a condition to each borrowing, that all such representations and warranties are true and correct in all material respects (including a representation that no Material Adverse Effect (as defined in the ABL Facility) has occurred since December 31, 2022). In the event that the Company cannot certify that all conditions to the borrowing have been met, the lenders can restrict the Company’s future borrowings under the ABL Facility. Because a Cash Dominion Period is currently in effect and the Company is required to represent that no Material Adverse Effect has occurred as a condition to borrowing, the outstanding debt under the ABL Facility (all contractual payments due on June 30, 2026) is classified as a current liability in the condensed consolidated balance sheets. In accordance with the ABL Facility, the lenders have been provided with the Company’s financial statements, covenant compliance certificates and projections to facilitate their ongoing assessment of the Company. Accordingly, the Company believes the likelihood that lenders would exercise the subjective acceleration clause whereby prohibiting future borrowings is remote. As of March 31, 2024, the Company was in compliance with all debt covenants. Terphane Brazil Loan On October 26, 2023, Flexible Packaging Film's business unit in Brazil (“Terphane Ltda.”), the Company’s wholly owned subsidiary in Brazil, borrowed $ 20 million secured by certain of its assets (“Terphane Brazil Loan”). This U.S. Dollar borrowing matures 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 March 31, 2024. 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 the closing of the Contingent Terphane Sale. On October 26, 2023, the Company borrowed $ 20 million from Terphane Ltda. (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. 17