TREDEGAR CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking and Cautionary Statements Some of the information contained in this Quarterly Report on Form 10-Q ("Form 10-Q") may constitute “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. When the Company uses the words “believe,” “estimate,” “anticipate,” “appear to,” “expect,” “project,” “plan,” “likely,” “may” and similar expressions, it does so to identify forward-looking statements. Such statements are based on the Company's then current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. It is possible that the Company's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these forward-looking statements. Factors that could cause actual results to differ materially from expectations include, without limitation, the following: • inability to successfully complete strategic dispositions, including the Contingent Terphane Sale, failure to realize the expected benefits of such dispositions and assumption of unanticipated risks in such dispositions; • inability to successfully transition into an asset-based revolving lending facility; • noncompliance with any of the financial and other restrictive covenants in the Company's asset-based credit facility; • the impact of macroeconomic factors, such as inflation, interest rates, recession risks and other lagging effects of the COVID-19 pandemic • an increase in the operating costs incurred by the Company’s business units, including, for example, the cost of raw materials and energy; • failure to continue to attract, develop and retain certain key officers or employees; • disruptions to the Company’s manufacturing facilities, including those resulting from labor shortages; • inability to develop, efficiently manufacture and deliver new products at competitive prices; • the impact of the imposition of tariffs and sanctions on imported aluminum ingot used by Bonnell Aluminum; • failure to prevent foreign companies from evading anti-dumping and countervailing duties; • unanticipated problems or delays with the implementation of the enterprise resource planning and manufacturing executions systems, or security breaches and other disruptions to the Company's information technology infrastructure; • loss or gain of sales to significant customers on which the Company’s business is highly dependent; • inability to achieve sales to new customers to replace lost business; • failure of the Company’s customers to achieve success or maintain market share; • failure to protect our intellectual property rights; • risks of doing business in countries outside the U.S. that affect our international operations; • political, economic and regulatory factors concerning the Company’s products; • competition from other manufacturers, including manufacturers in lower-cost countries and manufacturers benefiting from government subsidies; • impact of fluctuations in foreign exchange rates; • the termination of anti-dumping duties on products imported to Brazil that compete with products produced by Flexible Packaging; • an information technology system failure or breach; • the impact of public health epidemics on employees, production and the global economy, such as the COVID-19 pandemic; • inability to successfully identify, complete or integrate strategic acquisitions; failure to realize the expected benefits of such acquisitions and assumption of unanticipated risks in such acquisitions; • impairment of the Surface Protection reporting unit's goodwill; and the other factors discussed in the reports Tredegar files with or furnishes to the Securities and Exchange Commission (the “SEC”) from time to time, including the risks and important factors set forth in additional detail in Part I, Item 1A of Tredegar’s 18 Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”). Readers are urged to review and consider carefully the disclosures Tredegar makes in its filings with the SEC. Tredegar does not undertake, and expressly disclaims any duty, to update any forward-looking statement to reflect any change in management’s expectations or any change in conditions, assumptions or circumstances on which such statements are based, except as required by applicable law. References herein to “Tredegar,” “the Company,” “we,” “us” and “our” are to Tredegar Corporation and its subsidiaries, collectively, unless the context otherwise indicates or requires. Unless otherwise stated or indicated, all comparisons are to the prior year period. References to "Notes" are to notes to our condensed consolidated financial statements found in Part I, Item 1 of this Form 10-Q. Critical Accounting Policies and Estimates In the ordinary course of business, the Company makes a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of financial statements in conformity with generally accepted accounting standards in the United States ("GAAP"). The Company believes the estimates, assumptions and judgments described in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in the 2023 Form 10-K have the greatest potential impact on our financial statements, so Tredegar considers these to be its critical accounting policies. Since December 31, 2023, there have been no changes in these policies or estimates that have had a material impact on our results of operations or financial position. Business Overview Tredegar Corporation is an industrial manufacturer with three primary businesses: custom aluminum extrusions for the North American building and construction ("B&C"), automotive and specialty end-use markets through its Aluminum Extrusions segment; surface protection films for high-technology applications in the global electronics industry through its PE Films segment; and specialized polyester films primarily for the Latin American flexible packaging market through its Flexible Packaging Films segment. With approximately 1,900 employees, the Company operates manufacturing facilities in North America, South America, and Asia. Earnings before interest, taxes, depreciation and amortization ("EBITDA") from ongoing operations is the measure of segment profit and loss used by Tredegar’s chief operating decision maker ("CODM") for purposes of assessing financial performance. The Company uses sales less freight (“net sales”) as its measure of revenues from external customers at the segment level. This measure is separately included in the financial information regularly provided to the CODM. Earnings before interest and taxes ("EBIT") from ongoing operations is a non-GAAP financial measure included in the reconciliation of segment financial information to consolidated results for the Company in Note 9. It is not intended to represent the stand-alone results for Tredegar's ongoing operations under GAAP and should not be considered as an alternative to net income as defined by GAAP. We believe that EBIT is a widely understood and utilized metric that is meaningful to certain investors and that including this financial metric in the reconciliation of management’s performance metric, EBITDA from ongoing operations, provides useful information to those investors that primarily utilize EBIT to analyze the Company’s core operations. First quarter 2024 net income (loss) was $3.3 million ($0.10 per diluted share) compared with net income (loss) of $(1.0) million ($(0.03) per diluted share) in the first quarter of 2023. First Quarter Financial Results Highlights • EBITDA from ongoing operations for Aluminum Extrusions was $12.5 million in the first quarter of 2024 versus $14.6 million in the first quarter of last year and $8.0 million in the fourth quarter of 2023. ◦ Sales volume was 33.8 million pounds in the first quarter of 2024 versus 37.6 million pounds in the first quarter of last year and 32.9 million pounds in the fourth quarter of 2023. ◦ Open orders at the end of the first quarter of 2024 were approximately 15 million pounds (versus 27 million pounds in the first quarter of 2023 and 14 million pounds at the end of the fourth quarter of 2023). Net new orders increased 61% and 12% in the first quarter of 2024 versus the first quarter of 2023 and fourth quarter of 2023, respectively. • EBITDA from ongoing operations for PE Films was $6.9 million in the first quarter of 2024 versus $1.8 million in the first quarter of 2023 and $4.5 million in the fourth quarter of 2023. Sales volume was 10.0 million pounds in the first quarter of 2024 versus 7.4 million pounds in the first quarter of 2023 and 8.5 million pounds in the fourth quarter of 2023. • EBITDA from ongoing operations for Flexible Packaging Films (also referred to as "Terphane") was $2.0 million during the first quarter of 2024 versus $1.4 million in the first quarter of 2023 and $2.3 million during the fourth quarter of 2023. Sales volume was 22.0 million pounds in the first quarter of 2024 versus 19.8 million pounds in the first quarter 2023 and 19 22.8 million pounds in the fourth quarter of 2023. See the Status of Agreement to Sell Terphane in Results of Operations below for information on the planned sale of Terphane. The bottom of the recent severe down cycle in Aluminum Extrusions, which the Company believes was a residual impact of the pandemic and started in the second half of 2022, appears to have occurred in the third quarter of 2023. Net new orders and sales volume have increased sequentially in each quarter since that time. At PE Films, EBITDA from ongoing operations during the first quarter of 2024 was exceptional at $6.9 million. The process to complete the closing of the Company’s agreement to sell Terphane continues to advance as planned, including the review required by competition authorities in Brazil. The Company continues to focus on prudently managing costs, working capital and capital spending. Results of Operations First Quarter of 2024 Compared with the First Quarter of 2023 The following table presents a bridge of consolidated net income (loss) from the first quarter of 2023 to the first quarter of 2024 with management's related discussion and analysis below the table. (In thousands) Net income (loss) for the three months ended March 31, 2023 $ (1,009) Income tax expense (benefit) 331 Income (loss) before income taxes for the three months ended March 31, 2023 (678) Change in income (loss) from increases (decreases) in the following items: Sales (15,386) Other income (expense), net (272) Total (15,658) Change in income (loss) from (increases) decreases in the following items: Cost of goods sold 17,482 Freight (623) Selling, general and administrative 748 Research and development 853 Pension and postretirement benefits 3,364 Interest expense (1,144) Other (399) Total 20,281 Income (loss) before income taxes for the three months ended March 31, 2024 3,945 Income tax expense (benefit) 657 Net income (loss) for the three months ended March 31, 2024 $ 3,288 Sales in the first quarter of 2024 decreased by $15.4 million compared with the first quarter of 2023. Net sales (sales less freight) in Aluminum Extrusions decreased $19.1 million, primarily due to lower sales volume and the pass-through of lower metal costs. Net sales in PE Films increased $4.6 million, primarily due to volume increases in both Surface Protection and overwrap films. Net sales in Flexible Packaging Films decreased $1.4 million, primarily due to lower selling prices that the Company believes are driven by excess global capacity and stronger competition in Brazil, Latin America and the U.S., and unfavorable product mix, partially offset by higher sales volume. For more information on net sales and volume, see the Segment Operations Review below. Other income (expense), net in the first quarter of 2024 decreased by $0.3 million compared with the first quarter of 2023. The change in other income (expense), net was primarily due to cash consideration of $0.3 million received in January 2023 related to the customary post-closing adjustments on the sale of the investment in kaleo, Inc., which was sold in December 2021. Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales (gross profit margin) was 15.4% in the first quarter of 2024 compared to 13.4% in the first quarter of 2023. The gross profit margin in Aluminum Extrusions remained consistent with the prior year period primarily due to lower sales volume, offset by higher net pricing after the pass-through of metal costs changes, lower labor and employee-related costs, lower supply expense, lower utility expense and lower freight expense. Additionally, the timing of the flow through under the first-in first-out method of aluminum raw material costs passed through to customers, previously acquired at higher prices in a quickly changing commodity pricing environment, resulted in a charge of $1.2 million in the first quarter of 2024 versus a benefit of $1.7 million in the first quarter 20 of 2023. The gross profit margin in PE Films increased due to a higher Surface Protection contribution margin associated with higher volume, favorable pricing, operating efficiencies and manufacturing costs savings, lower fixed costs and cost improvements from overwrap films. The gross profit margin in Flexible Packaging Films slightly increased primarily due to lower raw material costs, lower fixed costs and higher sales volume, partially offset by lower selling prices from global excess capacity and margin pressures and higher variable costs. The percentage of sales, selling, general and administrative (“SG&A”) and research and development ("R&D") expenses of 10.6% in the first quarter of 2024 remained consistent with the first quarter of 2023. During 2023, the Company settled the pension plan, which decreased the pension and other postretirement expenses for the first quarter of 2024 compared to the first quarter of 2023. See Note 4 for additional information. Interest expense of $3.5 million in the first three months of 2024 increased $1.1 million compared to the first three months of 2023 due to higher average debt levels and interest rates. See Note 10 for additional information. The effective tax rate used to compute income taxes was 16.7% in the first quarter of 2024 compared to (48.8)% in the first quarter of 2023. See Note 8 for additional information. Pre-tax gains and losses associated with plant shutdowns, asset impairments, restructurings and other items for the first quarters of 2024 and 2023 detailed below are shown in the statements of net sales and EBITDA from ongoing operations by segment table in Note 9 and are included in “Asset impairments and costs associated with exit and disposal activities, net of adjustments” in the condensed consolidated statements of income, unless otherwise noted. Three Months Ended March 31, (In millions) 2024 2023 Aluminum Extrusions: (Gains) losses from sale of assets, investment writedowns and other items: Consulting expenses for ERP/MES project 1 $ 0.6 $ — Storm damage to the Newnan, Georgia plant 1 0.1 0.6 Legal fees associated with the Aluminum Extruders Trade Case 1 0.2 — Total for Aluminum Extrusions $ 0.9 $ 0.6 PE Films: (Gains) losses associated with plant shutdowns, asset impairments and restructurings: Richmond, Virginia Technical Center closure expenses, including severance 3 $ 0.2 $ — Richmond, Virginia Technical Center lease abandonment 3 0.3 — Total for PE Films $ 0.5 $ — Flexible Packaging Films: (Gains) losses associated with plant shutdowns, asset impairments and restructurings: Other restructuring costs - severance $ — $ 0.1 Total for Flexible Packaging Films $ — $ 0.1 Corporate: (Gains) losses from sale of assets, investment writedowns and other items: Professional fees associated with business development activities 1 $ 0.5 $ 0.3 Professional fees associated with remediation activities related to internal control over financial reporting 1 0.9 0.5 Professional fees associated with the transition to the ABL Facility 1 0.2 — Stock-based compensation expense associated with the fair value remeasurement of awards granted at the time of the 2020 special dividend 1 — (0.1) Net periodic benefit cost for the frozen defined benefit pension plan in process of termination 2 — 3.4 Total for Corporate $ 1.6 $ 4.1 1. Included in “Selling, general and administrative expenses” in the condensed consolidated statements of income. 2. See Note 4 for additional information. 3. See Note 1 for additional information. 21 Average total debt outstanding and interest rates were as follows: Three Months Ended March 31, (In millions, except percentages) 2024 2023 Floating-rate debt with interest charged on a rollover basis plus a credit spread: Average total outstanding debt balance $ 153.1 $ 147.0 Average interest rate 9.4 % 6.3 % Segment Operations Review Aluminum Extrusions A summary of results for Aluminum Extrusions is provided below: Three Months Ended Favorable/ (Unfavorable) % Change (In thousands, except percentages) March 31, 2024 2023 Sales volume (lbs) 33,841 37,562 (9.9)% Net sales $ 114,222 $ 133,370 (14.4)% Ongoing operations: EBITDA $ 12,540 $ 14,638 (14.3)% Depreciation & amortization (4,542) (4,411) (3.0)% EBIT* $ 7,998 $ 10,227 (21.8)% Capital expenditures $ 1,550 $ 7,742 *See the table in Note 9 for a reconciliation of this non-GAAP measure to the most comparable measure calculated in accordance with GAAP. First Quarter 2024 Results vs. First Quarter 2023 Results Net sales (sales less freight) in the first quarter of 2024 decreased 14.4% versus the first quarter of 2023 primarily due to lower sales volume and the pass-through of lower metal costs. Sales volume in the first quarter of 2024 decreased 9.9% versus the first quarter of 2023 but increased 2.7% versus the fourth quarter 2023. Net new orders, which remain low compared to pre-pandemic levels but are growing, increased 61% in the first quarter of 2024 versus the first quarter of 2023, marking the sixth consecutive quarterly increase in incoming orders. Since January 2021, net new orders for the Company's aluminum extruded products have generally tracked the ISM® Manufacturing PMI®. The Company believes that net new orders continue to be below pre-pandemic levels due to higher interest rates, tighter lender requirements and the increase in remote working, which particularly impacts the non-residential B&C end-use market. In addition, data indicates that aluminum extrusion imports increased significantly in recent years, especially during the pandemic, and some of Bonnell Aluminum’s customers may have sourced, and continue to source, aluminum extrusions from producers outside the United States. Open orders at the end of the first quarter of 2024 were 15 million pounds (versus 14 million pounds at the end of the fourth quarter of 2023 and 27 million pounds at the end of the first quarter of 2023). This level is below the quarterly range of 21 to 27 million pounds in 2019 before pandemic-related disruptions (particularly starting in early 2021 with the re-opening of markets following the rollout of vaccines) that resulted in long lead times, driving a peak in open orders of approximately 100 million pounds during the first quarter of 2022. The Company is participating as part of a coalition of members of the Aluminum Extruders Council who have filed a trade case with the Department of Commerce (“DOC”) and the U.S. International Trade Commission (“ITC”) against 15 countries in response to alleged large and increasing volumes of unfairly priced imports of aluminum extrusions since 2019. In November 2023, the ITC found that there is a reasonable indication that the American aluminum extrusions industry is materially injured or threatened with injury due to imports from 14 countries, including China. The ITC’s preliminary determination found that subject import volumes were significant and increasing, and that with regard to pricing, subject imports predominantly undersold the domestic product by volume in each year of the period of investigation. On May 2, 2024, the DOC announced its preliminarily determination that aluminum extrusion producers and exporters in 14 countries, including China, sold aluminum extrusions at less-than-fair value in the United States. Final determinations, which are expected by the end of the third quarter of 2024, should provide an additional opportunity for Bonnell to regain market share. 22 EBITDA from ongoing operations in the first quarter of 2024 decreased $2.1 million v ersus the first quarter of 2023 primarily due to: • Lower volume ($3.3 million) offset by higher net pricing after the pass-through of metal cost changes ($2.0 million), lower labor and employee-related costs ($0.6 million), lower supply expense ($0.6 million), lower utility expense ($0.4 million), lower SG&A expenses ($0.3 million) and lower freight rates ($0.2 million); and • The timing of the flow-through under the first-in first-out method of aluminum raw material costs passed through to customers, previously acquired at higher prices in a quickly changing commodity pricing environment, resulted in a charge of $1.2 million in the first quarter of 2024 versus a benefit of $1.7 million in the first quarter of 2023. R efer to Item 3. Q uantitative and Qualitative Disclosures About Market Risk in this Form 10-Q f or additional information on aluminum prices. Projected Capital Expenditures and Depreciation & Amortization Capital expenditures for Bonnell Aluminum are projected to be $9 million in 2024, including $4 million for productivity projects and $5 million for capital expenditures required to support continuity of operations. The projected spending reflects stringent spending measures that the Company has implemented to control its financial leverage. The multi-year implementation for new enterprise resource planning and manufacturing execution systems ("ERP/MES") has been reorganized with an extended implementation period. As a result, the earliest "go-live" date for the net ERP/MES is 2025. The ERP/MES project commenced in 2022, with spending to-date of approximately $21 million. Depreciation expense is projected to be $16 million in 2024. Amortization expense is projected to be $2 million in 2024. PE Films A summary of results for PE Films is provided below: Three Months Ended Favorable/ (Unfavorable) % Change (In thousands, except percentages) March 31, 2024 2023 Sales volume (lbs) 10,036 7,368 36.2% Net sales $ 24,735 $ 20,182 22.6% Ongoing operations: EBITDA $ 6,904 $ 1,849 273.4% Depreciation & amortization (1,329) (1,643) 19.1% EBIT* $ 5,575 $ 206 NM** Capital expenditures $ 394 $ 716 * See the table in Note 9 for a reconciliation of this non-GAAP measure to the most comparable measure calculated in accordance with GAAP. ** Not meaningful ("NM") First Quarter 2024 Results vs. First Quarter 2023 Results Net sales in the first quarter of 2024 were 22.6% higher compared to the first quarter of 2023, with volume increases in both Surface Protection and overwrap films. Surface Protection sales volume in the first quarter of 2024 increased 43% versus the first quarter of 2023 and 30% versus the fourth quarter of 2023. Given recent volume improvements for Surface Protection and other market indicators, the Company believes that the consumer electronics market is now in recovery mode. EBITDA from ongoing operations during the first quarter of 2024 was $6.9 million, which was exceptional and well above comparable amounts realized during the second and first halves of 2023 of $8.6 million and $2.7 million, respectively. EBITDA from ongoing operations in the first quarter of 2024 increased $5.1 million v ersus the first quarter of 2023, primarily due to: • A $4.4 million inc rease from Surface Protection primarily due to h igher contribution margin associated with higher volume ($1.0 million), favorable pricing ($0.3 million), operating efficiencies and manufacturing costs savings ($1.9 million), lower fixed costs ($0.4 million), and lower SG&A ($0.7 million, including $0.6 million associated with the closure of the Richmond Technical Center in 2023). • A $0.7 million increase from overwrap films primarily due to cost improvements. 23 R efer to Item 3. Q uantitative and Qualitative Disclosures About Market Risk in this Form 10-Q f or additional information on resin prices. Projected Capital Expenditures and Depreciation & Amortization Capital expenditures for PE Films are projected to be $2 million in 2024, including $1 million for productivity projects and $1 million for capital expenditures required to support continuity of current operations. Depreciation expense is projected to be $5 million in 2024. There is no amortization expense for PE Films. Flexible Packaging Films A summary of results for Flexible Packaging Films is provided below: Three Months Ended Favorable/ (Unfavorable) % Change (In thousands, except percentages) March 31, 2024 2023 Sales volume (lbs) 21,973 19,845 10.7% Net sales $ 30,113 $ 31,527 (4.5)% Ongoing operations: EBITDA $ 1,963 $ 1,350 45.4% Depreciation & amortization (751) (700) (7.3)% EBIT* $ 1,212 $ 650 86.5% Capital expenditures $ 518 $ 605 * See the table in Note 9 for a reconciliation of this non-GAAP measure to the most comparable measure calculated in accordance with GAAP. First Quarter 2024 Results vs. First Quarter 2023 Results Net sales in the first quarter of 2024 decreased 4.5% compared to the first quarter of 2023 primarily due to lower selling prices that the Company believes are driven by excess global capacity and strong competition in Brazil, Latin America and the U.S., and unfavorable product mix, partially offset by higher sales volume. EBITDA from ongoing operations in the first quarter of 2024 increased $0.6 million versus the first quarter of 2023, primarily due to: • Lower raw material costs ($1.9 million), lower fixed costs ($1.7 million), higher sales volume ($ 1.0 million) and lower SG&A ($0.2 million), partially offset by lower selling prices from global excess capacity and margin pressures ($2.1 million) and higher variable costs ($1.3 million); • Foreign currency transaction gains ($0.1 million) in the first quarter of 2024 compared to foreign currency transaction losses ($0.1 million) in the first quarter of 2023; and • Net unfavorable foreign currency translation of Real-denominated operating costs ($0.9 million). Refer to Item 3. Quantitative and Qualitative Disclosures About Market Risk in this Form 10-Q f or additional information on polyester fiber and component price trends. Projected Capital Expenditures and Depreciation & Amortization Capital expenditures for Flexible Packaging Films are projected to be $4 million in 2024 for capital expenditures required to support continuity of current operations. Depreciation expense is projected to be $3 million in 2024. Amortization expense is projected to be $0.1 million in 2024. Corporate Expenses, Interest & Other Corporate expenses, net in the first three months of 2024 decreased $3.2 million compared to the first three months of 2023 primarily due to lower pension expense as a result of the pension plan termination completed in 2023 ($3.4 million) and lower internal audit fees ($0.3 million), partially offset by higher stock-based compensation ($0.6 million). Interest expense of $3.5 million in the first three months of 2024 increased $1.1 million compared to the first three months of 2023 due to higher average debt levels and interest rates. Status of Agreement to Sell Terphane On September 1, 2023, the Company announced that it had entered into a definitive agreement to sell Terphane to Oben Group (the “Contingent Terphane Sale”). Completion of the sale is contingent upon the satisfaction of customary closing conditions, including the receipt of certain competition filing approvals by authorities in Brazil and Colombia. On October 27, 2023, the Company filed the requisite competition forms with the Administrative Council for Economic Defense (“CADE”) in 24 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. As of March 31, 2024, the Company has reported results for Terphane as a continuing operation, given the status of the approval process by authorities. If the sale transaction is completed, the Company expects to realize after-tax net debt-free cash proceeds of $85 million after deducting projected Brazil withholding taxes, escrow funds, U.S. capital gains taxes and transaction costs. Actual after-tax proceeds may differ from estimates due to possible changes in deductions and the Company's tax situation during the potentially lengthy interim period to the closing date. Net capitalization and other credit measures are provided in Liquidity and Capital Resources below. Liquidity and Capital Resources The Company continues to focus on improving working capital management. Measures such as days sales outstanding (“DSO”), days inventory outstanding (“DIO”) and days payables outstanding (“DPO”) are used to evaluate changes in working capital. Changes in operating assets and liabilities from December 31, 2023 to March 31, 2024 are summarized below. • Accounts and other receivables increased $5.1 million (7.5%). ◦ Accounts and other receivables in Aluminum Extrusions increased $7.3 million primarily due to increased sales volume during the first three months of 2024. DSO (represents trailing 12 months net sales divided by a rolling 12-month average of accounts and other receivables balances) was approximately 43.9 days for the 12 months ended March 31, 2024 and 45.1 days for the 12 months ended December 31, 2023. ◦ Accounts and other receivables in PE Films remained relatively flat. DSO was approximately 26.3 days for the 12 months ended March 31, 2024, which was the same for the 12 months ended December 31, 2023. ◦ Accounts and other receivables in Flexible Packaging Films decreased $2.3 million primarily due to improved collection efforts during the three months ended 2024. DSO was approximately 37.1 days for the 12 months ended March 31, 2024 and 38.1 days for the 12 months ended December 31, 2023. • Inventories increased $4.8 million (5.8%). ◦ Inventories in Aluminum Extrusions remained relatively flat. DIO (represents trailing 12 months costs of goods sold calculated on a first-in first-out basis divided by a rolling 12-month average of inventory balances calculated on the first-in first-out basis) was approximately 48.3 days for the 12 months ended March 31, 2024 and 51.6 days for the 12 months ended December 31, 2023. ◦ Inventories in PE Films increased $2.9 million due to higher raw materials to support increased sales volume during the first three months of 2024. DIO was approximately 53.6 days for the 12 months ended March 31, 2024 and 57.2 days for the 12 months ended December 31, 2023. ◦ Inventories in Flexible Packaging Films increased $1.9 million primarily due to higher raw material purchases. DIO was approximately 107.8 days for the 12 months ended March 31, 2024 and 117.7 days for the 12 months ended December 31, 2023. • Net property, plant and equipment decreased $5.5 million primarily due to depreciation expense of $6.3 million and a $0.9 million unfavorable change in the value of the U.S. dollar relative to foreign currencies, partially offset by capital expenditures of $1.8 million. • Identifiable intangible assets, net decreased $0.5 million (4.9%) due to amortization expense. • Deferred income tax assets decreased $0.7 million (2.9%). See Note 8 for more information. • Accounts payable decreased $10.1 million (10.6%). ◦ Accounts payable in Aluminum Extrusions decreased $9.0 million primarily due to the timing of payments. DPO (represents trailing 12 months costs of goods sold calculated on a first-in first-out basis divided by a rolling 12-month average of accounts payable balances) was approximately 47.7 days for the 12 months ended March 31, 2024 and 49.8 days for the 12 months ended December 31, 2023. ◦ Accounts payable in PE Films increased $2.7 million primarily due to higher raw material purchases. DPO was approximately 43.9 days for the 12 months ended March 31, 2024 and 43.4 days for the 12 months ended December 31, 2023. ◦ Accounts payable in Flexible Packaging Films decreased $3.8 million primarily due to lower raw material costs. DPO was approximately 65.3 days for the 12 months ended March 31, 2024 and 61.7 days for the 12 months ended December 31, 2023. 25 Net cash used in operating activities was $7.7 million in the first three months of 2024 compared to $9.1 million in the first three months of 2023. The decrease was primarily due to improved working capital due to factors discussed earlier in this section relating to accounts and other receivables, inventories and accounts payable. Net cash used in investing activities was $2.4 million in the first three months of 2024 compared to $8.8 million the first three months of 2023. The decrease was primarily due to lower capital expenditures ($6.6 million). Net cash provided by financing activities was $2.0 million in the first three months of 2024, compared to $13.6 million in the first three months of 2023. The decrease was primarily due to lower net borrowings ($16.0 million) under the ABL Facility (as defined below) during the first three months of 2024 as compared to the first three months of 2023 and dividends paid ($4.4 million) during the first three months of 2023. At March 31, 2024, the Company had cash, cash equivalents and restricted cash of $4.8 million, including cash and cash equivalents held in locations outside the U.S. of $3.8 million. Debt and Credit Agreements 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 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. 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. 26 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. 27 The computation of Credit EBITDA, as defined in the ABL Facility, is presented below. Computations of Credit EBITDA (as defined in the ABL Facility) as of and for the Twelve Months Ended March 31, 2024 * Computations of Credit EBITDA for the twelve months ended March 31, 2024 (in thousands): Net income (loss) $ (101,608) Plus: After-tax losses related to discontinued operations — Total income tax expense for continuing operations — Interest expense 12,751 Depreciation and amortization expense for continuing operations 27,554 All non-cash losses and expenses, plus cash losses and expenses not to exceed $10,000, for continuing operations that are classified as unusual, extraordinary or which are related to plant shutdowns, asset impairments and/or restructurings (cash-related of $9,899) 141,252 Charges related to stock option grants and awards accounted for under the fair value-based method — Losses related to the application of the equity method of accounting — Losses related to adjustments in the estimated fair value of assets accounted for under the fair value method of accounting — Fees, costs and expenses incurred in connection with the amendment process 184 Terphane sale transaction costs in an amount not to exceed $10,000 4,949 Minus: After-tax income related to discontinued operations — Total income tax benefits for continuing operations (53,799) Interest income (500) All non-cash gains and income, plus cash gains and income in excess of $10,000, for continuing operations that are classified as unusual, extraordinary or which are related to plant shutdowns, asset impairments and/or restructurings — Income related to changes in estimates for stock option grants and awards accounted for under the fair value-based method — Income related to the application of the equity method of accounting — Income related to adjustments in the estimated fair value of assets accounted for under the fair value method of accounting — Plus cash dividends declared on investments in an amount not to exceed $10,000 for such period — Plus or minus, as applicable, pro forma EBITDA adjustments associated with acquisitions and asset dispositions — Plus or minus, as applicable, pro forma EBITDA adjustments to pension expense associated with the early payment of pension obligations 7,284 Credit EBITDA 38,067 * Credit EBITDA is not intended to represent net income (loss) or cash flow from operations as defined by GAAP and should not be considered as an alternative to either net income (loss) or to cash flow. 28 The computation of the ABL Facility availability and Minimum Liquidity covenant, as defined in the ABL Facility, is presented below. (In thousands, except percentages) March 31, 2024 December 31, 2023 Maximum aggregate principal $ 180,000 $ 180,000 Maximum borrowing limit per the Borrowing base as defined in the ABL Facility (includes eligible domestic cash and cash equivalents of $851 as of March 31, 2024 and $3,846 as of December 31, 2023) $ 173,601 $ 172,286 ABL Facility outstanding debt (matures on June 30, 2026) 128,330 126,322 Outstanding standby letters of credit 13,080 13,080 ABL Facility availability $ 32,191 $ 32,884 Minimum Liquidity covenant 10,000 10,000 ABL Facility availability in excess of Minimum Liquidity covenant $ 22,191 $ 22,884 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. As of March 31, 2024, the Company was in compliance with all debt covenants. Terphane Brazil Loan On October 26, 2023, 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. 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. For more information on the ABL Facility and the Terphane Brazil Loan, see Note 10 for additional information. The Company believes that existing borrowing availability, current cash balances and cash flow from operations will be sufficient to satisfy short term material cash requirements related to working capital, capital expenditure, and debt repayments for at least the next 12 months. In the longer term, liquidity will depend on many factors, including the results of operations, the timing and extent of capital expenditures, changes in operating plans, or other events that would cause the Company to seek additional financing in future periods. In addition, the completion of the Contingent Terphane Sale would provide additional liquidity.