What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-07 compared with 2024-05-09 · 240 added, 123 removed, 261 unchanged (58% of the section changed)

16 unchanged sentences

• 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;

• failure by governmental entities 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;

14 unchanged sentences

• 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

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.

13 unchanged sentences

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.

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We believe that EBIT is a widely understood and utilized metric that is meaningful to certain investors and that including this financial metric in the reconciliation of management’s performance metric, EBITDA from ongoing operations, provides useful information to those investors that primarily utilize EBIT to analyze the Company’s core operations.

First quarter 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

22.8 million pounds in the fourth quarter of 2023.

Second quarter 2024 net income (loss) was $8.8 million ($0.26 per diluted share) compared to $(18.9) million ($(0.56) per diluted share) in the second quarter of 2023.

Second Quarter Financial Results Highlights

• EBITDA from ongoing operations for Aluminum Extrusions (also referred to as "Bonnell Aluminum") was $12.9 million in the second quarter of 2024 versus $10.2 million in the second quarter of last year and $12.5 million in the first quarter of 2024.

◦ Sales volume was 34.9 million pounds in the second quarter of 2024 versus 35.5 million pounds in the second quarter of last year and 33.8 million pounds in the first quarter of 2024.

◦ Open orders at the end of the second quarter of 2024 were approximately 14 million pounds (versus 20 million pounds in the second quarter of 2023 and 15 million pounds at the end of the first quarter of 2024).

Net new orders increased 17% in the second quarter of 2024 versus the second quarter of 2023 and were relatively flat versus the first quarter of 2024.

• EBITDA from ongoing operations for PE Films was $10.1 million in the second quarter of 2024 versus $0.8 million in the second quarter of 2023 and $6.9 million in the first quarter of 2024.

Sales volume was 10.5 million pounds in the second quarter of 2024 versus 6.2 million pounds in the second quarter of 2023 and 10.0 million pounds in the first quarter of 2024.

• EBITDA from ongoing operations for Flexible Packaging Films (also referred to as "Terphane") was $3.2 million during the second quarter of 2024 versus $0.2 million in the second quarter of 2023 and $2.0 million during the first quarter of 2024.

Sales volume was 25.1 million pounds in the second quarter of 2024 versus 23.7 million pounds in the second quarter 2023 and 22.0 million pounds in the first quarter of 2024.

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.

Performance of EBITDA from ongoing operations continued to improve sequentially after suffering a period of losses in 2023.

In Aluminum Extrusions, net new orders and sales volume have increased since the third quarter of 2023, which the Company views as the bottom of the recent severe down cycle.

EBITDA from ongoing operations and sales volume in PE Films exceeded normal levels in the second quarter of 2024 due to the restocking of Surface Protection customer inventories, which were abnormally low.

Terphane’s profitability showed improvement from depressed levels for the fourth straight quarter while the review process of the agreement to sell it to Oben Group continues to reside with competition authorities in Brazil with a maximum deadline of November 18, 2024.

While the recent business rebound has had a positive impact on overall operating results and overall net financial leverage, 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.

Second Quarter of 2024 Compared with the Second Quarter of 2023

The following table presents a bridge of consolidated net income (loss) from the second quarter of 2023 to the second 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

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

Income tax expense (benefit) (3,331)

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

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

Change in income (loss) from increases (decreases) in the following items:

Other income (expense), net 343

Change in income (loss) from (increases) decreases in the following items:

Cost of goods sold 4,601

Selling, general and administrative (2,998)

Research and development 1,209

Pension and postretirement benefits 3,364

Interest expense (1,005)

Goodwill impairment 15,413

Income (loss) before income taxes for the three months ended June 30, 2024

Income tax expense (benefit) 1,968

Net income (loss) for the three months ended June 30, 2024

Sales in the second quarter of 2024 increased by $12.1 million compared with the second quarter of 2023.

Net sales (sales less freight) in Aluminum Extrusions decreased $2.4 million, primarily due to lower sales volume, the pass-through of slightly lower metal costs and pricing pressure.

Net sales in PE Films increased $13.3 million, primarily due to volume increases in Surface Protection.

Net sales in Flexible Packaging Films increased $1.3 million, primarily due to higher sales volume and favorable product mix, partially offset by lower selling prices that the Company believes are driven by excess global capacity and strong competition in Brazil, Latin America and the U.S.

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

Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales (gross profit margin) was 18.1% in the second quarter of 2024 compared to 9.9% in the second quarter of 2023.

The gross profit margin in Aluminum Extrusions increased compared to the prior year period primarily due to higher net net pricing after the pass-through of metal cost changes, manufacturing cost improvements, including lower supply expense and lower freight rates, partially offset by lower volume.

Additionally, the timing of the flow through under the first-in first-out method ("FIFO") of aluminum raw material costs, which were previously acquired at lower prices in a quickly changing commodity pricing environment and passed through to customers, resulted in a benefit of $1.2 million in the second quarter of 2024 versus a charge of $1.3 million in the second quarter of 2023.

The gross profit margin in PE Films increased due to a higher Surface Protection contribution margin associated with substantially higher volume, favorable pricing, operating efficiencies and manufacturing costs savings and lower fixed costs.

The gross profit margin in Flexible Packaging Films increased primarily due to lower raw material costs, lower fixed costs, favorable product mix and higher sales volume, partially offset by lower selling prices from global excess capacity and margin pressures.

As a percentage of sales, selling, general and administrative (“SG&A”) and research and development ("R&D") expenses of 10.5% in the second quarter of 2024 remained consistent with the second quarter of 2023.

During 2023, the Company settled its pension plan, which decreased the pension and other postretirement expenses for the second quarter of 2024 compared to the second quarter of 2023.

See Note 4 for additional information.

Interest expense of $3.4 million in the second quarter of 2024 increased $1.0 million compared to the second quarter of 2023 due to higher interest rates.

See Note 10 for additional information.

In the second quarter of 2023, a non-cash partial goodwill impairment of $15.4 million was recognized, see Note 1 for more information.

The effective tax rate used to compute income taxes was 18.3% in the second quarter of 2024 compared to 15.0% in the second 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 second quarters of 2024 and 2023 detailed below are shown in the statements of net sales and EBITDA from ongoing operations by segment 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 June 30,

(In millions) 2024 2023

Aluminum Extrusions:

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

Consulting expenses for ERP/MES project 1

Storm damage to the Newnan, Georgia plant 1

Legal fees associated with the Aluminum Extruders Trade Case 1

Total for Aluminum Extrusions $ 1.3 $ (0.2)

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

Richmond, Virginia Technical Center closure expenses, including severance 4

Goodwill impairment — 15.4

Total for PE Films $ 0.1 $ 15.4

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

Professional fees associated with business development activities 1

Professional fees associated with remediation activities related to internal control over financial reporting 1

Professional fees associated with the transition to the ABL Facility 1

Group annuity contract premium expense adjustment 2

Write-down of investment in Harbinger Capital Partners Special Situations Fund 2

Stock-based compensation expense associated with the fair value remeasurement of awards granted at the time of the 2020 special dividend 1

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

Total for Corporate $ 0.6 $ 5.6

Included in “Selling, general and administrative expenses” in the condensed consolidated statements of income.

Included in “Other income (expense), net” in the condensed consolidated statements of income.

See Note 4 for additional information.

See Note 1 for additional information.

Average total debt outstanding and interest rates were as follows:

Three Months Ended June 30,

(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 $ 146.9 $ 150.0

Average interest rate 9.4 % 6.9 %

First Six Months of 2024 Compared with the First Six Months of 2023

The following table presents a bridge of consolidated net income (loss) from the first six months of 2023 to the first six months of 2024 with management's related discussion and analysis below the table.

(In thousands)

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

Income tax expense (benefit) (3,000)

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

Change in income (loss) from increases (decreases) in the following items:

Sales (3,318)

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Interest expense (2,148)

Income (loss) before income taxes for the three months ended March 31, 2024

Goodwill impairment 15,413

Income (loss) before income taxes for the six months ended June 30, 2024

Income tax expense (benefit) 2,625

Net income (loss) for the three months ended March 31, 2024

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.

Net income (loss) for the six months ended June 30, 2024

Sales in the first six months of 2024 decreased by $3.3 million compared with the first six months of 2023.

Net sales in Aluminum Extrusions decreased $21.6 million, primarily due to lower sales volume and the pass-through of lower metal costs.

Net sales in PE Films increased $17.8 million, primarily due to an increase in sales volume in Surface Protection.

Net sales in Flexible Packaging Films were relatively flat, 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, 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

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.

Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales (gross profit margin) was 16.8% in the first six months of 2024 compared to 11.7% in the first six months of 2023.

The gross profit margin in Aluminum Extrusions increased compared to the prior year period primarily due to higher net pricing after the pass-through of metal cost changes, manufacturing cost improvements, including lower supply expense, and lower freight rates, partially offset by lower volume.

Additionally, the timing of the flow through under the FIFO method of aluminum raw material costs, which were previously acquired at lower prices in a quickly changing commodity pricing environment and passed through to customers, resulted in a charge of $0.1 million in the first six months of 2024 versus a benefit of $0.4 million in the first six months of 2023.

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

As a percentage of sales, SG&A and R&D expenses of 10.6% in the first six months of 2024 remained consistent with the first six months of 2023.

During 2023, the Company settled its pension plan, which decreased the pension and other postretirement expenses for the first six months of 2024 compared to the first six months 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.

Interest expense of $6.8 million in the first six months of 2024 increased $2.1 million compared to the first six 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.

In the first half of 2023, a non-cash partial goodwill impairment of $15.4 million was recognized, see Note 1 for more information.

The effective tax rate used to compute income taxes was 17.9% in the first six months of 2024 compared to 13.1% in the first six months 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,

Pre-tax gains and losses associated with plant shutdowns, asset impairments, restructurings and other items for the first six months of 2024 and 2023 detailed below are shown in the statements of net sales and EBITDA from ongoing operations by segment 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.

Six Months Ended June 30,

(In millions) 2024 2023

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Richmond, Virginia Technical Center lease abandonment 4

Goodwill impairment — 15.4

Total for PE Films $ 0.6 $ 15.4

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Professional fees associated with the transition to the ABL Facility 1

Group annuity contract premium expense adjustment 2

Write-down of investment in Harbinger Capital Partners Special Situations Fund 2

Stock-based compensation expense associated with the fair value remeasurement of awards granted at the time of the 2020 special dividend 1

2 unchanged sentences

Included in “Selling, general and administrative expenses” in the condensed consolidated statements of income.

Included in “Other income (expense), net” in the condensed consolidated statements of income.

See Note 4 for additional information.

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Average total debt outstanding and interest rates were as follows:

Three Months Ended March 31,

Six Months Ended June 30,

(In millions, except percentages) 2024 2023

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(Unfavorable)

(In thousands, except percentages) March 31,

% Change Six Months Ended Favorable/

(Unfavorable)

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

2024 2023 2024 2023

Sales volume (lbs) 34,906 35,492 (1.7)% 68,747 73,054 (5.9)%

6 unchanged sentences

*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.

Second Quarter 2024 Results vs.

Second Quarter 2023 Results

Net sales (sales less freight) in the second quarter of 2024 decreased 2.0% versus the second quarter of 2023 primarily due to lower sales volume, the pass-through of slightly lower metal costs and pricing pressure.

Sales volume in the second quarter of 2024 decreased 1.7% versus the second quarter of 2023 but increased 3.3% versus the first quarter 2024.

Net new orders, which remain low compared to pre-pandemic levels, increased 17% in the second quarter of 2024 versus the second quarter of 2023 and were relatively flat compared to the first quarter of 2024.

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).

In addition, data indicates that aluminum extrusion imports have increased significantly in recent years, especially during the pandemic, and some of Bonnell Aluminum’s customers have increased their sourcing of aluminum extrusions from producers outside of the U.S.

Open orders at the end of the second quarter of 2024 were 14 million pounds (versus 15 million pounds at the end of the first quarter of 2024 and 20 million pounds at the end of the second 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.

The Company is 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.

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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.

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);

• 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.

Final determinations, which are expected by the end of the third quarter of 2024, should provide an additional opportunity for Bonnell Aluminum to regain market share.

The Company's analysis of recent U.S.

import data of aluminum extrusions indicates that the preliminary determinations of duties are starting to have the desired behavioral impact of shifting related customer purchases back to U.S.

EBITDA from ongoing operations in the second quarter of 2024 increased $2.7 million versus the second quarter of 2023 primarily due to:

• Higher net pricing after the pass-through of metal cost changes and mix ($1.3 million), manufacturing cost improvements, including lower supply expense ($2.0 million) and lower freight rates ($0.5 million), partially offset by lower volume ($0.1 million), higher labor and employee-related costs ($0.8 million), higher utility expense ($0.4 million), and higher SG&A expenses, including other employee-related compensation ($2.0 million);

resulted in a benefit of $1.2 million in the second quarter of 2024 versus a charge of $1.3 million in the second quarter of 2023.

First Six Months of 2024 Results vs.

First Six Months of 2023 Results

Net sales in the first six months of 2024 decreased 8.4% versus the first six months of 2023 primarily due to lower sales volume and the pass-through of lower metal costs.

Sales volume in the first six months of 2024 decreased 5.9% versus the first six months of 2023.

EBITDA from ongoing operations in the first six months of 2024 increased $0.6 million in comparison to the first six months of 2023 primarily due to:

• Higher net pricing after the pass-through of metal cost changes and mix ($3.3 million), manufacturing cost improvements, including lower supply expense ($2.6 million) and lower freight rates ($0.7 million), partially offset by lower volume ($3.4 million), higher labor and employee-related costs ($0.2 million), and higher SG&A, including other employee-related compensation ($1.7 million);

• The timing of the flow-through under the FIFO method of aluminum raw material costs, which were previously acquired at lower prices in a quickly changing commodity pricing environment and passed through to customers, resulted in a charge of $0.1 million in the first six months of 2024 versus a benefit of $0.4 million in the first six months of 2023.

R efer to Item 3.

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(Unfavorable)

(In thousands, except percentages) March 31,

% Change Six Months Ended Favorable/

(Unfavorable)

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

2024 2023 2024 2023

Sales volume (lbs) 10,548 6,245 68.9% 20,583 13,613 51.2%

1 unchanged sentence

Ongoing operations:

EBITDA $ 6,904 $ 1,849 273.4%

EBITDA $ 10,133 $ 814 NM** $ 17,037 $ 2,663 NM**

Depreciation & amortization (1,317) (1,552) 15.1% (2,645) (3,195) 17.2%

EBIT* $ 5,575 $ 206 NM**

EBIT* $ 8,816 $ (738) NM** $ 14,392 $ (532) NM**

Capital expenditures $ 216 $ 360 $ 610 $ 1,075

1 unchanged sentence

** 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).

Second Quarter 2024 Results vs.

Second Quarter 2023 Results

Net sales in the second quarter of 2024 were 83.4% higher compared to the second quarter of 2023, with volume increases in Surface Protection.

Surface Protection sales volume in the second quarter of 2024 increased 123% versus the second quarter of 2023 (which reflected weak market conditions in consumer electronics) and 14% versus the first quarter of 2024.

EBITDA from ongoing operations during the second quarter of 2024 of $10.1 million was exceptional, primarily due to the restocking of Surface Protection customer inventories, which were abnormally low.

While market indicators and recent volume improvements indicate a positive outlook for the consumer electronics market, EBITDA from ongoing operations performance is expected to moderate in the third quarter of 2024 as customer inventories and the Company's sales volume stabilize.

There have been significant cyclical swings in the sales volume and EBITDA from ongoing operations for PE Films in the past 2.5 years, largely due to the unprecedented downturn in the display industry during the second half of 2022 and first half of 2023.

EBITDA from ongoing operations for the first half of 2024, the second and first halves of 2023 and the second and first halves of 2022 were $17.0 million, $8.6 million, $2.7 million, $(2.2) million and $14.1 million, respectively, which averages approximately $4 million per quarter.

EBITDA from ongoing operations in the second quarter of 2024 increased $9.3 million versus the second quarter of 2023, primarily due to:

• A $9.6 million increase in Surface Protection primarily due to higher contribution margin associated with substantially higher volume ($6.4 million), favorable pricing ($0.2 million), operating efficiencies and manufacturing costs savings ($2.3 million), lower fixed costs ($0.2 million) and lower SG&A ($0.6 million, including $0.8 million associated with the closure of the Richmond Technical Center in 2023);

• A foreign currency transaction gain of $0.1 million in the second quarter of 2024 versus a gain of $0.5 million in the second quarter of 2023;

• A $0.1 million increase in overwrap films.

First Six Months of 2024 Results vs.

First Six Months of 2023 Results

Net sales in the first six months of 2024 increased 49.4% compared to the first six months of 2023 primarily due to an increase in sales volume in Surface Protection, as a result of factors noted above.

Sales volume increased 77% in Surface Protection in the first six months of 2024 versus the first six months of 2023.

EBITDA from ongoing operations in the first six months of 2024 increased by $14.4 million versus the first six months of 2023, primarily due to:

• A $14.1 million increase in Surface Protection primarily due to higher contribution margin associated with substantially higher volume ($7.4 million), favorable pricing ($0.5 million), operating efficiencies and manufacturing costs savings ($4.2 million), lower fixed costs ($0.6 million) and lower SG&A ($1.4 million, which was associated with the closure of the Richmond Technical Center in 2023);

• A foreign currency transaction gain of $0.1 million in the first six months of 2024 versus a gain of $0.4 million in the first six months of 2023;

• The pass-through lag associated with resin costs (a charge of $0.4 million in the first six months of 2024 versus a charge of $0.2 million in the first six months of 2023);

• A $0.8 million increase from overwrap films primarily due to cost improvements.

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(Unfavorable)

(In thousands, except percentages) March 31,

% Change Six Months Ended Favorable/

(Unfavorable)

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

2024 2023 2024 2023

Sales volume (lbs) 25,074 23,724 5.7% 47,047 43,569 8.0%

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Ongoing operations:

EBITDA $ 1,963 $ 1,350 45.4%

EBITDA $ 3,204 $ 249 NM** $ 5,167 $ 1,599 NM**

Depreciation & amortization (732) (711) (3.0)% (1,483) (1,411) (5.1)%

EBIT* $ 1,212 $ 650 86.5%

EBIT* $ 2,472 $ (462) NM** $ 3,684 $ 188 NM**

Capital expenditures $ 642 $ 878 $ 1,160 $ 1,483

* 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;

** Not meaningful ("NM")

Second Quarter 2024 Results vs.

Second Quarter 2023 Results

Net sales in the second quarter of 2024 increased 4.0% compared to the second quarter of 2023 primarily due to higher sales volume and favorable product mix, partially offset by lower selling prices that the Company believes are driven by excess global capacity and strong competition in Brazil, Latin America and the U.S.

EBITDA from ongoing operations in the second quarter of 2024 increased $3.0 million versus the second quarter of 2023, primarily due to:

• Lower raw material costs ($2.5 million), lower fixed costs ($1.1 million), favorable product mix ($1.1 million), higher sales volume ($0.5 million) and lower SG&A ($0.3 million), partially offset by lower selling prices from global excess capacity and margin pressures ($1.5 million);

• Foreign currency transaction losses ($0.2 million) in the second quarter of 2024 remained consistent with the second quarter of 2023;

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

First Six Months of 2024 Results vs.

First Six Months of 2023 Results

Net sales in the first six months of 2024 remained consistent with the first six months 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, offset by higher sales volume.

EBITDA from ongoing operations in the first six months of 2024 increased $3.6 million versus the first six months of 2023 primarily due to:

• Lower raw material costs ($4.0 million), lower fixed costs ($2.8 million), higher sales volume ($1.5 million), favorable product mix ($0.8 million), and lower SG&A ($0.5 million), partially offset by lower selling prices from global excess capacity and margin pressures ($3.5 million) and higher variable costs ($0.8 million);

• Foreign currency transaction losses ($0.1 million) in the first six months of 2024 compared to foreign currency transaction losses ($0.2 million) in the first six months of 2023;

• Net unfavorable foreign currency translation of Real-denominated operating costs ($1.9 million).

Refer to Item 3.

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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.

Corporate expenses, net in the first six months of 2024 decreased $8.7 million compared to the first six months of 2023 primarily due to lower pension expense as a result of the pension plan termination completed in 2023 ($6.7 million), foreign

currency transaction gains related to the remeasurement of intercompany receivables ($2.3 million) and lower business development activities ($1.2 million), partially offset by higher incentive compensation accruals ($1.0 million) and higher stock-based compensation ($0.6 million).

Interest expense of $6.8 million in the first six months of 2024 increased $2.1 million compared to the first six months of 2023 due to higher average debt levels and interest rates.

Status of Agreement to Sell Terphane

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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

The regulatory review process is ongoing and in line with the Company’s expectations.

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

As part of the Brazilian merger review process regarding the sale of Terphane to Oben Group, on May 13, 2024, the General Superintendence of the Administrative Council for Economic Defense ("SG-CADE") issued a non-binding opinion ("SG Opinion") recommending the rejection of the transaction.

Following this first stage of the two-stage Brazilian merger review process for complex transactions, the case has been submitted to the CADE Tribunal, in accordance with the customary Brazilian merger review process.

The parties are given a full opportunity to present evidence in favor of clearing the transaction.

The final decision regarding the transaction will eventually be rendered by the Tribunal, which has begun its independent analysis.

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.

The Colombian authority cleared the merger review regarding the transaction in early February 2024.

As of June 30, 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.

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Measures such as days sales outstanding (“DSO”), days inventory outstanding (“DIO”) and days payables outstanding (“DPO”) are used to evaluate changes in working capital.

Changes in operating assets and liabilities from December 31, 2023 to March 31, 2024 are summarized below.

Changes in operating assets and liabilities from December 31, 2023 to June 30, 2024 are summarized below.

• Accounts and other receivables increased $16.0 million (23.5%).

◦ 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.

◦ Accounts and other receivables in Aluminum Extrusions increased $10.5 million primarily due to increased sales volume.

DSO (represents trailing 12 months net sales divided by a rolling 12-month average of accounts and other receivables balances) was approximately 43.6 days for the 12 months ended June 30, 2024 and 45.1 days for the 12 months ended December 31, 2023.

◦ Accounts and other receivables in PE Films increased $3.5 million primarily due to increased sales volume.

DSO was approximately 24.6 days for the 12 months ended June 30, 2024 and 26.3 for the 12 months ended December 31, 2023.

◦ Accounts and other receivables in Flexible Packaging Films increased $1.8 million primarily due to increased sales volume.

DSO was approximately 35.8 days for the 12 months ended June 30, 2024 and 38.1 days for the 12 months ended December 31, 2023.

• Inventories increased $7.2 million (8.8%).

◦ 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.

◦ Inventories in Aluminum Extrusions increased $4.7 million primarily due to higher average aluminum prices and higher overall inventory levels to align with higher demand.

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 47.4 days for the 12 months ended June 30, 2024 and 51.6 days for the 12 months ended December 31, 2023.

◦ Inventories in PE Films increased $2.0 million due to higher raw materials and finished goods levels to support increased sales volume during the first six months of 2024.

DIO was approximately 51.3 days for the 12 months ended June 30, 2024 and 57.2 days for the 12 months ended December 31, 2023.

◦ Inventories in Flexible Packaging Films remained relatively flat.

DIO of approximately 104.6 days for the 12 months ended June 30, 2024 compared to 117.7 days for the 12 months ended December 31, 2023 due to the lower 12-month average of costs of goods sold as a result of overall lower resin costs and higher sales volume.

• Net property, plant and equipment decreased $11.6 million primarily due to depreciation expense of $12.4 million and a $3.7 million unfavorable change in the value of the U.S.

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◦ Accounts payable in Aluminum Extrusions decreased $0.8 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.

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.

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 48.1 days for the 12 months ended June 30, 2024 and 49.8 days for the 12 months ended December 31, 2023.

◦ Accounts payable in PE Films increased $0.4 million primarily due to higher inventory levels and the timing of payments.

DPO was approximately 43.7 days for the 12 months ended June 30, 2024 and 43.4 days for the 12 months ended December 31, 2023.

◦ Accounts payable in Flexible Packaging Films decreased $1.5 million primarily due to lower raw material purchases and timing of payments.

DPO was approximately 71.2 days for the 12 months ended June 30, 2024 and 61.7 days for the 12 months ended December 31, 2023.

Net cash provided by operating activities was $7.3 million in the first six months of 2024 compared to net cash provided by operating activities of $22.7 million in the first six months of 2023.

The decrease was primarily due to lower working capital and lower accrued pension benefits as a result of the pension plan termination in 2023, partially offset by higher EBITDA from ongoing operations for all reportable segments in the first 6 months of 2024 versus last year.

Net cash used in investing activities was $4.6 million in the first six months of 2024 compared to $15.6 million the first six months of 2023.

The decrease was primarily due to lower capital expenditures ($11.1 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.

Net cash used in financing activities of $4.9 million in the first six months of 2024 remained consistent with the first six months of 2023.

At June 30, 2024, the Company had cash, cash equivalents and restricted cash of $8.7 million, including cash and cash equivalents held in locations outside the U.S.

of $3.8 million.

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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.

3 (the “ABL Facility”) to the Second Amended and Restated Credit Agreement (the "Credit Agreement"), which provides the Company with a $180 million senior secured asset-based revolving credit facility that will mature on June 30, 2026.

On April 16, 2024, the Company entered into Amendment No.

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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.

As of June 30, 2024, Minimum Liquidity (as defined in the ABL Facility) of $45.1 million, after reducing the borrowing base by the aggregate outstanding borrowings of $122.0 million and standby letters of credit of $12.9 million was in excess of the $10 million Minimum Liquidity 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”).

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Minimum Credit EBITDA (In thousands)

March 2024 $ 16,640

April 2024 19,780

May 2024 19,660

June 2024 $ 19,450

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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):

Twelve Months Ended June 30, 2024 *

Computations of Credit EBITDA for the twelve months ended June 30, 2024 (in thousands):

Net income (loss) $ (73,892)

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* Credit EBITDA is not intended to represent net income (loss) or cash flow from operations as defined by GAAP and should not be considered as an alternative to either net income (loss) or to cash flow.

The 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

The computation of the ABL Facility Minimum Liquidity financial covenant, as defined in the ABL Facility, is presented below.

(In thousands, except percentages) June 30, 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

Maximum borrowing limit per the Borrowing base as defined in the ABL Facility (includes eligible domestic cash and cash equivalents of $3,691 as of June 30, 2024 and $3,846 as of December 31, 2023)

$ 180,000 $ 172,286

ABL Facility outstanding debt (matures on June 30, 2026) 122,000 126,322

Outstanding standby letters of credit 12,930 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

ABL Facility Minimum Liquidity $ 45,070 $ 32,884

Minimum Liquidity financial covenant $ 10,000 $ 10,000

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.

As of June 30, 2024, the Company was in compliance with all debt covenants.

Terphane Brazil Loan

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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.

PE Films Guangzhou Loan

On June 25, 2024, PE Films' business location in Guangzhou, China, Guangzhou Tredegar Film Products Co., Ltd.

(“Guangzhou Tredegar”), entered into a 9.5 million Chinese Yuan, which is equivalent to $1.3 million as of June 30, 2024, revolving loan with the Industrial and Commercial Bank of China.

The loan matures one year after the first withdrawal, which occurred on July 4, 2024, in the amount of 5 million Chinese Yuan.

The interest rate is the one year loan prime rate published by the National Interbank Funding Center for the working day immediately preceding the drawdown date, minus 0.45%.

As of June 30, 2024, the National Interbank Funding Center rate was 3.45%.

The revolving loan is secured by a mortgage contract listing the Guangzhou Tredegar factory building as collateral.

The mortgage contract has a maximum value of 30 million Chinese Yuan and is effective from June 25, 2024 through May 31, 2027.

For more information on the ABL Facility, the Terphane Brazil Loan and the PE Films Guangzhou 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis