tg-20210331
000085042912/312021Q1FALSE33,677,433March 31,
2021
March 31, 2021
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 1-10258 
Tredegar Corporation
(Exact Name of Registrant as Specified in Its Charter)
 
Virginia 54-1497771
(State or Other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer
Identification No.)

1100 Boulders Parkway
Richmond,Virginia 23225
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, Including Area Code: (804) 330-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, no par valueTGNew York Stock Exchange
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer¨Accelerated filerxSmaller reporting company¨
Non-accelerated filer
¨ 
Emerging growth company¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
The number of shares of Common Stock, no par value, outstanding as of April 30, 2021: 33,677,433



PART I - FINANCIAL INFORMATION 

Item 1.    Financial Statements.
Tredegar Corporation
Condensed Consolidated Balance Sheets
(In Thousands, Except Share Data)
(Unaudited)
March 31,December 31,
20212020
Assets
Current assets:
Cash and cash equivalents$21,859 $11,846 
Accounts and other receivables, net of allowance for doubtful accounts and sales returns of $2,806 in 2021 and $2,797 in 2020
87,648 86,327 
Income taxes recoverable2,266 2,807 
Inventories70,623 66,437 
Prepaid expenses and other14,426 19,679 
Current assets of discontinued operations3,285 1,339 
Total current assets200,107 188,435 
Property, plant and equipment, at cost479,605 475,619 
Less accumulated depreciation(313,987)(309,074)
Net property, plant and equipment165,618 166,545 
Right-of-use leased assets15,482 16,037 
Investment in kaléo (cost basis of $7,500)
35,000 34,600 
Identifiable intangible assets, net18,012 18,820 
Goodwill67,708 67,708 
Deferred income taxes17,295 19,068 
Other assets3,131 3,506 
Non-current assets of discontinued operations151 151 
Total assets$522,504 $514,870 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable$94,477 $89,702 
Accrued expenses33,411 40,741 
Lease liability, short-term2,066 2,082 
Income taxes payable1,206 706 
Current liabilities of discontinued operations6,438 7,521 
Total current liabilities137,598 140,752 
Lease liability, long-term14,424 14,949 
Long-term debt143,000 134,000 
Pension and other postretirement benefit obligations, net105,998 110,585 
Other non-current liabilities5,497 5,529 
Total liabilities406,517 405,815 
Shareholders’ equity:
Common stock, no par value (issued and outstanding - 33,669,561 shares at March 31, 2021 and 33,457,176 shares at December 31, 2020)
51,557 50,066 
Common stock held in trust for savings restoration plan (105,636 shares at March 31, 2021 and 105,067 shares at December 31, 2020)
(2,097)(2,087)
Accumulated other comprehensive income (loss):
Foreign currency translation adjustment(86,797)(84,149)
Gain (loss) on derivative financial instruments2,028 2,264 
Pension and other postretirement benefit adjustments(93,200)(96,519)
Retained earnings244,496 239,480 
Total shareholders’ equity115,987 109,055 
Total liabilities and shareholders’ equity$522,504 $514,870 
See accompanying notes to financial statements.
2


Tredegar Corporation
Condensed Consolidated Statements of Income (Loss)
(In Thousands, Except Per Share Data)
(Unaudited)
 
Three Months Ended March 31,
 20212020
Revenues and other items:
Sales$184,822 $192,136 
Other income (expense), net760 (26,130)
185,582 166,006 
Costs and expenses:
Cost of goods sold141,285 145,169 
Freight6,223 6,875 
Selling, general and administrative18,384 20,044 
Research and development1,721 2,170 
Amortization of identifiable intangibles723 758 
Pension and postretirement benefits3,540 3,567 
Interest expense822 555 
Asset impairments and costs associated with exit and disposal activities, net of adjustments169 61 
Goodwill impairment
 13,696 
Total172,867 192,895 
Income (loss) from continuing operations before income taxes12,715 (26,889)
Income tax expense (benefit)3,097 (6,226)
Net income (loss) from continuing operations9,618 (20,663)
Income (loss) from discontinued operations, net of tax(587)(1,658)
Net income (loss)$9,031 $(22,321)
Earnings (loss) per share:
Basic:
Continuing operations$0.29 $(0.62)
Discontinued operations(0.02)(0.05)
Basic earnings (loss) per share$0.27 $(0.67)
Diluted:
Continuing operations$0.29 $(0.62)
Discontinued operations(0.02)(0.05)
Diluted earnings (loss) per share$0.27 $(0.67)
Shares used to compute earnings (loss) per share:
Basic33,406 33,313 
Diluted33,644 33,313 
See accompanying notes to financial statements.

3


Tredegar Corporation
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In Thousands)
(Unaudited)

Three Months Ended March 31,
 20212020
Net income (loss)$9,031 $(22,321)
Other comprehensive income (loss):
Unrealized foreign currency translation adjustment (net of tax benefit of $272 in 2021 and tax benefit of $1,283 in 2020)
(2,648)(11,529)
Derivative financial instruments adjustment (net of tax benefit of $188 in 2021 and tax benefit of $1,226 in 2020)
(236)(3,775)
Amortization of prior service costs and net gains or losses (net of tax of $924 in 2021 and tax of $836 in 2020)
3,319 2,931 
Other comprehensive income (loss)435 (12,373)
Comprehensive income (loss)$9,466 $(34,694)
See accompanying notes to financial statements.

4


Tredegar Corporation
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months Ended March 31,
20212020
Cash flows from operating activities:
Net income (loss)$9,031 $(22,321)
Adjustments for noncash items:
Depreciation5,463 7,557 
Amortization of identifiable intangibles723 758 
Reduction of right-of-use lease asset549 696 
Goodwill impairment 13,696 
Deferred income taxes1,017 (9,804)
Accrued pension and post-retirement benefits3,540 3,567 
(Gain) loss on investment in kaléo accounted for under the fair value method(400)26,100 
Changes in assets and liabilities:
Accounts and other receivables(2,126)(2,849)
Inventories(5,442)(6,982)
Income taxes recoverable/payable1,102 3,478 
Prepaid expenses and other2,798 (294)
Accounts payable and accrued expenses(2,517)3,588 
Lease liability(535)(741)
Pension and postretirement benefit plan contributions(3,886)(1,967)
Other, net553 595 
Net cash provided by operating activities9,870 15,077 
Cash flows from investing activities:
Capital expenditures(5,259)(4,854)
Net cash used in investing activities(5,259)(4,854)
Cash flows from financing activities:
Borrowings32,000 16,500 
Debt principal payments(23,000)(15,500)
Dividends paid(4,025)(4,005)
Other915 (586)
Net cash provided by (used in) financing activities5,890 (3,591)
Effect of exchange rate changes on cash(488)(2,995)
Increase in cash & cash equivalents10,013 3,637 
Cash and cash equivalents at beginning of period11,846 31,422 
Cash and cash equivalents at end of period$21,859 $35,059 
See accompanying notes to financial statements.

5


Tredegar Corporation
Condensed Consolidated Statements of Shareholders’ Equity
(In Thousands, Except Share and Per Share Data)
(Unaudited)

The following summarizes the changes in shareholders’ equity for the three month period ended March 31, 2021:
Accumulated Other Comprehensive Income (Loss)
Common StockRetained EarningsTrust for Savings Restoration PlanForeign Currency TranslationGain (Loss) on Derivative Financial InstrumentsPension & Other Post-retirement Benefit AdjustmentTotal Shareholders’ Equity
Balance January 1, 2021$50,066 $239,480 $(2,087)$(84,149)$2,264 $(96,519)$109,055 
Net income (loss)— 9,031 — — — — 9,031 
Foreign currency translation adjustment (net of tax benefit of $272)
— — — (2,648)— — (2,648)
Derivative financial instruments adjustment (net of tax benefit of $188)
— — — — (236)— (236)
Amortization of prior service costs and net gains or losses (net of tax of $924)
— — — — — 3,319 3,319 
Cash dividends declared ($0.12 per share)
— (4,025)— — — — (4,025)
Stock-based compensation expense576 — — — — — 576 
Issued upon exercise of stock options915 — — — — — 915 
Tredegar common stock purchased by trust for savings restoration plan— 10 (10)— — — — 
Balance March 31, 2021$51,557 $244,496 $(2,097)$(86,797)$2,028 $(93,200)$115,987 


6


The following summarizes the changes in shareholders’ equity for the three month period ended March 31, 2020:
  Accumulated Other
Comprehensive Income (Loss)
 
 Common
Stock
Retained
Earnings
Trust for
Savings
Restoration
Plan
Foreign
Currency
Translation
Gain
(Loss) on
Derivative
Financial
Instruments
Pension & Other Post-retirement Benefit AdjustmentTotal
Shareholders’
Equity
Balance at January 1, 2020$45,514 $530,478 $(1,592)$(100,663)$(1,307)$(95,681)$376,749 
Net income (loss)— (22,321)— — — — (22,321)
Foreign currency translation adjustment (net of tax benefit of $1,283)
— — — (11,529)— — (11,529)
Derivative financial instruments adjustment (net of tax benefit of $1,226)
— — — — (3,775)— (3,775)
Amortization of prior service costs and net gains or losses (net of tax of $836)
— — — — — 2,931 2,931 
Cash dividends declared ($0.12 per share)
— (4,005)— — — — (4,005)
Stock-based compensation expense1,126 — — — — — 1,126 
Repurchase of employee common stock for tax withholdings(586)— — — — — (586)
Tredegar common stock purchased by trust for savings restoration plan— 9 (9)— — — — 
Balance at March 31, 2020$46,054 $504,161 $(1,601)$(112,192)$(5,082)$(92,750)$338,590 
See accompanying notes to financial statements.

7


TREDEGAR CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1    BASIS OF PRESENTATION
In the opinion of management, the accompanying condensed consolidated financial statements of Tredegar Corporation and its subsidiaries (“Tredegar,” “the Company,” “we,” “us” or “our”) contain all adjustments necessary to state fairly, in all material respects, Tredegar’s consolidated financial position as of March 31, 2021, the consolidated results of operations for the three months ended March 31, 2021 and 2020, the consolidated cash flows for the three months ended March 31, 2021 and 2020, and the consolidated changes in shareholders’ equity for the three months ended March 31, 2021 and 2020, in accordance with U.S. generally accepted accounting principles (“GAAP”). All such adjustments, unless otherwise detailed in the notes to the condensed consolidated financial statements, are deemed to be of a normal, recurring nature.
The Company operates on a calendar fiscal year except for the Aluminum Extrusions segment, which operates on a 52/53-week fiscal year basis.  As such, the fiscal first quarter for 2021 and 2020 for this segment references 13-week periods ended March 28, 2021 and March 29, 2020, respectively.  The Company does not believe the impact of reporting the results of this segment as stated above is material to the consolidated financial results. The Company may fund or receive cash from the Aluminum Extrusions segment based on Aluminum Extrusion’s cash flows from operations during the intervening period from Aluminum Extrusion’s fiscal quarter end and the Company’s fiscal quarter end. There was no intercompany funding with Aluminum Extrusions between March 28, 2021 and March 31, 2021. As of December 31, 2020, the Company’s cash and cash equivalents declined by $3.8 million since the Company made payments to the Aluminum Extrusions segment to fund its working capital during the intervening period.
The financial position data as of December 31, 2020 that is included herein was derived from the audited consolidated financial statements provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K”) but does not include all disclosures required by GAAP. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the 2020 Form 10-K.
On October 30, 2020, the Company completed the sale of its personal care films business (“Personal Care Films”), which was part of its PE Films segment. The transaction excluded the packaging film lines and related operations located at the Pottsville, Pennsylvania manufacturing site (“Pottsville Packaging”), which are now being reported within the Surface Protection component of PE Films. All historical results for Personal Care Films have been presented as discontinued operations.
On December 31, 2020, the Company completed the sale of Bright View Technologies, which was part of its PE Films segment. The sale did not represent a strategic shift nor did it have a major effect on the Company's historical and ongoing operations, thus all financial information for Bright View Technologies has been presented in continuing operations.
The results of operations for the three months ended March 31, 2021, are not necessarily indicative of the results to be expected for the full year.
Accounting Standards Adopted:
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2019-12, which simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, hybrid taxes and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. In the first quarter of 2021, the Company adopted ASU 2019-12 which did not have a material impact on the Company's consolidated financial statements.
2    DIVESTITURES AND ASSETS HELD FOR SALE
Divestitures
Personal Care Films
In 2020, the Company completed the sale of Personal Care Films for an aggregate purchase price of approximately $60.5 million, subject to customary adjustments. The Company agreed to provide certain transition services related to finance, human resources and information technology which are expected to end in the first half of 2021. Personal Care Films was previously reported in the PE Films segment.



8


The following table summarizes the financial results of discontinued operations reflected in the consolidated statements of income for the three months ended March 31, 2021 and 2020:
Three Months Ended March 31,
 20212020
Revenues and other items:
Sales$ $36,166 
Other income (expense), net (81)
 36,085 
Costs and expenses:
Cost of goods sold 30,142 
Freight 1,705 
Selling, general and administrative1,050 3,125 
Research and development 2,685 
Asset impairments and costs associated with exit and disposal activities, net of adjustments 400 
Adjustment to the fair value estimates used in the disposal of Personal Care Films(a)
(299) 
Total751 38,057 
Income (loss) from discontinued operations before income taxes(751)(1,972)
Income tax expense (benefit)(164)(314)
Income (loss) from discontinued operations, net of tax$(587)$(1,658)
(a) Represents a net increase to the estimated fair value of Personal Care Films primarily due to lower costs associated with transition-related services.

The assets and liabilities of the discontinued operations reflected in the consolidated balance sheets as of March 31, 2021 and December 31, 2020, respectively were as follows:
March 31,December 31,
20212020
Assets
Prepaid expenses and other (b)
$3,285 $1,339 
Other non-current assets151 151 
Total assets of discontinued operations$3,436 $1,490 
Liabilities (a)
Accrued expenses (b)
$6,438 $7,521 
(a) Pension and other postretirement benefit liabilities related to Personal Care Films have been retained by the Company.
(b) The consolidated balance sheet of discontinued operations as of March 31, 2021 includes $0.4 million of other receivables related to the settlement of customary post-closing adjustments, deferred assets of $2.9 million and deferred obligations of $4.6 million related to transition services, accrued severance of $1.3 million, and other miscellaneous accrued expenses of $0.5 million. The consolidated balance sheet of discontinued operations as of December 31, 2020 includes $0.4 million of other receivables related to the settlement of customary post-closing adjustments, deferred assets of $0.9 million and deferred obligations of $5.3 million related to transition services, accrued severance of $2.1 million, and other miscellaneous accrued expenses of $0.2 million.








9



The following table provides significant operating and investing cash flow information for discontinued operations:
Three Months Ended March 31,
(In thousands)20212020
Operating activities
Depreciation and amortization$ $2,231 
Asset impairment 271 
Other(299) 
Total(299)2,502 
Investing activities
Capital expenditures$ $(795)

Assets Held For Sale
In July 2019, the Company committed to a plan to close its manufacturing facility in Lake Zurich, Illinois, which historically was reported by the Company within the Personal Care Films component of its PE Films segment. In 2020, the held for sale criteria was met since the Company expects the sale of the facility to be completed within one year. The disposal group carrying value of $4.6 million consists of land, building, and building improvements and is reported in "Prepaid expenses and other" in the consolidated balance sheet. These assets were not included as part of the sale of Personal Care Films.
3    LONG-LIVED ASSETS & GOODWILL IMPAIRMENT
The Company assesses its long-lived assets for impairment when events and circumstances indicate that the carrying amount of the assets may not be recoverable. Long-lived assets consist primarily of buildings, machinery and equipment. During the three months ended March 31, 2021, the Company did not identify any indicators of impairment for long-lived assets.
The Company annually assesses goodwill for impairment on December 1st of each year or more frequently when events or circumstances indicate that the carrying amount of a reporting unit that includes goodwill exceeds its fair value. The Company evaluated whether triggering events occurred during the three months ended March 31, 2021 and 2020 for all reporting units that include goodwill and determined that triggering events did occur during the first three months of 2020 for the Aluminum Extrusions’ reporting units created as a result of acquisitions in 2012 (“AACOA”) and in 2017 (“Futura”). As a result of the impairment testing performed, the Company recognized a goodwill impairment charge of $13.7 million ($10.5 million after taxes), which represented the entire amount of goodwill associated with the AACOA reporting unit. No impairment was identified for Futura.
The Company continues to monitor developments related to the COVID-19 pandemic and may perform updated analyses during 2021 as necessary.
4    INVENTORIES
The components of inventories are as follows:
(In thousands)March 31, 2021December 31, 2020
Finished goods$16,288 $15,251 
Work-in-process11,531 9,098 
Raw materials25,639 25,913 
Stores, supplies and other17,165 16,175 
Total$70,623 $66,437 

5    EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income (loss) from continuing and discontinued operations by the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing net
10


income (loss) from continuing and discontinued operations by the weighted average common and potentially dilutive common equivalent shares outstanding, determined as follows:
Three Months Ended
 March 31,
(In thousands)20212020
Weighted average shares outstanding used to compute basic earnings per share33,406 33,313 
Incremental dilutive shares attributable to stock options and restricted stock238  
Shares used to compute diluted earnings per share33,644 33,313 

Incremental shares attributable to stock options and restricted stock are computed under the treasury stock method using the average market price during the related period. The average out-of-the-money options to purchase shares that were excluded from the calculation of incremental shares attributable to stock options and restricted stock were 411,516 as of March 31, 2021. The Company had a net loss from continuing operations for the three months ended March 31, 2020, so there is no dilutive impact for such shares. If the Company had reported net income from continuing operations for the three months ended March 31, 2020, average out-of-the-money options to purchase shares that would have been excluded from the calculation of incremental shares attributable to stock options and restricted stock were 682,696.
6    ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes the after-tax changes in accumulated other comprehensive income (loss) for the three months ended March 31, 2021:
(In thousands)Foreign
currency
translation
adjustment
Gain (loss) on
derivative
financial
instruments
Pension and other post-retirement benefit adjustmentsTotal
Beginning balance, January 1, 2021$(84,149)$2,264 $(96,519)$(178,404)
Other comprehensive income (loss) before reclassifications(2,648)273  (2,375)
Amounts reclassified from accumulated other comprehensive income (loss) (509)3,319 2,810 
Net other comprehensive income (loss) - current period(2,648)(236)3,319 435 
Ending balance, March 31, 2021$(86,797)$2,028 $(93,200)$(177,969)

The following table summarizes the after-tax changes in accumulated other comprehensive income (loss) for the three months ended March 31, 2020:
(In thousands)Foreign
currency
translation
adjustment
Gain (loss) on
derivative
financial
instruments
Pension and other post-retirement benefit adjustmentsTotal
Beginning balance, January 1, 2020$(100,663)$(1,307)$(95,681)$(197,651)
Other comprehensive income (loss) before reclassifications(11,529)(4,888) (16,417)
Amounts reclassified from accumulated other comprehensive income (loss) 1,113 2,931 4,044 
Net other comprehensive income (loss) - current period(11,529)(3,775)2,931 (12,373)
Ending balance, March 31, 2020$(112,192)$(5,082)$(92,750)$(210,024)

11


Reclassifications of balances out of accumulated other comprehensive income (loss) into net income (loss) for the three months ended March 31, 2021 are summarized as follows:
(In thousands)Amount reclassified from other comprehensive income (loss)Location of gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (loss)
Gain (loss) on derivative financial instruments:
Aluminum future contracts, before taxes$640 Cost of sales
Foreign currency forward contracts, before taxes(2)Selling, general & administrative
Foreign currency forward contracts, before taxes17 Cost of sales
Total, before taxes655 
Income tax expense (benefit)146 Income tax expense (benefit)
Total, net of tax$509 
Amortization of pension and other post-retirement benefits:
Actuarial gain (loss) and prior service costs, before taxes$(4,243)(a)
Income tax expense (benefit)(924)Income tax expense (benefit)
Total, net of tax$(3,319)
(a)    This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost (see Note 9 for additional detail).
Reclassifications of balances out of accumulated other comprehensive income (loss) into net income for the three months ended March 31, 2020 are summarized as follows:
(In thousands)Amount reclassified from other comprehensive income (loss)Location of gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (loss)
Gain (loss) on derivative financial instruments:
Aluminum future contracts, before taxes$(640)Cost of sales
Foreign currency forward contracts, before taxes(794)Selling, general & administrative
Foreign currency forward contracts, before taxes15 Cost of sales
Total, before taxes(1,419)
Income tax expense (benefit)(306)Income tax expense (benefit)
Total, net of tax$(1,113)
Amortization of pension and other post-retirement benefits:
Actuarial gain (loss) and prior service costs, before taxes$(3,767)(a)
Income tax expense (benefit)(836)Income tax expense (benefit)
Total, net of tax$(2,931)
(a)    This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost (see Note 9 for additional detail).
7    INVESTMENTS
The Company's aggregate investment of $7.5 million, for an approximate 19% ownership interest, in kaleo, Inc. (“kaléo”), a privately held specialty pharmaceutical company dedicated to building innovative solutions for serious and life-threatening medical conditions, is accounted for under the fair value method in the consolidated financial statements.
The estimated fair value of the Company’s investment was $35.0 million as of March 31, 2021 and $34.6 million as of December 31, 2020. kaléo’s stock is not publicly traded. The ultimate value of the Company’s ownership interest in kaléo could be materially different from the estimated fair value and will ultimately be determined and realized only if and when a liquidity event occurs. Amounts recognized associated with the Company’s investment in kaléo are included in “Other income (expense), net” in the consolidated statements of income and separately stated in the net sales and earnings before interest, taxes, depreciation and amortization ("EBITDA") from ongoing operations by segment table in Note 11.
12


The Company estimated the fair value of its investment in kaléo at March 31, 2021 by: (i) computing the weighted average estimated enterprise value (“EV”) utilizing both the discounted cash flow method (the “DCF Method”) and the application of a market multiple to EBITDA (the “EBITDA Multiple Method”), (ii) applying adjustments for any surplus or deficient working capital and estimates of contingent liabilities, (iii) adding cash and cash equivalents, (iv) subtracting interest-bearing debt, (v) subtracting a private company liquidity discount estimated at approximately 20% at March 31, 2021 (versus 20% at both December 31, 2020 and March 31, 2020) of the net result of (i) through (iv), and (vi) applying liquidation preferences and fully diluted ownership percentages to the estimated equity value computed in (i) through (v).
The Company’s estimate of kaléo’s EV as of March 31, 2021 and December 31, 2020 was determined by weighting the EBITDA Multiple Method by 20% and the DCF Method by 80%. A heavier weighting towards the DCF Method was used since kaléo’s projections better reflect ongoing pricing pressures and expected changes in market access. The DCF Method projections rely on numerous assumptions and Level 3 inputs. In addition, there are various regulatory and legal enforcement efforts, including an ongoing Department of Justice investigation related to kaléo’s discontinued Evzio business, which could have a material adverse effect on kaléo’s business that require assessment in any valuation method applied.
8    FINANCIAL INSTRUMENTS
Tredegar uses derivative financial instruments for the purpose of hedging margin exposure from fixed-price forward sales contracts in Aluminum Extrusions and exposure from currency volatility that exists as part of ongoing business operations in Flexible Packaging Films. These derivative financial instruments are designated as and qualify as cash flow hedges and are recognized in the consolidated balance sheet at fair value. The fair value of derivative instruments recorded on the consolidated balance sheets. If individual derivative instruments with the same counterparty can be settled on a net basis, the Company records the corresponding derivative fair values as a net asset or net liability.
In the normal course of business, Aluminum Extrusions enters into fixed-price forward sales contracts with certain customers for the future sale of fixed quantities of aluminum extrusions at scheduled intervals. In order to hedge margin exposure created from the fixing of future sales prices relative to volatile raw material (aluminum) costs, Aluminum Extrusions enters into a combination of forward purchase commitments and futures contracts to acquire or hedge aluminum, based on the scheduled purchases for the firm sales commitments. The fixed-price firm sales commitments and related hedging instruments generally have durations of not more than 12 months. The notional amount of aluminum futures contracts that hedged future purchases of aluminum to meet fixed-price forward sales contract obligations was $10.4 million (10.5 million pounds of aluminum) at March 31, 2021 and $12.1 million (13.0 million pounds of aluminum) at December 31, 2020.
The table below summarizes the location and gross amounts of aluminum futures contract fair values (Level 2) in the consolidated balance sheets as of March 31, 2021 and December 31, 2020:
 March 31, 2021December 31, 2020
(In thousands)Balance Sheet
Account
Fair
Value
Balance Sheet
Account
Fair
Value
Derivatives Designated as Hedging Instruments
Asset derivatives:
Aluminum futures contracts
Prepaid expenses and other$2,413 Prepaid expenses and other$1,560 
Liability derivatives:
Aluminum futures contracts
Accrued expenses Accrued expenses(22)
Net asset$2,413 $1,538 

In the event that a counterparty to an aluminum fixed-price forward sales contract chooses not to take delivery of its aluminum extrusions, the customer is contractually obligated to compensate Aluminum Extrusions for any losses on the related aluminum futures and/or forward contracts through the date of cancellation.
The Company's earnings are exposed to foreign currency exchange risk primarily through the translation of the financial statements of subsidiaries that have a functional currency other than the U.S. Dollar. The Company estimates that the net mismatch translation exposure for the Flexible Packaging Film's business unit in Brazil (“Terphane Ltda.”) of its sales and raw materials quoted or priced in U.S. Dollars and its variable conversion, fixed conversion and sales, general and administrative costs (before depreciation and amortization) quoted or priced in Brazilian Real ("R$") is annual net costs of R$119 million.




13


Terphane Ltda. has the following outstanding foreign exchange average forward rate contracts to purchase Brazilian Real and sell U.S. Dollars:
USD Notional Amount (000s)Average Forward Rate Contracted on USD/BRLR$ Equivalent Amount (000s)Applicable MonthEstimated % of Terphane Ltda. R$ Operating Cost Exposure Hedged
$1,3205.4765R$7,229Apr-2173%
$1,2855.4778R$7,039May-2171%
$1,3955.4882R$7,656Jun-2177%
$1,4505.4945R$7,967Jul-2180%
$1,4305.4993R$7,864Aug-2179%
$1,5205.5105R$8,376Sep-2184%
$1,4005.5100R$7,714Oct-2178%
$1,4955.5224R$8,256Nov-2183%
$1,1705.5060R$6,442Dec-2165%
$12,4655.4988R$68,54377%

These foreign currency exchange contracts have been designated and qualify as cash flow hedges of Terphane Ltda.’s forecasted sales to customers quoted or priced in U.S. Dollars over that period. By changing the currency risk associated with these U.S. Dollar sales, the derivatives have the effect of offsetting operating costs quoted or priced in Brazilian Real and decreasing the net exposure to Brazilian Real in the consolidated statements of income. Pre-tax accumulated losses of $0.4 million related to the net fair value of the open forward contracts is reported in accumulated other comprehensive income (loss) as of March 31, 2021.
The table below summarizes the location and gross amounts of foreign currency forward contract fair values (Level 2) in the consolidated balance sheets as of March 31, 2021 and December 31, 2020:
 March 31, 2021December 31, 2020
(In thousands)Balance Sheet
Account
Fair
Value
Balance Sheet
Account
Fair
Value
Derivatives Designated as Hedging Instruments
Asset derivatives:
Foreign currency forward contracts
Prepaid expenses and other$ Prepaid expenses and other$853 
Liability derivatives:
Foreign currency forward contracts
Accrued expenses(468)Accrued expenses(466)
Net asset (liability)$(468)$387 

These derivative contracts involve elements of market risk that are not reflected on the consolidated balance sheet, including the risk of dealing with counterparties and their ability to meet the terms of the contracts. The counterparties to any forward purchase commitments are major aluminum brokers and suppliers, and the counterparties to any aluminum futures contracts are major financial institutions. Fixed-price forward sales contracts are only made available to the best and most credit-worthy customers. The counterparties to the Company’s foreign currency cash flow hedge contracts are major financial institutions.
14


The pretax effect on net income (loss) and other comprehensive income (loss) of derivative instruments classified as cash flow hedges and described in the previous paragraphs for the three month periods ended March 31, 2021 and 2020 is summarized in the table below:
Cash Flow Derivative Hedges
 Three Months Ended March 31,
 Aluminum Futures ContractsForeign Currency Forwards
(In thousands)2021202020212020
Amount of pretax gain (loss) recognized in other comprehensive income (loss)$1,515 $(1,594)$ $(1,283)$ $(4,824)
Location of gain (loss) reclassified from accumulated other comprehensive income (loss) into net income (effective portion)Cost of
sales
Cost of
sales
Cost of
sales
Selling, general & adminCost of
sales
Selling, general & admin
Amount of pretax gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (effective portion)$640 $(640)$17 $(2)$15 $(794)

As of March 31, 2021, the Company expects $1.8 million of unrealized after-tax gains on derivative instruments reported in accumulated other comprehensive income (loss) to be reclassified to earnings within the next 12 months. For the three month periods ended March 31, 2021 and 2020, net gains or losses realized, from previously unrealized net gains or losses on hedges that had been discontinued, were not material.
9    PENSION AND OTHER POSTRETIREMENT BENEFITS
Tredegar sponsors a noncontributory defined benefit (pension) plan covering certain current and former U.S. employees. As of January 31, 2018, the plan no longer accrued benefits associated with crediting employees for service, thereby freezing all future benefits under the plan. The components of net periodic benefit cost for the pension and other postretirement benefit programs reflected in the consolidated statements of income for the three months ended March 31, 2021 and 2020, are shown below:
Pension BenefitsOther Post-Retirement Benefits
 Three Months Ended March 31,Three Months Ended March 31,
(In thousands)2021202020212020
Service cost$ $ $9 $9 
Interest cost2,102 2,535 50 60 
Expected return on plan assets(2,862)(2,804)  
Amortization of prior service costs, (gains) losses and net transition asset4,265 3,814 (24)(47)
Net periodic benefit cost$3,505 $3,545 $35 $22 

Pension and other postretirement liabilities were $106.7 million and $111.3 million at March 31, 2021 and December 31, 2020, respectively ($0.7 million included in “Accrued expenses” at March 31, 2021 and December 31, 2020, with the remainder included in “Pension and other postretirement benefit obligations, net” in the consolidated balance sheets). As of December 31, 2020, the required minimum pension contributions were $11.7 million for 2021. The United States government enacted the American Rescue Plan Act of 2021 in March 2021, which, among other impacts, has reduced the Company's 2021 required minimum pension contributions to zero as a result of the Company's election of the interest rate relief used in the present value of the pension obligation and extension of the shortfall amortization period that is used to determine the minimum pension funding requirements.
Tredegar funds its other postretirement benefits on a claims-made basis; for 2021, the Company anticipates the amount will be consistent with amounts paid for the year ended December 31, 2020, or approximately $0.5 million.
 
15


10    OTHER INCOME (EXPENSE), NET
Other income (expense), net consists of the following:
Three Months Ended March 31,
(In thousands)20212020
Gain (loss) on investment in kaléo accounted for under fair value method(b)
$718 $(26,100)
Transition service fees, net of corporate costs associated with the divested Personal Care business304  
COVID-19-related expenses, net of relief (a)
(19) 
Other(243)(30)
Total$760 $(26,130)
(a) Costs associated with operating under COVID-19 conditions include employee overtime expenses associated with absenteeism, personal protective equipment supplies and facility maintenance.
(b) The gain in the first quarter of 2021 includes a $0.3 million dividend received from kaléo.

11    BUSINESS SEGMENTS
The Company’s business segments are Aluminum Extrusions, PE Films, and Flexible Packaging Films. Information by business segment is reported below. There are no accounting transactions between segments and no allocations to segments. All historical results for Personal Care Films have been presented as discontinued operations. The Surface Protection component of the PE Films segment now includes Pottsville Packaging.
The Company’s reportable segments are based on its method of internal reporting, which is generally segregated by differences in products. Accounting standards for presentation of segments require an approach based on the way the Company organizes the segments for making operating decisions and how the chief operating decision maker (“CODM”) assesses performance. EBITDA from ongoing operations is the key profitability measure used by the CODM (Tredegar’s President and Chief Executive Officer) for purposes of assessing financial performance. The Company uses sales less freight (“net sales”) from continuing operations 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.
16


The following table presents net sales and EBITDA from ongoing operations by segment for the three months ended March 31, 2021 and 2020:
Three Months Ended March 31,
(In thousands)20212020
Net Sales
Aluminum Extrusions$118,125 $117,887 
PE Films27,953 36,800 
Flexible Packaging Films32,521 30,574 
Total net sales178,599 185,261 
Add back freight6,223 6,875 
Sales as shown in the consolidated statements of income$184,822 $192,136 
EBITDA from Ongoing Operations
Aluminum Extrusions:
Ongoing operations:
EBITDA$13,302 $11,677 
Depreciation & amortization(4,130)(4,113)
EBIT9,172 7,564 
Plant shutdowns, asset impairments, restructurings and other183 (688)
Goodwill impairment (13,696)
PE Films:
Ongoing operations:
EBITDA7,213 12,413 
Depreciation & amortization(1,420)(1,494)
EBIT5,793 10,919 
Plant shutdowns, asset impairments, restructurings and other(124)(28)
Flexible Packaging Films:
Ongoing operations:
EBITDA9,623 6,553 
Depreciation & amortization(466)(428)
EBIT9,157 6,125 
Plant shutdowns, asset impairments, restructurings and other(38) 
Total24,143 10,196 
Interest income7 27 
Interest expense822 555 
Gain (loss) on investment in kaléo accounted for under fair value method718 (26,100)
Stock option-based compensation costs468 566 
Corporate expenses, net10,863 9,891 
Income (loss) from continuing operations before income taxes12,715 (26,889)
Income tax expense (benefit)3,097 (6,226)
Income (loss) from continuing operations9,618 (20,663)
Income (loss) from discontinued operations, net of tax(587)(1,658)
Net income (loss)$9,031 $(22,321)
17


The following table presents identifiable assets by segment at March 31, 2021 and December 31, 2020:
(In thousands)March 31, 2021December 31, 2020
Aluminum Extrusions$254,197 $244,560 
PE Films118,755 119,013 
Flexible Packaging Films59,680 66,453 
Subtotal432,632 430,026 
General corporate64,577 71,508 
Cash and cash equivalents21,859 11,846 
Discontinued operations3,436 1,490 
Total$522,504 $514,870 

The following tables disaggregate the Company’s revenue by geographic area and product group for the three months ended March 31, 2021 and 2020:
Net Sales by Geographic Area (a)
Three Months Ended March 31,
(In thousands)20212020
United States$132,897 $134,985 
Exports from the United States to:
Asia13,362 22,064 
Latin America1,102 986 
Canada5,434 4,629 
Europe955 1,317 
Operations outside the United States:
Brazil24,849 21,280 
Total$178,599 $185,261 
(a) Export sales relate entirely to PE Films. Operations in Brazil are related to Flexible Packaging Films.

The Company’s facilities in Pottsville, PA (“PV”) and Guangzhou, China (“GZ”) have a tolling arrangement whereby certain surface protection films are manufactured in GZ for a fee with raw materials supplied from PV that are then shipped by GZ directly to customers principally in the Asian market, but paid by customers directly to PV. Amounts associated with this intercompany tolling arrangement are reported in the table above as export sales from the U.S. to Asia, and include net sales of $6.9 million and $9.3 million in the first quarters of 2021 and 2020, respectively.


18



Net Sales by Product Group
Three Months Ended March 31,
(In thousands)20212020
Aluminum Extrusions:
Nonresidential building & construction