SEC Filing | Tredegar Corporation

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tg-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


¨			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 class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, no par value	TG	New 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 filer

Smaller 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 November 3, 2023: 34,408,638

Tredegar Corporation

Table of Contents


		Page

Part I	Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets (unaudited)		2
	Condensed Consolidated Statements of Income (Loss) (unaudited)		3
	Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)		4
	Condensed Consolidated Statements of Cash Flows (unaudited)		5
	Condensed Consolidated Statements of Shareholders' Equity (unaudited)		6
	Notes to the Condensed Consolidated Financial Statements (unaudited)		8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		40
Item 4.	Controls and Procedures		44

Part II	Other Information
Item 1A.	Risk Factors		46
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.		46
Item 5.	Other Information		47
Item 6.	Exhibits		47

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Tredegar Corporation

Condensed Consolidated Balance Sheets

(In Thousands, Except Share Data)

(Unaudited)


	September 30,		December 31,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	48,604	$	19,232
Accounts and other receivables, net	70,344		84,544
Income taxes recoverable	1,700		733
Inventories	79,301		127,771
Prepaid expenses and other	11,683		10,304
Total current assets	211,632		242,584
Property, plant and equipment, at cost	538,156		531,921
Less: accumulated depreciation	(352,358)		(345,510)
Net property, plant and equipment	185,798		186,411
Right-of-use leased assets	11,954		14,021
Identifiable intangible assets, net	10,290		11,690
Goodwill	35,717		70,608
Deferred income taxes	21,798		13,900
Other assets	2,328		2,879
Total assets	$	479,517	$	542,093
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	94,712	$	114,938
Accrued expenses	21,835		31,603
Lease liability, short-term	2,216		2,035
Income taxes payable	426		1,137
Total current liabilities	119,189		149,713
Lease liability, long-term	11,083		12,738
Long-term debt	155,000		137,000
Pension and other postretirement benefit obligations, net	35,660		35,046

Other non-current liabilities	4,394		5,834
Total liabilities	325,326		340,331
Shareholders’ equity:
Common stock, no par value (authorized shares 150,000,000, issued and outstanding 34,384,677 shares at September 30, 2023 and 34,000,642 shares at December 31, 2022)	60,827		58,824
Common stock held in trust for savings restoration plan (118,543 shares at September 30, 2023 and 113,316 shares at December 31, 2022)	(2,233)		(2,188)
Accumulated other comprehensive income (loss):
Foreign currency translation adjustment	(85,156)		(86,079)
Gain (loss) on derivative financial instruments	(774)		(2,480)
Pension and other postretirement benefit adjustments	(32,041)		(59,036)
Retained earnings	213,568		292,721
Total shareholders’ equity	154,191		201,762
Total liabilities and shareholders’ equity	$	479,517	$	542,093

See accompanying notes to the condensed consolidated financial statements.

Tredegar Corporation

Condensed Consolidated Statements of Income (Loss)

(In Thousands, Except Per Share Data)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues and other items:
Sales	$	166,192	$	238,486	$	535,481	$	749,415
Other income (expense), net	(51)		140		210		1,181
	166,141		238,626		535,691		750,596
Costs and expenses:
Cost of goods sold	144,539		200,582		457,332		601,930
Freight	6,733		9,500		19,977		28,619
Selling, general and administrative	21,350		19,018		57,244		59,160
Research and development	794		1,576		3,375		4,855
Amortization of identifiable intangibles	465		653		1,433		1,982
Pension and postretirement benefits	3,118		3,506		9,955		10,489
Interest expense	3,106		1,138		7,791		3,158
Asset impairments and costs associated with exit and disposal activities, net of adjustments	4,633		495		4,702		621
Pension settlement loss	25,612		—		25,612		—
Goodwill impairment	19,478		—		34,891		—
Total	229,828		236,468		622,312		710,814
Income (loss) before income taxes	(63,687)		2,158		(86,621)		39,782
Income tax expense (benefit)	(13,307)		1,125		(16,307)		7,460
Net income (loss)	$	(50,380)	$	1,033	$	(70,314)	$	32,322

Earnings (loss) per share:
Basic	$	(1.47)	$	0.03	$	(2.06)	$	0.96
Diluted	$	(1.47)	$	0.03	$	(2.06)	$	0.96

Shares used to compute earnings (loss) per share:
Basic	34,264		33,870		34,081		33,780
Diluted	34,264		33,871		34,081		33,808

See accompanying notes to the condensed consolidated financial statements.

Tredegar Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In Thousands)

(Unaudited)


	Three Months Ended September 30,
	2023		2022
Net income (loss)	$	(50,380)	$	1,033
Other comprehensive income (loss):
Unrealized foreign currency translation adjustment (net of tax expense of $25 in 2023 and net of tax benefit of $148 in 2022)	(1,818)		(2,340)
Derivative financial instruments adjustment (net of tax benefit of $538 in 2023 and net of tax benefit of $818 in 2022)	69		(2,547)
Pension & other postretirement benefit adjustment:
Net gains (losses) and prior service costs	442		—
Recognition in earnings of net actuarial loss for pension settlement and related tax of $5,581	20,031		—
Amortization of prior service costs and net gains or losses (net of tax expense of $637 in 2023 and net of tax expense of $712 in 2022)	1,949		2,556
Other comprehensive income (loss)	20,673		(2,331)
Comprehensive income (loss)	$	(29,707)	$	(1,298)


	Nine Months Ended September 30,
	2023		2022
Net income (loss)	$	(70,314)	$	32,322
Other comprehensive income (loss):
Unrealized foreign currency translation adjustment (net of tax expense of $640 in 2023 and net of tax expense of $98 in 2022)	923		(2,034)
Derivative financial instruments adjustment (net of tax expense of $798 in 2023 and net of tax benefit of $1,261 in 2022)	1,706		(5,778)
Pension & other postretirement benefit adjustment:
Net gains (losses) and prior service costs	442		—
Recognition in earnings of net actuarial loss for pension settlement and related tax of $5,581	20,031		—
Amortization of prior service costs and net gains or losses (net of tax expense of $1,911 in 2023 and net of tax expense of $2,136 in 2022)	6,522		7,650
Other comprehensive income (loss)	29,624		(162)
Comprehensive income (loss)	$	(40,690)	$	32,160

See accompanying notes to the condensed consolidated financial statements.

Tredegar Corporation

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net income (loss)	$	(70,314)	$	32,322
Adjustments for noncash items:
Depreciation	19,516		17,538
Amortization of identifiable intangibles	1,433		1,982
Reduction of right-of-use lease asset	1,633		1,590
Goodwill impairment	34,891		—
Deferred income taxes	(16,820)		3,078
Accrued pension and post-retirement benefits	9,955		10,519
Pension settlement loss	25,612		—
Stock-based compensation expense	1,196		2,575
Gain on investment in kaléo	(262)		(1,406)
Write-down of Richmond, Virginia Technical Center assets	3,387		—
Changes in assets and liabilities:
Accounts and other receivables	14,630		(7,222)
Inventories	49,589		(24,855)
Income taxes recoverable/payable	(1,688)		(7,227)
Prepaid expenses and other	(142)		(5,365)
Accounts payable and accrued expenses	(27,970)		3,624
Lease liability	(1,669)		(1,737)
Pension and postretirement benefit plan contributions	(455)		(50,503)
Other, net	1,716		1,935
Net cash provided by (used in) operating activities	44,238		(23,152)
Cash flows from investing activities:
Capital expenditures	(22,270)		(25,527)
Proceeds from the sale of kaléo	262		1,406

Net cash provided by (used in) investing activities	(22,008)		(24,121)
Cash flows from financing activities:
Borrowings	87,000		279,250
Debt principal payments	(69,000)		(228,250)
Dividends paid	(8,884)		(12,552)
Debt financing costs	(1,404)		(1,245)
Other	—		(396)
Net cash provided by (used in) financing activities	7,712		36,807
Effect of exchange rate changes on cash	(570)		(805)
Increase (decrease) in cash & cash equivalents	29,372		(11,271)
Cash and cash equivalents at beginning of period	19,232		30,521
Cash and cash equivalents at end of period	$	48,604	$	19,250

See accompanying notes to the condensed consolidated financial statements.

Tredegar Corporation

Condensed Consolidated Statements of Shareholders’ Equity

(In Thousands, Except Share and Per Share Data)

(Unaudited)

The following summarizes the changes in shareholders’ equity for the three month period ended September 30, 2023:


	Common Stock		Retained Earnings		Trust for Savings Restoration Plan		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balance July 1, 2023	$	60,078	$	263,933	$	(2,218)	$	(138,644)	$	183,149
Net income (loss)	—		(50,380)		—		—		(50,380)
Foreign currency translation adjustment	—		—		—		(1,818)		(1,818)
Derivative financial instruments adjustment	—		—		—		69		69
Amortization of prior service costs and net gains or losses	—		—		—		1,949		1,949
Net gains or (losses) and prior service costs	—		—		—		442		442
Recognition in earnings of net actuarial loss for pension settlement	—		—		—		20,031		20,031
Cash dividends declared ($— per share)	—		—		—		—		—
Stock-based compensation expense	749		—		—		—		749

Tredegar common stock purchased by trust for savings restoration plan	—		15		(15)		—		—
Balance September 30, 2023	$	60,827	$	213,568	$	(2,233)	$	(117,971)	$	154,191

The following summarizes the changes in shareholders’ equity for the nine month period ended September 30, 2023:


	Common Stock		Retained Earnings		Trust for Savings Restoration Plan		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balance January 1, 2023	$	58,824	$	292,721	$	(2,188)	$	(147,595)	$	201,762
Net income (loss)	—		(70,314)		—		—		(70,314)
Foreign currency translation adjustment	—		—		—		923		923
Derivative financial instruments adjustment	—		—		—		1,706		1,706
Amortization of prior service costs and net gains or losses	—		—		—		6,522		6,522
Net gains or (losses) and prior service costs	—		—		—		442		442
Recognition in earnings of net actuarial loss for pension settlement	—		—		—		20,031		20,031
Cash dividends declared ($0.26 per share)	—		(8,884)		—		—		(8,884)
Stock-based compensation expense	2,257		—		—		—		2,257
Repurchase of employee common stock for tax withholdings	(254)		—		—		—		(254)
Tredegar common stock purchased by trust for savings restoration plan	—		45		(45)		—		—
Balance September 30, 2023	$	60,827	$	213,568	$	(2,233)	$	(117,971)	$	154,191

The following summarizes the changes in shareholders’ equity for the three month period ended September 30, 2022:


	Common Stock		Retained Earnings		Trust for Savings Restoration Plan		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balance at July 1, 2022	$	56,911	$	304,370	$	(2,161)	$	(147,335)	$	211,785
Net income (loss)	—		1,033		—		—		1,033
Foreign currency translation adjustment	—		—		—		(2,340)		(2,340)
Derivative financial instruments adjustment	—		—		—		(2,547)		(2,547)
Amortization of prior service costs and net gains or losses	—		—		—		2,556		2,556
Cash dividends declared ($0.13 per share)	—		(4,420)		—		—		(4,420)
Stock-based compensation expense	991		—		—		—		991
Tredegar common stock purchased by trust for savings restoration plan	—		13		(13)		—		—
Balance at September 30, 2022	$	57,902	$	300,996	$	(2,174)	$	(149,666)	$	207,058

The following summarizes the changes in shareholders’ equity for the nine month period ended September 30, 2022:


	Common Stock		Retained Earnings		Trust for Savings Restoration Plan		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balance at January 1, 2022	$	55,174	$	281,187	$	(2,135)	$	(149,504)	$	184,722
Net income (loss)	—		32,322		—		—		32,322
Foreign currency translation adjustment	—		—		—		(2,034)		(2,034)
Derivative financial instruments adjustment	—		—		—		(5,778)		(5,778)
Amortization of prior service costs and net gains or losses	—		—		—		7,650		7,650
Cash dividends declared ($0.37 per share)	—		(12,552)		—		—		(12,552)
Stock-based compensation expense	3,124		—		—		—		3,124
Repurchase of employee common stock for tax withholdings	(396)		—		—		—		(396)
Tredegar common stock purchased by trust for savings restoration plan	—		39		(39)		—		—
Balance at September 30, 2022	$	57,902	$	300,996	$	(2,174)	$	(149,666)	$	207,058

See accompanying notes to the condensed consolidated financial statements.

TREDEGAR CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

In the opinion of management, the accompanying condensed consolidated financial statements of Tredegar Corporation and its subsidiaries (“Tredegar,” “the Company,” “we,” “us” or “our”) contain all adjustments necessary to state fairly, in all material respects, Tredegar’s condensed consolidated financial position as of September 30, 2023, the condensed consolidated results of operations for the three and nine months ended September 30, 2023 and 2022, the condensed consolidated cash flows for the nine months ended September 30, 2023 and 2022, and the condensed consolidated changes in shareholders’ equity for the nine months ended September 30, 2023 and 2022, in accordance with U.S. generally accepted accounting principles (“GAAP”). All such adjustments, unless otherwise detailed in the notes to the condensed consolidated financial statements, are deemed to be of a normal, recurring nature.

The Company operates on a calendar fiscal year except for the Aluminum Extrusions segment, which operates on a 52/53-week fiscal year basis. As such, the fiscal third quarter for 2023 and 2022 for this segment references 13-week periods ended September 24, 2023 and September 25, 2022, respectively. The Company does not believe the impact of reporting the results of this segment as stated above is material to the consolidated financial results. The Company may fund or receive cash from the Aluminum Extrusions segment based on Aluminum Extrusion’s cash flows from operations during the intervening period from Aluminum Extrusion’s fiscal quarter end and the Company’s fiscal quarter end. There was no intercompany funding with Aluminum Extrusions between September 24, 2023 and September 30, 2023.

The condensed consolidated financial statements as of December 31, 2022 that is included herein was derived from the audited consolidated financial statements provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”) but does not include all disclosures required by GAAP. These financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the 2022 Form 10-K.

The results of operations for the three and nine months ended September 30, 2023, are not necessarily indicative of the results to be expected for the full year.

Sale of Flexible Packaging Films

On September 1, 2023, the Company announced that it had entered into a definitive agreement to sell its flexible packaging films business (“Terphane”) to Oben Group (the "Contingent Terphane Sale"). Completion of the sale is contingent upon the satisfaction of customary closing conditions, including the receipt of certain competition filing approvals by authorities in Brazil and Columbia. On October 27, 2023, the Company filed the requisite competition forms with the Administrative Council for Economic Defense (“CADE”) in Brazil. CADE published related materials for public comment on November 6, 2023. CADE’s deadline for completing its review is no later than September 23, 2024. As of September 30, 2023, the Company has reported results for Terphane as a continuing operation, given the early stage of the approval process by authorities.

Closure of PE Films Technical Center

On August 3, 2023, the Company adopted a plan to close the PE Films technical center in Richmond, VA and reduce its efforts to develop and sell films supporting the semiconductor market. Future research & development activities for PE Films will be performed at the production facility in Pottsville, PA. PE Films continues to have new business opportunities primarily relating to surface protection films that protect components of flat panel and flexible displays. The Company anticipates all activities to cease at the PE Films technical center in Richmond, VA by the end of 2023. Including costs incurred through the first nine months ended September 30, 2023, the Company expects to recognize cash costs associated with exit activities of $1.7 million for: (i) severance and related costs ($0.8 million), (ii) vacating the facility lease ($0.6 million payable through June 2025), and (iii) building closure costs ($0.3 million). In addition, the Company expects non-cash asset write-downs and accelerated depreciation of up to $3.7 million.

A reconciliation of the beginning and ending balances of accrued expense associated with exit and disposal activities and charges associated with asset impairments reported as "Asset impairments and costs associated with exit and disposal activities, net of adjustments" in the condensed consolidated statements of income for the three and nine months ended September 30, 2023 is shown below.


(in thousands)	Severance		Asset write-downs		Other		Total
Balance at January 1, 2023	$	—	$	—	$	—	$	—
Richmond Technical Center	846		3,387		340		4,573
Charges	846		3,387		340		4,573
Cash Spend	236		—		149		385
Charges against assets	—		3,387		—		3,387
Balance at September 30, 2023	$	610	$	—	$	191	$	801

Impairment of Goodwill

The Company assesses goodwill for impairment when events or circumstances indicate that the carrying value may not be recoverable, or, at a minimum, on an annual basis (December 1st of each year). As of September 30, 2023, the Company’s reporting units with goodwill were Surface Protection in PE Films ("Surface Protection") and Futura in Aluminum Extrusions (“Futura”). No events or circumstances were identified during the third quarter of 2023 that indicate that Futura’s fair value is more likely than not less than its carrying amount.

Uncertainty about the timing of a recovery in the consumer electronics market persists, and manufacturers in the supply chain for consumer electronics continue to experience reduced capacity utilization and inventory corrections. In light of the limited visibility on the timing of a recovery and the expected adverse future impact to the Surface Protection business, coupled with a cautious outlook on new product development opportunities, the Company performed a Step 1 goodwill impairment analysis of the Surface Protection component of PE Films. This analysis utilized projections that contemplate the expected market recovery and business conditions, including for its three significant customers, as these events indicated Surface Protection’s fair value is more likely than not less than its carrying amount.

The Company estimated the fair value of Surface Protection at September 30, 2023 by: (i) computing an estimated enterprise value (“EV”) utilizing the discounted cash flow method (the “DCF Method”), (ii) applying adjustments for any surplus or deficient working capital, (iii) adding cash and cash equivalents, and (iv) subtracting interest-bearing debt. The DCF Method was used, incorporating Surface Protection’s latest projections which reflect updated expected market recovery levels, feasibility of launching new product applications, competitive pricing and cash flows associated with production efficiencies, as well as consideration of cost savings and inventory corrections.

The analysis concluded that the fair value of Surface Protection was less than its carrying value, thus a non-cash partial goodwill impairment of $19.5 million ($15.1 million after deferred income tax benefits) was recognized during the third quarter of 2023 and $34.9 million ($27.0 million after deferred income tax benefits) during the first nine months of 2023.

Given the uncertain demand for Surface Protections products, it is reasonably possible that the cash flow estimates used in deriving such fair value measurements may change in the future. The Surface Protection reporting unit had goodwill of $22.4 million and $57.3 million as of September 30, 2023 and December 31, 2022, respectively.

Accounting Standards Adopted

In July 2023, the Financial Accounting Standard Board issued Accounting Standards Updated ("ASU") 2023-03 to amend various SEC paragraphs in the Accounting Standards Codification to primarily reflect the issuance of SEC Staff Accounting Bulletin No. 120. ASU No. 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 Emerging Issues Task Force ("EITF") Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock.” ASU 2023-03 amends the ASC for SEC updates pursuant to SEC Staff Accounting Bulletin No. 120; SEC Staff Announcement at the March 24, 2022 EITF Meeting; and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. These updates were immediately effective and did not have a material impact to the Company's consolidated financial statements.

2. ACCOUNTS AND OTHER RECEIVABLES

As of September 30, 2023 and December 31, 2022, accounts and other receivables, net include the following:


(In thousands)	September 30, 2023		December 31, 2022
Customer receivables	$	69,945	$	83,667
Other receivables	2,326		3,874
Total accounts and other receivables	72,271		87,541
Less: Allowance for bad debts	(1,927)		(2,997)
Total accounts and other receivables, net	$	70,344	$	84,544

3. INVENTORIES

The components of inventories are as follows:


(In thousands)	September 30, 2023		December 31, 2022
Finished goods	$	28,664	$	34,686
Work-in-process	9,569		15,604
Raw materials	20,314		58,262
Stores, supplies and other	20,754		19,219
Total	$	79,301	$	127,771

4. PENSION AND OTHER POSTRETIREMENT BENEFITS

Tredegar sponsors a noncontributory defined benefit (pension) plan covering certain current and former U.S. employees. As of January 31, 2018, the plan no longer accrued benefits associated with crediting employees for service, thereby freezing all future benefits under the plan. On February 10, 2022, Tredegar announced the initiation of a process to terminate and settle its frozen defined benefit pension plan through lump sum distributions and the purchase of annuity contracts. In connection therewith, on February 9, 2022, the Company contributed $50 million to the pension plan.

During the third quarter of 2023, the Company remeasured the pension plan, which resulted in a pre-tax pension settlement loss in the condensed consolidated results of operation of $25.6 million. The remeasurement of the pension benefit obligation and plan assets was triggered by $64.5 million of lump sum distributions from the pension plan assets which exceeded the pension plan's service and interest cost.

On September 27, 2023, the Company borrowed $30 million under its revolving credit agreement in anticipation of the final funding expected for terminating its defined benefit pension plan obligation. On October 31, 2023, the Company contributed $27.7 million to fully fund the pension plan with the amount necessary to allow for the subsequent transfer of the final annuity premium to Massachusetts Mutual Life Insurance Company, the selected insurer for the plan. On November 3, 2023, the pension plan termination and settlement process for the Company was completed, and the relevant pension plan obligation was transferred to Massachusetts Mutual Life Insurance Company. As of September 30, 2023, the remaining unrecognized pre-tax actuarial losses reported in the accumulated other comprehensive income (loss) was $69.0 million.

Tredegar also has a non-qualified supplemental pension plan covering certain employees. Effective December 31, 2005, further participation in this plan was terminated and benefit accruals for existing participants were frozen. Pension expense recognized for this plan was immaterial in the three and nine months ended September 30, 2023 and 2022. This information has been included in the pension benefit table below.

The components of net periodic benefit cost for the pension and other postretirement benefit programs reflected in the condensed consolidated statements of income for the three and nine months ended September 30, 2023 and 2022, are shown below:


	Pension Benefits				Other Post-Retirement Benefits
	Three Months Ended September 30,				Three Months Ended September 30,
(In thousands)	2023		2022		2023		2022
Service cost	$	—	$	—	$	3	$	5
Interest cost	2,786		2,226		71		51
Expected return on plan assets	(2,328)		(2,044)		—		—
Pension settlement loss(a)	25,612		—		—		—
Amortization of prior service costs, (gains) losses and net transition asset	2,644		3,301		(58)		(33)
Net periodic benefit cost	$	28,714	$	3,483	$	16	$	23

	Pension Benefits				Other Post-Retirement Benefits
	Nine Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2023		2022		2023		2022
Service cost	$	—	$	—	$	9	$	15
Interest cost	8,842		6,676		213		153
Expected return on plan assets	(7,542)		(6,141)		—		—
Pension settlement loss(a)	25,612		—		—		—
Amortization of prior service costs, (gains) losses and net transition asset	8,609		9,887		(176)		(101)
Net periodic benefit cost	$	35,521	$	10,422	$	46	$	67
(a)Pension settlement loss, included in the condensed consolidated statements of operation, represents pension settlement charges due to lump sum payments to participants.

Pension and other postretirement liabilities were $36.3 million and $35.7 million at September 30, 2023 and December 31, 2022, respectively ($0.7 million included in “Accrued expenses” at September 30, 2023 and December 31, 2022, respectively, with the remainder included in “Pension and other postretirement benefit obligations, net” in the condensed consolidated balance sheets).

Tredegar funds its other postretirement benefits on a claims-made basis; for 2023, the Company anticipates the amount will be consistent with amounts paid for the year ended December 31, 2022, or approximately $0.5 million.

5. OTHER INCOME (EXPENSE), NET

Other income (expense), net consists of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2023		2022		2023		2022
Gain on investment in kaléo(a)	$	—	$	—	$	262	$	1,406





Other	(51)		140		(52)		(225)
Total	$	(51)	$	140	$	210	$	1,181
(a) In January 2023, additional cash consideration of $0.3 million was received related to the customary post-closing adjustments on the sale of the investment in kaleo, Inc ("kaléo"), which was sold in December 2021.

6. EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing net income (loss) by the weighted average common and potentially dilutive common equivalent shares outstanding, determined as follows:


	Three Months Ended September 30,		Nine Months Ended September 30,
(In thousands)	2023	2022	2023	2022
Weighted average shares outstanding used to compute basic earnings per share	34,264	33,870	34,081	33,780
Incremental dilutive shares attributable to stock options and restricted stock	—	1	—	28
Shares used to compute diluted earnings per share	34,264	33,871	34,081	33,808

Incremental shares attributable to stock options and restricted stock are computed under the treasury stock method using the average market price during the related period. The Company had a net loss for the three and nine months ended September 30, 2023, so there is no dilutive impact for such shares. If the Company had reported net income for the three and nine months ended September 30, 2023, average out-of-the-money options to purchase shares that were excluded from the calculation of incremental shares attributable to stock options and restricted stock would have been 3,019,333 and 2,893,677, respectively. The average out-of-the-money options to purchase shares that were excluded from the calculation of incremental shares attributable to stock options and restricted stock were 2,932,378 and 2,645,063 for the three and nine months ended September 30, 2022, respectively.

7. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The changes in accumulated other comprehensive income (loss) by component for the three months ended September 30, 2023.


(In thousands)	Foreign Currency Translation		Gain (Loss) on Derivative Financial Instruments		Pension & Other Postretirement Benefit Adjust		Total Accumulated Other Comprehensive Income (Loss)
Balance at July 1, 2023	$	(83,338)	$	(843)	$	(54,463)	$	(138,644)
Other comprehensive income (loss)	(1,793)		2,287		442		936
Income tax (expense) benefit	(25)		(197)		—		(222)
Other comprehensive income (loss), net of tax	(1,818)		2,090		442		714
Reclassification adjustment to net income (loss)	—		(2,756)		28,198		25,442
Income tax (expense) benefit	—		735		(6,218)		(5,483)
Reclassification adjustment to net income (loss), net of tax	—		(2,021)		21,980		19,959
Other comprehensive income (loss), net of tax	(1,818)		69		22,422		20,673
Balance at September 30, 2023	$	(85,156)	$	(774)	$	(32,041)	$	(117,971)

The changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2023.


(In thousands)	Foreign Currency Translation		Gain (Loss) on Derivative Financial Instruments		Pension & Other Postretirement Benefit Adjust		Total Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2023	$	(86,079)	$	(2,480)	$	(59,036)	$	(147,595)
Other comprehensive income (loss)	1,563		7,852		442		9,857
Income tax (expense) benefit	(640)		(2,228)		—		(2,868)
Other comprehensive income (loss), net of tax	923		5,624		442		6,989
Reclassification adjustment to net income (loss)	—		(5,350)		34,045		28,695
Income tax (expense) benefit	—		1,432		(7,492)		(6,060)
Reclassification adjustment to net income (loss), net of tax	—		(3,918)		26,553		22,635
Other comprehensive income (loss), net of tax	923		1,706		26,995		29,624
Balance at September 30, 2023	$	(85,156)	$	(774)	$	(32,041)	$	(117,971)

The changes in accumulated other comprehensive income (loss) by component for the three months ended September 30, 2022.


(In thousands)	Foreign Currency Translation		Gain (Loss) on Derivative Financial Instruments		Pension & Other Postretirement Benefit Adjust		Total Accumulated Other Comprehensive Income (Loss)
Balance at July 1, 2022	$	(85,486)	$	(2,330)	$	(59,519)	$	(147,335)
Other comprehensive income (loss)	(2,488)		(2,205)		—		(4,693)
Income tax (expense) benefit	148		522		—		670
Other comprehensive income (loss), net of tax	(2,340)		(1,683)		—		(4,023)
Reclassification adjustment to net income (loss)	—		(1,159)		3,268		2,109
Income tax (expense) benefit	—		295		(712)		(417)
Reclassification adjustment to net income (loss), net of tax	—		(864)		2,556		1,692
Other comprehensive income (loss), net of tax	(2,340)		(2,547)		2,556		(2,331)
Balance at September 30, 2022	$	(87,826)	$	(4,877)	$	(56,963)	$	(149,666)

The changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2022.


(In thousands)	Foreign Currency Translation		Gain (Loss) on Derivative Financial Instruments		Pension & Other Postretirement Benefit Adjust		Total Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2022	$	(85,792)	$	901	$	(64,613)	$	(149,504)
Other comprehensive income (loss)	(1,936)		(3,883)		—		(5,819)
Income tax (expense) benefit	(98)		442		—		344
Other comprehensive income (loss), net of tax	(2,034)		(3,441)		—		(5,475)
Reclassification adjustment to net income (loss)	—		(3,156)		9,786		6,630
Income tax (expense) benefit	—		819		(2,136)		(1,317)
Reclassification adjustment to net income (loss), net of tax	—		(2,337)		7,650		5,313
Other comprehensive income (loss), net of tax	(2,034)		(5,778)		7,650		(162)
Balance at September 30, 2022	$	(87,826)	$	(4,877)	$	(56,963)	$	(149,666)

The amounts reclassified out of accumulated other comprehensive income (loss) related to pension and other postretirement benefits is included in the computation of net periodic pension costs. See Note 4 for additional details.

8. DERIVATIVES

Tredegar uses derivative financial instruments for the purpose of hedging margin exposure from fixed-price forward sales contracts in Aluminum Extrusions and exposure from currency volatility that exists as part of ongoing business operations in Flexible Packaging Films. These derivative financial instruments are designated as and qualify as cash flow hedges and are recognized in the condensed consolidated balance sheet at fair value. If individual derivative instruments with the same counterparty can be settled on a net basis, the Company records the corresponding derivative fair values as a net asset or net liability.

In the normal course of business, Aluminum Extrusions enters into fixed-price forward sales contracts with a small subset of its customers for the future sale of fixed quantities of aluminum extrusions at scheduled intervals. In order to hedge margin exposure created from the fixing of future sales prices relative to volatile raw material (aluminum) costs, Aluminum Extrusions enters into a combination of forward purchase commitments and futures contracts to acquire or hedge aluminum, based on the scheduled purchases for the firm sales commitments. The fixed-price firm sales commitments and related hedging instruments have durations generally no longer than 12 months. The notional amount of aluminum futures contracts that hedged future purchases of aluminum to meet fixed-price forward sales contract obligations was $10.9 million (7.4 million pounds of aluminum) at September 30, 2023 and $30.7 million (20.3 million pounds of aluminum) at December 31, 2022.

The table below summarizes the location and gross amounts of aluminum futures contract fair values (Level 2) in the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022:


	September 30, 2023			December 31, 2022
(In thousands)	Balance Sheet Account	Fair Value		Balance Sheet Account	Fair Value
Derivatives Designated as Hedging Instruments
Asset derivatives: Aluminum futures contracts	Prepaid expenses and other	$	—	Prepaid expenses and other	$	48

Liability derivatives: Aluminum futures contracts	Accrued expenses	(1,830)		Accrued expenses	(3,260)
Aluminum futures contracts	Other non-current liabilities	(149)		Other non-current liabilities	(369)
Net asset (liability)		$	(1,979)		$	(3,581)

In the event that a counterparty to an aluminum fixed-price forward sales contract chooses not to take delivery of its aluminum extrusions, the customer is contractually obligated to compensate Aluminum Extrusions for any losses on the related aluminum futures and/or forward contracts through the date of cancellation.

The Company's earnings are exposed to foreign currency exchange risk primarily through the translation of the financial statements of subsidiaries that have a functional currency other than the U.S. Dollar. The Company estimates that the net mismatch translation exposure for the Flexible Packaging Film's business unit in Brazil (“Terphane Ltda.”) of its sales and raw materials quoted or priced in U.S. Dollars and its variable conversion, fixed conversion and sales, general and administrative costs (before depreciation and amortization) quoted or priced in Brazilian Real ("R$") will result in an annual net cost of R$177 million for the full year of 2023.

Terphane Ltda. had the following outstanding foreign exchange average forward rate contracts to purchase Brazilian Real and sell U.S. Dollars as of September 30, 2023:


USD Notional Amount (000s)	Average Forward Rate Contracted on USD/BRL	R$ Equivalent Amount (000s)	Applicable Month	Estimated % of Terphane Ltda. R$ Operating Cost Exposure Hedged






$2,013	5.7556	R$11,586	Oct-23	79%
$2,018	5.7836	R$11,671	Nov-23	79%
$1,786	5.8312	R$10,414	Dec-23	71%
$1,784	5.2993	R$9,454	Jan-24	73%
$1,766	5.3188	R$9,393	Feb-24	72%
$1,781	5.3346	R$9,501	Mar-24	73%
$1,827	5.3373	R$9,751	Apr-24	75%
$1,798	5.3588	R$9,635	May-24	74%
$1,812	5.3708	R$9,732	Jun-24	75%
$1,804	5.3848	R$9,714	Jul-24	75%
$1,806	5.4014	R$9,755	Aug-24	75%
$1,857	5.4107	R$10,048	Sep-24	77%
$1,851	5.4225	R$10,037	Oct-24	77%
$1,837	5.4403	R$9,994	Nov-24	77%
$1,801	5.4580	R$9,830	Dec-24	76%
$27,541	5.4651	R$150,515		75%

These foreign currency exchange contracts have been designated and qualify as cash flow hedges of Terphane Ltda.’s forecasted sales to customers quoted or priced in U.S. Dollars over that period. By changing the currency risk associated with these U.S. Dollar sales, the derivatives have the effect of offsetting operating costs quoted or priced in Brazilian Real and decreasing the net exposure to Brazilian Real in the condensed consolidated statements of income.

The table below summarizes the location and gross amounts of foreign currency forward contract fair values (Level 2) in the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022:


	September 30, 2023			December 31, 2022
(In thousands)	Balance Sheet Account	Fair Value		Balance Sheet Account	Fair Value
Derivatives Designated as Hedging Instruments
Asset derivatives: Foreign currency forward contracts	Prepaid expenses and other	$	1,806	Prepaid expenses and other	$	781
Foreign currency forward contracts	Other assets	329		Other assets	33
Liability derivatives: Foreign currency forward contracts	Accrued expenses	(109)		Other non-current liabilities	(3)
Foreign currency forward contracts	Other non-current liabilities	(89)		Other non-current liabilities	—
Net asset (liability)		$	1,937		$	811

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

The pre-tax effect on net income (loss) and other comprehensive income (loss) of derivative instruments classified as cash flow hedges and described in the previous paragraphs for the three and nine month periods ended September 30, 2023 and 2022 is summarized in the table below:


	Cash Flow Derivative Hedges
	Three Months Ended September 30,
	Aluminum Futures Contracts				Foreign Currency Forwards
(In thousands)	2023		2022		2023				2022
Amount of pre-tax gain (loss) recognized in other comprehensive income (loss)	$	2,908	$	(2,320)	$	—	$	(621)	$	—	$	115
Location of gain (loss) reclassified from accumulated other comprehensive income (loss) into net income (effective portion)	Cost of goods sold		Cost of goods sold		Cost of goods sold		Selling, general & admin		Cost of goods sold		Selling, general & admin
Amount of pre-tax gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (effective portion)	$	1,716	$	837	$	16	$	1,024	$	16	$	306
	Nine Months Ended September 30,
	Aluminum Futures Contracts				Foreign Currency Forwards
	2023		2022		2023				2022
Amount of pre-tax gain (loss) recognized in other comprehensive income (loss)	$	4,867	$	(6,060)	$	—	$	2,985	$	—	$	2,177
Location of gain (loss) reclassified from accumulated other comprehensive income (loss) into net income (effective portion)	Cost of goods sold		Cost of goods sold		Cost of goods sold		Selling, general & admin		Cost of goods sold		Selling, general & admin
Amount of pre-tax gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (effective portion)	$	3,273	$	2,135	$	46	$	2,031	$	46	$	975

As of September 30, 2023, the Company expects $1.1 million of unrealized after-tax losses on aluminum and foreign currency derivative instruments reported in accumulated other comprehensive income (loss) to be reclassified to earnings within the next 12 months. For the three and nine month periods ended September 30, 2023 and 2022, net gains or losses realized, from previously unrealized net gains or losses on hedges that had been discontinued, were not material.

9. INCOME TAXES

Tredegar recorded tax benefit of $16.3 million on pre-tax loss of $86.6 million in the first nine months of 2023. Therefore, the effective tax rate in the first nine months of 2023 was 18.8%, unchanged compared to the effective tax rate in the first nine months of 2022. The effective tax rate in the first nine months of 2022 was impacted by a large discrete benefit recorded in the first quarter of 2022, resulting from the implementation of new U.S. tax regulations associated with foreign tax credits published by the U.S. Treasury and Internal Revenue Service on January 4, 2022. These regulations overhauled various components of the foreign tax credit regime including the determination of creditable foreign taxes and limit the amount of foreign taxes that are creditable against U.S. income taxes. As the result of these regulations, future Brazilian income tax under Brazil tax law in place at that time would have been deductible, but not creditable, in the U.S. The accounting rules require a reduction of the U.S. deferred tax liability previously established related to anticipated future income from Brazil. The tax effect of the reduction of the U.S. deferred tax liability resulted in the discrete tax benefit described above. In the second quarter of 2023, Brazil enacted new tax legislation that causes the Brazil income tax to once again be creditable after 2023. This law change caused a reversal of the discrete tax benefit recognized in the first quarter of 2022 described above, which increased the deferred tax liability related to anticipated future income from Brazil.

In the third quarter of 2023, the Internal Revenue Service released Notice 2023-55 which provides temporary relief for tax years 2022 and 2023 from the regulations published by the U.S. Treasury and Internal Revenue Service on January 4, 2022. Notice 2023-55 allows Tredegar to treat Brazil income tax as creditable in 2022 and 2023.

The effective tax rate in the first nine months of 2023 was impacted by tax benefits related to the goodwill impairment, the pension settlement loss, and the treatment of Brazil income tax as creditable in 2022 and 2023. These benefits were offset by the reversal of the discrete tax benefit recorded in the first quarter of 2022 and an increase in the valuation allowance related to deferred tax assets. Total deferred tax assets increased during the first nine months of 2023 compared to December 31, 2022 primarily due to changes in other comprehensive income, the pre-tax loss, and decrease in deferred tax liability related to the goodwill impairment incurred during the first nine months of 2023.

Tredegar accrues U.S. federal income taxes on unremitted earnings of foreign subsidiaries where required. However, due to changes in the taxation of dividends under the U.S. Tax Cuts and Jobs Act of 2017, Tredegar will only record U.S. federal income taxes on unremitted earnings of its foreign subsidiaries where Tredegar cannot take steps to eliminate any potential tax on future distributions from its foreign subsidiaries.

The Brazilian federal statutory income tax rate is a composite of 34.0% (25.0% of income tax and 9.0% of social contribution on income). Terphane Ltda.’s manufacturing facility in Brazil is the beneficiary of certain income tax incentives that allow for a reduction in the statutory Brazilian federal income tax rate to 15.25% levied on the operating profit on certain of its products. The incentives have been granted for a 10-year period, from the commencement date of January 1, 2015 and expiring at the end of 2024. The benefit from the tax incentives was $0.5 million and $2.6 million in the first nine months of 2023 and 2022, respectively.

Tredegar and its subsidiaries file income tax returns in the U.S., various states, and jurisdictions outside the U.S. With exceptions for some U.S. states and non-U.S. jurisdictions, Tredegar and its subsidiaries as of September 30, 2023 are no longer subject to U.S. federal, state or non-U.S. income tax examinations by tax authorities for years before 2019.

10. BUSINESS SEGMENTS

The Company’s business segments are Aluminum Extrusions, PE Films, and Flexible Packaging Films. Information by business segment is reported below. There are no accounting transactions between segments and no allocations to segments.

The Company’s reportable segments are based on its method of internal reporting, which is generally segregated by differences in products. Accounting standards for presentation of segments require an approach based on the way the Company organizes the segments for making operating decisions and how the chief operating decision maker (“CODM”) assesses performance. EBITDA from ongoing operations is the key profitability measure used by the CODM (Tredegar’s President and Chief Executive Officer) for purposes of assessing financial performance. The Company uses sales less freight (“net sales”) as its measure of revenues from external customers at the segment level. This measure is separately included in the financial information regularly provided to the CODM.

The following table presents net sales and EBITDA from ongoing operations by segment for the three and nine months ended September 30, 2023 and 2022:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2023		2022		2023		2022
Net Sales
Aluminum Extrusions	$	109,410	$	161,649	$	364,607	$	510,066
PE Films	19,938		20,059		56,036		82,613
Flexible Packaging Films	30,111		47,278		94,861		128,117
Total net sales	159,459		228,986		515,504		720,796
Add back freight	6,733		9,500		19,977		28,619
Sales as shown in the condensed consolidated statements of income (loss)	$	166,192	$	238,486	$	535,481	$	749,415
EBITDA from Ongoing Operations
Aluminum Extrusions:
Ongoing operations:
EBITDA	$	5,113	$	12,071	$	29,968	$	57,885
Depreciation & amortization	(4,683)		(4,416)		(13,252)		(12,846)
EBIT	430		7,655		16,716		45,039
Plant shutdowns, asset impairments, restructurings and other	(1,483)		(32)		(1,821)		(120)
PE Films:
Ongoing operations:
EBITDA	4,037		431		6,700		14,543
Depreciation & amortization	(2,111)		(1,579)		(5,305)		(4,733)
EBIT	1,926		(1,148)		1,395		9,810
Plant shutdowns, asset impairments, restructurings and other	(4,566)		(498)		(4,565)		(650)
Goodwill impairment	(19,478)		—		(34,891)		—
Flexible Packaging Films:
Ongoing operations:
EBITDA	477		7,830		2,076		20,495
Depreciation & amortization	(704)		(590)		(2,115)		(1,723)
EBIT	(227)		7,240		(39)		18,772
Plant shutdowns, asset impairments, restructurings and other	—		(6)		(79)		(86)
Total	(23,398)		13,211		(23,284)		72,765
Interest income	62		9		135		41
Interest expense	3,106		1,138		7,791		3,158
Gain on investment in kaléo	—		—		262		1,406
Stock option-based compensation costs