10-Q 1 tg-20220331.htm 10-Q tg-20220331
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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, 2022
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 29, 2022: 33,853,082



Tredegar Corporation
Table of Contents
 



PART I - FINANCIAL INFORMATION 

Item 1.    Financial Statements.
Tredegar Corporation
Condensed Consolidated Balance Sheets
(In Thousands, Except Share Data)
(Unaudited)
March 31,December 31,
20222021
Assets
Current assets:
Cash and cash equivalents$25,648 $30,521 
Accounts and other receivables, net129,559 103,312 
Income taxes recoverable2,512 2,558 
Inventories104,560 88,569 
Prepaid expenses and other17,183 11,275 
Current assets of discontinued operations151 178 
Total current assets279,613 236,413 
Property, plant and equipment, at cost506,511 498,311 
Less: accumulated depreciation(333,944)(327,930)
Net property, plant and equipment172,567 170,381 
Right-of-use leased assets13,385 13,847 
Identifiable intangible assets, net13,632 14,152 
Goodwill70,608 70,608 
Deferred income taxes11,409 15,723 
Other assets3,457 2,460 
Total assets$564,671 $523,584 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable$144,585 $123,760 
Accrued expenses27,012 33,104 
Lease liability, short-term2,119 2,158 
Income taxes payable643 9,333 
Current liabilities of discontinued operations178 193 
Total current liabilities174,537 168,548 
Lease liability, long-term12,361 12,831 
Long-term debt131,250 73,000 
Pension and other postretirement benefit obligations, net28,333 78,265 
Other non-current liabilities6,322 6,218 
Total liabilities352,803 338,862 
Shareholders’ equity:
Common stock, no par value (issued and outstanding 33,837,815 shares at March 31, 2022 and 33,736,629 shares at December 31, 2021)
55,953 55,174 
Common stock held in trust for savings restoration plan (109,494 shares at March 31, 2022 and 108,433 shares at December 31, 2021)
(2,148)(2,135)
Accumulated other comprehensive income (loss):
Foreign currency translation adjustment(80,256)(85,792)
Gain (loss) on derivative financial instruments6,831 901 
Pension and other postretirement benefit adjustments(62,075)(64,613)
Retained earnings293,563 281,187 
Total shareholders’ equity211,868 184,722 
Total liabilities and shareholders’ equity$564,671 $523,584 
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,
 20222021
Revenues and other items:
Sales$236,566 $184,822 
Other income (expense), net(267)760 
236,299 185,582 
Costs and expenses:
Cost of goods sold183,260 141,285 
Freight8,081 6,223 
Selling, general and administrative21,282 18,384 
Research and development1,525 1,721 
Amortization of identifiable intangibles663 723 
Pension and postretirement benefits3,476 3,540 
Interest expense786 822 
Asset impairments and costs associated with exit and disposal activities, net of adjustments(9)169 
Total219,064 172,867 
Income (loss) from continuing operations before income taxes17,235 12,715 
Income tax expense (benefit)778 3,097 
Net income (loss) from continuing operations16,457 9,618 
Income (loss) from discontinued operations, net of tax(35)(587)
Net income (loss)$16,422 $9,031 
Earnings (loss) per share:
Basic:
Continuing operations$0.49 $0.29 
Discontinued operations (0.02)
Basic earnings (loss) per share$0.49 $0.27 
Diluted:
Continuing operations$0.49 $0.29 
Discontinued operations (0.02)
Diluted earnings (loss) per share$0.49 $0.27 
Shares used to compute earnings (loss) per share:
Basic33,654 33,406 
Diluted33,696 33,644 
See accompanying notes to financial statements.

3


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

Three Months Ended March 31,
 20222021
Net income (loss)$16,422 $9,031 
Other comprehensive income (loss):
Unrealized foreign currency translation adjustment (net of tax expense of $728 in 2022 and net of tax benefit of $272 in 2021)
5,536 (2,648)
Derivative financial instruments adjustment (net of tax expense of $2,916 in 2022 and net of tax benefit of $188 in 2021)
5,930 (236)
Amortization of prior service costs and net gains or losses (net of tax expense of $712 in 2022 and net of tax of $924 in 2021)
2,538 3,319 
Other comprehensive income (loss)14,004 435 
Comprehensive income (loss)$30,426 $9,466 
See accompanying notes to financial statements.

4


Tredegar Corporation
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months Ended March 31,
20222021
Cash flows from operating activities:
Net income (loss)$16,422 $9,031 
Adjustments for noncash items:
Depreciation5,829 5,463 
Amortization of identifiable intangibles663 723 
Reduction of right-of-use lease asset500 549 
Deferred income taxes552 1,017 
Accrued pension and post-retirement benefits3,506 3,540 
Stock-based compensation expense1,295 576 
Gain on investment in kaléo (400)
Changes in assets and liabilities:
Accounts and other receivables(24,351)(2,126)
Inventories(12,622)(5,442)
Income taxes recoverable/payable(8,791)1,102 
Prepaid expenses and other3,323 2,798 
Accounts payable and accrued expenses10,384 (2,517)
Lease liability(547)(535)
Pension and postretirement benefit plan contributions(50,158)(3,886)
Other, net(742)(23)
Net cash (used in) provided by operating activities(54,737)9,870 
Cash flows from investing activities:
Capital expenditures(5,086)(5,259)
Net cash used in investing activities(5,086)(5,259)
Cash flows from financing activities:
Borrowings109,500 32,000 
Debt principal payments(51,250)(23,000)
Dividends paid(4,059)(4,025)
Other(396)915 
Net cash provided by financing activities53,795 5,890 
Effect of exchange rate changes on cash1,155 (488)
Increase (decrease) in cash & cash equivalents(4,873)10,013 
Cash and cash equivalents at beginning of period30,521 11,846 
Cash and cash equivalents at end of period$25,648 $21,859 
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, 2022:
Common StockRetained EarningsTrust for Savings Restoration PlanAccumulated Other Comprehensive Income (Loss)Total Shareholders’ Equity
Balance January 1, 2022
$55,174 $281,187 $(2,135)$(149,504)$184,722 
Net income (loss)— 16,422 — — 16,422 
Foreign currency translation adjustment — — — 5,536 5,536 
Derivative financial instruments adjustment — — — 5,930 5,930 
Amortization of prior service costs and net gains or losses— — — 2,538 2,538 
Cash dividends declared ($0.12 per share)
— (4,059)— — (4,059)
Stock-based compensation expense1,175 — — — 1,175 
Repurchase of employee common stock for tax
withholdings
(396)— — — (396)
Tredegar common stock purchased by trust for savings restoration plan— 13 (13)— — 
Balance March 31, 2022
$55,953 $293,563 $(2,148)$(135,500)$211,868 
The following summarizes the changes in shareholders’ equity for the three month period ended March 31, 2021:
 Common
Stock
Retained
Earnings
Trust for
Savings
Restoration
Plan
Accumulated Other
Comprehensive Income (Loss)
Total
Shareholders’
Equity
Balance at January 1, 2021$50,066 $239,480 $(2,087)$(178,404)$109,055 
Net income (loss)— 9,031 — — 9,031 
Foreign currency translation adjustment — — — (2,648)(2,648)
Derivative financial instruments adjustment — — — (236)(236)
Amortization of prior service costs and net gains or losses — — — 3,319 3,319 
Cash dividends declared ($0.12 per share)
— (4,025)— — (4,025)
Stock-based compensation expense576 — — — 576 
Shares issued upon exercise of stock options915 — — — 915 
Tredegar common stock purchased by trust for savings restoration plan— 10 (10)— — 
Balance at March 31, 2021$51,557 $244,496 $(2,097)$(177,969)$115,987 
See accompanying notes to financial statements.

6


TREDEGAR CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying condensed consolidated financial statements of Tredegar Corporation and its subsidiaries (“Tredegar,” “the Company,” “we,” “us” or “our”) contain all adjustments necessary to state fairly, in all material respects, Tredegar’s condensed consolidated financial position as of March 31, 2022, the condensed consolidated results of operations for the three months ended March 31, 2022 and 2021, the condensed consolidated cash flows for the three months ended March 31, 2022 and 2021, and the condensed consolidated changes in shareholders’ equity for the three months ended March 31, 2022 and 2021, 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 2022 and 2021 for this segment references 13-week periods ended March 27, 2022 and March 28, 2021.  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 27, 2022 and March 31, 2022.
The financial position data as of December 31, 2021 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, 2021 (“2021 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 2021 Form 10-K.
The results of operations for the three months ended March 31, 2022, are not necessarily indicative of the results to be expected for the full year.
Accounting Standards Not Yet Adopted.
In March 2020, the FASB issued ASU 2020-04, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate or by another reference rate expected to be discontinued because of reference rate reform. The guidance was effective beginning March 12, 2020 and can be applied prospectively through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, which clarified the scope and application of the original guidance. The Company is currently evaluating the potential impact of adopting this guidance, but does not expect it to have a material impact on the consolidated financial statements.
2. ACCOUNTS AND OTHER RECEIVABLES
As of March 31, 2022 and December 31, 2021, accounts receivable and other receivables, net include the following:
March 31,December 31,
(In thousands)20222021
Customer receivables$128,930 $102,090 
Other receivables2,517 2,958 
      Total accounts and other receivables131,447 105,048 
Less: Allowance for bad debts(1,888)(1,736)
Total accounts and other receivables, net$129,559 $103,312 
3. INVENTORIES
The components of inventories are as follows:
(In thousands)March 31, 2022December 31, 2021
Finished goods$26,796 $25,199 
Work-in-process18,122 11,955 
Raw materials39,481 32,958 
Stores, supplies and other20,161 18,457 
Total$104,560 $88,569 
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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, which could take up to 24 months to complete. In connection therewith, on February 9, 2022, the Company contributed $50 million to the pension plan (the “Special Contribution”). The Company estimates that, with the Special Contribution, there will be no required minimum contributions to the pension plan until final settlement.
Tredegar also has a non-qualified supplemental pension plan covering certain employees. Effective December 31, 2005, further participation in this plan was terminated and benefit accruals for existing participants were frozen. Pension expense recognized for this plan was immaterial in the first quarter of 2022 and 2021, respectively. This information has been included in the pension benefit table below.
The components of net periodic benefit cost for the pension and other postretirement benefit programs reflected in the condensed consolidated statements of income for the three months ended March 31, 2022 and 2021, are shown below:
Pension BenefitsOther Post-Retirement Benefits
 Three Months Ended March 31,Three Months Ended March 31,
(In thousands)2022202120222021
Service cost$ $ $5 $9 
Interest cost2,225 2,102 51 50 
Expected return on plan assets(2,055)(2,862)  
Amortization of prior service costs, (gains) losses and net transition asset
3,284 4,265 (34)(24)
Net periodic benefit cost$3,454 $3,505 $22 $35 
Pension and other postretirement liabilities were $29.0 million and $78.9 million at March 31, 2022 and December 31, 2021, respectively ($0.7 million included in “Accrued expenses” at March 31, 2022 and December 31, 2021, 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 2022, the Company anticipates the amount will be consistent with amounts paid for the year ended December 31, 2021, or approximately $0.5 million.
5. OTHER INCOME (EXPENSE), NET
Other income (expense), net consists of the following:
Three Months Ended March 31,
(In thousands)20222021
Gain on investment in kaléo(a)
$ $718 
Transition service fees, net of corporate costs associated with the divested Personal Care business(32)304 
COVID-19-related expenses, net of relief (b)
(212)(19)
Write-down of investment in Harbinger Capital Partners Special Situations Fund(c)
(7)(148)
Other(16)(95)
Total$(267)$760 
(a) The gain in the first three months of 2021 includes a $0.3 million dividend received from kaléo in the first quarter of 2021. See Note 12.
(b) Costs associated with operating under COVID-19 conditions include employee overtime expenses associated with absenteeism, personal protective equipment supplies and facility maintenance.
(c) Represents the unrealized loss on the Company’s investment in Harbinger Capital Partners Special Situations Fund L.P. that had a fair value of $0.2 million as of March 31, 2022 and $0.2 million as of December 31, 2021 reported in "Other assets" in the condensed consolidated balance sheet.
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6. 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 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)20222021
Weighted average shares outstanding used to compute basic earnings per share33,654 33,406 
Incremental dilutive shares attributable to stock options and restricted stock42 238 
Shares used to compute diluted earnings per share33,696 33,644 
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 2,477,708 and 411,516 for the three months ended March 31, 2022 and 2021, respectively.
7. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The changes in accumulated other comprehensive income (loss) by component are summarized as follows:
Foreign Currency TranslationGain (Loss) on Derivative Financial InstrumentsPension & Other Postretirement Benefit AdjustTotal Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2022(85,792)901 (64,613)(149,504)
Other comprehensive income (loss)6,264 10,003  16,267 
Income tax (expense) benefit(728)(3,190) (3,918)
Other comprehensive income (loss), net of tax5,536 6,813  12,349 
Reclassification adjustment to net income (loss) (1,157)3,250 2,093 
Income tax (expense) benefit 274 (712)(438)
Reclassification adjustment to net income (loss), net of tax (883)2,538 1,655 
Other comprehensive income (loss), net of tax5,536 5,930 2,538 14,004 
Balance at March 31, 2022$(80,256)$6,831 $(62,075)$(135,500)
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Foreign Currency TranslationGain (Loss) on Derivative Financial InstrumentsPension & Other Postretirement Benefit AdjustTotal Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2021(84,149)2,264 (96,519)(178,404)
Other comprehensive income (loss)(2,920)231  (2,689)
Income tax (expense) benefit272 42  314 
Other comprehensive income (loss), net of tax(2,648)273  (2,375)
Reclassification adjustment to net income (loss) (655)4,243 3,588 
Income tax (expense) benefit 146 (924)(778)
Reclassification adjustment to net income (loss), net of tax (509)3,319 2,810 
Other comprehensive income (loss), net of tax(2,648)(236)3,319 435 
Balance at March 31, 2021$(86,797)$2,028 $(93,200)$(177,969)
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 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 $24.2 million (14.3 million pounds of aluminum) at March 31, 2022 and $22.1 million (14.9 million pounds of aluminum) at December 31, 2021.
The table below summarizes the location and gross amounts of aluminum futures contract fair values (Level 2) in the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021:
 March 31, 2022December 31, 2021
(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$6,665 Prepaid expenses and other$2,085 
Aluminum futures contractsOther assets521 Other assets 
Liability derivatives:
Aluminum futures contracts
Accrued expenses(43)Accrued expenses(119)
Net asset$7,143 $1,966 
In the event that a counterparty to an aluminum fixed-price forward sales contract chooses not to take delivery of its aluminum extrusions, the customer is contractually obligated to compensate Aluminum Extrusions for any losses on the related aluminum futures and/or forward contracts through the date of cancellation.
The Company's earnings are exposed to foreign currency exchange risk primarily through the translation of the financial statements of subsidiaries that have a functional currency other than the U.S. Dollar. The Company estimates that the net mismatch translation exposure for the Flexible Packaging Film's business unit in Brazil (“Terphane Ltda.”) of its sales and raw
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materials quoted or priced in U.S. Dollars and its variable conversion, fixed conversion and sales, general and administrative costs (before depreciation and amortization) quoted or priced in Brazilian Real ("R$") is annual net costs of R$150 million for the full year of 2022.
Terphane Ltda. has the following outstanding foreign exchange average forward rate contracts to purchase Brazilian Real and sell U.S. Dollars:
USD Notional Amount (000s)Average Forward Rate Contracted on USD/BRLR$ Equivalent Amount (000s)Applicable MonthEstimated % of Terphane Ltda. R$ Operating Cost Exposure Hedged
$1,6155.4247R$8,761Apr-2268%
$1,6475.4545R$8,984May-2270%
$1,5965.4890R$8,760Jun-2268%
$1,7195.5200R$9,489Jul-2274%
$1,7085.5560R$9,490Aug-2274%
$1,7805.5915R$9,953Sep-2277%
$1,7935.6264R$10,088Oct-2278%
$1,7845.6597R$10,097Nov-2278%
$1,6595.6962R$9,450Dec-2273%
$6255.5145R$3,447Jan-2324%
$6255.5581R$3,474Feb-2324%
$6255.6014R$3,501Mar-2324%
$6255.6446R$3,528Apr-2324%
$6255.6866R$3,554May-2324%
$6255.7323R$3,583Jun-2324%
$6255.7756R$3,610Jul-2325%
$6255.8197R$3,637Aug-2325%
$6255.8627R$3,664Sep-2325%
$6255.9028R$3,689Oct-2325%
$6255.9414R$3,713Nov-2325%
$6255.9800R$3,738Dec-2325%
$22,8015.6230R$128,21039%
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 March 31, 2022 and December 31, 2021:
 March 31, 2022December 31, 2021
(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$2,127 Prepaid expenses and other$ 
Foreign currency forward contractsOther assets481 Other assets 
Liability derivatives:
Foreign currency forward contracts
Accrued expenses Accrued expenses(1,255)
Net asset (liability)$2,608 $(1,255)
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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 month periods ended March 31, 2022 and 2021 is summarized in the table below:
Cash Flow Derivative Hedges
 Three Months Ended March 31,
 Aluminum Futures ContractsForeign Currency Forwards
 2022202120222021
Amount of pre-tax gain (loss) recognized in other comprehensive income (loss)$6,182 $1,515 $ $3,821 $ $(1,283)
Location of gain (loss) reclassified from accumulated other comprehensive income (loss) into net income (effective portion)Cost of goods soldCost of goods soldCost of goods soldSelling, general & adminCost of goods soldSelling, general & admin
Amount of pre-tax gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (effective portion)$(1,005)$640 $(15)$(137)$17 $(2)
As of March 31, 2022, the Company expects $3.5 million of unrealized after-tax gains on aluminum and foreign currency derivative instruments reported in accumulated other comprehensive income (loss) to be reclassified to earnings within the next 12 months. For the three month periods ended March 31, 2022 and 2021, 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 expense of $0.8 million on pre-tax income from continuing operations of $17.2 million in the first three months of 2022. Therefore, the effective tax rate in the first three months of 2022 was 4.5%, compared to 24.4% in the first three months of 2021. The decrease in the effective tax rate for continuing operations is primarily due to a 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 overhaul 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 will be 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. This one-time discrete benefit is expected to reduce the effective tax rate for the remainder of 2022, which will be offset by an expected increase to the effective tax rate as the result of Brazilian income tax no longer being creditable in the U.S. for the foreseeable future. Total deferred tax assets declined during the first quarter of 2022 compared to December 31, 2021 primarily due to changes in other comprehensive income and the projected utilization of foreign tax credits partially offset by the change in the deferred tax liability discussed above.
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 13-year period, from the commencement date of January 1, 2015. The benefit from the tax incentives was $1.5 million in the first three months of 2022 and 2021.
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 are no longer subject to U.S. federal, state or non-U.S. income tax examinations by tax authorities for years before 2018.
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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”) 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.
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The following table presents net sales and EBITDA from ongoing operations by segment for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
(In thousands)20222021
Net Sales
Aluminum Extrusions$158,110 $118,125 
PE Films31,131 27,953 
Flexible Packaging Films39,244 32,521 
Total net sales228,485 178,599 
Add back freight8,081 6,223 
Sales as shown in the condensed consolidated statements of income$236,566 $184,822 
EBITDA from Ongoing Operations
Aluminum Extrusions:
Ongoing operations:
EBITDA$23,919 $13,302 
Depreciation & amortization(4,261)(4,130)
EBIT19,658 9,172 
Plant shutdowns, asset impairments, restructurings and other(105)183 
PE Films:
Ongoing operations:
EBITDA7,047 7,213 
Depreciation & amortization(1,595)(1,420)
EBIT5,452 5,793 
Plant shutdowns, asset impairments, restructurings and other(102)(124)
Flexible Packaging Films:
Ongoing operations:
EBITDA5,035 9,623 
Depreciation & amortization(550)(466)
EBIT4,485 9,157 
Plant shutdowns, asset impairments, restructurings and other(43)(38)
Total29,345 24,143 
Interest income29 7 
Interest expense786 822 
Gain on investment in kaléo 718 
Stock option-based compensation costs631 468 
Corporate expenses, net10,722 10,863 
Income (loss) from continuing operations before income taxes17,235 12,715 
Income tax expense (benefit)778 3,097 
Income (loss) from continuing operations16,457 9,618 
Income (loss) from discontinued operations, net of tax(35)(587)
Net income (loss)$16,422 $9,031 
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The following table presents identifiable assets by segment at March 31, 2022 and December 31, 2021:
(In thousands)March 31, 2022December 31, 2021
Aluminum Extrusions$311,971 $280,521 
PE Films115,307 113,613 
Flexible Packaging Films92,852 75,269 
Subtotal520,130 469,403 
General corporate18,742 23,482 
Cash and cash equivalents25,648 30,521 
Discontinued operations151 178 
Total$564,671 $523,584 
The following tables disaggregate the Company’s revenue by geographic area and product group for the three months ended March 31, 2022 and 2021:
Net Sales by Geographic Area (a)
Three Months Ended March 31,
(In thousands)20222021
United States$182,138 $132,897 
Exports from the United States to:
Asia12,465 13,362 
Latin America1,441 1,102 
Canada4,193 5,434 
Europe1,363 955 
Operations outside the United States:
Brazil26,885 24,849 
Total$228,485 $178,599 
(a) Export sales relate entirely to PE Films. Operations in Brazil relate entirely 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 $6.5 million and $6.9 million in the first three months of 2022 and 2021, respectively.


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Net Sales by Product Group
Three Months Ended March 31,
(In thousands)20222021
Aluminum Extrusions:
Nonresidential building & construction$80,921 $57,229 
Consumer durables16,891 13,152 
Automotive13,841 11,415 
Residential building & construction16,465 12,708 
Electrical7,287 7,180 
Machinery & equipment12,945 8,925 
Distribution9,760 7,516 
Subtotal158,110 118,125 
PE Films:
Surface protection films22,148 20,601 
Packaging8,983 7,352 
Subtotal31,131 27,953 
Flexible Packaging Films39,244 32,521 
Total $228,485 $178,599 
11. DIVESTITURES
Personal Care Films
In 2020, the Company completed the sale of Personal Care Films for an aggregate purchase price of $60.5 million, subject to customary adjustments. The Company agreed to provide certain transition services related to finance, human resources and information technology ("IT") that ended during the second quarter of 2021, resulting in final cash proceeds of $64.1 million. Personal Care Films was previously reported in the PE Films segment.
The following table summarizes the financial results of discontinued operations reflected in the condensed consolidated statements of income for the three and three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
(In thousands)20222021
Costs and expenses:
Selling, general and administrative45 1,050 
Adjustment to the fair value estimates used in the disposal of Personal Care Films(a)
 (299)
Total45 751 
Income (loss) from discontinued operations before income taxes(45)(751)
Income tax expense (benefit)(10)(164)
Income (loss) from discontinued operations, net of tax$(35)$(587)
(a) Represents a net increase to the estimated fair value of Personal Care Films primarily due to lower costs associated with IT transition-related services to provide the seller developed assets, which did not exist at the time of the sale, to support the seller's IT infrastructure.
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The assets and liabilities of the discontinued operations reflected in the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively, were as follows:
March 31,December 31,
(In thousands)20222021
Assets
Prepaid expenses and other (a)
$