TREDEGAR CORP [TG] Filings

10-Q 1 tg-20220331.htm 10-Q tg-20220331

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 March 31, 2022


¨			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 April 29, 2022: 33,853,082

Tredegar Corporation

Table of Contents


		Page

Part I	Financial Statements		2
Item 1.	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)		7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		28
Item 4.	Controls and Procedures		32

Part II	Other Information		34
Item 1A.	Risk Factors		34
Item 6.	Exhibits		35

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Tredegar Corporation

Condensed Consolidated Balance Sheets

(In Thousands, Except Share Data)

(Unaudited)


	March 31,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	25,648	$	30,521
Accounts and other receivables, net	129,559		103,312
Income taxes recoverable	2,512		2,558
Inventories	104,560		88,569
Prepaid expenses and other	17,183		11,275
Current assets of discontinued operations	151		178
Total current assets	279,613		236,413
Property, plant and equipment, at cost	506,511		498,311
Less: accumulated depreciation	(333,944)		(327,930)
Net property, plant and equipment	172,567		170,381
Right-of-use leased assets	13,385		13,847
Identifiable intangible assets, net	13,632		14,152
Goodwill	70,608		70,608
Deferred income taxes	11,409		15,723
Other assets	3,457		2,460
Total assets	$	564,671	$	523,584
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	144,585	$	123,760
Accrued expenses	27,012		33,104
Lease liability, short-term	2,119		2,158
Income taxes payable	643		9,333
Current liabilities of discontinued operations	178		193
Total current liabilities	174,537		168,548
Lease liability, long-term	12,361		12,831
Long-term debt	131,250		73,000
Pension and other postretirement benefit obligations, net	28,333		78,265

Other non-current liabilities	6,322		6,218
Total liabilities	352,803		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 instruments	6,831		901
Pension and other postretirement benefit adjustments	(62,075)		(64,613)
Retained earnings	293,563		281,187
Total shareholders’ equity	211,868		184,722
Total liabilities and shareholders’ equity	$	564,671	$	523,584

See accompanying notes to financial statements.

Tredegar Corporation

Condensed Consolidated Statements of Income (Loss)

(In Thousands, Except Per Share Data)

(Unaudited)


	Three Months Ended March 31,
		2022		2021
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 sold		183,260		141,285
Freight		8,081		6,223
Selling, general and administrative		21,282		18,384
Research and development		1,525		1,721
Amortization of identifiable intangibles		663		723
Pension and postretirement benefits		3,476		3,540
Interest expense		786		822
Asset impairments and costs associated with exit and disposal activities, net of adjustments		(9)		169
Total		219,064		172,867
Income (loss) from continuing operations before income taxes		17,235		12,715
Income tax expense (benefit)		778		3,097
Net income (loss) from continuing operations		16,457		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:
Basic		33,654		33,406
Diluted		33,696		33,644

See accompanying notes to financial statements.

Tredegar Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In Thousands)

(Unaudited)


	Three Months Ended March 31,
	2022		2021
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.

Tredegar Corporation

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net income (loss)	$	16,422	$	9,031
Adjustments for noncash items:
Depreciation	5,829		5,463
Amortization of identifiable intangibles	663		723
Reduction of right-of-use lease asset	500		549
Deferred income taxes	552		1,017
Accrued pension and post-retirement benefits	3,506		3,540
Stock-based compensation expense	1,295		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 other	3,323		2,798
Accounts payable and accrued expenses	10,384		(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:
Borrowings	109,500		32,000
Debt principal payments	(51,250)		(23,000)
Dividends paid	(4,059)		(4,025)
Other	(396)		915
Net cash provided by financing activities	53,795		5,890
Effect of exchange rate changes on cash	1,155		(488)
Increase (decrease) in cash & cash equivalents	(4,873)		10,013
Cash and cash equivalents at beginning of period	30,521		11,846
Cash and cash equivalents at end of period	$	25,648	$	21,859

See accompanying notes to 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 March 31, 2022:


	Common Stock		Retained Earnings		Trust for Savings Restoration Plan		Accumulated 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 expense	1,175		—		—		—		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 expense	576		—		—		—		576
Shares issued upon exercise of stock options	915		—		—		—		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.

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)	2022		2021
Customer receivables	$	128,930	$	102,090
Other receivables	2,517		2,958
Total accounts and other receivables	131,447		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, 2022		December 31, 2021
Finished goods	$	26,796	$	25,199
Work-in-process	18,122		11,955
Raw materials	39,481		32,958
Stores, supplies and other	20,161		18,457
Total	$	104,560	$	88,569

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 Benefits				Other Post-Retirement Benefits









	Three Months Ended March 31,				Three Months Ended March 31,
(In thousands)	2022		2021		2022		2021
Service cost	$	—	$	—	$	5	$	9
Interest cost	2,225		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)		2022		2021
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.

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)		2022	2021
Weighted average shares outstanding used to compute basic earnings per share		33,654	33,406
Incremental dilutive shares attributable to stock options and restricted stock		42	238
Shares used to compute diluted earnings per share		33,696	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 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)	6,264		10,003		—		16,267
Income tax (expense) benefit	(728)		(3,190)		—		(3,918)
Other comprehensive income (loss), net of tax	5,536		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 tax	5,536		5,930		2,538		14,004
Balance at March 31, 2022	$	(80,256)	$	6,831	$	(62,075)	$	(135,500)


	Foreign Currency Translation		Gain (Loss) on Derivative Financial Instruments		Pension & Other Postretirement Benefit Adjust		Total 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) benefit	272		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, 2022			December 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 contracts	Other assets	521		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

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/BRL	R$ Equivalent Amount (000s)	Applicable Month	Estimated % of Terphane Ltda. R$ Operating Cost Exposure Hedged
$1,615	5.4247	R$8,761	Apr-22	68%
$1,647	5.4545	R$8,984	May-22	70%
$1,596	5.4890	R$8,760	Jun-22	68%
$1,719	5.5200	R$9,489	Jul-22	74%
$1,708	5.5560	R$9,490	Aug-22	74%
$1,780	5.5915	R$9,953	Sep-22	77%
$1,793	5.6264	R$10,088	Oct-22	78%
$1,784	5.6597	R$10,097	Nov-22	78%
$1,659	5.6962	R$9,450	Dec-22	73%
$625	5.5145	R$3,447	Jan-23	24%
$625	5.5581	R$3,474	Feb-23	24%
$625	5.6014	R$3,501	Mar-23	24%
$625	5.6446	R$3,528	Apr-23	24%
$625	5.6866	R$3,554	May-23	24%
$625	5.7323	R$3,583	Jun-23	24%
$625	5.7756	R$3,610	Jul-23	25%
$625	5.8197	R$3,637	Aug-23	25%
$625	5.8627	R$3,664	Sep-23	25%
$625	5.9028	R$3,689	Oct-23	25%
$625	5.9414	R$3,713	Nov-23	25%
$625	5.9800	R$3,738	Dec-23	25%
$22,801	5.6230	R$128,210		39%

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, 2022			December 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 contracts	Other assets	481		Other assets	—
Liability derivatives: Foreign currency forward contracts	Accrued expenses	—		Accrued expenses	(1,255)
Net asset (liability)		$	2,608		$	(1,255)

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 Contracts				Foreign Currency Forwards
	2022		2021		2022				2021
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 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)	$	(1,005)	$	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.

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.

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)		2022		2021
Net Sales
Aluminum Extrusions		$	158,110	$	118,125
PE Films		31,131		27,953
Flexible Packaging Films		39,244		32,521
Total net sales		228,485		178,599
Add back freight		8,081		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)
EBIT		19,658		9,172
Plant shutdowns, asset impairments, restructurings and other		(105)		183
PE Films:
Ongoing operations:
EBITDA		7,047		7,213
Depreciation & amortization		(1,595)		(1,420)
EBIT		5,452		5,793
Plant shutdowns, asset impairments, restructurings and other		(102)		(124)
Flexible Packaging Films:
Ongoing operations:
EBITDA		5,035		9,623
Depreciation & amortization		(550)		(466)
EBIT		4,485		9,157
Plant shutdowns, asset impairments, restructurings and other		(43)		(38)
Total		29,345		24,143
Interest income		29		7
Interest expense		786		822
Gain on investment in kaléo		—		718
Stock option-based compensation costs		631		468
Corporate expenses, net		10,722		10,863
Income (loss) from continuing operations before income taxes		17,235		12,715
Income tax expense (benefit)		778		3,097
Income (loss) from continuing operations		16,457		9,618
Income (loss) from discontinued operations, net of tax		(35)		(587)
Net income (loss)		$	16,422	$	9,031

The following table presents identifiable assets by segment at March 31, 2022 and December 31, 2021:


(In thousands)	March 31, 2022		December 31, 2021
Aluminum Extrusions	$	311,971	$	280,521
PE Films	115,307		113,613
Flexible Packaging Films	92,852		75,269
Subtotal	520,130		469,403
General corporate	18,742		23,482
Cash and cash equivalents	25,648		30,521
Discontinued operations	151		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)		2022		2021
United States		$	182,138	$	132,897
Exports from the United States to:
Asia		12,465		13,362
Latin America		1,441		1,102
Canada		4,193		5,434
Europe		1,363		955
Operations outside the United States:
Brazil		26,885		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.


Net Sales by Product Group
	Three Months Ended March 31,
(In thousands)		2022		2021
Aluminum Extrusions:
Nonresidential building & construction		$	80,921	$	57,229
Consumer durables		16,891		13,152
Automotive		13,841		11,415
Residential building & construction		16,465		12,708
Electrical		7,287		7,180
Machinery & equipment		12,945		8,925
Distribution		9,760		7,516
Subtotal		158,110		118,125
PE Films:
Surface protection films		22,148		20,601
Packaging		8,983		7,352
Subtotal		31,131		27,953
Flexible Packaging Films		39,244		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)		2022		2021
Costs and expenses:
Selling, general and administrative		45		1,050
Adjustment to the fair value estimates used in the disposal of Personal Care Films(a)		—		(299)
Total		45		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.

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)	2022	2021
Assets
Prepaid expenses and other (a)	$