SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(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, 2017~~March 31, 2020



¨			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~~
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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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

~~Large accelerated filer~~

~~Accelerated filer~~

~~Smaller reporting company~~

Non-accelerated filer

¨~~(Do not check if a smaller reporting company)~~

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 ~~October 26, 2017: 33,026,931~~

April 30, 2020: 33,510,714

PART I - FINANCIAL INFORMATION


~~Item 1.~~	~~Financial Statements.~~

Item 1. Financial Statements.

Tredegar Corporation

Consolidated Balance Sheets

(In Thousands, Except Share Data)

(Unaudited)


	September 30,			December 31,				March 31,		December 31,
	2017			2016				2020		2019
Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents	$	31,850		$	29,511		Cash and cash equivalents	$	35,059	$	31,422
Accounts and other receivables, net of allowance for doubtful accounts and sales returns of $3,124 in 2017 and $3,102 in 2016	126,964			97,388

Accounts and other receivables, net of allowance for doubtful accounts and sales returns of $3,165 in 2020 and $3,036 in 2019							Accounts and other receivables, net of allowance for doubtful accounts and sales returns of $3,165 in 2020 and $3,036 in 2019	106,211		107,558

Income taxes recoverable	8,260			7,518			Income taxes recoverable	565		4,100
Inventories	82,426			66,069			Inventories	84,215		81,380

Prepaid expenses and other	8,354			7,738			Prepaid expenses and other	8,772		8,696
Total current assets	257,854			208,224			Total current assets	234,822		233,156
Property, plant and equipment, at cost	881,139			797,630			Property, plant and equipment, at cost	801,665		810,801
Less accumulated depreciation	(571,062		)	(536,905		)	Less accumulated depreciation	(568,034)		(567,911)
Net property, plant and equipment	310,077			260,725			Net property, plant and equipment	233,631		242,890
Goodwill and other intangibles, net	188,334			151,423
Other assets and deferred charges	55,683			30,790
Right-of-use leased assets							Right-of-use leased assets	18,559		19,220
Investment in kaléo (cost basis of $7,500)							Investment in kaléo (cost basis of $7,500)	69,400		95,500
Identifiable intangible assets, net							Identifiable intangible assets, net	21,571		22,636
Goodwill							Goodwill	67,708		81,404
Deferred income taxes							Deferred income taxes	13,218		13,129
Other assets							Other assets	4,277		4,733
Total assets	$	811,948		$	651,162		Total assets	$	663,186	$	712,668
Liabilities and Shareholders’ Equity							Liabilities and Shareholders’ Equity
Current liabilities:							Current liabilities:
Accounts payable	$	95,684		$	81,342		Accounts payable	$	105,066	$	103,657
Accrued expenses	41,776			38,647			Accrued expenses	46,862		45,809
Lease liability, short-term							Lease liability, short-term	2,973		3,002

Total current liabilities	137,460			119,989			Total current liabilities	154,901		152,468
Lease liability, long-term							Lease liability, long-term	17,010		17,689
Long-term debt	177,000			95,000			Long-term debt	43,000		42,000
Pension and other postretirement benefit obligations, net							Pension and other postretirement benefit obligations, net	105,265		107,446
Deferred income taxes	25,767			21,110			Deferred income taxes	—		11,019
Other noncurrent liabilities	97,807			104,280			Other noncurrent liabilities	4,420		5,297
Total liabilities	438,034			340,379			Total liabilities	324,596		335,919
Commitments and contingencies (Notes 1 and 12)

Shareholders’ equity:							Shareholders’ equity:
Common stock, no par value (issued and outstanding - 33,026,931 at September 30, 2017 and 32,933,807 at December 31, 2016)	34,027			32,007
Common stock held in trust for savings restoration plan (70,884 shares at September 30, 2017 and 69,622 shares at December 31, 2016)	(1,520		)	(1,497		)
Common stock, no par value (issued and outstanding - 33,510,714 shares at March 31, 2020 and 33,365,039 shares at December 31, 2019)							Common stock, no par value (issued and outstanding - 33,510,714 shares at March 31, 2020 and 33,365,039 shares at December 31, 2019)	46,054		45,514
Common stock held in trust for savings restoration plan (75,200 shares at March 31, 2020 and 74,798 shares at December 31, 2019)							Common stock held in trust for savings restoration plan (75,200 shares at March 31, 2020 and 74,798 shares at December 31, 2019)	(1,601)		(1,592)
Accumulated other comprehensive income (loss):							Accumulated other comprehensive income (loss):
Foreign currency translation adjustment	(84,153		)	(93,970		)	Foreign currency translation adjustment	(112,192)		(100,663)
Gain on derivative financial instruments	1,151			863
Gain (loss) on derivative financial instruments							Gain (loss) on derivative financial instruments	(5,082)		(1,307)
Pension and other post-retirement benefit adjustments	(84,373		)	(90,127		)	Pension and other post-retirement benefit adjustments	(92,750)		(95,681)
Retained earnings	508,782			463,507			Retained earnings	504,161		530,478
Total shareholders’ equity	373,914			310,783			Total shareholders’ equity	338,590		376,749
Total liabilities and shareholders’ equity	$	811,948		$	651,162		Total liabilities and shareholders’ equity	$	663,186	$	712,668

See accompanying notes to financial statements.

The following summarizes the changes in shareholders’ equity for the three month period ended March 31, 2020:


											Accumulated Other Comprehensive Income (Loss)
	Common Stock		Retained Earnings		Trust for Savings Restoration Plan		Foreign Currency Translation		Gain (Loss) on Derivative Financial Instruments		Pension & Other Post-retirement Benefit Adjustment		Total Shareholders’ Equity
Balance at January 1, 2020	$	45,514	$	530,478	$	(1,592)	$	(100,663)	$	(1,307)	$	(95,681)	$	376,749
Net income (loss)	—		(22,321)		—		—		—		—		(22,321)
Other comprehensive income (loss):
Foreign currency translation adjustment (net of tax benefit of $1,283)	—		—		—		(11,529)		—		—		(11,529)
Derivative financial instruments adjustment (net of tax benefit of $1,226)	—		—		—		—		(3,775)		—		(3,775)
Amortization of prior service costs and net gains or losses (net of tax of $836)	—		—		—		—		—		2,931		2,931
Cash dividends declared ($0.12 per share)	—		(4,005)		—		—		—		—		(4,005)
Stock-based compensation expense	1,126		—		—		—		—		—		1,126
Repurchase of employee common stock for tax withholdings	(586)		—		—		—		—		—		(586)


Tredegar common stock purchased by trust for savings restoration plan	—		9		(9)		—		—		—		—
Balance at March 31, 2020	$	46,054	$	504,161	$	(1,601)	$	(112,192)	$	(5,082)	$	(92,750)	$	338,590

Accumulated Other
Comprehensive Income (Loss)

Common
Stock

Retained
Earnings

Trust for
Savings
Restoration
Plan

Foreign
Currency
Translation

Gain
(Loss) on
Derivative
Financial
Instruments

Pension &
Other
Post-retirement
Benefit
Adjust.

Total
Shareholders’
Equity
Balance at January 1, 2017 $ 32,007
$ 463,507
$ (1,497 ) $ (93,970 ) $ 863
$ (90,127 ) $ 310,783
Net income —
56,180
—
—
—
—
56,180
Other comprehensive income (loss):
Foreign currency translation adjustment (net of tax of $481) —
—
—
9,817
—
—
9,817
Derivative financial instruments adjustment (net of tax of $162) —
—
—
—
288
—
288
Amortization of prior service costs and net gains or losses (net of tax of $3,279) —
—
—
—
—
5,754
5,754
Cash dividends declared ($0.33 per share) —
(10,901 ) —
—
—
—
(10,901 )
Stock-based compensation expense 1,298
—
—
—
—
—
1,298
Issued upon exercise of stock options & other 695
—
—
—
—
—
695
Cumulative effect adjustment for adoption of stock-based comp accounting guidance 27
(27 ) —
—
—
—
—
Tredegar common stock purchased by trust for savings restoration plan —
23
(23 ) —
—
—
—
Balance at September 30, 2017 $ 34,027
$ 508,782
$ (1,520 ) $ (84,153 ) $ 1,151
$ (84,373 ) $ 373,914

The following summarizes the changes in shareholders’ equity for the three month period ended March 31, 2019:


											Accumulated Other Comprehensive Income (Loss)
	Common Stock		Retained Earnings		Trust for Savings Restoration Plan		Foreign Currency Translation		Gain (Loss) on Derivative Financial Instruments		Pension & Other Post-retirement Benefit Adjustment		Total Shareholders’ Equity
Balance at January 1, 2019	$	38,892	$	497,511	$	(1,559)	$	(96,940)	$	(1,601)	$	(81,446)	$	354,857
Net income (loss)	—		19,785		—		—		—		—		19,785
Other comprehensive income (loss):
Foreign currency translation adjustment (net of tax of $0)	—		—		—		(790)		—		—		(790)
Derivative financial instruments adjustment (net of tax benefit of $83)	—		—		—		—		(353)		—		(353)
Amortization of prior service costs and net gains or losses (net of tax of $592)	—		—		—		—		—		2,079		2,079
Cash dividends declared ($0.11 per share)	—		(3,652)		—		—		—		—		(3,652)
Stock-based compensation expense	1,510		—		—		—		—		—		1,510
Repurchase of employee common stock for tax withholdings	(815)		—		—		—		—		—		(815)


Tredegar common stock purchased by trust for savings restoration plan	—		9		(9)		—		—		—		—
Balance at March 31, 2019	$	39,587	$	513,653	$	(1,568)	$	(97,730)	$	(1,954)	$	(79,367)	$	372,621

See accompanying notes to financial statements.

1 BASIS OF PRESENTATION

In the opinion of management, the accompanying consolidated financial statements of Tredegar Corporation and its subsidiaries (“Tredegar,” “the Company,” “we,” “us” or “our”) contain all adjustments necessary to state fairly, in all material respects, Tredegar’s consolidated financial position as of March 31, 2020, the consolidated results of operations for the three months ended March 31, 2020 and 2019, the consolidated cash flows for the three months ended March 31, 2020 and 2019, and the consolidated changes in shareholders’ equity for the three months ended March 31, 2020 and 2019, in accordance with U.S. generally accepted accounting principles (“GAAP”). All such adjustments, unless otherwise detailed in the notes to the consolidated interim 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~~first quarter for ~~2017~~2020 and ~~2016~~2019 for this segment references 13-week periods ended ~~September 24, 2017~~March 29, 2020 and ~~September 25, 2016,~~March 31, 2019, 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 financial position data as of December 31, ~~2016~~2019 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, ~~2016~~2019 (“~~2016~~2019 Form 10-K”) but does not include all disclosures required by ~~United States generally accepted accounting principles (“GAAP”).~~GAAP. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the ~~Company’s 2016~~2019 Form 10-K. The results of operations for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2020, are not necessarily indicative of the results to be expected for the full year. Certain prior year balances have been reclassified to conform with current year ~~presentation (see Note 13 for additional detail).~~presentation.

Adoption of ASU 2016-13, Financial Instruments - Credit Losses

~~Futura, headquartered in Clearfield, Utah,~~In the first quarter of 2020, the Company adopted ASU 2016-13 related to the measurement of credit losses on financial instruments. The pronouncement replaces the incurred loss methodology to record credit losses with a ~~national sales presence~~methodology that reflects the expected credit losses for financial assets not accounted for at fair value with gains and ~~particular strength~~losses recognized through net income. The adoption of the updated guidance in the ~~western U.S., designs~~first quarter of 2020 resulted in an adjustment of less than $0.2 million and, ~~manufactures~~therefore, did not have a ~~wide range~~material impact on the Company’s consolidated financial statements. The Company's policy on Accounts and Other Receivables as described in the 2019 Form 10-K was revised to read as follows:

Accounts and Other Receivables.Accounts receivable are stated at the amount invoiced to customers less allowances for doubtful accounts and sales returns. Accounts receivable are non-interest bearing and arise from the sale of ~~extruded~~product to customers under typical industry trade terms. Notes receivable are not significant. Past due amounts are determined based on established terms and charged-off when deemed uncollectible. The allowance for doubtful accounts is determined based on an assessment of probable losses taking into account past due amounts, customer credit profile, historical experience and current economic conditions. For receivables that do not have a specific allowance, the loss rate is computed by segment to apply to the remaining receivables balance, using each segment’s historic loss rate. Other receivables include value-added taxes related to certain foreign subsidiaries and other miscellaneous receivables due within one year. For certain customers, the Company has arrangements in place with financial institutions whereby certain customer receivables are sold to the financial institution at a discount and without recourse. Upon sale, the associated receivable is unrecognized and the discount is recognized.

As of March 31, 2020 and December 31, 2019, accounts receivable and other receivables, net, were $106.2 million and $107.6 million, respectively, made up of the following:


	March 31,			December 31,
(In thousands)		2020			2019
Customer receivables		$	104,604		$	106,153
Other accounts and notes receivable		4,772			4,441
Total accounts and other receivables		109,376			110,594
Less: Allowance for bad debts and sales returns		(3,165)			(3,036)
Total accounts and other receivables, net		$	106,211		$	107,558

2 LONG-LIVED ASSETS & GOODWILL IMPAIRMENT

The Company assesses its long-lived assets for impairment when events and circumstances indicate that the carrying amount of the assets may not be recoverable. Long-lived assets consist primarily of buildings, machinery and equipment. In light of the economic impacts from COVID-19, the Company evaluated whether an impairment trigger existed for its asset groups and determined that triggering events existed for two asset groups in Aluminum Extrusions resulting from acquisitions in 2012 (“AACOA”) and in 2017 (“Futura”). The Company performed a recoverability test on the AACOA and Futura asset groups and determined that the sum of the related undiscounted cash flows exceeded their respective carrying values, thus the asset groups were not determined to be impaired as of March 31, 2020.

The Company assesses goodwill for impairment on an annual basis at a minimum (December 1st of each year) or when events or circumstances indicate that the carrying amount of a reporting unit that includes goodwill exceeds its fair value. In light of the economic impacts from COVID-19, the Company evaluated whether triggering events occurred for all reporting units that include goodwill and determined that triggering events occurred for the AACOA and Futura reporting units. The Company performed a goodwill impairment analysis for the AACOA and Futura reporting units using a combination of income and market approaches and determined that the fair value of the Futura reporting unit exceeded its carrying value.

The operations of the AACOA reporting unit, which includes the Niles, Michigan and Elkhart, Indiana facilities, have been severely impacted by the COVID-19 pandemic, with over 80% of the aluminum extrusions manufactured at these facilities sold to customers that make consumer durable products, ~~including branded flooring trims~~such as recreational boating and ~~TSLOTS~~^TM,power sports vehicles, as well as ~~OEM (original equipment manufacturer) components~~to customers serving building and construction and automotive markets. In the first quarter of 2020, a goodwill impairment charge of $13.7 million ($10.5 million after taxes) was recognized in Aluminum Extrusions, which represented the entire amount of goodwill associated with the acquisition of AACOA. The original 2020 plan for ~~truck grills, solar panels, fitness equipment~~EBITDA from ongoing operations associated with AACOA before the pandemic was $9.7 million. The latest EBITDA from ongoing operations projection for 2020, which accounts for a significant downturn expected with reduced demand created by the pandemic, is less than $1 million. Based on this projection and ~~other applications.~~further recession and recovery scenarios, the Company concluded that goodwill assigned to the AACOA reporting unit was fully impaired as of March 31, 2020.

Recent disruptions to the global economy from the COVID-19 pandemic make it at least reasonably possible that future interim tests for long-lived assets and goodwill may be required during 2020. As this is an evolving crisis, we expect to continue to monitor developments and perform updated analyses as necessary.

3 ASSET IMPAIRMENTS AND COSTS ASSOCIATED WITH EXIT AND DISPOSAL ACTIVITIES

In the March 2020, the Company shut down production at its PE Films manufacturing facility in Lake Zurich, Illinois (“Lake Zurich plant shutdown”). When this facility was shut down, the production of elastic materials it previously produced was transferred to the new elastic production line at Terre Haute, Indiana. As a result of ~~this transaction, Futura is now a wholly-owned subsidiary of~~ the William L. Bonnell Company, Inc. (which is a wholly-owned subsidiary of Tredegar) and operates as a division of Bonnell Aluminum, and its results of operations are included in Tredegar’s consolidated financial statements from the date of acquisition.

Under the terms of the transaction, $5 million of the Initial Cash Funding was placed in escrow (the “Earnout Escrow”) and will be returned to Bonnell Aluminum if Futura does not achieve a targeted EBITDA level (as defined in the Stock Purchase Agreement) for the last eleven months of the fiscal year ending December 2017. At the acquisition date,Lake Zurich plant shutdown, the Company ~~performed a probability weighted assessment in order~~expects to ~~determine the fair value~~recognize pre-tax cash costs of ~~this contingent asset. The assessment estimated a fair value~~$6.9 million comprised of ~~$4.3 million, which would be returned to Bonnell Aluminum in early 2018,~~(i) customer-related costs ($0.7 million), (ii) severance and ~~accordingly, a receivable of $4.3 million (“Initial Earnout Receivable”) was recorded by Bonnell Aluminum.~~other employee related costs ($1.1 million), and (iii) asset disposal and other cash costs ($5.1 million). In ~~the second quarter of 2017,~~addition, the Company ~~updated its valuation of this contingent~~expects non-cash asset ~~which resulted in a fair value of $5.0 million. The receivable was increased to $5.0 million,~~write-offs and ~~$0.7 million was recognized as income in Other income (expense), net in the Consolidated Statements of Income.~~

The net purchase price for financial reporting purposes was set at approximately $82.9 million (the “Adjusted Net Purchase Price”), which was the Initial Cash Funding less the Initial Earnout Receivable and the net settlement of certain post-closing adjustments of $0.1 million paid to the seller during the second quarter of 2017. Adjustments to the purchase price were made retrospectively as if the accounting had been completed on the acquisition date. Based upon management’s valuation of the fair value of tangible and intangible assets acquired (net of cash acquired) and liabilities assumed, the allocation of the Adjusted Net Purchase Price is as follows:

(in Thousands)
Accounts receivable $ 6,680
Inventories 10,342
Prepaid expenses and other current assets 240
Property, plant & equipment 32,662
Identifiable intangible assets:
  Customer relationships 24,000
  Trade names 6,700
Trade payables & accrued expenses (8,135 )
      Total identifiable net assets 72,489
      Adjusted Net Purchase Price 82,860
Goodwill $ 10,371

The goodwill and other intangible asset balances associated with this acquisition will be deductible for tax purposes on a straight-line basis over a period of approximately 15 years. For financial reporting purposes, customer relationships are being amortized over 12 years and trade names are being amortized over 13 years. Goodwill is not subject to amortization for financial reporting purposes. Customer relationships were valued using the excess earnings approach. Trade names were valued using a relief-from-royalty approach. The Company does not anticipate marketing Futura’s products under a different brand in light of its strong name recognition and competitive advantage in its target markets.

For the three and nine month periods ended September 30, 2017 (for Futura, the period from the acquisition on February 15, 2017 to September 30, 2017), Tredegar’s consolidated results of operations and its Aluminum Extrusions business segment included the following Futura results: sales of $21.2 million and $52.0 million, respectively, operating profit from ongoing operations of $2.4 million and $6.2 million, respectively,accelerated depreciation ~~and amortization~~ of $1.7 ~~million and $3.6 million, respectively, and capital expenditures of $0.5 million and $1.3 million, respectively.~~

The following unaudited supplemental pro forma data presents Tredegar’s consolidated sales, net income and related earnings per share as if the acquisition of Futura had been consummated at the beginning of 2016, and is not necessarily indicative of the Company’s financial performance if the acquisition had actually been consummated as of that date, or of future performance. The supplemental unaudited pro forma measures for the three and nine months ended September 30, 2017 and 2016 are presented below:

Tredegar Pro Forma Results with Futura Acquisition Three Months Ended Nine Months Ended
September 30, September 30,
(In Thousands, Except Per Share Data) 2017 2016 2017 2016
Sales $ 247,121
$ 228,176
$ 722,505
$ 681,686
Net income $ 8,274
$ 13,225
$ 55,835
$ 25,559
Earnings per share:
Basic $ 0.25
$ 0.40
$ 1.69
$ 0.78
Diluted $ 0.25
$ 0.40
$ 1.69
$ 0.78

Futura’s pre-acquisition results for the period from January 1 to February 14, 2017, and therefore the pro forma information for 2017 presented above, were adversely impacted by significant disruptions to manufacturing operations and sales caused by the renovation of its anodizing line. The actual accretion to Tredegar’s diluted earnings per share from Futura since the acquisition date was four cents per share for the third quarter of 2017 and nine cents per share for the first nine months of 2017.

The Company’s pro forma net income was computed for the periods shown as: (i) the Company’s reported net income, plus (ii) Futura’s historical pre-acquisition period earnings before interest, taxes, depreciation and amortization and excluding one-time purchase accounting and transaction-relatedmillion. Total expenses minus (iii) the pro forma pre-acquisition period depreciation and amortization for Futura under purchase accounting for the Company, minus (iv) the pro forma pre-acquisition period interest expense for the Company applied at an annual rate of 3.0% to the $87.0 million Initial Cash Funding, minus (v) the pro forma pre-acquisition period income taxes applied at a rate of 39.1% to the pro forma pre-acquisition earnings before income taxes computed from items (ii) through (iv).

~~Plant shutdowns, asset impairments, restructurings and other items in the third quarter of 2017 include:~~

~~Plant shutdowns, asset impairments, restructurings and other items in the first nine months of 2017 include:~~

~~offset by pretax income of $0.1 million related to a reduction of severance and other employee-related accrued costs;~~

~~Plant shutdowns, asset impairments, restructurings and other charges in the third quarter of 2016 include:~~

Pretax charges of $0.3 million for severance and other employee-related costs associated with restructurings in PE Films ($0.1 million) and Corporate ($0.2 million) (included in “Corporate expenses, net” in the statement of net sales and operating profit by segment); and

~~Plant shutdowns, asset impairments, restructurings and other charges in the first nine months of 2016 include:~~

Results in the first nine months of 2017 include an unrealized gain of $24.8 million ($18.2 million after taxes) compared to unrealized losses of $1.3 million ($1.0 million after taxes) and $0.2 million ($0.2 million after taxes), in the third quarter and first nine months of 2016, respectively, on the Company’s investment in kaleo, Inc. (“kaléo”), which is accounted for under the fair value method (included in “Other income (expense), net” in the consolidated statements of income). There was no change in the estimated fair value from June 30, 2017 to September 30, 2017, as appreciation in value from the discount rate for one quarter was offset by a change in the present value of projected cash flows versus prior projections. The change in the first nine months of 2017 in the estimated fair value of the Company’s holding in kaléo was based primarily on changes in projected future cash flows that are discounted at 45% for their high degree of risk. See Note 7 for additional information on investments.

A reconciliation of the beginning and ending balances of accrued expenses associated with exit and disposal activities and charges associated with asset impairments and reported as “Asset impairments and costs associated with exit and disposal activities, net of adjustments” in the consolidated statements of income for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 is as ~~follows:~~follows.

(In Thousands) Severance (a) Asset Impairments Other (b) Total
Balance at January 1, 2017 $ 1,854
$ —
$ 554
$ 2,408
Changes in 2017:
Charges 300
50
303
653
Cash spent (1,068 ) —
(307 ) (1,375 )
Charges against assets —
(50 ) —
(50 )
Balance at September 30, 2017 $ 1,086
$ —
$ 550
$ 1,636
(a) Severance primarily includes severance payments associated with the consolidation of North American PE Films manufacturing facilities.
(b) Other primarily includes other shutdown-related costs associated with the shutdown and sale of the Company’s aluminum extrusions manufacturing facility in Kentland, Indiana.


(In thousands)	Severance		Asset Impairments		Other		Total
Balance at January 1, 2020	$	1,294	$	—	$	86	$	1,380
Changes in 2020:
Charges:

Lake Zurich plant shutdown	128		239		19		386

Other restructuring charges	47		—		28		75
	175		239		47		461
Cash payments	(721)		—		(72)		(793)





Charges against assets	—		(239)		—		(239)






Balance at March 31, 2020	$	748	$	—	$	61	$	809

~~In July 2015, the Company began a consolidation~~

The components of its domestic production for PE Films by restructuring the operations in its manufacturing facility in Lake Zurich, Illinois. This restructuring was completed in the third quarter of 2017. Total expenses associated with the restructuring were $0.8 million in the first nine months of 2017 (included in “Cost of goods sold” in the consolidated statements of income) and the total expenses for the project since inception were $7.3 million. Cash expenditures for the restructuring were $1.4 million in the first nine months of 2017, which includes capital expenditures of $0.1 million. Total cash expenditures for the project since inception were $15.5 million, which includes $11.2 million for capital expenditures. Additional cash payments for remaining accrued costs of approximately $1 millioninventories are ~~expected to be paid within the next 12 months.~~as follows:

5 EARNINGS PER SHARE

Three Months Ended Nine Months Ended
September 30, September 30,
(In Thousands) 2017 2016 2017 2016
Weighted average shares outstanding used to compute basic earnings per share 32,954
32,818
32,945
32,730
Incremental dilutive shares attributable to stock options and restricted stock —
10
7
3
Shares used to compute diluted earnings per share 32,954
32,828
32,952
32,733
Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing net income by the weighted average common and potentially dilutive common equivalent shares outstanding, determined as follows:


	Three Months Ended
	March 31,
(In thousands)	2020	2019
Weighted average shares outstanding used to compute basic earnings per share	33,313	33,123
Incremental dilutive shares attributable to stock options and restricted stock	—	4
Shares used to compute diluted earnings per share	33,313	33,127

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. ~~For~~The Company had a net loss for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2020, so there is no dilutive impact for such shares. If the Company had reported net income for the three months ended March 31, 2020, 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 ~~479,651 and 386,729, respectively.~~682,696. For the three ~~and nine~~ months ended ~~September 30, 2016,~~March 31, 2019, 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 ~~493,119 and 643,010, respectively.~~975,904.

(In Thousands)
Foreign
currency
translation
adjustment

Gain (loss) on
derivative
financial
instruments

Pension and
other
post-retirement
benefit
adjustments
Total
Beginning balance, January 1, 2017 $ (93,970 ) $ 863
$ (90,127 ) $ (183,234 )
Other comprehensive income (loss) before reclassifications 9,817
817
—
10,634
Amounts reclassified from accumulated other comprehensive income (loss) —
(529 ) 5,754
5,225
Net other comprehensive income (loss) - current period 9,817
288
5,754
15,859
Ending balance, September 30, 2017 $ (84,153 ) $ 1,151
$ (84,373 ) $ (167,375 )

6 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the after-tax changes in accumulated other comprehensive income (loss) for the ~~nine~~three months ended ~~September 30, 2016:~~March 31, 2020:


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

The following table summarizes the after-tax changes in accumulated other comprehensive income (loss) for the three months ended March 31, 2019:


(In Thousands)	Foreign currency translation adjustment		Gain (loss) on derivative financial instruments		Pension and other post-retirement benefit adjustments		Total
Beginning balance, January 1, 2019	$	(96,940)	$	(1,601)	$	(81,446)	$	(179,987)
Other comprehensive income (loss) before reclassifications	(790)		(1,011)		—		(1,801)
Amounts reclassified from accumulated other comprehensive income (loss)	—		658		2,079		2,737
Net other comprehensive income (loss) - current period	(790)		(353)		2,079		936
Ending balance, March 31, 2019	$	(97,730)	$	(1,954)	$	(79,367)	$	(179,051)

(In Thousands) Foreign
currency
translation
adjustment Gain (loss) on
derivative
financial
instruments Pension and
other
post-retirement
benefit
adjustments Total
Beginning balance, January 1, 2016 $ (112,807 ) $ (373 ) $ (95,539 ) $ (208,719 )
Other comprehensive income (loss) before reclassifications 22,929
(60 ) —
22,869
Amounts reclassified from accumulated other comprehensive income (loss) —
1,023
6,573
7,596
Net other comprehensive income (loss) - current period 22,929
963
6,573
30,465
Ending balance, September 30, 2016 $ (89,878 ) $ 590
$ (88,966 ) $ (178,254 )

Reclassifications of balances out of accumulated other comprehensive income (loss) into net income (loss) for the three months ended ~~September 30, 2017~~March 31, 2020 are summarized as follows:

(In Thousands) Amount
reclassified from
other
comprehensive
income (loss) Location of gain
(loss) reclassified
from accumulated
other
comprehensive
income (loss) to net
income (loss)
Gain (loss) on derivative financial instruments:
Aluminum future contracts, before taxes $ 231
Cost of sales
Foreign currency forward contracts, before taxes 15
Cost of sales
Total, before taxes 246

Income tax expense (benefit) 90
Income taxes
Total, net of tax $ 156

Amortization of pension and other post-retirement benefits:
Actuarial gain (loss) and prior service costs, before taxes $ (2,911 ) (a)
Income tax expense (benefit) (1,057 ) Income taxes
Total, net of tax $ (1,854 )


~~(a)~~(In Thousands)	Amount reclassified from other comprehensive income (loss)		Location of gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (loss)

Gain (loss) on derivative financial instruments:
Aluminum future contracts, before taxes	$	(640)	Cost of sales
Foreign currency forward contracts, before taxes	(794)		Selling, general & administrative
Foreign currency forward contracts, before taxes	15		Cost of sales
Total, before taxes	(1,419)
Income tax expense (benefit)	(306)		Income taxes
Total, net of tax	$	(1,113)
Amortization of pension and other post-retirement benefits:
Actuarial gain (loss) and prior service costs, before taxes	$	(3,767)	(a)
Income tax expense (benefit)	(836)		Income taxes
Total, net of tax	$	(2,931)

(a) This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost (see Note 9 for additional detail).

~~Reclassifications of balances out of accumulated other comprehensive income (loss) into net income (loss) for the nine months ended September 30, 2017 are summarized as follows:~~

(In Thousands) Amount
reclassified from
other
comprehensive
income (loss) Location of gain
(loss) reclassified
from accumulated
other
comprehensive
income (loss) to net
income (loss)
Gain (loss) on derivative financial instruments:
Aluminum future contracts, before taxes $ 785
Cost of sales
Foreign currency forward contracts, before taxes 46
Cost of sales
Total, before taxes 831

Income tax expense (benefit) 302
Income taxes
Total, net of tax $ 529

Amortization of pension and other post-retirement benefits:
Actuarial gain (loss) and prior service costs, before taxes $ (9,033 ) (a)
Income tax expense (benefit) (3,279 ) Income taxes
Total, net of tax $ (5,754 )


~~(a)~~	~~This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost (see Note 9 for additional detail).~~

Reclassifications of balances out of accumulated other comprehensive income (loss) into net income ~~(loss)~~ for the three months ended ~~September 30, 2016~~March 31, 2019 are summarized as follows:

(In Thousands) Amount
reclassified from
other
comprehensive
income (loss) Location of gain
(loss) reclassified
from accumulated
other
comprehensive
income (loss) to net
income (loss)
Gain (loss) on derivative financial instruments:
Aluminum future contracts, before taxes $ (160 ) Cost of sales
Foreign currency forward contracts, before taxes 15
Cost of sales
Total, before taxes (145 )
Income tax expense (benefit) (53 ) Income taxes
Total, net of tax $ (92 )
Amortization of pension and other post-retirement benefits:
Actuarial gain (loss) and prior service costs, before taxes $ (3,086 ) (a)
Income tax expense (benefit) (1,120 ) Income taxes
Total, net of tax $ (1,966 )


~~(a)~~(In Thousands)	~~This component~~Amount reclassified from other comprehensive income (loss)		Location of gain (loss) reclassified from accumulated other comprehensive income (loss) ~~is included in the computation~~to net income (loss)

Gain (loss) on derivative financial instruments:
Aluminum future contracts, before taxes	$	(617)	Cost of sales
Foreign currency forward contracts, before taxes	(191)		Selling, general & administrative
Foreign currency forward contracts, before taxes	15		Cost of sales
Total, before taxes	(793)
Income tax expense (benefit)	(135)		Income taxes
Total, net ~~periodic~~of tax	$	(658)
Amortization of pension ~~cost (see Note 9 for additional detail).~~and other post-retirement benefits:
Actuarial gain (loss) and prior service costs, before taxes	$	(2,671)	(a)
Income tax expense (benefit)	(592)		Income taxes
Total, net of tax	$	(2,079)

~~Reclassifications of balances out~~(a) This component of accumulated other comprehensive income (loss) ~~into~~is included in the computation of net ~~income (loss)~~periodic pension cost (see Note 9 for additional detail).

In August 2007 and December 2008, the ~~nine months ended September 30, 2016 are summarized as follows:~~Company made an aggregate investment of $7.5 million in Kaleo, Inc. (“kaléo”), a privately held specialty pharmaceutical company dedicated to building innovative solutions for serious and life-threatening medical conditions. Tredegar owns Series A-3 Preferred Stock and Series B Preferred Stock in kaléo

(In Thousands) Amount
reclassified from
other
comprehensive
income (loss) Location of gain
(loss) reclassified
from accumulated
other
comprehensive
income (loss) to net
income (loss)
Gain (loss) on derivative financial instruments:
Aluminum future contracts, before taxes $ (1,669 ) Cost of sales
Foreign currency forward contracts, before taxes 46
Cost of sales
Total, before taxes (1,623 )
Income tax expense (benefit) (600 ) Income taxes
Total, net of tax $ (1,023 )
Amortization of pension and other post-retirement benefits:
Actuarial gain (loss) and prior service costs, before taxes $ (9,759 ) (a)
Income tax expense (benefit) (3,186 ) Income taxes
Total, net of tax $ (6,573 )

The estimated fair value of the Company’s investment was $69.4 million as of March 31, 2020 and $95.5 million as of December 31, 2019. The Company recognized a decrease in value on its investment in kaléo ~~(also the carrying value, which is included in “Other assets and deferred charges” in the consolidated balance sheets) was $45.0~~of $26.1 million ~~at September 30, 2017 and $20.2~~($20.4 million ~~at December 31, 2016. An unrealized loss of $1.3 million was recognized in the third quarter of 2016. Unrealized gains of $24.8 million and an unrealized loss of $0.2 million were recognized~~after taxes) in the first ~~nine~~quarter of 2020. The net appreciation on its investment of $17.1 million ($14.3 million after taxes) in the first three months of ~~2017 and 2016, respectively. There was no change in~~2019, included a pre-tax cash dividend of $17.6 million paid on April 30, 2019. Future dividends are subject to the ~~estimated fair value from June 30, 2017 to September 30, 2017, as appreciation in value from the discount rate for one quarter was offset by a change in the present value~~discretion of ~~projected cash flows versus prior projections. Unrealized gains (losses)~~kaléo’s board of directors. Amounts recognized associated with ~~this~~the Company’s investment in kaléo are included in “Other income (expense), net” in the consolidated statements of income and separately stated in the net sales and ~~operating profit~~EBITDA from ongoing operations by segment table in Note ~~10.~~11.

The ~~change~~Company estimated the fair value of its investment in kaléo at March 31, 2020 by: (i) computing the weighted average estimated enterprise value (“EV”) utilizing both the discounted cash flow method (the “DCF Method”) and the application of a market multiple to earnings before interest, taxes, depreciation and amortization (the “EBITDA Multiple Method”), (ii) applying adjustments for any surplus or deficient working capital and estimates of contingent liabilities, (iii) adding cash and cash equivalents, (iv) subtracting interest-bearing debt, (v) subtracting a private company liquidity discount estimated at 20% at March 31, 2020 (versus 10% at December 31, 2019 and 15% at March 31, 2019) of the net result of (i) through (iv), and (vi) applying liquidation preferences and fully diluted ownership percentages to the estimated equity value computed in (i) through (v).

The Company’s estimate of kaléo’s EV as of March 31, 2020 was determined by weighting the EBITDA Multiple Method by 80% and the DCF Method by 20%, which was consistent with the weighting applied at December 31, 2019. The heavier weighting towards the EBITDA Multiple Method was due to its heuristic nature versus the hypothetical nature of the projections used in the DCF Method. The DCF Method projections rely on numerous assumptions and Level 3 inputs, including estimating market growth, market share, pricing, net margins (after allowances for temporary discounts, prompt pay discounts, product returns, wholesaler fees, chargebacks, rebates and copays), selling expenses, R&D expenses, general and administrative expenses, income taxes on unlevered pretax income, working capital, capital expenditures and the risk-adjusted discount rate. In addition, there are various regulatory and legal enforcement efforts, including an ongoing Department of Justice investigation related to kaléo’s Evzio business, which could have a material adverse effect on kaléo’s business that require assessment in any valuation method applied.

The table below provides a sensitivity analysis of the estimated fair value at March 31, 2020, of the Company’s ~~holding~~investment in kaléo for changes in the ~~first nine months~~EBITDA multiple used in applying the EBITDA Multiple Method and the changes in the weighting of ~~2017~~the DCF Method.


($ Millions)			EV-to-Adjusted EBITDA Multiple
			5.0 x			6.0 x		7.0 x		8.0x		9.0x
Weighting to DCF Method	50	%	$	58.2		$	63.6	$	69.0	$	74.4	$	79.8
			40		%	$	56.1	$	62.6	$	69.1	$	75.6	$	82.1
			30		%	$	54.1	$	61.7	$	69.3	$	76.9	$	84.4
			20		%	$	52.1	$	60.8	$	69.4	$	78.1	$	86.7
			10		%	$	50.1	$	59.8	$	69.6	$	79.3	$	89.0
			0		%	$	48.0	$	58.9	$	69.7	$	80.5	$	91.3

The pretax decline of $26.1 million or 27.3% in estimated fair value from December 31, 2019 to March 31, 2020 was primarily ~~related to recent favorable operating results~~due to: (i) a decline in enterprise value-to-EBITDA multiples for comparable companies, (ii) lower expectations for 2020 EBITDA and ~~projections. Kaléo’s stock is not publicly traded. In addition, kaléo has not completed~~net cash flow associated with lower market demand for epinephrine delivery devices resulting from COVID-19-related stay-at-home guidelines, especially if such guidelines impact the peak back-to-school season, and (iii) a ~~full year of operations since the re-launch of its Auvi-Q~~^® ~~product during the first quarter of 2017.~~higher private company liquidity discount. The valuation estimate in this situation is based on projection assumptions or Level 3 inputs that have a wide range of possible outcomes. Consequently, the present value of kaléo’s projected future cash flows is determined at a discount rate of 45% for their high degree of risk. Ultimately, the trueultimate value of the Company’s ownership interest in kaléo will be determined and realized only if and when a liquidity event occurs, and the ultimate value could be materially different from the ~~$45.0~~$69.4 million estimated fair value reflected in the Company’s financial statements at ~~September 30, 2017.~~March 31, 2020.

~~In addition to~~

8 DERIVATIVE FINANCIAL INSTRUMENTS

Tredegar uses derivative financial instruments for the ~~impact on valuation~~purpose of ~~the possible changes~~hedging margin exposure from fixed-price forward sales contracts in ~~assumptions, Level 3 inputs~~Aluminum Extrusions and ~~projections~~exposure from ~~changes~~currency volatility that exist as part of ongoing business operations (primarily in ~~business conditions, the fair market valuation of the Company’s interest in kaléo is sensitive to changes~~Flexible Packaging Films). These derivative financial instruments are designated as and qualify as cash flow hedges and are recognized in the ~~weighted average cost of capital used to discount cash flow projections.~~consolidated balance sheet at fair value. The weighted average cost of capital used in the fair market valuation of Tredegar’s interest in kaléo was 45% at both September 30, 2017 and December 31, 2016. At September 30, 2017, the effect of a 500 basis point decrease in the weighted average cost of capital assumption would have increased the fair value of derivative instruments recorded on the ~~Company’s interest in kaléo by approximately $9 million, and~~consolidated balance sheets are based upon Level 2 inputs. If individual derivative instruments with the same counterparty can be settled on a ~~500~~net basis, ~~point increase in the weighted average cost of capital assumption would have decreased the fair value of the Company’s interest by approximately $8 million.~~

~~Had~~ the Company ~~not elected to account for its investment under~~records the corresponding derivative fair value method, it would have been required to use the equity method of accounting. The condensed balance sheets for kaléo at September 30, 2017 and December 31, 2016 and condensed statements of operations for the three and nine months ended September 30, 2017 and 2016,values as ~~reported to the Company by kaléo, are provided below:~~

Unaudited (In Thousands) September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016
Assets: Liabilities & Equity:
Cash & short-term investments $ 104,753
$ 102,329

Restricted cash 31
31
Current liabilities $ 85,086
$ 50,134
Other current assets 39,059
15,391
Long term debt, net 138,305
143,380
Property & equipment 10,399
13,011
Other noncurrent liabilities 807
822
Other long-term assets 494
472
Equity (69,462 ) (63,102 )
Total assets $ 154,736
$ 131,234
Total liabilities & equity $ 154,736
$ 131,234

Three Months Ended September 30, Nine Months Ended September 30,
Unaudited (In Thousands) 2017 2016 2017 2016
Revenues $ 58,822
$ 17,377
$ 148,761
$ 29,347
Cost of goods sold, R&D and SG&A expenses
before depreciation & amortization
(52,072 ) (19,046 ) (137,411 ) (50,442 )
Depreciation & amortization (1,245 ) (1,278 ) (3,723 ) (3,477 )
Operating income (loss) 5,505
(2,947 ) 7,627
(24,572 )
Gain on contract termination —
—
—
18,075
Net interest expense and other net (4,767 ) (4,848 ) (14,408 ) (14,535 )
Income tax benefit (expense) (244 ) —
(734 ) (8 )
Net income (loss) $ 494
$ (7,795 ) $ (7,515 ) $ (21,040 )

~~The Company’s investment in the Harbinger Capital Partners Special Situations Fund, L.P. (“Harbinger Fund”) had~~ a ~~carrying value (included in “Other assets and deferred charges”) of $1.7 million at September 30, 2017 and~~

~~December 31, 2016. The carrying value at September 30, 2017 reflected Tredegar’s cost basis in its investment in the Harbinger Fund,~~ net ~~of total withdrawal proceeds received and unrealized losses. No withdrawal proceeds were received in the first nine months of 2016~~asset or 2017. The timing and amount of future installments of withdrawal proceeds, which commenced in August 2010, were not known as of September 30, 2017. Gains on the Company’s investment in the Harbinger Fund will be recognized when the amounts expected to be collected from any withdrawal from the investment are known, which will likely be when cash in excess of the remaining carrying value is received. Losses will be recognized when management believes it is probable that future withdrawal proceeds will not exceed the remaining carrying value.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, and the notional amount of aluminum futures contracts that hedged future purchases of aluminum to meet fixed-price forward sales contract obligations was ~~$7.1~~$18.2 million ~~(7.4~~(18.0 million pounds of aluminum) at ~~September 30, 2017~~March 31, 2020 and ~~$8.0~~$20.2 million ~~(9.6~~(19.6 million pounds of aluminum) at December 31, ~~2016.~~2019.

The table below summarizes the location and gross amounts of aluminum futures contract fair values (Level 2) in the consolidated balance sheets as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016:~~2019:

Aluminum futures contracts

Liability derivatives:

Aluminum futures contracts

Liability derivatives:

Aluminum futures contracts

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 table below summarizes the location and gross amounts of foreign currency forward contract fair values (Level 2) in the consolidated balance sheets as of March 31, 2020 and December 31, 2019:


	March 31, 2020				December 31, 2019
(In Thousands)	Balance Sheet Account	Fair Value		Balance Sheet Account		Fair Value
Derivatives Designated as Hedging Instruments
Asset derivatives: Foreign currency forward contracts	Prepaid expenses and other	$	—	Prepaid expenses and other		$	83
Liability derivatives: Foreign currency forward contracts	Accrued expenses	(5,222)		Accrued expenses		(935)





Net asset (liability)		$	(5,222)			$	(852)

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. ~~On September 29, 2017,~~The Company estimates that the net mismatch translation exposure between Flexible Packaging Films business unit in Brazil, Terphane Ltda.'s (“Terphane Ltda.”) ~~entered into 15 monthly~~U.S. Dollar quoted or priced sales and underlying Brazilian Real (“R$”) quoted or priced operating costs (excluding depreciation and amortization) is annual net costs of R$137 million at March 31, 2020. Terphane Ltda. has the following outstanding foreign exchange average forward rate contracts to purchase Brazilian Real ~~(“R$”)~~ and sell U.S. ~~Dollars covering the period from October 2017 through December 2018.~~ 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
$2,200	3.9131	R$8,609	Apr-20	75%
$2,200	3.9188	R$8,621	May-20	76%
$2,200	3.9249	R$8,635	Jun-20	76%
$2,200	3.9326	R$8,652	Jul-20	76%
$2,200	3.9413	R$8,671	Aug-20	76%
$2,200	3.9495	R$8,689	Sep-20	76%
$2,200	3.9579	R$8,707	Oct-20	76%
$2,200	3.9660	R$8,725	Nov-20	76%
$2,050	3.9653	R$8,129	Dec-20	71%







$19,650	3.9409	R$77,438		75%

These foreign currency exchange contracts have been designated and qualify as cash flow hedges of Terphane Ltda.'s’s forecasted sales to customers quoted or priced in U.S. Dollars over that period. By changing the currency risk associated with these U.S. Dollar sales, the derivatives have the effect of offsetting operating costs quoted or priced in Brazilian Real and decreasing the net exposure to Brazilian Real in the consolidated statements of income. The aggregate notional amount of open foreign exchange contracts at September 30, 2017 was $18.75 million (R$60.7 million). The forward rates contracted and the related market rates as of September 30, 2017 were the same, and accordingly thepre-tax net fair value of ~~all 15~~the open forward contracts ~~were zero at that date.~~was a negative $4.8 million as of March 31, 2020.

These derivative contracts involve elements of market risk that are not reflected on the consolidated balance sheet, including the risk of dealing with counterparties and their ability to meet the terms of the contracts. The counterparties to any forward purchase commitments are major aluminum brokers and suppliers, and the counterparties to any aluminum futures contracts are major financial institutions. Fixed-price forward sales contracts are only made available

to the best and most credit-worthy customers. The counterparties to the Company’s foreign currency cash flow hedge contracts are major financial institutions.

The pretax effect on net income (loss) and other comprehensive income (loss) of derivative instruments classified as cash flow hedges and described in the previous paragraphs for the three ~~and nine~~ month periods ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 is summarized in the table below:

(In Thousands) Cash Flow Derivative Hedges
Aluminum Futures Contracts Foreign Currency Forwards
Three Months Ended September 30,
2017 2016 2017 2016
Amount of pretax gain (loss) recognized in other comprehensive income (loss) $ 757
$ (230 ) $ —
$ —
Location of gain (loss) reclassified from accumulated other comprehensive income (loss) into net income (loss) (effective portion) Cost of
sales
Cost of
sales
Cost of
sales
Cost of
sales
Amount of pretax gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (loss) (effective portion) $ 231
$ (160 ) $ 15
$ 15
Aluminum Futures Contracts Foreign Currency Forwards
Nine Months Ended September 30,
2017 2016 2017 2016
Amount of pre-tax gain (loss) recognized in other comprehensive income (loss) $ 1,281
$ (93 ) $ —
$ —
Location of gain (loss) reclassified from accumulated other comprehensive income (loss) into net income (loss) (effective portion) Cost of
sales
Cost of
sales
Cost of
sales
Cost of
sales
Amount of pre-tax gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (loss) (effective portion) $ 785
$ (1,669 ) $ 46
$ 46


(In thousands)	Cash Flow Derivative Hedges
	Three Months Ended March 31,
	Aluminum Futures Contracts								Foreign Currency Forwards
	2020		2019		2020		2020			2019		2019
Amount of pretax gain (loss) recognized in other comprehensive income (loss)	$	(1,594)	$	(246)	$	—	$	(4,824)		$	—	(816)
Location of gain (loss) reclassified from accumulated other comprehensive income (loss) into net income (effective portion)	Cost of sales		Cost of sales		Cost of sales		Selling, general & admin			Cost of sales		Selling, general & admin
Amount of pretax gain (loss) reclassified from accumulated other comprehensive income (loss) to net income effective portion)	$	(640)	$	(617)	$	15	$	(794)		$	15	(191)

As of ~~September 30, 2017,~~March 31, 2020, the Company expects ~~$0.5~~$1.6 million of unrealized after-tax ~~gains~~losses on 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, 2017~~March 31, 2020 and ~~2016,~~2019, net gains or losses realized, from previously unrealized net gains or losses on hedges that had been discontinued, were not material.

9 PENSION AND OTHER POSTRETIREMENT BENEFITS

Tredegar sponsors a noncontributory defined benefit (pension) plan covering certain current and former U.S. employees. The plan for salaried and hourly employees currently in effect is based on a formula using the participant’s years of service and compensation or using the participant’s years of service and a dollar amount. The plan is closed to new participants and pay for active plan participants for benefit calculations was frozen as of December 31, 2007. As of January 31, 2018, the plan no longer accrued benefits associated with crediting employees for service, thereby freezing all future benefits under the plan.

The components of net periodic benefit cost for the pension and other ~~post-retirement~~postretirement benefit programs reflected in the consolidated ~~results~~statements of income are shown below:

Pension and other ~~post-retirement~~postretirement liabilities were ~~$90.0~~$106.0 million and ~~$96.0~~$108.1 million at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, respectively ($~~0.6~~0.7 million included in “Accrued expenses” at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, with the remainder included in ~~“Other noncurrent liabilities”~~“Pension and other postretirement benefit obligations, net” in the consolidated balance sheets). The Company’s required contributions are expected to be ~~approximately $6~~$12.3 million in ~~2017.~~2020. Contributions to the pension plan during the first ~~nine~~three months of ~~2017~~2020 were ~~$4.4~~$2.0 million. Tredegar funds its other ~~post-retirement~~postretirement benefits (life insurance and health benefits) on a claims-made ~~basis, which~~basis; for 2020, the Company anticipates the amount will be consistent with amounts paid for the year ended December 31, ~~2016,~~2019, or $0.3 million.

~~10.~~

The Company’s business segments are PE Films, Flexible Packaging Films and Aluminum Extrusions. Information by business segment is reported below. There are no accounting transactions between segments and no allocations to segments. Net sales (sales less freight) and operating profit from ongoing operations are the measures of sales and operating profit used by the chief operating decision maker for purposes of assessing performance.

10 OTHER INCOME (EXPENSE), NET

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


	Three Months Ended March 31,
(In thousands)	2020		2019
Gain (loss) on investment in kaléo accounted for under fair value method	$	(26,100)	$	17,082









Other	(111)		28
Total	$	(26,211)	$	17,110

The gain on investment in kaléo accounted for under fair value method shown above for the three months ended March 31, 2019, includes a cash dividend of $17.6 million from kaléo. See Note 7 for more details on the investment in kaléo.

11 BUSINESS SEGMENTS

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

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. Earnings before interest, taxes, depreciation and amortization (“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 ~~operating profit~~EBITDA from ongoing operations by segment for the three months ended March 31, 2020 and ~~nine-month periods ended September 30, 2017 and 2016:~~2019:


	Three Months Ended March 31,
(In thousands)	2020		2019
Net Sales
Aluminum Extrusions	$	117,887	$	139,047
PE Films	71,261		66,779
Flexible Packaging Films	30,574		33,619
Total net sales	219,722		239,445
Add back freight	8,580		9,021
Sales as shown in the Consolidated Statements of Income	$	228,302	$	248,466
EBITDA from Ongoing Operations
Aluminum Extrusions:
Ongoing operations:
EBITDA	11,677		16,166
Depreciation & amortization	(4,113)		(4,081)
EBIT	7,564		12,085
Plant shutdowns, asset impairments, restructurings and other (a)	(688)		(40)
Goodwill impairment	(13,696)		—
PE Films:
Ongoing operations:
EBITDA	14,189		6,543
Depreciation & amortization	(3,724)		(3,592)
EBIT	10,465		2,951
Plant shutdowns, asset impairments, restructurings and other (a)	(906)		(1,378)

Flexible Packaging Films:
Ongoing operations:
EBITDA	6,553		3,203
Depreciation & amortization	(428)		(344)
EBIT	6,125		2,859


Total	8,864		16,477
Interest income	52		59
Interest expense	555		1,232

Gain (loss) on investment in kaléo accounted for under fair value method	(26,100)		17,082


Stock option-based compensation costs	584		415
Corporate expenses, net	10,538		8,160
Income (loss) before income taxes	(28,861)		23,811
Income tax expense (benefit)	(6,540)		4,026


Net income (loss)	$	(22,321)	$	19,785

Three Months Ended September 30, Nine Months Ended September 30,
(In Thousands) 2017 2016 2017 2016
Net Sales
PE Films $ 89,723
$ 82,179
$ 265,773
$ 251,473
Flexible Packaging Films 26,628
27,303
79,925
80,888
Aluminum Extrusions 122,149
91,067
344,956
269,987
Total net sales 238,500
200,549
690,654
602,348
Add back freight 8,621
7,153
24,840
21,221
Sales as shown in the Consolidated Statements of Income $ 247,121
$ 207,702
$ 715,494
$ 623,569
Operating Profit (Loss)
PE Films:
Ongoing operations $ 11,251
$ 9,011
$ 30,965
$ 23,564
Plant shutdowns, asset impairments, restructurings and other (919 ) (1,187 ) (3,890 ) (3,678 )
Flexible Packaging Films:
Ongoing operations (1,074 ) 93
(3,392 ) 1,184
Plant shutdowns, asset impairments, restructurings and other —
—
11,856
—
Aluminum Extrusions:
Ongoing operations 12,601
9,427
34,201
27,786
Plant shutdowns, asset impairments, restructurings and other (377 ) 1,405
(3,147 ) 840
Total 21,482
18,749
66,593
49,696
Interest income 42
70
171
158
Interest expense 1,757
886
4,579
2,918
Gain (loss) on investment accounted for under fair value method —
(1,300 ) 24,800
(200 )
Stock option-based compensation costs 111
31
153
24
Corporate expenses, net 6,960
7,223
20,985
22,110
Income before income taxes 12,696
9,379
65,847
24,602
Income taxes 4,422
(2,669 ) 9,667
1,864
Net income $ 8,274
$ 12,048
$ 56,180
$ 22,738

The following table presents identifiable assets by segment at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016:~~2019:


(In thousands)	March 31, 2020		December 31, 2019
Aluminum Extrusions	$	252,844	$	265,027
PE Films	224,987		230,415
Flexible Packaging Films	65,869		74,016
Subtotal	543,700		569,458
General corporate	84,427		111,788
Cash and cash equivalents	35,059		31,422
Total	$	663,186	$	712,668

The following tables disaggregate the Company’s revenue by geographic area and product group for the three months ended March 31, 2020 and 2019:


Net Sales by Geographic Area (a)
	Three Months Ended March 31,
(In thousands)		2020		2019
United States		$	146,183	$	172,254
Exports from the United States to:
Asia		22,164		13,493
Latin America		3,134		2,867
Canada		4,898		3,605
Europe		1,501		1,360
Operations outside the United States:
Brazil		25,948		28,138
The Netherlands		7,885		9,587
Hungary		6,604		6,834
India		1,405		1,077
China		—		230

Total		$	219,722	$	239,445

(In Thousands) September 30, 2017 December 31, 2016
PE Films $ 295,181
$ 278,558
Flexible Packaging Films 153,488
156,836
Aluminum Extrusions 268,994
147,639
Subtotal 717,663
583,033
General corporate 62,435
38,618
Cash and cash equivalents 31,850
29,511
Total $ 811,948
$ 651,162


Net Sales by Product Group
	Three Months Ended March 31,
(In thousands)		2020		2019
Aluminum Extrusions:
Nonresidential building & construction		$	63,139	$	69,638
Consumer durables		12,549		15,545
Automotive		9,471		12,627
Residential building & construction		9,815		11,672
Electrical		7,239		11,069
Machinery & equipment		7,936		9,923
Distribution		7,738		8,573

Subtotal		117,887		139,047
PE Films:
Personal care materials		41,230		44,855
Surface protection films		28,353		19,888
LED lighting products & other films		1,678		2,036
Subtotal		71,261		66,779



Flexible Packaging Films		30,574		33,619
		$	219,722	$	239,445

(a) Export sales relate primarily to PE Films. Operations outside the U.S. in The Netherlands, Hungary, China and India also relate to PE Films. Operations in Brazil are primarily related to Flexible Packaging Films, but also include PE Films operations. Sales from locations in The Netherlands and Hungary are primarily to customers located in Europe.

~~11.~~

Tredegar recorded tax expense of $9.7 million on pretax net income of $65.8 million in the first nine months of 2017. Therefore, the effective tax rate in the first nine months of 2017 was 14.7%, compared to 7.6% in the first nine months of 2016. The significant differences between the U.S. federal statutory rate and the effective income tax rate for the nine months ended September 30, 2017 and 2016 are as follows:

12 INCOME TAXES

Percent of Income
Before Income Taxes
Nine Months Ended September 30, 2017 2016
Income tax expense at federal statutory rate 35.0
35.0
Foreign rate differences 1.5
1.1
State taxes, net of federal income tax benefit 1.3
0.7
Changes in estimates related to prior year tax provision 0.5
(1.6 )
Non-deductible expenses 0.5
1.6
Valuation allowance for foreign operating loss carry-forwards 0.4
0.3
Unremitted earnings from foreign operations 0.2
(1.1 )
Valuation allowance for capital loss carry-forwards —
(0.4 )
Income tax contingency accruals and tax settlements (0.4 ) 1.3
Remitted earnings from foreign operations (0.6 ) (23.8 )
Research and development tax credit (0.7 ) (1.8 )
Domestic production activities deduction (0.9 ) (3.8 )
Foreign investment write-up (3.5 ) 0.1
Settlement of Terphane acquisition escrow (6.4 ) —
Worthless stock deduction (12.2 ) —
Effective income tax rate 14.7
7.6

~~During the second quarter of 2017, the Company initiated~~Tredegar recorded a ~~plan to liquidate for tax purposes one of its domestic subsidiaries, which will allow it to claim an income~~ tax benefit of $6.5 million on a pretax loss of $28.9 million in the ~~write-off~~first three months of 2020. Therefore, the effective tax rate in the first three months of 2020 was 22.7%, compared to 16.9% in the first three months of 2019. The quarterly effective tax rate is an estimate based on a proration of the ~~stock basis of one~~components of the Company’s estimated annual effective tax rate and discrete items recorded during the first three months of the year. The significant differences between the U.S. ~~subsidiaries (“worthless stock deduction”) on its 2017~~ federal statutory rate and the effective income tax ~~return. The Company recorded an income tax benefit during~~rate for the ~~second quarter of 2017 of $8.1 million related to the worthless stock deduction, net of valuation allowances~~three months ended March 31, 2020 and ~~accrual for uncertain tax positions.~~2019 are as follows:


(In thousands, except percentages)	2020					2019
Three Months Ended March 31,	Amount		%	Amount		%
Income tax (benefit) expense at federal statutory rate	$	(6,061)	21.0	$	5,000	21.0
Foreign tax incentives	(1,430)		5.0	(436)		(1.8)
Changes in estimates related to prior year tax provision	(601)		2.1	—		—
Research and development tax credit	(278)		1.0	(86)		(0.4)
State taxes, net of federal income tax benefit	(261)		0.8	180		0.8
Valuation allowance due to foreign losses and impairments	(136)		0.5	(253)		(1.1)
Tax impact of dividend received	—		—	(919)		(3.9)


Foreign Derived Intangible Income (FDII)	—		—	(194)		(0.8)
Valuation allowance for capital loss carry-forwards	40		(0.1)	—		—
Non-deductible expenses	232		(0.8)	73		0.3
Stock-based compensation	252		(0.9)	(133)		(0.6)
U.S. Tax on Foreign Branch Income	573		(2.0)	465		2.0
Foreign rate differences	1,130		(3.9)	329		1.4













Effective income tax rate	$	(6,540)	22.7	$	4,026	16.9

Tredegar accrues U.S. federal income taxes on unremitted earnings of ~~all~~ foreign ~~subsidiaries. Prior~~subsidiaries where required. However, due to changes in the ~~second quarter~~taxation of ~~2016, deferred~~dividends under the U.S. Tax Cuts and Jobs Act of 2017, Tredegar will only

record U.S. federal income taxes ~~had not been recorded for the undistributed~~on unremitted earnings ~~for Terphane Ltda. because the Company had intended~~of its foreign subsidiaries where Tredegar cannot take steps to ~~permanently reinvest these earnings. Due to concerns about the political and economic conditions in Brazil, Terphane Ltda. began making cash~~eliminate any potential tax on future distributions to the Company in 2016. During the second quarter of 2016, Terphane Ltda. paid a dividend of $10.7 million to the Company. During the second quarter of 2017, the Company recognized a net tax benefit of $0.4 million associated with additional U.S. tax related to this repatriation of cash from ~~Brazil offset by the reversal of related tax contingencies. Because of the accumulation of significant losses related to~~its foreign currency translations at Terphane Ltda., there were no deferred tax liabilities associated with the U.S. federal income taxes and foreign withholding taxes on Terphane Ltda.’s undistributed earnings as of September 30, 2017 and December 31, 2016.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~~13-year period, ~~which has a~~from the commencement date of January 1, 2015. NoThe benefit ~~was recognized~~ from ~~these~~the tax incentives was $1.4 million and $0.4 million in the first ~~nine~~three months of ~~2017 or 2016.~~

Income taxes in 2017 included a partial reversal of a valuation allowance of less than $0.1 million related to the expected limitations on the utilization of assumed capital losses on certain investments that were recognized in prior years. Income taxes in 2016 included the partial reversal of a valuation allowance of $0.1 million related to the expected limitations on the utilization of assumed capital losses on certain investments. The Company had a valuation allowance for excess capital losses from investments2020 and other related items of $11.2 million at September 30, 2017. Tredegar continues to evaluate opportunities to utilize these loss carryforwards prior to their expiration at various dates in the future. As events and circumstances warrant, allowances will be reversed when it is more likely than not that future taxable income will exceed deductible amounts, thereby resulting in the realization of deferred tax assets.

2019, 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 are no longer subject to U.S. federal, state or non-U.S. income tax examinations by tax authorities for years before ~~2014.~~2016.

During the three months ended March 31, 2020, new legislation was enacted and new IRS guidance was issued to provide relief to businesses in response to the COVID-19 pandemic. We have evaluated the tax provisions included in legislation such as the Coronavirus Aid, Relief, and Economic Security Act, as well as recent IRS guidance and we do not expect it to have a significant impact on our financial position, results of operations or cash flows.

~~12.~~

In 2011, Tredegar was notified by U.S. Customs and Border Protection (“U.S. Customs”) that certain film products exported by Terphane Ltda. to the U.S. since November 6, 2008 could be subject to duties associated with an antidumping duty order on imported PET films from Brazil. The Company contested the applicability of these antidumping duties to the films exported by Terphane Ltda., and it filed a request with the U.S. Department of Commerce (“Commerce”) for clarification about whether the film products at issue are within the scope of the antidumping duty order. On January 8, 2013, Commerce issued a scope ruling confirming that the films are not subject to the order, provided that Terphane Ltda. can establish to the satisfaction of U.S. Customs that the performance enhancing layer on those films is greater than 0.00001 inches thick. The films at issue are manufactured to specifications that exceed that threshold. On February 6, 2013, certain U.S. producers of PET film filed a summons with the U.S. Court of International Trade to appeal the scope ruling from Commerce. In December 2014, the U.S. International Trade Commission voted to revoke the anti-dumping duty order on imported PET films from Brazil. The revocation, as a result of the vote by the U.S. International Trade Commission, was effective as of November 2013. On February 20, 2015, certain U.S. producers of PET films filed a summons with the U.S. Court of International Trade to appeal the determination by the U.S. International Trade Commission. The Court granted a motion by the plaintiffs to stay the appeal of the revocation decision pending the resolution of the scope appeal. On June 8, 2017, the U.S. Court of International Trade remanded the scope determination to Commerce for re-consideration of certain scope issues. On October 20, 2017, Commerce filed its Remand Redetermination Results with the U.S. Court of International Trade, and again found that Terphane Ltda.’s films are outside of the scope of the antidumping duty order. Commerce’s decision will now be reviewed by the U.S. Court of International Trade.

~~13.~~

In May 2014, the Financial Accounting Standards Board (“FASB”) and International Accounting Standards Board (“IASB”) issued their converged standard on revenue recognition. The revised revenue standard contains principles that an entity will apply to direct the measurement of revenue and timing of when it is recognized. The core principle of the guidance is that the recognition of revenue should depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods and services. To achieve that core principle, an entity will utilize a principle-based five-step approach model. The converged standard also includes more robust disclosure requirements which will require entities to provide sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In March 2016, amended guidance was issued regarding clarifying the implementation guidance on principal versus agent considerations and in April 2016, clarifying guidance was issued relating to identifying performance obligations and licensing implementation. The effective date of this revised standard is for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that annual reporting period. The converged standard can be adopted either retrospectively or through the use of a practical expedient. The Company has made substantial progress towards assessing the impact of this standard. The Company has a team in place to analyze the impact of the standard, and the related guidance issued, across all revenue streams to evaluate the impact of the new standard on revenue contracts. This includes reviewing current accounting policies and practices to identify potential differences that would result from applying the requirements under the new standard. In 2016, the Company made progress on contract reviews, which were completed and validated in the first half of 2017. The Company has also started evaluating the new disclosure requirements and expects to complete its evaluations of the impacts of the accounting and disclosure requirements on its business processes, controls and systems by the end of 2017. The Company is still evaluating the method of adoption of the standard, which will occur in the first quarter of 2018.

13 NEW ACCOUNTING PRONOUNCEMENTS

New accounting pronouncements adopted in 2020:

ASU 2016-13, FINANCIAL INSTRUMENTS - CREDIT LOSSES (TOPIC 326)

See Note 1 for details on the adoption of ASU 2016-13.

ASU 2018-13, FAIR VALUE MEASUREMENT (TOPIC 820)

In ~~July 2015,~~August 2018, the FASB issued ASU 2018-13, which amended the fair value measurement guidance by removing and modifying certain disclosure requirements, while also adding new ~~guidance for~~disclosure requirements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement ~~of inventories. Inventories within the scope of the revised guidance~~uncertainty should be ~~measured at~~applied prospectively for only the ~~lower of cost~~most recent interim or net realizable value. The previous guidance dictated that inventory should be measured at the lower of cost or market, with market being either replacement cost, net realizable value or net realizable value less an approximation of normal profit margin. Net realizable value is the estimated selling pricesannual period presented in the ~~ordinary course~~initial fiscal year of ~~business, less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventories measured using LIFO or the retail inventory method. The~~adoption. All other amendments should be applied ~~prospectively, with early adoption permitted.~~retrospectively to all periods presented upon their effective date. The amendments are effective for all companies for fiscal years, and interim periods within those years, beginning after December 15, 2019. The Company adopted ~~the new guidance prospectively~~all disclosure requirements in the first quarter of ~~2017, and the adoption of this guidance did not have a~~2020, with no material impact on the Company’s consolidated financial statements.

Accounting Standards Not Yet Implemented:

ASU 2019-12, INCOME TAXES (TOPIC 740)

In ~~January 2016,~~December 2019, the FASB issued ~~amended guidance associated with~~ASU 2019-12, which simplifies the accounting for ~~equity investments measured at fair value.~~income taxes. The ~~amended~~new guidance ~~requires all equity investments~~simplifies the accounting for income taxes by eliminating certain exceptions related to ~~be measured at fair value with changes~~the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, hybrid taxes and the ~~fair~~

~~value recognized through net income (other than those accounted~~recognition of deferred tax liabilities for ~~under equity method of accounting or those that result in consolidation~~outside basis differences. It also clarifies and simplifies other aspects of the ~~investee).~~accounting for income taxes. The amended guidance also requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments ~~in this update eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that~~ are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. The amended guidance is effective for fiscal years beginning after December ~~31, 2017, including the~~15, 2020 and interim periods within those fiscal years. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption of the update. Early adoption is permitted under limited, specific circumstances. The guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued a revised standard on lease accounting. Lessees will need to recognize virtually all of their leases on the balance sheet, by recording a right-of-use asset and lease liability. The revised standard requires additional analysis of the components of a transaction to determine if a right-to-use asset is embedded in the transaction that needs to be treated as a lease. Substantial additional disclosures are also required by the revised standard. The revised standard is effective for fiscal years beginning after December 31, 2018, including the interim periods within those fiscal years. The revised standard should be applied on a modified retrospective approach,therein, with early adoption permitted. ~~The Company is still assessing the impact of this revised standard on the Company’s consolidated financial statements.~~

In March 2016, the FASB issued amended guidance to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statements of cash flows. The Company adopted the new guidance in the first quarter of 2017. Under the new guidance, excess tax benefits related to equity compensation were recognized in "Income taxes" in the consolidated statements of income rather than in "Common stock" in the consolidated balance sheets and were applied on a prospective basis. If these amounts had been included in the consolidated statements of income in previous years, net income would have been reduced by $0.5 million in the first nine months of 2016 (none in the third quarter of 2016) and $1.1 million for the full year 2016. Changes to the statements of cash flows related to the classification of excess tax benefits and employee taxes paid for share-based payment arrangements were implemented on a retrospective basis. In addition, the updated guidance allows the Company to make an accounting policy election related to how forfeitures will impact the recognition of stock compensation cost. Previously, entities were required to estimate forfeitures at the grant date, accounting for estimated forfeitures over the requisite service period. Under the updated guidance, the Company can choose, and the Company has elected, to account for forfeitures as they occur. The Company adopted the updated guidance in the first quarter of 2017, and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In October 2016, the FASB issued guidance that requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings at the beginning period of adoption. Early adoption is permitted in the first interim period of an annual reporting period for which financial statements have not been issued. The Company is currently evaluating the impact of ~~adopting~~ this ~~guidance on the Company’s consolidated financial statements.~~new guidance.

In January 2017, the FASB issued guidance to assist with evaluating when a set of transferred assets and activities (collectively, the "set") is a business and provides a screen to determine when such a set is not a business. Under the new guidance, when substantially all of the fair value of gross assets acquired (or disposed of) is concentrated in a single identifiable asset, or group of similar assets, the assets acquired would not represent a business. Also, to be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to produce outputs. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and should be applied on a prospective basis to any transactions occurring within the period of adoption. Early adoption is permitted for interim or annual periods in which the financial statements have not been issued. The Company has not elected early adoption of this guidance and will apply the new guidance beginning in the first quarter of 2018.

In January 2017, the FASB issued amended guidance that eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the amendments in the new guidance, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The new standard is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for annual or interim goodwill impairment testing performed after January 1, 2017. The Company is currently evaluating the impact of adopting this guidance on the Company’s consolidated financial statements.

In March 2017, the FASB issued final guidance on the presentation of net periodic pension and postretirement benefit cost (net benefit cost). Currently, net benefit cost is reported as an employee cost within operating income. This new guidance requires the bifurcation of net periodic pension and postretirement benefit costs. Service cost will be part of operating income (and is the only piece eligible to be capitalized). All other components will be shown outside of operations. The new standard is effective for annual and interim periods in fiscal years beginning after December 15, 2017, and should be applied on a retrospective basis, except for the amendments related to capitalization of benefit cost, which should be applied on a prospective basis. Early adoption is permitted only in the first quarter of the reporting year. The Company is currently evaluating the impact of adopting this guidance on the Company’s consolidated financial statements.

In August 2017, the FASB issued amended guidance on the accounting for hedging activities. The amended guidance makes more hedging strategies qualify for hedge accounting. After initial qualification, the amended guidance permits a qualitative effectiveness assessment for certain hedges instead of a quantitative test, if the company can reasonably support an expectation of effectiveness throughout the term of the hedge. The amended guidance is effective for annual and interim periods beginning after January 1, 2019, but may be adopted immediately. The adoption should be on a cumulative effect basis and applied prospectively. The Company is currently evaluating the impact of adopting this guidance on the Company’s consolidated financial statements.


~~Item 2.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-looking and Cautionary Statements

Some of the information contained in this Quarterly Report on Form 10-Q (“Form 10-Q”) may constitute “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. When using the words “believe,” “estimate,” “anticipate,” “appear to,” “expect,” “project,” “plan,” “likely,” “may” and similar expressions, Tredegar does so to identify forward-looking statements. Such statements are based on then current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. It is possible that actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in or implied by these forward-looking statements. In addition, our current projections for Tredegar's businesses could be materially affected by the highly uncertain impact of COVID-19 upon our businesses. As a consequence, our results could differ significantly from our projections, depending on, among other things, the duration of “shelter in place” orders and the ultimate impact of the pandemic on our employees, our supply chains, our customers and the U.S. and world economies. Accordingly, you should not place undue reliance on these forward-looking statements. Factors that could cause actual results to differ from expectations include, without limitation, the following:

•loss or gain of sales to significant customers on which our business is highly dependent;

~~ability~~•inability to achieve sales to new customers to replace lost business;

~~ability~~•inability to develop, efficiently manufacture and deliver new products at competitive prices;

•failure of our customers to achieve success or maintain market share;

•failure to protect our intellectual property rights;

•risks of doing business in countries outside the U.S. that affect our substantial international operations;

•political, economic, and regulatory factors concerning our products;

•uncertain economic conditions in countries in which we do business;

•competition from other manufacturers, including manufacturers in lower-cost countries and manufacturers benefiting from government subsidies;

•impact of fluctuations in foreign exchange rates;

•a change in the amount of our underfunded defined benefit ~~(pension)~~pension plan liability;

•an increase in the operating costs incurred by our operating companies, including, for example, the cost of raw materials and energy;

•inability to successfully identify, complete or integrate strategic acquisitions; failure to realize the expected benefits of such acquisitions; and assumption of unanticipated risks in such acquisitions;

•disruption to our manufacturing facilities;

~~occurrence or threat~~•the impact of ~~extraordinary events, including natural disasters~~public health epidemics on our employees, our production and ~~terrorist attacks;~~the global economy, such as the coronavirus (COVID-19) currently impacting the global economy;

•the impact of public health epidemics on our employees, our production and the global economy, such as the coronavirus currently impacting a number of countries;

•an information technology system failure or breach;

•volatility and uncertainty of the valuation of ~~our cost-basis~~the investment in kaléo;

~~possibility~~•the impact of the imposition of tariffs and sanctions on imported aluminum ~~billet~~ingot used in our aluminum extrusions;

•the impact of new tariffs or duties imposed as a result of rising trade tensions between the U.S. and other countries;

•failure to establish and maintain effective internal control over financial reporting;

•the termination of anti-dumping duties on products imported to Brazil that compete with products produced by Flexible Packaging;

and the other factors discussed in the reports Tredegar files with or furnishes to the Securities and Exchange Commission ~~(“the SEC”~~(the “SEC”) from time to time, including the risks and important factors set forth in additional detail in ~~“Risk Factors” Part II, Item 5 of the Form 10-Q and in~~ Part I, Item 1A of Tredegar’s ~~2016~~2019 Annual Report on Form 10-K (the ~~“2016~~“2019 Form 10-K”) ~~filed with the SEC.~~and Part II, Item 1A of this Form 10-Q. Readers are urged to review and consider carefully the disclosures Tredegar makes in its filings with the SEC, including the ~~2016~~2019 Form 10-K.

Tredegar does not undertake, and expressly disclaims any duty, to update any forward-looking statement to reflect any change in management’s expectations or any change in conditions, assumptions or circumstances on which such statements are based, except as required by applicable law.

References herein to “Tredegar,” “the Company,” “we,” “us” and “our” are to Tredegar Corporation and its subsidiaries, collectively, unless the context otherwise indicates or requires.

Unless otherwise stated or indicated, all comparisons are to the prior year period.

Executive Summary

Tredegar is a manufacturer of aluminum extrusions through its Aluminum Extrusions segment, polyethylene plastic films through its PE Films segment, and polyester films through its Flexible Packaging Films ~~segment~~segment. Aluminum Extrusions produces high-quality, soft-alloy and medium-strength aluminum extrusions ~~through its Aluminum Extrusions segment.~~primarily for building and construction, automotive, and specialty, which consists of consumer durables, machinery and equipment, electrical and distribution end-use products. PE Films is ~~comprised~~composed of surface protection films, personal care materials, ~~surface protection films,~~ polyethylene overwrap films and films for other markets. Flexible Packaging Films produces polyester-based films for use in packaging applications that have specialized properties, such as heat resistance, strength, barrier protection and the ability to accept high-quality print graphics. Aluminum Extrusions produces high-quality, soft-alloy and medium-strength aluminum extrusions primarily for building and construction, automotive, consumer durables, machinery and equipment, electrical and distribution markets.

~~Third-quarter 2017~~First quarter 2020 net ~~income~~loss was ~~$8.3~~$22.3 million ($~~0.25~~0.67 per share) compared with a net income of ~~$12.0~~$19.8 million ($~~0.37 per share) in the third quarter of 2016. Net income was $56.2 million ($1.70~~0.60 per share) in the first ~~nine months~~quarter of ~~2017 compared with $22.7~~2019.

First quarter 2020 results include:

•An after-tax loss on the Company’s investment in Kaleo, Inc. (“kaléo”) of $20.4 million ($~~0.69~~0.61 per share), which is accounted for under the fair value method (see Note 7 for more details); and

•An impairment of the total goodwill balance of Aluminum Extrusions' reporting unit acquired in the ~~first nine months~~AACOA acquisition in 2012 was recorded in the after-tax amount of ~~2016.~~$10.5 million ($0.32 per share).

First quarter 2019 results include:

•An after-tax gain on the Company’s investment in kaléo of $14.3 million ($0.43 per share), which included an after-tax dividend received from kaléo of $14.7 million ($0.44 per share).

Other losses related to asset impairments and costs associated with exit and disposal activities are described in Note 3. Losses ~~related to~~associated with plant shutdowns, asset impairments, restructurings and other items are described in ~~Note 3.~~ Results of Operations. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) from ongoing operations is the measure of profit and loss used by Tredegar’s chief operating decision maker ("CODM") for purposes of assessing financial performance. The Company uses sales less freight (“net sales”) as its measure of revenues from external customers at the segment level. This measure is separately included in the financial information regularly provided to the CODM.

THE IMPACT OF COVID-19

Essential Business and Employee Considerations

The Company’s priorities during the COVID-19 pandemic have been to protect the health and safety of employees while keeping its manufacturing sites open due to the essential nature of many of its products. The Company’s businesses have been deemed “essential services,” “critical manufacturers,” and “life sustaining industries” under applicable state or national stay-at-home orders and therefore remain operational as of the date of this communication. Within the limitations imposed by the health and safety procedures described below, the Company has continued to manufacture a broad range of products at its facilities, including components for end-uses that are essential, critical or life sustaining such as: (i) polyester-based materials for flexible food packaging, (ii) polyethylene-based film and laminate materials for personal hygiene and packaging products, (iii) aluminum extrusion parts for hospital beds, FEMA tents, temporary hospital structures and medical equipment, (iv) materials for face masks, and (v) polyethylene-based films used to protect components of flat panel displays during manufacturing and transportation processes, which are instrumental to allowing employees to work from home.

The Company’s efforts to protect the health and well-being of its employees from COVID-19 began at the Company’s Guangzhou, China facility. Protocols developed at Guangzhou guided our COVID-related efforts at other facilities as the outbreak spread beyond China. Those efforts continue to improve as COVID-19-informed work practices evolve and the Company responds to recommended and mandated actions of government and health authorities.

The Company has educated employees about COVID-19 symptoms and hygiene best practices. It has adopted COVID-19-related pay and sick leave policies that incentivize employees to stay home if they feel ill or have been exposed to others with the illness. The Company’s policies include taking employee’s temperature before entering production facilities; mandating handwashing; requiring social distancing and, where social distancing is difficult, requiring face coverings; streamlining onsite personnel to only those required for production and distribution; strongly encouraging and, where mandated, requiring remote work for all those who can work from home; and disinfecting facilities. In the U.S., the Company has educated employees on COVID-19-related benefits (including leave benefits) under the Families First Coronavirus Response Act (“FFCRA”) and the Federal CARES Act. In addition, the Company is providing sickness- and childcare-related paid leave rights equivalent to those available under the FFCRA to employees at 500+ employee facilities who would not otherwise qualify for such paid leave rights under U.S. law. Based on the Company's understanding, it does not currently qualify for the U.S. government Paycheck Protection Program or Economic Injury Disaster Loan program.

On April 1, the Company began providing a weekly dashboard to its Board of Directors (the “Board”) highlighting the impacts of COVID-19 on its employees, businesses and financial condition.

As of May 6, the Company was aware of twelve confirmed cases of COVID-19 for its employees, with additional employees absent, pending testing results or self-quarantined. The Personal Care facility in Pune, India was temporarily shut down by a nationwide lockdown from late March to early April. The only COVID-19-related employee layoffs to-date have occurred at Bonnell Aluminum.

Bonnell Aluminum continuously attempts to match its direct labor with demand, including declining demand associated with the pandemic. Its layoffs of full-time, temporary or contract workers through May 6 was approximately 240 people. The Company’s Newnan, Georgia plant was temporarily shut down for disinfecting for 2 days in late March and 7.5 days again in April, which the Company estimates costs it approximately $300,000 per five-day week for paying direct labor not covered by programs under the FFCRA.

Financial Considerations

The 2020 annual plan for Bonnell Aluminum (pre-COVID-19) included sales volume of 201 million pounds and EBITDA from ongoing operations of $65 million, versus 2019 sales volume of 208 million pounds and EBITDA from ongoing operations of $65.7 million. Bonnell Aluminum’s current projection for 2020, which accounts for the pandemic and is highly uncertain, includes sales volume of 173 million pounds and EBITDA from ongoing operations of $45 million. The latest projections assume no further downtime at Bonnell Aluminum facilities and the collection of approximately 98% of gross accounts receivable (consistent with historical levels), which totaled approximately $65 million at the end of the first quarter of 2020. There were approximately 790 accounts receivable at the end of the first quarter of 2020, averaging $82,000 per account, with 10 accounts exceeding $1 million each and the highest single balance of $3.7 million.

To date, Bonnell Aluminum’s Niles, Michigan and Elkhart, Indiana facilities (which were acquired as “AACOA” in October 2012) have been the most severely impacted by the pandemic, with over 80% of the aluminum extrusions manufactured at these facilities sold to customers that make consumer durable products, such as recreational boating and power sports vehicles, as well as to customers serving building and construction and automotive markets. The original 2020 plan for EBITDA from ongoing operations associated with AACOA before the pandemic was $9.7 million. The latest EBITDA from ongoing operations projection for 2020, which accounts for a significant downturn expected with reduced demand created by the pandemic, is less than $1 million. Based on this projection and further recession and recovery scenarios, the Company concluded that the estimated fair value of the AACOA reporting unit was less than its carrying value, resulting in a write-off of its goodwill of $13.7 million ($10.5 million after related deferred income taxes).

Bonnell Aluminum’s future sales volume, EBITDA from ongoing operations, collections, bad debts, employment level and net cash flow are highly dependent upon the time it takes to safely reopen the U.S. economy, the ability of its customers and consumers to access government programs providing liquidity and support during the crisis, and the depth and duration of the recession that COVID-19 causes.

Demand has been strong under COVID-19 conditions for the Company’s flexible food packaging films produced by Terphane and the hygiene materials and tissue & towel overwrap films produced by the Personal Care component of PE Films. During the first quarter of 2020, the Surface Protection component of PE Films had its third highest profit quarter on record but is now expecting a slowdown for most of the balance of 2020, based on industry projections for products using flat panel displays. No significant issues have arisen to-date on the collection of accounts receivable at Terphane, Personal Care or Surface Protection.

Tredegar’s defined benefit pension plan, which was frozen at the end of 2007, was underfunded on a GAAP basis by $100 million at December 31, 2019, comprised of investments at fair value of $218 million and a projected benefit obligation (“PBO”) of $318 million. GAAP accounting requires adjustment for changes in values of assets and the PBO only at the end of each year, even though the value of these amounts changes daily. The Company estimates COVID-19-related changes to the values of pension plan assets and liabilities resulted in an increase in the underfunding from $100 million to $125 million at March 31, 2020.

Tredegar owns approximately 18.4% of Kaleo, Inc. (“kaléo”), which makes and sells an epinephrine delivery device under the name AUVI-Q^®. The Company accounts for its investment in kaléo on a fair value basis. The Company’s estimate of the fair value of its interest in kaléo at March 31, 2020 was $69.4 million ($57.6 million after deferred income taxes), a decline of $26.1 million ($20.4 million after deferred income taxes) since the previous December 31, 2019 valuation. The decline in estimated fair value was primarily due to: (i) a decline in enterprise value-to-EBITDA multiples for comparable companies, (ii) lower expectations for 2020 EBITDA and net cash flow associated with lower market demand for epinephrine delivery devices resulting from COVID-19-related stay-at-home guidelines, especially if such guidelines impact the peak back-to-school season, and (iii) a higher private company liquidity discount. Kaléo’s stock is not publicly traded. The ultimate value of Tredegar’s ownership interest in kaléo could be materially different from the $69.4 million estimated fair value reflected in the Company’s financial statements at March 31, 2020.

Tredegar had debt (all under its revolving credit agreement) of $43 million and cash of $35.1 million at March 31, 2020. The revolving credit agreement allows borrowings of up to $500 million and matures in June 2024. The Company believes that its most restrictive covenant (computed quarterly) is the leverage ratio, which permits maximum borrowings of up

to 4x EBITDA, as defined under the agreement for the trailing four quarters (“Credit EBITDA”). The Company had Credit EBITDA and a leverage ratio (calculated in the “Liquidity and Capital Resources” section of the Company’s Form 10-Q) of $97.0 million and 0.44x respectively, at March 31, 2020. The Company’s stress testing under a COVID-19-driven recession indicates a low probability that a future leverage ratio will exceed 4.0x, given the low leverage ratio that exists today. In any event, the Company is focused on conserving cash and borrowing capacity and has reduced its capital expenditures budget for 2020 from $47 million to $36 million and continues to optimize working capital. The Company’s current quarterly dividend at 12 cents per share aggregates to quarterly dividend payments of approximately $4 million. All decisions with respect to the declaration and payment of dividends will be made by the Board based upon earnings, financial condition, anticipated cash needs, restrictions under the revolving credit agreement and other relevant considerations.

OPERATIONS REVIEW

Aluminum Extrusions

A summary of operating results for Aluminum Extrusions is provided below:


	Three Months Ended								Favorable/ (Unfavorable) % Change
(In thousands, except percentages)	March 31,
			2020			2019
Sales volume (lbs)	47,317			53,616			(11.7)	%
Net sales	$	117,887		$	139,047		(15.2)	%
Ongoing operations:
EBITDA	$	11,677		$	16,166		(27.8)	%
Depreciation & amortization	$	(4,113)		$	(4,081)		(0.8)	%
EBIT*	$	7,564		$	12,085		(37.4)	%
Capital expenditures	$	1,574		$	4,367
* See the net sales and EBITDA from ongoing operations by segment table in Note 11 for a reconciliation of this non-GAAP measure to GAAP.

First Quarter 2020 Results vs. First Quarter 2019 Results

Net sales (sales less freight) in the first quarter of 2020 decreased versus 2019 primarily due to lower sales volume and the passthrough of lower metal costs, partially offset by an increase in average selling prices to cover higher operating ~~profit~~costs. Sales volume in the first quarter of 2020 decreased by 11.7% versus 2019.

EBITDA from ongoing operations are the measures of sales and operating profit used by the chief operating decision maker of each segment for purposes of assessing performance. See the table in Note 10 for a presentation of Tredegar’s net sales and operating profit by segment for the three and nine months ended September 30, 2017 and 2016.

On February 15, 2017, Bonnell Aluminum acquired Futura Industries Corporation (“Futura”) on a net debt-free basis for approximately $92 million. The amount actually funded in cash at the transaction date was approximately $87.0 million, which was net of preliminary closing adjustments for working capital and seller transaction-related obligations assumed and subsequently paid by Bonnell Aluminum. In addition, the Company expects to be refunded $5 million in the first ~~half~~quarter of ~~2018 since Futura~~2020 decreased by $4.5 million in comparison to the first quarter of 2019 due to lower volumes ($4.9 million), higher labor and employee-related costs and miscellaneous expenses ($1.1 million), partially offset by higher pricing ($1.6 million).

Lower sales volume and bookings for Bonnell Aluminum coupled with industry data reflecting, among other factors, the impact of COVID-19, appear to indicate a downturn is ~~not expected to meet certain performance requirements for~~occurring across all key end-use markets, with double-digit declines in the ~~2017 fiscal year.~~ automotive and specialty markets. See the “The ~~acquisition, which was funded using Tredegar’s secured revolving credit agreement, is being treated as an asset purchase for U.S. federal income tax purposes. See Note 2~~Impact of COVID-19” section for more ~~details~~information on business conditions and projections, including the ~~acquisition~~write-off of ~~Futura.~~goodwill relating to AACOA.

Projected Capital Expenditures and Depreciation & Amortization

Capital expenditures for Bonnell Aluminum are projected to be $14 million in 2020, including the expected initial investment for a multi-year project to migrate to a new division-wide enterprise resource planning and manufacturing excellence system ($3 million, which could be delayed as a result of COVID-19), infrastructure upgrades at the Carthage, Tennessee and Newnan, Georgia facilities ($2 million), and approximately $9 million required to support continuity of current operations. Depreciation expense is projected to be $14 million in 2020. Amortization expense is projected to be $3 million in 2020.

PE Films

A summary of operating results ~~from ongoing operations~~ for PE Films is provided below:


	Three Months Ended								Favorable/ (Unfavorable) % Change
(In thousands, except percentages)	March 31,
			2020			2019
Sales volume (lbs)	27,529			25,846			6.5	%
Net sales	$	71,261		$	66,779		6.7	%
Ongoing operations:
EBITDA	$	14,189		$	6,543		116.9	%
Depreciation & amortization	$	(3,724)		$	(3,592)		(3.7)	%
EBIT*	$	10,465		$	2,951		254.6	%
Capital expenditures	$	2,416		$	6,704
* See the net sales and EBITDA from ongoing operations by segment table in Note 11 for a reconciliation of this non-GAAP measure to GAAP.

Three Months Ended Favorable/
(Unfavorable)
% Change Nine Months Ended Favorable/
(Unfavorable)
% Change
(In Thousands, Except Percentages) September 30, September 30,
2017 2016 2017 2016
Sales volume (lbs) 34,701
33,754
2.8 % 103,923
106,214
(2.2 )%
Net sales $ 89,723
$ 82,179
9.2 % $ 265,773
$ 251,473
5.7 %
Operating profit from ongoing operations $ 11,251
$ 9,011
24.9 % $ 30,965
$ 23,564
31.4 %

~~Third-Quarter 2017~~First Quarter 2020 Results vs. ~~Third-Quarter 2016~~First Quarter 2019 Results

Net sales ~~(sales less freight)~~ in the ~~third~~first quarter of ~~2017~~2020 increased by ~~$7.5~~$4.5 million versus ~~2016 primarily due to:~~

~~An increase in surface protection films revenue ($1.9 million)~~2019 primarily due to ~~continued strong demand~~higher sales in ~~the LCD market; and~~

Surface Protection. Surface Protection sales increased $8.5 million while Personal Care sales decreased $3.6 million.

~~Higher~~Net sales in Surface Protection increased due to higher volume and favorable mix. Financial results in the first quarter of 2019 were unfavorably impacted by weak volume associated with a customer’s inventory correction and a slowdown in the mobile phone market. As discussed further below, a possible customer product transition in Surface Protection continues to be delayed. Net sales ~~mix for~~decreased by $1.7 million in Personal Care as a result of lower volume in elastics ~~materials,~~and unfavorable pricing, partially offset by higher volume in acquisition distribution ~~layers~~layer, tissue & towel overwrap and topsheet materials, ~~and overwrap products~~which the Company believes all benefited from COVID-19. In addition, net sales were adversely impacted by the decline in ~~personal care materials~~the value of currencies for operations outside of the U.S. relative to the U.S. Dollar ($~~5.7~~1.9 million).

~~Operating profit~~EBITDA from ongoing operations in the ~~third~~first quarter of ~~2017~~2020 increased by ~~$2.2~~$7.6 million versus the ~~third~~first quarter of ~~2016~~2019 primarily due to:

~~Higher contribution to profits~~•A $5.4 million increase from ~~surface protection films ($2.0 million),~~Surface Protection, primarily due to higher volume and ~~production efficiencies;~~

mix (net favorable impact of $5.6 million) and lower fixed costs ($0.9 million), partially offset by higher selling, general and administrative costs ($0.6 million) and lower productivity ($0.5 million); and

~~Higher contribution to profits~~•A $2.6 million increase from ~~personal care materials,~~Personal Care, primarily due to ~~higher volume~~favorable production efficiencies ($1.0 million), lower fixed and ~~favorable mix~~selling, general and administrative costs ($~~1.8 million);~~

~~Higher selling and general expenses ($1.8~~0.8 million), ~~primarily associated with hiring and employee incentive costs, and higher fixed plant costs related to higher depreciation and other costs ($0.6 million); and~~

~~Realized cost savings of $0.8 million associated with~~ the ~~previously announced project to consolidate domestic manufacturing facilities in PE Films (“North American facility consolidation”).~~

The North American facility consolidation was completed in the third quarter of 2017. Total pretax cash expenditures for this multi-year project were $15.5 million, which includes $11.2 million of capital expenditures.

~~The personal care business is currently evaluating the financial~~favorable impact of the ~~supply-chain effects~~timing of resin cost passthroughs ($0.9 million) and favorable net foreign exchange impact ($0.6 million), partially offset by unfavorable pricing ($0.6 million).

See the ~~major storms experienced~~“The Impact of COVID-19” section for more information.

Customer Product Transitions in ~~Texas~~Personal Care and ~~Florida during~~Surface Protection

The Company previously disclosed a significant customer product transition for the ~~third quarter~~Personal Care component of ~~2017. Shortages of raw materials and higher distribution costs due to damage to resin supplier infrastructure could have a negative effect on operating profit of up to $1~~PE Films. Annual sales for this product declined from approximately $70 million in ~~the fourth quarter.~~2018 to $30 million in 2019. The Company extended an arrangement with this customer that is expected to generate sales of this product at approximately 2019 levels through at least 2022.

Personal Care had approximately break-even EBITDA from ongoing operations in 2019 as competitive pressures resulted in missed sales and margin goals. Personal Care continues to focus on new business development and cost reduction initiatives in an effort to improve profitability.

The ~~surface protection operating segment~~Surface Protection component of ~~the~~ PE Films ~~reporting segment~~ supports manufacturers of optical and other specialty substrates used in flat panel display products. These films are primarily used by customers to protect components of displays in the manufacturing and transportation ~~process~~processes and then discarded.

AsThe Company previously ~~discussed,~~reported the ~~Company believes that over the next few years, there is an increased~~ risk that a portion of its film products used in surface protection applications will be made obsolete by possible future customer product transitions to less costly alternative processes or materials. These transitions principally relate to one customer. The full transition continues to encounter delays, resulting in higher than expected sales to this customer in the last four quarters. The Company estimates ~~on a preliminary basis~~ that during the ~~annual~~next four quarters the adverse impact on EBITDA from ongoing ~~operating profit~~operations from this customer ~~shifts to alternative processes or materials in surface protection is in~~shift versus the ~~range of up to $5 to $10~~last four quarters ended March 31, 2020 could possibly

be $14 million. ~~Given~~To offset the technological and commercial complexity involved in bringing these alternative processes or materials to market, the Company is very uncertain as to the timing and ultimate amount of the possible transitions. In response,potential adverse impact, the Company is aggressively pursuing and making progress generating sales from new surface protection products, applications and customers.

The Company continues to anticipate a significant product transition after 2018 in the personal care operating segment of the PE Films reporting segment. The Company currently estimates that this will adversely impact the annual sales of the

business unit by $70 million sometime between 2019 and 2021. The Company has been increasing its R&D spending (an increase of $7 million annually versus 2014), expects to invest capital, and is accelerating sales and marketing efforts to capture growth and diversify its customer base and product offerings in personal care products. The overall timing and net change in personal care’s revenues and profits and capital expenditures needed to support growth during this transition period are uncertain at this time.

~~Year-To-Date 2017 Results vs. Year-To-Date 2016 Results~~

~~Net sales (sales less freight) in the first nine months of 2017 increased by $14.3 million versus 2016 primarily due to:~~

~~Higher sales from surface protection films ($9.0 million), primarily due to higher volume and a favorable sales mix;~~

Favorable sales mix for acquisition distribution layer materials, elastics materials and overwrap products, and higher volume for acquisition distribution layer materials in personal care materials ($9.4 million), partially offset by volume reductions from the winding down of known lost business in personal care that was substantially completed by the end of 2016 ($5.4 million); and

~~Higher volume and improved pricing related to other PE Films products ($1.3 million).~~

~~Operating profit from ongoing operations in the first nine months of 2017 increased by $7.4 million versus the third quarter of 2016 primarily due to:~~

~~Higher contribution to profits from surface protection films ($8.0 million), primarily due to higher volume, a favorable sales mix, and production efficiencies;~~

Higher contribution to profits from personal care materials, primarily due to improved volume and inflation-driven price increases ($4.2 million), partially offset by known lost business ($2.2 million);

~~Lower contribution to profits from overwrap products ($0.7 million); and~~

Higher net general, selling and plant expenses ($3.6 million), primarily associated with strategic hires and an increase in employee incentive costs, partially offset by realized cost savings of $1.9 million associated with the North American facility consolidation.

Projected Capital Expenditures and Depreciation & Amortization

Capital expenditures infor PE Films ~~were $12.9~~are projected to be $14 million in ~~the first nine months of 2017 compared~~2020 including: $1.5 million to ~~$20.0 million~~complete a scale-up line in ~~the first nine months of 2016. PE Films currently estimates that total capital expenditures in 2017 will be $18 million, including approximately $10~~Surface Protection to improve development and speed to market for new products; $6 million for ~~routine~~other development projects; and $6 million for capital expenditures required to support operations. Capital spending for strategic projects in 2017 includes capacity expansion for elastics and acquisition distribution layer materials, in addition to other growth and strategic projects. Depreciation expense was $10.7 million in the first nine monthscontinuity of ~~2017 and $10.0 million in the first nine months of 2016.~~current operations. Depreciation expense is projected to be ~~$14~~$15 million in ~~2017.~~2020. There is no amortization expense for PE Films.

Flexible Packaging Films

A summary of operating results ~~from ongoing operations~~ for Flexible Packaging Films, which is also referred to as Terphane, is provided below:


	Three Months Ended								Favorable/ (Unfavorable) % Change
(In thousands, except percentages)	March 31,
			2020			2019
Sales volume (lbs)	25,779			25,462			1.2	%
Net sales	$	30,574		$	33,619		(9.1)	%
Ongoing operations:
EBITDA	$	6,553		$	3,203		104.6	%
Depreciation & amortization	$	(428)		$	(344)		(24.4)	%
EBIT*	$	6,125		$	2,859		114.2	%
Capital expenditures	$	848		$	1,735
* See the net sales and EBITDA from ongoing operations by segment table in Note 11 for a reconciliation of this non-GAAP measure to GAAP.

Three Months Ended Favorable/
(Unfavorable)
% Change Nine Months Ended Favorable/
(Unfavorable)
% Change
(In Thousands, Except Percentages) September 30, September 30,
2017 2016 2017 2016
Sales volume (lbs) 21,640
23,204
(6.7 )% 65,668
66,222
(0.8 )%
Net sales $ 26,628
$ 27,303
(2.5 )% $ 79,925
$ 80,888
(1.2 )%
Operating profit (loss) from ongoing operations $ (1,074 ) $ 93
NA
$ (3,392 ) $ 1,184
NA

~~Third-Quarter 2017~~First Quarter 2020 Results vs. ~~Third-Quarter 2016~~First Quarter 2019 Results

Sales volume decreased by 6.7% in the third quarter of 2017 compared with the third quarter of 2016 due to lower production volume. Lower production in July and August 2017 versus the same period in 2016 was due primarily to numerous intermittent power outages at Terphane’s Cabo, Brazil plant. Net sales in the third quarter of 2017 decreased 2.5% versus the third quarter of 2016 due to the low production, partially offset by a favorable sales mix.

~~Terphane’s operating results from ongoing operations in the third quarter of 2017 declined by $1.2 million versus the third quarter of 2016 primarily due to:~~

~~Inefficiencies from lower-than-planned production, as noted above, in the third quarter of 2017, partially offset by a favorable sales mix (net unfavorable impact of $0.7 million); and~~

Foreign currency transaction losses of $0.3 million in the third quarter of 2017 versus $0.1 million of gains in the third quarter of 2016, associated with U.S. Dollar denominated export sales in Brazil.

The Company expects Terphane’s future operating results to continue to be volatile until industry capacity utilization and the competitive dynamics in Latin America improve. Additional capacity from a competitor in Latin America came on-line late in the third quarter of 2017. A non-cash impairment charge associated with Terphane’s trade name intangibles not subject to amortization (balance of $6.5 million at September 30, 2017) and depreciable and amortizable assets could be triggered depending on ~~the market's response to this increased capacity~~.

~~Year-To-Date 2017 Results vs. Year-To-Date 2016 Results~~

Sales volume declined by 0.8% in the first nine months of 2017 compared with the first nine months of 2016 partially due to lower volume in its markets outside of Brazil in the second quarter of 2017 and lower production resulting from power outages at Terphane’s Cabo, Brazil plant in the third quarter of 2017. Net sales in the first ~~nine months~~quarter of ~~2017~~2020 decreased ~~1.2%~~9.1% versus the first ~~nine months~~quarter of ~~2016 largely~~2019 primarily due to ~~production issues in~~lower selling prices from the ~~third quarter, partially offset by a favorable sales mix.~~passthrough of lower raw material costs.

~~Terphane had an operating loss~~Terphane’s EBITDA from ongoing operations in the first ~~nine months~~quarter of ~~2017 of~~2020 increased by $3.4 million versus ~~an operating profit from ongoing operations in~~ the first ~~nine months~~quarter of ~~2016 of $1.2 million. The resulting unfavorable change of $4.6 million for the period was~~2019 primarily due to:

~~Inefficiencies~~•A benefit from ~~lower-than-planned~~pricing and higher volume ($0.9 million), production ~~in the first~~efficiencies ($0.4 million) and ~~third quarters of 2017, partially offset by a favorable sales mix (net unfavorable impact of $1.0~~lower fixed costs ($0.5 million);

Foreign currency transaction losses of $0.4 million in the first nine months of 2017 versus $3.2 million of losses in the first nine months of 2016, associated with U.S. Dollar denominated export sales in Brazil;

~~Higher raw material costs of $2.1 million in the first nine months of 2017 that could not be passed through to customers due to competitive pressures versus a~~•A benefit of $1.2 million resulting from the favorable settlement of a dispute related to value-added taxes;

•Net favorable foreign currency translation of Real-denominated operating costs ($0.2 million); and

•Foreign currency transaction gains of $0.1 million in 2020 versus minimal gains in the first ~~nine months~~quarter of ~~2016 from lower raw material costs; and~~

2019.

~~Higher costs and expenses~~Terphane has experienced strong demand for food packaging materials during the COVID-19 environment. See the “The Impact of ~~$3.1 million primarily related to the adverse impact of high inflation in Brazil and the appreciation by approximately 12% of the average exchange rate~~COVID-19” section for ~~the Brazilian Real relative to the U.S. Dollar.~~

more information.

Projected Capital Expenditures and Depreciation & Amortization

Capital expenditures ~~in Terphane were $2.3~~are projected to be $8 million in ~~the first nine months of 2017 compared to $2.0 million in the first nine months of 2016. Terphane currently estimates that total capital expenditures in 2017 will be~~2020, including $4 million ~~all~~ for ~~routine~~new capacity for value-added products and productivity projects and $4 million for capital expenditures required to support ~~operations. Depreciation expense was $5.5 million in the first nine months~~continuity of ~~2017 and $4.9 million in the first nine months of 2016.~~current operations. Depreciation expense is projected to be $7$2.0 million in ~~2017.~~2020. Amortization expense ~~was $2.2 million in the first nine months of 2017 and $2.1 million in the first nine months of 2016, and~~ is projected to be $3$0.4 million in ~~2017.~~

~~Aluminum Extrusions~~

~~A summary of operating results from ongoing operations for Aluminum Extrusions is provided below:~~

Three Months Ended Favorable/
(Unfavorable)
% Change Nine Months Ended Favorable/
(Unfavorable)
% Change
(In Thousands, Except Percentages) September 30, September 30,
2017 2016 2017 2016
Sales volume (lbs) * 45,241
43,549
3.9 % 132,598
129,872
2.1 %
Net sales $ 122,149
$ 91,067
34.1 % $ 344,956
$ 269,987
27.8 %
Operating profit from ongoing operations $ 12,601
$ 9,427
33.7 % $ 34,201
$ 27,786
23.1 %
* Excludes sales volume associated with Futura, acquired on February 15, 2017.

~~Third-Quarter 2017 Results vs. Third-Quarter 2016 Results~~

Net sales in the third quarter of 2017 increased versus 2016 primarily due to the addition of Futura. Futura contributed net sales of $20.3 million in the third quarter of 2017. Excluding the impact of Futura, net sales improved due to higher sales volume and an increase in average selling prices primarily due to the pass-through to customers of higher market-driven raw material costs.

Volume on an organic basis (which excludes the impact of the Futura acquisition) in the third quarter of 2017 increased by 3.9% versus 2016 due to higher volume in the building & construction and specialty markets. Higher average net selling prices, primarily attributed to an increase in aluminum market prices, had a favorable impact on net sales of $7.8 million.

Operating profit from ongoing operations in the third quarter of 2017 increased by $3.2 million in comparison to the third quarter of 2016. Excluding the favorable profit impact of Futura ($2.4 million), operating profit from ongoing operations increased $0.8 million. Higher volume and inflation-related sales prices ($2.2 million) were partially offset by increased operating costs, including utilities and employee-related expenses and higher depreciation ($0.7 million). In addition, the startup of the new extrusion line at the Niles, Michigan plant, resulted in disruptions to normal plant production and had an estimated adverse impact on profits of $0.7 million.

~~Year-To-Date 2017 Results vs. Year-To-Date 2016 Results~~

Net sales in the first nine months of 2017 increased $75.0 million versus 2016 primarily due to the addition of Futura. Futura has contributed net sales of $49.8 million since its acquisition in the first quarter of 2017. Excluding the impact of Futura, net sales were higher primarily as a result of an increase in average selling prices due to the pass-through to customers of higher market-driven raw material costs and higher volume. Higher average net selling prices, primarily attributed to an increase in aluminum market prices, had a favorable impact on net sales of $20.5 million.

Volume on an organic basis in the first nine months of 2017 increased by 2.1% versus 2016. Higher volume in the specialty and automotive markets was partially offset by a decrease in the building & construction market. The Company believes that lower year-to-date sales volume in the building & construction market has resulted primarily from downtime in the first quarter associated with upgrades made to a paint line that serves this market and the timing of customer orders. Overall booking and backlog trends continue to increase compared with the prior year.

Operating profit from ongoing operations in the first nine months of 2017 increased by $6.4 million versus the first nine months of 2016. Excluding the favorable profit impact of Futura ($6.2 million), operating profit from ongoing operations increased $0.2 million, primarily due to higher volume and higher inflation-related sales prices, partially offset by higher depreciation and disruptions to normal plant production associated with the startup of the new extrusion line at the Niles, Michigan plant.

~~Cast House Explosion~~

On June 29, 2016, the Bonnell Aluminum plant in Newnan, Georgia suffered an explosion in the casting department, causing significant damage to the cast house and related equipment. The Company completed the process of replacing the damaged casting equipment, and the cast house resumed production in the third quarter of 2017. Bonnell Aluminum has various forms of insurance to cover losses associated with this type of event.

During the first nine months of 2017, Bonnell incurred $5.6 million of additional operational expenses as a result of the explosion, and $5.5 million of this amount has been fully offset by anticipated insurance recoveries. Additionally, $0.6 million of additional operational expenses incurred in 2016 that were previously considered not reasonably assured of being covered by insurance recoveries are now expected to be recovered and are included as an offset to expenses in “Plant shutdowns, asset impairments, restructurings and other” in the Net Sales and Operating Profit by Segment and in “Cost of goods sold” in the Consolidated Statements of Income. In the fourth quarter of 2017, all remaining insurance claims associated with this matter are expected to be settled, which will likely trigger a gain associated with the involuntary conversion of the old cast house.

~~Capital Expenditures, Depreciation & Amortization~~

~~Capital expenditures in Aluminum Extrusions were $21.9 million in the~~ ~~first nine months~~ of 2017 (including $1.3 million associated with Futura since it was acquired), compared to $8.5 million in the first nine months of 2016. Net capital expenditures are projected to total $23 million in 2017 (net of $5 million of expected insurance recoveries), including $9 million used to complete the extrusions capacity expansion project at the Niles, Michigan plant, expenditures to repair the damage caused by the cast house explosion net of related insurance recoveries (facility upgrades of approximately $2 million will not be covered by insurance reimbursements), $5 million for routine items required to support legacy operations, and $2 million to support the operations of Futura. Depreciation expense was $8.7 million in the first nine months of 2017, which included $2.1 million from the addition of Futura, compared to $6.1 million in the first nine months of 2016, and is projected to be approximately $12 million in 2017. Amortization expense was $2.2 million in the first nine months of 2017, which included $1.5 million from the addition of Futura, and $0.8 million in the first nine months of 2016, and is projected to be approximately $3 million in 2017.2020.

Corporate Expenses, Interest and Taxes

Pension expense was ~~$7.6~~$3.5 million in the first ~~nine~~three months of ~~2017, a favorable change of $0.4~~2020, versus $2.4 million ~~from~~in the first ~~nine~~three months of ~~2016. Most of the~~2019. The impact on earnings from pension expense is reflected in “Corporate expenses, net” in the net sales and operating profit by segment table in Note ~~10.~~11. Pension expense is projected to be approximately ~~$10.1~~$14.2 million in ~~2017.~~2020, which is determined at the beginning of the year based on the funded status of the Company’s defined benefit pension plan and actuarial assumptions at that time. See the “The Impact of COVID-19” section for the Company’s estimate of the funded status of the pension plan at March 31, 2020. Corporate expenses, net, ~~decreased~~increased in the first ~~nine~~three months of ~~2017~~2020 versus ~~2016~~2019 primarily due to higher stock-based employee compensation ($0.2 million), and consulting fees ($1.5 million) related to the identification and remediation of previously disclosed material weaknesses in the Company’s internal control over financial reporting and to business development activities.

Interest expense was $0.6 million in the first three months of 2020 in comparison to $1.2 million in the first three months of 2019, primarily due to lower ~~pension expense and stock-based employee benefit costs, partially offset by higher incentive accruals.~~

~~Interest expense was $4.6 million in the first nine months of 2017 in comparison to $2.9 million in the first nine months of 2016, primarily due to higher~~ average debt levels from the acquisition of Futura. Interest expense in 2016 included the write off of $0.2 million in unamortized loan fees from the credit facility that was refinanced in the first quarter of 2016.levels.

The effective tax rate used to compute income taxes in the first ~~nine~~three months of ~~2017~~2020 was ~~14.7%~~22.7% compared to ~~7.6%~~16.9% in the first ~~nine~~three months of ~~2016.~~2019. The ~~significant~~ differences between the U.S. federal statutory rate and the effective tax rate for the first ~~nine~~three months isof 2020 and 2019 are shown in the table provided in Note ~~11.~~12.

Net capitalization and other credit measures are provided in Liquidity and Capital Resources.

Critical Accounting Policies

In the ordinary course of business, the Company makes a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”). The Company believes the estimates, assumptions and judgments described in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” of the ~~2016~~2019 Form 10-K have the greatest potential impact on our financial statements, so Tredegar considers these to be its critical accounting policies. These policies include accounting for impairment of long-lived assets and goodwill, investment accounted for under the fair value method, pension benefits and income taxes. These policies require management to exercise judgments that are often difficult, subjective and complex due to the necessity of estimating the effect of matters that are inherently uncertain. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company believes the consistent application of these policies enables it to provide readers of the financial statements with useful and reliable information about our operating results and financial condition. Since December 31, ~~2016,~~2019, there have been no changes in these policies that have had a material impact on results of operations or financial position. For more information on new accounting pronouncements, see Note 13.

Results of Operations

~~Third~~First Quarter of ~~2017~~2020 Compared with the ~~Third~~First Quarter of ~~2016~~2019

Overall, sales in the ~~third~~first quarter of ~~2017 increased~~2020 decreased by ~~19.0%~~8.1% compared with the ~~third~~first quarter of ~~2016.~~2019. Net sales decreased 15.2% in Aluminum Extrusions primarily due to lower sales volume and the pass-through of lower metal costs, partially offset by an increase in average selling prices to cover higher operating costs. Net sales increased ~~9.2%~~6.7% in PE ~~Films primarily~~Films. Net sales in Surface Protection increased due to higher volume and favorable mix, partially offset by a ~~market-driven increase~~small decline in ~~surface protection films sales and higher elastic, acquisition distribution layer, and overwrap product sales.~~Personal Care. Net sales in Flexible Packaging Films decreased ~~2.5%~~9.1% primarily due to lower production from manufacturing disruptions and lower export sales volume. Net sales increased 34.1% in Aluminum Extrusions primarily due to the acquisition of Futura, higher sales volumes and an increase in average selling prices ~~as a result of~~from the pass-through ~~to customers~~ of ~~higher market-driven~~lower raw material costs. For more information on net sales and volume, see the Executive Summary.

Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales was ~~17.0%~~19.5% in the ~~third~~first quarter of ~~2017~~2020 compared to ~~16.3%~~15.6% in the ~~third~~first quarter of ~~2016.~~2019. The gross profit margin in Aluminum Extrusions decreased primarily as a result of lower prices resulting from lower metal prices. The gross profit margin in PE Films increased primarily due to higher profits in Surface Protection as a result of higher sales volume ~~in surface protection films~~ and ~~personal care films.~~selling prices. The gross profit margin in Flexible Packaging Films ~~decreased significantly~~increased due to higher ~~costs in 2017 compared to 2016, primarily due to~~sales volume, production ~~disruptions at its plant in Cabo, Brazil~~efficiencies and the adverse impact of high inflation in Brazil and the appreciation of the Brazilian Real relative to the U.S. Dollar. The gross profit margin in Aluminum Extrusions increased primarily as a result of the operating performance by Futura, higher volume and higher average selling prices as a result of the pass-through to customers of higher market-driven raw materiallower fixed costs.

As a percentage of sales, selling, general and administrative (“SG&A”) and research and development (“R&D&D”) expenses were ~~10.4%~~12.3% in the ~~third~~first quarter of ~~2017,~~2020, compared with ~~10.5%~~10.7% in the ~~third~~first quarter of last ~~year total~~year. SG&A expenses ~~increased as a result of the Futura acquisition and related acquisition and integration costs~~were up year-over-year, while net sales decreased. Increased spending was due to consulting fees associated with remediation activities and other costs relating to the Company’s material weaknesses in internal control over financial reporting and business development ~~costs.~~activities.

~~Plant~~Pre-tax losses associated with plant shutdowns, asset impairments, restructurings and other items for continuing operations in the ~~third~~first quarter of ~~2017~~2020 and ~~2016~~2019 detailed below are shown in the statements of net sales and EBITDA from ongoing operations by segment ~~operating profit~~ table in Note 1011 and are ~~described~~included in ~~detail~~“Asset impairments and costs associated with exit and disposal activities, net of adjustments” in ~~Note 3. A discussion~~the consolidated statements of ~~unrealized gains and losses on investments can also be found in Note 7.~~ income, unless otherwise noted.


			Three months ended March 31,
($ in millions)							2020		2019
Aluminum Extrusions:





Losses from sale of assets, investment writedowns and other items:

	Consulting expenses for ERP feasibility study²				$	0.7	$	—




PE Films:
(Gains) losses associated with plant shutdowns, asset impairments and restructurings:
	Shanghai plant shutdown:
		Asset-related expenses	$	—	$	0.2






	Consolidation of Personal Care manufacturing facilities - U.S. and Europe:



		Product qualifications¹	0.1		—
Lake Zurich, Illinois plant shutdown and transfer of production to new elastics lines in Terre Haute, Indiana:⁴
		Severance	0.1		—
		Asset impairment	0.3		—




	Other restructuring costs - severance				—		0.4
	Write-off of Personal Care production line - Guangzhou, China facility				—		0.4
Subtotal for PE Films							0.5		1.0

Losses from sale of assets, investment writedowns and other items:
	Estimated excess costs associated with ramp-up of new product offerings and additional expenses related to strategic capacity expansion projects¹				0.4		0.3








		Total for PE Films	$	0.9	$	1.3










Corporate:
	Professional fees associated with: remediation activities and other costs relating to the Company’s material weaknesses in internal control over financial reporting; business development activities; and implementation of new accounting guidance²				$	2.3	$	0.9


	Write-down of investment in Harbinger Capital Partners Special Situations Fund³				0.2		—





		Total for Corporate	$	2.5	$	0.9








1. Included in “Cost of goods sold” in the consolidated statements of income. 2. Included in “Selling, general and administrative” in the consolidated statements of income. 3. Included in “Other income (expense), net” in the consolidated statements of income. 4. See additional details in Note 3.

Interest expense ~~increased from $0.9~~was $0.6 million in the ~~third~~first quarter of ~~2016~~2020 compared to ~~$1.8~~$1.2 million in the ~~third~~first quarter of ~~2017. In February 2017, the Company borrowed $87 million under its Credit Agreement (as defined in Liquidity and Capital Resources)~~2019, primarily due to ~~fund the acquisition of Futura.~~

lower average debt levels. Average debt outstanding and interest rates were as follows:


	Three Months Ended March 31,
(In Millions)	2020			2019
Floating-rate debt with interest charged on a rollover basis at one-month LIBOR plus a credit spread:
Average outstanding debt balance	$	43.2		$	108.7
Average interest rate	3.3		%	4.1		%

Three Months Ended September 30,
(In Millions) 2017 2016
Floating-rate debt with interest charged on a rollover basis at one-month LIBOR plus a credit spread:
Average outstanding debt balance $ 189.7
$ 99.2
Average interest rate 3.2 % 2.3 %
Fixed-rate and other debt:
Average outstanding debt balance $ —
$ —
Average interest rate n/a
n/a
Total debt:
Average outstanding debt balance $ 189.7
$ 99.2
Average interest rate 3.2 % 2.3 %

~~First Nine Months of 2017 Compared with the First Nine Months of 2016~~

Overall, sales in the first nine months of 2017 increased by 14.7% compared with the first nine months of 2016. Net sales increased 5.7% in PE Films primarily due to a market driven increase in surface protection films sales and higher personal care films sales, partially offset by known lost business and product transitions. Net sales in Flexible Packaging Films decreased 1.2% largely due to production issues in the third quarter, partially offset by a favorable sales mix. Net sales increased 27.8% in Aluminum Extrusions primarily due to the acquisition of Futura and an increase in average selling prices as a result of the pass-through to customers of higher market-driven raw material costs. For more information on net sales and volume, see the ~~Executive Summary~~.

Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales was 16.1% in the first nine months of 2017 compared to 16.5% in the first nine months of 2016. The gross profit margin in PE Films increased due to higher volume, favorable sales mix and production efficiencies in surface protection films and inflation-driven price increases, partially offset by lower volume as a result of lost business and product transitions and volume reductions for other personal care products. The gross profit margin in Flexible Packaging Films decreased significantly due to higher costs in 2017 compared to 2016, primarily due to higher material costs that could not be passed through to customers due to competitive pressures, the adverse impact of high inflation in Brazil and the appreciation of the Brazilian Real relative to the U.S. Dollar, partially offset by foreign currency losses in the prior year associated with U.S. Dollar denominated export sales in Brazil. The gross profit margin in Aluminum Extrusions increased primarily as a result of higher margins achieved by Futura, partially offset by higher depreciation and inefficiencies related to the startup of a new line at Niles, Michigan.

As a percentage of sales, SG&A and R&D expenses were 10.8% in the first nine months of 2017, compared with 11.5% in the first nine months of last year, a reduction from the prior year. SG&A expense decreases in 2017 included lower pension expense and stock-based employee benefit and other costs, partially offset by Futura acquisition and integration costs and business development costs.

Plant shutdowns, asset impairments, restructurings and other items in the nine months of 2017 and 2016 are shown in the segment operating profit table in Note 10 and are described in detail in Note 3. A discussion of unrealized gains and losses on investments can also be found in Note 7.

Interest expense increased from $2.9 million in the first nine months of 2016 to $4.6 million in the first nine months of 2017. In February 2017, the Company borrowed $87 million under its Credit Agreement to fund the acquisition of Futura. Interest expense in 2016 included the write off of $0.2 million in unamortized loan fees from the credit facility that was refinanced in the first quarter of 2016.

~~Average debt outstanding and interest rates were as follows:~~

Nine Months Ended September 30,
(In Millions) 2017 2016
Floating-rate debt with interest charged on a rollover basis at one-month LIBOR plus a credit spread:
Average outstanding debt balance $ 177.6
$ 104.8
Average interest rate 2.9 % 2.3 %
Fixed-rate and other debt:
Average outstanding debt balance $ —
$ —
Average interest rate n/a
n/a
Total debt:
Average outstanding debt balance $ 177.6
$ 104.8
Average interest rate 2.9 % 2.3 %

Liquidity and Capital Resources

Tredegar’s management continues to focus on improving working capital ~~management, and measures~~management. Measures such as days sales outstanding (“DSO”), days inventory outstanding (“DIO”) and days payables outstanding (“DPO”) are used to evaluate changes in working capital. Changes in operating assets and liabilities from December 31, ~~2016~~2019 to ~~September 30, 2017~~March 31, 2020 are summarized as follows:

•Accounts and other receivables ~~increased $29.6~~decreased $1.3 million ~~(30.4%~~(1.3%).

◦Accounts ~~receivable~~and other receivables in ~~PE Films~~Aluminum Extrusions increased by ~~$6.0~~$0.3 million primarily due to ~~higher volume for surface protection films and personal care films, and~~ the timing of cash receipts. DSO (represents trailing 12 months net sales divided by a rolling 12-month average of accounts and other receivables balances) was approximately ~~48.6~~48.0 days for the 12 months ended ~~September 30, 2017~~March 31, 2020 and ~~45.7~~48.5 days for the 12 months ended December 31, ~~2016.~~2019.

◦Accounts ~~receivable~~and other receivables in ~~Flexible Packaging~~PE Films ~~were relatively flat.~~decreased by $1.5 million primarily due to lower net sales for Personal Care products, a focus on collection efforts and the timing of cash receipts. DSO was approximately ~~53.5~~41.4 days for the 12 months ended ~~September 30, 2017~~March 31, 2020 and ~~51.8~~44.0 days for the 12 months ended December 31, ~~2016.~~2019.

◦Accounts and other receivables in ~~Aluminum Extrusions increased~~Flexible Packaging Films decreased by ~~$24.2~~$0.1 million primarily due to the ~~addition~~timing of ~~balances from the acquisition of Futura, including the recording of a contingent receivable of $5 million related to~~

~~an earnout provision in the Purchase Agreement (see Note 2 for more details) and higher net sales.~~cash receipts. DSO was approximately ~~43.2~~39.8 days for the 12 months ended ~~September 30, 2017~~March 31, 2020 and ~~43.3~~37.7 days for the 12 months ended December 31, ~~2016.~~2019.

•Inventories increased ~~$16.4~~$2.8 million ~~(24.8%~~(3.5%).

◦Inventories in ~~PE Films~~Aluminum Extrusions increased by ~~approximately $3.5~~$3.8 million ~~primarily~~ due to ~~increased production to accommodate higher demand and~~ the timing of ~~raw material~~ purchases. DIO (represents trailing 12 months costs of goods sold calculated on a first-in, first-out basis divided by a rolling 12-month average of inventory balances calculated on the first-in, first-out basis) was approximately ~~54.2~~37.9 days for the 12 months ended ~~September 30, 2017~~March 31, 2020 and ~~52.2~~38.6 days for the 12 months ended December 31, ~~2016.~~2019.

◦Inventories in ~~Flexible Packaging~~PE Films ~~decreased~~increased by ~~approximately $0.2~~$0.8 million primarily due to the timing of raw material purchases. DIO was approximately ~~70.9~~55.5 days for the 12 months ended ~~September 30, 2017~~March 31, 2020 and ~~77.0~~55.7 days for the 12 months ended December 31, ~~2016.~~2019.

◦Inventories in ~~Aluminum Extrusions increased~~Flexible Packaging Films decreased by ~~$13.0~~approximately $1.8 million primarily due to ~~the addition of balances from the acquisition of Futura, the restart of the Newnan, Georgia cast house and the timing of purchases.~~a reduction in raw material levels. DIO was approximately ~~31.1~~93.2 days for the 12 months ended ~~September 30, 2017~~March 31, 2020 and ~~26.5~~94.3 days for the 12 months ended December 31, ~~2016.~~2019.

•Net property, plant and equipment ~~increased $49.4~~decreased $9.3 million ~~(18.9%~~(3.8%) primarily due to ~~property~~depreciation expenses of $7.6 million and ~~equipment added~~a reduction from the ~~acquisition~~effect of ~~Futura~~changes in foreign exchange rates of ~~$32.7~~$6.5 million, partially offset by capital expenditures of ~~$37.2~~$4.9 million.

•Other identifiable intangibles, net decreased by $1.1 million ~~and a change in the value of the U.S. dollar relative to foreign currencies ($6.4 million increase) and partially offset by depreciation expenses of $25.1 million.~~

~~Goodwill and other intangibles increased by $36.9 million (24.4%~~(4.7%) primarily due to ~~balances added from the acquisition of Futura of $41.1 million, partially offset by~~ amortization expense of ~~$4.6~~$0.8 million. ~~Identifiable intangible assets and goodwill associated with the Futura acquisition were $30.7 million and $10.4 million, respectively.~~

•Accounts payable increased ~~$14.3~~$1.4 million ~~(17.6%~~(1.4%).

◦Accounts payable in ~~PE Films~~Aluminum Extrusions increased ~~$3.2~~by $2.9 million primarily due to lower volume and the normal volatility associated with the timing of payments. DPO (represents trailing 12 months costs of goods sold calculated on a first-in, first-out basis divided by a rolling 12-month average of accounts payable balances) was approximately ~~38.7~~51.0 days for the 12 months ended ~~September 30, 2017~~March 31, 2020 and ~~38.5~~49.9 days for the 12 months ended December 31, ~~2016.~~2019.

◦Accounts payable in ~~Flexible Packaging~~PE Films decreased ~~$1.2~~$0.4 million due to the normal volatility associated with the timing of payments. DPO was approximately ~~42.2~~45.1 days for the 12 months ended ~~September 30, 2017~~March 31, 2020 and ~~39.5~~44.9 days for the 12 months ended December 31, ~~2016.~~2019.

◦Accounts payable in ~~Aluminum Extrusions increased by $12.5~~Flexible Packaging Films decreased $2.3 million ~~primarily~~ due to ~~the addition of balances from the acquisition of Futura, negotiation of favorable payment terms~~lower inventory levels and the normal volatility associated with the timing of payments. DPO was approximately ~~48.2~~57.1 days for the 12 months ended ~~September 30, 2017~~March 31, 2020 and ~~45.4~~55.2 days for the 12 months ended December 31, ~~2016.~~2019.

•Accrued expenses increased by ~~$3.1~~$1.1 million (~~8.1%~~ (2.3%) from December 31, ~~2016~~2019 primarily due to ~~normal~~to increased derivative liabilities due to currency and commodity fluctuations, inand increased payroll accruals due to the ~~accounts.~~

timing of pay periods at quarter end, partially offset by the settlement of 2019 incentive compensation accruals which were paid during the quarter.

Cash provided by operating activities was ~~$53.5~~$15.1 million in the first ~~nine~~three months of ~~2017~~2020 compared with ~~$34.5~~$11.1 million in the first ~~nine~~three months of ~~2016.~~2019. The ~~change~~increase is primarily ~~related~~due to ~~normal volatility of working capital components.~~higher net segment EBITDA from ongoing operations ($6.5 million).

Cash used in investing activities was ~~$124.2~~$4.9 million in the first ~~nine~~three months of ~~2017~~2020 compared with ~~$29.5~~$12.9 million in the first ~~nine~~three months of ~~2016.~~2019. Cash used in investing activities primarily represents ~~the acquisition of Futura in 2017 for $87.1 million (which includes the net settlement of post-closing adjustments of $0.1 million) and~~ capital expenditures, which were ~~$37.2~~$4.9 million and ~~$30.9~~$12.9 million in the first ~~nine~~three months of ~~2017~~2020 and ~~2016,~~2019, respectively.

Cash ~~provided by~~used in financing activities ~~was $71.8~~of $3.6 million in the first ~~nine~~three months of ~~2017 and~~2020 was primarily related to net ~~borrowings~~repayments of $1.0 million under the Credit Agreement to fund the acquisition of Futura for $87.1 million (including $5.0 million paid into the Earnout Escrow and the net settlement of post-closing adjustments of $0.1 million; see Note 2 for more details)(as defined below) and the payment of regular quarterly dividends of ~~$10.9~~$4.0 million ~~(33~~(12 cents per share). Cash ~~used in~~provided by financing activities ~~was $23.6~~of $4.0 million in the first ~~nine~~three months of ~~2016 and~~2019 was primarily related to net repayments of $8.5 million under the prior credit agreement and the payment of regular quarterly dividends of ~~$10.8~~$3.7 million ~~(33~~(11 cents per share) ~~and net repayments of debt and refinancing costs of $14.8 million.~~.

Further information on cash flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 is provided in the consolidated statements of cash flows.

On ~~March 1, 2016, the Company executed its new~~June 28, 2019, Tredegar entered into a $500 million five-year, ~~$400 million~~ secured revolving credit agreement ~~that expires on March 1, 2021~~ (“Credit Agreement”), ~~replacing the previous $350 million unsecured revolving credit agreement.~~ with an option to increase that amount by $100 million.

Net capitalization and indebtedness as defined under the Credit Agreement as of ~~September 30, 2017~~March 31, 2020 were as follows:


Net Capitalization and Indebtedness as of March 31, 2020
(In thousands)
Net capitalization:
Cash and cash equivalents	$	35,059
Debt:
Credit Agreement	43,000


Debt, net of cash and cash equivalents	7,941
Shareholders’ equity	338,590
Net capitalization	$	346,531
Indebtedness as defined in Credit Agreement:
Total debt	$	43,000


Other	—
Indebtedness	$	43,000

Net Capitalization and Indebtedness as of September 30, 2017
(In Thousands)
Net capitalization:
Cash and cash equivalents $ 31,850
Debt:
Credit Agreement 177,000
Debt, net of cash and cash equivalents 145,150
Shareholders’ equity 373,914
Net capitalization $ 519,064
Indebtedness as defined in Credit Agreement:
Total debt $ 177,000
Face value of letters of credit 2,685
Other 422
Indebtedness $ 180,107

EBITDA as defined in the Credit Agreement is referred to in this Form 10-Q as Credit EBITDA. The credit spread and commitment fees charged on the unused amount under the Credit Agreement at various ~~indebtedness-to-adjusted~~indebtedness-to-Credit EBITDA levels are as follows:


Pricing Under The Credit Agreement (Basis Points)	Pricing Under The Credit Agreement (Basis Points)		Pricing Under The Credit Agreement (Basis Points)
Indebtedness-to-Adjusted EBITDA Ratio	Credit Spread Over LIBOR	Commitment Fee
Indebtedness-to-Credit EBITDA Ratio			Indebtedness-to-Credit EBITDA Ratio	Credit Spread Over LIBOR	Commitment Fee
> 3.5x but <= 4.0x	250	45	> 3.5x but <= 4.0x	200.0	40
> 3.0x but <= 3.5x	225	40	> 3.0x but <= 3.5x	187.5	35
> 2.0x but <= 3.0x	200	35	> 2.0x but <= 3.0x	175.0	30
> 1.0x but <= 2.0x	175	30	> 1.0x but <= 2.0x	162.5	25
<= 1.0x	150	25	<= 1.0x	150.0	20

covenants within the Credit Agreement.

Computations of Adjusted EBITDA, Adjusted EBIT, Leverage Ratio and Interest Coverage Ratio as Defined in the Credit Agreement Along with Related Most Restrictive Covenants as of and for the Twelve Months Ended September 30, 2017 (In Thousands)
Computations of adjusted EBITDA and adjusted EBIT as defined in the Credit Agreement for the twelve months ended September 30, 2017:
Net income (loss) $ 57,908
Plus:
After-tax losses related to discontinued operations —
Total income tax expense for continuing operations 11,020
Interest expense 5,467
Depreciation and amortization expense for continuing operations 38,126
All non-cash losses and expenses, plus cash losses and expenses not to exceed $10,000, for continuing operations that are classified as unusual, extraordinary or which are related to plant shutdowns, asset impairments and/or restructurings (cash-related of $9,694) 12,625
Charges related to stock option grants and awards accounted for under the fair value-based method 185
Losses related to the application of the equity method of accounting —
Losses related to adjustments in the estimated fair value of assets accounted for under the fair value method of accounting —
Minus:
After-tax income related to discontinued operations —
Total income tax benefits for continuing operations —
Interest income (274 )
All non-cash gains and income, plus cash gains and income in excess of $10,000, for continuing operations that are classified as unusual, extraordinary or which are related to plant shutdowns, asset impairments and/or restructurings (2,826 )
Income related to changes in estimates for stock option grants and awards accounted for under the fair value-based method —
Income related to the application of the equity method of accounting —
Income related to adjustments in the estimated fair value of assets accounted for under the fair value method of accounting (26,600 )
Plus cash dividends declared on investments accounted for under the equity method of accounting —
Plus or minus, as applicable, pro forma EBITDA adjustments associated with acquisitions and asset dispositions 3,436
Adjusted EBITDA as defined in the Credit Agreement 99,067
Less: Depreciation and amortization expense for continuing operations (including pro forma for acquisitions and asset dispositions) (40,183 )
Adjusted EBIT as defined in the Credit Agreement $ 58,884
Computations of leverage and interest coverage ratios as defined in the Credit Agreement at September 30, 2017:
Leverage ratio (indebtedness-to-adjusted EBITDA) 1.82x
Interest coverage ratio (adjusted EBIT-to-interest expense) 10.77x
Most restrictive covenants as defined in the Credit Agreement:
Maximum permitted aggregate amount of dividends that can be paid by Tredegar during the term of the Credit Agreement ($100,000 plus 50% of net income generated for each quarter beginning January 1, 2016) $ 140,323
Maximum leverage ratio permitted 4.00
Minimum interest coverage ratio permitted 2.50


Computations of Credit EBITDA and Leverage Ratio and Interest Coverage Ratio as Defined in the Credit Agreement Along with Related Most Restrictive Covenants as of and for the Twelve Months Ended March 31, 2020 (In Thousands)
Computation of Credit EBITDA for the twelve months ended March 31, 2020:
Net income (loss)	$	6,152
Plus:
After-tax losses related to discontinued operations	—
Total income tax expense for continuing operations	—
Interest expense	3,374
Depreciation and amortization expense (excluding amortization of right-of-use lease assets) for continuing operations	44,540
All non-cash losses and expenses, plus cash losses and expenses not to exceed $10,000, for continuing operations that are classified as unusual, extraordinary or which are related to plant shutdowns, asset impairments and/or restructurings (cash-related of $10,000)	24,831
Charges related to stock option grants and awards accounted for under the fair value-based method	4,378
Losses related to the application of the equity method of accounting	—
Losses related to adjustments in the estimated fair value of assets accounted for under the fair value method of accounting	14,700
Minus:
After-tax income related to discontinued operations	—
Total income tax benefits for continuing operations	(653)
Interest income	(289)
All non-cash gains and income, plus cash gains and income in excess of $10,000, for continuing operations that are classified as unusual, extraordinary or which are related to plant shutdowns, asset impairments and/or restructurings	—
Income related to changes in estimates for stock option grants and awards accounted for under the fair value-based method	—
Income related to the application of the equity method of accounting	—
Income related to adjustments in the estimated fair value of assets accounted for under the fair value method of accounting	—
Plus cash dividends declared on investments in an amount not to exceed $10,000 for such period	—
Plus or minus, as applicable, pro forma EBITDA adjustments associated with acquisitions and asset dispositions	—
Credit EBITDA	97,033



Computations of leverage and interest coverage ratios as defined in the Credit Agreement at March 31, 2020:
Leverage ratio (indebtedness-to-Credit EBITDA)	.44x
Interest coverage ratio (Credit EBITDA-to-interest expense)	28.76x
Most restrictive covenants as defined in the Credit Agreement:
Maximum permitted aggregate amount of dividends that can be paid by Tredegar during the term of the Credit Agreement ($130,000 plus 50% of net income generated for each quarter beginning April 1, 2019)	$	145,805

Maximum leverage ratio permitted	4.00		x
Minimum interest coverage ratio permitted	3.00		x

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

~~The volatility of average quarterly prices of low density polyethylene resin in the U.S. (a primary raw material for PE Films) is shown in the chart below.~~

Polyethylene resin prices in Europe, Asia and South America have exhibited similar long-term trends. The price of resin is driven by several factors, including supply and demand and the price of oil, ethylene and natural gas. To address fluctuating resin prices, PE Films has index-based pass-through raw material cost agreements for the majority of its business. However, under certain agreements, changes in resin prices are not passed through for an average period of 90 days (see ~~Executive Summary~~ ~~and Note 10for more information). Pricing on the remainder of the business is based upon raw material costs and supply/demand dynamics within the markets that the Company competes.~~

Polyester resins, MEG and PTA used in flexible packaging films produced in Brazil are primarily purchased domestically, with other sources available mostly from Asia and the U.S. Given the nature of these products as commodities, pricing is derived from Asian pricing indexes. The volatility of the average quarterly prices for polyester fibers in Asia, which is representative of polyester resin (a primary raw material for Flexible Packaging Films) pricing trends, is shown in the chart below:

~~The volatility of average quarterly prices of PTA and MEG in Asia (raw materials used in the production of polyester resins produced by Flexible Packaging Films) is shown in the chart below:~~

The volatility of quarterly average aluminum prices is shown in the chart below.



Source: Quarterly averages computed using daily Midwest average prices provided by Platts.

From time-to-time, Aluminum Extrusions hedges a portion of its exposure to natural gas price volatility by entering into fixed-price forward purchase contracts with the Company’s natural gas suppliers. The Company estimates that, in an unhedged situation, every $1 per mmBtu per month change in the market price of natural gas has a $79,000 impact on the continuing monthly operating profit in Aluminum Extrusions. The Company has an energy surcharge for its aluminum extrusions business in the U.S. to be applied when the NYMEX natural gas price is in excess of $8.85 per mmBtu.


Source: Quarterly averages computed by Tredegar using monthly NYMEX settlement prices.


Source: Quarterly averages computed by Tredegar using monthly ~~NYMEX settlement prices.~~data provided by IHS, Inc. In February 2020, IHS reflected a 32 cents per pound non-market adjustment based on their estimate of the growth of discounts in prior periods. The 4th quarter 2019 average rate of $0.51 per pound is shown on a pro forma basis as if the non-market adjustment was made in the fourth quarter of 2019.


Source: Quarterly averages computed by Tredegar using monthly data from CMAI Global Index data.


Source: Quarterly averages computed by Tredegar using monthly data from CMAI Global Index data.



Source: Quarterly averages computed by Tredegar using daily closing data provided by Bloomberg.



Source: Quarterly averages computed by Tredegar using daily closing data provided by Bloomberg.

~~Pursuant~~Item 4. Controls and Procedures.

Item 1A. Risk Factors.

~~The imposition of tariffs or duties on imported aluminum products could significantly increase the price of Aluminum Extrusions’ main raw material,~~recent coronavirus (or COVID-19) pandemic, which could adversely ~~impact~~affect our financial condition, results of operations and cash flows. We may face risks related to health epidemics or outbreaks of communicable diseases. The outbreak of such a communicable disease could result in a widespread health crisis that could adversely affect general commercial activity and the economies and financial markets of many countries. For example, COVID-19 has spread across the globe to every country in which the Company does business and is impacting worldwide economic activity. A public health epidemic, including COVID-19, poses the risk that we or our contractors, suppliers, customers and other business partners may be prevented or otherwise adversely affected in the conduct of business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities and by other government mandates or policy changes. For example, our PE Films Pune, India plant was temporarily shut by government mandate and our Aluminum Extrusions Newnan, Georgia plant was temporarily shut twice for disinfecting. We may also face staffing issues if our employees become ill from an epidemic, are subject to epidemic-related “stay-at- home” orders, or absenteeism increases because of fear of epidemic-related health risks. Some Company employees have tested positive for COVID-19, with additional employees absent, pending test results or self-quarantined. An epidemic may also cause a significant reduction in demand for ~~its products.~~ ~~On April 27, 2017, President Trump directed the U.S. Department~~one or more of Commerce to begin an investigation under Section 232 of the Trade Expansion Act regarding the effects on U.S. economic and national security of aluminum imports into the U.S. It is unknown at this time if~~the President will take any action~~our products as a result of a drop in product-specific demand, because of an epidemic’s impact on the ~~Section 232 investigation,~~world economy generally, or for other reasons. For example, our AACOA Aluminum Extrusions plants have seen a significant decline in demand for products they sell to customers who serve markets for consumer durable products, building, construction and ~~if action~~automobiles. For more information on the effect of COVID-19 on our Bonnell Aluminum business, see “The Impact of COVID-19 – Financial Considerations” above. As a result of an epidemic, we may be unable to meet our supply commitments or otherwise fulfill our customers’ needs due to disruptions in our manufacturing and supply arrangements, including as a result of constrained workforce capacity, interruption of raw material supplies, transportation disruptions or a loss or disruption of other key elements of our manufacturing and distribution capability. An epidemic may cause the failure of, or default in performance by, third parties we rely on to supply our manufacturing operations, to process, transport or purchase our products, to finance our operations, and to otherwise provide products and services to the Company in support of our business and operations.While it is ~~taken, what~~not possible at this time to estimate the impact of that action would be on Bonnell. However, the President could impose tariffs on aluminum imports to the U.S. Bonnell Aluminum and other major U.S. aluminum industries are net importers of aluminum raw materials. If high tariffs are imposed on imported aluminum billet purchased by Bonnell, then the aggregate cost of aluminum extrusions produced by Bonnell could rise significantly. Bonnell would expect to be able to pass through the higher aluminum costs to its customers. However, a higher cost for aluminum extrusions could result in product substitutions in place of aluminum extrusions, which could materially and negatively affect Bonnell and other U.S. aluminum extrusion businesses and their results of operations.

~~PE Films is highly dependent on sales associated with its top five customers, the largest of which is P&G.~~ PE Films’ top five customers comprised approximately 29%, 32% and 38% of Tredegar’s consolidated net sales from continuing operations, in 2016, 2015 and 2014, respectively, with net sales to P&G alone comprising approximately 16%, 19% and 24% in 2016, 2015 and 2014, respectively. The loss or significant reduction of sales associated with one or more of these customersany particular epidemic, including COVID-19, could have ~~a material adverse effect~~ on the Company’s ~~business. Other~~business, the extent of that impact would likely be affected by factors ~~that~~outside of our control such as the severity, duration and spread of such an epidemic, the measures taken by the governments of countries affected and the ability of our customers and consumers to access government programs providing liquidity and support during the crisis. The impact of an epidemic on our employees, our customers, our supply chains, demand for our products, our ability to supply customers, our operating costs, and our other business activities, could adversely affect ~~the business include, by way~~our financial condition, results of example, (i) failure by a key customer to achieve success or maintain share in markets in which they sell products containing PE Films’ materials, (ii) key customers rolling out products utilizing technologies developed by others that replace PE Films’ business with such customer, (iii) delays in a key customer rolling out products utilizing new technologies developed by PE Filmsoperations and (iv) operational decisions by a key customer that result in component substitution, inventory reductions and similar changes. While PE Films is undertaking efforts to expand its customer base, there can be no assurance that such efforts will be successful, or that they will offset any delay or loss of sales and profits associated with these large customers.cash flows.

~~In recent years, PE Films lost substantial sales volume due to product transitions and suffered other sales losses associated with various customers (see further discussion in the 2016 Form 10-K,~~ ~~Executive Summary~~, PE Films section). PE Films anticipates further exposure to product transitions and lost business in the case of certain personal care materials that the Company estimates could negatively impact PE Films by $70 million in annual revenue between 2019 and 2021.

PE Films is also facing the risk that, over the next few years, a portion of its film used in surface protection applications will be made obsolete by possible future customer product transitions to less costly alternative processes or materials. If these product transitions were to occur, they could negatively affect future surface protection materials annual operating profit from ongoing operations by an amount estimated to be in the range of up to $5 to $10 million, although the timing and ultimate amount of the possible transitions for surface protection materials are uncertain.

While it continues to identify new business opportunities with its existing customers, PE Films is also working to expand its customer base in order to create long-term growth and profitability by actively competing for new business with new and existing customers across its full product portfolio and introducing new products and/or improvements to existing applications. There is no assurance that these efforts to expand the revenue base and mitigate this or any future loss of sales and profits from significant customers will be successful.

~~PE Films and its customers operate in highly competitive markets~~. PE Films competes on product innovation, quality, price and service, and its businesses and their customers operate in highly competitive markets. Global market conditions continue to exacerbate the Company’s exposure to margin compression due to competitive forces, especially as certain products move into the later stages of their product life cycles. In addition, the changing dynamics of consumer products retailing, including the impact of on-line retailers such as Amazon, is creating price and margin pressure on the customers of PE Films’ personal care business. While PE Films continually works to identify new business opportunities with new and existing customers, primarily through the development of new products with improved performance and/or cost characteristics, there can be no assurances that such efforts will be successful, or that they will offset business lost from competitive dynamics or customer product transitions.

Item 6. Exhibits.


~~Item 6.~~Exhibit Nos.			~~Exhibits.~~



~~Exhibit~~ ~~Nos.~~ 3.1						Amended and Restated Bylaws of Tredegar Corporation, as of March 26, 2020 (filed as Exhibit 3.1 to Tredegar's Current Report on Form 8-K (File No. 1-10258), filed March 30, 2020 and incorporated herein by reference).

~~31.1~~ 10.18						Form of Notice of Stock Award and Stock Award Terms and Conditions.

10.19						Form of Notice of Stock Appreciation Right Grant and Stock Appreciation Right Terms and Conditions.

10.20						Form of Notice of Nonstatutory Stock Option Grant and Nonstatutory Stock Option Terms and Conditions.

31.1						Certification of ~~John D. Gottwald,~~ President and Chief Executive Officer of Tredegar Corporation, pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2						Certification of ~~D. Andrew Edwards,~~ Vice President and Chief Financial Officer of Tredegar Corporation, pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1						Certification of ~~John D. Gottwald,~~ President and Chief Executive Officer of Tredegar Corporation, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2						Certification of ~~D. Andrew Edwards,~~ Vice President and Chief Financial Officer of Tredegar Corporation, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101						XBRL Instance Document and Related Items.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Tredegar Corporation

(Registrant)

Date:

May 11, 2020

~~Tredegar Corporation~~

~~(Registrant)~~

~~Date:~~

~~November 1, 2017~~

/s/ John ~~D. Gottwald~~M. Steitz

John ~~D. Gottwald~~M. Steitz

President and Chief Executive Officer

(Principal Executive Officer)

Date:

~~November 1, 2017~~May 11, 2020

/s/ D. Andrew Edwards

D. Andrew Edwards

Vice President and Chief Financial Officer

(Principal Financial Officer)

Date:

~~November 1, 2017~~May 11, 2020

/s/ Frasier W. Brickhouse, II

Frasier W. Brickhouse, II

Corporate Treasurer and Controller

(Principal Accounting Officer)


	Nine Months Ended September 30,							Three Months Ended March 31,
	2017			2016				2020		2019
Cash flows from operating activities:							Cash flows from operating activities:
Net income	$	56,180		$	22,738
Net income (loss)							Net income (loss)	$	(22,321)	$	19,785
Adjustments for noncash items:							Adjustments for noncash items:
Depreciation	25,072			21,004			Depreciation	7,557		7,168
Amortization of intangibles	4,550			2,965
Amortization of identifiable intangibles							Amortization of identifiable intangibles	758		891
Reduction of right-of-use lease asset							Reduction of right-of-use lease asset	696		632
Goodwill impairment							Goodwill impairment	13,696		—
Deferred income taxes	(104		)	(5,122		)	Deferred income taxes	(9,804)		2,410
Accrued pension and post-retirement benefits	7,645			8,168			Accrued pension and post-retirement benefits	3,567		2,415
(Gain)/loss on investment accounted for under the fair value method	(24,800		)	200
(Gain)/loss on asset impairments and divestitures	50			412
Net (gain)/loss on disposal of assets	412			—
Gain from insurance recoveries	—			(1,634		)
Changes in assets and liabilities, net of effects of acquisitions and divestitures:
(Gain) loss on investment in kaléo accounted for under the fair value method							(Gain) loss on investment in kaléo accounted for under the fair value method	26,100		(17,082)
(Gain) loss on asset impairments and divestitures							(Gain) loss on asset impairments and divestitures	—		421
Net (gain) loss on disposal of assets							Net (gain) loss on disposal of assets	—		(385)

Changes in assets and liabilities:							Changes in assets and liabilities:
Accounts and other receivables	(16,925		)	(4,919		)	Accounts and other receivables	(2,849)		1,595
Inventories	(4,220		)	(5,188		)	Inventories	(6,982)		(6,794)
Income taxes recoverable/payable	(603		)	(4,095		)	Income taxes recoverable/payable	3,478		1,664
Prepaid expenses and other	129			(514		)	Prepaid expenses and other	(294)		1,078
Accounts payable and accrued expenses	8,674			4,857			Accounts payable and accrued expenses	3,588		(2,033)
Lease liability							Lease liability	(741)		(640)
Pension and postretirement benefit plan contributions	(4,642		)	(7,143		)	Pension and postretirement benefit plan contributions	(1,967)		(1,724)
Other, net	2,093			2,818			Other, net	595		1,727
Net cash provided by operating activities	53,511			34,547			Net cash provided by operating activities	15,077		11,128
Cash flows from investing activities:							Cash flows from investing activities:
Capital expenditures	(37,245		)	(30,912		)	Capital expenditures	(4,854)		(12,879)
Acquisition	(87,110		)	—

Proceeds from the sale of assets and other	121			1,399			Proceeds from the sale of assets and other	—		22
Net cash used in investing activities	(124,234		)	(29,513		)	Net cash used in investing activities	(4,854)		(12,857)
Cash flows from financing activities:							Cash flows from financing activities:
Borrowings	173,250			61,000			Borrowings	16,500		23,750
Debt principal payments	(91,250		)	(73,250		)	Debt principal payments	(15,500)		(15,250)
Dividends paid	(10,901		)	(10,834		)	Dividends paid	(4,005)		(3,652)
Debt financing costs	—			(2,509		)
Proceeds from exercise of stock options and other	695			1,948
Net cash provided by (used in) financing activities	71,794			(23,645		)

Repurchase of employee common stock for tax withholdings							Repurchase of employee common stock for tax withholdings	(586)		(815)

Net cash (used in) provided by financing activities							Net cash (used in) provided by financing activities	(3,591)		4,033
Effect of exchange rate changes on cash	1,268			2,811			Effect of exchange rate changes on cash	(2,995)		(399)
Increase (decrease) in cash and cash equivalents	2,339			(15,800		)
Increase in cash & cash equivalents							Increase in cash & cash equivalents	3,637		1,905
Cash and cash equivalents at beginning of period	29,511			44,156			Cash and cash equivalents at beginning of period	31,422		34,397
Cash and cash equivalents at end of period	$	31,850		$	28,356		Cash and cash equivalents at end of period	$	35,059	$	36,302


							March 31,			December 31,
		September 30,		December 31,
(In Thousands)		2017		2016
(In thousands)						(In thousands)		2020			2019
Finished goods	Finished goods	$	21,442	$	16,215	Finished goods		$	23,116		$	24,504
Work-in-process	Work-in-process	10,695		8,590		Work-in-process		13,939			12,328
Raw materials	Raw materials	32,061		23,733		Raw materials		27,079			24,735
Stores, supplies and other	Stores, supplies and other	18,228		17,531		Stores, supplies and other		20,081			19,813
Total	Total	$	82,426	$	66,069	Total		$	84,215		$	81,380


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
	2017		2016			2017		2016			2020		2019
Revenues and other items:										Revenues and other items:
Sales	$	247,121	$	207,702		$	715,494	$	623,569	Sales	$	228,302	$	248,466
Other income (expense), net	34		388			38,055		1,481		Other income (expense), net	(26,211)		17,110
	247,155		208,090			753,549		625,050			202,091		265,576
Costs and expenses:										Costs and expenses:
Cost of goods sold	196,393		166,622			575,614		499,504		Cost of goods sold	175,311		200,653
Freight	8,621		7,153			24,840		21,221		Freight	8,580		9,021
Selling, general and administrative	21,214		17,383			63,438		57,027		Selling, general and administrative	23,169		22,012
Research and development	4,455		4,519			14,028		14,458		Research and development	4,855		4,485
Amortization of intangibles	1,658		1,019			4,550		2,965
Amortization of identifiable intangibles										Amortization of identifiable intangibles	758		891
Pension and postretirement benefits										Pension and postretirement benefits	3,567		2,415
Interest expense	1,757		886			4,579		2,918		Interest expense	555		1,232
Asset impairments and costs associated with exit and disposal activities, net of adjustments	361		1,129			653		2,355		Asset impairments and costs associated with exit and disposal activities, net of adjustments	461		1,056
Goodwill impairment										Goodwill impairment	13,696		—
Total	234,459		198,711			687,702		600,448		Total	230,952		241,765
Income before income taxes	12,696		9,379			65,847		24,602
Income taxes (benefit)	4,422		(2,669		)	9,667		1,864
Net income	$	8,274	$	12,048		$	56,180	$	22,738
Income (loss) before income taxes										Income (loss) before income taxes	(28,861)		23,811
Income tax expense (benefit)										Income tax expense (benefit)	(6,540)		4,026

Earnings per share:

Net income (loss)										Net income (loss)	$	(22,321)	$	19,785

Earnings (loss) per share:										Earnings (loss) per share:

Basic	$	0.25	$	0.37		$	1.71	$	0.69	Basic	$	(0.67)	$	0.60

Diluted	$	0.25	$	0.37		$	1.70	$	0.69	Diluted	$	(0.67)	$	0.60
Shares used to compute earnings per share:
Shares used to compute earnings (loss) per share:										Shares used to compute earnings (loss) per share:
Basic	32,954		32,818			32,945		32,730		Basic	33,313		33,123
Diluted	32,954		32,828			32,952		32,733		Diluted	33,313		33,127
Dividends per share	$	0.11	$	0.11		$	0.33	$	0.33	Dividends per share	$	0.12	$	0.11



(in Thousands)
Accounts receivable	$	6,680
Inventories	10,342
Prepaid expenses and other current assets	240
Property, plant & equipment	32,662
Identifiable intangible assets:
Customer relationships	24,000
Trade names	6,700
Trade payables & accrued expenses	(8,135		)
Total identifiable net assets	72,489
Adjusted Net Purchase Price	82,860
Goodwill	$	10,371



Tredegar Pro Forma Results with Futura Acquisition	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In Thousands, Except Per Share Data)	2017		2016		2017		2016
Sales	$	247,121	$	228,176	$	722,505	$	681,686
Net income	$	8,274	$	13,225	$	55,835	$	25,559
Earnings per share:
Basic	$	0.25	$	0.40	$	1.69	$	0.78
Diluted	$	0.25	$	0.40	$	1.69	$	0.78



(In Thousands)	Severance (a)			Asset Impairments			Other (b)			Total
Balance at January 1, 2017	$	1,854		$	—		$	554		$	2,408
Changes in 2017:
Charges	300			50			303			653
Cash spent	(1,068		)	—			(307		)	(1,375		)
Charges against assets	—			(50		)	—			(50		)
Balance at September 30, 2017	$	1,086		$	—		$	550		$	1,636
(a) Severance primarily includes severance payments associated with the consolidation of North American PE Films manufacturing facilities. (b) Other primarily includes other shutdown-related costs associated with the shutdown and sale of the Company’s aluminum extrusions manufacturing facility in Kentland, Indiana.


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


6.	~~The following table summarizes the after-tax changes in accumulated other comprehensive income (loss) for the nine months ended September 30, 2017:~~



Unaudited (In Thousands)	September 30, 2017		December 31, 2016			September 30, 2017			December 31, 2016
Assets:					Liabilities & Equity:
Cash & short-term investments	$	104,753	$	102,329
Restricted cash	31		31		Current liabilities	$	85,086		$	50,134
Other current assets	39,059		15,391		Long term debt, net	138,305			143,380
Property & equipment	10,399		13,011		Other noncurrent liabilities	807			822
Other long-term assets	494		472		Equity	(69,462		)	(63,102		)
Total assets	$	154,736	$	131,234	Total liabilities & equity	$	154,736		$	131,234


														Pension Benefits						Other Post-Retirement Benefits
	Pension Benefits						Other Post-Retirement Benefits							Three Months Ended March 31,						Three Months Ended March 31,
	Three Months Ended September 30,						Three Months Ended September 30,
(In Thousands)	2017			2016			2017			2016
Service cost	$	29		$	54		$	7		$	8
Interest cost	3,103			3,263			73			67
Expected return on plan assets	(3,743		)	(4,070		)	—			—
Amortization of prior service costs, gains or losses and net transition asset	2,996			3,135			(84		)	(49		)
Net periodic benefit cost	$	2,385		$	2,382		$	(4	)	$	26
	Pension Benefits						Other Post-Retirement Benefits
	Nine Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
(In thousands)													(In thousands)	2020		2019		2020		2019
Service cost	$	145		$	178		$	25		$	29		Service cost	$	—	$	—	$	9	$	8
Interest cost	9,431			9,993			226			236			Interest cost	2,535		3,067		60		73
Expected return on plan assets	(11,216		)	(12,027		)	—			—			Expected return on plan assets	(2,804)		(3,404)		—		—
Amortization of prior service costs, (gains) losses and net transition asset	9,241			9,903			(207		)	(144		)	Amortization of prior service costs, (gains) losses and net transition asset	3,814		2,729		(47)		(58)
Net periodic benefit cost	$	7,601		$	8,047		$	44		$	121		Net periodic benefit cost	$	3,545	$	2,392	$	22	$	23



	Percent of Income Before Income Taxes
Nine Months Ended September 30,	2017		2016
Income tax expense at federal statutory rate	35.0		35.0
Foreign rate differences	1.5		1.1
State taxes, net of federal income tax benefit	1.3		0.7
Changes in estimates related to prior year tax provision	0.5		(1.6	)
Non-deductible expenses	0.5		1.6
Valuation allowance for foreign operating loss carry-forwards	0.4		0.3
Unremitted earnings from foreign operations	0.2		(1.1	)
Valuation allowance for capital loss carry-forwards	—		(0.4	)
Income tax contingency accruals and tax settlements	(0.4	)	1.3
Remitted earnings from foreign operations	(0.6	)	(23.8	)
Research and development tax credit	(0.7	)	(1.8	)
Domestic production activities deduction	(0.9	)	(3.8	)
Foreign investment write-up	(3.5	)	0.1
Settlement of Terphane acquisition escrow	(6.4	)	—
Worthless stock deduction	(12.2	)	—
Effective income tax rate	14.7		7.6



Computations of Adjusted EBITDA, Adjusted EBIT, Leverage Ratio and Interest Coverage Ratio as Defined in the Credit Agreement Along with Related Most Restrictive Covenants as of and for the Twelve Months Ended September 30, 2017 (In Thousands)
Computations of adjusted EBITDA and adjusted EBIT as defined in the Credit Agreement for the twelve months ended September 30, 2017:
Net income (loss)	$	57,908
Plus:
After-tax losses related to discontinued operations	—
Total income tax expense for continuing operations	11,020
Interest expense	5,467
Depreciation and amortization expense for continuing operations	38,126
All non-cash losses and expenses, plus cash losses and expenses not to exceed $10,000, for continuing operations that are classified as unusual, extraordinary or which are related to plant shutdowns, asset impairments and/or restructurings (cash-related of $9,694)	12,625
Charges related to stock option grants and awards accounted for under the fair value-based method	185
Losses related to the application of the equity method of accounting	—
Losses related to adjustments in the estimated fair value of assets accounted for under the fair value method of accounting	—
Minus:
After-tax income related to discontinued operations	—
Total income tax benefits for continuing operations	—
Interest income	(274		)
All non-cash gains and income, plus cash gains and income in excess of $10,000, for continuing operations that are classified as unusual, extraordinary or which are related to plant shutdowns, asset impairments and/or restructurings	(2,826		)
Income related to changes in estimates for stock option grants and awards accounted for under the fair value-based method	—
Income related to the application of the equity method of accounting	—
Income related to adjustments in the estimated fair value of assets accounted for under the fair value method of accounting	(26,600		)
Plus cash dividends declared on investments accounted for under the equity method of accounting	—
Plus or minus, as applicable, pro forma EBITDA adjustments associated with acquisitions and asset dispositions	3,436
Adjusted EBITDA as defined in the Credit Agreement	99,067
Less: Depreciation and amortization expense for continuing operations (including pro forma for acquisitions and asset dispositions)	(40,183		)
Adjusted EBIT as defined in the Credit Agreement	$	58,884
Computations of leverage and interest coverage ratios as defined in the Credit Agreement at September 30, 2017:
Leverage ratio (indebtedness-to-adjusted EBITDA)	1.82x
Interest coverage ratio (adjusted EBIT-to-interest expense)	10.77x
Most restrictive covenants as defined in the Credit Agreement:
Maximum permitted aggregate amount of dividends that can be paid by Tredegar during the term of the Credit Agreement ($100,000 plus 50% of net income generated for each quarter beginning January 1, 2016)	$	140,323
Maximum leverage ratio permitted	4.00
Minimum interest coverage ratio permitted	2.50


~~Item 3.~~	~~Quantitative and Qualitative Disclosures About Market Risk.~~


Percentage of Net Sales from Ongoing Operations Related to Foreign Markets*	Percentage of Net Sales from Ongoing Operations Related to Foreign Markets*								Percentage of Net Sales from Ongoing Operations Related to Foreign Markets*
	Nine Months Ended September 30,									Three Months Ended March 31,
	2017				2016					2020						2019
	Exports From U.S.		Foreign Operations		Exports From U.S.		Foreign Operations			Exports From U.S.		Foreign Operations		Exports From U.S.		Foreign Operations
Canada	5	%	—	%	6	%	—	%	Canada	2	%	—	%	2	%	—	%
Europe	1		9		1		10		Europe	1		7		1		7
Latin America	2		9		—		11		Latin America	1		12		1		12
Asia	9		2		9		3		Asia	10		1		6		1
Total	17	%	20	%	16	%	24	%	Total	14	%	20	%	10	%	20	%
* The percentages for foreign markets are relative to Tredegar’s total net sales from ongoing operations	* The percentages for foreign markets are relative to Tredegar’s total net sales from ongoing operations								* The percentages for foreign markets are relative to Tredegar’s total net sales from ongoing operations