UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

______________

FORM 10-K


x

x

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

For the fiscal year ended December 31, 2008

OR

o

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

For the transition period from _________ to __________

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

For the fiscal year ended December 31, 2009
OR

o           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

TREDEGAR CORPORATION

(Exact name of registrant as specified in its charter)


Virginia

54-1497771  

(State or other jurisdiction

(I.R.S. Employer  

of incorporation or organization)

(I.R.S. Employer
Identification No.)


1100 Boulders Parkway, Richmond, Virginia

23225

(Address of principal executive offices)

(Zip Code)


Registrant’sRegistrant's telephone number, including area code:  804-330-1000


Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class

Name of Each Exchange on Which Registered

Common Stock

New York Stock Exchange

Preferred Stock Purchase Rights

New York Stock Exchange


Securities registered pursuant to Section 12(g) of the Act:  None


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Yes  oNo
x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Yes oNo
x
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 at least the past 90 days. Yes x No o

Yes
x
Noo

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.
YesoNoo

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§(§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’sregistrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [     ].

o.


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):


Large accelerated filero

o

Accelerated filer
x

Non-accelerated filer

o (Do(Do not check if a smaller reporting company)Smaller reporting companyo


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
YesoNox

Yes o No x

Aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 20082009 (the last business day of the registrant’s most recently completed second fiscal quarter): $377,027,070*

$386,068,718*


Number of shares of Common Stock outstanding as of January 31, 2009: 33,909,932 (33,920,5652010: 33,686,100 (33,984,527 as of June 30, 2008)

2009)


*  In determining this figure, an aggregate of 8,272,4655,000,389 shares of Common Stock beneficially owned by Floyd D. Gottwald, Jr., John D. Gottwald, William M. Gottwald and the members of their immediate families has been excluded because the shares are held by affiliates.  The aggregate market value has been computed based on the closing price in the New York Stock Exchange Composite Transactions on June 30, 2008.

2009.


Documents Incorporated By Reference

          Portions of the Tredegar Corporation Proxy Statement for the 2009 Annual Meeting of Shareholders (the “Proxy Statement”) are incorporated by reference into Part III of this Form 10-K. We expect to file our Proxy Statement with the Securities and Exchange Commission (the “SEC”) and mail it to shareholders on or about April 14, 2009.

Documents Incorporated By Reference

Portions of the Tredegar Corporation Proxy Statement for the 2010 Annual Meeting of Shareholders (the “Proxy Statement”) are incorporated by reference into Part III of this Form 10-K.  We expect to file our Proxy Statement with the Securities and Exchange Commission (the “SEC”) and mail it to shareholders on or about April 6, 2010.

Index to Annual Report on Form 10-K
Year Ended December 31, 2008

2009

Part I

Page

Part I

Item 1.

Business

Page

1-3
Item 1A.
Risk Factors
4-7

Item 1.

Business

1-3

Item 1A.

Risk Factors

4-6

Item 1B.

Unresolved Staff Comments

None

Item 2.
Properties
7-8

Item 2.

3.

Legal Proceedings

Properties

6-7

None

Item 3.

Legal Proceedings

None

Item 4.

Submission of Matters to a Vote of Security Holders

None

Part II

Part II

Item 5.

Market for Tredegar’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities

7-10

8-11

Item 6.

Selected Financial Data

10-16

11-17

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17-34

18-36

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

34

36

Item 8.

Financial Statements and Supplementary Data

39-74

41-77

Item 9.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

None

Item 9A.

Controls and Procedures

35

36-37
Item 9B.
Other Information
None

Item 9B.

Part III

Other Information

None

Part III

Item 10.

Directors, Executive Officers and Corporate Governance*

36-37

38-39
Item 11.
Executive Compensation
*

Item 11.

Executive Compensation

*

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*

38

40

Item 13.

Certain Relationships and Related Transactions, and Director Independence*

38

40

Item 14.

Principal Accounting Fees and Services

*

Part IV

Part IV

Item 15.

Exhibits and Financial Statement Schedules

39

41

*

Items 11 and 14 and portions of Items 10, 12 and 13 are incorporated by reference from the Proxy Statement.

*   Items 11 and 14 and portions of Items 10, 12 and 13 are incorporated by reference from the Proxy Statement.



PART I

Item 1.        BUSINESS

Item 1.

BUSINESS


Description of Business


Tredegar Corporation (“Tredegar”), a Virginia corporation incorporated in 1988, is engaged, through its subsidiaries, in the manufacture of plastic films and aluminum extrusions.  The financial information related to Tredegar’s films and continuing aluminum segments and related to geographical areas included in Note 3 to the notes to financial statements is incorporated herein by reference.  Unless the context requires otherwise, all references herein to “Tredegar,” “we,” “us” or “our” are to Tredegar Corporation and its consolidated subsidiaries.


Film Products


Tredegar Film Products Corporation and its subsidiaries (together, “Film Products”) manufacture plastic films, elastics and laminate materials primarily for personal and household care products and packagingsurface protection and surface protectionpackaging applications.  These products are produced at locations in the United States (“U.S.”) and at plants in The Netherlands, Hungary, Italy, China and Brazil.  Film Products competes in all of its markets on the basis of product innovation, quality, price and service.


Personal and Household Care Materials.  Film Products is one of the largest global suppliers of apertured, breathable, elastic and embossed films, and laminate materials for personal care markets, including:


●  

•

Apertured film and nonwoven materials for use as topsheet in feminine hygiene products, baby diapers and adult incontinentincontinence products (including materials sold under the ComfortQuilt®TM, ComfortAireTM, SoftAireTM and ComfortAireFreshFeelTM brand names);

●  

•

Breathable, embossed and elastic materials for use as components for baby diapers, adult incontinentincontinence products and feminine hygiene products (including elastic components sold under the FabriflexFabriFlexTM, StretchTabTM, FlexAireTM, and FlexAireFlexFeelTM brand names); and

●  

•

Absorbent transfer layers for baby diapers and adult incontinentincontinence products sold under the AquiDryTM and AquiSoftTM brand names.


In each of the last three years,2009, personal care products accounted for approximately 40%52% of Tredegar’s consolidated net sales.

sales from continuing operations compared to approximately 40% of consolidated net sales from continuing operations in the preceding two years.


Protective Films. Film Products also makes aperturedproduces single and multi-layer surface protection films breathable barriersold under the UltraMaskTM and ForceFieldTM brand names.  These films and laminates that regulate fluid or vapor transmission. These products are typically used in industrial, medical, agriculturalhigh technology applications, most notably protecting components of flat panel displays, which include liquid crystal display (“LCD”) televisions, monitors and household markets, including disposable mops, facial wipes, filter layersnotebooks, during the manufacturing process.

Packaging Films and Films for personal protective suits, facial masks and landscaping fabric.

Packaging and Protective Films.Other Markets.  Film Products produces a broad line of packaging films with an emphasis on paper products, as well as laminating films for food packaging applications.  We believe these products give our customers a competitive advantage by providing cost savings with thin-gauge films that are readily printable and convertible on conventional processing equipment.  Major end uses include overwrap for bathroom tissue and paper towels andas well as retort pouches.


Film Products also produces singlemakes apertured films, breathable barrier films and multi-layer surface protection films sold under the UltraMask® and ForceFieldTM brand names.laminates that regulate fluid or vapor transmission. These filmsproducts are typically used in high technology applications,industrial, medical, agricultural and household markets, including protecting components of flat panel displaysfilter layers for personal protective suits, facial masks, landscaping fabric and liquid crystal display (“LCD”) televisions during the manufacturing process.construction applications.


Raw Materials.  The primary raw materials used by Film Products are low density, linear low density and high density polyethylene and polypropylene resins, which are obtained from domestic and foreign suppliers at competitive prices.  We believe there will be an adequate supply of polyethylene and polypropylene resins in the immediate
foreseeable future.  Film Products also buys polypropylene-based nonwoven fabrics based on these same resins, and we believe there will be an adequate supply of these materials in the immediateforeseeable future.

Customers.


Customers.  Film Products sells to many branded product producers throughout the world.  Its largest customer is The Procter & Gamble Company (“P&G”).  Net sales to P&G totaled $253 million in 2009, $283 million in 2008, and $259 million in 2007 and $255 million in 2006 (these amounts include film sold to third parties that converted the film into materials used with products manufactured by P&G).


P&G and Tredegar have had a successful long-term relationship based on cooperation, product innovation and continuous process improvement.  The loss or significant reduction in sales associated with P&G would have a material adverse effect on our business.


ResearchIntellectual Property.  We consider patents, licenses and Development and Intellectual Property.trademarks to be of significance for Film Products.  We routinely apply for patents on significant developments in this business.  As of December 31, 2009, Film Products has technical centers in Richmond, Virginia; Terre Haute, Indiana; Chieti, Italy; and Shanghai, China; and holds 199216 issued patents (75(69 of which are issued in the U.S.) and 111108 trademarks (7(6 of which are issued in the U.S.).  Expenditures for research and development (“R&D”) were approximately $11.0 million in 2008, $8.4 million in 2007 and $8.1 million in 2006.Our patents have remaining terms ranging from 1 to 17 years.  We also have licenses under patents owned by third parties.


Aluminum Extrusions


The William L. Bonnell Company, Inc. and its subsidiaries (together, “Aluminum Extrusions”"Aluminum Extrusions") produce soft-alloy aluminum extrusions primarily for building and construction, distribution, transportation, machinery and equipment, electrical, and consumer durables markets.  On February 12, 2008, we sold our aluminum extrusions business in Canada.  All historical results for the Canadian business have been reflected as discontinued operations (see Note 17 to the notes to financial statements for more information).


Aluminum Extrusions manufactures mill (unfinished), anodized (coated) and painted aluminum extrusions for sale directly to fabricators and distributors that use our extrusions to produce window components, curtain walls and storefronts, tub and shower enclosures, industrial machinery and equipment and automotive parts, among other products. Sales are made primarily in the United States, principally east of the Rocky Mountains.  Aluminum Extrusions competes primarily on the basis of product quality, service and price.


Aluminum ExtrusionsExtrusions’ sales volume from continuing operations by market segment over the last three years is shown below:

 

 

 

 

 

 

 

 

% of Aluminum Extrusions Sales Volume
by Market Segment (Continuing Operations)

 

 

2008

 

2007

 

2006

 

 

 

 

 

 

Building and construction:

 

 

 

 

 

 

 

Commercial

 

72

 

65

 

55

 

Residential

 

13

 

17

 

19

 

Distribution

 

5

 

9

 

18

 

Transportation

 

4

 

4

 

3

 

Machinery and equipment

 

2

 

2

 

2

 

Electrical

 

2

 

2

 

2

 

Consumer durables

 

2

 

1

 

1

 

Total

 

100

 

100

 

100

 



 % of Aluminum Extrusions Sales Volume
 by Market Segment (Continuing Operations)
    2009  2008  2007
 Building and construction:      
     Nonresidential               71              72             65
     Residential               14              13             17
 Transportation                 6                4               4
 Distribution                 4                5               9
 Electrical                 2                2               2
 Consumer durables                 2                2               1
 Machinery and equipment                1                2               2
 Total            100            100           100
Raw Materials.  The primary raw materials used by Aluminum Extrusions consist of aluminum ingot, aluminum scrap and various alloys, which are purchased from domestic and foreign producers in open-market purchases and under short-term contracts.  We believe there will be an adequate supply of aluminum and other required raw materials and supplies in the immediateforeseeable future.

Intellectual Property.  Aluminum Extrusions holds two U.S. registered trademarks.

2

General

General

Patents, Licenses and Trademarks. Tredegar considers patents, licenses and trademarks to be of significance for Film Products. We routinely apply for patents on significant developments in this business. Our patents have remaining terms ranging from 1 to 19 years. We also have licenses under patents owned by third parties.

Research and Development.  Tredegar’s spending for research and development (“R&D&D”) activities in 2009, 2008 2007 and 20062007 was related to Film Products.  Film Products has technical centers in Richmond, Virginia; Terre Haute, Indiana; and Chieti, Italy.  R&D spending was approximately $11.9 million in 2009, $11.0 million in 2008 and $8.4 million in 2007 and $8.1 million in 2006.2007.


Backlog.  Backlogs are not material to our operations in Film Products.  Overall backlog for continuing operations in Aluminum Extrusions at December 31, 20082009 was down by approximately 47%24% compared with December 31, 2007.2008.  The demand for extruded aluminum shapes is down significantly in most market segments, which we believe is cyclical in nature.  Aluminum extrusion volume from continuing operations decreased to 91.5 million pounds in 2009, down 32.8% from 136.2 million pounds in 2008,2008.  Aluminum extrusion volume was down 12.6% in 2008 from 155.8 million pounds in 2007. Aluminum extrusion volume was down 15.9% in 2007 from 185.2 million pounds in 2006.  Shipments declined in most markets.  Shipments in non-residential construction, which comprised approximately 72%71% of total volumevol ume in 2008,2009, declined by approximately 2.7%34% in 20082009 compared to 2007.2008.


Government Regulation.  Laws concerning the environment that affect or could affect our domestic operations include, among others, the Clean Water Act, the Clean Air Act, the Resource Conservation Recovery Act, the Occupational Safety and Health Act, the National Environmental Policy Act, the Toxic Substances Control Act, the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”("CERCLA"), as amended, regulations promulgated under these acts, and any other federal, state or local laws or regulations governing environmental matters.  At December 31, 2008,2009, we believe that we were in substantial compliance with all applicable environmental laws, regulations and permits. In orderord er to maintain substantial compliance with such standards, we may be required to incur expenditures, the amounts and timing of which are not presently determinable but which could be significant, in constructing new facilities or in modifying existing facilities.


Employees.  Tredegar employed approximately 2,2002,000 people in continuing operations at December 31, 2008.2009.


Available Information and Corporate Governance Documents.Our Internet address is www.tredegar.com.  We make available, free of charge through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the SEC.  Information filed electronically with the SEC can be accessed on its website at www.sec.gov.  In addition,additio n, our Corporate Governance Guidelines, Code of Conduct and the charters of our Audit, Executive Compensation and Nominating and Governance Committees are available on our website and are available in print, without charge, to any shareholder upon request by contacting Tredegar’s Corporate Secretary at 1100 Boulders Parkway, Richmond, Virginia 23225.  The information on or that can be accessed through our website is not, and shall not be deemed to be, a part of this report or incorporated into other filings we make with the SEC.



3

Item 1A.     RISK FACTORS

Item 1A.

RISK FACTORS

There are a number of risks and uncertainties that can have a material effect on the operating results of our businesses and our financial condition.  TheseThe following risk factors include, but are not limitedshould be considered, in addition to the following:

Generalother information included in the Form 10-K, when evaluating Tredegar and our businesses:


General

●  

•

Our future performance is influenced by costs incurred by our operating companies including, for example, the cost of energyraw materials and raw materials.energy.  These costs include, without limitation, the cost of resin (the raw material on which Film Products primarily depends), aluminum (the raw material on which Aluminum Extrusions primarily depends), natural gas (the principal fuel necessary for Aluminum Extrusions’ plants to operate), electricity and diesel fuel.  Resin, aluminum and natural gas prices are extremely volatile as shown in the charts on pages 30-31.32-33.  We attempt to mitigate the effects of increased costs through price increases and contractual pass-through provisions, but there are no assurances that higher prices can effectively be passed through to our customers or that we will be able to offset fully or on a timely basis the effects of higher raw material costs through price increases or pass-through arrangements.  Further, there is no assurance that cost control efforts will be sufficient to offset any additional future declines in revenue or increases in energy, raw material, energy or other costs.


●  

If we are unable to obtain capital at a reasonable cost, we may not be able to expand our operations and implement our growth strategies.  Our five year, $300 million unsecured revolving credit facility expires in December 2010.  Our ability to invest in our businesses and make acquisitions with funds in excess of the net cash flows generated from ongoing operations requires access to capital markets.  In recent months, there has been uncertainty over how quickly the global economy will recover from its current recession.  In addition, many banks and other financial institutions had to enter into forced liquidation sales and/or announced material write-downs related to their exposure to mortgage-backed securities, high leverage loans and other financial instruments in recent years.  These events, along with other factors, have led to a tightening in the credit markets for many borrowers.  Our ability to expand our operations and implement our growth strategies could be negatively impacted if we are unable to obtain financing at a reasonable cost.

•

●  

Our substantial international operations subject us to risks of doing business in foreign countries, which could adversely affect our business, financial condition and results of operations. Risks inherent in international operations include the following, by way of example: changes in general economic conditions, potential difficulty enforcing agreements and intellectual property rights, staffing and managing widespread operations, restrictions on foreign trade or investment, restrictions on the repatriation of income, fluctuations in exchange rates, imposition of additional taxes on our foreign income, nationalization of private enterprises and unexpected adverse changes in foreign laws and regulatory requirements.

•

Non-compliance with any of the covenants in our $300 million credit facility could result in all outstanding debt under the agreement becoming due, which could have an adverse effect on our financial condition and liquidity.  The credit agreement governing our credit facility contains restrictions and financial covenants that could restrict our financial flexibility.  OurWhile we had no outstanding borrowings on our $300 million credit facility at December 31, 2009, our failure to comply with these covenants in a future period could result in an event of default, which if not cured or waived, could have an adverse effect on our financial condition and liquidity.liquidity if borrowings are material.


●  

•

Our investments (primarily $10 million investment in Harbinger and $7.5 million investment in a drug delivery company) have high risk.  Harbinger Capital Partners Special Situations Fund, L.P. (“Harbinger”) is a fund that seeks to achieve superior absolute returns by participating primarily in medium to long-term investments involving distressed/high yield debt securities, special situation equities and private loans and notes. The fund is a highly speculative investment and subject to limitations on withdrawal.  The drug delivery company may need several more rounds of financing to have the opportunity to complete product development and bring its technology to market, which may never occur.  There is no secondary market for selling ouro ur interests in Harbinger or the drug delivery company.  As a result, we willmay be required to bear the risk of our investments in Harbinger and the drug delivery company for an indefinite period of time.


●

•

Loss of certain key officers or employees could adversely affect our business.  We depend on our senior executive officers and other key personnel to run our business. The loss of any of these officers or other key personnel could materially adversely affect our operations. Competition for qualified employees among companies that rely heavily on engineering and technology is intense, and the loss of qualified employees or an inability to attract, retain and motivate additional highly skilled employees required for the operation and

4
expansion of our business could hinder our ability to improve manufacturing operations, conduct research activities successfully and develop marketable products.

●  

•

VolatilityTredegar is subject to increased credit risk that is inherent with an economic downturn and disruption of financial markets could affect accessefforts to credit. Our abilityincrease market share as we attempt to invest inbroaden our businesses and make acquisitions with funds in excesscustomer base.  In the event of the netdeterioration of operating cash flow generatedflows or diminished borrowing capacity of our customers, the collection of trade receivable balances may be delayed or deemed unlikely.  The operations of our customers for Aluminum Extrusions generally follow the cycles within the economy, resulting in greater credit risk from ongoing operations requires accessdiminished operating cash flows and higher bankruptcy rates when the economy is in recession.  In addition, Films Products’ credit risk exposure could increase as efforts to capital markets. Over recent months, many banks and other financial institutions have had to




enter into forced or liquidation sales and/or announced multi-billion dollar write-downs related to their exposure to mortgage-backed securities, high leverage loans and other financial instruments. Further, there is uncertainty over the future of the global economy. This, along with other factors, has ledexpand its business may lead to a tighteningbroader, more diverse customer base.


●  
Tredegar is subject to various environmental laws and regulations and could become exposed to substantial liabilities and costs associated with such laws.  We are subject to various environmental proceedings and could become subject to additional proceedings in the credit marketsfuture.  In the case of known potential liabilities, it is management’s judgment that the resolution of ongoing and/or pending environmental remediation obligations is not expected to have a material adverse effect on our consolidated financial condition or liquidity.  In any given period or periods, however, it is possible such proceedings or matters could have a material effect on the results of operations.  Changes in environmental laws and regulations, or their appl ication, including, but not limited to, those relating to global climate change, could subject us to significant additional capital expenditures and operating expenses. Moreover, future developments in federal, state, local and international environmental laws and regulations are currently especially difficult to predict.  Environmental laws have become and are expected to continue to become increasingly strict.  As a result, we will be subject to new environmental laws and regulations. However, any such changes are uncertain and, therefore, it is not possible for certain borrowers. If weus to predict with certainty the amount of additional capital expenditures or operating expenses that could be necessary for compliance with respect to any such changes.

●  
An inability to renegotiate one of our collective bargaining agreements could adversely affect our financial results.  Some of our employees are unable to obtain capital at a reasonable cost, werepresented by labor unions under various collective bargaining agreements with varying durations and expiration dates. Tredegar may not be able to expandsatisfactorily renegotiate collective bargaining agreements when they expire. In addition, existing collective bargaining agreements may not prevent a strike or work stoppage at our operationsfacilities in the future.  Any such work stoppages (or potential work stoppages) could negatively impact our ability to manufacture our products and implement our growth strategies.

adversely affect results of operations.

Film Products


●  

•

Film Products is highly dependent on sales associated with one customer, P&G.  P&G comprised approximately 33%40% of ourTredegar’s consolidated net sales from continuing operations in 2009, 33% in 2008 and 29% in 2007 and 28% in 2006.2007.  The loss or significant reduction of sales associated with P&G would have a material adverse effect on our business.  Other P&G-related factors that could adversely affect our business include, by way of example, (i) failure by P&G to achieve success or maintain share in markets in which P&G sells products containing our materials, (ii) operational decisions by P&G that result in component substitution, inventory reductions and similar changes,  (iii) delays in P&G rolling out products utilizingutil izing new technologies developed by us and (iv) P&G rolling out products utilizing technologies developed by others that replaces our business with P&G.  While we have undertaken efforts to expand our 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 P&G.


●  

•

Growth of Film Products depends on our ability to develop and deliver new products at competitive prices.  Personal care, surface protection and packaging products are now being made with a variety of new materials and the overall cycle for changing materials has accelerated.  While we have substantial technical resources, there can be no assurance that our new products can be brought to market successfully, or if brought to market successfully, at the same level of profitability and market share of replaced films.  A shift in customer preferences away from our technologies, our inability to develop and deliver new profitable products, or delayed acceptance of our new products in domestic or foreign markets, could have a material adverse effect on our
5
business.  In the long term, growth will depend on our ability to provide innovative materials at a cost that meets our customers’ needs.

●  

•

Continued growth in Film Products’Products' sale of high value protective film products is not assured.A shift in our customers’customers' preference to new or different products or new technology that displaces flat panel displays that currently utilize our protective films could have a material adverse effect on our salesales of protective films.  Similarly, a decline in consumer demand for notebook computers or LCD monitors or a decline in the rate of growth in purchases of LCD televisionsfor flat panel displays could have a material adverse effect on protective film sales.

●  

Our substantial international operations subject us to risks of doing business in countries outside the United States, which could adversely affect our business, financial condition and results of operations.  Risks inherent in international operations include the following, by way of example: changes in general economic conditions, potential difficulty enforcing agreements and intellectual property rights, staffing and managing widespread operations and the challenges of complying with a wide variety of laws and regulations, restrictions on international trade or investment, restrictions on the repatriation of income, fluctuations in exchange rates, imposition of additional taxes on our income generated outside the U.S., nationalization of private enterprises and un expected adverse changes in international laws and regulatory requirements.

•

●  

Our inability to protect our intellectual property rights or our infringement of the intellectual property rights of others could have a significant adverse impact on Film Products.Film Products operates in a field where our significant customers and competitors have substantial intellectual property portfolios.  The continued success of this business depends on our ability not only to protect our own technologies and trade secrets, but also to develop and sell new products that do not infringe upon existing patents or threaten existing customer relationships.  An unfavorable outcome in any intellectual property litigation or similar proceeding could have a material adverse effect on Film Products.


●

The recent economic downturn could have a disruptive impact on our supply chain. Certain raw materials used in manufacturing our products are available from a single supplier, and we may not be able to quickly or inexpensively re-source to another supplier.  The risk of damage or disruption to our supply chain has been exacerbated during the recent economic recession as different suppliers have consolidated their product portfolios or experienced financial distress.  Failure to take adequate steps to effectively manage such events, which are intensified when a product is sourced from a single supplier or location, could adversely affect our business and results of operations, as well as require a dditional resources to restore our supply chain.

•

●  

As Film Products expands its personal care business, we have greater credit risk that is inherent in broadening our customer base.

•

Failure of our customers to achieve success or maintain market share could adversely impact sales and operating margins.  Our products serve as components for various consumer products sold worldwide.  Our customers’ ability to successfully develop, manufacture and market its products is integral to our success.


Aluminum Extrusions


●  

•

Sales volume and profitability of Aluminum Extrusions is cyclical and highly dependent on economic conditions of end-use markets in the United States, particularly in the construction, distribution and



transportation industries.  Our market segments are also subject to seasonal slowdowns.  Because of the high degree of operating leverage inherent in our operations (generally constant fixed costs until full capacity utilization is achieved), the percentage drop in operating profits in a cyclical downturn will likely exceed the percentage drop in volume.  Any benefits associated with cost reductions and productivity improvements may not be sufficient to offset the adverse effects on profitability from pricing and margin pressure and higher bad debts (including a greater chance of loss associated with defaults on fixed-price forward sales contracts with our customers) that usually accompany a downturn.  In addition, higher energy costs can further reduce profits unless offset by price increases or cost reductions and productivity improvements.

Currently, there is uncertainty surrounding the extent and timing of recovery from the current economic recession.  There can be no assurance as to the extent and timing of the recovery of sales volumes and profits for
6

Aluminum Extrusions, especially since there can be a lag in the recovery of its end-use markets in comparison to the overall economic recovery.

•

●  

The markets for our products are highly competitive with product quality, service, delivery performance and price being the principal competitive factors.  Aluminum Extrusions has approximately 850975 customers associated with its continuing operations that are in a variety of end-use markets within the broad categories of building and construction, distribution, transportation, machinery and equipment, electrical and consumer durables.  No single customer exceeds 5% of Aluminum Extrusions’Extrusions' net sales.  Due to the diverse customer mix across many end-use markets, we believe the industry generally tracks the real growth of the overall economy.  Future success and prospects depend on our ability to retain existing customers and participate in overall industry cross-cycle growth.


During improving economic conditions, excess industry capacity is absorbed and pricing pressure becomes less of a factor in many of our end-use markets.  Conversely, during an economic slowdown, excess industry capacity often drives increased pricing pressure in many end-use markets as competitors protect their position with key customers.  Because the business is susceptible to these changing economic conditions, Aluminum Extrusions targets complex, customized, service-intensive business with more challenging requirements which is competitively more defensible compared to higher volume, standard extrusion applications.


Foreign imports,Imports into the U.S., primarily from China, represent a portion of the U.S. aluminum extrusion market. Foreign competition to datemarket, and increased significantly in 2009.  This trend has been primarily large volume, standard extrusion profiles that impact somethe potential of our less strategic end-use markets. Marketfurther exacerbating a very competitive market, amplifying market share erosion in other end-use markets remains possible.

There can be no assurance that we will be able to maintain current margins and profitability. Our continued success and prospects depend on our ability to retain existing customers and participate in overall industry cross-cycle growth.

pricing pressures.


Item 1B.     UNRESOLVED STAFF COMMENTS

None.

Item 2.        PROPERTIES

General

Item 1B.

UNRESOLVED STAFF COMMENTS

None.

Item 2.

PROPERTIES

General

Most of the improved real property and the other assets used in our operations are owned, and none of the owned property is subject to an encumbrance that is material to our consolidated operations.  We consider the plants, warehouses and other properties and assets owned or leased by us to be in generally good condition.


We believe that the capacity of our plants is adequate to meet our immediate needs.  Our plants generally have operated at 50-95%50-90% of capacity.  Our corporate headquarters, which is leased, is located at 1100 Boulders Parkway, Richmond, Virginia 23225.



7

Our principal plants and facilities are listed below:




Film Products

Film Products

Locations in the United States

Locations in Foreign Countries

Principal Operations

U.S.

Lake Zurich, Illinois

Pottsville, Pennsylvania
Red Springs, North Carolina (leased)
Richmond, Virginia (technical center) (leased)
Terre Haute, Indiana
    (technical center and
    production facility)

Locations Outside the U.S.
Chieti, Italy (technical center)

     (leased)
Guangzhou, China
Kerkrade, The Netherlands
Pune, India (under construction)
Rétság, Hungary
Roccamontepiano, Italy
São Paulo, Brazil
Shanghai, China

Principal Operations
Production of plastic films and

laminate materials

Aluminum Extrusions

Pottsville, Pennsylvania

Guangzhou, China

laminate materials

Red Springs, North Carolina

Kerkrade, The Netherlands

(leased)

Rétság, Hungary

Richmond, Virginia (technical

Roccamontepiano, Italy

center) (leased)

São Paulo, Brazil

Terre Haute, Indiana

Shanghai, China

(technical center and

production facility)

Aluminum Extrusions

Locations in the United States

U.S.
Carthage, Tennessee
Kentland, Indiana
Newnan, Georgia

Locations in Canada

Principal Operations

Carthage, Tennessee

All locations in Canada were part of the sale on February 12, 2008, of the aluminum extrusions business in Canada (see Note 17 to the notes to financial statements for more information)

Principal Operations
Production of aluminum extrusions, fabrication and finishing

Kentland, Indiana

Newnan, Georgia



Item 3.       LEGAL PROCEEDINGS
                    None.

Item 3.

LEGAL PROCEEDINGS

None.

Item 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.


        None.

PART II
Item 5.       MARKET FOR TREDEGAR’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS

Item 5.

MARKET FOR TREDEGAR’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Prices of Common Stock and Shareholder Data


Our common stock is traded on the New York Stock Exchange (“NYSE”) under the ticker symbol TG.  We have no preferred stock outstanding.  There were 33,909,93233,887,550 shares of common stock held by 3,3563,620 shareholders of record on December 31, 2008.

2009.

The following table shows the reported high and low closing prices of our common stock by quarter for the past two years.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2008

 

2007

 

 

 

 

 

 

 

High

 

Low

 

High

 

Low

 

 

 

 

 

 

 

First quarter

 

$

18.56

 

$

13.13

 

$

24.44

 

$

21.18

 

Second quarter

 

 

19.49

 

 

14.19

 

 

24.45

 

 

20.57

 

Third quarter

 

 

20.59

 

 

13.38

 

 

22.43

 

 

16.25

 

Fourth quarter

 

 

18.68

 

 

11.41

 

 

18.27

 

 

13.33

 

       
  2009  2008 
  High  Low  High  Low 
 First quarter $18.68  $14.43  $18.56  $13.13 
 Second quarter  17.99   12.79   19.49   14.19 
 Third quarter  15.82   13.07   20.59   13.38 
 Fourth quarter  15.93   13.40   18.68   11.41 
8

                    The closing price of our common stock on February 27, 200926, 2010 was $16.70.

$16.75.


Dividend Information


                    We have paid a dividend every quarter since becoming a public company in July 1989.  During 2009, 2008 2007 and 2006,2007, our quarterly dividend was 4 cents per share.


All decisions with respect to the declaration and payment of dividends will be made by the Board of Directors in its sole discretion based upon earnings, financial condition, anticipated cash needs, restrictions in our credit agreement and other such other considerations as the Board deems relevant.  See Note 8 beginning on page 5761 for the restrictions contained in our credit agreement related to minimum shareholders’ equity required and aggregate dividends permitted.


Issuer Purchases of Equity Securities


On January 7, 2008, we announced that our board of directors approved a share repurchase program whereby management is authorized at its discretion to purchase, in the open market or in privately negotiated transactions, up to 5 million shares of Tredegar’s outstanding common stock.  The authorization has no time limit.  This share repurchase program replaced our previous share repurchase authorization announced on August 8, 2006.


Under these standing authorizations, we purchased 105,497 shares in 2009 and approximately 1.1 million shares in 2008 and 4.8 million shares in 2007 of our stock in the open market at an average price of $14.88$14.44 and $16.00$14.88 per share, respectively. During 2006, we did not purchase any shares of our common stock.

The table below summarizes share repurchase activity under each planthe current program by month during 20082009 and 2007:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average
Price Paid
Per Share
Before
Broker
Commissions

 

 

 

 

 

Maximum Number of Shares at
End of Period that May Yet be
Purchased Under:

 

 

 

 

 

 

Total Number of Shares
Purchased as Part of:

 

 

 

 

Total
Number of
Shares
Purchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

August 2006
Program (a)

 

January 2008
Program (b)

 

August 2006
Program (a)

 

January 2008
Program (b)

 

Period

 

 

 

 

 

 

 

January - July 2007

 

 

—

 

$

—

 

 

—

 

 

—

 

 

5,000,000

 

 

—

 

August 2007

 

 

687,100

 

 

17.25

 

 

687,100

 

 

—

 

 

4,312,900

 

 

—

 

September 2007

 

 

1,005,600

 

 

17.03

 

 

1,692,700

 

 

—

 

 

3,307,300

 

 

—

 

October 2007

 

 

518,800

 

 

17.32

 

 

2,211,500

 

 

—

 

 

2,788,500

 

 

—

 

November 2007

 

 

1,236,900

 

 

14.13

 

 

3,448,400

 

 

—

 

 

1,551,600

 

 

—

 

December 2007

 

 

1,385,100

 

 

15.73

 

 

4,833,500

 

 

—

 

 

166,500

 

 

—

 

January 2008

 

 

66,500

 

 

15.86

 

 

4,900,000

 

 

—

 

 

—

 

 

5,000,000

 

February 2008

 

 

16,300

 

 

15.38

 

 

—

 

 

16,300

 

 

—

 

 

4,983,700

 

March 2008

 

 

386,500

 

 

15.44

 

 

—

 

 

402,800

 

 

—

 

 

4,597,200

 

April 2008

 

 

—

 

 

—

 

 

—

 

 

402,800

 

 

—

 

 

4,597,200

 

May 2008

 

 

311,800

 

 

14.84

 

 

—

 

 

714,600

 

 

—

 

 

4,285,400

 

June 2008

 

 

69,400

 

 

14.23

 

 

—

 

 

784,000

 

 

—

 

 

4,216,000

 

July 2008

 

 

253,600

 

 

13.87

 

 

—

 

 

1,037,600

 

 

—

 

 

3,962,400

 

August - December 2008

 

 

—

 

 

—

 

 

—

 

 

1,037,600

 

 

—

 

 

3,962,400

 

(a) On August 8, 2006, our board of directors approved a share repurchase program authorizing management at its discretion to purchase, in the open market or in privately negotiated transactions, up to 5 million shares of our outstanding common stock.

(b) On January 7, 2008, our board of directors approved a share repurchase program authorizing management at its discretion to purchase, in the open market or in privately negotiated transactions, up to 5 million shares of our outstanding common stock. This share repurchase program replaces Tredegar’s previous share repurchase authorization described in (a) above.

2008:

         
 
Period
Total
Number of
Shares
Purchased
 
Average
Price Paid
Per Share
Before
Broker
Commissions
 
Total
Cumulative
Number
of Shares
Purchased:
 
Maximum
Number of
Shares at
End of Period
that May Yet be
Purchased:
 
January 2008- $- -  5,000,000 
February 200816,300  15.38 16,300  4,983,700 
March 2008386,500  15.44 402,800  4,597,200 
April 2008-  - 402,800  4,597,200 
May 2008311,800  14.84 714,600  4,285,400 
June 200869,400  14.23 784,000  4,216,000 
July 2008253,600  13.87 1,037,600  3,962,400 
August 2008 - July 2009-  - 1,037,600  3,962,400 
August 200966,737  14.59 1,104,337  3,895,663 
September 200938,760  14.13 1,143,097  3,856,903 
October 2009 - December 2009-  - 1,143,097  3,856,903 
           
See page 31 of the Financial Condition section of Management's Discussion and Analysis of Financial Condition and Results of Operations for additional share repurchases from January 1, 2010 through February 26, 2010.
 
  
9

Annual Meeting


Our annual meeting of shareholders will be held on May 19, 2009,18, 2010, beginning at 9:00 a.m. EDT at Lewis Ginter Botanical Garden, 1800 Lakeside Avenue,the Jepson Alumni Center of the University of Richmond, Virginia, 23228.49 Crenshaw Way, Richmond, Virginia.  We expect to mail formal notice of the annual meeting, proxies and proxy statements to shareholders on or about April 14, 2009.

6, 2010.


Comparative Tredegar Common Stock Performance


The following graph compares cumulative total shareholder returns for Tredegar, the S&P SmallCap 600 Stock Index (an index comprised of companies with market capitalizations similar to Tredegar) and the Russell 2000 Index for the five years ended December 31, 2008.2009.  Tredegar is part of both the S&P SmallCap 600 Index and Russell 2000 Index.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Tredegar Corporation The S&P SmallCap 600 Index
And The Russell 2000 Index

*$100 invested on 12/31/03 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.

Copyright© 2009 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
Copyright© 2009 Dow Jones & Co. All rights reserved.


10

Inquiries

Inquiries

Inquiries concerning stock transfers, dividends, dividend reinvestment, consolidating accounts, changes of address, or lost or stolen stock certificates should be directed to:

National City Bank


Dept. 5352
Corporate Trust Operations
P.O. Box 92301
Cleveland, Ohio 44101-4301
Computershare Investor Services
250 Royall Street
Canton, MA  02021
Phone:  800-622-6757
E-mail:  shareholder.inquiries@nationalcity.com

web.queries@computershare.com


All other inquiries should be directed to:


Tredegar Corporation
Investor Relations Department
1100 Boulders Parkway
Richmond, Virginia 23225
Phone:  800-411-7441
E-mail:  invest@tredegar.com
Web site:  www.tredegar.com


Quarterly Information


We do not generate or distribute quarterly reports to shareholders.  Information on quarterly results can be obtained from our website.  In addition, we file quarterly, annual and other information electronically with the SEC, which can be accessed on its website at www.sec.gov.


Legal Counsel

Independent Registered Public Accounting Firm

Hunton & Williams LLP

Richmond, Virginia

PricewaterhouseCoopers LLP

Richmond, Virginia

Richmond, Virginia



Item 6.        SELECTED FINANCIAL DATA

Item 6.

SELECTED FINANCIAL DATA

The tables that follow on pages 11-1612-17 present certain selected financial and segment information for the five years ended December 31, 2008.

2009.

11
 FIVE-YEAR  SUMMARY                    
 Tredegar Corporation and Subsidiaries                    
                     
 Years Ended December 31 2009   2008   2007   2006   2005  
 (In Thousands, Except Per-Share Data)                    
                     
 Results of Operations (a):                    
 Sales $648,613   $883,899   $922,583   $937,561   $808,464  
 Other income (expense), net  8,464  (c)  10,341  (d)  1,782  (e)  1,444  (f)  (2,211) (g)
   657,077    894,240    924,365    939,005    806,253  
 Cost of goods sold  516,933  (c)  739,721  (d)  761,509  (e)  779,376  (f)  672,465  (g)
 Freight  16,085    20,782    19,808    22,602    20,276  
 Selling, general & administrative expenses  60,481    58,699    68,501    64,082    61,007  (g)
 Research and development expenses  11,856    11,005    8,354    8,088    8,982  
 Amortization of intangibles  120    123    149    149    299  
 Interest expense  783    2,393    2,721    5,520    4,573  
 Asset impairments and costs associated                         
 with exit and disposal activities  2,950  (c)  12,390  (d)  4,027  (e)  4,080  (f)  15,782  (g)
 Goodwill impairment charge  30,559  (b)  -    -    -    -  
   639,767    845,113    865,069    883,897    783,384  
 Income from continuing operations                         
 before income taxes  17,310    49,127    59,296    55,108    22,869  
 Income taxes  18,663  (c)  19,486  (d)  24,366    19,791  (f)  9,497  
 Income (loss) from continuing operations (a)  (1,353)   29,641    34,930    35,317    13,372  
 Discontinued operations (a):                         
 Income (loss) from aluminum extrusions                         
 business in Canada  -    (705)   (19,681)   2,884    2,857  
 Net income (loss) $(1,353)  $28,936   $15,249   $38,201   $16,229  
                          
 Diluted earnings (loss) per share:                         
 Continuing operations (a) $(.04)  $.87   $.90   $.91   $.35  
 Discontinued operations (a)  -    (.02)   (.51)   .07    .07  
 Net income (loss) $(.04)  $.85   $.39   $.98   $.42  
                          
Refer to notes to financial tables on page 17.                    

12


 FIVE-YEAR  SUMMARY               
 Tredegar Corporation and Subsidiaries               
                
 Years Ended December 31 2009  2008  2007  2006  2005 
 (In Thousands, Except Per-Share Data)               
                
 Share Data:               
 Equity per share $12.66  $12.40  $14.13  $13.15  $12.53 
 Cash dividends declared per share  .16   .16   .16   .16   .16 
 Weighted average common shares outstanding                    
 during the period  33,861   33,977   38,532   38,671   38,471 
 Shares used to compute diluted earnings (loss)                    
 per share during the period  33,861   34,194   38,688   38,931   38,597 
 Shares outstanding at end of period  33,888   33,910   34,765   39,286   38,737 
 Closing market price per share:                    
 High $18.68  $20.59  $24.45  $23.32  $20.19 
 Low  12.79   11.41   13.33   13.06   11.76 
 End of year  15.82   18.18   16.08   22.61   12.89 
 Total return to shareholders (h)  (12.1)  %  14.1%  (28.2)  %  76.6%  (35.4)  %
                     
 Financial Position:                    
 Total assets $596,279  $610,632  $784,478  $781,787  $781,758 
 Cash and cash equivalents  90,663   45,975   48,217   40,898   23,434 
 Debt  1,163   22,702   82,056   62,520   113,050 
 Shareholders' equity (net book value)  429,072   420,416   491,328   516,595   485,362 
 Equity market capitalization (i)  536,108   616,484   559,021   888,256   499,320 
                     
 Refer to notes to financial tables on page 17.                    

13

 SEGMENT  TABLES           
 Tredegar Corporation and Subsidiaries           
            
 Net Sales (j)           
            
 Segment 2009 2008 2007 2006 2005 
 (In Thousands)           
            
 Film Products $455,007 $522,839 $530,972 $511,169 $460,277 
 Aluminum Extrusions  177,521  340,278  371,803  403,790  327,659 
 AFBS (formerly Therics)  -  -  -  -  252 
 Total net sales  632,528  863,117  902,775  914,959  788,188 
 Add back freight  16,085  20,782  19,808  22,602  20,276 
 Sales as shown in Consolidated                
 Statements of Income $648,613 $883,899 $922,583 $937,561 $808,464 
                 
                 
 Identifiable Assets                
                 
 Segment  2009  2008  2007  2006  2005 
 (In Thousands)                
                 
 Film Products $371,639 $399,895 $488,035 $498,961 $479,286 
 Aluminum Extrusions  82,429  112,259  115,223  128,967  130,448 
 AFBS (formerly Therics)  1,147  1,629  2,866  2,420  2,759 
 Subtotal  455,215  513,783  606,124  630,348  612,493 
 General corporate  50,401  50,874  74,927  30,113  61,905 
 Cash and cash equivalents  90,663  45,975  48,217  40,898  23,434 
 Identifiable assets from continuing operations  596,279  610,632  729,268  701,359  697,832 
 Discontinued operations (a):                
 Aluminum extrusions business in Canada  -  -  55,210  80,428  83,926 
 Total $596,279 $610,632 $784,478 $781,787 $781,758 
                 
Refer to notes to financial tables on page 17.             
14
 SEGMENT  TABLES                    
 Tredegar Corporation and Subsidiaries                    
                     
 Operating Profit                    
                     
 Segment 2009   2008   2007   2006   2005  
 (In Thousands)                    
                     
 Film Products:                    
 Ongoing operations $64,379   $53,914   $59,423   $57,645   $44,946  
 Plant shutdowns, asset impairments                         
 and restructurings, net of gains on                         
 sale of assets and related income from                         
 LIFO inventory liquidations  (1,846) (c)  (11,297) (d)  (649) (e)  221  (f)  (3,955) (g)
 Aluminum Extrusions:                         
 Ongoing operations  (6,494)   10,132    16,516    18,302    17,084  
 Plant shutdowns, asset impairments,                         
 restructurings and other  (639) (c)  (687) (d)  (634) (e)  (1,434) (f)  (993) (g)
 Goodwill impairment charge  (30,559) (b)  -    -    -    -  
 AFBS (formerly Therics):                         
 Ongoing operations  -    -    -    -    (3,467) 
 Loss on investment in Therics, LLC  -    -    -    (25)   (145) 
 Gain on sale of investments in Theken                         
 Spine and Therics, LLC  1,968  (c)  1,499  (d)  -    -    -  
 Plant shutdowns, asset impairments,                         
 restructurings and other  -    -    (2,786) (e)  (637) (f)  (10,318) (g)
 Total  26,809    53,561    71,870    74,072    43,152  
 Interest income  806    1,006    1,212    1,240    586  
 Interest expense  783    2,393    2,721    5,520    4,573  
 Gain on sale of corporate assets  404    1,001    2,699    56    61  
 Gain from write-up of an investment                         
 accounted for under the fair value method  5,100  (c)  5,600  (d)  -    -    -  
 Loss from write-down of an investment  -    -    2,095  (e)  -    5,000  (g)
 Stock option-based compensation costs  1,692    782    978    970    -  
 Corporate expenses, net  13,334    8,866    10,691    13,770    11,357  (g)
 Income from continuing operations                         
 before income taxes  17,310    49,127    59,296    55,108    22,869  
 Income taxes  18,663  (c)  19,486  (d)  24,366    19,791  (f)  9,497  
 Income (loss) from continuing operations  (1,353)   29,641    34,930    35,317    13,372  
 Income (loss) from discontinued operations (a)  -    (705)   (19,681)   2,884    2,857  
                          
 Net income (loss) $(1,353)  $28,936   $15,249   $38,201   $16,229  
                          
Refer to notes to financial tables on page 17.                      
                          
15

 SEGMENT  TABLES           
 Tredegar Corporation and Subsidiaries           
            
 Depreciation and Amortization           
            
 Segment 2009 2008 2007 2006 2005 
 (In Thousands)           
            
 Film Products $32,360 $34,588 $34,092 $31,847 $26,673 
 Aluminum Extrusions  7,566  8,018  8,472  8,378  7,996 
 AFBS (formerly Therics)  -  -  -  -  437 
 Subtotal  39,926  42,606  42,564  40,225  35,106 
 General corporate  71  70  91  111  195 
 Total continuing operations  39,997  42,676  42,655  40,336  35,301 
 Discontinued operations (a):                
 Aluminum extrusions business in Canada  -  515  3,386  3,945  3,488 
 Total $39,997 $43,191 $46,041 $44,281 $38,789 
                 
 Capital Expenditures and Investments                
                 
 Segment  2009  2008  2007  2006  2005 
 (In Thousands)                
                 
 Film Products $11,487 $11,135 $15,304 $33,168 $50,466 
 Aluminum Extrusions  22,530  9,692  4,391  6,609  5,750 
 AFBS (formerly Therics)  -  -  -  -  36 
 Subtotal  34,017  20,827  19,695  39,777  56,252 
 General corporate  125  78  6  24  73 
 Capital expenditures for continuing                
 operations  34,142  20,905  19,701  39,801  56,325 
 Discontinued operations (a):                
 Aluminum extrusions business in Canada  -  39  942  772  6,218 
 Total capital expenditures  34,142  20,944  20,643  40,573  62,543 
 Investments  -  5,391  23,513  542  1,095 
 Total $34,142 $26,335 $44,156 $41,115 $63,638 
                 
Refer to notes to financial tables on page 17.             

16

FIVE-YEAR SUMMARY

Tredegar Corporation and Subsidiaries


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31

 

2008

 

2007

 

2006

 

2005

 

2004

 

(In Thousands, Except Per-Share Data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Results of Operations (a):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

883,899

 

$

922,583

 

$

937,561

 

$

808,464

 

$

709,649

 

Other income (expense), net

 

 

10,341

(b)

 

1,782

(c)

 

1,444

(d)

 

(2,211

) (e)

 

15,604

(f)

 

 

 

894,240

 

 

924,365

 

 

939,005

 

 

806,253

 

 

725,253

 

Cost of goods sold

 

 

739,721

(b)

 

761,509

(c)

 

779,376

(d)

 

672,465

(e)

 

580,893

(f)

Freight

 

 

20,782

 

 

19,808

 

 

22,602

 

 

20,276

 

 

18,027

 

Selling, general & administrative expenses

 

 

58,699

 

 

68,501

 

 

64,082

(d)

 

61,007

(e)

 

57,221

(f)

Research and development expenses

 

 

11,005

 

 

8,354

 

 

8,088

 

 

8,982

 

 

15,265

 

Amortization of intangibles

 

 

123

 

 

149

 

 

149

 

 

299

 

 

330

 

Interest expense

 

 

2,393

 

 

2,721

 

 

5,520

 

 

4,573

 

 

3,171

 

Asset impairments and costs associated with exit and disposal activities

 

 

12,390

(b)

 

4,027

(c)

 

4,080

(d)

 

15,782

(e)

 

12,566

(f)

 

 

 

845,113

 

 

865,069

 

 

883,897

 

 

783,384

 

 

687,473

 

Income from continuing operations before income taxes

 

 

49,127

 

 

59,296

 

 

55,108

 

 

22,869

 

 

37,780

 

Income taxes

 

 

19,486

(b)

 

24,366

 

 

19,791

(d)

 

9,497

 

 

10,201

(f)

Income from continuing operations (a)

 

 

29,641

 

 

34,930

 

 

35,317

 

 

13,372

 

 

27,579

 

Discontinued operations (a):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from aluminum extrusions business in Canada

 

 

(705

)

 

(19,681

)

 

2,884

 

 

2,857

 

 

(1,319

)

Income from venture capital investment activities

 

 

—

 

 

—

 

 

—

 

 

—

 

 

2,921

 

Income (loss) from discontinued operations (a)

 

 

(705

)

 

(19,681

)

 

2,884

 

 

2,857

 

 

1,602

 

Net income

 

$

28,936

 

$

15,249

 

$

38,201

 

$

16,229

 

$

29,181

 

Diluted earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations (a)

 

$

.87

 

$

.90

 

$

.91

 

$

.35

 

$

.72

 

Discontinued operations (a)

 

 

(.02

)

 

(.51

)

 

.07

 

 

.07

 

 

.04

 

Net income

 

$

.85

 

$

.39

 

$

.98

 

$

.42

 

$

.76

 

Refer to notes to financial tables on page 16.



FIVE-YEAR SUMMARY

Tredegar Corporation and Subsidiaries


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31

 

2008

 

2007

 

2006

 

2005

 

2004

 

(In Thousands, Except Per-Share Data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity per share

 

$

12.40

 

$

14.13

 

$

13.15

 

$

12.53

 

$

12.45

 

Cash dividends declared per share

 

 

.16

 

 

.16

 

 

.16

 

 

.16

 

 

.16

 

Weighted average common shares outstanding during the period

 

 

33,977

 

 

38,532

 

 

38,671

 

 

38,471

 

 

38,295

 

Shares used to compute diluted earnings per share during the period

 

 

34,194

 

 

38,688

 

 

38,931

 

 

38,597

 

 

38,507

 

Shares outstanding at end of period

 

 

33,910

 

 

34,765

 

 

39,286

 

 

38,737

 

 

38,598

 

Closing market price per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

High

 

$

20.59

 

$

24.45

 

$

23.32

 

$

20.19

 

$

20.25

 

Low

 

 

11.41

 

 

13.33

 

 

13.06

 

 

11.76

 

 

13.00

 

End of year

 

 

18.18

 

 

16.08

 

 

22.61

 

 

12.89

 

 

20.21

 

Total return to shareholders (g)

 

 

14.1

%

 

(28.2

)%

 

76.6

%

 

(35.4

)%

 

31.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Position:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

610,632

 

$

784,478

 

$

781,787

 

$

781,758

 

$

769,474

 

Cash and cash equivalents

 

 

45,975

 

 

48,217

 

 

40,898

 

 

23,434

 

 

22,994

 

Debt

 

 

22,702

 

 

82,056

 

 

62,520

 

 

113,050

 

 

103,452

 

Shareholders’ equity (net book value)

 

 

420,416

 

 

491,328

 

 

516,595

 

 

485,362

 

 

480,442

 

Equity market capitalization (h)

 

 

616,484

 

 

559,021

 

 

888,256

 

 

499,320

 

 

780,066

 

Refer to notes to financial tables on page 16.



SEGMENT TABLES

Tredegar Corporation and Subsidiaries

Net Sales (i)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment

 

 

2008

 

 

2007

 

 

2006

 

 

2005

 

 

2004

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Film Products

 

$

522,839

 

$

530,972

 

$

511,169

 

$

460,277

 

$

413,257

 

Aluminum Extrusions

 

 

340,278

 

 

371,803

 

 

403,790

 

 

327,659

 

 

277,985

 

AFBS (formerly Therics)

 

 

—

 

 

—

 

 

—

 

 

252

 

 

380

 

Total net sales (j)

 

 

863,117

 

 

902,775

 

 

914,959

 

 

788,188

 

 

691,622

 

Add back freight

 

 

20,782

 

 

19,808

 

 

22,602

 

 

20,276

 

 

18,027

 

Sales as shown in Consolidated Statements of Income

 

$

883,899

 

$

922,583

 

$

937,561

 

$

808,464

 

$

709,649

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Identifiable Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment

 

 

2008

 

 

2007

 

 

2006

 

 

2005

 

 

2004

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Film Products

 

$

399,895

 

$

488,035

 

$

498,961

 

$

479,286

 

$

472,810

 

Aluminum Extrusions

 

 

112,259

 

 

115,223

 

 

128,967

 

 

130,448

 

 

126,425

 

AFBS (formerly Therics)

 

 

1,629

 

 

2,866

 

 

2,420

 

 

2,759

 

 

8,613

 

Subtotal

 

 

513,783

 

 

606,124

 

 

630,348

 

 

612,493

 

 

607,848

 

General corporate

 

 

50,874

 

 

74,927

 

 

30,113

 

 

61,905

 

 

54,163

 

Cash and cash equivalents

 

 

45,975

 

 

48,217

 

 

40,898

 

 

23,434

 

 

22,994

 

Identifiable assets from continuing operations

 

 

610,632

 

 

729,268

 

 

701,359

 

 

697,832

 

 

685,005

 

Discontinued operations (a):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aluminum extrusions business in Canada

 

 

—

 

 

55,210

 

 

80,428

 

 

83,926

 

 

84,469

 

Total

 

$

610,632

 

$

784,478

 

$

781,787

 

$

781,758

 

$

769,474

 

Refer to notes to financial tables on page 16.



SEGMENT TABLES
Tredegar Corporation and Subsidiaries

Operating Profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment

 

2008

 

 

2007

 

 

2006

 

 

2005

 

 

2004

 

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Film Products:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ongoing operations

 

$

53,914

 

 

$

59,423

 

 

$

57,645

 

 

$

44,946

 

 

$

43,259

 

 

Plant shutdowns, asset impairments and restructurings, net of gains on sale of assets and related income from LIFO inventory liquidations

 

 

(11,297

)

(b)

 

(649

)

(c)

 

221

 

(d)

 

(3,955

)

(e)

 

(10,438

)

(f)

Aluminum Extrusions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ongoing operations

 

 

10,132

 

 

 

16,516

 

 

 

18,302

 

 

 

17,084

 

 

 

14,526

 

 

Plant shutdowns, asset impairments and restructurings

 

 

(687

)

(b)

 

(634

)

(c)

 

(1,434

)

(d)

 

(993

)

(e)

 

(146

)

(f)

Other

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

7,316

 

(f)

AFBS (formerly Therics):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ongoing operations

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(3,467

)

 

 

(9,763

)

 

Loss on investment in Therics, LLC

 

 

—

 

 

 

—

 

 

 

(25

)

 

 

(145

)

 

 

—

 

 

Gain on sale of investments in Theken Spine and Therics, LLC

 

 

1,499

 

(b)

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

Plant shutdowns, asset impairments and restructurings

 

 

—

 

 

 

(2,786

)

(c)

 

(637

)

(d)

 

(10,318

)

(e)

 

(2,041

)

(f)

Total

 

 

53,561

 

 

 

71,870

 

 

 

74,072

 

 

 

43,152

 

 

 

42,713

 

 

Interest income

 

 

1,006

 

 

 

1,212

 

 

 

1,240

 

 

 

586

 

 

 

350

 

 

Interest expense

 

 

2,393

 

 

 

2,721

 

 

 

5,520

 

 

 

4,573

 

 

 

3,171

 

 

Gain on sale of corporate assets

 

 

1,001

 

 

 

2,699

 

 

 

56

 

 

 

61

 

 

 

7,560

 

 

Gain from write-up of an investment accounted for under the fair value method

 

 

5,600

 

(b)

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

Loss from write-down of an investment

 

 

—

 

 

 

2,095

 

(c)

 

—

 

 

 

5,000

 

(e)

 

—

 

 

Stock option-based compensation costs

 

 

782

 

 

 

978

 

 

 

970

 

 

 

—

 

 

 

—

 

 

Corporate expenses, net

 

 

8,866

 

 

 

10,691

 

 

 

13,770

 

 

 

11,357

 

(e)

 

9,672

 

 

Income from continuing operations before income taxes

 

 

49,127

 

 

 

59,296

 

 

 

55,108

 

 

 

22,869

 

 

 

37,780

 

 

Income taxes

 

 

19,486

 

(b)

 

24,366

 

(c)

 

19,791

 

(d)

 

9,497

 

 

 

10,201

 

 

Income from continuing operations

 

 

29,641

 

 

 

34,930

 

 

 

35,317

 

 

 

13,372

 

 

 

27,579

 

 

Income (loss) from discontinued operations (a)

 

 

(705

)

 

 

(19,681

)

 

 

2,884

 

 

 

2,857

 

 

 

1,602

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

28,936

 

 

$

15,249

 

 

$

38,201

 

 

$

16,229

 

 

$

29,181

 

 

Refer to notes to financial tables on page 16.



SEGMENT TABLES
Tredegar Corporation and Subsidiaries

Depreciation and Amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment

 

2008

 

2007

 

2006

 

2005

 

2004

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Film Products

 

$

34,588

 

$

34,092

 

$

31,847

 

$

26,673

 

$

21,967

 

Aluminum Extrusions

 

 

8,018

 

 

8,472

 

 

8,378

 

 

7,996

 

 

7,474

 

AFBS (formerly Therics)

 

 

—

 

 

—

 

 

—

 

 

437

 

 

1,300

 

Subtotal

 

 

42,606

 

 

42,564

 

 

40,225

 

 

35,106

 

 

30,741

 

General corporate

 

 

70

 

 

91

 

 

111

 

 

195

 

 

241

 

Total continuing operations

 

 

42,676

 

 

42,655

 

 

40,336

 

 

35,301

 

 

30,982

 

Discontinued operations (a):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aluminum extrusions business in Canada

 

 

515

 

 

3,386

 

 

3,945

 

 

3,488

 

 

3,440

 

Total

 

$

43,191

 

$

46,041

 

$

44,281

 

$

38,789

 

$

34,422

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Expenditures, Acquisitions and Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment

 

 

2008

 

 

2007

 

 

2006

 

 

2005

 

 

2004

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Film Products

 

$

11,135

 

$

15,304

 

$

33,168

 

$

50,466

 

$

44,797

 

Aluminum Extrusions

 

 

9,692

 

 

4,391

 

 

6,609

 

 

5,750

 

 

7,263

 

AFBS (formerly Therics)

 

 

—

 

 

—

 

 

—

 

 

36

 

 

275

 

Subtotal

 

 

20,827

 

 

19,695

 

 

39,777

 

 

56,252

 

 

52,335

 

General corporate

 

 

78

 

 

6

 

 

24

 

 

73

 

 

572

 

Capital expenditures for continuing operations

 

 

20,905

 

 

19,701

 

 

39,801

 

 

56,325

 

 

52,907

 

Discontinued operations (a):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aluminum extrusions business in Canada

 

 

39

 

 

942

 

 

772

 

 

6,218

 

 

2,744

 

Total capital expenditures

 

 

20,944

 

 

20,643

 

 

40,573

 

 

62,543

 

 

55,651

 

Acquisitions and other

 

 

—

 

 

—

 

 

—

 

 

—

 

 

1,420

 

Investments

 

 

5,391

 

 

23,513

 

 

542

 

 

1,095

 

 

5,000

 

Total

 

$

26,335

 

$

44,156

 

$

41,115

 

$

63,638

 

$

62,071

 

Refer to notes to financial tables on page 16.



NOTES TO FINANCIAL TABLES

(In Thousands, Except Per-Share Data)


 (a)

(a)

On February 12, 2008, we sold our aluminum extrusions business in Canada.  All historical results for this business have been reflected as discontinued operations.  In 2008, discontinued operations include an after-tax loss of $412$412,000 on the sale in addition to operating results through the closing date.  In 2007, discontinued operations also include $11,428$11.4 million in cash income tax benefits from the sale that were realized in 2008. In 2004, discontinued operations include a gain of $2,921 after-taxes primarily related to the reversal of a business and occupancy tax contingency accrual upon favorable resolution. The accrual was originally recorded in connection with our venture capital investment operation. Since we sold substantially all of our venture capital investment portfolio in 2003, the operating results associated with the venture capital investment portfolio have been reported as discontinued operations.

(b)

 A goodwill impairment charge of $30.6 million ($30.6 million after taxes) was recognized in Aluminum Extrusions upon completion of an impairment analysis performed as of March 31, 2009. The non-cash charge, computed under U.S. generally accepted accounting principles, resulted from the estimated adverse impact on the business unit's fair value of possible future losses and the uncertainty of the amount and timing of an economic recovery.

 (c)Plant shutdowns, asset impairments, restructurings and restructuringsother for 20082009 include an asset impairment charge of $9,735 for Film Products, a charge of $2,655$2.1 million for severance and other employee related costs in connection with restructurings for Film Products ($2,145) and1.3 million), Aluminum Extrusions ($510)433,000) and corporate headquarters ($396,000, included in "Corporate expenses, net" in the operating profit by segment table), an asset impairment charge of $1.0 million in Films Products, pretax losses of $952,000 associated with Aluminum Extrusions for timing differences between the recognition of realized losses on aluminum futures contracts and related revenues from the delayed fulfillment by customers of fixed-price forward purchase commitments (included in "Cost of goods sold" in the consolidated statements of income), a pre-tax gain of $583 from$640,000 related to the sale of land rights andat our aluminum extrusions faci lity in Newnan, Georgia (included in "Other income (expense), net" in the consolidated statements of income), a gain of $275,000 on the sale of equipment (included in "Other income (expense), net" in the consolidated statements of income) from a previously shutdown film products manufacturing facility in LaGrange, Georgia, a gain of $175,000 on the sale of a previously shutdown aluminum extrusions manufacturing facility in El Campo, Texas (included in "Other income (expense), net" in the consolidated statements of income), a gain of $149,000 related improvements atto the reversal to income of certain inventory impairment accruals in Film Products, facility in Shanghai, Chinaand a net charge of $69,000 (included in “Other income (expense), net”"Costs of goods sold" in the consolidated statement of income), and a $177 pre-tax charge related to expectedadjustments of future environmental costs atexpected to be incurred by Aluminum Extrusions.  The gain from the Aluminum Extrusions facilitywrite-up of an investment accounted for under the fair value method of $5.1 million in Newnan, Georgia (included2009 is included in “Cost of goods sold”"Other income (expense), net" in the consolidated statementscons olidated statement of income).income. The gain of $1,499 ($965 after taxes) from theon sale of our investments in Theken Spine and Therics, LLC.LLC, which is also included in “Other"Other income (expense), net”net" in the consolidated statementsstatement of income).income, includes the receipt of a contractual earn-out payment of $1.8 million and a post-closing contractual adjustment of $150,000.  AFBS Inc. (formerly Therics, Inc.) received these investments in 2005, when substantially all of the assets of AFBS, Inc., a wholly owned subsidiary of Tredegar, were sold or assigned to a newly created limited liability company, Therics, LLC, controlled and managed by an individual not affiliated with Tredegar. Income taxes in 2009 include the recognition of a valuation allowance of $2.1 million related to the expected limitations on the utilization of assumed capital losses on certain investments.
 (d)Plant shutdowns, asset impairments, restructurings and other for 2008 include an asset impairment charge of $9.7 million for Film Products, a charge of $2.7 million for severance and other employee related costs in connection with restructurings for Film Products ($2.2 million) and Aluminum Extrusions ($510,000), a pretax gain of $583,000 from the sale of land rights and related improvements at the Film Products facility in Shanghai, China (included in "Other income (expense), net" in the consolidated statement of income), and a $177,000 pretax charge related to expected future environmental costs at the Aluminum Extrusions facility in Newnan, Georgia (included in "Cost of goods sold" in the consolidated statements of income). The gain of $1.5 million from the sale of our investments in Theken Spine and Therics, LLC. is included in "Other income (expense), net" in the consolidated statements of income.  The gain from the write-up of an investment accounted for under the fair value method of $5,600$5.6 million in 2008 is included in “Other"Other income (expense), net”net" in the consolidated statements of income.  Income taxes in 2008 includes the reversal of a valuation allowance recognized in the third quarter of 2007 of $1,066$1.1 million that originally related to expected limitations on the utilization of assumed capital losses on certain investments.

(c)

 (e)

Plant shutdowns, asset impairments, restructurings and restructuringsother for 2007 include a charge of $2,786$2.8 million related to the estimated loss on the sub-lease of a portion of the AFBS (formerly Therics) facility in Princeton, New Jersey, charges of $594$594,000 for asset impairments in Film Products, a charge of $592$592,000 for severance and other employee-related costs in Aluminum Extrusions, a charge of $55$55,000 related to the shutdown of the films manufacturing facility in LaGrange, Georgia, and a charge of $42$42,000 associated with the expected future environmental costs at the aluminum extrusions facility in Newnan, Georgia (included in “Cost"Cost of goods sold”sold" in the consolidated statements of income). The loss from the write-down of an investment in 2007 of $2,095$2.1 million is included in “Other"Other income (expense), net”net" in the consolidated statements of income.

income .

(d)

 (f)

Plant shutdowns, asset impairments, restructurings and restructuringsother for 2006 include a net gain of $1,454$1.5 million associated with the shutdown of the films manufacturing facility in LaGrange, Georgia, including a gain of $2,889$2.9 million for related LIFO inventory liquidations (included in “Cost"Cost of goods sold”sold" in the consolidated statements of income) and a gain of $261$261,000 on the sale of related property and equipment (included in “Other"Other income (expense), net”net" in the consolidated statements of income), partially offset by severance and other costs of $1,566$1.6 million and asset impairment charges of $130,$130,000, charges of $1,020$1.0 million for asset impairments in Film Products, a charge of $920$920,000 related to expected future environmental costs at the aluminum extrusions facility in Newnan, Georgia (included in “Cost"Cost of goods sold”sold" in the consolidated statementsstatement s of income), charges of $727$727,000 for severance and other employee-related costs in connection with restructurings in Film Products ($213)213,000) and Aluminum Extrusions ($514)514,000), and charges of $637$637,000 related to the estimated loss on the sub-lease of a portion of the AFBS facility in Princeton, New Jersey.  Income taxes in 2006 include a reversal of a valuation allowance of $577$577,000 for deferred tax assets associated with capital loss carry-forwards recorded with the write-down of the investment in Novalux in 2005.  Outside appraisal of the value of corporate assets, primarily real estate, performed in December 2006, indicated that realization of related deferred tax assets is more likely than not.

(e)

 (g)

Plant shutdowns, asset impairments, restructurings and restructuringsother for 2005 include charges of $10,318$10.3 million related to the sale or assignment of substantially all of AFBS’AFBS' assets, charges of $2,071$2.1 million related to severance and other employee-related costs in connection with restructurings in Film Products ($1,118)1.1 million), Aluminum Extrusions ($498)498,000) and corporate headquarters ($455,455,000, included in “Corporate"Corporate expenses, net”net" in the operating profit by segment table), a charge of $2,101$2.1 million related to the planned shutdown of the films manufacturing facility in LaGrange, Georgia, a net gain of $1,667$1.7 million related to the shutdown of the films manufacturing facility in New Bern, North Carolina, including a gain on the sale of the facility ($1,816,1.8 million, included in “Other"Other income (expense), net”net" in the consolidated statements of income), partiallypart ially offset by shutdown-related expenses ($225)225,000), a charge of $1,019$1.0 million for process reengineering costs associated with the implementation of an information system in Film Products (included in “Costs"Costs of goods sold”sold" in the consolidated statements of income), a net charge of $843$843,000 related to severance and other employee-related costs associated with the restructuring of the research and development operations in Film Products (of this amount, $1,363$1.4 million in charges for employee relocation and recruitment is included in “Selling,"Selling, general & administrative expenses”expenses" in the consolidated statements of income), a gain of $653$653,000 related to the shutdown of the films manufacturing facility in Carbondale, Pennsylvania, including a gain on the sale of the facility ($630,630,000, included in “Other"Other income (expense), net”net" in the consolidated statements of income), and the reversal to income of certain shutdown-related accruals ($23)23,000), charges of $583$583,000 for asset impairments in Film Products, a gain of $508$508,000 for interest receivable on tax refund claims (included in “Corporate"Corporate expenses, net”net" in the operating profit by segment table and “Other"Other income (expense), net”net" in the consolidated statements of income), a charge of $495$495,000 in Aluminum Extrusions, including an asset impairment ($597)597,000), partially offset by the reversal to income of certain shutdown-related accruals ($102)102,000), charges of $353$353,000 for accelerated depreciation related to restructurings in Film Products, and a charge of $182$182,000 in Film Products related to the write-off of an investment.  As of December 31, 2005, the investment in Novalux, Inc. of $6,095$6.1 million was written down to estimated fair value of $1,095.$1.1 million.  The loss from the write-down, $5,000,$5.0 million, is included in “Other"Other income (expense), net”net" in the consolidated statements of income.

(f)

 (h)

Plant shutdowns, asset impairments and restructurings for 2004 include a charge of $3,022 related to the sale of the films business in Argentina, charges of $2,572 related to accelerated depreciation from plant shutdowns and restructurings in Film Products, charges of $2,459 related to severance and other costs associated with plant shutdowns in Film Products, charges of $1,267 for severance and other employee-related costs associated with restructurings in AFBS ($735) and Film Products ($532), a charge of $1,306 related to the estimated loss on the sub-lease of a portion of the AFBS facility in Princeton, New Jersey, a charge of $1,278 (of this amount, $59 for employee relocation is included in “Selling, general & administrative expenses” in the consolidated statements of income) related to severance and other employee-related costs associated with the restructuring of the research and development operations in Film Products and charges of $575 in Film Products and $146 in Aluminum Extrusions related to asset impairments. Income taxes in 2004 include a tax benefit of $4,000 related to the reversal of income tax contingency accruals upon favorable conclusion of IRS and state examinations through 2000. The other pretax gain of $7,316 included in the Aluminum Extrusions section of the operating profit by segment table is comprised of the present value of an insurance settlement of $8,357 (future value of $8,455) associated with environmental costs related to prior years, partially offset by accruals for expected future environmental costs of $1,041. The company received $5,143 of the $8,455 insurance settlement in 2004 and recognized receivables at present value for future amounts due ($1,497 received in February of 2005 and $1,717 received in February 2006). The gain from the insurance settlement is included in “Other income (expense), net” in the consolidated statements of income, while the accruals for expected future environmental costs are included in “Cost of goods sold.”

(g)

Total return to shareholders is defined as the change in stock price during the year plus dividends per share, divided by the stock price at the beginning of the year.

(h)

 (i)

Equity market capitalization is the closing market price per share for the period multiplied by the shares outstanding at the end of the period.

(i)

 (j)

Net sales represent gross sales less freight.  Net sales is the measure used by the chief operating decision maker of each segment for purposes of assessing performance.

(j)

Net sales include sales to P&G totaling $282,670 in 2008, $258,602 in 2007 and $255,414 in 2006. These amounts include plastic film sold to others who converted the film into materials used in products manufactured by P&G.

17

Item 7.        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking and Cautionary Statements

          From time to time, we may make statements that


Some of the information contained in this Form 10-K may constitute “forward-looking statements” within the meaning of the ���safe-harbor”“safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.  TheseWhen we use the words “believe,” “estimate,” “anticipate,” “expect,” “project,” “likely,” “may” and similar expressions, we do so to identify forward-looking statements. Such statements are based on our 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.  Some ofIt is possible that our actual results and financial condition may differ, possibly materially, from the riskanticipated results and financial condition indicated in these forward-looking statements.  For risks and important factors that maycould cause actual results to differ from expectations refer to “Risk Factors” in Part I, Item 1A of this Form 10-K.  Readers are urged to review and consider carefully the disclosures Tredegar makes in the reports Tredegar files with or furnishes to the Securities and Exchange Commission.  Tredegar does not undertake 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 a differencestatements are summarized on pages 4-6 and are incorporated herein.

based.


Executive Summary


General

General

Tredegar is a manufacturer of plastic films and aluminum extrusions.  Descriptions of our businesses are provided on pages 1-6.

          Income1-7.


Losses from continuing operations waswere $1.4 million (4 cents per diluted share) in 2009 compared with income from continuing operations of $29.6 million (87 cents per diluted share) in 2008 compared with $34.9 million (90 cents per diluted share) in 2007.2008.  Gains on the sale of assets, investment write-downs or write-ups and other items and losses related to plant shutdowns, assets impairments, restructurings and restructuringsother charges are described in results of operations beginning on page 22.24.  The business segment review begins on page 33.

34.


Film Products


In Film Products, net sales were $455.0 million in 2009, down 13.0% versus $522.8 million in 2008, down 1.5% versus $531.0 million in 2007.2008.  Operating profit from ongoing operations was $64.4 million in 2009, an increase of 19.4% compared with $53.9 million in 2008, down 9.3% compared with $59.4 million in 2007.2008. Volume decreased to 206.7 million pounds in 2009 from 221.2 million pounds in 2008 from 244.3 million pounds in 2007. The volume decline was primarily due to competitive pressures in most product segments, most notably the personal care and surface protection markets.2008.  Net sales declined compared to last year due to lower volume, partially offset by higherthe impact on selling prices from the pass-through of increased resin costs. A significant portion of the substantially lower resin costs, realizedvolume declines in the fourth quarter of 2008 will not be passed through to customers via lower selling prices until the first quarter of 2009.

          Operating profit from ongoing operations in Film Products decreased in 2008 versus 2007 due primarily to lower volume, partially offset by cost reduction effortspersonal care materials and packaging films and the benefit from appreciationunfavorable effect of changes in the U.S. dollar value of currencies for operations outside the U.S.

Operating profit from ongoing operations increased in 2009 compared to 2008 as cost reduction efforts, productivity gains, the positive impact of the U.S. (benefit fromchange in product mix driven mostly by an increase in sales of high-value surface protection materials and the lag in the pass-through of reduced resin costs were partially offset by lower overall sales volumes and the unfavorable effects of foreign currency rate changes was approximately $3.6 million).rates.  Film Products 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.  The estimated unfavorable impact of the lag in the pass-through of changes in average resin costs and year-end adjustments for inventories accounted for under the last-in first-out method (“LIFO”) was a positive $1.7 million in 200 9 and a negative $600,000 in 2008.  The estimated unfavorable impact from U.S. dollar value currencies for operations outside the U.S. was $1.9 million in 2009 compared with 2008.

Future operating profit levels within Film Products will depend upon our ability to deliver product innovations and $2.5 million for 2008cost reductions, to support growth in the sales of higher value surface protection materials and 2007, respectively.

          Volume and operating profits in films are expected to continue to be adversely impacted byaddress competitive pressures facing our personal care and the global economic downturn. More than ever, we are focused on reducing costs and managing the business under significantly greater economic uncertainty.

packaging materials businesses.


18
Capital expenditures in Film Products were $11.5 million in 2009, up from $11.1 million in 2008, down from $15.3 million in 2007, and are projected to be approximately $22$24 million in 2009.2010 as spending returns to more normalized levels.  Depreciation expense was $32.2 million in 2009, down from $34.5 million in 2008, up from $33.9 million in 2007, and is projected to be approximately $32$36 million in 2009.

2010.
     Aluminum Extrusions


Aluminum Extrusions

Net sales from continuing operations in Aluminum Extrusions were $177.5 million in 2009, down 47.8% from $340.3 million in 2008, down 8.5% from $371.8 million in 2007.2008.  Operating profitlosses from ongoing U.S. operations decreased towere $6.5 million, a negative change of $16.6 million from operating profits of $10.1 million in 2008, down 38.7% from $16.5 million in 2007.2008.  Volume from continuing operations was 91.5 million pounds in 2009, down 32.8% from 136.2 million pounds in 2008, down 12.6% from 155.8 million pounds in 2007.

2008.  


The decrease in net sales was mainly due to lower volume. Shipments declinedsales volume and a decrease in average selling prices driven by lower average aluminum costs.  Weak market conditions led to decreased shipments in most markets.  Shipments in non-residentialnonresidential construction, which comprised 72%71% of total volume in 2008,2009, declined by approximately 2.7%34% in 20082009 compared with 2007.2008.  Operating profitlosses from ongoing U.S. operations declined in 2008 compared with last year mainly due2009 were primarily driven by lower sales volume.  Given the uncertainty as to lower volume. Overall backlog for continuing operationsthe timing of a meaningful recovery in the nonresidential construction market, our short-term focus in Aluminum Extrusions at December 31, 2008 was down by approximately 47% compared with December 31, 2007. We continuecontinues to be very focusedreducing our breakeven point while strategically investing in the business to ensure continued improvement in product and service offer ings to our customers.

Upon completing a goodwill impairment analysis as of March 31, 2009, a goodwill impairment charge of $30.6 million ($30.6 million after tax) was recognized in Aluminum Extrusions.  This impairment charge represents the entire amount of goodwill associated with the Aluminum Extrusions reporting unit.  For additional detail on reducing costs in lightthis goodwill impairment charge, see Note 1 of anticipated further declines in volume basedthe notes to the financial statements beginning on current market conditions.

page 47.


Capital expenditures for continuing operations in Aluminum Extrusions were $22.5 million in 2009, a $12.8 million increase from $9.7 million in 2008, a $5.3 million increase from $4.4 million in 2007, and are projected to be approximately $24$6.4 million in 2009. In January 2008, we announced plans2010.  The 18-month project to spend approximately $24 million over the following 18 months to expand the capacity at our plant in Carthage, Tennessee. This project,Tennessee manufacturing facility, which accounted for $5.7 million of capital expenditures in 2008, will increase our capabilities in the non-residentialnonresidential construction sector.sector, accounted for $19.0 million of capital expenditures in 2009. Depreciation expense for continuing operations was $7.6 million in 2009, a decrease of 5.6% from $8.0 million in 2008, a decrease of 5.4% from $8.5 million in 2007, and is projected to be $8.6$9.5 million in 2009.

2010.


On February 12, 2008, we sold our aluminum extrusions business in Canada for approximately $25 million to an affiliate of H.I.G. Capital.  We realized cash income tax benefits in 2008 from the sale of approximately $12 million.  All historical results for this business have been reflected as discontinued operations.

operations.


Other Developments


Net pension income from continuing operations was $4.9$3.1 million in 2008, a favorable2009, an unfavorable change of $2.1$1.8 million (4 cents per share after taxes) from amounts recognized in 2007.2008.  Most of the favorable changes relate to a pension plan thatchange is reflected in “Corporate expenses, net” in the operating profit by segment table presented on page 14.15.  We contributed approximately $122,000$129,000 to our pension plans for continuing operations in 2008.

          At December 31, 2008, the fair value of the assets of our pension plans was estimated at $194.5 million, down from $284.1 million at December 31, 2007. The significant decline was mainly due to the drop in global stock prices2009, and benefit payments to retirees of approximately $10.2 million in 2008. The projected benefit obligation at December 31, 2008 is approximately $211.7 million at a discount rate of 6.5%. The minimum required contributioncontributions to our pension plans in 2010 are expected to be comparable.   The projected benefit obligation of our pension plans at December 31, 2009 is approximately $235.0 million at a weighted average discount rate of 5.7%, and net pension expense in 2010 is estimated at $4.4 million,$1.4 million.  Corporate expenses, net in 2009 increased in comparison to 2008 prima rily due to adjustments made to accruals for certain performance-based compensation programs and netthe unfavorable change in pension income noted above.


Interest expense, which includes the amortization of debt issue costs, was $783,000 in 2009, is estimated at $3.2 million.

          Interest expense was $2.4a $1.6 million in 2008, a $328,000 decline versus 2007 as higher2008, primarily due to reduced average debt levels during the year were offset byand lower average interest.

interest rates.


The effective tax rate used to compute income taxes from continuing operations was 107.8% in 2009 compared with 39.7 % in 2008 compared with 41.1% in 2007.2008.  The decreasechange in the effective tax rate for continuing operations for 20082009 versus 2007, which had a favorable impact of 2 cents per share,2008 was due to numerous factors as shown in the effective income tax rate reconciliation provided in Note 14 on page 66.

69.



19

On April 2, 2007, we invested $10 million in Harbinger Capital Partners Special Situations Fund, L.P. (“Harbinger”), a fund that seeks to achieve superior absolute returns by participating primarily in medium to long-term investments involving distressed/high yield debt securities, special situation equities and private loans and notes.  The fund is a highly speculative investment and subject to limitations on withdrawal.  There is no secondary market for interests in the fund.  Our investment in Harbinger, which represents less than 2% of Harbinger’s total partnership capital, is accounted for under the cost method.  At December 31, 2008,2009, Harbinger reported our capital account value at $10.1$14.5 million versus the carrying value of $10 million (included in “Other assets and deferred charges” in our consolidated balance sheet).



See discussion of investment accounted for under the fair value method on page 20.

          During 2008 and 2007, we invested $4.3 million and $6.2 million, respectively, in real estate. At December 31, 2008 and 2007, the carrying value of investments in this real estate equaled the amounts invested (included in “Other assets and deferred charges” in our consolidated balance sheet).

21.


In 20082009, we repurchased 1.1 million105,497 shares of our stock under a standing authorization from our board of directors at an average price of $14.88$14.44 per share.share, compared to 1.1 million shares of stock repurchased in 2008 at an average price of $14.88.  Due to strong cash flows from operations, and proceeds received from the sales of the aluminum extrusions business in Canada, our net debt (total debt of $82.0 million less cash balance (cash and cash equivalents of $48.2$90.7 million in excess of total debt of $1.2 million) of $33.8was $89.5 million at December 31, 2007 improved2009, compared to net cash (cash and cash equivalents of $46.0 million in excess of total debt of $22.7 million) of $23.3 million at December 31, 2008 (net debt or cash is not intended to represent debt or cash as defined by generally accepted accounting principles, but is utilized by management in evaluating financial leverage and equity valuation and we believe that investorsin vestors also may find net debt or cash helpful for the same purposes).  Consolidated net capitalization and other credit measures are provided in the financial condition section beginning on page 25.

27.


Critical Accounting Policies


In the ordinary course of business, we make 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.  Actual results could differ significantly from those estimates under different assumptions and conditions.  We believe the following discussion addresses our critical accounting policies.  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.


Impairment and Useful Lives of Long-lived Identifiable Assets and Goodwill


We regularly assess our long-lived identifiable assets for impairment when events or circumstances indicate that their carrying value may not be recoverable from future cash flows.  Any necessary impairment charges are recorded when we do not believe the carrying value of the long-lived asset will be recoverable.  We also reassess the useful lives of our long-lived assets based on changes in our business and technologies.


We assess goodwill for impairment when events or circumstances indicate that the carrying value may not be recoverable, or, at a minimum, on an annual basis (December 1st of each year).  Our reporting units include Film Products and Aluminum Extrusions, each of which may have separately identifiable operating net assets (operating assets including goodwill and intangible assets net of operating liabilities). As

In assessing the recoverability of December 1long-lived identifiable assets and December 31, 2008, the estimated fair value of our reporting units exceeded the carrying value of their respective net assets. Wegoodwill, we estimate the fair value using discounted cash flow analysis and comparative enterprise value-to-EBITDA multiples.  The estimated fair value of Film Products exceeded the carrying value of its net assets by a wide margin. In Aluminum Extrusions, the excess of its fair value over carrying value of related net assets was approximately 12% at December 31, 2008. Estimated fair values and carrying values change as business conditions change, and the relatively low margin by which the estimated fair value of Aluminum Extrusions exceeded its carrying value results in a reasonably possible chance that a goodwill impairment under U.S. generally accepted accounting principles will be triggered in the future. As of December 31, 2008, we estimate that if the estimated fair value of Aluminum Extrusions were only $1 below the carrying value of its net assets, that the amount of the goodwill impairment under U.S. generally accepted accounting principles would have been an anomalous write-off of the entire amount of $30.6 million (also $30.6 million after taxes since there would be no income tax benefits relatedThese calculations require us to the write-off).

          In assessing the recoverability of long-lived identifiable assets and goodwill, we must make assumptions regarding estimated future cash flows, discount rates and other factors to determine if impairment tests are met or the fair value of the respective assets.  If these estimates or their related assumptions change in the future, we may be required to record additional impairment charges.


Based on the severity of the economic downturn and its impact on sales volumes of our aluminum extrusions business (a 36.8% decline in sales volume in the first quarter of 2009 compared with the first quarter of 2008), the resulting first quarter loss, possible future losses and the uncertainty in the amount and timing of an economic recovery, we determined that impairment indicators existed.  Upon completing the impairment analysis as of March 31, 2009, a goodwill impairment charge of $30.6 million, which represents the entire amount of goodwill associated with Aluminum Extrusions, was recorded.
20

Based upon assessments performed as to the recoverability of long-lived identifiable assets, we have recorded asset impairment losses for continuing operations related to long-lived identifiable assets of $1.0 million in 2009, $8.6 million in 2008 and $594,000 in 2007 and $1.2 million in 2006.2007.  For asset impairments relating to discontinued operations, see Note 17 to the notes to financial statements.



Investment Accounted for Under the Fair Value Method


On August 31, 2007, we invested $6.5 million in a privately held drug delivery company that is developing and commercializing state of the art drug delivery systems designed to improve patient compliance and outcomes.  On December 15, 2008, we invested an additional $1.0 million as part of a new round of equity financing completed by the investee.  This investment is accounted for under the fair value method.  We elected the fair value option over the equity method of accounting since our investment objectives are similar to those of venture capitalists, which typically do not have controlling financial interests (venture capital funds use the fair value method to account for their investment portfolios).  At December 31, 2008,2009, our ownership interest was approximately 21% on a fully diluted basis. In connection with the new round of equity financing in the fourth quarter of 2008, we recognized an unrealized gain of $5.6 million for the write-up of this investment based upon the implied valuation of our ownership interest. At December 31, 2008 and 2007, the fair value of our investment (the carrying value included in “Other assets and deferred charges” in our consolidated balance sheet) was $13.1 million and $6.5 million, respectively.


          Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements,U.S. generally accepted accounting principles (U.S. GAAP) requires disclosure of the level within the fair value hierarchy in which fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3).  On the dates of our investments (August 31, 2007 and December 15, 2008), we believe that the amount we paid for our ownership interest and liquidation preferences was based on Level 2 inputs, including investments by other investors.  Subsequent to the last round of financing, and until the next round of financing, we believe fair value estimates drop to Level 3 inputs since there isi s no secondary market for our ownership interest.  In addition, the company currently has no product sales.  Accordingly, after the latest financing and until the next round of financing or any other significant financial transaction, fair value estimates will primarily be based on assumptions relating to meeting product development and commercialization milestones, cash flow projections (projections of sales, costs, expenses, capital expenditures and working capital investment) and discounting of these factors for the high degree of risk. As a result,

In connection with the new round of equity financing in the fourth quarter of 2008, we recognized an increaseunrealized gain of $5.6 million for the write-up of this investment based upon the implied valuation of our ownership interest.  In the fourth quarter of 2009, we recognized an additional unrealized gain of $5.1 million for the appreciation of our ownership interest upon the investee entering into an exclusive licensing agreement that included an upfront payment, additional potential milestone payments and tiered royalties on sales of any products commercialized under the license. At December 31, 2009 and 2008, the fair value of our investment (the carrying value included in “Other assets and deferred charges” in our estimateconsolidated balance sheet) was $18.2 million and $13 .1 million, respectively.  The fair market valuation of our interest in the drug delivery company is sensitive to changes in the weighted average cost of capital used to discount cash flow projections for the high degree of risk associated with meeting development and commercialization milestones as anticipated.  At December 31, 2009, the effect of a 500 basis point change in the weighted average cost of capital assumption would have increased or decreased the fair value of our interest in the drug delivery company by approximately $2-3 million.  Any future changes in the estimated fair value of our ownership interest is unlikely unlesswill likely be attributed to a significant new round of financing, a merger or initial public offering indicates a higher value. However, ifor adjustments to the company does not meet itstiming or magnitude of cash flows associated with development and commercialization milestones and there are indications thatmilestones.  Adjustments to the amount or timing of its projected cash flows or related risks are unfavorable versus plans as of December 15, 2008, or another new round of financing or other significant financial transaction indicates a lower value, then our estimate of theestimated fair value of our ownership interestinvestment will be made in the company is likely to decline.period upon which such changes can be quantified.


Pension Benefits

Pension Benefits

We have noncontributory defined benefit (pension) plans in our continuing operations that have significant net pension income developed from actuarial valuations.  Inherent in these valuations are key assumptions including discount rates, expected return on plan assets and rate of future compensation increases.  We are required to consider current market conditions, including changes in interest rates and plan asset investment returns, in determining these assumptions.  Actuarial assumptions may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants.  These differences may result in a significant impact to the amount of net pension income or expense recorded in future periods.

The discount rate is used to determine the present value of future payments.  The discount rate is the single rate that, when applied to expected benefit payments, provides a present value equal to the present value of expected benefit payments determined by using the AA-rated bond yield curve.  In general, our liability increases as the discount
21

rate decreases and vice versa.  Our weighted average discount rate for continuing operations was 5.70% at the end of 2009, 6.5% at the end of 2008 and 6.25% at the end of 2007, and 5.75% at the end of 2006, with changes between periods due to changes in market interest rates.  The compensation increase assumption affects the estimate of future payments, and was 4% at the end of 2007 and 2006 (not applicable in 2009 and 2008).  Based on plan changes announced in 2006, pay for active participants of the plan was frozen as of December 31, 2007.  A lower expected return on plan assets increases the amount of expense and vice versa.  Decreases in the level of actual plan assets will also serve to increase the amount of pension expense.  The value of our plan assets relating to continuing operations decreasedincreased $34.4 million, or 17.7%, in 2009, partially recovering from an $89.6 million ordecline in 2008.  The 31.5%, asset value decline in 2008 was primarily due to the drop in global stock prices.  Between 2003 and 2007, the value of our plan assets relating to continuing operations increased due to improved general market conditions after declining from 2000 to 2002.  Our expected long-term return on plan assets relating to continuing operations, which is primarily based on estimated market and economic



conditions as well as asset mix, was 8.25% in 2009, 8.5% from 2004 to 2007,2008, 8.75% in 2003 and 9% in 2002 and prior years.  OurWe anticipate that our expected long-term return on plan assets was lowered towill be 8.25% for fiscal year 2009.2010.  See page 6466 for more information on expected long-term return on plan assets and asset mix.


See the executive summary beginning on page 1718 for further discussion regarding the financial impact of our pension plans.


Income Taxes


On a quarterly basis, we review our judgments regarding uncertain tax positions and the likelihood that the benefits of a deferred tax asset will be realized.  As circumstances change, we reflect in earnings any adjustments to unrecognized benefits for uncertain tax positions and valuation allowances for deferred tax assets.


For financial reporting purposes, we had unrecognized tax benefits on uncertain tax positions of $1.0 million, $2.6 million and $3.3 million as of December 31, 2009, 2008 and 2007, respectively.  Included in the 2009, 2008 and 2007 amounts were $348,000, $1.8 million and $2.3 million, respectively, for tax positions for which ultimate deductibility is highly certain but for which the timing of deductibility is uncertain.  Because of the impact of deferred income tax accounting, other than interest, penalties and deductions not related to timing, a longer deductibility period would not affect the total income tax expense or the annual effective tax rate shown for financial reporting purposes, but would accelerate payments to the taxing authority.  Tax payments resultingr esulting from the successful challenge by the taxing authority for accelerated deductions taken by us would possibly result in the payment of interest and penalties.  Accordingly, we also accrue for possible interest and penalties on uncertain tax positions.  The balance of accrued interest and penalties on deductions taken relating to uncertain tax positions was approximately $537,000, $1.3 million and $1.2 million at December 31, 2009, 2008 and 2007, respectively ($827,000342,000, $827,000 and $759,000, respectively, net of corresponding federal and state income tax benefits).  Accruals for possible interest and penalties on uncertain tax positions are reflected in income tax expense for financial reporting purposes.

          We anticipate that by December 31,


In 2009, we will settlesettled several disputed issues raised by the Internal Revenue Service (the “IRS”) during its examination of our U.S. income tax returns for 2001-2003, the most significant of which regards the recognition of our captive insurance subsidiary as an insurance company for U.S. income tax purposes.  It is reasonably possible that aThe settlement with the IRS for the disputed issues would cost us approximately $1.0 million, which is lower than the previous estimate of $1.3 million which would beand was applied against the balance of unrecognized tax benefits and accrued interest and penalties.

benefits.


Tredegar and its subsidiaries file income tax returns in the U.S., statevarious states and foreign jurisdictions.jurisdictions outside the U.S.  Generally, except for refund claims and amended returns, Tredegar is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2001.2006.  With few exceptions, Tredegar and its subsidiaries are no longer subject to state or non-U.S. income tax examinations by tax authorities for years before 2005.

2006.


As of December 31, 20082009 and 2007,2008, we had valuation allowances relating to deferred tax assets of $9.8$11.7 million and $9.4$9.8 million, respectively.  For more information on deferred income tax assets and liabilities, see Note 14 of the notes to financial statements.



22

Recently Issued Accounting Standards


          TheIn June 2009, the Financial Accounting Standards Board recently(the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (SFAS No. 161), to enhanceguidance that clarifies the current disclosure framework in SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133). SFAS No. 161 addresses concernsinformation that the disclosures required by SFAS No. 133 do not provide adequate information about the impact derivative instruments can have on an entity’s financial position, results of operations and cash flows. SFAS No. 161 amends and expands the disclosures required by SFAS No. 133 so that they provide an enhanced understanding of (i) how and why an entity uses derivative instruments, (ii) how derivative instrumentsmust provide in its financial statements surrounding a transfer of financial assets and related hedged items are accounted for under SFAS No. 133 andthe effect of the transfer on its related interpretations, and (iii) how derivative instruments affect an entity’s financial position, financial performance, and cash flows. TheThese new disclosure guidance will apply to all interim andaccounting rules are effective as of the beginning of the annual reporting periods for which a balance sheet and income statement are presented. SFAS No. 161 is effective for both interim and annual reporting periodsperiod beginning after November 15, 2008, with early application encouraged. SFAS No. 161 encourages, but does not require, comparative disclosures for earlier periods at initial adoption.2009. We do not believe that the adoption of SFAS No. 161 willexpect these FASB rules to have a material impact on our financial statements and related disclosures.


The FASB also provided guidance in June 2009 that clarifies and improves financial reporting by entities involved with variable interest entities. The revised statement amends previous guidance to require an enterprise to perform a qualitative analysis to determine whether it has a controlling financial interest in a variable interest entity, to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity, and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity.  This new accounting standard is effective for annual periods beginning after November 15, 2009. We do not expect these FASB ru les to have a material impact on our financial statements and disclosures.

In October 2009, the FASB Emerging Issues Task Force issued a consensus updating accounting standards for revenue recognition for multiple-deliverable arrangements.  The stated objective of the accounting standards update was to address the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit.  The revision of current FASB guidance provides amended methodologies for separating consideration in multiple-deliverable arrangements and expands disclosure requirements.  The accounting standards update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adopti on permitted.  We do not expect these FASB rules to have a material impact on our financial statements and disclosures.

The FASB issued guidance in January 2010 that requires new disclosures for fair value measurements and provides clarification for existing disclosure requirements. More specifically, this update will require (a) an entity to disclose separately the amounts of significant transfers in and out of Levels 1 and 2 fair value measurements and to describe the reasons for the transfers; and (b) information about purchases, sales, issuances and settlements to be presented separately (i.e. present the activity on a gross basis rather than net) in the reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs). This update also clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value and requires disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements using Level 2 and Level 3 inputs. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for disclosures about the purchase, sale, issuance and settlement activity of Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010, and for the interim periods in that year.  We do not anticipate that the adoption of this statement will materially expand our consolidated financial statement footnote disclosures.

23


Results of Continuing Operations

2009 versus 2008

Revenues.  

Sales in 2009 decreased by 26.6% compared with 2008 due to sales declines in both Film Products and Aluminum Extrusions.  Net sales (sales less freight) decreased 13.0% in Film Products due to the impact of lower selling prices from the pass-through of reduced resin prices, volume declines in personal care materials and packaging films and the unfavorable effect of foreign currency rates.  Net sales decreased 47.8% in Aluminum Extrusions due to lower sales volumes and a decrease in average selling prices driven by lower aluminum prices.  Volumes in Aluminum Extrusions were 91.5 million pounds in 2009, down 32.8% from 136.2 million pounds in 2008.  0;For more information on net sales and volume, see the executive summary beginning on page 18.


Operating Costs and Expenses.Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales was 17.8% in 2009 and 14.0% in 2008.  The gross profit margin increased in Film Products primarily due to cost reduction efforts, productivity gains, a change in product mix mostly driven by sales of high value surface protection materials and the lag in the pass-through of substantially higher average resin costs in 2008.  Gross profit margins in Aluminum Extrusions decreased as a result of volume declines noted above.

As a percentage of sales, selling, general and administrative and R&D expenses were 11.2% in 2009, an increase from 7.9% in 2008.  The increase in selling, general and administrative expenses as a percentage of net sales was primarily due to the decline in sales noted above and adjustments made to accruals for certain performance-based compensation programs.

Losses associated with plant shutdowns, asset impairments, restructurings and other charges in 2009 totaled $2.9 million ($2.3 million after taxes) and included:

●  A fourth quarter charge of $181,000 ($121,000 after taxes) and a first quarter charge of $1.1 million ($806,000 after taxes) for severance and other employee-related costs in connection with restructurings in Film Products;
●  A fourth quarter charge of $1.0 million ($1.0 million after taxes) for asset impairments in Film Products;
●  A fourth quarter benefit of $547,000 ($340,000 after taxes), a third quarter charge of $111,000 ($69,000 after taxes), a second quarter charge of $779,000 ($484,000 after taxes), and a first quarter charge of $609,000 ($378,000 after taxes) for timing differences between the recognition of realized losses on aluminum futures contracts and related revenues from the delayed fulfillment by customers of fixed-price forward purchase commitments (included in “Cost of goods sold” in the consolidated statements of income, see Note 6 starting on page 57 for additional detail);
●  A fourth quarter gain of $640,000 ($398,000 after taxes) related to the sale of land at our aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Other income (expense), net” in the consolidated statements of income);
●  A fourth quarter charge of $64,000 ($40,000 after taxes) and a first quarter charge of $369,000 ($232,000 after taxes) for severance and other employee-related costs in connection with restructurings in Aluminum Extrusions;
●  A fourth quarter charge of $218,000 ($139,000 after taxes) and a first quarter charge of $178,000 ($113,000 after taxes) for severance and other employee-related costs in connection with restructurings at corporate headquarters (included in “Corporate expenses, net” in the segment operating profit table in Note 3 on page 55);
●  A first quarter gain of $275,000 ($162,000 after taxes) on the sale of equipment (included in “Other income (expense), net” in the consolidated statements of income) from a previously shutdown films manufacturing facility in LaGrange, Georgia;
 ●A second quarter gain of $175,000 ($110,000 after taxes) on the sale of previously shutdown aluminum extrusions manufacturing facility in El Campo, Texas (included in “Other income (expense), net” in the consolidated statements of income);
●  A second quarter gain of $149,000 ($91,000 after taxes) related to the reversal to income of certain inventory impairment accruals in Film Products; and
●  A fourth quarter charge of $345,000 ($214,000 after taxes) and a second quarter benefit of $276,000 ($172,000 after taxes) related to adjustments of future environmental costs expected to be incurred by Aluminum Extrusions (included in “Cost of goods sold” in the consolidated statements of income).

24
The severance in Film Products includes reduction in workforce in 2009 (approximately 50 employees) that is expected to save approximately $2.0 million on an annualized basis.

We recognized gains of $1.8 million ($1.2 million after taxes) from the receipt of a contractual earn-out payment and $150,000 ($96,000 after taxes) from a post-closing contractual adjustment from the sale in 2008 of our investments in Theken Spine and Therics, LLC.  These gains are included in “Other income (expense), net” in the consolidated statements of income.  AFBS Inc. (formerly Therics, Inc.) received these investments in 2005, when substantially all of the assets of AFBS, Inc., a wholly owned subsidiary of Tredegar, were sold or assigned to a newly created limited liability company, Therics, LLC, controlled and managed by an individual not affiliated with Tredegar.

Results in 2009 include unrealized gains from the write-up of an investment accounted for under the fair value method of $5.1 million ($3.2 million after taxes; see further discussion on page 21).  Gains on the sale of corporate assets in 2009 include realized gains of $404,000 ($257,000 after taxes) from the sale of corporate real estate.  The pretax amounts for each of these items are included in "Other income (expense), net" in the consolidated statements of income and separately shown in the segment operating profit table on page 15.

For more information on costs and expenses, see the executive summary beginning on page 18.

Interest Income and Expense.  Interest income, which is included in “Other income (expense), net” in the consolidated statements of income, was $806,000 in 2009, compared to $1.0 million in 2008.  Our policy permits investment of excess cash in marketable securities that have the highest credit ratings and maturities of less than one year with the primary objectives being safety of principal and liquidity.

Interest expense, which includes the amortization of debt issue costs, was $783,000 in 2009, a 67.3% decrease in comparison to $2.4 million for 2008 due to lower average debt levels and lower average interest rates during 2009.  Average debt outstanding and interest rates were as follows:

 (In Millions) 2009  2008 
 Floating-rate debt with interest charged on a rollover      
 basis at one-month LIBOR plus a credit spread:      
    Average outstanding debt balance $5.0  $47.7 
 Average interest rate  1.2%  3.8%
 Fixed-rate and other debt:        
    Average outstanding debt balance $1.5  $1.8 
 Average interest rate  3.5%  4.1%
 Total debt:        
    Average outstanding debt balance $6.5  $49.5 
 Average interest rate  1.8%  3.8%
Income Taxes.  The effective tax rate used to compute income taxes from continuing operations was 107.8% in 2009 compared with 39.7% in 2008.  The differences between the U.S. federal statutory rate and the effective tax rate for continuing operations are shown in the effective income tax rate reconciliation provided in Note 14 on page 69.

2008 versus 2007

Revenues.  

Revenues.Sales in 2008 decreased by 4.2% compared with 2007 due to sales declines in both Film Products and Aluminum Extrusions.  Net sales (sales less freight) decreased 1.5% in Film Products as competitive pressures led to lower volume, which was partially offset by higher selling prices from the pass-through of increased resin costs.  Net sales decreased 8.5% in Aluminum Extrusions due to lower volume as shipments declined in most markets.  For more information on net sales and volume, see the executive summary beginning on page 17.18.



25

Operating Costs and Expenses.Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales was 14.0% in 2008 and 15.3% in 2007.  The gross profit margin decreased in Film Products and Aluminum Extrusions primarily due to lower sales volumes, partially offset by cost reduction efforts and the favorable impact of changes in the U.S. dollar value of currencies for operations outside the U.S.  The benefit from currency rate changes was approximately $3.6 million.


As a percentage of sales, selling, general and administrative and R&D expenses were 7.9% in 2008, down from 8.3% in 2007.  The decrease is primarily due to lower selling, general and administrative expenses in Film Products from cost reduction efforts.

efforts.


Losses associated with plant shutdowns, asset impairments and restructurings in 2008 totaled $12.0 million ($8.4 million after taxes) and included:


●  

•

A fourth quarter charge of $7.2 million ($5.0 million after taxes), a second quarter charge of $854,000 ($717,000 after taxes), and a first quarter charge of $1.6 million ($1.2 million after taxes) for asset impairments in Film Products;

●

•

A second quarter charge of $90,000 ($83,000 after taxes) and a first quarter charge of $2.1 million ($1.4 million after taxes) for severance and other employee-related costs in connection with restructurings in Film Products;

●

•

A second quarter charge of $275,000 ($169,000 after taxes) and a first quarter charge of $235,000 ($145,000 after taxes) for severance and other employee-related costs in connection with restructurings in Aluminum Extrusions;

●  

•

A fourth quarter pretax gain of $583,000 ($437,000 after taxes) related to the sale of land rights and related improvements at the Film Products facility in Shanghai, China (included in “Other income (expense), net” in the consolidated statements of income); and

●

•

A fourth quarter charge of $72,000 ($44,000 after taxes) and a second quarter charge of $105,000 ($65,000 after taxes) related to expected future environmental costs at the Aluminum Extrusions facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statements of income).



The severance in Film Products includes a reduction in workforce in the first quarter of 2008 (approximately 6%90 or 906% of Film Products’ total employees) that is expected to save approximately $4.2 million on an annualized basis.


We recognized a gain of $1.5 million ($965,000 after taxes) from the sale of our investments in Theken Spine and Therics, LLC.  The gain is included in “Other income (expense), net” in the consolidated statements of income.  AFBS Inc. (formerly Therics, Inc.) received these investments in 2005, when substantially all of the assets of AFBS, Inc., a wholly owned subsidiary of Tredegar, were sold or assigned to a newly created limited liability company, Therics, LLC, controlled and managed by an individual not affiliated with Tredegar.


Results in 2008 include unrealized gains from the write-up of an investment accounted for under the fair value method of $5.6 million ($3.6 million after taxes; see further discussion on page 20)21).  Gains on the sale of corporate assets in 2008 include realized gains of $509,000 ($310,000 after taxes) from the sale of equity securities and $492,000 ($316,000 after taxes) from the sale of corporate real estate.  The pretax amounts for each of these items is included in “Other"Other income (expense), net”net" in the consolidated statements of income and separately shown in the segment operating profit table on page 14.

15.


For more information on costs and expenses, see the executive summary beginning on page 17.

18.


Interest Income and Expense.Interest income, which is included in “Other income (expense), net” in the consolidated statements of income, was $1.0 million in 2008, down from $1.2 million in 2007 due to lower average yield earned on cash equivalents.  Our policy permits investment of excess cash in marketable securities that have the highest credit ratings and maturities of less than one year with the primary objectives being safety of principal and liquidity.



26

Interest expense was $2.4 million in 2008, a 12.0% decrease in comparison to $2.7 million for 2007, as higher average debt levels during the year were offset by lower average interest rates.  Average debt outstanding and interest rates were as follows:

 

 

 

 

 

 

 

 

(In Millions)

 

2008

 

2007

 

Floating-rate debt with interest charged on a rollover basis at one-month LIBOR plus a credit spread:

 

 

 

 

 

 

 

Average outstanding debt balance

 

$

47.7

 

$

41.5

 

Average interest rate

 

 

3.8

%

 

6.0

%

Fixed-rate and other debt:

 

 

 

 

 

 

 

Average outstanding debt balance

 

$

1.8

 

$

2.2

 

Average interest rate

 

 

4.1

%

 

3.8

%

Total debt:

 

 

 

 

 

 

 

Average outstanding debt balance

 

$

49.5

 

$

43.7

 

Average interest rate

 

 

3.8

%

 

5.9

%


 (In Millions) 2008  2007 
 Floating-rate debt with interest charged on a rollover      
 basis at one-month LIBOR plus a credit spread:      
       Average outstanding debt balance $47.7  $41.5 
 Average interest rate  3.8%  6.0%
 Fixed-rate and other debt:        
       Average outstanding debt balance $1.8  $2.2 
 Average interest rate  4.1%  3.8%
 Total debt:        
       Average outstanding debt balance $49.5  $43.7 
 Average interest rate  3.8%  5.9%
Income Taxes.The effective tax rate used to compute income taxes from continuing operations decreased to 39.7% in 2008 compared with 41.1% in 2007.  The decrease in the effective tax rate for continuing operations which had a favorable impact of 2 cents per share, was due to numerous factors as shown in the effective income tax rate reconciliation provided in Note 14 on page 66.69.

2007 versus 2006

Revenues. Overall, sales in 2007 decreased by 1.6% compared with 2006, primarily due to a decline in sales in Aluminum Extrusions. For more information on net sales and volume, see the executive summary beginning on page 17.

Operating Costs and Expenses. Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales was 15.3% in 2007 and 14.5% in 2006. The gross profit margin increased in Film Products but decreased in Aluminum Extrusions primarily because of the changes in sales and volume. In addition, gross profit improvement in



Film Products was partially offset by an estimated negative impact in 2007 of $2.5 million from the lag in the pass-through of changes in average resin costs and year-end adjustments for LIFO. In 2006, we estimated a favorable impact of $4.5 million from the lag in the pass-through of changes in average resin costs and year-end adjustments for LIFO.

          As a percentage of sales, selling, general and administrative and R&D expenses were 8.3% in 2007, up from 7.7% in 2006. The increase is primarily due to higher costs in Film Products, including costs associated with a new information system and a reorganization that resulted in the hiring of additional personnel.

          Losses associated with plant shutdowns, asset impairments and restructurings in 2007 totaled $4.1 million ($2.8 million after taxes) and included:

•

A fourth quarter charge of $1.2 million ($780,000 after taxes), a third quarter charge of $1.2 million ($793,000 after taxes) and a first quarter charge of $366,000 ($238,000 after taxes) related to the estimated loss on the sub-lease of a portion of the AFBS (formerly Therics) facility in Princeton, New Jersey;

•

A fourth quarter charge of $256,000 ($256,000 after taxes) and a first quarter charge of $338,000 ($284,000 after taxes) for asset impairments in Film Products;

•

A third quarter charge of $493,000 ($309,000 after taxes) and a second quarter charge of $99,000 ($62,000 after taxes) for severance and other employee-related costs in Aluminum Extrusions;

•

A second quarter charge of $26,000 ($16,000 after taxes) and a first quarter charge of $29,000 ($17,000 after taxes) for costs related to the shutdown of the films manufacturing facility in LaGrange, Georgia; and

•

A third quarter charge of $42,000 ($26,000 after taxes) related to expected future environmental costs at the aluminum extrusions facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statements of income).

          Results in 2007 include a fourth-quarter gain of $2.7 million ($1.7 million after taxes) on the sale of corporate real estate (proceeds of $3.8 million) and a third-quarter loss from the write-down of an investment of $2.1 million ($1.3 million after taxes). The pretax amounts for both of these items are included in “Other income (expense), net” in the consolidated statements of income and separately shown in the segment operating profit table on page 14. Income taxes in 2007 include the recognition of a valuation allowance against deferred tax assets of $1.1 million in the third quarter for expected limitations on the utilization of certain assumed capital losses.

          For more information on costs and expenses, see the executive summary beginning on page 17.

Interest Income and Expense. Interest income, which is included in “Other income (expense), net” in the consolidated statements of income, was $1.2 million in 2007 and $1.2 million in 2006. Our policy permits investment of excess cash in marketable securities that have the highest credit ratings and maturities of less than one year with the primary objectives being safety of principal and liquidity.

          Interest expense decreased to $2.7 million in 2007, a decline of $2.8 million versus 2006 due to lower average debt outstanding. Average debt outstanding and interest rates were as follows:

 

 

 

 

 

 

 

 

(In Millions)

 

2007

 

2006

 

Floating-rate debt with interest charged on a rollover basis at one-month LIBOR plus a credit spread:

 

 

 

 

 

 

 

Average outstanding debt balance

 

$

41.5

 

$

91.0

 

Average interest rate

 

 

6.0

%

 

5.9

%

Fixed-rate and other debt:

 

 

 

 

 

 

 

Average outstanding debt balance

 

$

2.2

 

$

4.4

 

Average interest rate

 

 

3.8

%

 

6.5

%

Total debt:

 

 

 

 

 

 

 

Average outstanding debt balance

 

$

43.7

 

$

95.4

 

Average interest rate

 

 

5.9

%

 

5.9

%

Financial Condition


Income Taxes. The effective tax rate increased to 41.1% in 2007 compared with 35.9% in 2006 mainly due to a valuation allowance for possible deferred tax benefits on capital loss carry-forwards and lower income tax benefits expected for the Extraterritorial Income Exclusion and Domestic Production Activities Deduction and the research and development (“R&D”) tax credit. For more information on the variances in our effective tax rate between years, see Note 14 of the notes to financial statements.

Financial Condition

Assets and Liabilities


Changes in assets and liabilities from continuing operations from December 31, 20072008 to December 31, 20082009 are summarized below:


●  

•

Accounts receivable decreased $5.7$17.4 million (5.8%(19.0%).

-  

–

Accounts receivable in Film Products decreased by $3.9$4.2 million due mainly to lower sales and the strengthening of the U.S. dollar relative to other foreign currencies.improved cash collections.  Days sales outstanding (“DSO”) remained consistentwere 43 at December 31, 2009 compared to 45 at December 31, 2008 and 2007.

2008.

-  

–

Accounts receivable for continuing operations in Aluminum Extrusions decreased by $1.8 million.$13.2 million due to lower sales volumes in 2009.  DSO was 44 at December 31, 2009 compared with 43 at December 31, 2008, compared with 40 at December 31, 2007, which was within the range experienced over the last twelve months.

●  

•

Inventories decreased $11.9$1.3 million (24.4%(3.5%).

-  

–

Inventories in Film Products decreasedincreased by approximately $9.9 million.$568,000 as a result of the effect of changes in the U.S. dollar value of currencies for operations outside the U.S.  Inventory days decreased towere relatively consistent at 36 at December 31, 2009 and 2008, from 43 at December 31, 2007, primarily due to an overall effort to reduce inventory levels and a strengthening ofrespectively, which is within the U.S. dollar relative to other foreign currencies.

range experience over the past twelve months.

-  

–

Inventories for continuing operations ofin Aluminum Extrusions decreased by approximately $2.0$1.9 million.  Inventory days decreasedincreased to 42 at December 31, 2009 compared with 30 at December 31, 2008 compared with 352008.  Lower inventories at December 31, 2007,Aluminum Extrusions can be primarily dueattributed to cyclical fluctuations and an overall effort to reducea decrease in inventory levels.

levels as a result of reduced customer demand.

●  

•

Net property, plant and equipment decreased $32.2$6.0 million (12.0%(2.5%) withdue primarily to depreciation of $39.9 million and asset impairments and property disposals of $2.7 million, partially offset by capital expenditures of $20.9$34.1 million offset by depreciation of $42.6 million, machinery and equipment asset impairmentsa change in Film Products of $8.6 million, the appreciationvalue of the U.S. dollar relative to foreign currencies ($1.42.5 million decline)increase).

●  Goodwill and $544,000other intangibles decreased by $30.5 million (22.6%) primarily due to the goodwill impairment charge of $30.6 million related to our aluminum extrusions business (see Note 1 beginning on page 47).
●  Other assets increased by $6.6 million (17.0%) primarily due to the $5.1 million write-up of an investment accounted for property disposals.

under the fair value method.

●

•

Accounts payable decreased by $12.2$1.2 million (18.1%(2.2%).

-  

–

Accounts payable in Film Products decreasedincreased by $8.3$1.0 million primarily due mainly to lower sales. normal volatility associated with the timing of payments.


27

-  Accounts payable days were 25 at December 31, 2008 compared with 30 at December 31, 2007, which was within the range experienced over the last twelve months.

–

Accounts payable for continuing operations in Aluminum Extrusions increaseddecreased by $199,000. Accounts payable days were 42 at December 31, 2008 compared with 37 days at December 31, 2007,$2.3 million, or 8.5%, primarily due to cyclical fluctuations and improved payable terms with suppliers.

lower sales volumes.

-  

–

Accounts payable decreasedincreased at corporate by $4.1 million from the prior year primarily due to a$128,000.

●  Accrued expenses decreased by $3.4 million amount payable at December 31, 2007 to a securities broker relating to our repurchase of Tredegar common stock.

•

Accrued expenses increased by $4.7 million (13.9%(8.9%) due primarily due to the increasedecrease in unrealized losses on future contracts that are used to hedge fixed pricedfixed-priced forward sales contracts with certain customer contracts in Aluminum Extrusions.

Extrusions, partially offset by higher accruals for certain performance-based incentive programs.

●  

•

Other noncurrent assetsliabilities decreased and other noncurrent liabilities increasedby $10.7 million (37.0%) due primarily to the change in the funded status of our defined benefit pension plans.  As of December 31, 2008,2009, the funded status of our defined benefit pension plan was a net liability of $17.1$6.0 million in “Other noncurrent liabilities” compared with an asset of $86.3$17.1 million in “Other assets and deferred charges” and a liability of $2.3 million in “Other noncurrent liabilities” as of December 31, 2007.

2008.

●  

•

Net deferred income tax liabilities in excess of assets decreasedincreased by $22.0$15.8 million primarily due to numerous changes between years in the balance of the components shown in the December 31, 20082009 and 20072008 schedule of deferred income tax assets and liabilities provided in Note 14 on page 66.70.  Income taxes recoverable increaseddecreased by $12.2$8.5 million primarily due primarily to the tax benefits on certain net operating and capital losses in 2008 that will bewere recovered through the carryback to prior years that had operating income and capital gains.



Net capitalization and indebtedness as defined under our revolving credit agreement as of December 31, 20082009 were as follows:

 

 

 

 

 

 

Net Capitalization and Indebtedness
as of December 31, 2008 (In Thousands)

 

 

Net capitalization:

 

 

 

 

Cash and cash equivalents

 

$

45,975

 

Debt:

 

 

 

 

$300 million revolving credit agreement maturing December 15, 2010

 

 

21,000

 

Other debt

 

 

1,702

 

 

 

 

Total debt

 

 

22,702

 

 

 

 

Cash and cash equivalents net of debt

 

 

23,273

 

Shareholders’ equity

 

 

420,416

 

 

 

 

Net capitalization

 

$

397,143

 

 

 

 

Indebtedness as defined in revolving credit agreement:

 

 

 

 

Total debt

 

$

22,702

 

Face value of letters of credit

 

 

6,406

 

Liabilities relating to derivative financial instruments, net of cash deposits

 

 

7,085

 

 

 

 

Indebtedness

 

$

36,193

 

 


  
Net Capitalization and Indebtedness as of Dec. 31, 2009 
(In Thousands) 
 Net capitalization:   
         Cash and cash equivalents $90,663 
         Debt:    
                 $300 million revolving credit agreement maturing    
                        December 15, 2010  - 
                 Other debt  1,163 
                 Total debt  1,163 
         Cash and cash equivalents net of debt  (89,500)
         Shareholders' equity  429,072 
         Net capitalization $339,572 
     
Indebtedness as defined in revolving credit agreement: 
         Total debt $1,163 
         Face value of letters of credit  7,030 
         Liabilities relating to derivative financial    
                     instruments, net of cash deposits  255 
         Indebtedness $8,448 

Under the revolving credit agreement, borrowings are permitted up to $300 million, and $233$222 million was available to borrow at January 1,December 31, 2009 based on the date our maximum leverage covenant dropped from 3.0x adjusted EBITDA to 2.75x adjusted EBITDA.most restrictive covenants (no amounts borrowed at December 31, 2009).  The credit spread and commitment fees charged on the unused amount under the revolving credit agreement at various indebtedness-to-adjusted EBITDA levels are as follows:

 

 

 

 

 

 

 

Pricing Under Revolving Credit Agreement (Basis Points)

Indebtedness-to-Adjusted
EBITDA Ratio

 

Credit Spread
Over LIBOR

 

Commitment
Fee

> 2.50x but <= 3x

 

125

 

 

25

 

> 1.75x but <= 2.50x

 

100

 

 

20

 

> 1x but <=1.75x

 

87.5

 

 

17.5

 

<= 1x

 

75

 

 

15

 


 Pricing Under Revolving Credit Agreement (Basis Points)
 Indebtedness-to-Adjusted  Credit Spread   Commitment
 EBITDA Ratio  Over LIBOR   Fee
 > 2.50x but <= 3x  125   25
 > 1.75x but <= 2.50x  100   20
 > 1x but <=1.75x  87.5   17.5
 <= 1x    75   15

28

At December 31, 2008,2009, the interest rate on debt borrowed under the revolving credit agreement waswould have been priced at one-month LIBOR plus the applicable credit spread of 75 basis points.



The computations of adjusted EBITDA, adjusted EBIT, the leverage ratio and interest coverage ratio as defined in the credit agreement are presented below along with the related most restrictive covenants.  Adjusted EBITDA and adjusted EBIT as defined in the credit agreement are not intended to represent cash flow from operations as defined by GAAP and should not be considered as either an alternative to net income or to cash flow.

 

 

 

 

 

 

Computations of Adjusted EBITDA, Adjusted EBIT, Leverage Ratio and
Interest Coverage Ratio as Defined in Revolving Credit Agreement Along with Related Most
Restrictive Covenants
As of and for the Twelve Months Ended December 31, 2008 (In Thousands)

 

 

Computations of adjusted EBITDA and adjusted EBIT as defined in revolving credit agreement for the twelve months ended December 31, 2008:

 

 

 

 

Net income

 

$

28,936

 

Plus:

 

 

 

 

After-tax losses related to discontinued operations

 

 

705

 

Total income tax expense for continuing operations

 

 

19,486

 

Interest expense

 

 

2,393

 

Charges related to stock option grants and awards accounted for under the fair value-based method

 

 

782

 

Losses related to the application of the equity method of accounting

 

 

—

 

Depreciation and amortization expense for continuing operations

 

 

42,676

 

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 $2,839)

 

 

12,723

 

Minus:

 

 

 

 

After-tax income related to discontinued operations

 

 

—

 

Total income tax benefits for continuing operations

 

 

—

 

Interest income

 

 

(1,006

)

All non-cash gains and income, plus cash gains and income 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 $3,083)

 

 

(8,683

)

Plus or minus, as applicable, pro forma EBITDA adjustments associated with acquisitions and asset dispositions

 

 

—

 

 

 

 

Adjusted EBITDA as defined in revolving credit agreement

 

 

98,012

 

Less: Depreciation and amortization expense for continuing operations (including pro forma for acquisitions and asset dispositions)

 

 

(42,676

)

 

 

 

Adjusted EBIT as defined in revolving credit agreement

 

$

55,336

 

 

 

 

Shareholders’ equity at December 31, 2008 as defined in revolving credit agreement

 

$

486,154

 

Computations of leverage and interest coverage ratios as defined in revolving credit agreement:

 

 

 

 

Leverage ratio (indebtedness-to-adjusted EBITDA)

 

 

.37

x

Interest coverage ratio (adjusted EBIT-to-interest expense)

 

 

23.12

x

Most restrictive covenants as defined in revolving credit agreement:

 

 

 

 

Maximum permitted aggregate amount of dividends that can be paid by Tredegar during the term of the revolving credit agreement ($100,000 plus 50% of net income generated after October 1, 2005)

 

$

141,638

 

Minimum adjusted shareholders’ equity permitted ($315,000 plus 50% of net income generated, to the extent positive, after July 1, 2007)

 

$

336,147

 

Maximum leverage ratio permitted:

 

 

 

 

Ongoing (2.75x effective January 1, 2009)

 

 

3.00

x

Pro forma for acquisitions

 

 

2.50

x

Minimum interest coverage ratio permitted

 

 

2.50

x

 



Computations of Adjusted EBITDA, Adjusted EBIT, Leverage Ratio and 
Interest Coverage Ratio as Defined in Revolving Credit Agreement Along with Related Most 
Restrictive Covenants 
As of and for the Twelve Months Ended December 31, 2009 (In Thousands) 
 Computations of adjusted EBITDA and adjusted EBIT as defined in   
 revolving credit agreement for the twelve months ended December 31, 2009:   
 Net loss $(1,353)
 Plus:    
 After-tax losses related to discontinued operations  - 
 Total income tax expense for continuing operations  18,663 
 Interest expense  783 
 Charges related to stock option grants and awards accounted for    
      under the fair value-based method  1,692 
 Losses related to the application of the equity method of accounting  - 
 Depreciation and amortization expense for continuing operations  39,997 
 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 $2,439)  34,003 
 Minus:    
 After-tax income related to discontinued operations  - 
 Total income tax benefits for continuing operations  - 
 Interest income  (806)
 All non-cash gains and income, plus cash gains and income 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 $3,738)  (8,987)
 Plus or minus, as applicable, pro forma EBITDA adjustments associated    
 with acquisitions and asset dispositions  - 
 Adjusted EBITDA as defined in revolving credit agreement  83,992 
 Less: Depreciation and amortization expense for continuing operations    
 (including pro forma for acquisitions and asset dispositions)  (39,997)
 Adjusted EBIT as defined in revolving credit agreement $43,995 
 Shareholders' equity at December 31, 2009 as defined in revolving credit agreement $429,072 
 Computations of leverage and interest coverage ratios as defined in    
 revolving credit agreement:    
 Leverage ratio (indebtedness-to-adjusted EBITDA)  .10x
 Interest coverage ratio (adjusted EBIT-to-interest expense)  56.19x
 Most restrictive covenants as defined in revolving credit agreement:    
 Maximum permitted aggregate amount of dividends that can be paid    
 by Tredegar during the term of the revolving credit agreement    
 ($100,000 plus 50% of net income generated after October 1, 2005) $141,638 
 Minimum adjusted shareholders' equity permitted ($315,000 plus 50% of    
 net income generated, to the extent positive, after July 1, 2007) $349,879 
 Maximum leverage ratio permitted:    
 Ongoing  2.75x
 Pro forma for acquisitions  2.50x
 Minimum interest coverage ratio permitted  2.50x

29

          Noncompliance

While we had no outstanding borrowings on our $300 million credit facility as of December 31, 2009, noncompliance with any one or more of the debt covenants may have a material adverse effect on financial condition or liquidity in the event such noncompliance cannot be cured or should we be unable to obtain a waiver from the lenders.  Renegotiation of the covenant(s) through an amendment to the credit agreement may effectively cure the noncompliance, but may have an effect on financial condition or liquidity depending upon how the covenant is renegotiated.


We are obligated to make future payments under various contracts as set forth below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments Due by Period

 

 

(In Millions)

 

2009

 

2010

 

2011

 

2012

 

2013

 

Remainder

 

Total

 

 

Debt

 

$

.5

 

$

21.5

 

$

.3

 

$

.1

 

$

.3

 

$

—

 

$

22.7

 

Operating leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AFBS (formerly Therics)

 

 

1.7

 

 

1.7

 

 

.4

 

 

—

 

 

—

 

 

—

 

 

3.8

 

Other

 

 

1.3

 

 

1.3

 

 

1.4

 

 

1.3

 

 

.2

 

 

—

 

 

5.5

 

Estimated contributions required (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit plans

 

 

4.4

 

 

5.4

 

 

6.3

 

 

5.7

 

 

4.9

 

 

1.4

 

 

28.1

 

Other postretirement benefits

 

 

.5

 

 

.5

 

 

.5

 

 

.6

 

 

.6

 

 

3.3

 

 

6.0

 

Capital expenditure commitments (2)

 

 

17.5

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

17.5

 

Estimated obligations relating to uncertain tax positions (3)

 

 

2.2

 

 

—

 

 

—

 

 

—

 

 

—

 

 

1.6

 

 

3.8

 

 

Total

 

$

28.1

 

$

30.4

 

$

8.9

 

$

7.7

 

$

6.0

 

$

6.3

 

$

87.4

 

 


                      
  Payments Due by Period 
(In Millions) 2010  2011  2012  2013  2014  Remainder  Total 
Debt $.5  $.3  $.1  $.3  $-  $-  $1.2 
Operating leases:                            
     AFBS (formerly Therics)  1.7   .4   -   -   -   -   2.1 
     Other  1.3   1.4   1.3   .2   .2   -   4.4 
Estimated contributions required (1) :
                            
     Defined benefit plans  .2   .2   8.3   1.8   .2   1.9   12.6 
     Other postretirement benefits  .5   .5   .5   .6   .6   3.2   5.9 
Capital expenditure commitments (2)
  1.5   -   -   -   -   -   1.5 
Estimated obligations relating to                            
     uncertain tax positions (3)
  -   -   -   -   -   1.5   1.5 
Total $5.7  $2.8  $10.2  $2.9  $1.0  $6.6  $29.2 

(1)

(1)

Estimated minimum required contributions for defined benefit plans and benefit payments for other postretirement plans are based on actuarial estimates using current assumptions for discount rates, long-term rate of return on plan assets, rate of compensation increases and health care cost trends. The expected defined benefit plan contribution estimates for 2009 2010 through 20182019 were determined under provisions of the Pension Protection Act of 2006 using the preliminary assumptions chosen by Tredegar for the 20082009 plan year.  TredegarTrede gar has determined that it is not practicable to present defined benefit contributions and other postretirement benefit payments beyond 2018.2019.  See Note 11 on page 60.

63.

(2)

(2)

Represents contractual obligations for plant construction and purchases of real property and equipment primarily related to the capacity expansion project at our aluminum extrusions facility in Carthage, Tennessee.equipment.  See Note 13 on page 65.

68.

(3)

(3)

Amounts for which reasonable estimates about the timing of payments cannot be made are included in the remainder column.

We believe that existing borrowing availability, our current cash balances and our cash flow from operations will be sufficient to satisfy our working capital, capital expenditure and dividend requirements for the foreseeable future.


From time to time, we enter into transactions with third parties in connection with the sale of assets or businesses in which we agree to indemnify the buyers or third parties involved in the sale for certain liabilities or risks related to the assets or business.  Also, in the ordinary course of our business, we may enter into agreements with third parties for the sale of goods or services that may contain indemnification provisions.  In the event that an indemnification claim is asserted, liability for indemnification would be subject to an assessment of the underlying facts and circumstances under the terms of the applicable agreement.  Further, any indemnification payments may be limited or barred by a monetary cap, a time limitation, or a deductible or bas ket.  For these reasons, we are unable to estimate the maximum potential amount of the potential future liability under the indemnity provisions of these agreements.  We do, however, accrue for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable.  We disclose contingent liabilities if the probability of loss is reasonably possible and significant.

Shareholders’ Equity

At December 31, 2009, we had 33,887,550 shares of common stock outstanding and a total market capitalization of $536.1 million, compared with 33,909,932 shares of common stock outstanding and a total market capitalization of $616.5 million at December 31, 2008.


30
                   We purchased 105,497 shares in 2009 and 1.1 million shares in 2008 on the open market at an average price of $14.44 and $14.88 per share, respectively.  See the issuer purchases of equity securities section of Item 5 on page 9 regarding purchases of our common stock and our standing authorization permitting additional purchases as of December 31, 2009.  From January 1, 2010 through February 26, 2010, we have repurchased an additional 750,500 shares of Tredegar common stock for $12.2 million.

Cash Flows

The discussion in this section supplements the information presented in the consolidated statements of cash flows on page 45.  Cash flows for discontinued operations have not been separately disclosed in the consolidated statements of cash flows.
                     Cash provided by operating activities was $103.2 million in 2009 compared with $75.4 million in 2008.  The increase is due primarily to normal volatility of working capital components (see assets and liabilities section on page 27 for discussion of changes in working capital).
                     Cash used in investing activities was $31.7 million in 2009 compared with cash provided by investing activities of $3.5 million in 2008. The change between periods was primarily due to proceeds received in 2008 from the sale of our aluminum extrusions business in Canada of $23.4 million and a $16.6 million increase in capital expenditures.  Capital expenditures in 2009 primarily included the expansion of capacity at our aluminum extrusion facility Carthage, Tennessee as well as the normal replacement of machinery and equipment.  See the executive summary beginning on page 18 and the business segment review beginning on page 34 for more information on capital expenditures.
      Net cash flow used in financing activities was $28.2 million in 2009 and related to net repayments on our revolving credit facility with excess cash flow of $21.5 million, the payment of regular quarterly dividends of $5.4 million (4 cents per share per quarter) and repurchase of 105,497 shares of Tredegar common stock for $1.5 million.

                     Cash provided by operating activities was $75.4 million in 2008 compared with $95.6 million in 2007.  The decrease is due primarily to normal volatility of working capital components (see assets and liabilities section on page 25 for discussion of working capital trends) and lower income from continuing operations, partially offset by lower income tax payments (income tax payments were approximately $8.8 million in 2008 compared with $17 million in 2007).
                     Cash provided by investing activities was $3.5 million in 2008 compared with cash used in investing activities of $36.3 million in 2007. The improvement was primarily due to proceeds received in 2008 from the sale of our aluminum extrusions business in Canada of $23.4 million and lower investments in 2008 compared with 2007.  Capital expenditures in 2008 primarily included the normal replacement of machinery and equipment and the expansion of capacity at our aluminum extrusion facility Carthage, Tennessee.
                     Net cash flow used in financing activities was $80.7 million in 2008 and related to net repayments on our revolving credit facility with excess cash flow of $59.5 million, the payment of regular quarterly dividends of $5.4 million (4 cents per share per quarter) and repurchases of Tredegar common stock ($19.8 million including settlement of $3.4 million), partially offset by proceeds from the exercise of stock options of $4.1 million.

Quantitative and Qualitative Disclosures about Market Risk

Tredegar has exposure to the volatility of interest rates, polyethylene and polypropylene resin prices, aluminum ingot and scrap prices, energy prices, foreign currencies and emerging markets.  See the assets and liabilities section beginning on page 27 regarding credit agreement and interest rate exposures.

Changes in resin prices, and the timing of those changes, could have a significant impact on profit margins in Film Products.  Profit margins in Aluminum Extrusions are sensitive to fluctuations in aluminum ingot and scrap prices as well as natural gas prices (natural gas is the principal energy source used to operate our casting furnaces).  There is no assurance of our ability to pass through higher raw material and energy costs to our customers.
31

See the executive summary beginning on page 18 and the business segment review beginning on page 34 for discussion regarding the impact of the lag in the pass-through of resin price changes.  The volatility of average quarterly prices of low density polyethylene resin in the U.S. (a primary raw material for Film Products) is shown in the chart below.
 Source:  Quarterly averages computed by Tredegar using monthly data provided by Chemical Data Inc. ("CDI").  In January 2005, CDI reflected a 4 cents
 per pound non-market adjustment based on their estimate of the growth of discounts over the 2000 to 2003 period.  The 4th quarter 2004 average rate
 of 67 cents per pound is shown on a pro forma basis as if the non-market adjustment was made in October 2004.
Resin prices in Europe, Asia and South America have exhibited similar 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, Film Products 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 the executive summary on page 18 and the business segment review on page 34 for more information).

In the normal course of business, we enter into fixed-price forward sales contracts with certain customers for the sale of fixed quantities of aluminum extrusions at scheduled intervals.  In order to hedge our exposure to aluminum price volatility (see the chart below) under these fixed-price arrangements, which generally have a duration of not more than 12 months, we enter into a combination of forward purchase commitments and futures contracts to acquire or hedge aluminum, based on the scheduled deliveries.  See Note 6 on page 57 for more information.
Source:  Quarterly averages computed by Tredegar using daily closing data provided by Bloomberg.
32

In Aluminum Extrusions, we hedge from time to time a portion of our exposure to natural gas price volatility by entering into fixed-price forward purchase contracts with our natural gas suppliers.  We estimate that, in an unhedged situation, every $1 per mmBtu per month change in the market price of natural gas has a $70,000 impact on the continuing monthly operating profit for our U.S. operations in Aluminum Extrusions.  In September 2005, we announced an energy surcharge for our aluminum extrusions business in the U.S. to be applied when the previous quarter’s NYMEX natural gas average settlement price is in excess of $8.85 per mmBtu.

 Source:  Quarterly averages computed by Tredegar using monthly NYMEX settlement prices.
We sell to customers in foreign markets through our foreign operations and through exports from U.S. plants.  The percentage of sales and total assets for continuing manufacturing operations related to foreign markets for 2009 and 2008 are as follows:
     
   Tredegar Corporation - Continuing Manufacturing Operations   
   Percentage of Net Sales and Total Assets Related to Foreign Markets   
   2009  2008   
  
 % of Total
 Net Sales *
  % Total
Assets -		  % of Total
Net Sales *		 
 % Total
 Assets -
  
  
 Exports
 From
 U.S.
 Foreign
 Oper-
ations
 
 Foreign
 Oper-
ations *
  Exports
From
U.S.
 Foreign
Oper-
 ations
  Foreign
Oper-
ations *		  
 Canada                 6                  -                   -                  5                  -                   -  
 Europe                  1                19                 14                   1                18                 15  
 Latin America                  -                 3                  2                   -                 3                  2  
 Asia                 7                 6                  6                  3                 7                  7  
 Total % exposure          
  to foreign          
  markets                14               28                22                  9               28                24  
 *The percentages for foreign markets are relative to Tredegar's total net sales and total assets from manufacturing operations (consolidated net sales and total assets from continuing operations excluding cash and cash equivalents and AFBS (formerly Therics)).
We attempt to match the pricing and cost of our products in the same currency and generally view the volatility of foreign currencies (see trends for the Euro and Chinese Yuan in the chart below) and emerging markets, and the corresponding impact on earnings and cash flow, as part of the overall risk of operating in a global environment.  Exports from the U.S. are generally denominated in U.S. Dollars.  Our foreign currency exposure on income from continuing foreign operations relates to the Euro, the Chinese Yuan, the Hungarian Forint and the Brazilian Real.


33

In Film Products, where we are typically able to match the currency of our sales and costs, we estimate that the change in value of foreign currencies relative to the U.S. Dollar had a negative impact on operating profit of approximately $1.9 million in 2009 compared with 2008, a positive impact of $3.6 million in 2008 compared with 2007 and a positive impact of $3.0 million in 2007 compared with 2006.

Trends for the Euro and Chinese Yuan are shown in the chart below:

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

Business Segment Review

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.

Film Products

Net Sales. See the executive summary beginning on page 18 for the discussion of net sales (sales less freight) in Film Products in 2009 compared with 2008.

                     In Film Products, net sales were $522.8 million in 2008, down 1.5% versus $531.0 million in 2007.  Operating profit from ongoing operations was $53.9 million in 2008, down 9.3% compared with $59.4 million in 2007. Volume decreased to 221.2 million pounds in 2008 from 244.3 million pounds in 2007.  The volume decline was primarily due to competitive pressures in most product segments, most notably the personal care and surface protection markets.  Net sales declined compared to 2007 due to lower volume, partially offset by higher selling prices from the pass-through of increased resin costs. A significant portion of the substantially lower resin costs realized in the fourth quarter of 2008 were not passed through t o customers via lower selling prices until the first quarter of 2009.

Operating Profit.  See the executive summary beginning on page 18 for the discussion of operating profit in Film Products in 2009 compared with 2008.


34

                    Operating profit from ongoing operations in Film Products decreased in 2008 versus 2007 due primarily to lower volume, partially offset by cost reduction efforts and the benefit from appreciation of the U.S. dollar value of currencies for operations outside of the U.S. (benefit from currency rate changes was approximately $3.6 million).  Film Products 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.  The estimated unfavorable impact of the lag in the pass-through of changes in average resin costs and year-end adjustments for inventories accounted for under LIFO was $600,000 and $2.5 million for 2008 and 2007, r espectively.

Identifiable Assets.  Identifiable assets in Film Products decreased to $371.6 million at December 31, 2009, from $399.9 million at December 31, 2008, due primarily to the depreciation of $32.2 million, partially offset by capital expenditures of $11.5 million, a lower accounts receivable balance ($4.2 million) and higher accruals for performance-based incentive plans.  See page 27 for further discussion on changes in assets and liabilities.

Identifiable assets in Film Products decreased to $399.9 million at December 31, 2008, from $488.0 million at December 31, 2007, due primarily to the decline in prepaid pension assets of $42.9 million as the funded status of our pension plans shifted from a net asset to a net liability, depreciation of $34.5 million and machinery and equipment asset impairments of $8.6 million, partially offset by capital expenditures of $11.1 million and efforts to lower inventory levels (total inventory balances decreased $9.9 million).  See page 25 for further discussion on changes in assets and liabilities.

Depreciation, Amortization and Capital Expenditures.   Depreciation and amortization for Film Products was $32.4 million in 2009, $34.6 million in 2008 and $34.1 million in 2007.  The decrease in 2009 compared with 2008 is primarily due to the write-down of certain assets in prior years and lower than normal capital expenditures in recent years.  The increase in 2008 compared with 2007 is primarily due to capital expenditures in 2007 and 2008 and appreciation of the U.S. Dollar value of currencies for operations outside of the U.S.  We expect depreciation and amortization expense for Film Products will be approximately $36 million in 2010.

Capital expenditures increased to $11.5 million in 2009 compared with $11.1 million in 2008 and $15.3 million in 2007.  Capital expenditures in 2009 and 2008 primarily included the normal replacement of machinery and equipment.  Capital expenditures in 2010 are expected to increase to approximately $24 million as spending returns to more normalized levels.

Aluminum Extrusions (Continuing Operations)

Net Sales and Operating Profit.  See the executive summary beginning on page 18 for the discussion of net sales (sales less freight) and operating profit for the continuing operations of Aluminum Extrusions in 2009 compared with 2008.

Net sales from continuing operations in Aluminum Extrusions were $340.3 million in 2008, down 8.5% from $371.8 million in 2007.  Operating profit from ongoing U.S. operations decreased to $10.1 million in 2008, down 38.7% from $16.5 million in 2007.  Volume from continuing operations was 136.2 million pounds in 2008, down 12.6% from 155.8 million pounds in 2007.  The decrease in net sales was mainly due to lower volume.  Shipments declined in most markets.  Shipments in non-residential construction, which comprised 72% of total volume in 2008, declined by approximately 2.7% in 2008 compared with 2007.  Operating profit from ongoing U.S. operations declined in 2008 compared with 2007 mainly due to lower volume.

Identifiable Assets.  Identifiable assets in Aluminum Extrusions were $82.4 million at December 31, 2009, $112.3 million at December 31, 2008 and $115.2 million at December 31, 2007.  The decline of $29.9 million at the end of 2009 compared with 2008 is mainly due to the goodwill impairment charge of $30.6 million in 2009 and lower accounts receivable balances of $13.2 million, partially offset by higher property, plant and equipment balances from capital expenditures of $22.5 million, net of depreciation expense of $7.6 million.


35

Depreciation, Amortization and Capital Expenditures.  Depreciation and amortization for Aluminum Extrusions was $7.6 million in 2009, $8.0 million in 2008 and $8.5 million in 2007.  We expect depreciation and amortization expense for Aluminum Extrusions to be approximately $9.5 million in 2010.

Capital expenditures totaled $22.5 million in 2009, $9.7 million in 2008 and $4.4 million in 2007.  Capital expenditures of $19.0 million in 2009 and $5.7 million in 2008 reflect spending on the 18-month project to expand the capacity of our Carthage, Tennessee manufacturing facility.  The new capacity will be dedicated to serving customers in the nonresidential construction sector.  Capital expenditures are expected to be approximately $6.4 million in 2010.

Item 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See discussion of quantitative and qualitative disclosures about market risk beginning on page 31 in Management’s Discussion and Analysis of Financial Conditions and Results of Operations.


Item 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the index on page 41 for references to the report of the independent registered public accounting firm, the consolidated financial statements and selected quarterly financial data.


Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.


Item 9A.     CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation, with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report.  Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports t hat we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

36


Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and board of directors regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements in accordance with U.S. generally accepted accounting principles and includes policies and procedures that:

·  Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
·  Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and
·  Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

Internal control over financial reporting includes the controls themselves, monitoring (including internal auditing practices) and actions taken to correct deficiencies as identified.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on their evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2009.

The effectiveness of our internal control over financial reporting as of December 31, 2009 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included on pages 41-42.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended December 31, 2009, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


Item 9B.    OTHER INFORMATION

None.

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PART III

Item 10.      DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information concerning directors and persons nominated to become directors of Tredegar to be included in our Proxy Statement under the headings "Election of Directors" and “Tredegar’s Board of Directors” is incorporated herein by reference.

The information concerning corporate governance to be included in the Proxy Statement under the heading “Board Meetings, Meetings of Non-Management Directors and the Board Committees” and “Corporate Governance” is incorporated herein by reference.

The information to be included in the Proxy Statement under the heading “Section 16(a) Beneficial Ownership Reporting Requirements” is incorporated herein by reference.

Set forth below are the names, ages and titles of our executive officers:

NameAgeTitle
Nancy M. Taylor50President and Chief Executive Officer
Duncan A. Crowdis57President, Aluminum Extrusions and Corporate Vice President
A. Brent King41Vice President, General Counsel and Corporate Secretary
Monica Moretti40President, Tredegar Film Products
Kevin A. O’Leary51Vice President, Chief Financial Officer and Treasurer
Larry J. Scott59Vice President, Audit
Nancy M. Taylor.  Ms. Taylor was elected President and Chief Executive Officer effective February 1, 2010.  Prior to February 1, 2010, Ms. Taylor was President of Tredegar Films Products and Executive Vice President.  She was elected Executive Vice President effective January 1, 2009.  She was elected President of Tredegar Film Products effective April 5, 2005.  She was elected Senior Vice President effective November 1, 2004.  Ms. Taylor served as Senior Vice President, Strategy and Special Projects from November 1, 2004 until April 5, 2005.  Ms. Taylor served as Managing Director, European Operations, of Tredegar Film Products from January 1, 2003 until November 1, 2004.  Ms. Taylor served as Vice Presi dent, Administration and Corporate Development from September 10, 2001 until February 12, 2003.  Ms. Taylor served as Secretary from February 24, 1994 until February 12, 2003.  She served as Vice President, Law, from November 18, 1998 until September 10, 2001, and served as General Counsel from May 22, 1997 until July 25, 2000.


Duncan A. Crowdis.  On January 6, 2009, Mr. Crowdis was appointed Vice President effective January 1, 2009.  Mr. Crowdis was elected President of Tredegar's Aluminum Extrusions subsidiaries on June 13, 2005, and continues to serve in such capacity.  Mr. Crowdis served as Plant Manager of Aluminum Extrusions from March, 2005 until June, 2005.  He previously served as Chief Process Officer of Aluminum Extrusions from December, 2002 until March, 2005.


A. Brent King.  Mr. King was elected Vice President, General Counsel and Corporate Secretary on October 20, 2008, the date that he joined Tredegar.  From October, 2005 until October, 2008, he served as General Counsel at Hilb Rogal & Hobbs.  Mr. King was Vice President and Assistant Secretary for Hilb Rogal & Hobbs from October, 2001 to October, 2008.  He served as Associate General Counsel for Hilb Rogal & Hobbs from October, 2001 to October, 2005.
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Kevin A. O’Leary.  Mr. O’Leary was appointed Vice President, Chief Financial Officer and Treasurer effective December 11, 2009.  He was appointed Vice President, Finance, of Tredegar Film Products Corporation, effective January 1, 2009 until December 11, 2009 and served as Director, Finance, of Tredegar Film Products Corporation from October, 2008 until January, 2009.  Mr. O’Leary previously served as Vice President, Finance – Mergers and Acquisitions of the Avery Dennison Retail Information Services Group (“Avery Dennison RIS”), a division of Avery Dennison Corporation from March, 2007 through August, 2008.  He served as General Manager of the Printer Systems division of Avery Dennison RIS from February, 200 6 through February, 2007 and as Director, Finance, of Avery Dennison RIS from August, 2004 through January, 2006.  

Monica Moretti.  Ms. Moretti was elected President of Tredegar Film Products Corporation and its subsidiaries effective February 1, 2010.  She served as Vice President and General Manager, Consumer Care, of Tredegar Film Products Corporation from May, 2008 until January 31, 2010 and as General Manager, Hygienics, of Tredegar Film Products Corporation from March, 2008 until May, 2008.  Ms. Moretti served as Chief Marketing Officer and Vice President, Marketing and Technology, of H.B. Fuller Company from February, 2007 until March, 2008.  She served as Group Vice President, Marketing and Technology, of H.B. Fuller Company from December, 2005 until February, 2007 and as Global Business Unit Manager, Assembly, of H.B. Fuller Company from December, 2004 until December, 2005.

Larry J. Scott.  Mr. Scott was elected Vice President, Audit, on May 24, 2000.  Mr. Scott served as Director of Internal Audit from February 24, 1994 until May 24, 2000.


We have adopted a Code of Conduct that applies to all of our directors, officers and employees (including our chief executive officer, chief financial officer and principal accounting officer) and have posted the Code of Conduct on our web site.  We intend to satisfy the disclosure requirement under Item 10 of Form 8-K relating to amendments to or waivers from any provision of our Code of Conduct applicable to the chief executive officer, chief financial officer and principal accounting officer by posting this information on our web site.  Our Internet address is www.tredegar.com.  The information on or that can be accessed through our web site is not, and shall not be deemed to be, a part of this report or incorporated into other filings we make with the SEC.


Item 11.     EXECUTIVE COMPENSATION

The information to be included in the Proxy Statement under the headings “Compensation of Directors”, “Board Meetings of Non-Management Directors and Board Committees - Executive Compensation Committee Interlocks and Insider Participation”, “Compensation Discussion and Analysis”, “Executive Compensation Committee Report” and “Compensation of Executive Officers” is incorporated herein by reference.


39
Item 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information to be included in the Proxy Statement under the heading "Stock Ownership" is incorporated herein by reference.  The following table summarizes information with respect to equity compensation plans under which securities are authorized for issuance as of December 31, 2009.

 Column (a)  Column (b)   Column (c)   Column (d)  
 
 
 
 
 
 
 
Plan Category
 Number of Securities to
be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights		  Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights		  
 
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans,
Excluding Securities
Reflected in Column
  
Equity compensation plans approved by security holders  *914,100  $16.29   3,591,585  
Equity compensation plans not approved by security holders  -   -   -  
Total  914,100  $16.29   3,591,585  
*  Includes performance stock units that give the holder the right to receive shares of Tredegar common stock upon the satisfaction of certain performance criteria.
Item 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information to be included in the Proxy Statement under the headings “Certain Relationships and Related Transactions” and “Tredegar’s Board of Directors” is incorporated herein by reference.
Item 14.     PRINCIPAL ACCOUNTING FEES AND SERVICES

The following is incorporated herein by reference:

·  Information on accounting fees and services to be included in the Proxy Statement under the heading "Audit Fees;" and
·  Information on the Audit Committee’s procedures for pre-approving certain audit and non-audit services to be included in the Proxy Statement under the heading “Board Meetings, Meetings of Non-Management Directors and Board Committees - Audit Committee Matters”.

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PART IV
Item 15.     EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)List of documents filed as a part of the report:

(1)Financial statements:

Tredegar Corporation
Index to Financial Statements and Supplementary Data Page
Report of Independent Registered Public Accounting Firm41-42
Financial Statements:
        Consolidated Statements of Income for the Years Ended
                December 31, 2009, 2008 and 2007
43
        Consolidated Balance Sheets as of December 31, 2009 and 200844
        Consolidated Statements of Cash Flows for the Years Ended
                December 31, 2009, 2008 and 2007
45
        Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2009, 2008 and 200746
        Notes to Financial Statements47-76
Selected Quarterly Financial Data (Unaudited)77

(2)
Financial statement schedules:

   None.

(3)Exhibits:

See Exhibit Index on pages 84-85.


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Tredegar Corporation:

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Tredegar Corporation and its subsidiaries (the “Company”) at December 31, 2009 and December 31, 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A.  Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable


41
assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance wi th authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP
Richmond, Virginia
March 3, 2010


42
 CONSOLIDATED  STATEMENTS  OF  INCOME         
 Tredegar Corporation and Subsidiaries         
          
 Years Ended December 31 2009  2008  2007 
 (In Thousands, Except Per-Share Data)         
          
 Revenues and other:         
 Sales $648,613  $883,899  $922,583 
      Other income (expense), net  8,464   10,341   1,782 
   657,077   894,240   924,365 
             
 Costs and expenses:            
         Cost of goods sold  516,933   739,721   761,509 
         Freight  16,085   20,782   19,808 
         Selling, general and administrative  60,481   58,699   68,501 
         Research and development  11,856   11,005   8,354 
         Amortization of intangibles  120   123   149 
         Interest expense  783   2,393   2,721 
          Asset impairments and costs associated         
         with exit and disposal activities  2,950   12,390   4,027 
         Goodwill impairment charge  30,559   -   - 
Total  639,767   845,113   865,069 
Income from continuing operations         
     before income taxes  17,310   49,127   59,296 
 Income taxes  18,663   19,486   24,366 
 Income (loss) from continuing operations  (1,353)  29,641   34,930 
 Income (loss) from discontinued operations  -   (705)  (19,681)
 Net income (loss) $(1,353) $28,936  $15,249 
 Earnings (loss) per share:            
 Basic:            
     Continuing operations $(.04) $.87  $.91 
     Discontinued operations  -   (.02)  (.51)
     Net income (loss) $(.04) $.85  $.40 
 Diluted:            
     Continuing operations $(.04) $.87  $.90 
     Discontinued operations  -   (.02)  (.51)
     Net income (loss) $(.04) $.85  $.39 
             
See accompanying notes to financial statements.         

43

CONSOLIDATED BALANCE SHEETS    
Tredegar Corporation and Subsidiaries     
     
December 31   20092008
(In Thousands, Except Share Data)     
     
Assets      
Current assets:     
      Cash and cash equivalents $90,663 $       45,975
      Accounts and notes receivable, net of allowance for doubtful 
              accounts and sales returns of $5,299 in 2009 and $3,949 in 2008       74,014            91,400
      Income taxes recoverable           4,016            12,549
      Inventories         35,522           36,809
      Deferred income taxes           5,750             7,654
      Prepaid expenses and other           5,335             5,374
            Total current assets       215,300          199,761
Property, plant and equipment, at cost:     
      Land and land improvements           6,496             7,068
      Buildings         87,297           80,867
      Machinery and equipment       580,493        552,557
            Total property, plant and equipment      674,286        640,492
      Less accumulated depreciation       443,410        403,622
      Net property, plant and equipment      230,876        236,870
Other assets and deferred charges          45,561           38,926
Goodwill and other intangibles (other intangibles    
      of $252 in 2009 and $372 in 2008)      104,542         135,075
             Total assets $596,279 $     610,632
     
Liabilities and Shareholders' Equity    
Current liabilities:     
     Accounts payable $53,770 $       54,990
     Accrued expenses         34,930           38,349
     Current portion of long-term debt             451                 529
             Total current liabilities          89,151           93,868
Long-term debt               712            22,173
Deferred income taxes          59,052            45,152
Other noncurrent liabilities          18,292           29,023
             Total liabilities       167,207          190,216
Commitments and contingencies (Notes 13 and 16)     
Shareholders' equity:     
      Common stock (no par value):    
           Authorized 150,000,000 shares;   
           Issued and outstanding - 33,887,550 shares  
               in 2009 and 33,909,932 in 2008 (including restricted stock)        41,137            40,719
      Common stock held in trust for savings restoration  
           plan (60,424 shares in 2009 and 59,798 in 2008)        (1,322)             (1,313)
      Accumulated other comprehensive income (loss):  
           Foreign currency translation adjustment       26,250           23,443
           Gain (loss) on derivative financial instruments            758           (6,692)
           Pension and other postretirement benefit adjustments     (60,028)         (64,788)
      Retained earnings       422,277        429,047
           Total shareholders' equity       429,072         420,416
           Total liabilities and shareholders' equity$596,279 $     610,632
     
See accompanying notes to financial statements.    
44

 CONSOLIDATED STATEMENTS OF CASH FLOWS         
 Tredegar Corporation and Subsidiaries         
          
 Years Ended December 31 2009  2008  2007 
 (In Thousands)         
 Cash flows from operating activities:         
      Net income (loss) $(1,353) $28,936  $15,249 
      Adjustments for noncash items:            
            Depreciation  39,877   43,068   45,892 
            Amortization of intangibles  120   123   149 
            Goodwill impairment charge  30,559   -   - 
            Deferred income taxes  6,771   22,183   (24,241)
            Accrued pension and postretirement benefits  (2,654)  (4,426)  (1,735)
            Gain on the write-up of an investment accounted for under            
                  the fair value mehtod  (5,100)  (5,600)  - 
            Loss from write-down of investment  -   -   2,095 
            Gain on sale of assets  (3,462)  (3,083)  (2,699)
            Loss on asset impairments and divestitures  1,005   10,136   32,287 
      Changes in assets and liabilities, net of effects of acquisitions            
            and divestitures:            
            Accounts and notes receivable  18,449   (678)  15,786 
            Inventories  2,200   13,374   4,099 
            Income taxes recoverable  8,533   (12,092)  10,478 
            Prepaid expenses and other  1,209   (1,873)  764 
            Accounts payable and accrued expenses  7,023   (18,900)  (2,932)
      Other, net  38   4,238   362 
            Net cash provided by operating activities  103,215   75,406   95,554 
 Cash flows from investing activities:            
      Capital expenditures (including settlement of related accounts payable            
            of $1,709 in 2009 and net of accounts payable of $1,709 in 2008)  (35,851)  (19,235)  (20,643)
      Investment in a drug delivery company ($1,000 in 2008 and $6,500 in            
            2007), real estate in 2008 and 2007 and Harbinger ($10,000 in 2007)  -   (5,391)  (23,513)
      Proceeds from the sale of the aluminum extrusions business in Canada            
            (net of cash included in sale and transaction costs)  -   23,407   - 
      Proceeds from the sale of assets and property disposals &            
            reimbursements from customers for purchases of equipment in 2007  4,146   4,691   7,871 
            Net cash provided by (used in) investing activities  (31,705)  3,472   (36,285)
 Cash flows from financing activities:            
      Dividends paid  (5,426)  (5,447)  (6,126)
      Debt principal payments  (21,539)  (84,489)  (39,964)
      Borrowings  -   25,000   59,500 
      Repurchases of Tredegar common stock (including settlement of $3,368            
            in 2008 and net of settlement payable of $3,368 in 2007)  (1,523)  (19,792)  (73,959)
      Proceeds from exercise of stock options  244   4,069   6,471 
            Net cash used in financing activities  (28,244)  (80,659)  (54,078)
 Effect of exchange rate changes on cash  1,422   (461)  2,128 
 Increase (decrease) in cash and cash equivalents  44,688   (2,242)  7,319 
 Cash and cash equivalents at beginning of period  45,975   48,217   40,898 
 Cash and cash equivalents at end of period $90,663  $45,975  $48,217 
             
Supplemental cash flow information:            
      Interest payments (net of amount capitalized) $786  $2,465  $2,712 
      Income tax payments (refunds), net  3,019   8,794   16,989 
             
 See accompanying notes to financial statements.            
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 CONSOLIDATED  STATEMENTS  OF  SHAREHOLDERS'  EQUITY
 Tredegar Corporation and Subsidiaries

               Accumulation Other
Comprehensive Income (Loss) 		     
   Common Stock    Retained  Earnings   Trust for Savings Restora-  tion Plan     Foreign
Currency Trans-  lation		   Gain
(Loss) on
Derivative
Financial
 Instruments		   Pension &  Other Post-  retirement  Benefit  Adjust.      Total
Share-  holders'  Equity		 
 Shares    Amount  
 (In Thousands, Except Share and Per-Share Data)                                 
 Balance December 31, 2006  39,286,079  $120,508  $396,413  $(1,291) $21,522  $654  $(21,211) $516,595 
 Comprehensive income (loss):                                
 Net income  -   -   15,249   -   -   -   -   15,249 
  Other comprehensive income (loss):                                
            Foreign currency translation adjustment                             
            (net of tax of $10,428)  -   -   -   -   19,088   -   -   19,088 
            Derivative financial instruments                                
            adjustment (net of tax of $1,166)  -   -   -   -   -   (1,858)  -   (1,858)
            Net gains or losses and prior service                             
            costs (net of tax of $10,209)  -   -   -   -   -   -   16,218   16,218 
            Amortization of prior service costs and                             
            net gains or losses (net of tax of $702)  -   -   -   -   -   -   1,226   1,226 
  Comprehensive income                              49,923 
Cash dividends declared ($.16 per share)  -   -   (6,126)  -   -   -   -   (6,126)
Stock-based compensation expense  (10,000)  1,654   -   -   -   -   -   1,654 
Issued upon exercise of stock options (including                             
   related income tax benefits of $491) & other  322,871   6,609   -   -   -   -   -   6,609 
Repurchases of Tredegar common stock  (4,833,500)  (77,327)  -   -   -   -   -   (77,327)
Tredegar common stock purchased by trust                             
   for savings restoration plan  -   -   12   (12)  -   -   -   - 
 Balance December 31, 2007  34,765,450   51,444   405,548   (1,303)  40,610   (1,204)  (3,767)  491,328 
 Comprehensive income (loss):                                
 Net income  -   -   28,936   -   -   -   -   28,936 
 Other comprehensive income (loss):                                
           Foreign currency translation adjustment                             
            (net of tax of $1,607)  -   -   -   -   (2,875)  -   -   (2,875)
           Reclassification of foreign currency translation                             
                     gain realized on the sale of the aluminum                             
           extrusions business in Canada (net of tax                             
    of $7,696)  -   -   -   -   (14,292)  -   -   (14,292)
           Derivative financial instruments                                
           adjustment (net of tax of $3,325)  -   -   -   -   -   (5,488)  -   (5,488)
           Net gains or losses and prior service                             
           costs (net of tax of $39,678)  -   -   -   -   -   -   (66,292)  (66,292)
           Amortization of prior service costs and                             
           net gains or losses (net of tax of $228)  -   -   -   -   -   -   400   400 
           Reclassification of net actuarial losses                             
                    and prior service costs realized on                             
                    the sale of the aluminum extrusions                             
           business in Canada (net of tax of $1,799)  -   -   -   -   -   -   4,871   4,871 
 Comprehensive loss                              (54,740)
Cash dividends declared ($.16 per share)  -   -   (5,447)  -   -   -   -   (5,447)
Stock-based compensation expense  (6,000)  1,379   -   -   -   -   -   1,379 
Issued upon exercise of stock options (including                             
   related income tax benefits of $76) & other  254,582   4,320   -   -   -   -   -   4,320 
Repurchases of Tredegar common stock  (1,104,100)  (16,424)  -   -   -   -   -   (16,424)
Tredegar common stock purchased by trust                             
   for savings restoration plan  -   -   10   (10)  -   -   -   - 
 Balance December 31, 2008  33,909,932   40,719   429,047   (1,313)  23,443   (6,692)  (64,788)  420,416 
 Comprehensive income (loss):                                
 Net loss  -   -   (1,353)  -   -   -   -   (1,353)
 Other comprehensive income (loss):                                
           Foreign currency translation adjustment                             
           (net of tax of $1,563)  -   -   -   -   2,807   -   -   2,807 
           Derivative financial instruments                                
           adjustment (net of tax of $4,538)  -   -   -   -   -   7,450   -   7,450 
           Net gains or losses and prior service                             
           costs (net of tax of $2,310)  -   -   -   -   -   -   4,061   4,061 
           Amortization of prior service costs and                             
           net gains or losses (net of tax of $398)  -   -   -   -   -   -   699   699 
  Comprehensive income                              13,664 
Cash dividends declared ($.16 per share)  -   -   (5,426)  -   -   -   -   (5,426)
Stock-based compensation expense  9,387   2,538   -   -   -   -   -   2,538 
Issued upon exercise of stock options (including                             
    related income tax benefits of $64) & other  73,728   (597)  -   -   -   -   -   (597)
Repurchases of Tredegar common stock  (105,497)  (1,523)  -   -   -   -   -   (1,523)
Tredegar common stock purchased by trust                             
   for savings restoration plan  -   -   9   (9)  -   -   -   - 
 Balance December 31, 2009  33,887,550  $41,137  $422,277  $(1,322) $26,250  $758  $(60,028) $429,072 
                                 
 See accompanying notes to financial statements.
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NOTES TO FINANCIAL STATEMENTS
Tredegar Corporation and Subsidiaries

1             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations.  Tredegar Corporation and subsidiaries (collectively “Tredegar,” “we,” “us” or “our”) are engaged in the manufacture of plastic films and aluminum extrusions.  See Note 15 regarding restructurings and Note 17 regarding discontinued operations.

Basis of Presentation.  The consolidated financial statements include the accounts and operations of Tredegar and all of its majority-owned subsidiaries.  Intercompany accounts and transactions have been eliminated in consolidation.  On February 12, 2008, we sold our aluminum extrusions business in Canada.  All historical results for this business have been reflected as discontinued operations in these financial statements.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements.  Actual results could differ from those estimates.

Foreign Currency Translation.  The financial statements of subsidiaries located outside the U.S., where the local currency is the functional currency, are translated into U.S. Dollars using exchange rates in effect at the period end for assets and liabilities and average exchange rates during each reporting period for results of operations.  Adjustments resulting from the translation of these financial statements are reflected as a separate component of shareholders’ equity.  We have no subsidiaries located outside the U.S. where the U.S. Dollar is the functional currency.

Transaction and remeasurement gains or losses included in income were not material in 2009, 2008 and 2007. These amounts do not include the effects between reporting periods that exchange rate changes have on income of our locations outside the U.S, that result from translation into U.S. Dollars.

Cash and Cash Equivalents.  Cash and cash equivalents consist of cash on hand in excess of daily operating requirements and highly liquid investments with original maturities of three months or less.  At December 31, 2009 and 2008, Tredegar had cash and cash equivalents of $90.7 million and $46.0 million, respectively, including funds held in locations outside the U.S. of $34.2 million and $37.3 million, respectively.

Our policy permits investment of excess cash in marketable securities that have the highest credit ratings and maturities of less than one year.  The primary objectives of the policy are safety of principal and liquidity.

Accounts and Notes Receivable.  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 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 our assessment of probable losses taking into account past due amounts, customer credit profile, historical experience and current economic conditions.  Other receivables include value-added taxes related to certain foreign su bsidiaries and other miscellaneous operating receivables due within one year.

Inventories.  Inventories are stated at the lower of cost or market, with cost determined on the last-in, first-out (“LIFO”) basis, the weighted average cost or the first-in, first-out basis.  Cost elements included in work-in-process and finished goods inventories are raw materials, direct labor and manufacturing overhead.

Property, Plant and Equipment.  Accounts include costs of assets constructed or purchased, related delivery and installation costs and interest incurred on significant capital projects during their construction periods.  Expenditures for renewals and betterments also are capitalized, but expenditures for repairs and maintenance are expensed as incurred.  The cost and accumulated depreciation applicable to assets retired or sold are removed from the respective accounts, and gains or losses thereon are included in income.
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                Capital expenditures for property, plant and equipment include capitalized interest of $116,000 in 2009, $228,000 in 2008 and $577,000 in 2007.

Depreciation is computed primarily by the straight-line method based on the estimated useful lives of the assets, which range from 15 to 25 years for buildings and land improvements and 2 to 15 years for machinery and equipment.  The average depreciation period for machinery and equipment is approximately 10 years in Film Products and for the continuing operations of Aluminum Extrusions.

Investments in Private Entities with Less Than or Equal to 50% Voting Ownership Interest.  We account for our investments in private entities where our voting ownership is less than or equal to 50% based on the facts and circumstances surrounding the investment.  We are required to account for investments under the consolidation method in situations where we are the primary beneficiary of a variable interest entity.  The primary beneficiary is the party in a variable interest entity that will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both.  If we are not deemed the primary beneficiary in an investment in a private entity then we select eith er: (i) the fair value method or (ii) either the (a) the cost method if we do not have significant influence over operating and financial policies of the company or (b) the equity method if we do have significant influence.

U.S. generally accepted accounting principles requires disclosure of the level within the fair value hierarchy in which fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3).

Goodwill and Other Intangibles.  The excess of the purchase price over the fair value of identifiable net assets of acquired companies is allocated to goodwill.  We assess goodwill for impairment when events or circumstances indicate that the carrying value may not be recoverable, or, at a minimum, on an annual basis (December 1st of each year).  Our reporting units include Film Products and Aluminum Extrusions, each of which may have separately identifiable operating net assets (operating assets including goodwill and intangible assets net of operating liabilities).  We estimate the fair value of our reporting units using discounted cash flow ana lysis and comparative enterprise value-to-EBITDA multiples.  Based on the severity of the economic downturn and its impact on the sales volumes of our aluminum extrusions business (a 36.8% decline in sales volume in the first quarter of 2009 compared with the first quarter of 2008), the resulting first quarter operating loss, possible future losses and the uncertainty in the amount and timing of an economic recovery, we determined that impairment indicators existed in the first quarter of 2009.  Upon completing the impairment analysis as of March 31, 2009, a goodwill impairment charge of $30.6 million ($30.6 million after tax) was recognized in Aluminum Extrusions.  This was the entire amount of goodwill associated with the Aluminum Extrusions reporting unit and an anomalous write-off under U.S. generally accepted accounting principles since the decline in the estimated fair value below the carrying value of the operating net assets of Aluminum Extrusions was far less than $30.6 million.  The goodwill of Film Products was tested for impairment at the annual testing date, with the estimated fair value of Film Products exceeding the carrying value of its net assets by a wide margin.

The components of goodwill and other intangibles at December 31, 2009 and 2008, and related amortization periods for continuing operations are as follows:
(In Thousands)          2009             2008    Amortization Periods
 Carrying value of goodwill:     
      Film Products $104,290 $     104,144    Not amortized
      Aluminum Extrusions               -          30,559    Not amortized
      Total carrying value of goodwill      104,290        134,703 
 Carrying value of other intangibles:     
      Film Products (cost basis of $1,172 in 2009 and 2008)           252                372    Not more than 17 yrs.
Total carrying value of goodwill and other intangibles$104,542 $    135,075 

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A reconciliation of the beginning and ending balances of goodwill and other intangibles for each of the three years in the period ended December 31, 2009 is as follows:

(In Thousands) 2009  2008  2007 
 Goodwill and other intangibles:         
      Net carrying value, beginning of year $135,075  $135,907  $132,237 
            Amortization  (120)  (123)  (149)
            Goodwill impairment charge  (30,559)  -   - 
            Increase (decrease) due to foreign currency translation            
                  and other  146   (709)  3,819 
 Total carrying value of goodwill and other intangibles $104,542  $135,075  $135,907 
             
Excluded from the table above is goodwill for the Aluminum Extrusions reporting unit of $6.5 million which was allocated to discontinued aluminum extrusions operations in Canada.  This goodwill was allocated using the estimated fair value of the aluminum extrusions business in Canada (the after-tax cash flow expected from disposal of approximately $30.0 million when it was classified as held for sale at the end of December 2007), and the estimated fair value of the aluminum extrusions business in the U.S. retained.  The fair value of the aluminum extrusions business in the U.S. was estimated at approximately $145.0 million using comparable enterprise value-to-EBITDA multiples as of December 31, 2007.  See Note 17 for more information on discontinued operations.

Impairment of Long-Lived Assets.  We review long-lived assets for possible impairment when events indicate that an impairment may exist.  For assets to be held and used in operations, if events indicate that an asset may be impaired, we estimate the future unlevered pre-tax cash flows expected to result from the use of the asset and its eventual disposition.  Assets are grouped for this purpose at the lowest level for which there are identifiable and independent cash flows.  If the sum of these undiscounted pre-tax cash flows is less than the carrying amount of the asset, an impairment loss is recognized.  Measurement of the impairment loss is based on the estimated fair value of the asset, generally determined on a discounted after-tax cash flow basis.
Assets to be disposed of are reported at the lower of their carrying amount or estimated fair value less cost to sell, with an impairment loss recognized for any write-down required.

Pension Costs and Postretirement Benefit Costs Other than Pensions.  Pension costs and postretirement benefit costs other than pensions are accrued over the period employees provide service to Tredegar.  Liabilities and expenses for pension plans and other postretirement benefits are determined using actuarial methodologies and incorporate significant assumptions, including the rate used to discount the future estimated liability, the long-term rate of return on plan assets, and several assumptions relating to the employee workforce, and we recognize the funded status of our pension and other postretirement plans in the accompanying consolidated balance sheets.  Our policy is to fund our pension plans at amounts not less than the mini mum requirements of the Employee Retirement Income Security Act of 1974 and to fund postretirement benefits other than pensions when claims are incurred.

Postemployment Benefits.  We periodically provide certain postemployment benefits purely on a discretionary basis. Related costs for these programs are accrued when it is probable that benefits will be paid and amounts can be reasonably estimated.  All other postemployment benefits are either accrued under current benefit plans or are not material to our financial position or results of operations.

Revenue Recognition.  Revenue from the sale of products, which is shown net of estimated sales returns and allowances, is recognized when title has passed to the customer, the price of the product is fixed and determinable, and collectibility is reasonably assured.  Amounts billed to customers related to freight have been classified as sales in the accompanying consolidated statements of income.  The cost of freight has been classified as a separate line in the accompanying consolidated statements of income.  Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction between Tredegar and its customers (such as value-added taxes) are accounted for on a net basis and therefore excluded from revenues.
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Research & Development (“R&D”) Costs.  R&D costs are expensed as incurred and include primarily salaries, wages, employee benefits, equipment depreciation, facility costs and the cost of materials consumed relating to R&D efforts.  R&D costs include a reasonable allocation of indirect costs.

Income Taxes.  Income taxes are recognized during the period in which transactions enter into the determination of income for financial reporting purposes, with deferred income taxes being provided at enacted statutory tax rates on the differences between the financial reporting and tax bases of assets and liabilities (see Note 14).  We accrue U.S. federal income taxes on unremitted earnings of our foreign subsidiaries.  The benefit of uncertain tax position is included in the accompanying financial statements when we determine that it is more likely than not that the position will be sustained, based on the technical merits of the position, if the taxing authority examines the position and the dispute is litigated.  This de termination is made on the basis of all the facts, circumstances and information available as of the reporting date.

Earnings Per Share.  Basic earnings per share is computed using the weighted average number of shares of common stock outstanding.   Diluted earnings per share is computed using the weighted average common and potentially dilutive common equivalent shares outstanding, determined as follows:

          
  2009  2008  2007 
 Weighted average shares outstanding used         
      to compute basic earnings per share  33,861,171   33,976,833   38,532,036 
 Incremental shares attributable to stock            
      options and restricted stock  -   216,887   156,467 
 Shares used to compute diluted            
      earnings per share  33,861,171   34,193,720   38,688,503 
Incremental shares attributable to stock options and restricted stock are computed using the average market price during the related period.  During 2009, 2008 and 2007, the average out-of-the-money options to purchase shares that were excluded from the calculation of incremental shares attributable to stock options and restricted stock was 545,450, 507,982 and 184,960, respectively.

Stock-Based Employee Compensation Plans.  Compensation expense is recorded on all share-based awards based upon its calculated fair value.  The fair value of stock option awards was estimated as of the grant date using the Black-Scholes options-pricing model.  The assumptions used in this model for valuing Tredegar stock options granted in 2009, 2008 and 2007 are as follows:

  2009  2008  2007 
 Dividend yield  0.9%  1.0%  1.1%
 Weighted average volatility percentage  39.9%  39.0%  33.1%
 Weighted average risk-free interest rate  2.1%  3.0%  3.3%
 Holding period (years):            
      Officers  6.0   6.0   n/a 
      Management  5.0   5.0   5.0 
 Weighted average excercise price at date            
      of grant (also weighted average market            
      price at date of grant):            
      Officers $18.12  $15.64   n/a 
      Management  17.81   15.81  $14.40 
The dividend yield is the dividend yield on our common stock at the date of grant, which we believe is a reasonable estimate of the expected yield during the holding period.  We calculate expected volatility based on the historical volatility of our common stock using a sequential period of historical data equal to the expected holding period of the option.  We have no reason to believe that future volatility for this period is likely to differ from the past.
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The assumed risk-free interest rate is based on observed interest rates (zero coupon U.S. Treasury debt securities) appropriate for the expected holding period.  The expected holding period and forfeiture assumptions are based on historical experience.  Estimated forfeiture assumptions are reviewed through the vesting period.  Adjustments are made if actual forfeitures differ from previous estimates.  The cumulative effect of a change in estimated forfeitures is recognized in the period of the change.

Tredegar stock options granted during 2009, 2008 and 2007, and related estimated fair value at the date of grant, are as follows:

  2009  2008  2007 
Stock options granted (number of shares):         
     Officers  99,600   220,000   n/a 
     Management  183,800   181,000   4,000 
     Total  283,400   401,000   4,000 
Estimated weighted average fair value of            
     options per share at date of grant:            
            Officers $7.53  $6.01   n/a 
            Management  6.93   5.48  $4.91 
Total estimated fair value of stock options granted (in thousands)
 $ 2,023  $  2,314  $  20 
             
Additional disclosure of Tredegar stock options is included in Note 10.

Financial Instruments.  We use derivative financial instruments for the purpose of hedging aluminum price volatility and currency exchange rate exposures that exist as part of ongoing business operations.  Our derivative financial instruments are designated as and qualify as cash flow hedges and are recognized in the accompanying balance sheet at fair value.  A change in the fair value of the derivative that is highly effective as and that is designated and qualifies as a cash flow hedge is recorded in other comprehensive income.  Gains and losses reported in other comprehensive income are reclassified to earnings in the periods in which earnings are affected by the variability of cash flows of the hedged transaction. & #160;Such gains and losses are reported on the same line as the underlying hedged item, and the cash flows related to financial instruments are classified in the consolidated statements of cash flows in a manner consistent with those of the transactions being hedged.  Any hedge ineffectiveness (which represents the amount by which the changes in the fair value of the derivative exceed the variability in the cash flows of the forecasted transaction) is recorded in current period earnings.  The amount of gains and losses recognized for hedge ineffectiveness was immaterial in 2009, 2008 and 2007.

Our policy requires that we formally document all relationships between hedging instruments and hedged items, as well as our risk management objective and strategy for undertaking various hedge transactions.  We also formally assess (both at the hedge’s inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the fair value or cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods.  When it is determined that a derivative is not (or has ceased to be) highly effective as a hedge, we discontinue hedge accounting prospectively.

As a policy, we do not engage in speculative or leveraged transactions, nor do we hold or issue financial instruments for trading purposes.  Additional disclosure of our utilization of derivative hedging instruments is included in Note 6.

Comprehensive Income or Loss.  Comprehensive income or loss, which is included in the consolidated statement of shareholders’ equity, is defined as net income or loss and other comprehensive income or loss.  Other comprehensive income or loss includes changes in foreign currency translation adjustments, unrealized gains and losses on derivative financial instruments, prior service cost and net gains or losses from pension and other postretirement benefit plans arising during the period and amortization of these prior service cost and net gains or losses and minimum pension liability adjustments, all recorded net of deferred income taxes directly in shareholders’ equity.
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Recently Issued Accounting Standards.  The Financial Accounting Standards Board (FASB) issued guidance in June 2009 that clarifies the information that an entity must provide in its financial statements surrounding a transfer of financial assets and the effect of the transfer on its financial position, financial performance, and cash flows. These new accounting rules are effective as of the beginning of the annual period beginning after November 15, 2009. We do not expect these FASB rules to have a material impact on our financial statements and disclosures.

The FASB also provided guidance in June 2009 that clarifies and improves financial reporting by entities involved with variable interest entities. The revised statement amends previous guidance to require an enterprise to perform a qualitative analysis to determine whether it has a controlling financial interest in a variable interest entity, to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity, and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity.  This new accounting standard is effective for annual periods beginning after November 15, 2009. We do not expect this updated standard to impact our financial statements and disclosures.

In October 2009, the FASB Emerging Issues Task Force issued a consensus updating accounting standards for revenue recognition for multiple-deliverable arrangements.  The stated objective of the accounting standards update was to address the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit.  The revision of current FASB guidance provides amended methodologies for separating consideration in multiple-deliverable arrangements and expands disclosure requirements.  The accounting standards update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted.  We do not expect these FASB rules to have a material impact on our financial statements and disclosures.

The FASB issued guidance in January 2010 that requires new disclosures for fair value measurements and provides clarification for existing disclosure requirements. More specifically, this update will require (a) an entity to disclose separately the amounts of significant transfers in and out of Levels 1 and 2 fair value measurements and to describe the reasons for the transfers; and (b) information about purchases, sales, issuances and settlements to be presented separately (i.e. present the activity on a gross basis rather than net) in the reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs). This update also clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value and requires disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements using Level 2 and Level 3 inputs. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for disclosures about the purchase, sale, issuance and settlement activity of Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010, and for the interim periods in that year.  We do not anticipate that the adoption of this statement will materially expand our consolidated financial statement footnote disclosures.

2              INVESTMENTS

During the third quarter of 2007, we invested $6.5 million in a privately held drug delivery company.  In the fourth quarter of 2008, we invested an additional $1.0 million as part of a new round of equity financing completed by the investee.  The company is developing and commercializing state of the art drug delivery systems designed to improve patient compliance and outcomes, and our ownership interest on a fully diluted basis is approximately 21%.  The investment is accounted for under the fair value method.  We elected the fair value option over the equity method of accounting since our investment objectives are similar to those of venture capitalists, which typically do not have controlling financial interests.  In 2008, there was a wr ite-up of $5.6 million ($3.6 million after taxes) based on the valuation of our ownership interest implied from a new round of equity financing completed for the investee in the fourth quarter of 2008.  We recognized an additional unrealized gain of $5.1 million ($3.2 million after taxes) in the fourth quarter of 2009 for the estimated appreciation of our ownership interest upon the investee entering into an exclusive licensing agreement that included an upfront payment, additional potential milestone payments and tiered royalties on sales of any products commercialized under the license.  Both of these unrealized gains are included in “Other income
52
(expense), net” in the consolidated statements of income and separately stated in the segment operating profit table in Note 3.

At December 31, 2009 and 2008, the estimated fair value of our investment (also the carrying value included in “Other assets and deferred charges” in our balance sheet) was $18.2 million and $13.1 million, respectively.  On the date of our most recent investment (December 15, 2008), we believe that the amount we would be paid for our ownership interest and liquidation preferences was based on Level 2 inputs, including investments by other investors.  Subsequent to December 15, 2008, and until the next round of financing, we believe fair value estimates drop to Level 3 inputs since there is no secondary market for our ownership interest.  In addition, the drug delivery company currently has no product sales.  Accordingly, after the latest f inancing and until the next round of financing or other significant financial transaction, value estimates will primarily be based on assumptions relating to meeting product development and commercialization milestones, cash flow projections (projections of sales, costs, expenses, capital expenditures and working capital investment) and discounting of these factors for the high degree of risk.  As a result, any future changes in the estimated fair value of our ownership interest will likely be attributed to a new round of financing, a merger or initial public offering or adjustments to the timing or magnitude of cash flows associated with development and commercialization milestones.  If the company does not meet its development and commercialization milestones and there are indications that the amount or timing of its projected cash flows or related risks are unfavorable versus our most recent valuation, or a new round of financing or other significant financial transaction indicates a l ower value, then our estimate of the fair value of our ownership interest in the company is likely to decline.  Adjustments to the estimated fair value of our investment will be made in the period upon which such changes can be quantified.

Had we not elected to account for our investment under the fair value method, we would have been required to use the equity method of accounting.  On December 31, 2008, the privately held drug delivery company was converted from a limited liability company taxed as a pass-through entity (partnership) to a corporation.  Substantially all shareholder rights from the limited liability company carried over in the conversion. Our allocation of losses for tax purposes as a pass-through entity in 2008 was approximately $4.8 million (there was no allocation of income or loss to us in 2007).

The condensed balance sheets for the drug delivery company at December 31, 2009 and 2008 and related condensed statements of income for the years ended December 31, 2009 and 2008 and four months ended December 31, 2007, that were reported to us by the investee, are provided below:


(In Thousands) 12/31/09  12/31/08     12/31/09  12/31/08 
                
Assets       Liabilities & Equity      
        Convertible promissory notes - current $-  $5,000 
        Current portion of deferred revenues  18,360   - 
        Other current liabilities  1,029   1,956 
Cash & cash equivalents $22,835  $5,493  Non-current liabilities  5,440   825 
Other current assets  2,526   177  Equity:         
Other tangible assets  1,046   1,163      Redeemable preferred stock  18,044   12,068 
Identifiable intangibles assets  1,743   1,602      Other   (14,723)  (11,414)
Total assets $28,150  $8,435  Total liabilities & equity $28,150  $8,435 
                    
   2009   2008   2007          
                     
Revenues & Expenses                    
Revenues $2,062  $-  $ -          
Costs & expenses  6,732   7,321   2,379          
Income tax benefit  2,309   -   -          
Net loss $(2,361) $(7,321) $ (2,379)         

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On April 2, 2007, we invested $10.0 million in Harbinger Capital Partners Special Situations Fund, L.P. (“Harbinger”), a fund that seeks to achieve superior absolute returns by participating primarily in medium to long-term investments involving distressed/high yield debt securities, special situation equities and private loans and notes. The fund is a highly speculative investment subject to limitations on withdrawal.  There is no secondary market for interests in the fund.  Our investment in Harbinger, which represents less than 2% of Harbinger’s total partnership capital, is accounted for under the cost method.  At December 31, 2009 and 2008, Harbinger reported our capital account value at $14.5 million and $10.1 million, respectively.  ; The December 31, 2009 and 2008 carrying value in our balance sheet was equal to our cost basis of $10.0 million (included in “Other assets and deferred charges”).

During 2008 and 2007, we invested approximately $4.3 million and $6.2 million, respectively, in real estate.  At December 31, 2009 and 2008, the carrying value in our balance sheet of investments in this real estate (included in “Other assets and deferred charges”) equaled the amount invested.

In August of 2004, we invested $5.0 million in Novalux, Inc., a developer of laser technology for potential use in a variety of applications.  We made additional investments in Novalux based on its prospects at the time of $1.1 million in October 2005, $400,000 in May 2006, $142,000 in September 2006, $458,000 in July 2007 and $404,000 in November 2007.  We wrote down our investment in Novalux and recognized losses of $2.1 million in September 2007 based on anticipated delays in bringing the company’s technology to market and liquidity issues.  Novalux assets were sold in January 2008 in exchange for certain unrestricted and restricted common shares of a public company in Australia.  We do not expect to receive any significant value from our rem aining interest in the Australian company, and no carrying value remains in our balance sheet for this investment.

3           BUSINESS SEGMENTS

Information by business segment and geographic area for the last three years is provided 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.  Film Products’ net sales to The Procter & Gamble Company (“P&G”) totaled $253.5 million in 2009, $282.7 million in 2008 and $258.6 million in 2007.  These amounts include plastic film sold to others that convert the film into materials used with products manufactured by P&G.

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  Net Sales 
 (In Thousands) 2009  2008  2007 
 Film Products $455,007  $522,839  $530,972 
 Aluminum Extrusions  177,521   340,278   371,803 
 Total net sales  632,528   863,117   902,775 
 Add back freight  16,085   20,782   19,808 
 Sales as shown in consolidated            
 statements of income $648,613  $883,899  $922,583 
             
        Operating Profit 
 (In Thousands)  2009   2008   2007 
 Film Products:            
Ongoing operations
 $64,379  $53,914  $59,423 
   Plant shutdowns, asset impairments,            
       restructurings and other (a)  (1,846)  (11,297)  (649)
 Aluminum Extrusions:            
Ongoing operations  (6,494)  10,132   16,516 
   Plant shutdowns, asset impairments,            
       restructurings and other (a)  (639)  (687)  (634)
   Goodwill impairment charge (a)  (30,559)  -   - 
 AFBS (formerly Therics):            
   Gain on sale of investments in Theken            
       Spine and Therics, LLC  1,968   1,499   - 
 Restructurings (a)  -   -   (2,786)
 Total  26,809   53,561   71,870 
 Interest income  806   1,006   1,212 
 Interest expense  783   2,393   2,721 
 Gain on sale of corporate assets (a)  404   1,001   2,699 
 Gain from write-up of an investment            
 accounted for under the fair value method (a)  5,100   5,600   - 
 Loss from write-down of an investment (a)  -   -   2,095 
 Stock option-based compensation expense  1,692   782   978 
 Corporate expenses, net (a)  13,334   8,866   10,691 
 Income from continuing operations            
 before income taxes  17,310   49,127   59,296 
 Income taxes (a)  18,663   19,486   24,366 
 Income (loss) from continuing operations  (1,353)  29,641   34,930 
 Income (loss) from discontinued operations (a)  -   (705)  (19,681)
 Net income (loss) $(1,353) $28,936  $15,249 
 (a) See Notes 2 and 15 for more information on losses associated with plant shutdowns, asset impairments and restructurings, unusual items, gains from sale of assets, investment write-downs or write-ups and other items, and Note 17 for more information on discontinued operations.
 (b) We recognize in the balance sheets the funded status of each of our defined benefit pension and other postretirement plans. The funded status of our defined benefit pension plan was a net liability of $6.0 million and $17.1 million in "Other noncurrent liabilities" as of December 31, 2009 and 2008 compared with an asset of $86.3 million in "Other assets and deferred charges" (of which $42.9 million was reported in Film Products) and a liability of $2.3 million in "Other noncurrent liabilities" as December 31, 2007.  See Note 11 for more information on our pension and other postretirement plans.
 (c) The difference between total consolidated sales as reported in the consolidated statements of income and segment and geographic net sales reported in this note is freight of $16.1 million in 2009, $20.8 million in 2008 and $19.8 million in 2007.
 (d) Information on exports and foreign operations are provided on the next page.  Cash and cash equivalents includes funds held in locations outside the U.S. of $34.2 million, $37.3 million and $24.6 million at December 31, 2009, 2008, and 2007, respectively. Export sales relate almost entirely to Film Products.  Operations outside the U.S. in The Netherlands, Hungary, China, Italy and Brazil also relate to Film Products.  Sales from our locations in The Netherlands, Hungary and Italy are primarily to customers located in Europe.  Sales from our locations in China (Guangzhou and Shanghai) are primarily to customers located in China, but also include other customers in Asia.

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  Identifiable Assets 
 (In Thousands) 2009  2008  2007 
 Film Products (b) $371,639  $399,895  $488,035 
 Aluminum Extrusions  82,429   112,259   115,223 
 AFBS (formerly Therics)  1,147   1,629   2,866 
 Subtotal  455,215   513,783   606,124 
 General corporate (b)  50,401   50,874   74,927 
 Cash and cash equivalents (d)  90,663   45,975   48,217 
 Continuing operations  596,279   610,632   729,268 
Discontinued aluminum extrusions         
 business in Canada (a)  -   -   55,210 
 Total $596,279  $610,632  $784,478 

  Depreciation and Amortization   Capital Expenditures 
 (In Thousands) 2009  2008  2007  2009  2008  2007 
 Film Products $32,360  $34,588  $34,092  $11,487  $11,135  $15,304 
 Aluminum Extrusions  7,566   8,018   8,472   22,530   9,692   4,391 
 AFBS (formerly Therics)  -   -   -   -   -   - 
 Subtotal  39,926   42,606   42,564   34,017   20,827   19,695 
 General corporate  71   70   91   125   78   6 
 Continuing operations  39,997   42,676   42,655   34,142   20,905   19,701 
Discontinued aluminum extrusions                     
 business in Canada (a)  -   515   3,386   -   39   942 
 Total $39,997  $43,191  $46,041  $34,142  $20,944  $20,643 
Net Sales by Geographic Area (d) 
 (In Thousands) 2009  2008  2007 
 United States $363,570  $531,235  $577,824 
Exports from the United States to:         
Canada  39,300   46,790   46,243 
Latin America  2,238   1,614   1,188 
Europe  7,261   12,532   9,856 
Asia  43,948   26,156   31,432 
Operations outside the United States:         
The Netherlands  88,563   109,392   104,379 
Hungary  20,300   34,889   35,286 
China  36,438   62,957   57,252 
Italy  10,497   11,057   13,359 
Brazil  20,413   26,495   25,956 
Total (c) $632,528  $863,117�� $902,775 

    Identifiable Assets  Property, Plant & Equipment,  
Net by Geographic Area (d)		 
  by Geographic Area (d)   
(In Thousands) 2009  2008  2007  2009  2008  2007 
United States (b) $326,120  $373,073  $429,376  $152,189  $150,354  $163,130 
Operations outside the United States:                     
   The Netherlands  56,761   61,204   73,658   40,832   44,559   52,383 
   Hungary  12,265   15,195   20,178   7,978   7,731   10,952 
   China  34,176   40,092   49,696   23,605   27,809   33,192 
   Italy  15,492   15,187   17,378   2,546   2,792   3,580 
   Brazil  10,401   9,032   15,838   3,212   3,088   5,055 
General corporate (b)  50,401   50,874   74,927   514   537   791 
Cash and cash equivalents (d)  90,663   45,975   48,217   n/a   n/a   n/a 
Continuing operations  596,279   610,632   729,268   230,876   236,870   269,083 
Discontinued aluminum extrusions                     
   business in Canada (a)  -   -   55,210   -   -   11,001 
   Total $596,279  $610,632  $784,478  $230,876  $236,870  $280,084 
See footnotes on prior page and a reconciliation of net sales to sales as shown in the consolidated statements of income.
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4              ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
     
(In Thousands)  2009 2008
Trade, less allowance for doubtful   
     accounts and sales returns of $5,299  
     in 2009 and $3,949 in 2008$69,789 $    87,551
Other          4,225              3,849
     Total$74,014 $    91,400
A reconciliation of the beginning and ending balances of the allowance for doubtful accounts and sales returns for the last three years in the period ended December 31, 2009 is as follows:
          
 (In Thousands) 2009  2008  2007 
 Balance, beginning of year $3,949  $5,198  $7,388 
 Charges to expense  4,034   2,527   3,001 
 Recoveries  (1,522)  (1,494)  (1,442)
 Write-offs  (1,411)  (2,171)  (3,780)
 Foreign exchange and other  249   (111)  31 
 Balance, end of year $5,299  $3,949  $5,198 

5              INVENTORIES

Inventories consist of the following:

       
(In Thousands) 2009  2008 
Finished goods $6,080  $7,470 
Work-in-process  2,740   2,210 
Raw materials  12,249   14,264 
Stores, supplies and other  14,453   12,865 
     Total $35,522  $36,809 
Inventories stated on the LIFO basis amounted to $13.4 million at December 31, 2009 and $15.4 million at December 31, 2008, which are below replacement costs by approximately $21.5 million at December 31, 2009 and $17.2 million at December 31, 2008.  During 2009 and 2008, inventories accounted for on a LIFO basis declined, which resulted in cost of goods sold being stated at below current replacement costs, by approximately $1.1 million in 2009 in Film Products and $3.6 million in 2008 ($2.0 million in Film Products and $1.6 million in Aluminum Extrusions).

6             FINANCIAL INSTRUMENTS

We use derivative financial instruments for the purpose of hedging margin exposure from fixed-price forward sales contracts in Aluminum Extrusions and currency exchange rate exposures that exist as part of ongoing business operations primarily in Film Products.  Our derivative financial instruments are designated as and qualify as cash flow hedges and are recognized in the consolidated balance sheet at fair value.  The fair value of derivative instruments recorded on the consolidated balance sheets are based upon Level 2 inputs.  If individual derivative instruments with the same counterparty can be settled on a net basis, we record the corresponding derivative fair values as a net asset or net liability.

In the normal course of business, we enter 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 our margin
57
exposure created from the fixing of future sales prices relative to volatile raw material (aluminum) costs, we enter 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 $6.9 million (7.8 million pounds of aluminum) at December 31, 2009 and $28.1 million (23.8 million pounds of aluminum) at December 31, 2008.
The table below summarizes the location and gross amounts of aluminum futures contract fair values in the consolidated balance sheets as of December 31, 2009 and 2008:

         
 December 31, 2009  December 31, 2008 
  Balance Sheet Fair  Balance Sheet Fair 
 (In Thousands) Account Value  Account Value 
         
 Derivatives Designated as Hedging Instruments
        
         
 Asset derivatives:        
           Aluminum futures contracts (before Prepaid expenses       
                  margin deposits) and other $1,184  Accrued expenses $- 
           
 Liability derivatives:          
           Aluminum futures contracts (before Prepaid expenses         
                  margin deposits) and other $-  Accrued expenses $11,042 
           
 Derivatives Not Designated as Hedging Instruments
          
           
 Asset derivatives:          
           Aluminum futures contracts (before Prepaid expenses         
                  margin deposits)  and other $614  Accrued expenses $973 
           
 Liability derivatives:          
           Aluminum futures contracts (before Prepaid expenses         
                  margin deposits) and other $614  Accrued expenses $973 

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 us for any losses on the related aluminum futures and/or forward purchase contracts through the date of cancellation.  The offsetting asset and liability positions included in the table above are associated with the unwinding of aluminum futures contracts that relate to such cancellations.

Our aluminum futures brokers contractually require assets to be posted as collateral for unrealized losses in excess of a contractually defined credit limit.  Due to significant reductions in aluminum prices on the London Metal Exchange (“LME”) in the second half of 2008 (see chart on page 32), we were required to post margin deposits of $4.0 million at December 31, 2008 on LME futures losses (no deposits required at December 31, 2009).  These amounts are recorded as an offset to the fair value of unrealized aluminum futures contract losses included in “Accrued expenses” in the consolidated balance sheets.

Losses associated with the aluminum extrusions business of $952,000 ($592,000 after tax) were recognized in 2009 for timing differences between the recognition of realized losses on aluminum futures contracts and related revenues from delayed fulfillment by customers of fixed-price forward purchase commitments.  Such timing differences are included in “Plant shutdowns, assets impairments, restructurings and other” in the net sales and operating profit by segment table in Note 3.  Timing differences prior to 2009 were not significant.

We have future fixed Euro-denominated contractual payments for equipment being purchased as part of our expansion of the Carthage, Tennessee aluminum extrusion manufacturing facility.  We have used a fixed rate Euro forward contract with various settlement dates to hedge exchange rate exposure on these obligations.  The notional
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amount of this foreign currency forward was $1.6 million and $4.2 million at December 31, 2009 and 2008, respectively.
The table below summarizes the location and gross amounts of foreign currency forward contract fair values in the consolidated balance sheets as of December 31, 2009 and 2008:
 December 31, 2009  December 31, 2008 
  Balance Sheet Fair  Balance Sheet  Fair 
 (In Thousands) Account Value  Account  Value 
          
 Derivatives Designated as Hedging Instruments
         
 Asset derivatives:         
             Foreign currency forward contractsPrepaid expenses and other $35 Prepaid expenses and other  $56 
            
 Derivatives Not Designated as Hedging Instruments
           
 Liability derivatives:           
             Foreign currency forward contracts Accrued expenses $41  Accrued expenses  $- 
               We receive Euro-based royalty payments relating to our operations in Europe.  From time to time we use zero-cost collar currency options to hedge a portion of our exposure to changes in cash flows due to variability in U.S. Dollar and Euro exchange rates.  There were no outstanding notional amounts on these collars at December 31, 2009 and 2008 as there were no derivatives outstanding at December 31, 2009 and 2008 related to the hedging of royalty payments with currency options.

Our derivative contracts involve elements of credit and market risk, including the risk of dealing with counterparties and their ability to meet the terms of the contracts.  The counterparties to our forward purchase commitments are major aluminum brokers and suppliers, and the counterparties to our aluminum futures contracts are major financial institutions.  Fixed-price forward sales contracts are only made available to our best and most credit-worthy customers.  The counterparties to our foreign currency futures and zero-cost collar 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 years ended December 31, 2009 and 2008 is summarized in the tables below:
 (In Thousands) Cash Flow Derivative Hedges 
          
  Aluminum Futures Contracts  Foreign Currency Forwards and Options 
 Year Ended December 31, 2009  2008  2009  2008 
 Amount of pre-tax gain (loss) recognized in            
     other comprehensive income $1,762  $(9,771) $(336) $56 
 Location of gain (loss) reclassified from         Selling,     
    accumulated other comprehensive income Cost of  Cost of  general and  Not 
    into net income (effective portion) sales  sales  admin. exp.  Applicable 
                 
 Amount of pre-tax gain (loss) reclassified                
    from accumulated other comprehensive                
    income to net income (effective portion) $(10,248) $(760) $(315) $- 
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Gains and losses on the ineffective portion of derivative instruments or derivative instruments that were not designated as hedging instruments were not significant in 2009 and 2008.  For the year ended December 31, 2009, we realized $41,000 in unrealized net losses (none in 2008) from hedges that had been discontinued.  As of December 31, 2009, we expect $736,000 of unrealized after-tax gains on derivative instruments reported in accumulated other comprehensive income to be reclassified to earnings within the next twelve months.

7              ACCRUED EXPENSES

Accrued expenses consist of the following:
(In Thousands) 2009  2008 
Incentive compensation $6,528  $1,849 
Vacation  5,665   5,922 
Payrolls, related taxes and medical and        
      other benefits  5,332   4,476 
Plant shutdowns and divestitures  3,981   4,922 
Workers' compensation and disabilities  2,360   2,986 
Futures contracts, net of cash deposits  255   7,085 
Other  10,809   11,109 
      Total $34,930  $38,349 
A reconciliation of the beginning and ending balances of accrued expenses associated with asset impairments and costs associated with exit and disposal activities for each of the three years in the period ended December 31, 2009 is as follows:

       
 (In Thousands) Severance  
Long-Lived
Asset
Impairments
  
Accelerated
Depreciation (a)
  Other (b)  Total 
 Balance at December 31, 2006 $436  $-  $-  $4,622  $5,058 
2007:                 
 Charges  592   594   -   2,841   4,027 
 Cash spent  (665)  -   -   (1,625)  (2,290)
 Charged against assets  -   (594)  -   -   (594)
 Balance at December 31, 2007  363   -   -   5,838   6,201 
2008:                 
 Charges  2,662   6,994   1,649   -   11,305 
 Cash spent  (2,594)  -   -   (1,347)  (3,941)
 Charged against assets  -   (6,994)  (1,649)  -   (8,643)
 Balance at December 31, 2008  431   -   -   4,491   4,922 
2009:                 
 Charges  2,094   1,005   -   -   3,099 
 Cash spent  (1,702)  -   -   (1,333)  (3,035)
 Charged against assets  -   (1,005)  -   -   (1,005)
 Balance at December 31, 2009 $823  $-  $-  $3,158  $3,981 
(a) Represents depreciation accelerated due to plant shutdowns based on a remaining useful life of less than one year. 
(b) Other includes primarily accrued losses on a sub-lease at a facility in Princeton, New Jersey. 
See Note 15 for more information on plant shutdowns, asset impairments and restructurings of continuing operations.

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8           DEBT AND CREDIT AGREEMENTS

On December 15, 2005, we refinanced our debt with a new $300 million, five-year unsecured revolving credit agreement (the “Credit Agreement”).  At January 1, 2009, the date our maximum leverage covenant dropped from 3.0x adjusted EBITDA to 2.75x adjusted EBITDA, available credit under the Credit Agreement was approximately $222 million.

Total debt due and outstanding at December 31, 2009 is summarized below:
          
Debt Due and Outstanding at December 31, 2009 
(In Thousands) 
          
          Year Credit     Total Debt 
          Due Agreement Other  Due 
          2010 $-  $476  $476 
          2011  -   265   265 
          2012  -   148   148 
          2013  -   274   274 
          2014  -   -   - 
         Total $-  $1,163  $1,163 
The credit spread over LIBOR and commitment fees charged on the unused amount under the Credit Agreement at various indebtedness-to-adjusted EBITDA levels are as follows:
Pricing Under Credit Agreement (Basis Points) 
  Credit Spread    
  Over LIBOR    
Indebtedness-to- (No amounts    
Adjusted EBITDA Outstanding  Commitment 
Ratio at 12/31/09)  Fee 
> 2.50x but <= 3x  125   25 
> 1.75x but <= 2.50x  100   20 
> 1x but <= 1.75x  87.5   17.5 
<= 1x  75   15 
At December 31, 2009, the interest cost on debt was priced at one-month LIBOR plus the applicable credit spread of 75 basis points.

The most restrictive covenants in the Credit Agreement include:

·  Maximum aggregate dividends over the term of the Credit Agreement of $100,000 plus, beginning October 1, 2005, 50% of net income ($141.6 million as of December 31, 2009);
·  Minimum shareholders’ equity (minimum of $349.9 million compared with $490.1 million of shareholders’ equity as defined in the Credit Agreement as of December 31, 2009);
·  Maximum indebtedness-to-adjusted EBITDA through December 31, 2009 of  2.75x (2.5x on a pro forma basis for acquisitions); and
·  Minimum adjusted EBIT-to-interest expense of 2.5x.

We believe we were in compliance with all of our debt covenants as of December 31, 2009.  Noncompliance with any one or more of the debt covenants may have a material adverse effect on financial condition or liquidity in the event such noncompliance cannot be cured or should we be unable to obtain a waiver from the lenders.  Renegotiation of the covenant through an amendment to the Credit Agreement may effectively cure the noncompliance, but may have an effect on financial condition or liquidity depending upon how the covenant is renegotiated.
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In the past we have used interest rate swaps with large major financial institutions to manage interest rate exposure, but there have been no interest rate swaps outstanding since 2003.

9             SHAREHOLDER RIGHTS AGREEMENT

Pursuant to an Amended and Restated Rights Agreement, dated as of June 30, 2009, between Tredegar and National City Bank, N.A., as Rights Agent (essentially renewing and extending our Rights Agreement, dated as of June 30, 1999), one right is attendant to each share of our common stock (“Right”).  All Rights outstanding under the previous Rights Plan remain outstanding under the Amended and Restated Rights Agreement.

Each Right entitles the registered holder to purchase from Tredegar one one-hundredth of a share of Participating Cumulative Preferred Stock, Series A (the “Preferred Stock”), at an exercise price of $150 (the “Purchase Price”).  The Rights will become exercisable, if not earlier redeemed, only if a person or group acquires 10% or more of the outstanding shares of our common stock (thereby becoming an “Acquiring Person”) or announces a tender offer that would result in ownership by a person or group of 10% or more of our common stock.  Any action by a person or group whose beneficial ownership was reported on Amendment No. 4 to the Schedule 13D filed with respect to Tredegar on March 20, 1997, cannot cause such person or group to become an Ac quiring Person and thereby cause the Rights to become exercisable.

Each holder of a Right, upon the occurrence of certain events, will become entitled to receive, upon exercise and payment of the Purchase Price, Preferred Stock (or in certain circumstances, cash, property or other securities of Tredegar or a potential acquirer) having a value equal to twice the amount of the Purchase Price.

The Rights are now scheduled to expire on June 30, 2019.

10           STOCK OPTION AND STOCK AWARD PLANS

We have one  stock option plan under which stock options may be granted to purchase a specified number of shares of common stock at a price no lower than the fair market value on the date of grant and for a term not to exceed 10 years.  In addition, we have one other stock option plan under which there are options that remain outstanding, but no future grants can be made.  Employee options ordinarily vest two years from the date of grant.  The option plans also permit the grant of stock appreciation rights (“SARs”), stock, restricted stock, stock unit awards and incentive awards.  No SARs have been granted since 1992 and none are currently outstanding.

A summary of our stock options outstanding at December 31, 2009, 2008 and 2007, and changes during those years, is presented below:

     Option Exercise Price/Share 
  
Number of
Options
      Range   
Wgted.
Ave.
 
 Outstanding at 12/31/06  1,247,173  $13.95 to $29.94  $18.16 
 Granted  4,000   14.40 to  14.40   14.40 
 Forfeited and Expired  (184,065)  13.95 to  29.94   20.68 
 Exercised  (364,125)  13.95 to  22.72   18.58 
 Outstanding at 12/31/07  702,983   13.95 to  29.94   17.25 
 Granted  401,000   14.06 to  19.25   15.72 
 Forfeited and Expired  (161,515)  13.95 to  29.94   20.07 
 Exercised  (248,118)  13.95 to  18.90   16.66 
 Outstanding at 12/31/08  694,350   13.95 to  19.52   15.92 
 Granted  283,400   14.72 to  18.12   17.92 
 Forfeited and Expired  (171,875)  13.95 to  19.52   17.59 
 Exercised  (9,700)  13.95 to  15.11   14.37 
 Outstanding at 12/31/09  796,175  $13.95 to $19.52  $16.29 
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The following table summarizes additional information about stock options outstanding and exercisable and non-vested restricted stock outstanding at December 31, 2009:

            Options Outstanding at
December 31, 2009
     Options Exercisable at
December 31, 2009		 
          Weighted Average             
Range of
Exercise Prices
  Shares  
Remaining
Contract-
ual Life
(Years)
  
Exercise
Price
  
Aggregate
Intrinsic
Value
(In
Thousands)
  Shares  
Weighted
Average
Exercise
Price
  
Aggregate
Intrinsic
Value
(In
Thousands)
 
$13.95  to $17.88   535,275   4.9  $15.39  $247   195,775  $14.97  $173 
 17.89  to  19.52   260,900   6.1   18.14   -   4,000   19.52   - 
Total        796,175   5.3  $16.29  $247   199,775  $15.06  $173 

  Non-vested Restricted Stock  
Maximum Non-vested Restricted
Stock Units Issuable Upon Satis-
faction of Certain Performance Criteria
 
  
Number
of Shares
  
Wgtd. Ave.
Grant Date
Fair Value/Sh.
  
Grant Date
Fair Value (In
Thousands)
  
Number
of Shares
  
Wgtd. Ave.
Grant Date
Fair Value/Sh.
  
Grant Date
Fair Value (In
Thousands)
 
 Outstanding at 12/31/06  69,500  $13.97  $971   -  $-  $- 
 Granted  -   -   -   233,375   20.80   4,854 
 Vested  (6,000)  13.95   (84)  -   -   - 
 Forfeited  (4,000)  13.95   (56)  (56,500)  23.00   (1,300)
 Outstanding at 12/31/07  59,500   13.97   831   176,875   20.09   3,554 
 Granted  12,690   16.01   203   146,600   15.80   2,316 
 Vested  (8,190)  17.08   (140)  -   -   - 
 Forfeited  (10,500)  14.06   (148)  (115,694)  20.40   (2,360)
 Outstanding at 12/31/08  53,500   13.94   746   207,781   16.89   3,510 
 Granted  50,637   17.52   887   76,175   17.93   1,366 
 Vested  (58,387)  14.10   (823)  (66,731)  20.02   (1,336)
 Forfeited  -   -   -   (145,050)  15.63   (2,267)
 Outstanding at 12/31/09  45,750  $17.70  $810   72,175  $17.64  $1,273 
The total intrinsic value of stock options exercised was $14,000 in 2009, $653,000 in 2008 and $1.5 million in 2007.  The grant-date fair value of stock option-based awards vested was $1.8 million in 2008 (none in 2009 and 2007).  As of December 31, 2009, there was unrecognized compensation cost of $1.3 million related to stock option-based awards and $460,000 related to non-vested restricted stock and other stock-based awards.  This cost is expected to be recognized over the remaining weighted average period of 0.7 years for stock option-based awards and 1.2 years for non-vested restricted stock and other stock-based awards.  Compensation costs for non-vested restricted stock is subject to accelerated vesting based on meeting certain financial targets.

Stock options exercisable totaled 199,775 shares at December 31, 2009 and 321,350 shares at December 31, 2008.  Stock options available for grant totaled 3,591,585 shares at December 31, 2009, 1,009,210 shares at December 31, 2008 and 1,412,232 shares at December 31, 2007.

11           RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS

We have noncontributory defined benefit (pension) plans covering most employees.  The plans for salaried and hourly employees currently in effect are 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.
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On October 26, 2006, we announced changes to our U.S. defined benefit (pension) and savings plans covering salaried and certain other employees.  In 2007, the changes to the pension plan reduced our service cost, interest cost and amortization of prior service cost components of pension expense by approximately $600,000, $600,000 and $1.5 million, respectively, and the savings plan changes (see Note 12) increased charges for company matching contributions by approximately $700,000.

In addition to providing pension benefits, we provide postretirement life insurance and health care benefits for certain groups of employees.  Tredegar and retirees share in the cost of postretirement health care benefits, with employees hired on or before January 1, 1993, receiving a fixed subsidy to cover a portion of their health care premiums.  On December 8, 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the “Act”) was signed into law.  We eliminated prescription drug coverage for Medicare-eligible retirees as of January 1, 2006.  Consequently, we are not eligible for any federal subsidies.

Assumptions used for financial reporting purposes to compute net benefit income or cost and benefit obligations for continuing operations, and the components of net periodic benefit income or cost for continuing operations, are as follows:

  Pension Benefits  
Other Post-
Retirement Benefits
 
 (In Thousands, Except Percentages) 2009  2008  2007  2009  2008  2007 
 Weighted-average assumptions used                  
      to determine benefit obligations:                  
 Discount rate  5.70%  6.50%  6.25%  5.75%  6.50%  6.25%
      Rate of compensation increases  n/a   n/a   4.00%  4.00%  4.00%  4.00%
 Weighted-average assumptions used                        
      to determine net periodic benefit                        
 cost:                        
 Discount rate  6.50%  6.25%  5.75%  6.50%  6.25%  5.75%
      Rate of compensation increases  n/a   n/a   4.00%  4.00%  4.00%  4.00%
     Expected long-term return on                        
              plan assets, during the year  8.25%  8.50%  8.50%  n/a   n/a   n/a 
 Rate of increase in per-capita cost                        
      of covered health care benefits:                        
     Indemnity plans, end of year  n/a   n/a   n/a   6.00%  6.00%  6.00%
      Managed care plans, end of year  n/a   n/a   n/a   6.00%  6.00%  6.00%
 Components of net periodic benefit                        
 income (cost):                        
 Service cost $(3,077) $(3,447) $(4,232) $(70) $(71) $(106)
 Interest cost  (13,287)  (12,909)  (11,447)  (495)  (484)  (503)
      Expected return on plan assets  20,680   21,965   20,372   -   -   - 
     Amortization of prior service                        
           costs and gains or losses  (1,224)  (675)  (1,819)  127   47   - 
 Net periodic benefit income (cost) $3,092  $4,934  $2,874  $(438) $(508) $(609)
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The following tables reconcile the changes in benefit obligations and plan assets in 2009 and 2008, and reconcile the funded status to prepaid or accrued cost at December 31, 2009 and 2008:

  Pension Benefits  
Other Post-
Retirement Benefits
 
 (In Thousands) 2009  2008  2009  2008 
 Change in benefit obligation:            
 Benefit obligation, beginning of year $211,685  $200,129  $8,124  $8,690 
 Service cost  3,076   3,447   70   71 
 Interest cost  13,287   12,909   495   484 
     Effect of actuarial (gains) losses related                
 to the following:                
 Discount rate change  18,758   (5,951)  656   (219)
          Retirement rate assumptions and                
 mortality table adjustments  462   8,899   (3)  - 
 Other  (1,435)  2,485   (373)  (659)
 Benefits paid  (10,818)  (10,233)  (282)  (243)
 Benefit obligation, end of year $235,015  $211,685  $8,687  $8,124 
 Change in plan assets:                
 Plan assets at fair value,                
 beginning of year $194,538  $284,100  $-  $- 
 Actual return on plan assets  45,135   (79,451)  -   - 
 Employer contributions  129   122   282   243 
 Benefits paid  (10,818)  (10,233)  (282)  (243)
     Plan assets at fair value, end of year $228,984  $194,538  $-  $- 
 Funded status of the plans $(6,031) $(17,147) $(8,687) $(8,124)
 Amounts recognized in the consolidated                
 balance sheets:                
 Prepaid benefit cost $-  $-  $-  $- 
 Accrued benefit liability  (6,031)  (17,147)  (8,687)  (8,124)
 Net amount recognized $(6,031) $(17,147) $(8,687) $(8,124)
Net benefit income or cost is determined using assumptions at the beginning of each year.  Funded status is determined using assumptions at the end of each year.   Pension and other postretirement liabilities for continuing operations of $14.7 million and $25.3 million are included in “Other noncurrent liabilities” in the consolidated balance sheets at December 31, 2009 and 2008, respectively.  The amount of our accumulated benefit obligation is the same as our projected benefit obligation.

                At December 31, 2009, the effect of a 1% change in the health care cost trend rate assumptions would be immaterial.

Expected benefit payments for continuing operations over the next five years and in the aggregate for 2015-2019 are as follows:

 (In Thousands) 
Pension
Benefits
  
Other
Post-
Retirement
Benefits
 
 2010 $12,422  $481 
 2011  12,928   517 
 2012  13,527   547 
 2013  14,069   581 
 2014  14,626   600 
 2015 - 2019  81,662   3,168 

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Amounts recognized in 2009, 2008 and 2007 before related deferred income taxes in accumulated other comprehensive income consist of:

  Pension   Other Post-
Retirement		 
 (In Thousands) 2009  2008  2007  2009  2008  2007 
 Continuing operations:                  
      Prior service cost (benefit) $(4,035) $(5,092) $(6,140) $-  $-  $- 
      Net actuarial (gain) loss  101,368   110,319   5,194   (1,107)  (1,514)  (682)
 Discontinued operations:                        
      Prior service cost (benefit)  -   -   1,108   -   -   - 
      Net actuarial (gain) loss  -   -   6,008   -   -   (445)
 Total:                        
      Prior service cost (benefit)  (4,035)  (5,092)  (5,032)  -   -   - 
      Net actuarial (gain) loss  101,368   110,319   11,202   (1,107)  (1,514)  (1,127)
The amounts before related deferred income taxes in accumulated other comprehensive income that are expected to be recognized as components of net periodic benefit or cost during 2010 are as follows:
 (In Thousands) Pension  
Other Post-
Retirement
  
 Continuing operations:       
      Prior service cost (benefit) $(1,069) $-  
      Net actuarial (gain) loss  5,433    (37) 
The percentage composition of assets held by pension plans for continuing operations at December 31, 2009, 2008 and 2007, and the current expected long-term return on assets are as follows:

  
% Composition of Plan Assets
at December 31,
  Expected
Long-term
Return %		 
  2009  2008  2007   
 Pension plans related to continuing operations:            
       Low-risk fixed income securities  3.5%  10.3%  8.5%  4.0%
       Large capitalization equity securities  21.7   19.9   20.7   8.8 
       Mid-capitalization equity securities  0.0   0.0   7.4   10.3 
       Small-capitalization equity securities  5.8   4.1   4.7   10.7 
       International equity securities  21.4   18.6   22.6   9.5 
       Total equity securities  48.9   42.6   55.4   9.3 
       Hedge and private equity funds  42.9   43.8   33.9   8.0 
       Other assets  4.7   3.3   2.2   4.0 
 Total for continuing operations  100.0%  100.0%  100.0%  8.3%

Our targeted allocation percentage for pension plan assets is in the range of the percentage composition that existed at December 31, 2009.  Expected long-term returns are estimated by asset class and generally are based on inflation-adjusted historical returns, volatilities, risk premiums and managed asset premiums.  The portfolio of fixed income securities is structured with maturities that generally match estimated benefit payments over the next 1-2 years. Other assets are primarily comprised of cash and contracts with insurance companies.  Our primary investment objective is to maximize total return with a strong emphasis on the preservation of capital.  We believe that over the long term a diversified portfolio of equity securities, hedge funds a nd private equity funds has a better risk-return profile than fixed income securities.  The average remaining duration of benefit payments for our pension plans is about 12 years.  We expect our required contributions to approximate $200,000 in 2010.
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Estimates of the fair value of assets held by our pension plans are provided by third parties not affiliated with Tredegar.  At December 31, 2009 and 2008, the pension plan assets are categorized by level within the fair value measurement hierarchy as follows:
     Fair Value Measurements at December 31, 2009 
(In Thousands)  
Total
  
Quoted Prices in Active Markets for Identical Assets
(Level 1)
  
Signficant Other Observable Inputs
(Level 2)
  
Significant Unobservable Inputs
(Level 3)
 
 Large capitalization equity securities $49,655  $35,545  $14,110  $- 
 Small-capitalization equity securities  13,272   13,272   -   - 
 International equity securities  49,078   49,078   -   - 
 Hedge and private equity funds  98,204   -   86,567   11,637 
 Low-risk fixed income securities  8,069   4,047   4,022   - 
 Other assets  451��  451   -   - 
    Total plan assets at fair value $218,729  $102,393  $104,699  $11,637 
                 
 Contracts with insurance companies  10,255             
     Total plan assets $228,984             

For fair value measurements of plan assets using significant unobservable inputs (Level 3), a reconciliation of the balances from January 1, 2009 to December 31, 2009 are as follows:
 (In Thousands) Hedge and private equity funds 
 Balance at December 31, 2008 $6,064 
 Purchases, sales, and settlements  (447)
 Actual return on plan assets:    
 Related to assets still held at year end  855 
 Related to assets sold during the year  - 
 Transfers in and/or out of Level 3  5,165 
 Balance at December 31, 2009 $11,637 
We also have a non-qualified supplemental pension plan covering certain employees.  Effective December 31, 2005, further participation in this plan was terminated and benefit accruals for existing participants were frozen.  The plan was designed to restore all or a part of the pension benefits that would have been payable to designated participants from our principal pension plans if it were not for limitations imposed by income tax regulations.  The projected benefit obligation relating to this unfunded plan was $2.9 million at December 31, 2009 and $2.8 million at December 31, 2008.  Pension expense recognized was $202,000 in 2009, $185,000 in 2008 and $161,000 in 2007.  This information has been included in the preceding pension benefit t ables.

Approximately 126 employees at our films manufacturing facility in Kerkrade, The Netherlands are covered by a collective bargaining agreement that includes participation in a multi-employer pension plan.  Pension expense recognized for participation in this plan, which is equal to required contributions, was $807,000 in 2009, $1.0 million in 2008 and $868,000 in 2007.  This information has been excluded from the preceding pension benefit tables.

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12           SAVINGS PLAN

We have a savings plan that allows eligible employees to voluntarily contribute a percentage of their compensation up to Internal Revenue Service (“IRS”) limitations.  Under the provisions of the plan on or before December 31, 2006, we matched a portion (generally 50 cents for every $1 of employee contribution, up to a maximum of 10% of base pay) of the employee’s contribution to the plan with shares of our common stock.  Effective January 1, 2007, and in conjunction with certain pension plan changes (see Note 11), the following changes were made to the savings plan for salaried and certain hourly employees:

●  The company makes matching contributions to the savings plan of $1 for every $1 of employee contribution. The maximum matching contribution is 6% of base pay for 2007-2009 and 5% of base pay thereafter.
●The savings plan includes immediate vesting for active employees of past matching contributions as well as future matching contributions when made (compared with the previous 5-year graded vesting) and automatic enrollment at 3% of base pay unless the employee opts out or elects a different percentage.

We also have a non-qualified plan that restores matching benefits for employees suspended from the savings plan due to certain limitations imposed by income tax regulations.  Charges recognized for these plans were $2.5 million in 2009, $3.1 million in 2008 and $2.8 million in 2007.  The savings plan changes effective January 1, 2007 increased charges for company matching contributions in 2007 by approximately $700,000.  Our liability under the restoration plan was $1.3 million at December 31, 2009 (consisting of 79,088 phantom shares of common stock) and $1.3 million at December 31, 2008 (consisting of 69,957 phantom shares of common stock) valued at the closing market price on those dates.

The Tredegar Corporation Benefits Plan Trust (the “Trust”) purchased 7,200 shares of our common stock in 1998 for $192,000 and 46,671 shares of our common stock in 1997 for $1.0 million, as a partial hedge against the phantom shares held in the restoration plan.  There have been no shares purchased since 1997 except for re-invested dividends.  The cost of the shares held by the Trust is shown as a reduction to shareholders’ equity in the consolidated balance sheets.

13           RENTAL EXPENSE AND CONTRACTUAL COMMITMENTS

Rental expense for continuing operations was $2.9 million in 2009, $3.5 million in 2008 and $3.9 million in 2007.  Rental commitments under all non-cancelable operating leases for continuing operations as of December 31, 2009, are as follows:

 Year 
Amount
(In Thousands)
 
 2010 $3,072 
 2011  1,792 
 2012  1,331 
 2013  238 
 2014  238 
 Remainder  - 
   Total $6,671 
AFBS, Inc. (formerly known as Therics, Inc. - see Note 15 for additional information regarding its restructuring in 2005), a wholly-owned subsidiary of Tredegar, has future rental commitments under noncancelable operating leases through 2011 (most of which contain sublease options) totaling approximately $2.1 million.  These future rental commitments are included in the above table.  Sublease rental commitments relating to excess space at AFBS total $168,000 (excluded from the above table).

Contractual obligations for plant construction and purchases of real property and equipment amounted to $1.5 million at December 31, 2009 and $17.5 million at December 31, 2008.  Contractual commitments at December 31,
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2009 and 2008 are primarily related to the capacity expansion at our aluminum extrusions facility in Carthage, Tennessee.

14           INCOME TAXES
Income from continuing operations before income taxes and income taxes are as follows:

 (In Thousands) 2009  2008  2007 
 Income from continuing operations         
     before income taxes:         
     Domestic $2,098  $31,838  $50,942 
     Foreign  15,212   17,289   8,354 
          Total $17,310  $49,127  $59,296 
             
 Current income taxes:            
     Federal $7,624  $1,494  $24,698 
     State  (335)  1,126   856 
     Foreign  4,399   6,038   4,351 
          Total  11,688   8,658   29,905 
 Deferred income taxes:            
     Federal  6,088   9,672   (4,009)
     State  831   114   316 
     Foreign  56   1,042   (1,846)
          Total  6,975   10,828   (5,539)
          Total income taxes $18,663  $19,486  $24,366 
The decrease in 2009 compared with 2008 in income from continuing operations before income taxes for domestic operations is primarily due to the 2009 goodwill impairment charge of $30.6 million in Aluminum Extrusions.

The significant differences between the U.S. federal statutory rate and the effective income tax rate for continuing operations are as follows:
        
     
 Percent of Income Before Income
 Taxes for Continuing Operations
     200920082007
 Income tax expense at federal statutory rate          35.0                 35.0               35.0
 Goodwill impairment charge            61.8                        -                      -
 Valuation allowance for capital loss    
  carry-forwards            12.2                 (2.2)                  1.8
 Unremitted earnings from foreign operations             8.1                   6.7                 2.2
 Remitted earnings from foreign operations            3.0                        -                      -
 State taxes, net of federal income tax benefit            2.2                    1.6                  1.3
 Non-deductible expenses                 -                      .2                    .2
 Extraterritorial Income Exclusion and    
  Domestic Production Activities Deduction                -                        -                  (.5)
 Reversal of income tax contingency accruals   
  and tax settlements              (.9)                    (.3)                    .9
 Valuation allowance for foreign operating   
  loss carry-forwards            (1.0)                   3.2                  1.4
 Research and development tax credit            (2.1)                    (.4)                   (.1)
 Foreign rate differences            (6.5)                 (4.2)                 (1.1)
 Other             (4.0)                       .1                      -
  Effective income tax rate          107.8                 39.7                 41.1
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Deferred tax liabilities and deferred tax assets at December 31, 2009 and 2008, are as follows:
       
(In Thousands) 2009  2008 
 Deferred tax liabilities:      
      Depreciation $30,308  $27,139 
      Amortization of goodwill  23,637   20,648 
      Foreign currency translation gain adjustment  14,211   12,648 
      Book basis in excess of tax for investments (net of        
            valuation allowance of $6,655 in 2009 and $4,537 in 2008)  3,425   - 
      Derivative financial instruments  461   - 
      Other  640   1,975 
            Total deferred tax liabilities  72,682   62,410 
 Deferred tax assets:        
      Employee benefits  9,222   6,195 
      Asset write-offs, divestitures and environmental        
            accruals (net of valuation allowance of $1,426 in 2009)  2,672   3,609 
      Pensions  2,182   6,218 
      Allowance for doubtful accounts and sales returns  1,343   966 
      Inventory  1,279   166 
      Tax benefit on state and foreign NOL carryforwards (net of        
                 valuation allowance of $3,599 in 2009 and $5,228 in 2008)  1,121   883 
      Timing adjustment for unrecognized tax benefits on        
                 uncertain tax positions, including portion relating to        
                 interest and penalties  543   2,304 
      Derivative financial instruments  -   4,077 
      Other  1,018   494 
            Total deferred tax assets  19,380   24,912 
 Net deferred tax liability $53,302  $37,498 
         
 Included in the balance sheet:        
      Noncurrent deferred tax liabilities in excess of assets $59,052  $45,152 
      Current deferred tax assets in excess of liabilities  5,750   7,654 
            Net deferred tax liability $53,302  $37,498 

Except as noted below, we believe that it is more likely than not that future taxable income will exceed future tax deductible amounts thereby resulting in the realization of deferred tax assets.  A valuation allowance of $3.6 million and $5.2 million at December 31, 2009 and 2008, respectively, is included in tax benefit on state and foreign net operating loss carryforwards that offsets an amount included in that line item relating to possible future tax benefits on domestic state and foreign operating losses generated by certain foreign and domestic subsidiaries that may not be recoverable in the carry-forward period.  In addition, the valuation allowance for excess capital losses from investments and other related items was increased from $4.5 million at December 31, 2008 to $6.7 million at December 31, 2009 due to changes in the relative amounts of capital gains and losses generated during the year.  The amount of the deferred tax asset considered realizable, however, could be adjusted in the near term if estimates of the fair value of certain investments during the carryforward period change.  A valuation allowance of $1.4 million at December 31, 2009 was established for asset impairments in foreign jurisdictions where we believe it is more likely than not that the deferred tax asset will not be realized.

70

A reconciliation of our unrecognized uncertain tax positions since January 1, 2008, is shown below:
                   
           Increase
(Decrease)
Due to
Settlements
with
Taxing
Authorities		       
                  
     Increase (Decrease)
Due to Tax Positions
Taken in		    Reductions
Due to
Lapse of
Statute of
Limitations		    
             
  Balance at
Jan. 1,
2008		        Balance at
Dec. 31,
2008		 
    Current  Prior       
 (In Thousands)   Period  Period       
Gross unrecognized tax benefits on uncertain tax
   positions (reflected in current income tax and other
   noncurrent liability accounts in the balance sheet)
 $3,268  $105  $(392) $(31) $(397) $2,553 
Deferred income tax assets related to unrecognized
   tax benefits on uncertain tax positions for which
   ultimate deductibility is highly certain but for which
   the timing of the deduction is uncertain (reflected in
   deferred income tax accounts in the balance sheet)
  (2,325)                  (1,828)
Net unrecognized tax benefits on uncertain tax
   positions, which would impact the effective tax rate
   if recognized
  943                   725 
Interest and penalties accrued on deductions taken
    relating to uncertain tax positions (approximately $100,
   $300 and $300 reflected in income tax expense in the
   income statement in 2008, 2007 and 2006, respectively,
   with the balance shown in current income tax and other   
   noncurrent liability accounts in the balance sheet)
  1,195                   1,303 
 Related deferred income tax assets recognized on
    interest and penalties		  (436)                  (476)
 
Interest and penalties accrued on uncertain tax
   positions net of related deferred income tax benefits,
   which would impact the effective tax rate if recognized
  759                   827 
Total net unrecognized tax benefits on uncertain tax
    positions reflected in the balance sheet, which would
    impact the effective tax rate if recognized
 $1,702                  $1,552 
           
Increase
(Decrease)
Due to
Settlements
with
Taxing
Authorities
       
                  
     Increase (Decrease)
Due to Tax Positions
Taken in		    
Reductions
Due to
Lapse of
Statute of
Limitations
    
             
  Balance at
Jan. 1,
2009		        Balance at
Dec. 31,
2009		 
    Current
Period		  Prior
Period		       
 (In Thousands)            
                   
                   
 Gross unrecognized tax benefits on uncertain tax
   positions (reflected in current income tax and other
   noncurrent liability accounts in the balance sheet)		 $2,553  $68  $208  $(1,543) $(290) $996 
Deferred income tax assets related to unrecognized
    tax benefits on uncertain tax positions for which
    ultimate deductibility is highly certain but for which
    the timing of the deduction is uncertain (reflected in
   deferred income tax accounts in the balance sheet)
  (1,828)                  (348)
Net unrecognized tax benefits on uncertain tax
   positions, which would impact the effective tax rate if
   recognized		  725                   648 
Interest and penalties accrued on deductions taken
   relating to uncertain tax positions (approximately $(800),
   $100 and $300 reflected in income tax expense in the
   income statement in 2009, 2008 and 2007, respectively,
   with the balance shown in current income tax and other
   noncurrent liability accounts in the balance sheet)		  1,303                   537 
 Related deferred income tax assets recognized on
   interest and penalties		  (476)                  (195)
Interest and penalties accrued on uncertain tax
    positions net of related deferred income tax benefits,
    which would impact the effective tax rate if
    recognized		  827                   342 
Total net unrecognized tax benefits on uncertain tax
   positions reflected in the balance sheet, which would
   impact the effective tax rate if recognized		 $1,552                  $990 
71

In the second quarter of 2009, we settled several disputed issues raised by the IRS during its examination of our U.S. income tax returns for 2001-2003, the most significant of which regards the recognition of our captive insurance subsidiary as an insurance company for U.S. income tax purposes.  The settlement with the IRS for the disputed issues cost us approximately $1.0 million, which is lower than the previous estimate of $1.3 million and was applied against the balance of unrecognized tax benefits.

Tredegar and its subsidiaries file income tax returns in the U.S., various states and jurisdictions outside the U.S.  Generally, except for refund claims and amended returns, Tredegar is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2006.  With few exceptions, Tredegar and its subsidiaries are no longer subject to state or non-U.S. income tax examinations by tax authorities for years before 2006.  We believe that it is reasonably possible that approximately $230,000 of the balance of unrecognized state tax positions may be recognized within the next twelve months as a result of a lapse of the statute of limitations.

15         LOSSES ASSOCIATED WITH PLANT SHUTDOWNS, ASSET IMPAIRMENTS AND RESTRUCTURINGS, UNUSUAL ITEMS, GAINS FROM SALE OF ASSETS
              AND OTHER ITEMS

Losses associated with plant shutdowns, asset impairments, restructurings and other charges in 2009 totaled $2.9 million ($2.3 million after taxes) and included:

●A fourth quarter charge of $181,000 ($121,000 after taxes) and a first quarter charge of $1.1 million ($806,000 after taxes) for severance and other employee-related costs in connection with restructurings in Film Products;
●A fourth quarter charge of $1.0 million ($1.0 million after taxes) for asset impairments in Film Products;
●A fourth quarter benefit of $547,000 ($340,000 after taxes), a third quarter charge of $111,000 ($69,000 after taxes), a second quarter charge of $779,000 ($484,000 after taxes), and a first quarter charge of $609,000 ($378,000 after taxes) for timing differences between the recognition of realized losses on aluminum futures contracts and related revenues from the delayed fulfillment by customers of fixed-price forward purchase commitments (included in “Cost of goods sold” in the consolidated statements of income, see Note 6 for additional detail);
●A fourth quarter gain of $640,000 ($398,000 after taxes) related to the sale of land at our aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Other income (expense), net” in the consolidated statements of income);
●A fourth quarter charge of $64,000 ($40,000 after taxes) and a first quarter charge of $369,000 ($232,000 after taxes) for severance and other employee-related costs in connection with restructurings in Aluminum Extrusions;
●A fourth quarter charge of $218,000 ($139,000 after taxes) and a first quarter charge of $178,000 ($113,000 after taxes) for severance and other employee-related costs in connection with restructurings at corporate headquarters (included in “Corporate expenses, net” in the segment operating profit table in Note 3);
●A first quarter gain of $275,000 ($162,000 after taxes) on the sale of equipment (included in “Other income (expense), net” in the consolidated statements of income) from a previously shutdown films manufacturing facility in LaGrange, Georgia;
●A second quarter gain of $175,000 ($110,000 after taxes) on the sale of a previously shutdown aluminum extrusions manufacturing facility in El Campo, Texas (included in “Other income (expense), net” in the consolidated statements of income);
●A second quarter gain of $149,000 ($91,000 after taxes) related to the reversal to income of certain inventory impairment accruals in Film Products; and
●A fourth quarter charge of $345,000 ($214,000 after taxes) and a second quarter benefit of $276,000 ($172,000 after taxes) related to adjustments of future environmental costs expected to be incurred by Aluminum Extrusions (included in “Cost of goods sold” in the consolidated statements of income).

We recognized a gain of $1.8 million ($1.2 million after taxes) from the receipt of a contractual earn-out payment and a gain of $150,000 ($96,000 after taxes) from a post-closing contractual adjustment from the sale of our investments in Theken Spine and Therics, LLC.  AFBS Inc. (formerly Therics, Inc.) received these investments in 2005, when substantially all of the assets of AFBS, Inc., a wholly owned subsidiary of Tredegar, were sold or assigned to a newly created limited liability company, Therics, LLC, controlled and managed by an individual not affiliated with
72
Tredegar.  Results in 2009 also include unrealized gains from the write-up of an investment accounted for under the fair value method of $5.1 million ($3.2 million after taxes).  See Note 2 for additional information on this investment, which is accounted for under the fair value method.  Gains on the sale of corporate assets in 2009 include realized gains of $404,000 ($257,000 after taxes) from the sale of corporate real estate.  The pretax amount for each of these items is included in "Other income (expense), net" in the consolidated statements of income.  Income taxes for 2009 include the recognition of a valuation allowance of $2.1 million related to expected limitations on the utilization of assumed capital losses on certain investments.
The severance in Film Products includes a reduction in workforce in the first and fourth quarters of 2009 (approximately 50 employees) that is expected to save approximately $2.0 million on an annualized basis.  The impairment charge in Film Products was recognized to write down the machinery and equipment to the lower of their carrying value or estimated fair value.  The estimated fair value of machinery and equipment that was evaluated for impairment was primarily based on our estimates of the proceeds that we would receive if and/or when assets are sold.  Our estimates of the remaining fair value for the related machinery and equipment were based on both Level 2 and 3 inputs as defined under U.S generally accepted accounting principles.

Losses associated with plant shutdowns, asset impairments and restructurings for continuing operations in 2008 totaled $12.0 million ($8.4 million after taxes) and included:

●A fourth quarter charge of $7.2 million ($5.0 million after taxes), a second quarter charge of $854,000 ($717,000 after taxes) and a first quarter charge of $1.7 million ($1.2 million after taxes) for asset impairments in Film Products;
●
A second quarter charge of $90,000 ($83,000 after taxes) and a first quarter charge of $2.1 million ($1.4 million after taxes) for severance and other employee-related costs in connection with restructurings in Film Products;
●A second quarter charge of $275,000 ($169,000 after taxes) and a first quarter charge of $235,000 ($145,000 after taxes) for severance and other employee-related costs in connection with restructurings in Aluminum Extrusions;
●A fourth quarter gain of $583,000 ($437,000 after taxes) related to the sale of land rights and related improvements at the Film Products facility in Shanghai, China (included in “Other income (expense), net” in the consolidated statements of income); and
●A fourth quarter charge of $72,000 ($44,000 after taxes) and a second quarter charge of $105,000 ($65,000 after taxes) related to expected future environmental costs at the Aluminum Extrusions facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statements of income).

A gain of $1.5 million ($965,000 after taxes) from the sale of our investments in Theken Spine and Therics, LLC is included in “Other income (expense), net” in the consolidated statements of income.  Results in 2008 also include unrealized gains from the write-up of an investment in a privately held drug company of $5.6 million ($3.6 million after taxes).  See Note 2 for additional information on this investment, which is accounted for under the fair value method.  Gains on the sale of corporate assets in 2008 include realized gains of $509,000 ($310,000 after taxes) from the sale of equity securities and $492,000 ($316,000 after taxes) from the sale of corporate real estate.  The pretax amounts for each of these items are included in "Other income (expense), net" in the consolidated st atements of income.  Income taxes for 2008 include the reversal of a valuation allowance recognized in the third quarter of 2007 of $1.1 million that originally related to expected limitations on the utilization of assumed capital losses on certain investments.

The severance in Film Products includes a reduction in workforce in the first quarter of 2008 (approximately 90 or 6% of Film Products’ total employees) that is expected to save approximately $4.2 million on an annualized basis.  The impairment charges in Film Products were recognized to write down the machinery and equipment for certain product groups to the lower of their carrying value or estimated fair value.  The estimated fair value of machinery and equipment that was evaluated for impairment was primarily based on our estimates of the proceeds that we would receive if and/or when assets are sold.  Our estimates of the remaining fair value for the related machinery and equipment were based on both Level 2 and 3 inputs as defined under U.S generally accepted accounting principles.


73

Losses associated with plant shutdowns, asset impairments and restructurings for continuing operations in 2007 totaled $4.1 million ($2.8 million after taxes) and included:

●  A fourth quarter charge of $1.2 million ($780,000 after taxes), a third quarter charge of $1.2 million ($793,000 after taxes) and a first quarter charge of $366,000 ($238,000 after taxes) related to the estimated loss on the sub-lease of a portion of the AFBS (formerly Therics) facility in Princeton, New Jersey;
●  A fourth quarter charge of $256,000 ($256,000 after taxes) and a first quarter charge of $338,000 ($284,000 after taxes) for asset impairments in Film Products;
●  A third quarter charge of $493,000 ($309,000 after taxes) and a second quarter charge of $99,000 ($62,000 after taxes) for severance and other employee-related costs in Aluminum Extrusions;
●  A second quarter charge of $26,000 ($16,000 after taxes) and a first quarter charge of $29,000 ($17,000 after taxes) for costs related to the shutdown of the films manufacturing facility in LaGrange, Georgia; and
●  A third quarter charge of $42,000 ($26,000 after taxes) related to expected future environmental costs at the aluminum extrusions facility in Newnan, Georgia (included in "Cost of goods sold" in the consolidated statements of income).

Results in 2007 also include a fourth-quarter gain of $2.7 million ($1.7 million after taxes) on the sale of corporate real estate (proceeds of approximately $3.8 million) and a third-quarter loss from the write-down of Novalux of $2.1 million ($1.3 million after taxes).  See Note 2 for more information on Novalux.  The pretax amounts for both of these items are included in "Other income (expense), net" in the consolidated statements of income and separately shown in the segment operating profit table in Note 3.  Income taxes in 2007 include the recognition of a valuation allowance against deferred tax assets of $1.1 million in the third quarter for expected limitations on the utilization of assumed capital losses (see Note 14).


16           CONTINGENCIES

We are involved in various stages of investigation and remediation relating to environmental matters at certain current and former plant locations.  Where we have determined the nature and scope of any required environmental remediation activity, estimates of cleanup costs have been obtained and accrued.  As we continue efforts to maintain compliance with applicable environmental laws and regulations, additional contingencies may be identified.  If additional contingencies are identified, our practice is to determine the nature and scope of those contingencies, obtain and accrue estimates of the cost of remediation, and perform remediation.  We do not believe that additional costs that could arise from those activities will have a material adverse eff ect on our financial position.  However, those costs could have a material adverse effect on quarterly or annual operating results at that time.

We are involved in various other legal actions arising in the normal course of business.  After taking into consideration information we deemed relevant, we believe that we have sufficiently accrued for probable losses and that the actions will not have a material adverse effect on our financial position.  However, the resolution of the actions in a future period could have a material adverse effect on quarterly or annual operating results at that time.

From time to time, we enter into transactions with third parties in connection with the sale of assets or businesses in which we agree to indemnify the buyers or third parties involved in the sale for certain liabilities or risks related to the assets or business.  Also, in the ordinary course of our business, we may enter into agreements with third parties for the sale of goods or services that may contain indemnification provisions.  In the event that an indemnification claim is asserted, liability for indemnification would be subject to an assessment of the underlying facts and circumstances under the terms of the applicable agreement.  Further, any indemnification payments may be limited or barred by a monetary cap, a time limitation, or a deductible or basket.  For these reasons, we are unable to estimate the maximum potential amount of the potential future liability under the indemnity provisions of these agreements.  We do, however, accrue for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable.  We disclose contingent liabilities if the probability of loss is reasonably possible and significant.

74

17           DISCONTINUED OPERATIONS


Shareholders’ Equity

          At December 31, 2008, we had 33,909,932 shares of common stock outstanding and a total market capitalization of $616.5 million, compared with 34,765,450 shares of common stock outstanding and a total market capitalization of $559.0 million at December 31, 2007.

          We purchased 1.1 million shares in 2008 and 4.8 million shares in 2007 on the open market at an average price of $14.88 and $16.00 per share, respectively (no shares purchased in 2006). See the issuer purchases of equity securities section of Item 5 on page 8 regarding purchases of our common stock and our standing authorization permitting additional purchases.

Cash Flows

          The discussion in this section supplements the information presented in the consolidated statements of cash flows on page 43. Cash flows for discontinued operations have not been separately disclosed in the consolidated statements of cash flows.

          Cash provided by operating activities was $75.4 million in 2008 compared with $95.6 million in 2007. The decrease is due primarily to normal volatility of working capital components (see assets and liabilities section on page 25 for discussion of working capital trends) and lower income from continuing operations, partially offset by lower income tax payments (income tax payments were approximately $8.8 million in 2008 compared with $17 million in 2007).

          Cash provided by investing activities was $3.5 million in 2008 compared with cash used in investing activities of $36.3 million in 2007. The improvement was primarily due to proceeds received in 2008 from the sale of our aluminum extrusions business in Canada of $23.4 million and lower investments in 2008 compared with 2007. Capital expenditures in 2008 primarily included the normal replacement of machinery and equipment and the expansion of capacity at our aluminum extrusion facility Carthage, Tennessee. See the executive summary beginning on page 17 and the business segment review beginning on page 33 for more information on capital expenditures.

          Net cash flow used in financing activities was $80.7 million in 2008 and related to net repayments on our revolving credit facility with excess cash flow of $59.5 million, the payment of regular quarterly dividends of $5.4 million (4 cents per share per quarter) and repurchases of Tredegar common stock ($19.8 million including settlement of $3.4 million), partially offset by proceeds from the exercise of stock options of $4.1 million.

          Cash provided by operating activities was $95.6 million in 2007 compared with $104.6 million in 2006. The decrease is due primarily to higher income tax payments (income tax payments were approximately $17.0 million in 2007 compared with $7.8 million in 2006) and a decline in operating results in Aluminum Extrusions (mainly operations in Canada divested on February 12, 2008), partially offset by lower incremental working capital investment.

          Cash used in investing activities declined to $36.3 million in 2007 compared with $40.6 million in 2006 due to lower capital expenditures and proceeds from property disposals and reimbursements from a customer for purchases of equipment, partially offset by higher investments. Capital expenditures in 2007 primarily included the normal replacement of machinery and equipment and continued expansion of capacity for surface protection films and elastic materials.

          Net cash flow used in financing activities was $54.1 million in 2007 and included the use of cash generated from operating activities in excess of investing activities, additional borrowings under our revolving credit facility and proceeds from the exercise of stock options to pay dividends and purchase Tredegar common stock.

          Cash provided by operating activities was $104.6 million in 2006 compared with $53.7 million in 2005. The increase is due primarily to improved operating results, higher deferred income taxes and lower incremental working capital investment.



          Cash used in investing activities was $40.6 million in 2006 compared with $55.0 million in 2005 due primarily to lower capital expenditures. Capital expenditures in 2006 in Film Products of $33.2 million (down from $50.5 million in 2005 and $1.5 million in excess of 2006 depreciation) primarily included the continued expansion of capacity for surface protection films and elastic materials, a new information system and normal replacement of machinery and equipment. Capital expenditures in Aluminum Extrusions were $7.4 million in 2006 compared to $12 million in 2005 and depreciation in 2006 of $12.3 million.

          Net cash flow used in financing activities was $47.0 million in 2006 and included the use of cash generated from operating activities in excess of investing activities to pay dividends and repay amounts outstanding under our revolving credit facility. In addition, financing activities in 2006 included proceeds from the exercise of stock options of $9.7 million, including $8.5 million in the fourth quarter of 2006 due to an increase in our stock price and certain stock option expiration dates in early 2007.

Quantitative and Qualitative Disclosures about Market Risk

          Tredegar has exposure to the volatility of interest rates, polyethylene and polypropylene resin prices, aluminum ingot and scrap prices, energy prices, foreign currencies and emerging markets. See the assets and liabilities section beginning on page 25 regarding credit agreements and interest rate exposures.

          Changes in resin prices, and the timing of those changes, could have a significant impact on profit margins in Film Products. Profit margins in Aluminum Extrusions are sensitive to fluctuations in aluminum ingot and scrap prices as well as natural gas prices (natural gas is the principal energy source used to operate our casting furnaces). There is no assurance of our ability to pass through higher raw material and energy costs to our customers.

          See the executive summary beginning on page 17 and the business segment review beginning on page 33 for discussion regarding the impact of the lag in the pass-through of resin price changes. The volatility of average quarterly prices of low density polyethylene resin in the U.S. (a primary raw material for Film Products) is shown in the chart below.

Source: Quarterly averages computed by Tredegar using monthly data provided by Chemical Data Inc. (“CDI”). In January 2005, CDI reflected a 4 cents per pound non-market adjustment based on their estimate of the growth of discounts over the 2000 to 2003 period. The 4th quarter 2004 average rate of 67 cents per pound is shown on a pro forma basis as if the non-market adjustment was made in October 2004.

          Resin prices in Europe, Asia and South America have exhibited similar 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, Film Products 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 the executive summary on page 17 and the business segment review on page 33 for more information).

          In the normal course of business, we enter into fixed-price forward sales contracts with certain customers for the sale of fixed quantities of aluminum extrusions at scheduled intervals. In order to hedge our exposure to aluminum price volatility (see the chart below) under these fixed-price arrangements, which generally have a duration of not more than 12 months, we enter into a combination of forward purchase commitments and futures contracts to acquire or hedge aluminum, based on the scheduled deliveries. See Note 6 on page 55 for more information.

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

          In Aluminum Extrusions, we hedge from time-to-time a portion of our exposure to natural gas price volatility by entering into fixed-price forward purchase contracts with our natural gas suppliers. We estimate that, in an unhedged situation, every $1 per mmBtu per month change in the market price of natural gas has a $90,000 impact on the continuing monthly operating profit for our U.S. operations in Aluminum Extrusions. In September 2005, we announced an energy surcharge for our aluminum extrusions business in the U.S. to be applied when the previous quarter’s NYMEX natural gas average settlement price is in excess of $8.85 per mmBtu.

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



          We sell to customers in foreign markets through our foreign operations and through exports from U.S. plants. The percentage of sales and total assets for continuing manufacturing operations related to foreign markets for 2008 and 2007 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tredegar Corporation - Continuing Manufacturing Operations
Percentage of Net Sales and Total Assets Related to Foreign Markets

 

 

 

 

2008

 

2007

 

 

 

 

 

 

% of Total
Net Sales *

 

% Total
Assets -
Foreign
Oper-
ations *

 

% of Total
Net Sales *

 

% Total
Assets -
Foreign
Oper-
ations *

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exports
From
U.S.

 

Foreign
Oper-
ations

 

 

Exports
From
U.S.

 

Foreign
Oper-
ations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canada

 

 

5

 

 

—

 

 

—

 

 

5

 

 

—

 

 

—

 

Europe

 

 

1

 

 

18

 

 

15

 

 

1

 

 

17

 

 

16

 

Latin America

 

 

—

 

 

3

 

 

2

 

 

—

 

 

3

 

 

2

 

Asia

 

 

3

 

 

7

 

 

7

 

 

3

 

 

6

 

 

7

 

 

Total% exposure to foreign markets

 

 

9

 

 

28

 

 

24

 

 

9

 

 

26

 

 

25

 

 


*

The percentages for foreign markets are relative to Tredegar’s total net sales and total assets from manufacturing operations (consolidated net sales and total assets from continuing operations excluding cash and cash equivalents and AFBS (formerly Therics)).

          We attempt to match the pricing and cost of our products in the same currency and generally view the volatility of foreign currencies (see trends for the Euro and Chinese Yuan in the chart below) and emerging markets, and the corresponding impact on earnings and cash flow, as part of the overall risk of operating in a global environment. Exports from the U.S. are generally denominated in U.S. Dollars. Our foreign currency exposure on income from continuing foreign operations relates to the Euro, the Chinese Yuan, the Hungarian Forint and the Brazilian Real.

          In Film Products, where we are typically able to match the currency of our sales and costs, we estimate that the change in value of foreign currencies relative to the U.S. Dollar had a positive impact on operating profit of approximately $3.6 million in 2008 compared with 2007, $3 million in 2007 compared with 2006 and $500,000 in 2006 compared with 2005.

          Trends for the Euro and Chinese Yuan are shown in the chart below:

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



Business Segment Review

          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.

Film Products

Net Sales. See the executive summary beginning on page 17 for the discussion of net sales (sales less freight) in Film Products in 2008 compared with 2007.

          In Film Products, net sales were $531.0 million in 2007, up 3.9% versus $511.2 million in 2006. Operating profit from ongoing operations was $59.4 million in 2007, up 3.1% compared with $57.6 million in 2006. Volume decreased to 244.3 million pounds in 2007 from 253.5 million pounds in 2006. Volume was down in 2007 compared with 2006 primarily due to a decrease in sales of commodity barrier films and packaging films, partially offset by an increase in sales of elastic materials used in baby diapers and adult incontinence products and apertured materials used as topsheet in feminine hygiene products. Certain commodity barrier films were discontinued in conjunction with the shutdown in the second quarter of 2006 of the plant in LaGrange, Georgia. Net sales increased primarily due to appreciation of the U.S. dollar value of currencies for operations outside of the U.S., higher volume of elastic and apertured materials and improved product mix of surface protection films, partially offset by a decline in volume of commodity barrier films and a decline in volume and prices of certain packaging films. We estimate that the growth in net sales excluding the effects of the pass-through of resin price changes and foreign exchange rate changes was approximately 3.5% in 2007.

Operating Profit. See the executive summary beginning on page 17 for the discussion of operating profit in Film Products in 2008 compared with 2007.

          Operating profit from ongoing operations in Film Products increased in 2007 versus 2006 primarily due to the net changes in sales noted above and appreciation of the U.S. dollar value of currencies for operations outside of the U.S. (the benefit from currency rate changes was approximately $3.0 million), partially offset by an estimated negative impact in 2007 of $2.5 million from the lag in the pass-through of changes in average resin costs and year-end adjustments for LIFO. In 2006, we estimated a favorable impact of $4.5 million from the lag in the pass-through of changes in average resin costs and year-end adjustments for LIFO.

Identifiable Assets. Identifiable assets in Film Products decreased to $400.0 million at December 31, 2008, from $488.0 million at December 31, 2007, due primarily to the decline in prepaid pension assets of $42.9 million as the funded status of our pension plans shifted from a net asset to a net liability, depreciation of $34.5 million and machinery and equipment asset impairments of $8.6 million, partially offset by capital expenditures of $11.1 million and efforts to lower inventory levels (total inventory balances decreased $9.9 million). See page 25 for further discussion on changes in assets and liabilities.

          Identifiable assets in Film Products decreased to $488.0 million at December 31, 2007, from $499.0 million at December 31, 2006, due primarily to depreciation of $33.9 million compared with capital expenditures of $15.3 million and asset impairments during the year totaling $594,000, partially offset by the effects of currency rate changes on property, plant and equipment and goodwill of approximately $11.3 million.

Depreciation, Amortization and Capital Expenditures. Depreciation and amortization for Film Products was $34.6 million in 2008, $34.1 million in 2007 and $31.8 million in 2006. The increase in 2008 compared with 2007 is primarily due to capital expenditures in 2007 and 2008 and appreciation of the U.S. Dollar value of currencies for operations outside of the U.S. The increase in 2007 compared with 2006 is primarily due to capital expenditures in 2006 and 2007 and appreciation of the U.S. Dollar value of currencies for operations outside of the U.S. We expect depreciation and amortization expense for Film Products to be approximately $32 million in 2009.

          Capital expenditures declined to $11.1 million in 2008 compared with $15.3 million in 2007. Capital expenditures in 2009 are expected to be approximately $22 million. Capital expenditures in 2008 primarily included



the normal replacement of machinery.

          Capital expenditures declined to $15.3 million in 2007 compared with $33.2 million in 2006. Capital expenditures in 2007 primarily included the normal replacement of machinery and equipment.

Aluminum Extrusions (Continuing Operations)

Net Sales and Operating Profit. See the executive summary beginning on page 17 for the discussion of net sales (sales less freight) and operating profit for the continuing operations of Aluminum Extrusions in 2008 compared with 2007.

          Net sales from continuing operations in Aluminum Extrusions were $371.8 million in 2007, down 7.9% from $403.8 million in 2006. Operating profit from ongoing U.S. operations decreased to $16.5 million in 2007, down 9.8% from $18.3 million in 2006. Volume from continuing operations decreased to 155.8 million pounds in 2007, down 15.9% from 185.2 million pounds in 2006. The decreases in net sales and ongoing operating profit from continuing operations were mainly due to lower volume, partially offset by higher selling prices. Shipments declined in most markets, especially extrusions used in hurricane protection products and residential construction. In addition, we began experiencing a softening of markets for extrusions used in non-residential construction in the fourth quarter of 2007. Overall backlog for continuing operations in Aluminum Extrusions at December 31, 2007 was down by approximately 7% compared with December 31, 2006.

Identifiable Assets. Identifiable assets in Aluminum Extrusions were $112.3 million at December 31, 2008, $115.2 million at December 31, 2007 and $129.0 million at December 31, 2006. The decline of $13.8 million at the end of 2007 compared with 2006 is mainly due to lower accounts receivable of $10.4 million and depreciation of $8.5 million compared with capital expenditures of $4.4 million.

Depreciation, Amortization and Capital Expenditures. Depreciation and amortization for Aluminum Extrusions was $8.0 million in 2008, $8.5 million in 2007 and $8.4 million in 2006. We expect depreciation and amortization expense for Aluminum Extrusions to be approximately $8.6 million in 2009.

          Capital expenditures totaled $9.7 million in 2008, $4.4 million in 2007 and $6.6 million in 2006, and reflect the normal replacement of machinery and equipment and in 2008, spending on the capacity expansion of our Carthage, Tennessee facility. Capital expenditures are expected to be approximately $24 million in 2009. In January 2008, we announced plans to spend approximately $24 million over the next 18 months to expand the capacity at our Carthage, Tennessee facility. Approximately 72% of our 2008 sales of aluminum extrusions from our U.S. operations are related to non-residential construction, and this additional capacity will increase our capabilities in this sector.

Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          See discussion of quantitative and qualitative disclosures about market risk beginning on page 30 in Management’s Discussion and Analysis.

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          See the index on page 39 for references to the report of the independent registered public accounting firm, the consolidated financial statements and selected quarterly financial data.

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

          None.



Item 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

          Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation, with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

          Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and board of directors regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements in accordance with U.S. generally accepted accounting principles and includes policies and procedures that:

•

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

•

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and

•

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

          Internal control over financial reporting includes the controls themselves, monitoring (including internal auditing practices) and actions taken to correct deficiencies as identified.

          Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

          Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on their evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2008.

          The effectiveness of our internal control over financial reporting as of December 31, 2008 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included on pages 39-40.

Changes in Internal Control Over Financial Reporting

          There has been no change in our internal control over financial reporting during the quarter ended December 31, 2008, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



Item 9B.

OTHER INFORMATION

          None.

PART III

Item 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

          The information concerning directors and persons nominated to become directors of Tredegar included in the Proxy Statement under the headings “Election of Directors” and “Tredegar’s Board of Directors” is incorporated herein by reference.

          The information concerning corporate governance included in the Proxy Statement under the heading “Board Meetings, Meetings of Non-Management Directors and the Board Committees” and “Corporate Governance” is incorporated herein by reference.

          The information included in the Proxy Statement under the heading “Section 16(a) Beneficial Ownership Reporting Requirements” is incorporated herein by reference.

          Set forth below are the names, ages and titles of our executive officers:

Name

Age

Title

John D. Gottwald

54

President and Chief Executive Officer

Nancy M. Taylor

49

President, Tredegar Film Products and Corporate Executive Vice President

Duncan A. Crowdis

56

President, Aluminum Extrusions and Corporate Vice President

D. Andrew Edwards

50

Vice President, Chief Financial Officer and Treasurer

A. Brent King

40

Vice President, General Counsel and Corporate Secretary

Larry J. Scott

58

Vice President, Audit

John D. Gottwald. On January 16, 2006, Mr. Gottwald was elected President and Chief Executive Officer effective March 1, 2006. Mr. Gottwald had served as Chairman of the Board of Directors since September 10, 2001. Mr. Gottwald served as President and Chief Executive Officer from July 10, 1989 until September 10, 2001.

Nancy M. Taylor. Ms. Taylor was appointed Executive Vice President effective January 1, 2009. She was elected President of Tredegar Film Products effective April 5, 2005. She was elected Senior Vice President effective November 1, 2004. Ms. Taylor served as Senior Vice President, Strategy and Special Projects from November 1, 2004 until April 5, 2005. Ms. Taylor served as Managing Director, European Operations, of Tredegar Film Products from January 1, 2003 until November 1, 2004. Ms. Taylor served as Vice President, Administration and Corporate Development from September 10, 2001 until February 12, 2003. Ms. Taylor served as Secretary from February 24, 1994 until February 12, 2003. She served as Vice President, Law, from November 18, 1998 until September 10, 2001, and served as General Counsel from May 22, 1997 until July 25, 2000.

Duncan A. Crowdis. On January 6, 2009, Mr. Crowdis was appointed Vice President effective January 1, 2009. Mr. Crowdis was elected President of Tredegar’s Aluminum Extrusions subsidiaries on June 13, 2005, and continues to serve in such capacity. Mr. Crowdis served as Plant Manager of Aluminum Extrusions from March 2005 until June 2005. He previously served as Chief Process Officer of Aluminum Extrusions from December 2002 until March 2005.

D. Andrew Edwards. Mr. Edwards was elected Vice President, Chief Financial Officer and Treasurer on August 28,



2003. Mr. Edwards has served as Vice President, Finance since November 18, 1998. Mr. Edwards has served as Treasurer since May 22, 1997. From October 19, 1992 until July 10, 2000, Mr. Edwards served as Controller.

A. Brent King. Mr. King was elected Vice President, General Counsel and Corporate Secretary on October 20, 2008, the date that he joined Tredegar. From October 2005 until October 2008, he served as General Counsel at Hilb Rogal & Hobbs. Mr. King was Vice President and Assistant Secretary for Hilb Rogal & Hobbs from 2001 to 2008. He served as Associate General Counsel for Hilb Rogal & Hobbs from 2001 to 2005.

Larry J. Scott. Mr. Scott was elected Vice President, Audit, on May 24, 2000. Mr. Scott served as Director of Internal Audit from February 24, 1994 until May 24, 2000.

          We have adopted a Code of Conduct that applies to all of our directors, officers and employees (including our Chief Executive Officer, Chief Financial Officer and principal accounting officer) and have posted the Code of Conduct on our web site. We intend to satisfy the disclosure requirement under Item 10 of Form 8-K relating to amendments to or waivers from any provision of our Code of Conduct applicable to Chief Executive Officer, Chief Financial Officer and principal accounting officer by posting this information on our website. Our Internet address is www.tredegar.com. The information on or that can be accessed through our website is not, and shall not be deemed to be, a part of this report or incorporated into other filings we make with the SEC.

          Because our common stock is listed on the NYSE, our chief executive officer is required to make, and he has made, an annual certification to the NYSE stating that he was not aware of any violation by us of the corporate governance listing standards of the NYSE. Our chief executive officer made his annual certification to that effect to the NYSE as of May 23, 2008. In addition, we have filed, as exhibits to this Annual Report on Form 10-K, the certifications of our principal executive officer and principal financial officer required under Section 302 of the Sarbanes Oxley Act of 2002 to be filed with the SEC regarding the quality of our public disclosure.

Item 11.

EXECUTIVE COMPENSATION

          The information included in the Proxy Statement under the headings “Compensation of Directors”, “Board Meetings of Non-Management Directors and Board Committees - Executive Compensation Committee Interlocks and Insider Participation”, “Compensation Discussion and Analysis”, “Executive Compensation Committee Report” and “Compensation of Executive Officers” is incorporated herein by reference.



Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

          The information included in the Proxy Statement under the heading “Stock Ownership” is incorporated herein by reference. The following table summarizes information with respect to equity compensation plans under which securities are authorized for issuance as of December 31, 2008.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Column (a)






Plan Category

 

Column (b)


Number of Securities to
be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights

 

Column (c)



Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights

 

Column (d)

Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans,
Excluding Securities
Reflected in Column

 

 

Equity compensation plans approved by security holders

 

*955,631

 

 

 

$

15.92

 

 

1,009,210

 

 

 

Equity compensation plans not approved by security holders

 

—

 

 

 

 

—

 

 

—

 

 

 

Total

 

955,631

 

 

 

$

15.92

 

 

1,009,210

 

 

 

* Includes performance stock units that give the holder the right to receive shares of Tredegar common stock upon the satisfaction of certain performance criteria.

Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

          The information included in the Proxy Statement under the headings “Certain Relationships and Related Transactions” and “Tredegar’s Board of Directors” is incorporated herein by reference.

Item 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

          The following is incorporated herein by reference:

•

Information on accounting fees and services included in the Proxy Statement under the heading “Audit Fees;” and

•

Information on the Audit Committee’s procedures for pre-approving certain audit and non-audit services included in the Proxy Statement under the heading “Board Meetings, Meetings of Non-Management Directors and Board Committees - Audit Committee Matters”.



PART IV

Item 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

          (a)      List of documents filed as a part of the report:

                     (1)     Financial statements:

Tredegar Corporation

Index to Financial Statements and Supplementary Data

Page

Report of Independent Registered Public Accounting Firm

39-40

Financial Statements:

Consolidated Statements of Income for the Years Ended December 31, 2008, 2007 and 2006

41

Consolidated Balance Sheets as of December 31, 2008 and 2007

42

Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006

43

Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2008, 2007 and 2006

44

Notes to Financial Statements

45-73

Selected Quarterly Financial Data (Unaudited)

74

                     (2)     Financial statement schedules:

                               None.

                     (3)     Exhibits:

                               See Exhibit Index on pages 81-82.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Tredegar Corporation:

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Tredegar Corporation and its subsidiaries at December 31, 2008 and December 31, 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable



assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 1 to the consolidated financial statements, the Company changed the way in which it accounts for uncertain tax positions effective January 1, 2007 and defined benefit pension and other postretirement plans effective December 31, 2006.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP
Richmond, Virginia
March 5, 2009



CONSOLIDATED STATEMENTS OF INCOME

Tredegar Corporation and Subsidiaries


 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31

 

2008

 

2007

 

2006

 

(In Thousands, Except Per-Share Data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues and other:

 

 

 

 

 

 

 

 

 

 

Sales

 

$

883,899

 

$

922,583

 

$

937,561

 

Other income (expense), net

 

 

10,341

 

 

1,782

 

 

1,444

 

 

 

 

894,240

 

 

924,365

 

 

939,005

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

739,721

 

 

761,509

 

 

779,376

 

Freight

 

 

20,782

 

 

19,808

 

 

22,602

 

Selling, general and administrative

 

 

58,699

 

 

68,501

 

 

64,082

 

Research and development

 

 

11,005

 

 

8,354

 

 

8,088

 

Amortization of intangibles

 

 

123

 

 

149

 

 

149

 

Interest expense

 

 

2,393

 

 

2,721

 

 

5,520

 

Asset impairments and costs associated with exit and disposal activities

 

 

12,390

 

 

4,027

 

 

4,080

 

Total

 

 

845,113

 

 

865,069

 

 

883,897

 

Income from continuing operations before income taxes

 

 

49,127

 

 

59,296

 

 

55,108

 

Income taxes

 

 

19,486

 

 

24,366

 

 

19,791

 

Income from continuing operations

 

 

29,641

 

 

34,930

 

 

35,317

 

Income (loss) from discontinued operations

 

 

(705

)

 

(19,681

)

 

2,884

 

Net income

 

$

28,936

 

$

15,249

 

$

38,201

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

.87

 

$

.91

 

$

.92

 

Discontinued operations

 

 

(.02

)

 

(.51

)

 

.07

 

Net income

 

$

.85

 

$

.40

 

$

.99

 

Diluted:

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

.87

 

$

.90

 

$

.91

 

Discontinued operations

 

 

(.02

)

 

(.51

)

 

.07

 

Net income

 

$

.85

 

$

.39

 

$

.98

 

See accompanying notes to financial statements.



CONSOLIDATED BALANCE SHEETS

Tredegar Corporation and Subsidiaries


 

 

 

 

 

 

 

 

December 31

 

2008

 

2007

 

(In Thousands, Except Share Data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

45,975

 

$

48,217

 

Accounts and notes receivable, net of allowance for doubtful accounts and sales returns of $3,949 in 2008 and $5,198 in 2007

 

 

91,400

 

 

97,064

 

Income taxes recoverable

 

 

12,549

 

 

323

 

Inventories

 

 

36,809

 

 

48,666

 

Deferred income taxes

 

 

7,654

 

 

9,172

 

Prepaid expenses and other

 

 

5,374

 

 

4,077

 

Current assets of discontinued operation

 

 

—

 

 

37,750

 

Total current assets

 

 

199,761

 

 

245,269

 

Property, plant and equipment, at cost:

 

 

 

 

 

 

 

Land and land improvements

 

 

7,068

 

 

7,278

 

Buildings

 

 

80,867

 

 

81,449

 

Machinery and equipment

 

 

552,557

 

 

548,961

 

Total property, plant and equipment

 

 

640,492

 

 

637,688

 

Less accumulated depreciation

 

 

403,622

 

 

368,605

 

Net property, plant and equipment

 

 

236,870

 

 

269,083

 

Other assets and deferred charges

 

 

38,926

 

 

116,759

 

Goodwill and other intangibles (other intangibles of $372 in 2008 and $465 in 2007)

 

 

135,075

 

 

135,907

 

Noncurrent assets of discontinued operation

 

 

—

 

 

17,460

 

Total assets

 

$

610,632

 

$

784,478

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

54,990

 

$

67,161

 

Accrued expenses

 

 

38,349

 

 

33,676

 

Current portion of long-term debt

 

 

529

 

 

540

 

Current liabilities of discontinued operation

 

 

—

 

 

17,152

 

Total current liabilities

 

 

93,868

 

 

118,529

 

Long-term debt

 

 

22,173

 

 

81,516

 

Deferred income taxes

 

 

45,152

 

 

68,625

 

Other noncurrent liabilities

 

 

29,023

 

 

15,662

 

Noncurrent liabilities of discontinued operation

 

 

—

 

 

8,818

 

Total liabilities

 

 

190,216

 

 

293,150

 

Commitments and contingencies (Notes 13 and 16)

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

Common stock (no par value):

 

 

 

 

 

 

 

Authorized 150,000,000 shares;

 

 

 

 

 

 

 

Issued and outstanding - 33,909,932 shares in 2008 and 34,765,450 in 2007 (including restricted stock)

 

 

40,719

 

 

51,444

 

Common stock held in trust for savings restoration plan (59,798 shares in 2008 and 59,222 in 2007)

 

 

(1,313

)

 

(1,303

)

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

23,443

 

 

40,610

 

Loss on derivative financial instruments

 

 

(6,692

)

 

(1,204

)

Pension and other postretirement benefit adjustments

 

 

(64,788

)

 

(3,767

)

Retained earnings

 

 

429,047

 

 

405,548

 

Total shareholders’ equity

 

 

420,416

 

 

491,328

 

Total liabilities and shareholders’ equity

 

$

610,632

 

$

784,478

 

See accompanying notes to financial statements.



CONSOLIDATED STATEMENTS OF CASH FLOWS

Tredegar Corporation and Subsidiaries


 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31

 

2008

 

2007

 

2006

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

Net income

 

$

28,936

 

$

15,249

 

$

38,201

 

Adjustments for noncash items:

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

43,068

 

 

45,892

 

 

44,132

 

Amortization of intangibles

 

 

123

 

 

149

 

 

149

 

Deferred income taxes

 

 

22,183

 

 

(24,241

)

 

10,155

 

Accrued pension and postretirement benefits

 

 

(4,426

)

 

(1,735

)

 

3,178

 

Stock option-based compensation expense

 

 

782

 

 

978

 

 

970

 

Gain on the write-up of an investment accounted for under the fair value mehtod

 

 

(5,600

)

 

—

 

 

—

 

Loss from write-down of investment

 

 

—

 

 

2,095

 

 

—

 

Gain on sale of assets

 

 

(3,083

)

 

(2,699

)

 

(317

)

Loss on asset impairments and divestitures

 

 

10,136

 

 

32,287

 

 

1,150

 

Changes in assets and liabilities, net of effects of acquisitions and divestitures:

 

 

 

 

 

 

 

 

 

 

Accounts and notes receivable

 

 

(678

)

 

15,786

 

 

151

 

Inventories

 

 

13,374

 

 

4,099

 

 

(5,080

)

Income taxes recoverable

 

 

(12,092

)

 

10,478

 

 

1,991

 

Prepaid expenses and other

 

 

(1,873

)

 

764

 

 

(275

)

Accounts payable and accrued expenses

 

 

(18,900

)

 

(2,932

)

 

11,592

 

Other, net

 

 

3,456

 

 

(616

)

 

(1,392

)

 

 

 

 

 

Net cash provided by operating activities

 

 

75,406

 

 

95,554

 

 

104,605

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

Capital expenditures (net of related accounts payable of $1,709 in 2008)

 

 

(19,235

)

 

(20,643

)

 

(40,573

)

Investment in a drug delivery company ($1,000 in 2008 and $6,500 in 2007), real estate in 2008 and 2007 and Harbinger ($10,000 in 2007)

 

 

(5,391

)

 

(23,513

)

 

(542

)

Proceeds from the sale of the aluminum extrusions business in Canada (net of cash included in sale and transaction costs)

 

 

23,407

 

 

—

 

 

—

 

Proceeds from the sale of assets and property disposals & reimbursements from customers for purchases of equipment in 2007

 

 

4,691

 

 

7,871

 

 

475

 

 

 

 

 

 

Net cash provided by (used in) investing activities

 

 

3,472

 

 

(36,285

)

 

(40,640

)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

Dividends paid

 

 

(5,447

)

 

(6,126

)

 

(6,221

)

Debt principal payments

 

 

(84,489

)

 

(39,964

)

 

(54,530

)

Borrowings

 

 

25,000

 

 

59,500

 

 

4,000

 

Repurchases of Tredegar common stock, including settlement of $3,368 in 2008 and net of settlement payable of $3,368 in 2007

 

 

(19,792

)

 

(73,959

)

 

—

 

Proceeds from exercise of stock options

 

 

4,069

 

 

6,471

 

 

9,702

 

 

 

 

 

 

Net cash used in financing activities

 

 

(80,659

)

 

(54,078

)

 

(47,049

)

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

(461

)

 

2,128

 

 

548

 

 

 

 

 

 

(Decrease) increase in cash and cash equivalents

 

 

(2,242

)

 

7,319

 

 

17,464

 

Cash and cash equivalents at beginning of period

 

 

48,217

 

 

40,898

 

 

23,434

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

45,975

 

$

48,217

 

$

40,898

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

 

 

Interest payments (net of amount capitalized)

 

$

2,465

 

$

2,712

 

$

5,734

 

Income tax payments (refunds), net

 

 

8,794

 

 

16,989

 

 

7,828

 

See accompanying notes to financial statements.



CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Tredegar Corporation and Subsidiaries


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other
Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained
Earnings

 

Trust for
Savings
Restora-
tion Plan

 

Unearned
Restricted
Stock
Compensation

 

Unrealized
Gain on
Available-
for-Sale
Securities

 

Foreign
Currency
Trans-
lation

 

Gain
(Loss) on
Derivative
Financial
Instruments

 

Pension &
Other Post-
retirement
Benefit
Adjust.

 

Total
Share-
holders’
Equity

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Amount

 

 

 

 

 

 

 

 

 

(In Thousands, Except Share and Per-Share Data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2005

 

38,737,016

 

$

110,706

 

$

364,427

 

$

(1,284

)

$

(966

)

$

23

 

$

14,114

 

$

776

 

$

(2,434

)

$

485,362

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

—

 

 

—

 

 

38,201

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

38,201

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities adjustment, net of reclassification adjustment (net of tax of $13)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(23

)

 

—

 

 

—

 

 

—

 

 

(23

)

Foreign currency translation adjustment (net of tax of $3,921)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

7,408

 

 

—

 

 

—

 

 

7,408

 

Derivative financial instruments adjustment (net of tax of $60)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(122

)

 

—

 

 

(122

)

Minimum pension liability adjustment (net of tax of $422)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

821

 

 

821

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

46,285

 

Cumulative adjustment for the adoption of SFAS No. 158 relating to pension and other postretirement benefits (net of tax of $11,354)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(19,598

)

 

(19,598

)

Cash dividends declared ($.16 per share)

 

—

 

 

—

 

 

(6,221

)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(6,221

)

Stock-based compensation expense

 

(25,500

)

 

1,066

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

1,066

 

Restricted stock amortization

 

—

 

 

(966

)

 

—

 

 

—

 

 

966

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

Issued upon exercise of stock options (including related income tax benefits of $678) & other

 

574,563

 

 

9,702

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

9,702

 

Tredegar common stock purchased by trust for savings restoration plan

 

—

 

 

—

 

 

6

 

 

(7

)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(1

)

Balance December 31, 2006

 

39,286,079

 

 

120,508

 

 

396,413

 

 

(1,291

)

 

—

 

 

—

 

 

21,522

 

 

654

 

 

(21,211

)

 

516,595

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

—

 

 

—

 

 

15,249

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

15,249

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment (net of tax of $10,428)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

19,088

 

 

—

 

 

—

 

 

19,088

 

Derivative financial instruments adjustment (net of tax of $1,166)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(1,858

)

 

—

 

 

(1,858

)

Net gains or losses and prior service costs (net of tax of $10,209)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

16,218

 

 

16,218

 

Amortization of prior service costs and net gains or losses (net of tax of $702)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

1,226

 

 

1,226

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

49,923

 

Cash dividends declared ($.16 per share)

 

—

 

 

—

 

 

(6,126

)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(6,126

)

Stock-based compensation expense

 

(10,000

)

 

1,654

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

1,654

 

Issued upon exercise of stock options (including related income tax benefits of $491) & other

 

322,871

 

 

6,609

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

6,609

 

Repurchases of Tredegar common stock

 

(4,833,500

)

 

(77,327

)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(77,327

)

Tredegar common stock purchased by trust for savings restoration plan

 

—

 

 

—

 

 

12

 

 

(12

)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

Balance December 31, 2007

 

34,765,450

 

 

51,444

 

 

405,548

 

 

(1,303

)

 

—

 

 

—

 

 

40,610

 

 

(1,204

)

 

(3,767

)

 

491,328

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

—

 

 

—

 

 

28,936

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

28,936

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment (net of tax of $1,607)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(2,875

)

 

—

 

 

—

 

 

(2,875

)

Reclassification of foreign currency translation gain realized on the sale of the aluminum extrusions business in Canada (net of tax of $7,696)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(14,292

)

 

—

 

 

—

 

 

(14,292

)

Derivative financial instruments adjustment (net of tax of $3,325)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(5,488

)

 

—

 

 

(5,488

)

Net gains or losses and prior service costs (net of tax of $39,678)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(66,292

)

 

(66,292

)

Amortization of prior service costs and net gains or losses (net of tax of $228)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

400

 

 

400

 

Reclassification of net actuarial losses and prior service costs realized on the sale of the aluminum extrusions business in Canada (net of tax of $1,799)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

4,871

 

 

4,871

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(54,740

)

Cash dividends declared ($.16 per share)

 

—

 

 

—

 

 

(5,447

)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(5,447

)

Stock-based compensation expense

 

(6,000

)

 

1,379

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

1,379

 

Issued upon exercise of stock options (including related income tax benefits of $76) & other

 

254,582

 

 

4,320

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

4,320

 

Repurchases of Tredegar common stock

 

(1,104,100

)

 

(16,424

)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(16,424

)

Tredegar common stock purchased by trust for savings restoration plan

 

—

 

 

—

 

 

10

 

 

(10

)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

Balance December 31, 2008

 

33,909,932

 

$

40,719

 

$

429,047

 

$

(1,313

)

$

—

 

$

—

 

$

23,443

 

$

(6,692

)

$

(64,788

)

$

420,416

 


See accompanying notes to financial statements.



NOTES TO FINANCIAL STATEMENTS

Tredegar Corporation and Subsidiaries

(In thousands, except Tredegar share and per-share amounts and unless otherwise stated)


1

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations. Tredegar Corporation and subsidiaries (collectively “Tredegar,” “we,” “us” or “our”) are engaged in the manufacture of plastic films and aluminum extrusions. See Note 15 regarding restructurings and Note 17 regarding discontinued operations.

Basis of Presentation. The consolidated financial statements include the accounts and operations of Tredegar and all of its majority-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. On February 12, 2008, we sold our aluminum extrusions business in Canada. All historical results for this business have been reflected as discontinued operations in these financial statements.

          The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

Foreign Currency Translation. The financial statements of foreign subsidiaries, where the local currency is the functional currency, are translated into U.S. Dollars using exchange rates in effect at the period end for assets and liabilities and average exchange rates during each reporting period for results of operations. Adjustments resulting from the translation of these financial statements are reflected as a separate component of shareholders’ equity. We have no foreign subsidiaries where the U.S. Dollar is the functional currency.

          Transaction and remeasurement gains or losses included in income were not material in 2008, 2007 and 2006. These amounts do not include the effects between reporting periods that exchange rate changes have on income of our locations outside the U.S, that result from translation into U.S. Dollars.

Cash and Cash Equivalents. Cash and cash equivalents consist of cash on hand in excess of daily operating requirements and highly liquid investments with original maturities of three months or less. At December 31, 2008 and 2007, Tredegar had cash and cash equivalents of $45,975 and $48,217, respectively, including funds held in locations outside the U.S. of $37,259 and $24,559, respectively.

          Our policy permits investment of excess cash in marketable securities that have the highest credit ratings and maturities of less than one year. The primary objectives of the policy are safety of principal and liquidity.

Accounts and Notes Receivable. 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 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 our assessment of probable losses taking into account past due amounts, customer credit profile, historical experience and current economic conditions. Other receivables include value-added taxes related to certain foreign subsidiaries and other miscellaneous operating receivables due within one year.

Inventories. Inventories are stated at the lower of cost or market, with cost determined on the last-in, first-out (“LIFO”) basis, the weighted average cost or the first-in, first-out basis. Cost elements included in work-in-process and finished goods inventories are raw materials, direct labor and manufacturing overhead.

Property, Plant and Equipment. Accounts include costs of assets constructed or purchased, related delivery and installation costs and interest incurred on significant capital projects during their construction periods. Expenditures for renewals and betterments also are capitalized, but expenditures for repairs and maintenance are expensed as incurred. The cost and accumulated depreciation applicable to assets retired or sold are removed from the respective accounts, and gains or losses thereon are included in income.



          Capital expenditures for property, plant and equipment include capitalized interest of $228 in 2008, $577 in 2007 and $885 in 2006.

          Depreciation is computed primarily by the straight-line method based on the estimated useful lives of the assets, which range from 15 to 25 years for buildings and land improvements and 3 to 15 years for machinery and equipment. The average depreciation period for machinery and equipment is approximately 10 years in Film Products and for the continuing operations of Aluminum Extrusions.

Investments in Private Entities with Less Than or Equal to 50% Voting Ownership Interest. We account for our investments in private entities where our voting ownership is less than or equal to 50% based on the facts and circumstances surrounding the investment at the time the investment is made. We are required to account for investments under the consolidation method in situations where we are the primary beneficiary of a variable interest entity (we have no investments that meet this condition). The primary beneficiary is the party in a variable interest entity that will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both. If we are not deemed the primary beneficiary in an investment in a private entity then we select either: (i) the fair value method or (ii) either the (a) the cost method if we do not have significant influence over operating and financial policies of the company or (b) the equity method if we do have significant influence.

          FASB Statement No. 157, Fair Value Measurements (SFAS No. 157), requires disclosure of the level within the fair value hierarchy in which fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3).

Goodwill and Other Intangibles. The excess of the purchase price over the fair value of identifiable net assets of acquired companies is allocated to goodwill. We assess goodwill for impairment when events or circumstances indicate that the carrying value may not be recoverable, or, at a minimum, on an annual basis (December 1 of each year). Our reporting units include Film Products and Aluminum Extrusions, each of which may have separately identifiable operating net assets (operating assets including goodwill and intangible assets net of operating liabilities). As of December 1 and December 31, 2008, the estimated fair value of our reporting units exceeded the carrying value of their respective net assets. We estimate the fair value of our reporting units using discounted cash flow analysis and comparative enterprise value-to-EBITDA multiples. The estimated fair value of Film Products exceeded the carrying value of its net assets by a wide margin. In Aluminum Extrusions, the excess of its fair value over carrying value of related net assets was approximately 12% at December 31, 2008. Estimated fair values and carrying values change as business conditions change, and the relatively low margin by which the estimated fair value of Aluminum Extrusions exceeded its carrying value results in a reasonably possible chance that a goodwill impairment under U.S. generally accepted accounting principles will be triggered in the future. As of December 31, 2008, we estimate that if the estimated fair value of Aluminum Extrusions were only $1 below the carrying value of its net assets, that the amount of the goodwill impairment under U.S. generally accepted accounting principles would have been an anomalous write-off of the entire amount of $30,559 (also $30,559 after taxes since there would be no income tax benefits related to the write-off).

          The components of goodwill and other intangibles at December 31, 2008 and 2007, and related amortization periods for continuing operations are as follows:

 

 

 

 

 

 

 

 

 

 

December 31

 

2008

 

2007

 

Amortization Periods

 

Carrying value of goodwill:

 

 

 

 

 

 

 

 

 

Film Products

 

$

104,144

 

$

104,507

 

Not amortized

 

Aluminum Extrusions

 

 

30,559

 

 

30,935

 

Not amortized

 

Total carrying value of goodwill

 

 

134,703

 

 

135,442

 

 

 

Carrying value of other intangibles:

 

 

 

 

 

 

 

 

 

Film Products (cost basis of $1,172 in 2008 and 2007)

 

 

372

 

 

465

 

Not more than 17 yrs.

 

Total carrying value of other intangibles

 

 

372

 

 

465

 

 

 

Total carrying value of goodwill and other intangibles

 

$

135,075

 

$

135,907

 

 

 



          Excluded from the table above is goodwill for the Aluminum Extrusions reporting unit of $6,459 which was allocated to discontinued aluminum extrusions operations in Canada. This goodwill was allocated using the estimated fair value of the aluminum extrusions business in Canada (the after-tax cash flow expected from disposal of approximately $30,000 when it was classified as held for sale at the end of December 2007), and the estimated fair value of the aluminum extrusions business in the U.S. retained. The fair value of the aluminum extrusions business in the U.S. was estimated at approximately $145,000 using comparable enterprise value-to-EBITDA multiples as of December 31, 2007. See Note 17 for more information on discontinued operations.

          A reconciliation of the beginning and ending balances of goodwill and other intangibles for each of the three years in the period ended December 31, 2008 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

2008

 

2007

 

2006

 

Goodwill and other intangibles:

 

 

 

 

 

 

 

 

 

 

Net carrying value, beginning of year

 

$

135,907

 

$

132,237

 

$

131,529

 

Amortization

 

 

(123

)

 

(149

)

 

(149

)

Increase (decrease) due to foreign currency translation and other

 

 

(709

)

 

3,819

 

 

857

 

Total carrying value of goodwill and other intangibles

 

$

135,075

 

$

135,907

 

$

132,237

 

Impairment of Long-Lived Assets. We review long-lived assets for possible impairment when events indicate that an impairment may exist. For assets to be held and used in operations, if events indicate that an asset may be impaired, we estimate the future unlevered pre-tax cash flows expected to result from the use of the asset and its eventual disposition. Assets are grouped for this purpose at the lowest level for which there are identifiable and independent cash flows. If the sum of these undiscounted pre-tax cash flows is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of the impairment loss is based on the estimated fair value of the asset, generally determined on a discounted after-tax cash flow basis.

          Assets to be disposed of are reported at the lower of their carrying amount or estimated fair value less cost to sell, with an impairment loss recognized for any write-down required.

Pension Costs and Postretirement Benefit Costs Other than Pensions. Pension costs and postretirement benefit costs other than pensions are accrued over the period employees provide service to the Company. Our policy is to fund our pension plans at amounts not less than the minimum requirements of the Employee Retirement Income Security Act of 1974 and to fund postretirement benefits other than pensions when claims are incurred. In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R), effective for public companies for fiscal years ending after December 15, 2006. Accordingly, we were required to recognize the funded status of our pension and other postretirement plans in our December 31, 2006 financial statements, which resulted in a reduction of prepaid pension cost of $27,651, an increase in related liabilities of $3,301, a decrease in noncurrent deferred income liabilities of $11,354 and a decrease in shareholders’ equity of $19,598. See Note 11 for more information.

Postemployment Benefits. We periodically provide certain postemployment benefits purely on a discretionary basis. Related costs for these programs are accrued when it is probable that benefits will be paid and amounts can be reasonably estimated. All other postemployment benefits are either accrued under current benefit plans or are not material to our financial position or results of operations.

Revenue Recognition. Revenue from the sale of products, which is shown net of estimated sales returns and allowances, is recognized when title has passed to the customer, the price of the product is fixed and determinable, and collectibility is reasonably assured. Amounts billed to customers related to freight have been classified as sales in the accompanying consolidated statements of income. The cost of freight has been classified as a separate line in the accompanying consolidated statements of income. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction between Tredegar and its customers (such as value-added taxes) are accounted for on a net basis and therefore excluded from revenues.



Research & Development (“R&D”) Costs. R&D costs are expensed as incurred and include primarily salaries, wages, employee benefits, equipment depreciation, facility costs and the cost of materials consumed relating to R&D efforts. R&D costs include a reasonable allocation of indirect costs.

Income Taxes. Income taxes are recognized during the period in which transactions enter into the determination of income for financial reporting purposes, with deferred income taxes being provided at enacted statutory tax rates on the differences between the financial reporting and tax bases of assets and liabilities (see Note 14). We accrue U.S. federal income taxes on unremitted earnings of our foreign subsidiaries.

          On January 1, 2007, we adopted a new accounting standard for uncertain tax positions (FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes), which had no impact on our results of operations or financial condition reported in prior periods. Under the new standard, in order to report the benefit of a tax position in our financial statements, we must determine that it is more likely than not that the position will be sustained, based on the technical merits of the position, if the taxing authority examines the position and the dispute is litigated. The determination is made on the basis of all the facts, circumstances and information available as of the reporting date.

Earnings Per Share. Basic earnings per share is computed using the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed using the weighted average common and potentially dilutive common equivalent shares outstanding, determined as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

2008

 

2007

 

2006

 

Weighted average shares outstanding used to compute basic earnings per share

 

 

33,976,833

 

 

38,532,036

 

 

38,670,757

 

Incremental shares attributable to stock options and restricted stock

 

 

216,887

 

 

156,467

 

 

260,305

 

Shares used to compute diluted earnings per share

 

 

34,193,720

 

 

38,688,503

 

 

38,931,062

 

          Incremental shares attributable to stock options and restricted stock are computed using the average market price during the related period. During 2008, 2007 and 2006, the average out-of-the-money options to purchase shares that were excluded from the calculation of incremental shares attributable to stock options and restricted stock was 507,982, 184,960 and 1,128,393, respectively.

Stock-Based Employee Compensation Plans. Effective January 1, 2006, we adopted SFAS No. 123(R), Share-Based Payment (“SFAS 123(R)”). SFAS 123(R) requires us to record compensation expense for all share-based awards. Because we used the modified prospective method in adopting SFAS 123(R), prior periods have not been restated. In addition, the cumulative adjustment (estimated forfeitures) relating to the adoption of SFAS 123(R) in the first quarter of 2006 of $96,000 has not been separately shown in the income statement due to immateriality.

          Stock option-based compensation expense included in determining net income under SFAS 123(R) was $782 ($498 after taxes or 1 cent per share) in 2008, $978 ($629 after taxes or 2 cents per share) in 2007 and $970 ($676 after taxes or 2 cents per share) in 2006. Compensation cost related to restricted and other stock-based awards included in determining net income from continuing operations was $597 in 2008, $713 in 2007 and $188 in 2006.

          The fair value of each option was estimated as of the grant date using the Black-Scholes options-pricing model. The assumptions used in this model for valuing Tredegar stock options granted in 2008, 2007 and 2006 are as follows:



 

 

 

 

 

 

 

 

 

 

 

 

 

2008

 

2007

 

2006

 

Dividend yield

 

 

1.0

%

 

1.1

%

 

1.1

%

Weighted average volatility percentage

 

 

39.0

%

 

33.1

%

 

38.3

%

Weighted average risk-free interest rate

 

 

3.0

%

 

3.3

%

 

4.7

%

Holding period (years):

 

 

 

 

 

 

 

 

 

 

Officers

 

 

6.0

 

 

n/a

 

 

6.0

 

Management

 

 

5.0

 

 

5.0

 

 

5.0

 

Weighted average excercise price at date of grant (also weighted average market price at date of grant):

 

 

 

 

 

 

 

 

 

 

Officers

 

$

15.64

 

 

n/a

 

$

15.22

 

Management

 

 

15.81

 

$

14.40

 

 

15.32

 

          The dividend yield is the dividend yield on our common stock at the date of grant, which we believe is a reasonable estimate of the expected yield during the holding period. We calculate expected volatility based on the historical volatility of our common stock using a sequential period of historical data equal to the expected holding period of the option. We have no reason to believe that future volatility for this period is likely to differ from the past. The assumed risk-free interest rate is based on observed interest rates (zero coupon U.S. Treasury debt securities) appropriate for the expected holding period. The expected holding period and forfeiture assumptions are based on historical experience. Estimated forfeiture assumptions are reviewed through the vesting period. Adjustments are made if actual forfeitures differ from previous estimates. The cumulative effect of a change in estimated forfeitures is recognized in the period of the change.

          Tredegar stock options granted during 2008, 2007 and 2006, and related estimated fair value at the date of grant, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

2008

 

2007

 

2006

 

Stock options granted (number of shares):

 

 

 

 

 

 

 

 

 

 

Officers

 

 

220,000

 

 

n/a

 

 

107,500

 

Management

 

 

181,000

 

 

4,000

 

 

342,300

 

Total

 

 

401,000

 

 

4,000

 

 

449,800

 

Estimated weighted average fair value of options per share at date of grant:

 

 

 

 

 

 

 

 

 

 

Officers

 

$

6.01

 

 

n/a

 

$

6.26

 

Management

 

 

5.48

 

$

4.91

 

 

5.69

 

Total estimated fair value of stock options granted (in thousands)

 

$

2,314

 

$

20

 

$

2,620

 

          Additional disclosure of Tredegar stock options is included in Note 10.

Financial Instruments. We use derivative financial instruments for the purpose of hedging aluminum price volatility and interest rate and currency exchange rate exposures that exist as part of ongoing business operations. Our derivative financial instruments are designated as and qualify as cash flow hedges and are recognized in the balance sheet at fair value. A change in the fair value of the derivative that is highly effective as and that is designated and qualifies as a cash flow hedge is recorded in other comprehensive income. Gains and losses reported in other comprehensive income are reclassified to earnings in the periods in which earnings are affected by the variability of cash flows of the hedged transaction. Such gains and losses are reported on the same line as the underlying hedged item. Any hedge ineffectiveness (which represents the amount by which the changes in the fair value of the derivative exceed the variability in the cash flows of the forecasted transaction) is recorded in current period earnings. The amount of gains and losses recognized for hedge ineffectiveness was immaterial in 2008, 2007 and 2006.

          Our policy requires that we formally document all relationships between hedging instruments and hedged items, as well as our risk management objective and strategy for undertaking various hedge transactions. We also formally assess (both at the hedge’s inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the fair value or cash flows of hedged items and



whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not (or has ceased to be) highly effective as a hedge, we discontinue hedge accounting prospectively.

          As a policy, we do not engage in speculative or leveraged transactions, nor do we hold or issue financial instruments for trading purposes.

          The cash flows related to financial instruments are classified in the statements of cash flows in a manner consistent with those of the transactions being hedged.

Comprehensive Income or Loss. Comprehensive income or loss, which is included in the consolidated statement of shareholders’ equity, is defined as net income or loss and other comprehensive income or loss. Other comprehensive income or loss includes changes in foreign currency translation adjustments, unrealized gains and losses on derivative financial instruments, prior service cost and net gains or losses from pension and other postretirement benefit plans arising during the period and amortization of these prior service cost and net gains or losses, minimum pension liability adjustments and unrealized gains and losses on available-for-sale securities, all recorded net of deferred income taxes directly in shareholders’ equity.

          The available-for-sale securities adjustment included in the consolidated statement of shareholders’ equity is comprised of the following components:

 

 

 

 

 

 

 

2006

 

Available-for-sale securities adjustment:

 

 

 

 

Unrealized net holding gains (losses) arising during the period

 

$

20

 

Income taxes

 

 

(7

)

Reclassification adjustment for net losses (gains) realized in income

 

 

(56

)

Income taxes

 

 

20

 

Available-for-sale securities adjustment

 

$

(23

)

Recently Issued Accounting Standards. The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards (“SFAS”) No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (SFAS No. 161), to enhance the current disclosure framework in SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133). SFAS No. 161 addresses concerns that the disclosures required by SFAS No. 133 do not provide adequate information about the impact derivative instruments can have on an entity’s financial position, results of operations and cash flows. SFAS No. 161 amends and expands the disclosures required by SFAS No. 133 so that they provide an enhanced understanding of (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (iii) how derivative instruments affect an entity’s financial position, financial performance, and cash flows. The new disclosure guidance will apply to all interim and annual reporting periods for which a balance sheet and income statement are presented. SFAS No. 161 is effective for both interim and annual reporting periods beginning after November 15, 2008, with early application encouraged. SFAS No. 161 encourages, but does not require, comparative disclosures for earlier periods at initial adoption. We do not believe that the adoption of SFAS No. 161 will have a material impact on our financial statements and related disclosures.

2

INVESTMENTS

          During the third quarter of 2007, we invested $6,500 in a privately held drug delivery company. In the fourth quarter of 2008, we invested an additional $1,000 as part of a new round of equity financing completed by the investee. The company is developing and commercializing state of the art drug delivery systems designed to improve patient compliance and outcomes, and our ownership interest on a fully diluted basis is approximately 21%. The investment is accounted for under the fair value method. We elected the fair value option over the equity method of accounting since our investment objectives are similar to those of venture capitalists, which typically do not have controlling financial



interests (venture capital funds use the fair value method to account for their investment portfolios). At December 31, 2008 and 2007, the estimated fair value of our investment (also the carrying value included in “Other assets and deferred charges” in our balance sheet) was $13,100 and $6,500, respectively. The write-up of $5,600 ($3,584 after taxes or 10 cents per share) was based on the valuation of our ownership interest implied from a new round of equity financing completed for the investee in the fourth quarter of 2008. This unrealized gain is included in “Other income (expense), net” in the consolidated statements of income and separately stated in the segment operating profit table in Note 3.

          On the date of our most recent investment (December 15, 2008), we believe that the amount we paid for our ownership interest and liquidation preferences was based on Level 2 inputs, including investments by other investors. Subsequent to December 15, 2008, and until the next round of financing, we believe fair value estimates drop to Level 3 inputs since there is no secondary market for our ownership interest. In addition, the company currently has no product sales. Accordingly, after the latest financing and until the next round of financing or other significant financial transaction, value estimates will primarily be based on assumptions relating to meeting product development and commercialization milestones, cash flow projections (projections of sales, costs, expenses, capital expenditures and working capital investment) and discounting of these factors for the high degree of risk. As a result, an increase in our estimate of the fair value of our ownership interest is unlikely unless a significant new round of financing, merger or initial public offering indicates a higher value. However, if the company does not meet its development and commercialization milestones and there are indications that the amount or timing of its projected cash flows or related risks are unfavorable versus plans as of December 15, 2008, or a new round of financing or other significant financial transaction indicates a lower value, then our estimate of the fair value of our ownership interest in the company is likely to decline.

          Had we not elected to account for our investment under the fair value method, we would have been required to use the equity method of accounting. On December 31, 2008, the privately held drug company was converted from a limited liability company taxed as a passthrough entity (partnership) to a corporation. Substantially all shareholder rights from the limited liability company carried over in the conversion. We estimate that our allocation of losses for tax purposes as a passthrough entity in  2008 will be approximately $4,800 (there was no allocation of income or loss to us in 2007).

          The condensed balance sheets for the drug delivery company at December 31, 2008 and 2007 and related condensed statements of income for the year ended December 31, 2008 and four months ended December 31, 2007, that were reported to us by the investee, are provided below:

(In thousands)     
 (Unaudited) 12/31/08 12/31/07
 Assets       
 Cash & cash equivalents  $5,493 $6,781 
 Other tangible assets   1,340  1,253 
 Identifiable intangible asset   1,602  1,396 
 Total assets  $8,435 $9,430 
12/31/0812/31/07
 Liabilities & Equity
 Liabilities$2,781$1,494
 Convertible promissory notes5,000—
 Equity6547,936
 
 Total liabilities & equity$8,435$9,430
 
         2008  2007 
 Revenues & Expenses        
 Revenues  $— $— 
 Costs & expenses   7,321  2,379 
 Net loss  $(7,321)$(2,379)

          On April 2, 2007, we invested $10,000 in Harbinger Capital Partners Special Situations Fund, L.P. (“Harbinger”), a fund that seeks to achieve superior absolute returns by participating primarily in medium to long-term investments involving distressed/high yield debt securities, special situation equities and private loans and notes. The fund is a highly speculative investment subject to limitations on withdrawal. There is no secondary market for interests in the fund. Our investment in Harbinger, which represents less than 2% of Harbinger’s total partnership capital, is accounted for under the cost method. At December 31, 2008 and 2007, Harbinger reported our capital account value at $10,103 and $23,000, respectively. The December 31, 2008 and 2007 carrying value in our balance sheet was equal to our cost basis of $10,000 (included in “Other assets and deferred charges”).



          During 2008 and 2007, we invested approximately $4,300 and $6,200, respectively, in real estate. At December 31, 2008 and 2007, the carrying value in our balance sheet of investments in this real estate (included in “Other assets and deferred charges”) equaled the amount invested.

          In August of 2004, we invested $5,000 in Novalux, Inc., a developer of laser technology for potential use in a variety of applications. We made additional investments in Novalux based on its prospects at the time of $1,095 in October 2005, $400 in May 2006, $142 in September 2006, $458 in July 2007 and $404 in November 2007. We wrote down our investment in Novalux and recognized losses of $2,095 in September 2007 based on anticipated delays in bringing the company’s technology to market and liquidity issues. Our carrying value in Novalux of $404 at December 31, 2007 is included in “Other assets and deferred charges” in the consolidated balance sheet. Novalux assets were sold in January 2008 in exchange for certain unrestricted and restricted common shares of a public company in Australia. We do not expect to receive any significant value from our remaining interest in the Australian company, and no carrying value remains in our balance sheet for this investment.

3

BUSINESS SEGMENTS

          Information by business segment and geographic area for the last three years is provided 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. Film Products’ net sales to The Procter & Gamble Company (“P&G”) totaled $282,670 in 2008, $258,602 in 2007 and $255,414 in 2006. These amounts include plastic film sold to others that convert the film into materials used with products manufactured by P&G.



 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

 

 

 

 

 

 

 

 

2008

 

2007

 

2006

 

Film Products

 

$

522,839

 

$

530,972

 

$

511,169

 

Aluminum Extrusions

 

 

340,278

 

 

371,803

 

 

403,790

 

Total net sales

 

 

863,117

 

 

902,775

 

 

914,959

 

Add back freight

 

 

20,782

 

 

19,808

 

 

22,602

 

Sales as shown in consolidated statements of income

 

$

883,899

 

$

922,583

 

$

937,561

 


 

 

 

 

 

 

 

 

 

 

 

Operating Profit

 

 

 

 

 

 

 

 

 

2008

 

2007

 

2006

 

Film Products:

 

 

 

 

 

 

 

 

 

 

Ongoing operations

 

$

53,914

 

$

59,423

 

$

57,645

 

Plant shutdowns, asset impairments and restructurings, net of gains on the sale of assets (a)

 

 

(11,297

)

 

(649

)

 

221

 

Aluminum Extrusions:

 

 

 

 

 

 

 

 

 

 

Ongoing operations

 

 

10,132

 

 

16,516

 

 

18,302

 

Plant shutdowns, asset impairments and restructurings (a)

 

 

(687

)

 

(634

)

 

(1,434

)

AFBS (formerly Therics):

 

 

 

 

 

 

 

 

 

 

Loss on investment in Therics, LLC

 

 

—

 

 

—

 

 

(25

)

Gain on sale of investments in Theken Spine and Therics, LLC

 

 

1,499

 

 

—

 

 

—

 

Restructurings (a)

 

 

—

 

 

(2,786

)

 

(637

)

Total

 

 

53,561

 

 

71,870

 

 

74,072

 

Interest income

 

 

1,006

 

 

1,212

 

 

1,240

 

Interest expense

 

 

2,393

 

 

2,721

 

 

5,520

 

Gain on sale of corporate assets (a)

 

 

1,001

 

 

2,699

 

 

56

 

Gain from write-up of an investment accounted for under the fair value method (a)

 

 

5,600

 

 

—

 

 

—

 

Loss from write-down of an investment (a)

 

 

—

 

 

2,095

 

 

—

 

Stock option-based compensation expense

 

 

782

 

 

978

 

 

970

 

Corporate expenses, net (a)

 

 

8,866

 

 

10,691

 

 

13,770

 

Income from continuing operations before income taxes

 

 

49,127

 

 

59,296

 

 

55,108

 

Income taxes (a)

 

 

19,486

 

 

24,366

 

 

19,791

 

Income from continuing operations

 

 

29,641

 

 

34,930

 

 

35,317

 

Income (loss) from discontinued operations (a)

 

 

(705

)

 

(19,681

)

 

2,884

 

Net income

 

$

28,936

 

$

15,249

 

$

38,201

 


(a)

See Notes 2 and 15 for more information on losses associated with plant shutdowns, asset impairments and restructurings, unusual items, gains from sale of assets, investment write-downs or write-ups and other items, and Note 17 for more information on discontinued operations.

(b)

We recognize in the balance sheets the funded status of each of our defined benefit pension and other postretirement plans. As of December 31, 2008, the funded status of our defined benefit pension plan was a net liability of $17,147 in “Other noncurrent liabilities” compared with an asset of $86,295 in “Other assets and deferred charges” (of which $42,856 was reported in Film Products) and a liability of $2,324 in “Other noncurrent liabilities” as of December 31, 2007. See Note 11 for more information on our pension and other postretirement plans.

(c)

The difference between total consolidated sales as reported in the consolidated statements of income and segment and geographic net sales reported in this note is freight of $20,782 in 2008, $19,808 in 2007 and $22,602 in 2006.

(d)

Information on exports and foreign operations are provided on the next page. Cash and cash equivalents includes funds held in locations outside the U.S. of $37,259, $24,559 and $19,118 at December 31, 2008, 2007, and 2006, respectively. Export sales relate almost entirely to Film Products. Operations outside the U.S. in The Netherlands, Hungary, China, Italy and Brazil also relate to Film Products. Sales from our locations in The Netherlands, Hungary and Italy are primarily to customers located in Europe. Sales from our locations in China (Guangzhou and Shanghai) are primarily to customers located in China, but also include other customers in Asia.



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Identifiable Assets

 

 

 

 

 

 

 

 

 

 

December 31

 

2008

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Film Products (b)

 

$

399,895

 

$

488,035

 

$

498,961

 

 

 

 

 

 

 

 

 

 

Aluminum Extrusions

 

 

112,259

 

 

115,223

 

 

128,967

 

 

 

 

 

 

 

 

 

 

AFBS (formerly Therics)

 

 

1,629

 

 

2,866

 

 

2,420

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subtotal

 

 

513,783

 

 

606,124

 

 

630,348

 

 

 

 

 

 

 

 

 

 

General corporate (b)

 

 

50,874

 

 

74,927

 

 

30,113

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (d)

 

 

45,975

 

 

48,217

 

 

40,898

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

 

610,632

 

 

729,268

 

 

701,359

 

 

 

 

 

 

 

 

 

 

Discontinued aluminum extrusions business in Canada (a)

 

 

—

 

 

55,210

 

 

80,428

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

610,632

 

$

784,478

 

$

781,787

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and Amortization

 

Capital Expenditures

 

 

 

 

2008

 

 

2007

 

 

2006

 

 

2008

 

 

2007

 

 

2006

 

Film Products

 

$

34,588

 

$

34,092

 

$

31,847

 

$

11,135

 

$

15,304

 

$

33,168

 

Aluminum Extrusions

 

 

8,018

 

 

8,472

 

 

8,378

 

 

9,692

 

 

4,391

 

 

6,609

 

AFBS (formerly Therics)

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

Subtotal

 

 

42,606

 

 

42,564

 

 

40,225

 

 

20,827

 

 

19,695

 

 

39,777

 

General corporate

 

 

70

 

 

91

 

 

111

 

 

78

 

 

6

 

 

24

 

Continuing operations

 

 

42,676

 

 

42,655

 

 

40,336

 

 

20,905

 

 

19,701

 

 

39,801

 

Discontinued aluminum extrusions business in Canada (a)

 

 

515

 

 

3,386

 

 

3,945

 

 

39

 

 

942

 

 

772

 

Total

 

$

43,191

 

$

46,041

 

$

44,281

 

$

20,944

 

$

20,643

 

$

40,573

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales by Geographic Area (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

2008

 

 

2007

 

 

2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

531,235

 

$

577,824

 

$

606,411

 

 

 

 

 

 

 

 

 

 

Exports from the United States to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canada

 

 

46,790

 

 

46,243

 

 

42,669

 

 

 

 

 

 

 

 

 

 

Latin America

 

 

1,614

 

 

1,188

 

 

4,364

 

 

 

 

 

 

 

 

 

 

Europe

 

 

12,532

 

 

9,856

 

 

8,944

 

 

 

 

 

 

 

 

 

 

Asia

 

 

26,156

 

 

31,432

 

 

50,096

 

 

 

 

 

 

 

 

 

 

Foreign operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Netherlands

 

 

109,392

 

 

104,379

 

 

91,476

 

 

 

 

 

 

 

 

 

 

Hungary

 

 

34,889

 

 

35,286

 

 

29,152

 

 

 

 

 

 

 

 

 

 

China

 

 

62,957

 

 

57,252

 

 

42,460

 

 

 

 

 

 

 

 

 

 

Italy

 

 

11,057

 

 

13,359

 

 

14,323

 

 

 

 

 

 

 

 

 

 

Brazil

 

 

26,495

 

 

25,956

 

 

25,064

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total (c)

 

$

863,117

 

$

902,775

 

$

914,959

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Identifiable Assets
by Geographic Area (d)

 

Property, Plant & Equipment,
Net by Geographic Area (d)

 

December 31

 

 

2008

 

 

2007

 

 

2006

 

 

2008

 

 

2007

 

 

2006

 

United States (b)

 

$

373,073

 

$

429,376

 

$

454,931

 

$

150,354

 

$

163,130

 

$

175,983

 

Foreign operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Netherlands

 

 

61,204

 

 

73,658

 

 

70,609

 

 

44,559

 

 

52,383

 

 

53,905

 

Hungary

 

 

15,195

 

 

20,178

 

 

20,039

 

 

7,731

 

 

10,952

 

 

12,475

 

China

 

 

40,092

 

 

49,696

 

 

53,633

 

 

27,809

 

 

33,192

 

 

34,671

 

Italy

 

 

15,187

 

 

17,378

 

 

16,734

 

 

2,792

 

 

3,580

 

 

3,565

 

Brazil

 

 

9,032

 

 

15,838

 

 

14,402

 

 

3,088

 

 

5,055

 

 

4,892

 

General corporate (b)

 

 

50,874

 

 

74,927

 

 

30,113

 

 

537

 

 

791

 

 

1,944

 

Cash and cash equivalents (d)

 

 

45,975

 

 

48,217

 

 

40,898

 

 

n/a

 

 

n/a

 

 

n/a

 

Continuing operations

 

 

610,632

 

 

729,268

 

 

701,359

 

 

236,870

 

 

269,083

 

 

287,435

 

Discontinued aluminum extrusions business in Canada (a)

 

 

—

 

 

55,210

 

 

80,428

 

 

—

 

 

11,001

 

 

38,328

 

Total

 

$

610,632

 

$

784,478

 

$

781,787

 

$

236,870

 

$

280,084

 

$

325,763

 

See footnotes on prior page and a reconciliation of net sales to sales as shown in the consolidated statements of income.



4

ACCOUNTS AND NOTES RECEIVABLE

          Accounts and notes receivable consist of the following:

 

 

 

 

 

 

 

 

December 31

 

 

2008

 

 

2007

 

Trade, less allowance for doubtful accounts and sales returns of $3,949 in 2008 and $5,198 in 2007

 

$

87,551

 

$

94,699

 

Other

 

 

3,849

 

 

2,365

 

Total

 

$

91,400

 

$

97,064

 

          The allowance for doubtful accounts and sales returns decreased by $1,249 in 2008 and $2,190 in 2007 and increased by $2,515 in 2006. The changes in 2008, 2007 and 2006 were comprised of increases to the allowance for charges to expense of $2,527, $3,001 and $3,236, respectively, decreases in the allowance for income from recoveries of $1,494, $1,442 and $57, respectively, decreases in the allowance for write-offs of $2,171, $3,780 and $680, respectively, and foreign exchange and other adjustments to the allowance of minus $111, plus $31,and plus $16, respectively.

5

INVENTORIES

          Inventories consist of the following:

 

 

 

 

 

 

 

 

December 31

 

 

2008

 

 

2007

 

Finished goods

 

$

7,470

 

$

10,004

 

Work-in-process

 

 

2,210

 

 

3,624

 

Raw materials

 

 

14,264

 

 

19,369

 

Stores, supplies and other

 

 

12,865

 

 

15,669

 

Total

 

$

36,809

 

$

48,666

 

          Inventories stated on the LIFO basis amounted to $15,426 at December 31, 2008 and $17,774 at December 31, 2007, which are below replacement costs by approximately $17,214 at December 31, 2008 and $25,845 at December 31, 2007. During 2008 and 2006, inventories accounted for on a LIFO basis declined, which resulted in cost of goods sold being stated at below current replacement costs, by approximately $3,600 in 2008 ($2,000 in Film Products and $1,600 in Aluminum Extrusions) and $5,400 in 2006 ($5,300 in Film Products, including $2,900 associated with the shutdown of the films manufacturing facility in LaGrange, Georgia, and $100 in Aluminum Extrusions).

6

FINANCIAL INSTRUMENTS

          In the normal course of business, we enter into fixed-price forward sales contracts with certain customers for the sale of fixed quantities of aluminum extrusions at scheduled intervals. In order to hedge our exposure to aluminum price volatility under these fixed-price arrangements, which generally have a duration of not more than 12 months, we enter into a combination of forward purchase commitments and futures contracts to acquire or hedge aluminum, based on the scheduled deliveries. The futures contracts are designated as and accounted for as cash flow hedges. These contracts involve elements of credit and market risk that are not reflected on our balance sheet, including the risk of dealing with counterparties and their ability to meet the terms of the contracts. The counterparties to our forward purchase commitments are major aluminum brokers and suppliers, and the counterparties to our futures contracts are major financial institutions. Fixed-price forward sales contracts are only made available to our best and most credit-worthy customers. The notional amount of aluminum futures contracts that hedged fixed-price forward sales contracts was $28,086 (23,810 pounds of aluminum) at December 31, 2008 and $36,369 (32,762 pounds of aluminum) at December 31, 2007. Unrealized losses in excess of gains on aluminum futures contracts that hedge fixed-price forward sales contracts of $11,042 ($6,728 after taxes) at December 31, 2008 and $1,815 ($1,204 after taxes) at December 31, 2007, are included as a separate component of shareholders’ equity for the respective periods. The portion of aluminum futures contracts that was ineffective in hedging fixed-price forward sales contracts was immaterial in 2008,



2007 and 2006.

          In 2008, we used a fixed rate Euro forward with various settlement dates to hedge exchange rate exposure on contractual payments due to an Italian machinery supplier for equipment purchased for our expansion of the Carthage, Tennessee aluminum extrusion manufacturing facility. The forward contract is designated as and accounted for as a cash flow hedge. These contracts involve elements of credit and market risk that are not reflected on our balance sheet, including the risk of dealing with a counterparty and its ability to meet the terms of the contract. The counterparty to our futures contracts is a major financial institution. The notional amount of foreign currency forward was $4,194 at December 31, 2008. Unrealized gains of $56 ($36 after taxes) at December 31, 2008 on foreign currency forwards that hedge future fixed, contractual Euro-denominated payments due to the Italian machinery supplier are included as a separate component of shareholders’ equity.

          In 2007, we used zero cost collar currency options to hedge a portion of our exposure to changes in exchange rates. Results for continuing operations include realized losses of $239 on currency hedges of royalties relating to our operations in Europe and results from discontinued operations include realized gains of $1,311 on currency hedges of our exposure to the Canadian Dollar (see Note 17 for more information). There were no derivatives outstanding at December 31, 2008 and 2007 relating to currency option hedges.

          After-tax losses of $472 in 2008 and after-tax gains of $731 in 2007 and $1,104 in 2006 were reclassified from other comprehensive income to earnings and were offset by gains or losses, respectively, from transactions relating to the underlying hedged item. As of December 31, 2008, we expect $6,240 of unrealized after-tax losses on derivative instruments reported in accumulated other comprehensive income to be reclassified to earnings within the next twelve months. We also expect that these losses will be offset by gains from transactions relating to the underlying hedged item.

7

ACCRUED EXPENSES

          Accrued expenses consist of the following:

 

 

 

 

 

 

 

 

December 31

 

 

2008

 

 

2007

 

Futures contracts, net of cash deposits

 

$

7,085

 

$

1,815

 

Vacation

 

 

5,922

 

 

6,182

 

Plant shutdowns and divestitures

 

 

4,922

 

 

6,201

 

Payrolls, related taxes and medical and other benefits

 

 

4,476

 

 

5,374

 

Workmen’s compensation and disabilities

 

 

2,986

 

 

4,159

 

Incentive compensation

 

 

1,849

 

 

1,880

 

Other

 

 

11,109

 

 

8,065

 

Total

 

$

38,349

 

$

33,676

 



          A reconciliation of the beginning and ending balances of accrued expenses associated with plant shutdowns and divestitures for each of the three years in the period ended December 31, 2008 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance

 

Long-Lived
Asset
Impairments

 

Accelerated
Depreciation (a)

 

Other (b)

 

Total

 

Balance at December 31, 2005

 

$

1,470

 

$

—

 

$

—

 

$

5,487

 

$

6,957

 

2006:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charges

 

 

1,371

 

 

1,150

 

 

—

 

 

1,607

 

 

4,128

 

Cash spent

 

 

(2,405

)

 

—

 

 

—

 

 

(2,472

)

 

(4,877

)

Charged against assets

 

 

—

 

 

(1,150

)

 

—

 

 

—

 

 

(1,150

)

Balance at December 31, 2006

 

 

436

 

 

—

 

 

—

 

 

4,622

 

 

5,058

 

2007:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charges

 

 

592

 

 

594

 

 

—

 

 

2,841

 

 

4,027

 

Cash spent

 

 

(665

)

 

—

 

 

—

 

 

(1,625

)

 

(2,290

)

Charged against assets

 

 

—

 

 

(594

)

 

—

 

 

—

 

 

(594

)

Balance at December 31, 2007

 

 

363

 

 

—

 

 

—

 

 

5,838

 

 

6,201

 

2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charges

 

 

2,662

 

 

6,994

 

 

1,649

 

 

—

 

 

11,305

 

Cash spent

 

 

(2,594

)

 

—

 

 

—

 

 

(1,347

)

 

(3,941

)

Charged against assets

 

 

—

 

 

(6,994

)

 

(1,649

)

 

—

 

 

(8,643

)

Balance at December 31, 2008

 

$

431

 

$

—

 

$

—

 

$

4,491

 

$

4,922

 


(a)

Represents depreciation accelerated due to plant shutdowns based on a remaining useful life of less than one year.

(b)

Other includes primarily accrued losses on a sub-lease at a facility in Princeton New, Jersey.

          See Note 15 for more information on plant shutdowns, asset impairments and restructurings of continuing operations.

8

DEBT AND CREDIT AGREEMENTS

          On December 15, 2005, we refinanced our debt with a new $300,000, five-year unsecured revolving credit agreement (the “Credit Agreement”). At January 1, 2009, the date our maximum leverage covenant dropped from 3.0x adjusted EBITDA to 2.75x adjusted EBITDA, available credit under the Credit Agreement was approximately $233,340. Total debt due and outstanding at December 31, 2008 is summarized below:

 

 

 

 

 

 

 

 

 

 

 

Debt Due and Outstanding at December 31, 2008

Year
Due

 

Credit
Agreement

 

Other

 

Total Debt
Due

 

2009

 

$

—

 

$

554

 

$

554

 

2010

 

 

21,000

 

 

469

 

 

21,469

 

2011

 

 

—

 

 

261

 

 

261

 

2012

 

 

—

 

 

146

 

 

146

 

2013

 

 

—

 

 

272

 

 

272

 

Total

 

$

21,000

 

$

1,702

 

$

22,702

 



          The credit spread over LIBOR and commitment fees charged on the unused amount under the Credit Agreement at various indebtedness-to-adjusted EBITDA levels are as follows:

 

 

 

 

 

 

 

 

Pricing Under Credit Agreement (Basis Points)

Indebtedness-to-
Adjusted EBITDA
Ratio

 

Credit Spread
Over LIBOR

 

Commitment
Fee

 

 

 

 

 

($21 Million
Outstanding
at 12/31/08)

 

 

> 2.50x but <= 3x

 

125

 

 

25

 

 

> 1.75x but <= 2.50x

 

100

 

 

20

 

 

> 1x but <= 1.75x

 

87.5

 

 

17.5

 

 

<= 1x

 

75

 

 

15

 

 

          At December 31, 2008, the interest cost on debt was priced at one-month LIBOR plus the applicable credit spread of 75 basis points.

          The most restrictive covenants in the Credit Agreement include:

•

Maximum aggregate dividends over the term of the Credit Agreement of $100,000 plus, beginning October 1, 2005, 50% of net income ($141,638 as of December 31, 2008);

•

Minimum shareholders’ equity (minimum of $336,147 compared with $486,154 of shareholders’ equity as defined in the Credit Agreement as of December 31, 2008);

•

Maximum indebtedness-to-adjusted EBITDA through December 31, 2008 of 3x and 2.75x thereafter (2.5x on a pro forma basis for acquisitions); and

•

Minimum adjusted EBIT-to-interest expense of 2.5x.

          We believe we were in compliance with all of our debt covenants as of December 31, 2008. Noncompliance with any one or more of the debt covenants may have a material adverse effect on financial condition or liquidity in the event such noncompliance cannot be cured or should we be unable to obtain a waiver from the lenders. Renegotiation of the covenant through an amendment to the Credit Agreement may effectively cure the noncompliance, but may have an effect on financial condition or liquidity depending upon how the covenant is renegotiated.

          In the past we have used interest rate swaps with large major financial institutions to manage interest rate exposure, but there have been no interest rate swaps outstanding since 2003.

9

SHAREHOLDER RIGHTS AGREEMENT

          Pursuant to a Rights Agreement dated as of June 30, 1999 (as amended), between Tredegar and National City Bank as Rights Agent, one right is attendant to each share of our common stock (“Right”). Each Right entitles the registered holder to purchase from Tredegar one one-hundredth of a share of Participating Cumulative Preferred Stock, Series A (the “Preferred Stock”), at an exercise price of $150 (the “Purchase Price”). The Rights will become exercisable, if not earlier redeemed, only if a person or group acquires 10% or more of the outstanding shares of our common stock or announces a tender offer which would result in ownership by a person or group of 10% or more of our common stock. Any action by a person or group whose beneficial ownership was reported on Amendment No. 4 to the Schedule 13D filed with respect to Tredegar on March 20, 1997, cannot cause the Rights to become exercisable.

          Each holder of a Right, upon the occurrence of certain events, will become entitled to receive, upon exercise and payment of the Purchase Price, Preferred Stock (or in certain circumstances, cash, property or other securities of Tredegar or a potential acquirer) having a value equal to twice the amount of the Purchase Price.

          The Rights are scheduled to expire on June 30, 2009.



10

STOCK OPTION AND STOCK AWARD PLANS

          We have one stock option plan under which stock options may be granted to purchase a specified number of shares of common stock at a price no lower than the fair market value on the date of grant and for a term not to exceed 10 years. In addition, we have one other stock option plan under which there are options that remain outstanding, but no future grants can be made. Employee options ordinarily vest two years from the date of grant. The option plans also permit the grant of stock appreciation rights (“SARs”), stock, restricted stock, stock unit awards and incentive awards. No SARs have been granted since 1992 and none are currently outstanding.

          A summary of our stock options outstanding at December 31, 2008, 2007 and 2006, and changes during those years, is presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of
Options

 

Option Exercise Price/Share

 

 

 

 

 

 

 

 

Range

 

Wgted.
Ave.

 

Outstanding at 12/31/05

 

 

2,250,340

 

$

7.38

 

 

to

 

$

46.63

 

$

22.90

 

Granted

 

 

449,800

 

 

15.11

 

 

to

 

 

19.52

 

 

15.30

 

Forfeited and Expired

 

 

(874,525

)

 

7.38

 

 

to

 

 

46.63

 

 

29.73

 

Exercised

 

 

(578,442

)

 

7.38

 

 

to

 

 

19.75

 

 

16.47

 

Outstanding at 12/31/06

 

 

1,247,173

 

 

13.95

 

 

to

 

 

29.94

 

 

18.16

 

Granted

 

 

4,000

 

 

14.40

 

 

to

 

 

14.40

 

 

14.40

 

Forfeited and Expired

 

 

(184,065

)

 

13.95

 

 

to

 

 

29.94

 

 

20.68

 

Exercised

 

 

(364,125

)

 

13.95

 

 

to

 

 

22.72

 

 

18.58

 

Outstanding at 12/31/07

 

 

702,983

 

 

13.95

 

 

to

 

 

29.94

 

 

17.25

 

Granted

 

 

401,000

 

 

14.06

 

 

to

 

 

19.25

 

 

15.72

 

Forfeited and Expired

 

 

(161,515

)

 

13.95

 

 

to

 

 

29.94

 

 

20.07

 

Exercised

 

 

(248,118

)

 

13.95

 

 

to

 

 

18.90

 

 

16.66

 

Outstanding at 12/31/08

 

 

694,350

 

$

13.95

 

 

to

 

$

19.52

 

$

15.92

 

          The following table summarizes additional information about stock options outstanding and exercisable and non-vested restricted stock outstanding at December 31, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options Outstanding at
December 31, 2008

 

Options Exercisable at
December 31, 2008

 

 

 

 

 

 

 

Weighted Average

 

Aggregate
Intrinsic
Value
(In
Thousands)

 

Shares

 

Weighted
Average
Exercise
Price

 

Aggregate
Intrinsic
Value
(In
Thousands)

 

 

 

 

 

 

 

 

 

 

Range of
Exercise Prices

 

Shares

 

Remaining
Contract-
ual Life
(Years)

 

Exercise
Price

 

 

 

 

 

$

13.95

 

 

to

 

$

17.88

 

 

593,350

 

 

5.8

 

$

15.40

 

$

1,651

 

 

222,850

 

$

14.95

 

$

721

 

 

17.89

 

 

to

 

 

19.52

 

 

101,000

 

 

0.7

 

 

18.98

 

 

—

 

 

98,500

 

 

18.97

 

 

—

 

Total

 

 

 

 

 

 

 

 

694,350

 

 

5.0

 

$

15.92

 

$

1,651

 

 

321,350

 

$

16.18

 

$

721

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-vested Restricted Stock

 

Maximum Non-vested Restricted
Stock Units Issuable Upon Satis-
faction of Certain Performance Criteria

 

 

 

 

 

 

 

Number
of Shares

 

Wgtd. Ave.
Grant Date
Fair Value/Sh.

 

Grant Date
Fair Value (In
Thousands)

 

Number
of Shares

 

Wgtd. Ave.
Grant Date
Fair Value/Sh.

 

Grant Date
Fair Value (In
Thousands)

 

Outstanding at 12/30/05

 

109,000

 

$

13.88

 

$

1,513

 

—

 

$

—

 

$

—

 

Granted

 

2,000

 

 

16.31

 

 

33

 

—

 

 

—

 

 

—

 

Vested

 

(17,333

)

 

13.95

 

 

(242

)

—

 

 

—

 

 

—

 

Forfeited

 

(24,167

)

 

13.80

 

 

(333

)

—

 

 

—

 

 

—

 

Outstanding at 12/31/06

 

69,500

 

 

13.97

 

 

971

 

—

 

 

—

 

 

—

 

Granted

 

—

 

 

—

 

 

—

 

233,375

 

 

20.80

 

 

4,854

 

Vested

 

(6,000

)

 

13.95

 

 

(84

)

—

 

 

—

 

 

—

 

Forfeited

 

(4,000

)

 

13.95

 

 

(56

)

(56,500

)

 

23.00

 

 

(1,300

)

Outstanding at 12/31/07

 

59,500

 

 

13.97

 

 

831

 

176,875

 

 

20.09

 

 

3,554

 

Granted

 

12,690

 

 

16.01

 

 

203

 

146,600

 

 

15.80

 

 

2,316

 

Vested

 

(8,190

)

 

17.08

 

 

(140

)

—

 

 

—

 

 

—

 

Forfeited

 

(10,500

)

 

14.06

 

 

(148

)

(115,694

)

 

20.40

 

 

(2,360

)

Outstanding at 12/31/08

 

53,500

 

$

13.94

 

$

746

 

207,781

 

$

16.89

 

$

3,510

 

          The total intrinsic value of stock options exercised was $653 in 2008, $1,455 in 2007 and $2,174 in 2006. The grant-date fair value of stock option-based awards vested was $1,822 in 2008 and $1,323 in 2006 (none in 2007). As of December 31, 2008, there was $1,223 and $418 of unrecognized compensation cost related to stock option-based awards and non-vested restricted stock and other stock-based awards, respectively. This cost is expected to be recognized over the remaining weighted average period of 1.2 years for stock option-based awards and 0.5 years for non-vested restricted stock and other stock-based awards. Compensation costs for non-vested restricted stock is subject to accelerated vesting based on meeting certain financial targets.

          Stock options exercisable totaled 321,350 shares at December 31, 2008 and 851,873 shares at December 31, 2007. Stock options available for grant totaled 1,009,210 shares at December 31, 2008, 1,412,232 shares at December 31, 2007 and 1,601,700 shares at December 31, 2006.

11

RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS

          We have noncontributory defined benefit (pension) plans covering most employees. The plans for salaried and hourly employees currently in effect are 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.

          On October 26, 2006, we announced changes to our U.S. defined benefit (pension) and savings plans covering salaried and certain other employees. The changes had no impact on our net income or earnings per share in 2006. The changes relating to the pension plan reduced our projected benefit obligation by approximately $10,000 as of December 31, 2006. In 2007, the changes to the pension plan reduced our service cost, interest cost and amortization of prior service cost components of pension expense by approximately $600, $600 and $1,500, respectively, and the savings plan changes (see Note 12) increased charges for company matching contributions by approximately $700.

          In addition to providing pension benefits, we provide postretirement life insurance and health care benefits for certain groups of employees. Tredegar and retirees share in the cost of postretirement health care benefits, with employees hired on or before January 1, 1993, receiving a fixed subsidy to cover a portion of their health care premiums. On December 8, 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the “Act”) was signed into law. We eliminated prescription drug coverage for Medicare-eligible retirees as of January 1, 2006. Consequently, we are not eligible for any federal subsidies.



          Assumptions used for financial reporting purposes to compute net benefit income or cost and benefit obligations for continuing operations, and the components of net periodic benefit income or cost for continuing operations, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension Benefits

 

Other Post-
Retirement Benefits

 

 

 

 

 

 

 

2008

 

2007

 

2006

 

2008

 

2007

 

2006

 

Weighted-average assumptions used to determine benefit obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

 

 

6.50

%

 

6.25

%

 

5.75

%

 

6.50

%

 

6.25

%

 

5.75

%

Rate of compensation increases

 

 

n/a

 

 

4.00

%

 

4.00

%

 

4.00

%

 

4.00

%

 

4.00

%

Weighted-average assumptions used to determine net periodic benefit cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

 

 

6.25

%

 

5.75

%

 

5.75

%

 

6.25

%

 

5.75

%

 

5.75

%

Rate of compensation increases

 

 

n/a

 

 

4.00

%

 

4.00

%

 

4.00

%

 

4.00

%

 

4.00

%

Expected long-term return on plan assets, during the year

 

 

8.50

%

 

8.50

%

 

8.50

%

 

n/a

 

 

n/a

 

 

n/a

 

Rate of increase in per-capita cost of covered health care benefits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Indemnity plans, end of year

 

 

n/a

 

 

n/a

 

 

n/a

 

 

6.00

%

 

6.00

%

 

6.00

%

Managed care plans, end of year

 

 

n/a

 

 

n/a

 

 

n/a

 

 

6.00

%

 

6.00

%

 

6.00

%

Components of net periodic benefit income (cost):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

(3,447

)

$

(4,232

)

$

(4,933

)

$

(71

)

$

(106

)

$

(70

)

Interest cost

 

 

(12,909

)

 

(11,447

)

 

(12,079

)

 

(484

)

 

(503

)

 

(513

)

Expected return on plan assets

 

 

21,965

 

 

20,372

 

 

19,820

 

 

—

 

 

—

 

 

—

 

Amortization of prior service costs and gains or losses

 

 

(675

)

 

(1,819

)

 

(4,476

)

 

47

 

 

—

 

 

14

 

Net periodic benefit income (cost)

 

$

4,934

 

$

2,874

 

$

(1,668

)

$

(508

)

$

(609

)

$

(569

)



          The following tables reconcile the changes in benefit obligations and plan assets in 2008 and 2007, and reconcile the funded status to prepaid or accrued cost at December 31, 2008 and 2007:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension Benefits

 

Other Post-
Retirement Benefits

 

 

 

 

 

 

 

2008

 

2007

 

2008

 

2007

 

Change in benefit obligation:

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefit obligation, beginning of year

 

$

200,129

 

$

205,588

 

$

8,690

 

$

9,366

 

Service cost

 

 

3,447

 

 

4,232

 

 

71

 

 

106

 

Interest cost

 

 

12,909

 

 

11,447

 

 

484

 

 

503

 

Plan amendments

 

 

—

 

 

23

 

 

—

 

 

—

 

Effect of actuarial (gains) losses related to the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate change

 

 

(5,951

)

 

(12,318

)

 

(219

)

 

(467

)

Retirement rate assumptions and mortality table adjustments

 

 

8,899

 

 

—

 

 

—

 

 

—

 

Other

 

 

2,485

 

 

776

 

 

(659

)

 

(377

)

Benefits paid

 

 

(10,233

)

 

(9,619

)

 

(243

)

 

(441

)

Benefit obligation, end of year

 

$

211,685

 

$

200,129

 

$

8,124

 

$

8,690

 

Change in plan assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Plan assets at fair value, beginning of year

 

$

284,100

 

$

256,669

 

$

—

 

$

—

 

Actual return on plan assets

 

 

(79,451

)

 

36,883

 

 

—

 

 

—

 

Employer contributions

 

 

122

 

 

167

 

 

243

 

 

441

 

Benefits paid

 

 

(10,233

)

 

(9,619

)

 

(243

)

 

(441

)

Plan assets at fair value, end of year

 

$

194,538

 

$

284,100

 

$

—

 

$

—

 

Funded status of the plans

 

$

(17,147

)

$

83,971

 

$

(8,124

)

$

(8,690

)

Amounts recognized in the consolidated balance sheets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Prepaid benefit cost

 

$

—

 

$

86,295

 

$

—

 

$

—

 

Accrued benefit liability

 

 

(17,147

)

 

(2,324

)

 

(8,124

)

 

(8,690

)

Net amount recognized

 

$

(17,147

)

$

83,971

 

$

(8,124

)

$

(8,690

)

          Net benefit income or cost is determined using assumptions at the beginning of each year. Funded status is determined using assumptions at the end of each year. Pension and other postretirement liabilities for continuing operations of $25,271 and $11,014 are included in “Other noncurrent liabilities” in the consolidated balance sheets at December 31, 2008 and 2007, respectively. Prepaid pension costs for continuing operations of $86,295 is included in “Other assets and deferred charges” in the consolidated balance sheet at December 31, 2007. The amount of our accumulated benefit obligation is the same as our projected benefit obligation.

          At December 31, 2008, the effect of a 1% change in the health care cost trend rate assumptions would be immaterial.



          Expected benefit payments for continuing operations over the next five years and in the aggregate for 2014-2018 are as follows:

 

 

 

 

 

 

 

 

 

Years

 

Pension
Benefits

 

Other
Post-
Retirement
Benefits

 

 

2009

 

$

12,005

 

$

460

 

2010

 

 

12,609

 

 

505

 

2011

 

 

13,219

 

 

540

 

2012

 

 

13,896

 

 

572

 

2013

 

 

14,512

 

 

609

 

2014 - 2018

 

 

82,047

 

 

3,289

 

 

          The incremental impact for continuing and discontinued operations of adopting SFAS No. 158 as of December 31, 2006 (see the pension costs and postretirement benefit costs other than pensions section of Note 1 for further information on this new standard) and recognizing an additional minimum liability (the “AML”) is shown in the table below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2006

 

Prior to AML &
SFAS No. 158
Adjustments

 

AML
Adjustment

 

SFAS No. 158
Adjustment

 

Post AML
& SFAS No. 158
Adjustments

 

 

Prepaid pension costs

 

$

80,442

 

$

1,243

 

$

(27,651

)

$

54,034

 

Pension liabilities

 

 

—

 

 

—

 

 

3,619

 

 

3,619

 

Postretirement liabilities

 

 

9,740

 

 

—

 

 

(318

)

 

9,422

 

Decrease (increase) in deferred income tax liabilities relating to accumulated other comprehensive loss

 

 

1,252

 

 

(422

)

 

11,354

 

 

12,184

 

Accumulated other comprehensive loss

 

 

2,434

 

 

(821

)

 

19,598

 

 

21,211

 

 

          Amounts recognized in 2008, 2007 and 2006 before related deferred income taxes in accumulated other comprehensive income consist of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension

 

Other Post-
Retirement

 

 

 

 

 

 

2008

 

2007

 

2006

 

2008

 

2007

 

2006

 

Continuing operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service cost (benefit)

 

$

(5,092

)

$

(6,140

)

$

(7,200

)

$

—

 

$

—

 

$

—

 

Net actuarial (gain) loss

 

 

110,319

 

 

5,194

 

 

36,103

 

 

(1,514

)

 

(682

)

 

161

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service cost (benefit)

 

 

—

 

 

1,108

 

 

1,002

 

 

—

 

 

—

 

 

—

 

Net actuarial (gain) loss

 

 

—

 

 

6,008

 

 

3,807

 

 

—

 

 

(445

)

 

(478

)

Total:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service cost (benefit)

 

 

(5,092

)

 

(5,032

)

 

(6,198

)

 

—

 

 

—

 

 

—

 

Net actuarial (gain) loss

 

 

110,319

 

 

11,202

 

 

39,910

 

 

(1,514

)

 

(1,127

)

 

(317

)



          The amounts before related deferred income taxes in accumulated other comprehensive income that are expected to be recognized as components of net periodic benefit or cost during 2009 are as follows:

 

 

 

 

 

 

 

 

 

 

Pension

 

Other Post-
Retirement

 

Continuing operations:

 

 

 

 

 

 

 

Prior service cost (benefit)

 

$

(1,057

)

$

—

 

Net actuarial (gain) loss

 

 

2,170

 

 

(88

)

          The percentage composition of assets held by pension plans for continuing operations at December 31, 2008, 2007 and 2006, and the current expected long-term return on assets are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% Composition
of Plan Assets

 

Expected
Long-term
Return %

 

 

 

 

 

 

 

 

 

December 31

 

2008

 

2007

 

2006

 

 

 

Pension plans related to continuing operations:

 

 

 

 

 

 

 

 

 

Low-risk fixed income securities

 

10.3

%

8.5

%

11.4

%

4.6

%

 

 

Large capitalization equity securities

 

19.9

 

20.7

 

22.4

 

9.1

 

 

Mid-capitalization equity securities

 

0.0

 

7.4

 

8.8

 

9.3

 

 

Small-capitalization equity securities

 

4.1

 

4.7

 

5.1

 

9.6

 

 

International equity securities

 

18.6

 

22.6

 

27.4

 

10.2

 

 

 

Total equity securities

 

42.6

 

55.4

 

63.7

 

9.6

 

 

 

Hedge and private equity funds

 

43.8

 

33.9

 

22.5

 

8.1

 

 

Other assets

 

3.3

 

2.2

 

2.4

 

3.3

 

 

 

Total for continuing operations

 

100.0

%

100.0

%

100.0

%

8.3

%

 

 

          Our targeted allocation percentage for pension plan assets is in the range of the percentage composition that existed at December 31, 2008. Expected long-term returns are estimated by asset class and generally are based on inflation-adjusted historical returns, volatilities, risk premiums and managed asset premiums. The portfolio of fixed income securities is structured with maturities that generally match estimated benefit payments over the next 1-2 years. We believe that over the long term a diversified portfolio of equity securities, hedge funds and private equity funds have a better risk-return profile than fixed income securities. The average remaining duration of benefit payments for our pension plans is about 12 years. We expect our required contributions to approximate $4,400 in 2009.

          The estimate of the fair value of assets held by our pension plans is provided by third parties not affiliated with Tredegar. The fair value of low-risk fixed income securities and equity securities are typically based on Level 1 inputs. The fair value of the ownership interests held by our pension plans in hedge and private equity funds is reported by the funds. While the fair value of the underlying assets in these funds may be substantially based on Level 1 and Level 2 inputs, we believe that the ownership interests held by our pension plans in these funds are based on Level 3 inputs since there is no secondary market for the ownership interests and there are restrictions on withdrawals. Other assets are primarily comprised of cash and insurance contracts.

          We also have a non-qualified supplemental pension plan covering certain employees. Effective December 31, 2005, further participation in this plan was terminated and benefit accruals for existing participants were frozen. The plan was designed to restore all or a part of the pension benefits that would have been payable to designated participants from our principal pension plans if it were not for limitations imposed by income tax regulations. The projected benefit obligation relating to this unfunded plan was $2,809 at December 31, 2008 and $2,324 at December 31, 2007. Pension expense recognized was $185 in 2008, $161 in 2007 and $355 in 2006. This information has been included in the preceding pension benefit tables.

          Approximately 146 employees at our films manufacturing facility in Kerkrade, The Netherlands are covered by a collective bargaining agreement that includes participation in a multi-employer pension plan. Pension expense recognized for participation in this plan, which is equal to required contributions, was $1,007 in 2008, $868 in 2007



and $807 in 2006. This information has been excluded from the preceding pension benefit tables.

12

SAVINGS PLAN

          We have a savings plan that allows eligible employees to voluntarily contribute a percentage of their compensation up to Internal Revenue Service (“IRS”) limitations. Under the provisions of the plan on or before December 31, 2006, we matched a portion (generally 50 cents for every $1 of employee contribution, up to a maximum of 10% of base pay) of the employee’s contribution to the plan with shares of our common stock. Effective January 1, 2007, and in conjunction with certain pension plan changes (see Note 11), the following changes were made to the savings plan for salaried and certain hourly employees:

•

The company makes matching contributions to the savings plan of $1 for every $1 of employee contribution. The maximum matching contribution is 6% of base pay for 2007-2009 and 5% of base pay thereafter.

•

The savings plan includes immediate vesting for active employees of past matching contributions as well as future matching contributions when made (compared with the previous 5-year graded vesting) and automatic enrollment at 3% of base pay unless the employee opts out or elects a different percentage.

          We also have a non-qualified plan that restores matching benefits for employees suspended from the savings plan due to certain limitations imposed by income tax regulations. Charges recognized for these plans were $3,118 in 2008, $2,828 in 2007 and $2,770 in 2006. The savings plan changes effective January 1, 2007 increased charges for company matching contributions in 2007 by approximately $700. Our liability under the restoration plan was $1,272 at December 31, 2008 (consisting of 69,957 phantom shares of common stock) and $1,027 at December 31, 2007 (consisting of 63,852 phantom shares of common stock) valued at the closing market price on those dates.

          The Tredegar Corporation Benefits Plan Trust (the “Trust”) purchased 7,200 shares of our common stock in 1998 for $192 and 46,671 shares of our common stock in 1997 for $1,020, as a partial hedge against the phantom shares held in the restoration plan. There have been no shares purchased since 1997 except for re-invested dividends. The cost of the shares held by the Trust is shown as a reduction to shareholders’ equity in the consolidated balance sheets.

13

RENTAL EXPENSE AND CONTRACTUAL COMMITMENTS

          Rental expense for continuing operations was $3,541 in 2008, $3,873 in 2007 and $3,859 in 2006. Rental commitments under all non-cancelable operating leases for continuing operations as of December 31, 2008, are as follows:

 

 

 

 

 

 

Year

 

Amount

 

 

2009

 

$

3,001

 

2010

 

 

3,030

 

2011

 

 

1,772

 

2012

 

 

1,317

 

2013

 

 

238

 

Remainder

 

 

—

 

 

     Total

 

$

9,358

 

 

          AFBS, Inc. (formerly known as Therics, Inc. - see Note 15 for additional information regarding its restructuring in 2005), a wholly-owned subsidiary of Tredegar, has future rental commitments under noncancelable operating leases through 2011 (most of which contain sublease options) totaling approximately $3,766. These future rental commitments are included in the above table. Sublease rental commitments relating to excess space at AFBS total $329 (excluded from the above table).



          Contractual obligations for plant construction and purchases of real property and equipment amounted to $17,499 at December 31, 2008 and $2,965 at December 31, 2007. Contractual commitments at December 31, 2008, are primarily related to the capacity expansion at our aluminum extrusions facility in Carthage, Tennessee.

14

INCOME TAXES

          Income from continuing operations before income taxes and income taxes are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

2008

 

2007

 

2006

 

Income from continuing operations before income taxes:

 

 

 

 

 

 

 

 

 

 

Domestic

 

$

31,838

 

$

50,942

 

$

48,850

 

Foreign

 

 

17,289

 

 

8,354

 

 

6,258

 

Total

 

$

49,127

 

$

59,296

 

$

55,108

 

Current income taxes:

 

 

 

 

 

 

 

 

 

 

Federal

 

$

1,494

 

$

24,698

 

$

5,165

 

State

 

 

1,126

 

 

856

 

 

840

 

Foreign

 

 

6,038

 

 

4,351

 

 

4,223

 

Total

 

 

8,658

 

 

29,905

 

 

10,228

 

Deferred income taxes:

 

 

 

 

 

 

 

 

 

 

Federal

 

 

9,672

 

 

(4,009

)

 

9,030

 

State

 

 

114

 

 

316

 

 

687

 

Foreign

 

 

1,042

 

 

(1,846

)

 

(154

)

Total

 

 

10,828

 

 

(5,539

)

 

9,563

 

Total income taxes

 

$

19,486

 

$

24,366

 

$

19,791

 

          The increase in 2008 compared with 2007 in income from continuing operations before income taxes for foreign operations is due to lower charges accrued by our domestic subsidiaries for royalties on technology licensed to our subsidiaries outside the U.S,

          The significant differences between the U.S. federal statutory rate and the effective income tax rate for continuing operations are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Percent of Income Before Income
Taxes for Continuing Operations

 

 

 

 

 

2008

 

2007

 

2006

 

Income tax expense at federal statutory rate

 

 

35.0

 

 

35.0

 

 

35.0

 

Unremitted earnings from foreign operations

 

 

6.7

 

 

2.2

 

 

1.2

 

Valuation allowance for foreign operating loss carry-forwards

 

 

3.2

 

 

1.4

 

 

1.9

 

State taxes, net of federal income tax benefit

 

 

1.6

 

 

1.3

 

 

1.8

 

Non-deductible expenses

 

 

.2

 

 

.2

 

 

.3

 

Research and development tax credit

 

 

(.4

)

 

(.1

)

 

(.9

)

Valuation allowance for capital loss carry-forwards

 

 

(2.2

)

 

1.8

 

 

(1.1

)

Foreign rate differences

 

 

(4.2

)

 

(1.1

)

 

(.3

)

Extraterritorial Income Exclusion and Domestic Production Activities Deduction

 

 

—

 

 

(.5

)

 

(1.8

)

Other

 

 

(.2

)

 

.9

 

 

(.2

)

Effective income tax rate

 

 

39.7

 

 

41.1

 

 

35.9

 



          Deferred tax liabilities and deferred tax assets at December 31, 2008 and 2007, are as follows:

 

 

 

 

 

 

 

 

December 31

 

2008

 

2007

 

Deferred tax liabilities:

 

 

 

 

 

 

 

Depreciation

 

$

27,139

 

$

29,105

 

Amortization of goodwill

 

 

20,648

 

 

18,059

 

Foreign currency translation gain adjustment

 

 

12,648

 

 

13,497

 

Pensions

 

 

—

 

 

31,693

 

Other

 

 

1,975

 

 

1,152

 

Total deferred tax liabilities

 

 

62,410

 

 

93,506

 

Deferred tax assets:

 

 

 

 

 

 

 

Pensions

 

 

6,218

 

 

—

 

Employee benefits

 

 

6,195

 

 

6,543

 

Derivative financial instruments

 

 

4,077

 

 

464

 

Asset write-offs, divestitures and environmental accruals

 

 

3,609

 

 

3,274

 

Timing adjustment for unrecognized tax benefits on uncertain tax positions, including portion relating to interest and penalties

 

 

2,304

 

 

2,761

 

Allowance for doubtful accounts and sales returns

 

 

966

 

 

1,237

 

Tax benefit on state and foreign NOL carryforwards (net of valuation allowance of $5,228 in 2008 and $2,947 in 2007)

 

 

883

 

 

954

 

Inventory

 

 

166

 

 

70

 

Excess of tax basis over financial reporting basis for the aluminum extrusions business in Canada

 

 

—

 

 

11,428

 

Tax in excess of book basis for venture capital and other investments (net of valuation allowance of $4,537 in 2008 and $6,491 in 2007)

 

 

—

 

 

5,805

 

Other

 

 

494

 

 

1,517

 

Total deferred tax assets

 

 

24,912

 

 

34,053

 

Net deferred tax liability

 

$

37,498

 

$

59,453

 

Included in the balance sheet:

 

 

 

 

 

 

 

Noncurrent deferred tax liabilities in excess of assets

 

$

45,152

 

$

68,625

 

Current deferred tax assets in excess of liabilities

 

 

7,654

 

 

9,172

 

Net deferred tax liability

 

$

37,498

 

$

59,453

 

          Except as noted below, we believe that it is more likely than not that future taxable income will exceed future tax deductible amounts thereby resulting in the realization of deferred tax assets. A valuation allowance of $5,228 and $2,947 at December 31, 2008 and 2007, respectively, is included in tax benefit on state and foreign NOL carryforwards that offsets an amount included in that line item relating to possible future tax benefits on domestic state and foreign operating losses generated by certain foreign and domestic subsidiaries that may not be recoverable in the carry-forward period. In addition, the valuation allowance for excess capital losses from venture capital and other items was reduced from $6,491 at December 31, 2007 to $4,537 at December 31, 2008 due to changes in the relative amounts of capital gains and losses generated during the year.



          A reconciliation of our unrecognized uncertain tax positions since January 1, 2007, is shown below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase
(Decrease)
Due to
Settlements
with
Taxing
Authorities

 

 

 

 

 

 

 

 

 

 

 

 

Increase (Decrease)
Due to Tax Positions
Taken in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reductions
Due to
Lapse of
Statute of
Limitations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at
Jan. 1,
2007

 

 

 

 

Balance at
Dec. 31,
2007

 

 

 

 

Current
Period

 

Prior
Period

 

 

 

 

 

 

 

 

 

 

 

 

Gross unrecognized tax benefits on uncertain tax positions (reflected in current income tax and other noncurrent liability accounts in the balance sheet)

 

$

3,393

 

$

566

 

$

(506

)

$

—

 

$

(185

)

$

3,268

 

Deferred income tax assets related to unrecognized tax benefits on uncertain tax positions for which ultimate deductibility is highly certain but for which the timing of the deduction is uncertain (reflected in deferred income tax accounts in the balance sheet)

 

 

(2,733

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,325

)

Net unrecognized tax benefits on uncertain tax positions, which would impact the effective tax rate if recognized

 

 

660

 

 

 

 

 

 

 

 

 

 

 

 

 

 

943

 

Interest and penalties accrued on deductions taken relating to uncertain tax positions (approximately $300, $300 and $100 reflected in income tax expense in the income statement in 2007, 2006 and 2005, respectively, with the balance shown in current income tax and other noncurrent liability accounts in the balance sheet)

 

 

891

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,195

 

Related deferred income tax assets recognized on interest and penalties

 

 

(327

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(436

)

Interest and penalties accrued on uncertain tax positions net of related deferred income tax benefits, which would impact the effective tax rate if recognized

 

 

564

 

 

 

 

 

 

 

 

 

 

 

 

 

 

759

 

Total net unrecognized tax benefits on uncertain tax positions reflected in the balance sheet, which would impact the effective tax rate if recognized

 

$

1,224

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,702

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase
(Decrease)
Due to
Settlements
with
Taxing
Authorities

 

 

 

 

 

 

 

 

 

 

 

 

Increase (Decrease)
Due to Tax Positions
Taken in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reductions
Due to
Lapse of
Statute of
Limitations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at
Jan. 1,
2008

 

 

 

 

Balance at
Dec. 31,
2008

 

 

 

 

Current
Period

 

Prior
Period

 

 

 

 

 

 

 

 

 

 

 

 

Gross unrecognized tax benefits on uncertain tax positions (reflected in current income tax and other noncurrent liability accounts in the balance sheet)

 

$

3,268

 

$

105

 

$

(392

)

$

(31

)

$

(397

)

$

2,553

 

Deferred income tax assets related to unrecognized tax benefits on uncertain tax positions for which ultimate deductibility is highly certain but for which the timing of the deduction is uncertain (reflected in deferred income tax accounts in the balance sheet)

 

 

(2,325

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,828

)

Net unrecognized tax benefits on uncertain tax positions, which would impact the effective tax rate if recognized

 

 

943

 

 

 

 

 

 

 

 

 

 

 

 

 

 

725

 

Interest and penalties accrued on deductions taken relating to uncertain tax positions (approximately $100, $300 and $300 reflected in income tax expense in the income statement in 2008, 2007 and 2006, respectively, with the balance shown in current income tax and other noncurrent liability accounts in the balance sheet)

 

 

1,195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,303

 

Related deferred income tax assets recognized on interest and penalties

 

 

(436

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(476

)

Interest and penalties accrued on uncertain tax positions net of related deferred income tax benefits, which would impact the effective tax rate if recognized

 

 

759

 

 

 

 

 

 

 

 

 

 

 

 

 

 

827

 

Total net unrecognized tax benefits on uncertain tax positions reflected in the balance sheet, which would impact the effective tax rate if recognized

 

$

1,702

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,552

 



          We anticipate that by December 31, 2009, we will settle several disputed issues raised by the IRS during its examination of our U.S. income tax returns for 2001-2003, the most significant of which regards the recognition of our captive insurance subsidiary as an insurance company for U.S. income tax purposes. It is reasonably possible that a settlement with the IRS for the disputed issues would cost us $1,300, which would be applied against the balance of unrecognized tax benefits and accrued interest and penalties.

          Tredegar and its subsidiaries file income tax returns in U.S., state and foreign jurisdictions. Tredegar is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2001. With few exceptions, Tredegar and its subsidiaries are no longer subject to state or non-U.S. income tax examinations by tax authorities for years before 2005.

15

LOSSES ASSOCIATED WITH PLANT SHUTDOWNS, ASSET IMPAIRMENTS AND RESTRUCTURINGS, UNUSUAL ITEMS, GAINS FROM SALE OF ASSETS AND OTHER ITEMS

          Losses associated with plant shutdowns, asset impairments and restructurings for continuing operations in 2008 totaled $11,984 ($8,433 after taxes) and included:

•

A fourth quarter charge of $7,231 ($5,039 after taxes), a second quarter charge of $854 ($717 after taxes) and first quarter charge of $1,650 ($1,218 after taxes) for asset impairments in Film Products;

•

A second quarter charge of $90 ($83 after taxes) and a first quarter charge of $2,055 ($1,390 after taxes) for severance and other employee-related costs in connection with restructurings in Film Products;

•

A second quarter charge of $275 ($169 after taxes) and a first quarter charge of $235 ($145 after taxes) for severance and other employee-related costs in connection with restructurings in Aluminum Extrusions;

•

A fourth quarter pretax gain of $583 ($437 after taxes) related to the sale of land rights and related improvements at the Film Products facility in Shanghai, China (included in “Other income (expense), net” in the consolidated statements of income); and

•

A fourth quarter charge of $72 ($44 after taxes) and a second quarter charge of $105 ($65 after taxes) related to expected future environmental costs at the Aluminum Extrusions facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statements of income).

          A gain of $1,499 ($965 after taxes) from the sale of our investments in Theken Spine and Therics, LLC is included in “Other income (expense), net” in the consolidated statements of income. AFBS, Inc. (formerly Therics, Inc.) received these investments in 2005, when substantially all of the assets of AFBS, Inc., a wholly owned subsidiary of Tredegar, were sold or assigned to a newly created limited liability company, Therics, LLC, controlled and managed by an individual not affiliated with Tredegar. Results in 2008 also include unrealized gains from the write-up of an investment in a privately held drug company of $5,600 ($3,584 after taxes). See Note 2 for additional information on this investment, which is accounted for under the fair value method. Gains on the sale of corporate assets in 2008 include realized gains of $509 ($310 after taxes) from the sale of equity securities and $492 ($316 after taxes) from the sale of corporate real estate. The pretax amounts for each of these items are included in “Other income (expense), net” in the consolidated statements of income. Income taxes for 2008 include the reversal of a valuation allowance recognized in the third quarter of 2007 of $1,066 that originally related to expected limitations on the utilization of assumed capital losses on certain investments.

          The severance in Film Products includes a reduction in workforce in the first quarter of 2008 (approximately 6% or 90 of Film Products’ total employees) that is expected to save approximately $4,200 on an annualized basis. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144), we recognized the impairment charge to write down the machinery and equipment for certain product groups to the lower of their carrying value or estimated fair value. The estimated fair value of machinery and equipment that was evaluated for impairment was primarily based on our estimates of the proceeds that we would receive if and/or when assets are sold. Our estimates of the remaining fair value for the related machinery and equipment were based on both Level 2 and 3 inputs as defined by SFAS No. 157.

          Losses associated with plant shutdowns, asset impairments and restructurings for continuing operations in 2007 totaled $4,069 ($2,781 after taxes) and included:

•

A fourth quarter charge of $1,200 ($780 after taxes), a third quarter charge of $1,220 ($793 after taxes) and a first



quarter charge of $366 ($238 after taxes) related to the estimated loss on the sub-lease of a portion of the AFBS (formerly Therics) facility in Princeton, New Jersey;

•

A fourth quarter charge of $256 ($256 after taxes) and a first quarter charge of $338 ($284 after taxes) for asset impairments in Film Products;

•

A third quarter charge of $493 ($309 after taxes) and a second quarter charge of $99 ($62 after taxes) for severance and other employee-related costs in Aluminum Extrusions;

•

A second quarter charge of $26 ($16 after taxes) and a first quarter charge of $29 ($17 after taxes) for costs related to the shutdown of the films manufacturing facility in LaGrange, Georgia; and

•

A third quarter charge of $42 ($26 after taxes) related to expected future environmental costs at the aluminum extrusions facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statements of income).

          Results in 2007 also include a fourth-quarter gain of $2,699 ($1,737 after taxes) on the sale of corporate real estate (proceeds of approximately $3,800) and a third-quarter loss from the write-down of Novalux of $2,095 ($1,341 after taxes). See Note 2 for more information on Novalux. The pretax amounts for both of these items are included in “Other income (expense), net” in the consolidated statements of income and separately shown in the segment operating profit table in Note 3. Income taxes in 2007 include the recognition of a valuation allowance against deferred tax assets of $1,066 in the third quarter for expected limitations on the utilization of assumed capital losses (see Note 14).

          Losses associated with plant shutdowns, asset impairments and restructurings for continuing operations, net of gains on sale of related assets, in 2006 totaled $1,850 ($1,441 after taxes) and include:

•

A fourth quarter net gain of $14 ($8 after taxes), a third-quarter net gain of $1,022 ($615 after taxes), a second-quarter net gain of $822 ($494 after taxes) and a first-quarter pretax charge of $404 ($243 after taxes) associated with the shutdown of the films manufacturing facility in LaGrange, Georgia, including a pretax gain of $2,889 for related LIFO inventory liquidations (included in “Cost of goods sold” in the consolidated statements of income), severance and other costs of $1,566, asset impairment charges of $130 and a gain on the disposal of equipment of $261 (included in “Other income (expense), net” in the consolidated statements of income);

•

A third-quarter charge of $920 ($566 after taxes) related to expected future environmental costs at the aluminum extrusions facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statements of income);

•

A fourth quarter charge of $143 ($93 after taxes) and a third quarter charge of $494 ($321 after taxes) related to the estimated loss on the sub-lease of a portion of the AFBS facility in Princeton, New Jersey;

•

Second-quarter charges of $459 ($289 after taxes) and first-quarter charges of $268 ($170 after taxes) for severance and other employee-related costs in connection with restructurings in Aluminum Extrusions ($514) and Film Products ($213); and

•

First-quarter charges of $1,020 ($876 after taxes) for asset impairments relating to machinery & equipment in Film Products.

          In 2006, a pretax gain on the sale of public equity securities of $56 (proceeds also of $56) is included in “Other income (expense), net” in the consolidated statements of income and “Gain on the sale of corporate assets” in the segment operating profit table in Note 3. Income taxes in 2006 include a reversal of a valuation allowance of $577 for deferred tax assets associated with capital loss carry-forwards recorded with the write-down of the investment in Novalux (see Notes 2 and 14).

16

CONTINGENCIES

          We are involved in various stages of investigation and remediation relating to environmental matters at certain current and former plant locations. Where we have determined the nature and scope of any required environmental remediation activity, estimates of cleanup costs have been obtained and accrued. As we continue efforts to maintain compliance with applicable environmental laws and regulations, additional contingencies may be identified. If additional contingencies are identified, our practice is to determine the nature and scope of those contingencies, obtain and accrue estimates of the cost of remediation, and perform remediation. We do not believe that additional costs that could arise from those activities will have a material adverse effect on our financial position. However, those costs



could have a material adverse effect on quarterly or annual operating results at that time.

          We are involved in various other legal actions arising in the normal course of business. After taking into consideration information we deemed relevant, we believe that we have sufficiently accrued for probable losses and that the actions will not have a material adverse effect on our financial position. However, the resolution of the actions in a future period could have a material adverse effect on quarterly or annual operating results at that time.

          From time to time, we enter into transactions with third parties in connection with the sale of assets or businesses in which we agree to indemnify the buyers or third parties involved in the sale for certain liabilities or risks related to the assets or business. Also, in the ordinary course of our business, we may enter into agreements with third parties for the sale of goods or services that may contain indemnification provisions. In the event that an indemnification claim is asserted, liability for indemnification would be subject to an assessment of the underlying facts and circumstances under the terms of the applicable agreement. Further, any indemnification payments may be limited or barred by a monetary cap, a time limitation, or a deductible or basket. For these reasons, we are unable to estimate the maximum potential amount of the potential future liability under the indemnity provisions of these agreements. We do, however, accrue for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable. We disclose contingent liabilities if the probability of loss is reasonably possible and significant.

17

DISCONTINUED OPERATIONS

                On February 12, 2008, we sold our aluminum extrusions business in Canada for approximately $25,000$25.0 million to an affiliate of H.I.G. Capital.  We realized cash income tax benefits in 2008 from the sale of approximately $12,000.

$12.0 million.


The sale of our aluminum extrusions business in Canada, which was suffering from operating losses driven by lower volume and higher conversion costs from appreciation of the Canadian dollar, allows us to focus on our U.S. aluminum extrusions operations where we have more control over costs and profitability.  The business was classified as held for sale at the end of December 2007 when it became probable that the business would be sold.  All historical results for this business have been reflected as discontinued operations; however, cash flows for discontinued operations have not been separately disclosed in the consolidated statements of cash flows.


We recognized losses of $1,130$1.1 million ($430430,000 after taxes) in the first quarter of 2008 and $207$207,000 ($207207,000 after taxes) in the second quarter of 2008, which were in addition to the asset impairment charges recognized in 2007, to adjust primarily for differences in the carrying value of assets and liabilities and related tax benefits associated with the business sold since December 31, 2007.  We also recognized $225$225,000 in the fourth quarter of 2008 for additional income tax benefits relating to the worthless stock deduction for the business.  The remaining after-tax loss for discontinued operations in 2008 of $293$293,000 relates to the loss recognized in the first quarter from operations up through the date of sale.


During September 2007, we recognized a charge of $27,550$27.6 million ($22,74422.7 million after taxes) for impairment of property, plant and equipment (“PP&E”) related to the aluminum extrusions operations in Canada.  The impairment of PP&E was due to deteriorating business conditions and financial results.  The combination of lower volume and appreciation of the Canadian dollar, which impacted our costs, caused a shift from overall profitability in 2006 to losses in 2007.  In addition, our projections of the future unlevered pretax cash flows for this business indicated that the carrying value of its net assets at September 30, 2007 of approximately $71,700$71.7 million (tangible assets in excess of liabilities excluding deferred income taxes) before the impairment would not be recovered.  As a result, in accordance with SFAS No. 144,r esult, we recognized the impairment charge to write down the individual components of long-lived assets (PP&E) to the lower of their carrying value or estimated fair value.  Our estimates of real property values were based on a commonly used valuation methodology in real estate whereby projected net operating income for the property (projected EBITDA that could be earned from rent) is divided by a related risk-adjusted expected rate of return (referred to as the capitalization rate).  The estimated fair value of machinery and equipment was based on our estimates of the proceeds that we would receive if they were sold.  Our estimates of the value of real estate and machinery and equipment were based on Level 2 inputs as defined by SFAS No. 157.

inputs.


During December 2007, we recognized an additional impairment charge of $4,143$4.1 million ($4,1434.1 million after taxes) to write down the remaining carrying value of the aluminum extrusions operations in Canada to estimated fair value less cost to sell in accordance with SFAS No. 144.sell.  In addition, in December 2007 we recognized income tax benefits of $11,428$11.4 million relating to a worthless stock deduction for the business that will be recognized in Tredegar’s 2008 consolidated income tax return (included in discontinued operations in the consolidated statement of income in 2007 but reflected as a deferred income tax asset for continuing operations in our consolidated balance sheet at December 31, 2007).  This tax benefit was realized by a reduction of Tredegar’s quarterly estimated income tax paymentspayment s by the third quarter of 2008.


Goodwill for the Aluminum Extrusions reporting unit of $6,459$6.5 million has been allocated to the discontinued aluminum extrusions operations in Canada using the estimated fair value of the business sold (the after-tax cash flow expected from disposal of approximately $30,000$30.0 million when it was classified as held for sale at the end of December 2007), and the estimated fair value of the aluminum extrusions business in the U.S. retained.  The fair value of the aluminum extrusions business in the U.S. was estimated at approximately $145,000$145.0 million using comparable enterprise value-to-EBITDA multiples as of December 31, 2007.


75

The statements of income for 2008 2007 and 2006 and balance sheets as of December 31, 2007 for the aluminum extrusions business in Canada are shown below:

 

 

 

 

 

 

 

 

 

 

 

Aluminum Extrusions Business in Canada
Statements of Income

 

 

Jan. 1, 2008 to
Feb. 12, 2008

 

2007

 

2006

 

Revenues

 

$

18,756

 

$

157,691

 

$

178,965

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

17,913

 

 

156,700

 

 

165,465

 

Freight

 

 

744

 

 

4,969

 

 

5,494

 

Selling, general and administrative

 

 

490

 

 

2,389

 

 

4,277

 

Asset impairments and costs associated with exit and disposal activities

 

 

1,337

 

 

31,754

 

 

—

 

Total

 

 

20,484

 

 

195,812

 

 

175,236

 

Income (loss) before income taxes

 

 

(1,728

)

 

(38,121

)

 

3,729

 

Income taxes

 

 

(1,023

)

 

(18,440

)

 

845

 

Net income (loss)

 

$

(705

)

$

(19,681

)

$

2,884

 


       
Aluminum Extrusions Business in Canada 
Statements of Income 
 (In Thousands) 
Jan. 1, 2008 to
Feb. 12, 2008
  2007 
     Revenues $18,756  $157,691 
     Costs and expenses:        
          Cost of goods sold  17,913   156,700 
          Freight  744   4,969 
          Selling, general and administrative  490   2,389 
          Asset impairments and costs associated     
               with exit and disposal activities  1,337   31,754 
               Total  20,484   195,812 
     Income (loss) before income taxes  (1,728)  (38,121)
     Income taxes  (1,023)  (18,440)
     Net income (loss) $(705) $(19,681)


 

 

 

 

 

Aluminum Extrusions Business in Canada
Balance Sheets

December 31

 

 

2007

 

Assets

 

 

 

 

Current assets:

 

 

 

 

Accounts and notes receivable, net

 

$

15,470

 

Inventories

 

 

22,089

 

Prepaid expenses and other

 

 

191

 

Total current assets

 

 

37,750

 

Noncurrent assets:

 

 

 

 

Net property, plant and equipment

 

 

11,001

 

Goodwill and other intangibles

 

 

6,459

 

Total noncurrent assets

 

 

17,460

 

 

 

 

 

 

Total assets

 

$

55,210

 


 

 

 

 

 

December 31

 

 

2007

 

Liabilities and Carrying Value of Tredegar’s Net Advances & Investment

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

13,528

 

Accrued expenses

 

 

3,624

 

 

 

 

 

 

Total current liabilities

 

 

17,152

 

Noncurrent liabilities:

 

 

 

 

Deferred income taxes

 

 

6,048

 

Other noncurrent liabilities

 

 

2,770

 

Total noncurrent liabilities

 

 

8,818

 

Accumul. other comprehensive income (loss):

 

 

 

 

Foreign currency translation adjust

 

 

15,700

 

Loss on derivatives

 

 

(465

)

Pension and other postret. benefit adjust.

 

 

(4,871

)

Carrying value of Tredegar’s net advances & investment

 

 

18,876

 

Liabilities and carrying value of Tredegar’s net advances & investment

 

$

55,210

 

76

SELECTED QUARTERLY FINANCIAL DATA
Tredegar Corporation and Subsidiaries
(In Thousands, Except Per-Share Amounts)
(Unaudited)

SELECTED QUARTERLY FINANCIAL DATA

Tredegar Corporation and Subsidiaries

(In thousands, except per-share amounts)

(Unaudited)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First
Quarter

 

Second
Quarter

 

Third
Quarter

 

Fourth
Quarter

 

Year

 

2008

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

228,480

 

$

234,008

 

$

228,709

 

$

192,702

 

$

883,899

 

Gross profit

 

 

29,140

 

 

31,962

 

 

27,821

 

 

34,473

 

 

123,396

 

Income from continuing operations

 

 

3,785

 

 

8,865

 

 

11,078

 

 

5,913

 

 

29,641

 

Income (loss) from discontinued operations

 

 

(723

)

 

(207

)

 

—

 

 

225

 

 

(705

)

Net income

 

 

3,062

 

 

8,658

 

 

11,078

 

 

6,138

 

 

28,936

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

 

.11

 

 

.26

 

 

.33

 

 

.17

 

 

.87

 

Discontinued operations

 

 

(.02

)

 

(.01

)

 

—

 

 

.01

 

 

(.02

)

Net income

 

 

.09

 

 

.25

 

 

.33

 

 

.18

 

 

.85

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

 

.11

 

 

.26

 

 

.33

 

 

.17

 

 

.87

 

Discontinued operations

 

 

(.02

)

 

(.01

)

 

—

 

 

.01

 

 

(.02

)

Net income

 

 

.09

 

 

.25

 

 

.33

 

 

.18

 

 

.85

 

Shares used to compute earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

34,467

 

 

33,997

 

 

33,672

 

 

33,782

 

 

33,977

 

Diluted

 

 

34,682

 

 

34,211

 

 

33,903

 

 

33,990

 

 

34,194

 

2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

244,887

 

$

234,882

 

$

234,352

 

$

208,462

 

$

922,583

 

Gross profit

 

 

37,180

 

 

35,075

 

 

36,297

 

 

32,714

 

 

141,266

 

Income from continuing operations

 

 

11,135

 

 

10,564

 

 

6,195

 

 

7,036

 

 

34,930

 

Income (loss) from discontinued operations

 

 

(802

)

 

(629

)

 

(24,571

)

 

6,321

 

 

(19,681

)

Net income (loss)

 

 

10,333

 

 

9,935

 

 

(18,376

)

 

13,357

 

 

15,249

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

 

.28

 

 

.27

 

 

.16

 

 

.19

 

 

.91

 

Discontinued operations

 

 

(.02

)

 

(.02

)

 

(.63

)

 

.17

 

 

(.51

)

Net income (loss)

 

 

.26

 

 

.25

 

 

(.47

)

 

.36

 

 

.40

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

 

.28

 

 

.27

 

 

.16

 

 

.19

 

 

.90

 

Discontinued operations

 

 

(.02

)

 

(.02

)

 

(.63

)

 

.17

 

 

(.51

)

Net income (loss)

 

 

.26

 

 

.25

 

 

(.47

)

 

.36

 

 

.39

 

Shares used to compute earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

39,272

 

 

39,402

 

 

38,985

 

 

36,494

 

 

38,532

 

Diluted

 

 

39,487

 

 

39,584

 

 

39,119

 

 

36,587

 

 

38,688

 

                
  
First
Quarter
  
Second
Quarter
  
Third
Quarter
  
Fourth
Quarter
  Year 
 2009               
 Sales $153,066  $158,115  $175,662  $161,770  $648,613 
 Gross profit  24,579   28,630   35,191   27,195   115,595 
 Income (lloss) from continuing operations  (28,817)  6,487   10,996   9,981   (1,353)
 Income (loss) from discontinued operations  -   -   -   -   - 
 Net income (loss) $(28,817) $6,487  $10,996  $9,981  $(1,353)
 Earnings (loss) per share:                    
 Basic                    
 Continuing operations $(.85) $.19  $.32  $.30  $(.04)
 Discontinued operations  -   -   -   -   - 
 Net income (loss) $(.85) $.19  $.32  $.30  $(.04)
 Diluted                    
 Continuing operations $(.85) $.19  $.32  $.29  $(.04)
 Discontinued operations  -   -   -   -   - 
 Net income (loss) $(.85) $.19  $.32  $.29  $(.04)
 Shares used to compute earnings per share:                    
 Basic  33,866   33,876   33,878   33,825   33,861 
 Diluted  33,866   33,971   33,922   33,871   33,861 
 2008                    
 Sales $228,480  $234,008  $228,709  $192,702  $883,899 
 Gross profit  29,140   31,962   27,821   34,473   123,396 
 Income from continuing operations  3,785   8,865   11,078   5,913   29,641 
 Income (loss) from discontinued operations  (723)  (207)  -   225   (705)
 Net income $3,062  $8,658  $11,078  $6,138  $28,936 
 Earnings (loss) per share:                    
 Basic                    
 Continuing operations $.11  $.26  $.33  $.17  $.87 
 Discontinued operations  (.02)  (.01)  -   .01   (.02)
 Net income $.09  $.25  $.33  $.18  $.85 
 Diluted                    
 Continuing operations $.11  $.26  $.33  $.17  $.87 
 Discontinued operations  (.02)  (.01)  -   .01   (.02)
 Net income $.09  $.25  $.33  $.18  $.85 
 Shares used to compute earnings per share:                    
 Basic  34,467   33,997   33,672   33,782   33,977 
 Diluted  34,682   34,211   33,903   33,990   34,194 

77
SIGNATURES

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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)

TREDEGAR CORPORATION

Dated:  March 3, 2010

(Registrant)

By		/s/ Nancy M. Taylor

Nancy M. Taylor

Dated: March 5, 2009

By

/s/ John D. Gottwald

John D. Gottwald

President and Chief Executive
Officer



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 5, 2009.

3, 2010.

Signature

Title

Signature

Title

/s/  Nancy M. Taylor

/s/

John D. Gottwald

President, Chief Executive Officer and Director

     (Nancy M. Taylor)

(Principal Executive Officer)

(John D. Gottwald)

/s/  Kevin A. O’Leary

/s/

D. Andrew Edwards

Vice President, Chief Financial Officer and Treasurer

     (Kevin A. O'Leary)

(Principal Financial andOfficer)

/s/  Frasier W. Brickhouse, IIController
     (Frasier W. Brickhouse, II)(Principal Accounting Officer)

(D. Andrew Edwards)

/s/

Richard L. Morrill

Chairman of the Board of Directors

     (Richard L. Morrill)

(Richard L. Morrill)

/s/

William M. Gottwald

Vice Chairman of the Board of Directors

      (William M. Gottwald)

(William M. Gottwald)

/s/

N. A. Scher

Vice Chairman of the Board of Directors

     (Norman A. Scher)

(Norman A. Scher)

/s/

Austin Brockenbrough, III

Director

     (Austin Brockenbrough, III)

(Austin Brockenbrough, III)

/s/  Donald T. Cowles

Director

     (Donald T. Cowles)


78

/s/  John D. Gottwald

Director

     (John D. Gottwald)

/s/

George A. Newbill

Director

     (George A. Newbill)

(George A. Newbill)



/s/

Thomas G. Slater, Jr.

Director

(Thomas G. Slater, Jr.)

/s/

R. Gregory Williams

Director

     (R. Gregory Williams)



79


EXHIBIT INDEX

(R. Gregory Williams)



EXHIBIT INDEX

3.1

Amended and Restated Articles of Incorporation of Tredegar (filed as Exhibit 3.1 to Tredegar’sTredegar's Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2004, and incorporated herein by reference)

3.2

Amended and Restated By-lawsBylaws of Tredegar (filed as Exhibit 3.2 to Tredegar’sTredegar's Current Report on Form 8-K (File No. 1-10258), filed November 6, 2007,December 15, 2009, and incorporated herein by reference)

3.3

Articles of Amendment (filed as Exhibit 3.3 to Tredegar’sTredegar's Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2004, and incorporated herein by reference)

4.1

Form of Common Stock Certificate (filed as Exhibit 4.1 to Tredegar’sTredegar's Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2004, and incorporated herein by reference)

4.2

Amended and Restated Rights Agreement, dated as of June 30, 1999,2009, by and between Tredegar and American Stock Transfer & Trust Company,National City Bank, as Rights Agent (filed as Exhibit 4.21 to Tredegar’s Annual ReportAmendment No. 2 to Tredegar's Registration Statement on Form 10-K8-A/A (File No. 1-10258) for the year ended December 31, 2004,filed on July 1, 2009, and incorporated herein by reference)

4.2.1

4.3

Amendment and Substitution Agreement (Rights Agreement) dated as of December 11, 2002, by and among Tredegar, American Stock Transfer and Trust Company and National City Bank (filed as Exhibit 4.2.1 to Tredegar’s Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2002, and incorporated herein by reference)

4.3

Credit Agreement among Tredegar Corporation, as borrower, the domestic subsidiaries of Tredegar that from time to time become parties thereto, as guarantors, the several banks and other financial institutions as may from time to time become parties thereto, Wachovia Bank, National Association, as administrative agent, SunTrust Bank, as syndication agent, and Bank of America, N.A., KeyBank National Association, and JPMorgan Chase Bank, N.A., as documentation agents, dated as of December 15, 2005 (filed as Exhibit 10.16 to Tredegar’sTredegar's Current Report on Form 8-K (File No. 1-10258), filed December 20, 2005, and incorporated herein by reference)

4.3.1

First Amendment to Credit Agreement dated as of February 29, 2008 (filed as Exhibit 10.18 to Tredegar’sTredegar's Current Report on Form 8-K (File No. 1-10258), filed March 4, 2008, and incorporated herein by reference)

10.1

Reorganization and Distribution Agreement dated as of June 1, 1989, between Tredegar and Ethyl (filed as Exhibit 10.1 to Tredegar’sTredegar's Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2004, and incorporated herein by reference)

*10.2

Employee Benefits Agreement dated as of June 1, 1989, between Tredegar and Ethyl (filed as Exhibit 10.2 to Tredegar’sTredegar's Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2004, and incorporated herein by reference)

10.3

Tax Sharing Agreement dated as of June 1, 1989, between Tredegar and Ethyl (filed as Exhibit 10.3 to Tredegar’sTredegar's Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2004, and incorporated herein by reference)

10.4

Indemnification Agreement dated as of June 1, 1989, between Tredegar and Ethyl (filed as Exhibit 10.4 to Tredegar’sTredegar's Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2004, and incorporated herein by reference)

*10.5

Tredegar Industries, Inc. Retirement Benefit Restoration Plan (filed as Exhibit 10.7 to Tredegar’sTredegar's Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2004, and incorporated herein by reference)

*10.5.1

Amendment to the Tredegar Retirement Benefit Restoration Plan (filed as Exhibit 10.7.1 to Tredegar’sTredegar's Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2004, and incorporated herein by reference)

*10.6

Tredegar Industries, Inc. Savings Plan Benefit Restoration Plan (filed as Exhibit 10.8 to Tredegar’sTredegar's Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2004, and incorporated herein by reference)

*10.6.1

Resolutions of the Executive Committee of the Board of Directors of Tredegar Corporation adopted on December 28, 2004 (effective as of December 31, 2004) amending the Tredegar Corporation Retirement Savings Plan Benefit Restoration Plan (filed as Exhibit 10.9.1 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on December 30, 2004, and incorporated herein by reference)

*10.7

Tredegar Industries, Inc. Amended and Restated Incentive Plan (filed as Exhibit 10.9 to Tredegar’s Annual Report on Form 10-K (File No. 1-10258) for the year ended December 31, 2005, and incorporated herein by reference)

*10.8

Tredegar Corporation’s 2004 Equity Incentive Plan As Amended and Restated Effective March 27, 2009 (filed as Annex 1 to Tredegar’s Definitive Proxy Statement on Schedule 14A filed on March 4, 2004 (No.April 14, 2009 (File No. 1-10258) and incorporated herein by reference)

*10.9

Transfer Agreement, by and between Old Therics and New Therics, dated as of June 30, 2005 (filed as Exhibit 10.17 to Tredegar’sTredegar's Current Report on Form 8-K (File No. 1-10258), filed July 1, 2005, and incorporated herein by reference)



80

10.10

Intellectual Property Transfer Agreement, by and between Old Therics and New Therics, dated as of June 30, 2005 (filed as Exhibit 10.18 to Tredegar’sTredegar's Current Report on Form 8-K (File No. 1-10258), filed July 1, 2005, and incorporated herein by reference)

10.11

Unit Purchase Agreement, by and between Old Therics, New Therics and Randall R. Theken, dated as of June 30, 2005 (filed as Exhibit 10.19 to Tredegar’sTredegar's Current Report on Form 8-K (File No. 1-10258), filed July 1, 2005, and incorporated herein by reference)

10.12

Payment Agreement, by and between Old Therics and New Therics, dated as of June 30, 2005 (filed as Exhibit 10.20 to Tredegar’sTredegar's Current Report on Form 8-K (File No. 1-10258), filed July 1, 2005, and incorporated herein by reference)

*10.13

Form of Notice of Nonstatutory Stock Option Grant and Nonstatutory Stock Option Terms and Conditions (filed as Item 1.01Exhibit 10.21 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on March 10, 2006, and incorporated herein by reference)

*10.14

Form of Notice of Stock Unit Award and Stock Unit Award Terms and Conditions (filed as Exhibit 10.21 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on February 27,28, 2007, and incorporated herein by reference)

*10.15

Form of Notice of Stock Unit Award and Stock Unit Award Terms and Conditions (2007 EPA) (filed as Exhibit 10.22 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on June 26, 2007, and incorporated herein by reference)

*10.16

Form of Notice of Stock Unit Award and Stock Unit Award Terms and Conditions (2008 EPA) (filed as Exhibit 10.23 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed on June 26, 2007, and incorporated herein by reference)

*10.17

10.16

Severance Agreement, dated August 12, 2008, between Tredegar and D. Andrew Edwards (filed as Exhibit 10.19 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed August 14, 2008, and incorporated herein by reference)

*10.18

10.17

Form of Notice of Stock Award and Stock Award Terms and Conditions (filed as Exhibit 10.18 to Tredegar’s Current Report on Form 8-K (File No. 1-10258), filed February 19, 2009, and incorporated herein by reference)

+*10.19

10.18

Summary of Director Compensation for Fiscal 2008

2009

+21

Subsidiaries of Tredegar

+23.1

Consent of Independent Registered Public Accounting Firm

+31.1

Section 302 Certification of Principal Executive Officer

+31.2

Section 302 Certification of Principal Financial Officer

+32.1

Section 906 Certification of Principal Executive Officer

+32.2

Section 906 Certification of Principal Financial Officer

*  Denotes compensatory plans or arrangements or management contracts.

+  Filed herewith

78

81