Tredegar (TG) 10-Q 2004 Q1 Quarterly report

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

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2004

OR

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

For the transition period from ______________________ to ______________________

Commission file number 1-10258

Tredegar Corporation

(Exact Name of Registrant as Specified in Its Charter)

Virginia	54-1497771
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

1100 Boulders Parkway Richmond, Virginia	23225
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code: (804) 330-1000

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X|  No |_|

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |X|  No |_|

        The number of shares of Common Stock, no par value, outstanding as of April 23, 2004: 38,416,700.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Tredegar Corporation
Consolidated Balance Sheets
(In Thousands)
(Unaudited)

	March 31 2004			Dec. 31, 2003
Assets
Current assets:
Cash and cash equivalents	$	69,401		$	19,943
Receivable from securities brokers		1,142			—
Accounts and notes receivable, net		100,712			84,110
Income taxes recoverable		2,414			61,508
Inventories		48,569			49,572
Deferred income taxes		12,069			10,998
Prepaid expenses and other		4,852			5,015
Total current assets		239,159			231,146
Property, plant and equipment, at cost		589,264			580,087
Less accumulated depreciation		296,870			282,611
Net property, plant and equipment		292,394			297,476
Other assets and deferred charges		80,358			83,855
Goodwill and other intangibles		140,306			140,548
Total assets	$	752,217		$	753,025
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	53,873		$	46,706
Accrued expenses		44,675			42,456
Current portion of long-term debt		10,000			8,750
Total current liabilities		108,548			97,912
Long-term debt		127,421			130,879
Deferred income taxes		61,570			66,276
Other noncurrent liabilities		9,307			10,559
Total liabilities		306,846			305,626
Shareholders’ equity:
Common stock, no par value		107,241			104,991
Common stock held in trust for savings
restoration plan		(1,212	)		(1,212	)
Unearned compensation on restricted stock grants		(1,732	)		—
Unrealized gain on available-for-sale securities		—			2,770
Foreign currency translation adjustment		9,406			9,997
Unrealized gain on derivative financial instruments		367			444
Minimum pension liability		(880	)		(880	)
Retained earnings		332,181			331,289
Total shareholders’ equity		445,371			447,399
Total liabilities and shareholders’ equity	$	752,217		$	753,025

See accompanying notes to financial statements.

2

Tredegar Corporation
Consolidated Statements of Income
(In Thousands, except per share amounts)
(Unaudited)

	Three Months Ended March 31
	2004		2003
Revenues:
Sales	$	195,919	$	182,045
Other income (expense), net		6,106		723
		202,025		182,768
Costs and expenses:
Cost of goods sold		163,744		149,501
Freight		4,827		4,188
Selling, general and administrative		13,627		12,888
Research and development		4,317		5,303
Amortization of intangibles		67		67
Interest expense		923		2,103
Plant shutdowns, asset impairments and restructurings		10,783		85
Unusual items		—		1,067
		198,288		175,202
Income before income taxes		3,737		7,566
Income taxes		1,308		2,707
Income from continuing operations		2,429		4,859
Discontinued operations:
Loss from venture capital investment activities (including
an after-tax loss on the sale of the venture capital
investment portfolio of $49,216 in 2003)		—		(49,516	)
Net income (loss)	$	2,429	$	(44,657	)
Earnings (loss) per share:
Basic:
Continuing operations	$	.06	$	.13
Discontinued operations		—		(1.30	)
Net income (loss)	$	.06	$	(1.17	)
Diluted:
Continuing operations	$	.06	$	.12
Discontinued operations		—		(1.28	)
Net income (loss)	$	.06	$	(1.16	)
Shares used to compute earnings (loss) per share:
Basic		38,229		38,179
Diluted		38,435		38,578
Dividends per share	$	.04	$	.04

See accompanying notes to financial statements.

3

Tredegar Corporation
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)

	Three Months Ended March 31
	2004			2003
Cash flows from operating activities:
Net income (loss)	$	2,429		$	(44,657	)
Adjustments for noncash items:
Depreciation		8,202			7,824
Amortization of intangibles		67			67
Deferred income taxes		(3,860	)		33,048
Accrued pension income and postretirement benefits		(980	)		(1,098	)
Loss on venture capital investments		—			70,256
Gain on sale of corporate assets		(6,134	)		—
Loss on asset impairments and divestitures		7,796			—
Changes in assets and liabilities, net of effects of acquisitions
and divestitures:
Accounts and notes receivable		(16,860	)		7,401
Inventories		859			846
Income taxes recoverable		59,084			(48,043	)
Prepaid expenses and other		170			(515	)
Accounts payable		7,371			4,448
Accrued expenses and income taxes payable		2,134			1,196
Other, net		(1,331	)		969
Net cash provided by operating activities		58,947			31,742
Cash flows from investing activities:
Capital expenditures		(11,491	)		(11,929	)
Venture capital investments		—			(2,807	)
Proceeds from the sale of venture capital investments		—			21,504
Proceeds from the sale of corporate assets and property disposals		6,040			—
Other, net		(734	)		(747	)
Net cash (used in) provided by investing activities		(6,185	)		6,021
Cash flows from financing activities:
Dividends paid		(1,537	)		(1,526	)
Net decrease in borrowings		(2,208	)		(12,645	)
Repurchases of Tredegar common stock		—			(1,939	)
Proceeds from exercise of stock options		441			81
Net cash used in financing activities		(3,304	)		(16,029	)
Increase (decrease) in cash and cash equivalents		49,458			21,734
Cash and cash equivalents at beginning of period		19,943			109,928
Cash and cash equivalents at end of period	$	69,401		$	131,662

See accompanying notes to financial statements.

4

TREDEGAR CORPORATION
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)

1. In the opinion of management, the accompanying consolidated financial statements of Tredegar Corporation and Subsidiaries (“Tredegar”) contain all adjustments necessary to present fairly, in all material respects, Tredegar’s consolidated financial position as of March 31, 2004, the consolidated results of operations for the three months ended March 31, 2004 and 2003, and the consolidated cash flows for the three months ended March 31, 2004 and 2003. All such adjustments are deemed to be of a normal, recurring nature. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in Tredegar’s Annual Report on Form 10-K for the year ended December 31, 2003. The results of operations for the three months ended March 31, 2004, are not necessarily indicative of the results to be expected for the full year.

2. Losses associated with plant shutdowns, asset impairments and restructurings in the first quarter of 2004 include:

• A pretax charge of $9.6 million related to the planned shutdown of an aluminum extrusions facility in Aurora, Ontario, including asset impairment charges of $7.1 million and severance and other employee-related costs of $2.5 million (these costs are contractually-related for 110 people and have been immediately accrued and we anticipate recognizing additional shutdown-related costs of $2.3 million over the next ten months);

• A pretax charge of $666,000 related to accelerated depreciation in Film Products; and

• A pretax charge of $537,000 related to severance and other employee-related costs associated with the planned shutdown of the film manufacturing facility in New Bern, North Carolina (these costs relate to 65 people and are being recognized over their remaining service period).

        Plant shutdowns, asset impairments and restructurings in the first quarter of 2003 include pretax charges of $85,000 for additional costs incurred related to previously announced plant shutdowns in Film Products. A reconciliation of the beginning and ending balances of accrued expenses associated with plant shutdowns and divestitures for the period ended March 31, 2004 is as follows:

(In Thousands)	Severance			Asset Impairments			Accelerated Depreciation			Other			Total
Balance, December 31, 2003	$	2,106		$	—		$	—		$	3,086		$	5,192
Charges in first quarter of 2004:
Charges		2,969			7,130			666			18			10,783
Cash spent		(1,155	)		—			—			(343	)		(1,498	)
Charged against assets		—			(7,130	)		(666	)		—			(7,796	)
Reversed to income		—			—			—			(30	)		(30	)
Balance, March 31, 2004	$	3,920		$	—		$	—		$	2,731		$	6,651

        The gain on the sale of corporate assets in the first quarter of 2004 relates to the sale of public equity securities. There were no public equity securities held at March 31, 2004. The gain is included in “Other income (expense), net” in the consolidated statements of income and separately shown in the segment operating profit table in Note 8.

        Unusual items in the first quarter of 2003 include a pretax charge of $1.1 million related to an adjustment for depreciation at Therics based on Tredegar’s decision to suspend divestiture efforts. There were no unusual items during the first quarter of 2004.

5

        On March 7, 2003, Tredegar Investments, Inc. (“Tredegar Investments”) reached definitive agreements to sell substantially all of its portfolio of private equity partnership interests to GS Vintage Funds II, which are investment partnerships managed by Goldman Sachs Asset Management’s Private Equity Group. On the same date and in a separate transaction, Tredegar Investments also agreed to sell to W Capital Partners, an independent private equity manager, the subsidiary funds that hold substantially all of Tredegar Investments’ direct venture capital investments. The sale of these fund interests included the assumption by the buyer of Tredegar Investments’ obligations to make additional capital contributions to those funds in the future.

        The sale to W Capital Partners of the subsidiary funds that hold the direct investments occurred on March 7, 2003. The sale of the private equity fund interests occurred in a series of closings.

        The agreements governing these transactions contain customary contingent indemnification provisions that Tredegar believes will not have a material effect on its financial position or results of operations.

        Net proceeds from the sales totaled $21.5 million. Additional proceeds of approximately $55 million were received in the first quarter of 2004 in the form of income tax recoveries related to the carry-back of 2003 capital losses generated by these sales against gains realized in 2000 by Tredegar Investments. We used $50 million to repay revolving credit debt in April 2004.

        The operating results from venture capital investment activities have been reported as discontinued operations. Cash flows from venture capital investment activities have not been separately disclosed in the accompanying consolidated statements of cash flows. The loss from venture capital investment activities in 2003 of $70.9 million ($49.5 million after taxes) includes a loss on the sale of $70.3 million ($49.2 million after taxes).

3. The components of other comprehensive income or loss are as follows:

	Three Months Ended March 31
(In Thousands)	2004			2003
Net income (loss)	$	2,429		$	(44,657	)
Other comprehensive income (loss):
Available-for-sale securities adjustment, net
of reclassification adjustment		(2,770	)		(586	)
Foreign currency translation adjustment		(591	)		3,051
Derivative financial instrument adjustment		(77	)		395
Minimum pension liability adjustment		—			—
Comprehensive income (loss)	$	(1,009	)	$	(41,797	)

4. The components of inventories are as follows:

(In Thousands)	March 31 2004		Dec. 31, 2003
Finished goods	$	9,043	$	9,190
Work-in-process		3,420		3,294
Raw materials		24,076		25,730
Stores, supplies and other		12,030		11,358
Total	$	48,569	$	49,572

6

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

	Three Months Ended March 31
(In Thousands)	2004		2003
Weighted average shares outstanding used
to compute basic earnings per share		38,229		38,179
Incremental shares issuable upon the
assumed exercise of stock options		206		399
Shares used to compute diluted earnings per share		38,435		38,578

        Incremental shares issuable upon the assumed exercise of outstanding stock options are computed using the average market price during the related period. During 2004 and 2003, options to purchase 2,262,705 and 2,447,225 shares, respectively, were excluded from the calculation of incremental shares issuable upon the assumed exercise of stock options due to their anti-dilutive effect on earnings per share for the period.

6. We account for stock options granted to employees and directors in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly, no compensation expense has been recognized since the exercise price of the options was equal to the fair value of the underlying common stock on the date of grant. Had compensation cost for stock option grants been determined based on the fair value of the options at the grant dates consistent with the method of accounting under Statement of Financial Accounting Standards No. 123, “Accounting for Stock Based Compensation,” our income and diluted earnings per share from continuing operations would have been reduced to the pro forma amounts indicated below:

	Three Months Ended March 31
(In Thousands, except per share data)	2004			2003
Income from continuing operations:
As reported	$	2,429		$	4,859
Stock option-based compensation cost, net
of tax, based on the fair value method		(994	)		(545	)
Pro forma income from continuing operations	$	1,435		$	4,314
Basic earnings per share from continuing operations:
As reported		.06			.13
Pro forma		.04			.11
Diluted earnings per share from continuing operations:
As reported		.06			.12
Pro forma		.04			.11

7

Options to purchase Tredegar and Therics stock were granted during the first quarter of 2004. Options to purchase Therics stock were granted only to Therics employees and these employees did not participate in grants of Tredegar stock options. No stock options were granted during the first quarter of 2003. A summary of the 2004 stock option grants and estimated fair values determined using the Black-Scholes options-pricing model is provided below:

(In Thousands Except Per-Share Amounts)

Assumptions Used in Determining Pro Forma Compensation Expense for Tredegar Stock Options Granted in 2004 & Other Data
Assumptions used in Black-Scholes options-pricing model:
Dividend yield		1.15	%
Volatility percentage		45	%
Weighted average risk-free interest rate		3.1	%
Holding period (years):
Management		5.0
Other employees		3.0
Weighted average market price per share of underlying stock at date of grant (a):
Management	$	13.95
Other employees	$	13.95
Weighted average estimated fair value of options per share at date of grant:
Management	$	5.53
Other employees	$	4.32
Other assumptions:
Vesting period (years)		2.0
Tredegar stock options granted in 1st quarter 2004		331
Aggregate estimated fair value of options at date of grant	$	1,635
Tredegar common stock issued and outstanding at 3/31/04		38,417
Tredegar stock options outstanding at 3/31/04:
At an exercise price of ‹ $20 per share		1,872
At an exercise price of ›= $20 per share		1,060
Total		2,932
Assumptions Used in Determining Pro Forma Compensation Expense for Therics Stock Options Granted in 2004 & Other Data
Assumptions used in Black-Scholes options-pricing model:
Dividend yield		0.0	%
Volatility percentage (b)		95	%
Weighted average risk-free interest rate		4.0	%
Holding period (years)		7.0
Weighted average estimated fair value per share of underlying stock at date of grant (a)	$	.090
Weighted average estimated fair value of options per share at date of grant	$	.074
Other assumptions:
Vesting period (years)		0.4 - 4
Therics stock options granted in 1st qtr. 2004		30,809
Aggregate estimated fair value of options at date of grant	$	2,271
Therics voting stock issued and outstanding at 3/31/04 (all held by Tredegar)		202,830
Therics stock options outstanding at 3/31/04 (all held by Therics employees)		38,497

(a) Market price or estimated fair value of underlying stock equaled the stock option exercise price at date of grant

(b) Volatility estimated for Therics based on Orthovita, Inc. (NASDAQ: VITA), a comparable company.

        During the first quarter of 2004, we also granted 125,000 shares of restricted Tredegar common stock to senior management. The price on the date of grant was $13.95 per share, and compensation expense of $1.7 million ($1.1 million after taxes) is being amortized over the vesting period of five years, subject to accelerated vesting based on meeting certain financial targets.

7. The components of net periodic benefit income (cost) for our pension and other post-retirement benefit programs are shown below:

	Pension Benefits for 3 Months Ended March 31						Other Post-Retirement Benefits for 3 Months Ended March 31
(In Thousands)	2004			2003			2004			2003
Service cost	$	(1,187	)	$	(1,385	)	$	(28	)	$	(25	)
Interest cost		(2,756	)		(2,787	)		(139	)		(149	)
Employee contributions		56			83			—			—
Other		(16	)		(25	)		—			—
Expected return on plan assets		5,142			5,395			—			—
Amortization of prior service costs, gains or
losses and net transition asset		(104	)		(20	)		12			11
Net periodic benefit income (cost)	$	1,135		$	1,261		$	(155	)	$	(163	)

8

We expect our required contributions to be less than $500,000 in 2004. On December 8, 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the “Act”) was signed into law. We are evaluating how and when any federal subsidies would apply. Our postretirement benefit obligation and related net periodic benefit cost do not reflect the possible effects of the Act on our benefit programs. Specific authoritative guidance on the accounting for the federal subsidy is pending and that guidance, when published, could require us to change previously reported information.

8. Information by business segment is reported below. There are no accounting transactions between segments and no allocations to segments. There have been no significant changes to identifiable assets by segment. 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 of each segment for purposes of assessing performance.

Tredegar Corporation
Net Sales and Operating Profit by Segment
(In Thousands)
(Unaudited)

	Three Months Ended March 31
	2004			2003
Net Sales
Film Products	$	95,886		$	93,384
Aluminum Extrusions		95,195			84,473
Therics		11			—
Total net sales		191,092			177,857
Add back freight		4,827			4,188
Sales as shown in the Consolidated Statements of Income	$	195,919		$	182,045
Operating Profit
Film Products:
Ongoing operations	$	10,024		$	13,928
Plant shutdowns, asset impairments and restructurings		(1,203	)		(85	)
Aluminum Extrusions:
Ongoing operations		3,683			1,211
Plant shutdowns, asset impairments and restructurings		(9,580	)		—
Therics:
Ongoing operations		(2,491	)		(3,297	)
Unusual items		—			(1,067	)
Total		433			10,690
Interest income		74			424
Interest expense		923			2,103
Gain on the sale of corporate assets		6,134			—
Corporate expenses, net		1,981			1,445
Income before income taxes		3,737			7,566
Income taxes		1,308			2,707
Income from continuing operations		2,429			4,859
Income (loss) from discontinued operations		—			(49,516	)
Net income (loss)	$	2,429		$	(44,657	)

9

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

Executive Summary

        Income from continuing operations was $2.4 million (6 cents per diluted share) in the first quarter of 2004 compared with $4.9 million (12 cents per diluted share) in 2003. Gains on the sale of corporate assets, losses related to unusual items, plant shutdowns, assets impairments and restructurings and discontinued operations are described in Note 2 on page 5. The business segment review begins on page 13.

        Ongoing results from our manufacturing operations were mixed, with our films business continuing to generate quarterly operating profit in the $10 million range while aluminum operating profits improved. We remain optimistic about our growth opportunities, but do not expect meaningful increases over current profit levels in films (sustainable higher profit levels compared with the recent $10 million per quarter range) until late 2004 or early 2005. In aluminum, we are somewhat encouraged by first-quarter results as we continue to address overcapacity and pricing pressures.

        Our efforts to transform Therics from a research organization into a sales and profit-driven business continue. We recently completed the initial launch of our bone void filler product line, and hope to see growing acceptance of our products during the year. Quarterly operating losses at Therics are expected to continue at about the first-quarter level until meaningful sales are achieved.

        During the first quarter of 2004, we received tax refunds of approximately $55 million related to the sale of our venture capital investments (see Note 2 on page 5) and used $50 million to repay revolving credit debt in April 2004.Pro forma net capitalization for this repayment and other credit measures are provided in the liquidity and capital resources section beginning on page 15.

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. We believe the estimates, assumptions and judgments described in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” of our Annual Report on Form 10-K for the year ended December 31, 2003, have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. These policies include our accounting for impairment of long-lived assets and goodwill, pension benefits and deferred tax assets. These policies require management to exercise judgments that are often difficult, subjective and complex due to the necessity of estimating the effect of matters that are inherently uncertain. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe the consistent application of these policies enables us to provide readers of our financial statements with useful and reliable information about our operating results and financial condition. There has been no significant change in these policies, or the estimates used in the application of these policies since our 2003 fiscal year-end.

10

Results of Operations

First Quarter 2004 Compared with First Quarter 2003

        Overall, sales in the first quarter of 2004 increased 7.6% compared with 2003. Net sales (sales less freight) increased in Film Products due primarily to higher raw material-driven selling prices. Volume declined by 5.8%. In Aluminum Extrusions, net sales increased mainly as a result of higher volume (up 7.4%). For more information on net sales and volume, see the business segment review beginning on page 13.

        Gross profit (sales minus cost of goods sold and freight) as a percentage of sales decreased to 14.0% in 2004 from 15.6% in 2003. At Film Products, an overall lower gross profit margin was driven primarily by the loss of certain domestic backsheet business (lower overall contribution to cover fixed costs), higher raw material prices and higher manufacturing costs on new products and slower than expected new product sales. At Aluminum Extrusions, the gross profit margin increased primarily due to higher volume.

        As a percentage of sales, selling, general and administrative (“SG&A”) expenses decreased slightly to 7.0% compared with 7.1% in 2003.

        Research and development (“R&D”) expenses declined to $4.3 million in the first quarter of 2004 from $5.3 million in 2003. R&D spending at Therics declined to $2.4 million in 2004 from $3.2 million in 2003 due to cost reduction efforts. R&D spending at Film Products was $1.9 million in 2004, down $178,000 from last year.

        Losses associated with plant shutdowns, asset impairments and restructurings in the first quarter of 2004 include:

• A pretax charge of $9.6 million related to the planned shutdown of an aluminum extrusions facility in Aurora, Ontario, including asset impairment charges of $7.1 million and severance and other employee-related costs of $2.5 million (these costs are contractually-related for 110 people and have been immediately accrued and we anticipate recognizing additional shutdown-related costs of $2.3 million over the next ten months);

• A pretax charge of $666,000 related to accelerated depreciation in Film Products; and

• A pretax charge of $537,000 related to severance and other employee-related costs associated with the planned shutdown of the film manufacturing facility in New Bern, North Carolina (these costs relate to 65 people and are being recognized over their remaining service period).

        Plant shutdowns, asset impairments and restructurings in the first quarter of 2003 include pretax charges of $85,000 for additional costs incurred related to previously announced plant shutdowns in Film Products.

        The gain on the sale of corporate assets in the first quarter of 2004 relates to the sale of public equity securities. There were no public equity securities held at March 31, 2004. The gain is included in “Other income (expense), net” in the consolidated statements of income and separately shown in the segment operating profit table.

        Unusual items in the first quarter of 2003 include a pretax charge of $1.1 million related to an adjustment for depreciation at Therics based on Tredegar’s decision to suspend divestiture efforts. There were no unusual items during the first quarter of 2004.

11

        For more information on costs and expenses, see the business segment review beginning on page 13. See Note 2 on page 5 for information on discontinued operations.

        Interest income, which is included in “Other income (expense), net” in the consolidated statements of income, was $74,000 in 2004 and $424,000 in 2003. Interest income was down primarily due to lower average cash and cash equivalents balances (excess cash was used to repay debt in conjunction with our debt refinancing in October 2003) and lower yields earned due to lower interest rates. 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 our policy are safety of principal and liquidity.

        Interest expense declined to $923,000 in the first quarter of 2004 compared with $2.1 million in 2003. Average debt outstanding and interest rates were as follows:

	Three Months Ended March 31
(In Millions)	2004			2003
Floating-rate debt with interest charged on a
rollover basis at one-month LIBOR:
Average outstanding debt balance	$	138.1		$	164.3
Average interest rate		2.4	%		2.2	%
Floating-rate debt fixed via interest rate swaps in the
second quarter of 2001 and maturing in the second
quarter of 2003:
Average outstanding debt balance	$	—		$	75.0
Average interest rate		—			5.4	%
Fixed-rate and other debt:
Average outstanding debt balance	$	5.3		$	9.3
Average interest rate		5.5	%		7.2	%
Total debt:
Average outstanding debt balance	$	143.4		$	248.6
Average interest rate		2.5	%		3.2	%

        The effective tax rate from continuing operations was 35% in the first quarter of 2004, down from 35.8% in 2003. The decline is primarily due to a higher proportion of income from foreign operations and favorable differences between foreign and U.S. effective tax rates.

12

Business Segment Review

        The following tables present Tredegar’s net sales and operating profit by segment for the first quarters ended March 31, 2004 and 2003:

Tredegar Corporation
Net Sales and Operating Profit by Segment
(In Thousands)
(Unaudited)

	Three Months Ended March 31
	2004			2003
Net Sales
Film Products	$	95,886		$	93,384
Aluminum Extrusions		95,195			84,473
Therics		11			—
Total net sales		191,092			177,857
Add back freight		4,827			4,188
Sales as shown in the Consolidated Statements of Income	$	195,919		$	182,045
Operating Profit
Film Products:
Ongoing operations	$	10,024		$	13,928
Plant shutdowns, asset impairments and restructurings		(1,203	)		(85	)
Aluminum Extrusions:
Ongoing operations		3,683			1,211
Plant shutdowns, asset impairments and restructurings		(9,580	)		—
Therics:
Ongoing operations		(2,491	)		(3,297	)
Unusual items		—			(1,067	)
Total		433			10,690
Interest income		74			424
Interest expense		923			2,103
Gain on the sale of corporate assets		6,134			—
Corporate expenses, net		1,981			1,445
Income before income taxes		3,737			7,566
Income taxes		1,308			2,707
Income from continuing operations		2,429			4,859
Income (loss) from discontinued operations		—			(49,516	)
Net income (loss)	$	2,429		$	(44,657	)

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        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 of each segment for purposes of assessing performance.

        First-quarter net sales in Film Products were $95.9 million, up 2.7% from $93.4 million in 2003. Operating profit from ongoing operations was $10.0 million versus $13.9 million last year. Volume for the quarter was 69.1 million pounds, down 5.8% from 73.3 million pounds in 2003. The increase in sales was primarily due to higher raw material-driven selling prices.

        Last year’s results include sales of certain domestic backsheet to P&G that were discontinued at the end of the first quarter of 2003.

        Net sales, operating profit from ongoing operations and volume in the fourth quarter of 2003 were $91.5 million, $10.8 million and 67.7 million pounds, respectively.

        Profits in Film Products continue to be affected by costs related to new products and slower than expected new product sales. In recent years, we have invested aggressively in developing and commercializing new elastic, apertured and specialty films. We have successfully introduced a variety of new elastic diaper laminates and feminine hygiene topsheet products to several global customers, and sales of new specialty packaging and protective films are growing. These activities are not expected to drive meaningful profit growth (sustainable higher profit levels compared with the recent $10 million per quarter range) until late 2004 or early 2005.

        Capital expenditures in Film Products were $10 million in the first quarter. We expect to spend at least $40 million in 2004 compared to $57 million in 2003. About $50 million of the $97 million in capital being spent in 2003 and 2004 relates to strategic projects that support new product and global expansion efforts. If successful, these strategic projects are expected to generate incremental sales of approximately $65 million per year. Roughly $20 million of the $50 million in strategic capital is for customer-specific projects that include take-or-pay type arrangements.

        More than half of the remaining $47 million is being used for cost reduction projects or for partial spending on projects that we expect will generate revenues. The balance is used in support and continuity investments, and some of the support capital is also expected to generate cost savings. More information on capital expenditures is provided in the liquidity and capital resources section beginning on page 15.

        We continue to pursue opportunities in Film Products to restructure operations to improve performance, including the scheduled closing of the plant in New Bern, North Carolina in the third quarter of this year. Also, our business in San Juan, Argentina, is for sale (carrying value of net assets of approximately $3.5 million).

        First-quarter net sales in Aluminum Extrusions were $95.2 million, up 12.7% from $84.5 million in 2003 while volume was up 7.4% to 58.0 million pounds from 54.0 million pounds in 2003. Operating profit from ongoing operations increased to $3.7 million, up from $1.2 million in 2003 primarily due to the increase in volume.

        Our aluminum business continues to be challenged by excess capacity and competitive pressures. In April 2004, we announced the consolidation of some of our Canadian operations, including closing the plant in Aurora, Ontario. We plan to move the Aurora plant’s largest press to the plant in Pickering, Ontario, and invest $8 million to upgrade the press and enlarge the facility. This consolidation is expected to reduce annual operating costs by approximately $2 million.

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        The Aurora plant employs 110 people and is scheduled to close by January 31, 2005. In the first quarter of 2004, we recognized charges relating to the shutdown of $9.6 million ($6.2 million after taxes or 16 cents per share), including asset impairment charges of $7.1 million and severance and other employee-related costs of $2.5 million. We anticipate recognizing additional shutdown-related costs of $2.3 million over the next ten months.

        First-quarter capital expenditures in Aluminum Extrusions were $2 million and are expected to be approximately $15 million for the year. Capital expenditures related to ongoing support and continuity is about $10 million annually, or approximately the same level as depreciation ($10.9 million in 2003).

        The first-quarter operating loss from ongoing operations at Therics was $2.5 million compared to a loss of $3.3 million in 2003. We recently completed the initial launch of our bone void filler product line, and hope to see growing acceptance of our products during the year. Quarterly operating losses at Therics are expected to continue at about the first-quarter level until meaningful sales are achieved.

Liquidity and Capital Resources

        Tredegar’s total assets decreased slightly to $752.2 million at March 31, 2004, from $753 million at December 31, 2003. In the first quarter of 2004, we received tax refunds of about $55 million related to the sale of the venture capital portfolio (see Note 2 on page 5). Accordingly, our cash and cash equivalents balance at the end of the quarter was $69.4 million compared to $19.9 million at December 31, 2003. We used $50 million to repay revolver debt in April 2004. Other significant changes in balance sheet items since December 31, 2003, are summarized below:

• Accounts receivable increased by $16.6 million due primarily to seasonal year-end lows in Aluminum Extrusions and higher sales (sales for the first quarter were up $14 million compared to the fourth quarter of 2003);

• Income taxes recoverable declined by $59.1 million due primarily to the receipt of the income tax refund related to the sale of the venture capital portfolio;

• Net property, plant and equipment declined by $5.1 million due primarily to the $7.1 million asset impairment recognized on the planned shutdown of the Aluminum Extrusions plant in Aurora, Ontario;

• Accounts payable increased $7.2 million due to the timing of payments and higher raw material costs (resin and aluminum prices are up since the fourth quarter); and

• Deferred income tax liabilities decreased by $4.7 million due primarily to deferred tax assets recognized on asset impairment charges ($2.7 million).

        Cash provided by operating activities was $58.9 million in the first quarter of 2004 compared with $31.7 million in 2003. The increase is due primarily to the income tax refund, partially offset by higher working capital in the first quarter of 2004 compared with 2003 due to higher sales.

        Cash used in investing activities was $6.2 million in the first quarter of 2004 compared with cash provided by investing activities of $6.0 million in 2003. The change is primarily attributable to proceeds from the sale of corporate assets and property disposals of $6.0 million in the first quarter of 2004 compared with proceeds from the sale of venture capital investments, net of investments made, of $18.7 million in 2003.

        Capital expenditures in the first quarter of 2004 reflect the normal replacement of machinery and equipment and:

• Expansion of production capacity for apertured topsheet films (used in feminine hygiene pads) at our plant in Kerkrade, The Netherlands;

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• Expansion of production capacity for elastic films (used as components in personal care products) at our plant in Lake Zurich, Illinois;

• Upgrade of production capacity for photopolymer films (used to protect circuit boards during the manufacturing process) at our plant in Lake Zurich, Illinois;

• Implementation of a new information system in Film Products;

• Construction of a new films plant in Guangzhou, China; and

• Expansion of capacity at our films plant in Shanghai, China.

        Capital expenditures for all of 2004 are expected to be at least $40 million in Film Products and about $15 million in Aluminum Extrusions. See the business segment review beginning on page 13 for more information.

        Net capitalization at March 31, 2004 and pro forma for the $50 million debt repayment in April is as follows:

Historical and Pro Forma Net Capitalization as of March 31, 2004 (In Thousands)
	As Reported		Debt Paydown With Tax Refund in April 2004			Pro Forma
Net capitalization:
Cash and cash equivalents	$	69,401	$	(50,000	)	$	19,401
Debt:
Credit Agreement:
Revolver		61,000		(50,000	)		11,000
Term loan		71,250		—			71,250
Other debt		5,171		—			5,171
Total debt		137,421		(50,000	)		87,421
Debt net of cash and cash equivalents		68,020		—			68,020
Shareholders’ equity		445,371		—			445,371
Net capitalization	$	513,391	$	—		$	513,391
Indebtedness as defined in Credit Agreement:
Total debt	$	137,421	$	(50,000	)	$	87,421
Face value of letters of credit		7,122		—			7,122
Indebtedness	$	144,543	$	(50,000	)	$	94,543

        Under the Credit Agreement, revolving credit borrowings are permitted up to $125 million, and $114 million was unused following the $50 million repayment in April 2004. The credit spread 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	Credit Spread Over LIBOR		Commitment
EBITDA Ratio	Revolver	Term Loan	Fee
› 2x but ‹= 3x	150.0	150.0	30.0
› 1x but ‹= 2x	125.0	125.0	25.0
‹= 1x	100.0	100.0	20.0

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        At March 31, 2004, the interest cost on debt under the Credit Agreement was priced at one-month LIBOR plus the applicable credit spread of 125 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 Credit Agreement Along with Related Most Restrictive Covenants As of March 31, 2004 (In Thousands)
Computations of adjusted EBITDA and adjusted EBIT as defined in
Credit Agreement for the twelve months ended March 31, 2004:
Net income	$	20,735
Plus:
After-tax losses related to discontinued operations		—
Total income tax expense for continuing operations		9,318
Interest expense		5,605
Depreciation and amortization expense for continuing operations		33,000
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 before
maximum adjustment of $11,554)		20,570
Minus:
After-tax income related to discontinued operations		(3,838	)
Total income tax benefits for continuing operations		—
Interest income		(833	)
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 before
maximum adjustment of $12,674)		(10,000	)
Plus or minus, as applicable, pro forma EBITDA adjustments associated
with acquisitions and asset dispositions		236
Adjusted EBITDA as defined in Credit Agreement		74,793
Less: Depreciation and amortization expense for continuing operations
(including pro forma for acquisitions and asset dispositions)		(33,071	)
Adjusted EBIT as defined in Credit Agreement	$	41,722
Computations of leverage and interest coverage ratios as defined in
Credit Agreement:
Leverage ratio (indebtedness-to-adjusted EBITDA)		1.93x
Interest coverage ratio (adjusted EBIT-to-interest expense)		7.44x
Most restrictive covenants as defined in Credit Agreement:
Maximum permitted aggregate amount of dividends that can be paid
by Tredegar during the term of the Credit Agreement	$	100,000
Minimum adjusted shareholders’ equity permitted (increases by
50% of net income generated after September 30, 2003)		330,872
Maximum leverage ratio permitted:
Ongoing		3.00x
Pro forma for acquisitions		2.50x
Minimum interest coverage ratio permitted		2.50x

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        Noncompliance with any one or more of the debt covenants may have an 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.

        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.

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 section on liquidity and capital resources beginning on page 15 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. There is no assurance of our ability to pass through higher raw material and energy costs to our customers.

        Resin costs for Film Products increased 26% in 2003. The changes in the price of low density polyethylene resin shown in the chart below (a primary raw material for Film Products) are generally reflective of the historical price changes of most of the resins that the company purchases.

        The price of resin is driven by several factors including supply and demand and the price of natural gas, ethane and ethylene. For a portion of the volume in Film Products, our most effective means of mitigating resin price fluctuations is by passing on resin price changes to customers. Some pass-through arrangements are on a time lag, where the impact of movement in resin prices is recovered in the subsequent quarter or quarters. Many of the mechanisms for pass-through with our customers are based on published prices. We estimate that pass-through arrangements have reduced the effects of resin price volatility by about 45% since the third quarter of 2001, with the remaining exposure resulting in a possible impact on quarterly operating profit of as much as $2 million.

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        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.

        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. During the first quarter of 2004, we had forward contracts with natural gas suppliers covering approximately 65% of our needs with an average fixed price of $5.38 per mmBtu. We had no forward contracts outstanding at March 31, 2004. We estimate that, in an unhedged situation, every $1 per mmBtu per month change in the market price of natural gas has a $150,000 impact on the monthly operating profit of Aluminum Extrusions. Lower natural gas prices had a favorable impact on ongoing operating profit of about $200,000 in the first quarter of 2004 compared with 2003.

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        We sell to customers in foreign markets through our foreign operations and through exports from U.S. plants. The percentage of sales for manufacturing operations related to foreign markets for the first quarters of 2004 and 2003 are as follows:

Percentage of Net Sales from Manufacturing Operations Related to Foreign Markets*
		Three Months Ended March 31
		2004				2003
		Exports From U.S.		Foreign Operations		Exports From U.S.		Foreign Operations
Canada		4	%	17	%	4	%	16	%
Europe		3		12		3		11
Latin America		2		3		3		2
Asia		3		3		3		2
Total	��	12	%	35	%	13	%	31	%

* Based on consolidated net sales from manufacturing operations
(excludes Therics and discontinued operations).

        We attempt to match the pricing and cost of our products in the same currency (except in Canada where about 70% of our sales of aluminum extrusions are U.S. Dollar-based) and generally view the volatility of foreign currencies 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 foreign operations in Europe primarily relates to the Euro and the Hungarian Forint.

        The relatively high percentage of U.S. Dollar-priced sales in Canada is partly due to the shifting of a large portion of the customers previously served by the aluminum extrusions plant in El Campo, Texas, in 2001. The resulting mismatch between the currency denomination of sales and costs causes lower U.S. Dollar translated profits when the Canadian Dollar appreciates since our costs are higher in U.S. Dollar equivalent terms while sales are mostly unaffected (the opposite effect occurs when the Canadian Dollar depreciates in value relative to the U.S. Dollar). We estimate that the appreciation of the Canadian Dollar relative to the U.S. Dollar during the first quarter of 2004 (up on average by 14.6% in the first quarter of 2004 compared with 2003 and 12.1% when comparing March 31, 2004 and 2003 exchange rates) had an adverse impact on the operating profit in Aluminum Extrusions of about $1 million compared with 2003. In Film Products, where we have been able to better match the currency of our sales and costs, we estimate that the appreciation of the Euro and Hungarian Forint relative to the U.S. Dollar in the first quarter of 2004 (up on average by 16.4% and 9.3%, respectively, in the first quarter of 2004 compared with 2003 and 12.8% and 12.6%, respectively, when comparing March 31, 2004 and 2003 exchange rates) had a positive impact on the operating profit in Film Products of about $400,000 compared with 2003. However, a portion of this gain was offset by foreign exchange losses associated with our operations in Hungary that resulted primarily from the re-measurement of certain Euro balances into Hungarian Forints (the functional currency for this operation).

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        We are continuing to review the loading of our aluminum extrusions plants in North America to optimize production mix and minimize cost in light of the increase in the U.S. Dollar equivalent cost structure of our plants in Canada.

Forward-Looking and Cautionary Statements

        From time to time, we may make statements that may constitute “forward-looking statements” within the meaning of the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995. 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. Factors that may cause such a difference include, but are not limited to the following:

General

• Our future performance is influenced by costs incurred by our operating companies including, for example, the cost of energy and raw materials. There is no assurance that we will be able to offset fully the effects of higher raw material costs through price increases. 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 or other costs.

Film Products

• Film Products is highly dependent on sales associated with one customer, P&G. P&G comprised 29% of Tredegar’s net sales in 2003, 33% in 2002 and 31% in 2001. The loss or significant reduction of sales associated with P&G would have a material adverse effect on our business, as would delays in P&G rolling out products utilizing new technologies developed by Tredegar. 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, especially in the personal care market. Personal care products are now being made with a variety of new materials, replacing traditional backsheet and other components. 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 business.

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• 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. Although we are not currently involved in any patent litigation, an unfavorable outcome of any such action could have a significant adverse impact on Film Products.

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

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 and Canada, particularly in the construction, distribution and transportation industries. Our market segments are also subject to seasonal slowdowns during the winter months. From 1992 to the second quarter of 2000, profits in Aluminum Extrusions grew as a result of positive economic conditions in the markets we serve and manufacturing efficiencies. However, a slowdown in these markets in the second half of 2000 resulted in a 13% decline in sales volume and 28% decline in ongoing operating profit compared with the second half of 1999. The aluminum extrusions industry continued to be affected by poor economic conditions in 2001 and 2002. Our sales volume declined 23% and operating profit declined 49% in 2002 compared with 2000. In 2001, our sales volume declined 20% and operating profit declined 52% compared with 2000. The decline in ongoing operating profit during these periods at approximately two to three times the rate of the decline in sales volume illustrates the operating leverage inherent in our operations (fixed operating costs). Moreover, in 2003 higher energy and insurance costs and the appreciation of the Canadian Dollar against the U.S. Dollar had an adverse impact on operating profits. 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 that usually accompany a downturn.

• The markets for our products are highly competitive with product quality, service and price being the principal competitive factors. As competitors increase capacity or reduce prices to increase business, there could be pressure to reduce prices to our customers. Aluminum Extrusions is under increasing domestic and foreign competitive pressures, including a growing presence of Chinese imports in a number of markets. This competition could result in loss of market share due to a competitor’s ability to produce at lower costs and sell at lower prices. 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.

Therics

• Therics has incurred losses since inception, and we are unsure when, or if, it will become profitable. We are in the initial stages of commercializing certain orthobiologic products that have received FDA clearances. There can be no assurance that any of these products can be brought to market successfully.

The commercialization of new future products will require significant research, development, preclinical and clinical testing, and regulatory approvals. Where potential new products do not advance beyond early product development or do not demonstrate preclinical or clinical efficacy, they will not likely be commercialized. In addition, there can be no assurance that the FDA and other regulatory authorities will clear our products in a timely manner.

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• Our ability to develop and commercialize products will depend on our ability to internally develop preclinical, clinical, regulatory, manufacturing and sales, distribution and marketing capabilities, or enter into arrangements with third parties to provide those functions. We may not be successful in developing these capabilities or entering into agreements with third parties on favorable terms. To the extent we rely on third parties for these capabilities, our control over such activities may be reduced which could make us dependent upon these parties. The inability to develop or contract for these capabilities would significantly impair our ability to develop and commercialize products and thus our ability to become profitable.

Related factors that may impair our ability to develop and commercialize products include our reliance on pre-clinical and clinical data concerning our products and product introductions by competing companies. Likewise, in the event we are unable to manufacture our products efficiently, our ability to commercialize products and thus our operating results will be negatively affected.

We are relying to a significant degree on a sales force consisting of independent sales agents for the sale and marketing of our products. Market acceptance of our products, and thus our ability to become profitable, is largely dependent upon the competency of this sales force, whether they perform their duties in line with our expectations and their continued willingness to carry our products.

• Our ability to develop and commercialize products will depend on market acceptance of those products. We are dependent upon the willingness of the medical community to learn about and try our products and then switch from currently used products to our products. In the event the community is reluctant or unwilling to utilize our products, our ability to generate profits will be significantly impaired. Commercial success is also dependent upon third party payor acceptance of our products.

• Our ability to develop and commercialize certain products is dependent upon sufficient sources of supply for various raw materials. We may not be successful in procuring the types and quantities of raw materials necessary to commercialize certain orthobiologic products, which would significantly impair our ability to become profitable.

• Future sales and profits are dependent upon obtaining and maintaining all necessary regulatory approvals. We have received clearances from the FDA for certain products as medical devices, which approvals must be maintained in order to commercialize these products. Similar FDA approval will need to be obtained for any new products in order to market those products. In addition, depending upon where we intend to engage in marketing activities, we may need to obtain the necessary approvals from the regulatory agencies of the applicable jurisdictions. Failure to obtain and maintain the necessary regulatory approvals would significantly impair our ability to market our products and thus our ability to generate profits. Likewise, the marketing of our products and our profit generating capability would be impaired in the event approval of one or more of our products is limited or restricted by the FDA, either in conjunction with or subsequent to approval.

• We are highly dependent on several principal members of our management and scientific staff. The loss of key personnel (or the inability to recruit key personnel) could have a material adverse effect on Therics’ business and results of operations, and could inhibit product research and development, commercialization and sales and marketing efforts. Failure to retain and recruit executive management in key areas, including sales and marketing and product research and development, could prevent us from achieving our business objectives.

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• We are dependent upon certain license rights, patents and other proprietary rights. Future success is dependent in part on our ability to maintain and enforce license, patent and other proprietary rights. Complex legal and technical issues define the strength and value of our intellectual property portfolio. While we own or license certain patents, the issuance of a patent does not establish conclusively either validity or enforceability.

• The patent positions of biotechnology firms generally are highly uncertain and involve complex legal and factual questions that can determine who has the right to develop a particular product. No clear policy has emerged regarding the breadth of claims covered by biotechnology patents in the U.S. The biotechnology patent situation outside the U.S. is even more uncertain and is currently undergoing review and revision in many countries. Changes in, or different interpretations of, patent laws in the U.S. and other countries might allow others to use our discoveries or to develop and commercialize our products without any compensation to us.

• Our business exposes us to potential product liability claims. The testing, manufacturing, marketing and sale of our products subject us to product liability risk, an inherent risk for our industry. A successful product liability action against us may have a material adverse effect on our business. Moreover, present insurance coverage may not be adequate to cover potential future product liability claims.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

        See discussion under “Quantitative and Qualitative Disclosures About Market Risk” beginning on page 18.

Item 4. Controls and Procedures.

        Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, we carried out an evaluation, with the participation of our management, including ourprincipal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Securities Exchange Act of 1934) 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 in timely alerting them to material information relating to Tredegar required to be included in our periodic SEC filings.

        There has been no change in our internal control over financial reporting during the quarter ended March 31, 2004, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibit Nos.

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

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

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

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

(b) Reports on Form 8-K.

On January 21, 2004, we furnished a Form 8-K with respect to our fourth quarter 2003 earnings press release dated January 21, 2004. On April 21, 2004, we furnished a Form 8-K with respect to our first quarter 2004 earnings press release dated April 21, 2004.

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SIGNATURES

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

Date: May 7, 2004
Tredegar Corporation
(Registrant)


/s/ D. Andrew Edwards
——————————————
D. Andrew Edwards
Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)

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