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Tredegar Reports First-Quarter Results

May 3, 2006 at 5:02 PM EDT

RICHMOND, Va., May 3, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- Tredegar Corporation (NYSE: TG) reported first-quarter income from continuing operations of $8.2 million (21 cents per share) compared to $5.6 million (14 cents per share) in 2005. Earnings from manufacturing operations were $9.5 million (24 cents per share) versus $6.7 million (17 cents per share) last year. First-quarter sales were up to $268.0 million from $232.8 million in 2005. A summary of first-quarter results from continuing operations is shown below:

(In Millions, Except Per-Share Data)              First Quarter Ended
                                                             March 31
                                                      2006              2005

     Sales                                           $268.0            $232.8

     Income from continuing operations as reported
      under generally accepted accounting
      principles (GAAP)                                $8.2              $5.6
     After-tax effects of:
       Loss associated with plant shutdowns, asset
        impairments and restructurings                  1.3               1.3
       Loss from AFBS (formerly Therics) ongoing
        operations                                        -               1.2
       Gains from sale of assets and other items          -              (1.4)
     Income from manufacturing operations*             $9.5              $6.7


     Diluted earnings per share from continuing
      operations as reported under GAAP                $.21              $.14
     After-tax effects per diluted share of:
       Loss associated with plant shutdowns, asset
        impairments and restructurings                  .03               .03
       Loss from AFBS (formerly Therics) ongoing
        operations                                        -               .03
       Gains from sale of assets and other items          -              (.03)
     Diluted earnings per share from manufacturing
      operations*                                      $.24              $.17

* The after-tax effects of unusual items, plant shutdowns, asset impairments and restructurings, AFBS' (formerly Therics, Inc.) ongoing operations, and gains from sale of assets and other items have been presented separately and removed from income and earnings per share from continuing operations as reported under GAAP to determine Tredegar's presentation of income and earnings per share from manufacturing operations. Income and earnings per share from manufacturing operations are key financial and analytical measures used by Tredegar to gauge the operating performance of its manufacturing businesses. They are not intended to represent the stand-alone results for Tredegar's manufacturing businesses under GAAP and should not be considered as an alternative to net income or earnings per share as defined by GAAP. They exclude items that we believe do not relate to Tredegar's ongoing manufacturing operations. They also exclude AFBS. On June 30, 2005, substantially all of the assets of AFBS were sold or assigned to a newly- created limited liability company, Therics, LLC, controlled and managed by an individual not affiliated with Tredegar.

John D. Gottwald, Tredegar's president and chief executive officer, said: "We're pleased with the improved operating results for the first quarter versus 2005. In films, growth in sales of higher value-added materials had a favorable impact on profits as did the resin price pass-through. However, second-quarter profits are likely to drop due primarily to customer inventory adjustments. In aluminum, volumes were reasonably strong, especially considering that the first quarter is seasonally sluggish. Bookings remain solid."

MANUFACTURING OPERATIONS
                                Film Products

First-quarter net sales in Film Products were $126.3 million, up 8% from $116.7 million in the first quarter of 2005 while operating profit from ongoing operations rose 34% to $15.6 million from $11.6 million. The increase in operating profit over last year's first quarter was primarily due to continued growth in surface protection films, elastic materials and new apertured topsheets. Profits also benefited from an increase in selling prices to cover higher resin costs incurred during the fourth quarter of 2005. Volume was 64.5 million pounds compared with 67.4 million pounds in the first quarter of 2005. Volume declines were mainly due to competitive pressures on certain mature products used in baby diapers and adult incontinence products.

Net sales, operating profit from ongoing operations and volume in the fourth quarter of 2005 were $116.0 million, $8.2 million and 63.3 million pounds, respectively. Fourth-quarter 2005 results were adversely affected by record-level, hurricane-related increases in resin prices.

Film Products has index-based pass-through raw material 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. Average quarterly prices of low-density polyethylene resin in the U.S. decreased 8 cents per pound in the first quarter of 2006 after increasing 21 cents per pound or 32% in the fourth quarter of 2005. Since 2002, U.S. low-density polyethylene resin prices have more than doubled. Resin prices in Europe, Asia and South America have also increased significantly during this time.

Tredegar estimates that the lag in the pass-through to customers of changes in resin prices had a positive impact on first-quarter 2006 results of $2 million compared with a negative impact on fourth-quarter 2005 results of $5.5 million (net of the favorable effect of a decline in inventories accounted for under the last-in first-out method). There was no significant resin pass-through lag in the first quarter of 2005.

The company expects customer inventory adjustments to adversely affect sales and profits in the second quarter of 2006.

Film Products continues to expand capacity to support growth in new products. Capital expenditures were $11.4 million in the first quarter and are expected to be $45 million for the year. Approximately half of the forecasted capital expenditures relates to expanding the production capacity for surface protection films. Other planned capital expenditures include capacity additions for elastic materials and a new information system, which is currently being rolled out in U.S. locations. Depreciation expense was $7.7 million in the first quarter of 2006 compared with $6.1 million in the first quarter of last year, and is projected to increase by $5 million to $31 million for the year.

Aluminum Extrusions

First-quarter net sales in Aluminum Extrusions were $135.2 million, up 23% from $110.0 million in the first quarter of 2005 primarily due to improved volume and higher selling prices. Operating profit from ongoing operations increased to $4.9 million, up 63% from $3.0 million in the first quarter of 2005. The increase in operating profit was mainly due to higher volume, which was up 9% to 63.7 million pounds versus 58.4 million pounds in the first quarter of 2005. Growth in shipments continued to be driven by demand for extrusions used in commercial construction and hurricane protection products. Higher selling prices helped to offset the negative impact of higher energy costs ($1.7 million) and appreciation of the Canadian Dollar ($300,000).

First-quarter capital expenditures were $1.7 million and are expected to be approximately $10 million for the year.

OTHER ITEMS

Net pension expense was $675,000 in the first quarter of 2006, an increase of $1.5 million (2 cents per share after taxes) from the net pension income of $793,000 recognized in the first quarter of 2005. Tredegar expects net pension expense of $2.8 million in 2006, an unfavorable change of $5.4 million (9 cents per share after taxes) versus 2005. Most of this change relates to a pension plan that is reflected in "Corporate expenses, net" in the operating profit by segment table. The company expects required contributions to its pension plans to be about $800,000 in 2006.

During the first quarter, the company adopted Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based Payment," which requires all stock-based compensation to be expensed and accounted for using a fair value-based method. The adoption of SFAS No. 123(R) and the granting of stock options on March 7, 2006 resulted in a first-quarter pretax charge for stock option-based compensation of $211,000. The company expects to recognize stock option-based compensation costs under the new standard of approximately $1.1 million in 2006 (2 cents per share after taxes).

First-quarter results also include a net after-tax charge of $1.3 million (3 cents per share) for plant shutdowns, asset impairments and restructurings, the same level as last year. First-quarter results in 2005 also included gains from the sale of assets and other items of $1.4 million (3 cents per share). Details regarding these items are provided in the financial tables included with this press release.

CAPITAL STRUCTURE

Net debt (debt net of cash) was $86.3 million or less than one times the last twelve months adjusted EBITDA from manufacturing operations.

See notes to financial statements and tables for reconciliations to comparable GAAP measures.

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

Some of the information contained in this press release may constitute "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. When we use the words "believe," "hope," "expect," "are likely," "project" 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. It is possible that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Factors that could cause actual results to differ from expectations include, without limitation: Film Products is highly dependent on sales to one customer -- The Procter & Gamble Company; growth of Film Products depends on its ability to develop and deliver new products at competitive prices, especially in the personal care market; 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 and are also subject to seasonal slowdowns during the winter months; 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; and our future performance is influenced by costs incurred by our operating companies including, for example, the cost of energy and raw materials. For a more complete discussion of some of the other risks and important factors that could affect our future results and financial condition, see "Risk Factors" in Part I, Item 1A of our most recent Annual Report on Form 10-K and "Risk Factors" in Part II, Item 1A of our Quarterly Report on Form 10-Q for this period that will be filed with the Securities and Exchange Commission.

Tredegar does not undertake to update any forward-looking statement made in this press release to reflect any change in management's expectations or any change in conditions, assumptions or circumstances on which such statements are based.

To the extent that the financial information portion of this release contains non-GAAP financial measures, it also presents both the most directly comparable financial measures calculated and presented in accordance with GAAP and a quantitative reconciliation of the difference between any such non-GAAP measures and such comparable GAAP financial measures. Accompanying the reconciliation is management's statement concerning the reasons why management believes that presentation of non-GAAP measures provides useful information to investors concerning Tredegar's financial condition and results of operations.

Based in Richmond, Va., Tredegar Corporation is a global manufacturer of plastic films and aluminum extrusions.

Tredegar Corporation
                 Condensed Consolidated Statements of Income
                    (In Thousands, Except Per-Share Data)
                                 (Unaudited)

                                                      Three Months Ended
                                                           March 31
                                                     2006              2005

    Sales                                          $267,964          $232,757
    Other income (expense), net (a) (b)                  12             2,560
                                                    267,976           235,317

    Cost of goods sold (a)                          226,638           198,352
    Freight                                           6,474             5,943
    Selling, R&D and general expenses (a)            18,101            19,864
    Amortization of intangibles                          37               106
    Interest expense                                  1,432               963
    Asset impairments and costs associated
     with exit and disposal activities (a)            1,692               867
                                                    254,374           226,095

    Income before income taxes                       13,602             9,222
    Income taxes                                      5,387             3,672

    Net income (a) (b) (c)                           $8,215            $5,550


    Earnings per share:
      Basic                                            $.21              $.14
      Diluted                                           .21               .14

    Shares used to compute earnings per share:
      Basic                                          38,602            38,440
      Diluted                                        38,664            38,636



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

                                                      Three Months Ended
                                                            March 31
                                                     2006              2005
    Net Sales
    Film Products                                  $126,331          $116,711
    Aluminum Extrusions                             135,159           109,966
    AFBS (formerly Therics) (d)                           -               137
    Total net sales                                 261,490           226,814
    Add back freight                                  6,474             5,943
    Sales as shown in the Consolidated
      Statements of Income                         $267,964          $232,757

    Operating Profit
    Film Products:
      Ongoing operations                            $15,577           $11,578
      Plant shutdowns, asset impairments and
       restructurings, net of gains on sale
       of assets (a)                                 (1,583)              369

    Aluminum Extrusions:
      Ongoing operations                              4,866             2,997
      Plant shutdowns, asset impairments and
       restructurings, net of gains on sale
       of assets (a)                                   (109)             (638)

    AFBS (formerly Therics) (d):
      Ongoing operations                                  -            (1,823)
      Loss on investment in Therics, LLC                (25)                -

    Total                                            18,726            12,483
    Interest income                                     222                98
    Interest expense                                  1,432               963
    Gain on the sale of corporate assets (b)             56                 -
    Stock option-based compensation costs (e)           211                 -
    Corporate expenses, net (a)                       3,759             2,396
    Income before income taxes                       13,602             9,222
    Income taxes                                      5,387             3,672
    Net income (a) (b) (c)                           $8,215            $5,550



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

                                                   March 31,      December 31,
                                                     2006             2005
    Assets

    Cash & cash equivalents                         $30,138          $23,434
    Accounts & notes receivable, net                152,380          119,330
    Income taxes recoverable                          7,447            7,163
    Inventories                                      60,514           62,438
    Deferred income taxes                            10,830            7,778
    Prepaid expenses & other                          3,753            4,224
    Total current assets                            265,062          224,367

    Property, plant & equipment, net                325,084          322,876
    Other assets                                     96,400           96,527
    Goodwill & other intangibles                    138,065          137,988

    Total assets                                   $824,611         $781,758

    Liabilities and Shareholders' Equity

    Accounts payable                                $83,311          $61,731
    Accrued expenses                                 37,983           36,031
    Current portion of long-term debt                 3,795                -
    Total current liabilities                       125,089           97,762

    Long-term debt                                  112,607          113,050
    Deferred income taxes                            82,228           74,287
    Other noncurrent liabilities                     11,135           11,297
    Shareholders' equity                            493,552          485,362

    Total liabilities and shareholders' equity     $824,611         $781,758



                             Tredegar Corporation
                Condensed Consolidated Statement of Cash Flows
                                (In Thousands)
                                 (Unaudited)

                                                       Three Months Ended
                                                            March 31
                                                     2006              2005
    Cash flows from operating activities:
      Net income                                    $8,215            $5,550
      Adjustments for noncash items:
        Depreciation                                10,713             9,185
        Amortization of intangibles                     37               106
        Deferred income taxes                        4,478             1,730
        Accrued pension income and
         postretirement benefits                       828              (618)
        Gain on sale of assets                         (56)           (1,815)
        Loss on asset impairments and divestitures   1,150               100
      Changes in assets and liabilities,
       net of effects of acquisitions
       and divestitures:
        Accounts and notes receivables             (32,633)           (9,044)
        Inventories                                  2,226             1,028
        Income taxes recoverable                      (284)                -
        Prepaid expenses and other                     482               358
        Accounts payable                            21,265            (1,947)
        Accrued expenses and income taxes payable    1,714            (2,030)
      Other, net                                      (681)            1,882
        Net cash provided by operating activities   17,454             4,485
    Cash flows from investing activities:
      Capital expenditures                         (13,074)          (17,952)
      Proceeds from the sale of assets and
       property disposals                               56             2,120
      Other, net                                      (158)              222
        Net cash used in investing activities      (13,176)          (15,610)
    Cash flows from financing activities:
      Dividends paid                                (1,552)           (1,553)
      Debt principal payments                         (648)          (10,035)
      Borrowings                                     4,000            24,500
      Bank overdrafts                                    -             1,448
      Proceeds from exercise of stock options          461               192
        Net cash provided by financing activities    2,261            14,552
    Effect of exchange rate changes on cash            165              (849)
    Increase in cash and cash equivalents            6,704             2,578
    Cash and cash equivalents at beginning
     of period                                      23,434            22,994
    Cash and cash equivalents at end of period     $30,138           $25,572



                         Selected Financial Measures
                                (In Millions)
                                 (Unaudited)

                                    For the Twelve Months Ended March 31, 2006
                                                                AFBS
                                           Film    Aluminum   (formerly
                                         Products  Extrusions  Therics)  Total

    Operating profit (loss) from ongoing
     operations                             $48.9    $21.2    $(1.6)   $68.5
    Allocation of corporate overhead         (8.5)    (3.6)       -    (12.1)
    Add back depreciation and
     amortization                            28.2     11.7       .2     40.1
    Adjusted EBITDA (f)                     $68.6    $29.3    $(1.4)   $96.5

    Selected balance sheet and other data
     as of March 31, 2006:
      Net debt (g)                          $86.3
      Shares outstanding                     38.8

    Notes to the Financial Tables

    (a) Plant shutdowns, asset impairments and restructurings in the first
        quarter of 2006 include:

      * A pretax charge of $404,000 related to the planned shutdown of the
        films manufacturing facility in LaGrange, Georgia, including asset
        impairment charges of $130,000 and severance and other costs of
        $274,000;
      * Pretax charges of $1 million for asset impairments in Film Products;
        and
      * Pretax charges of $268,000 for severance and other employee-related
        costs in connection with restructurings in Film Products ($159,000)
        and Aluminum Extrusions ($109,000).

      Plant shutdowns, asset impairments and restructurings in the first
      quarter of 2005 include:

      * A pretax gain of $1.6 million related to the shutdown of the films
        manufacturing facility in New Bern, North Carolina, including a $1.8
        million gain on the sale of the facility (included in "Other income
        (expense), net" in the condensed consolidated statements of income),
        partially offset by shutdown-related expenses of $198,000;
      * A pretax charge of $1 million for process reengineering costs
        associated with the implementation of a new information system in
        Film Products (included in "Cost of goods sold" in the condensed
        consolidated statements of income);
      * Pretax charges of $418,000 related to severance and other employee-
        related costs associated with restructurings in Film Products
        ($250,000) and Aluminum Extrusions ($168,000);
      * A pretax gain of $508,000 for interest receivable on tax refund claims
        (included in "Corporate expenses, net" in the net sales and operating
        profit by segment table and "Other income (expense), net" in the
        condensed consolidated statements of income);
      * A pretax charge of $470,000 related to the shutdown of the aluminum
        extrusions facility in Aurora, Ontario;
      * A net pretax gain of $120,000 primarily related to the partial
        reversal to income of certain severance and employee-related accruals
        associated with the restructuring of the research and development
        operations in Film Products (of this amount, $199,000 in pretax
        charges for employee relocation and recruitment is included in
        "Selling, R&D and general expenses" in the condensed consolidated
        statements of income); and
      * Pretax charges of $100,000 for accelerated depreciation related to
        restructurings in Film Products.

    (b) Gain on the sale of corporate assets in 2006 includes a gain related
        to the sale of public equity securities.

    (c) Comprehensive income (loss), defined as net income and other
        comprehensive income (loss), was a gain of $9.0 million for the first
        quarter of 2006 and a gain of $2.7 million for the first quarter of
        2005. Other comprehensive income (loss) includes changes in unrealized
        gains and losses on available-for-sale securities, foreign currency
        translation adjustments, unrealized gains and losses on derivative
        financial instruments and minimum pension liability recorded net of
        deferred taxes directly in shareholders' equity.

    (d) On June 30, 2005, substantially all of the assets of AFBS, Inc.
        (formerly Therics, 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.  AFBS retained substantially all of its liabilities in
        the transaction, which included customary indemnification provisions
        for pre-transaction liabilities.  AFBS received a 17.5% equity
        interest in the new company valued at $170,000 and a 3.5% interest in
        Theken Spine, LLC valued at $800,000, along with potential future
        payments on the sale of certain products by Therics, LLC.

    (e) Effective January 1, 2006, Tredegar adopted Statement of Financial
        Accounting Standards No. 123(R), "Share-Based Payment" (SFAS 123(R))
        using the modified prospective method. SFAS 123(R) requires the
        company to record compensation expense for all share-based awards.
        Tredegar previously applied Accounting Principles Board (APB) Opinion
        No. 25, "Accounting for Stock Issued to Employees," and related
        interpretations and provided the required pro forma disclosures of
        SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123).
        Prior periods were not restated.

    (f) Adjusted EBITDA for the twelve months ended March 31, 2006, represents
        income from continuing operations before interest, taxes,
        depreciation, amortization, unusual items and losses associated with
        plant shutdowns, asset impairments and restructurings, gains from the
        sale of assets, investment write-down, charges related to stock option
        awards accounted for under the fair value-based method and other
        items.  Adjusted EBITDA is not intended to represent cash flow from
        operations as defined by GAAP and should not be considered as either
        an alternative to net income (as an indicator of operating
        performance) or to cash flow (as a measure of liquidity).  Tredegar
        uses Adjusted EBITDA as a measure of unlevered (debt-free) operating
        cash flow.  We also use it when comparing relative enterprise values
        of manufacturing companies and when measuring debt capacity.  When
        comparing the valuations of a peer group of manufacturing companies,
        we express enterprise value as a multiple of Adjusted EBITDA.  We
        believe Adjusted EBITDA is preferable to operating profit and other
        GAAP measures when applying a comparable multiple approach to
        enterprise valuation because it excludes the items noted above,
        measures of which may vary among peer companies.

    (g) Net debt is calculated as follows (in millions):
          Debt                                                     $116.4
          Less:  Cash and cash equivalents, net of overdrafts       (30.1)
          Net debt                                                  $86.3

SOURCE Tredegar Corporation

Mitzi S. Reynolds of Tredegar Corporation, +1-804-330-1134, Fax: +1-804-330-1177, or
mitzireynolds@tredegar.com
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