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Tredegar Reports Fourth-Quarter Results

February 15, 2008 at 4:35 PM EST
RICHMOND, Va., Feb 15, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- Tredegar Corporation (NYSE: TG) reported fourth-quarter net income from continuing operations of $7.0 million (19 cents per share) compared to $9.8 million (25 cents per share) in the fourth quarter of 2006. Earnings from continuing manufacturing operations in the fourth quarter were $6.3 million (17 cents per share) versus $9.3 million (24 cents per share) last year. Fourth-quarter sales from continuing operations decreased to $208.5 million from $227.0 million in 2006. On February 12, 2008, Tredegar sold its aluminum extrusions business in Canada. All historical results for this business have been reflected as discontinued operations in the accompanying financial tables.

A summary of results for continuing operations for the three months and years ended December 31, 2007 and 2006 is shown below:


     (In Millions, Except Per-Share Data)  Three Months Ended   Years Ended
                                              December 31       December 31
                                             2007     2006     2007     2006
     Sales                                  $208.5   $227.0   $922.6   $937.6

     Income from continuing operations
      as reported under generally accepted
      accounting principles (GAAP)            $7.0     $9.8    $34.9    $35.3
     After-tax effects of:
     Loss associated with plant shutdowns,
      asset impairments and restructurings     1.0       .4      5.2      3.3
     (Gains) losses from sale of assets
      and other items                         (1.7)     (.9)    (1.7)    (2.5)
     Income from continuing manufacturing
      operations*                             $6.3     $9.3    $38.4    $36.1


     Diluted earnings per share from
      continuing operations as reported
      under GAAP                              $.19     $.25     $.90     $.91
     After-tax effects per diluted share of:
     Loss associated with plant shutdowns,
      asset impairments and restructurings     .03      .01      .13      .08
     (Gains) losses from sale of assets
      and other items                         (.05)    (.02)    (.04)    (.06)
     Diluted earnings per share from
      continuing manufacturing operations*    $.17     $.24     $.99     $.93


    *The after-tax effects of unusual items, plant shutdowns, asset
     impairments and restructurings, and gains or losses from sale of assets
     and other items have been presented separately and removed from net
     income and earnings per share from continuing operations as reported
     under GAAP to determine Tredegar's presentation of income and earnings
     per share from continuing manufacturing operations. Income and earnings
     per share from continuing manufacturing operations are key financial and
     analytical measures used by Tredegar to gauge the operating performance
     of its continuing manufacturing businesses. They are not intended to
     represent the stand-alone results for Tredegar's continuing 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.


John D. Gottwald, Tredegar's president and chief executive officer, said: "Earnings from continuing manufacturing operations declined by 7 cents per share or 29% in the fourth quarter of 2007 compared with the fourth quarter of 2006 due to lower operating profits in both films and our remaining aluminum extrusions business in the U.S. Operating profits in films declined in the fourth quarter of 2007 compared with the fourth quarter of 2006 due primarily to the lag in the pass-through of changes in resin costs and adjustments for inventories accounted for under the last-in first-out method. Excluding the impact of these items, operating profits in films were up in the fourth quarter of 2007 as a result of higher sales of apertured materials, improved product mix of surface protection films and appreciation of the U.S. dollar value of currencies for operations outside of the U.S. Future operating profit levels in films will depend on our ability to deliver product innovations and cost reductions to support growth in the sales of higher value surface protection films and to address competitive pressures facing our personal care and packaging materials businesses."

Mr. Gottwald continued: "The sale of our aluminum extrusions business in Canada, which was suffering from operating losses driven by lower volume and higher conversion costs from appreciation of the Canadian dollar, allows us to focus on our U.S. aluminum extrusions operations where we have more control over costs and profitability. However, business conditions in the U.S. continue to be challenging. Demand for extruded aluminum shapes is down significantly in most market segments. While we are very focused on controlling costs during this downturn, we are also investing for a future rebound. In January, we announced plans to spend approximately $24 million over the next 18 months to expand our capacity at our plant in Carthage, Tennessee. Approximately 65% of our sales of aluminum extrusions from our U.S. operations are related to non-residential construction, and this additional capacity will increase our capabilities in this sector."

Mr. Gottwald further stated: "During 2007 we used a portion of a standing authorization from our board of directors to repurchase approximately 4.8 million shares of our stock at an average price of $16.00 per share. Despite the significant funds used for this program, our net debt at December 31, 2007 increased by only $12.2 million to $33.8 million due to strong cash flow from operations and lower capital expenditures."

                           MANUFACTURING OPERATIONS
                                Film Products

Fourth-quarter net sales in Film Products were $130.6 million, up 1.6% from $128.5 million in the fourth quarter of 2006, while operating profit from ongoing operations decreased to $12.9 million in the fourth quarter of 2007 from $15.0 million in 2006. Volume was 58.6 million pounds in the fourth quarter of 2007 compared with 62.7 million pounds in the fourth quarter of 2006.

Volume was down in the fourth quarter of 2007 compared with the fourth quarter of 2006 primarily due to a decrease in sales of certain barrier films and certain surface protection films, partially offset by an increase in sales of apertured materials used as topsheet in feminine hygiene products. Net sales increased primarily due to appreciation of the U.S. dollar value of currencies for operations outside of the U.S. and higher sales of apertured materials and higher value surface protection films, partially offset by the decline in volume.

Operating profit from ongoing operations decreased in the fourth quarter of 2007 compared with the fourth quarter of 2006 due primarily to the lag in the pass-through of changes in resin costs and adjustments for inventories accounted for under the last-in first-out method ("LIFO"). Excluding the impact of these items, operating profits in Film Products were up in the fourth quarter of 2007 as a result of higher sales of apertured materials, improved product mix of surface protection films and appreciation of the U.S. dollar value of currencies for operations outside of the U.S. (the benefit from currency rate changes was approximately $1.0 million). The company estimates that the impact of the lag in the pass-through of changes in average resin costs and adjustments for LIFO had a negative impact on operating profit of approximately $2.0 million in the fourth quarter of 2007 compared with an estimated positive impact on operating profit of $3.5 million in the fourth quarter of 2006. Film Products has index-based pass-through raw material cost agreements for the majority of its business. However, under certain agreements, changes in resin prices are not passed through for an average period of 90 days. In addition, operating profit in the fourth quarter of 2006 benefited from a customer reimbursement of $1 million for certain new product start-up costs that were incurred during the first half of 2006.

Net sales in Film Products were $531.0 million in 2007, up 3.9% versus $511.2 million in 2006. Operating profit from ongoing operations was $59.4 million in 2007, up 3.1% compared with $57.6 million in 2006. Volume decreased to 244.3 million pounds in 2007 from 253.5 million pounds in 2006.

Volume was down in 2007 compared with 2006 primarily due to a decrease in sales of commodity barrier films and packaging films, partially offset by an increase in sales of elastic materials used in baby diapers and adult incontinence products and apertured materials used as topsheet in feminine hygiene products. Certain commodity barrier films were discontinued in conjunction with the shutdown in the second quarter of 2006 of the plant in LaGrange, Georgia. Net sales increased primarily due to appreciation of the U.S. dollar value of currencies for operations outside of the U.S., higher volume of elastic and apertured materials and improved product mix of surface protection films, partially offset by a decline in volume of commodity barrier films and a decline in volume and prices of certain packaging films.

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

Capital expenditures in Film Products were $15.3 million in 2007, down from $33.2 million in 2006, and are projected to be approximately $33 million in 2008. Depreciation expense was $33.9 million in 2007, up from $31.7 million in 2006, and is projected to be $33 million in 2008.

Aluminum Extrusions

Fourth-quarter net sales from continuing operations in Aluminum Extrusions were $73.5 million, down 21% from $93.0 million in the fourth quarter of 2006. Operating profit from ongoing U.S. operations decreased to $2.6 million in the fourth quarter of 2007, down 40% from $4.3 million in the fourth quarter of 2006. Volume from continuing operations decreased to 32.2 million pounds in the fourth quarter of 2007, down 21% from 40.7 million pounds in the fourth quarter of 2006.

Net sales from continuing operations in Aluminum Extrusions were $371.8 million in 2007, down 7.9% from $403.8 million in 2006. Operating profit from ongoing U.S. operations decreased to $16.5 million in 2007, down 9.8% from $18.3 million in 2006. Volume from continuing operations decreased to 155.8 million pounds in 2007, down 15.9% from 185.2 million pounds in 2006.

The decreases in net sales and ongoing operating profit from continuing operations in the fourth quarter and full year were mainly due to lower volume, partially offset by higher selling prices. Shipments declined in most markets, especially extrusions used in hurricane protection products and residential construction. In addition, the company began experiencing a softening of markets for extrusions used in non-residential construction in the fourth quarter of 2007. Overall backlog for continuing operations in Aluminum Extrusions at December 31, 2007 was down by approximately 7% compared with December 31, 2006.

Capital expenditures for continuing operations in Aluminum Extrusions were $4.4 million in 2007, down from $6.6 million in 2006, and are projected to be approximately $21 million in 2008. In January, Tredegar announced plans to spend approximately $24 million over the next 18 months to expand the capacity at its plant in Carthage, Tennessee. Depreciation expense was $8.5 million in 2007, up slightly from $8.4 million in 2006, and is projected to be $8.5 million in 2008.

On February 12, 2008, Tredegar sold its aluminum extrusions business in Canada for an estimated purchase price of $25.5 million to WXP Holdings, Inc., an affiliate of H.I.G. Capital. The final purchase price is subject to increase or decrease to the extent that actual working capital as of February 12, 2008 is above or below the estimated working capital used to determine the estimated purchase price. Tredegar expects to realize cash income tax benefits in 2008 from the sale of approximately $11.4 million, which the company recognized as a deferred income tax asset in its consolidated balance sheet at December 31, 2007. All historical results for this business have been reflected as discontinued operations in the accompanying financial tables.

OTHER ITEMS

Net pension income from continuing operations was $718,000 in the fourth quarter of 2007 and $2.8 million in 2007, a favorable change of $1.2 million (2 cents per share after taxes) and $4.5 million (8 cents per share after taxes) from amounts recognized in the fourth quarter and all of 2006, respectively. Most of the favorable changes relate to a pension plan that is reflected in "Corporate expenses, net" in the operating profit by segment table. Net pension income from continuing operations is expected to be $5.5 million in 2008. The company contributed approximately $167,000 to its pension plans for continuing operations in 2007 and expects to contribute a similar amount in 2008.

Interest expense was $712,000 in the fourth quarter of 2007 and $2.7 million in 2007, a decline of $577,000 (1 cent per share after taxes) and $2.8 million (5 cents per share after taxes) versus the fourth quarter and all of 2006, respectively, due to lower average debt outstanding.

The effective tax rate used to compute income taxes from continuing manufacturing operations was 44.7% in the fourth quarter of 2007 and 38.8% in 2007, compared with 34.7% in the fourth quarter of 2006 and 36.5% in 2006. The increase in the effective tax rate for continuing manufacturing operations for 2007 versus 2006, which had an unfavorable impact of approximately 4 cents per share, was mainly due to lower income tax benefits expected for the Domestic Production Activities Deduction and the research & development tax credit. The increase in the effective tax rate for continuing manufacturing operations during the fourth quarter of 2007 versus 2006, which had an unfavorable impact of approximately 3 cents per share, was mainly due to the adjustment of income taxes during the fourth quarter to the rate for the entire year.

During the first quarter of 2007, the company adopted new accounting standards for maintenance costs and uncertain income tax positions, neither of which had a material impact on Tredegar's results of operations or financial condition. In addition, Tredegar adopted new accounting standards on fair value measurements and the fair value option for financial assets and liabilities, neither of which had an impact on historical results at the date of adoption.

Overall results for continuing operations for the year include special items. After-tax charges for continuing operations for plant shutdowns, asset impairments and restructurings were 3 cents and 1 cent per share in the fourth quarters of 2007 and 2006, respectively. After-tax charges for continuing operations for plant shutdowns, asset impairments and restructurings were 13 cents and 8 cents per share in all of 2007 and 2006, respectively. In addition, the results for the fourth quarter and all of 2007 include an after-tax gain of $1.7 million (5 cents and 4 cents per share, respectively) from the sale of real estate. Results for the fourth quarter and all of 2006 include after-tax income of $902,000 (2 cents per share) and $2.5 million (6 cents per share) for the reversal of certain valuation allowances relating to deferred tax assets and gains from the sale of equipment and liquidation of inventories accounted for under LIFO at the films plant shut down in LaGrange, Georgia. Further details regarding these items are provided in the financial tables included with this press release.

As discussed in the company's second quarter earnings press release, on April 2, 2007 Tredegar invested $10 million in Harbinger Capital Partners Special Situations Fund, L.P. ("Harbinger"). At December 31, 2007, Harbinger reported Tredegar's capital account value at $23.0 million reflecting $13.0 million of unrealized appreciation ($8.3 million or 22 cents per share after taxes) versus the carrying value in Tredegar's balance sheet of $10 million.

On August 31, 2007, Tredegar invested $6.5 million in a privately held drug delivery company representing ownership on a fully diluted basis of approximately 23%. This company is developing and commercializing state of the art drug delivery systems designed to improve patient compliance and outcomes. During 2007, Tredegar invested $6.2 million in real estate. At December 31, 2007, the carrying value in Tredegar's balance sheet of its investments in this real estate and the drug delivery company equaled the respective amounts invested.

CAPITAL STRUCTURE AND ADJUSTED EBITDA

Net debt (debt in excess of cash) was $33.8 million at December 31, 2007, compared with net debt of $21.6 million at December 31, 2006. Adjusted EBITDA from continuing manufacturing operations, a key valuation and borrowing capacity measure, was $107.9 million in 2007 compared with $102.5 million in 2006. See notes to financial statements and tables for reconciliations to comparable GAAP measures.

On January 7, 2008, Tredegar announced that its board of directors approved a share repurchase program whereby management is authorized at its discretion to purchase, in the open market or in privately negotiated transactions, up to 5 million shares of Tredegar's outstanding common stock. This share repurchase program replaces Tredegar's previous share repurchase authorization. The authorization has no time limit. During the fourth quarter of 2007, Tredegar repurchased 3.1 million shares for $48.3 million under its previous authorization. As of January 4, 2008, Tredegar had approximately 34.7 million common shares outstanding.

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," "estimate," "anticipate," "expect," "project," "likely," "may" and similar expressions, we do so to identify forward-looking statements. Such statements are based on our then current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. 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; sales volume and profitability of continuing operations in Aluminum Extrusions is cyclical and highly dependent on economic conditions of end-use markets in the U.S., particularly in the construction, distribution and transportation industries and are also subject to seasonal slowdowns; 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; our future performance is influenced by costs incurred by our operating companies including, for example, the cost of energy and raw materials; and the factors discussed in the reports Tredegar files with or furnishes to the Securities and Exchange Commission (the "SEC") from time-to-time, including the risks and important factors set forth in "Risk Factors" in Part I, Item 1A of our 2007 Annual Report on Form 10-K that will be filed with the SEC.

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)

                                    Fourth Quarter Ended      Year Ended
                                         December 31          December 31
                                       2007       2006      2007       2006

    Sales                            $208,462   $226,995  $922,583   $937,561
    Other income (expense), net
    (a) (b)                             3,315        710     1,782      1,444
                                      211,777    227,705   924,365    939,005

    Cost of goods sold (a)            171,396    187,355   761,509    779,376
    Freight                             4,352      5,564    19,808     22,602
    Selling, R&D and general
     expenses                          21,135     18,620    76,855     72,170
    Amortization of intangibles            37         37       149        149
    Interest expense                      712      1,289     2,721      5,520
    Asset impairments and costs
     associated with exit and
     disposal activities (a)            1,456        670     4,027      4,080
                                      199,088    213,535   865,069    883,897
    Income from continuing
     operations before income taxes    12,689     14,170    59,296     55,108
    Income taxes (b)                    5,653      4,334    24,366     19,791
    Income from continuing
     operations                         7,036      9,836    34,930     35,317
    Income (loss) from discontinued
     operations (c)                     6,321      1,210   (19,681)     2,884

    Net income (a) (b) (d)            $13,357    $11,046   $15,249    $38,201


    Earnings (loss) per share:
      Basic:
        Continuing operations            $.19       $.25      $.91       $.92
        Discontinued operations           .17        .03      (.51)       .07
        Net income                       $.36       $.28      $.40       $.99
      Diluted:
        Continuing operations            $.19       $.25      $.90       $.91
        Discontinued operations           .17        .03      (.51)       .07
        Net income                       $.36       $.28      $.39       $.98

    Shares used to compute earnings
     (loss) per share:
      Basic                            36,494     38,793    38,532     38,671
      Diluted                          36,587     39,092    38,688     38,931



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

                                    Fourth Quarter Ended      Year Ended
                                         December 31          December 31
                                       2007       2006      2007       2006
    Net Sales
    Film Products                    $130,587   $128,472  $530,972   $511,169
    Aluminum Extrusions                73,523     92,959   371,803    403,790
    Total net sales                   204,110    221,431   902,775    914,959
    Add back freight                    4,352      5,564    19,808     22,602
    Sales as shown in the
     Consolidated Statements
     of Income                       $208,462   $226,995  $922,583   $937,561

    Operating Profit
    Film Products:
      Ongoing operations              $12,915    $15,034   $59,423    $57,645
      Plant shutdowns, asset
       impairments and restructurings,
       net of gains on sale of assets
       and related income from LIFO
       inventory liquidations (a)        (256)        14      (649)       221

    Aluminum Extrusions (c):
      Ongoing operations                2,641      4,259    16,516     18,302
      Plant shutdowns, asset
       impairments and restructurings
       (a)                                  -          -      (634)    (1,434)

    AFBS (e):
      Loss on investment in Therics, LLC    -          -         -        (25)
      Plant shutdowns, asset
       impairments and
       restructurings (a)              (1,200)      (143)   (2,786)      (637)
    Total                              14,100     19,164    71,870     74,072
    Interest income                       252        418     1,212      1,240
    Interest expense                      712      1,289     2,721      5,520
    Gain on the sale of corporate
     assets (b)                         2,699          -     2,699         56
    Loss from write-down of an
     investment (b)                         -          -     2,095          -
    Stock option-based compensation
     costs (f)                            277        262       978        970
    Corporate expenses, net             3,373      3,861    10,691     13,770
    Income from continuing operations
     before income taxes               12,689     14,170    59,296     55,108
    Income taxes (b)                    5,653      4,334    24,366     19,791
    Income from continuing operations   7,036      9,836    34,930     35,317
    Income (loss) from discontinued
     operations (c)                     6,321      1,210   (19,681)     2,884
    Net income (a) (b) (d)            $13,357    $11,046   $15,249    $38,201



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

                                                   As of December 31,
                                                 2007            2006
    Assets

    Cash & cash equivalents                    $48,217          $40,898
    Accounts & notes receivable, net            97,064          106,955
    Income taxes recoverable                       323           10,975
    Inventories                                 48,666           48,664
    Deferred income taxes                        9,172            6,055
    Prepaid expenses & other                     4,077            4,428
    Current assets of discontinued
     operation (c)                              37,750           35,275
    Total current assets                       245,269          253,250

    Property, plant & equipment, net           269,083          287,435
    Other assets (g)                           116,759           63,712
    Goodwill & other intangibles               135,907          132,237
    Noncurrent assets of discontinued
     operation (c)                              17,460           45,153
    Total assets                              $784,478         $781,787

    Liabilities and Shareholders' Equity

    Accounts payable                           $67,161          $54,020
    Accrued expenses                            33,676           38,790
    Current portion of long-term debt              540              678
    Current liabilities of discontinued
     operation (c)                              17,152           18,522
    Total current liabilities                  118,529          112,010

    Long-term debt                              81,516           61,842
    Deferred income taxes                       68,625           65,732
    Other noncurrent liabilities (g)            15,662           14,299
    Noncurrent liabilities of discontinued
     operation (c)                               8,818           11,309
    Shareholders' equity (c) (g)               491,328          516,595

    Total liabilities and shareholders'
     equity                                   $784,478         $781,787



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

                                                      Year Ended
                                                      December 31
                                                 2007             2006
    Cash flows from operating activities:
      Net income                               $15,249          $38,201
      Adjustments for noncash items:
        Depreciation                            45,892           44,132
        Amortization of intangibles                149              149
        Deferred income taxes                  (24,241)          10,155
        Accrued pension income and
         postretirement benefits                (1,735)           3,178
        Gain on sale of assets                  (2,699)            (317)
        Loss on asset impairments and
         divestitures                           34,382            1,150
      Changes in assets and liabilities,
       net of effects of acquisitions
       and divestitures:
        Accounts and notes receivables          15,786              151
        Inventories                              4,099           (5,080)
        Income taxes recoverable                10,478            1,991
        Prepaid expenses and other                 764             (275)
        Accounts payable                         3,277            6,218
        Accrued expenses                        (6,209)           5,374
      Other, net                                   362             (296)
        Net cash provided by operating
         activities                             95,554          104,731
    Cash flows from investing activities:
      Capital expenditures                     (20,643)         (40,573)
      Investments, including Harbinger
       ($10 million), a drug delivery
       company ($6.5 million) and real
       estate ($6.2 million) in 2007           (23,513)            (542)
      Proceeds from the sale of assets and
       property disposals & reimbursements
       from customers for purchases of
       equipment                                 7,871              475
        Net cash used in investing
         activities                            (36,285)         (40,640)
    Cash flows from financing activities:
      Dividends paid                            (6,126)          (6,221)
      Debt principal payments                  (39,964)         (54,530)
      Borrowings                                59,500            4,000
      Repurchases of Tredegar common stock,
       net of settlement payable of $3,367     (73,959)               -
      Proceeds from exercise of stock options    6,471            9,576
        Net cash used in financing
         activities                            (54,078)         (47,175)
    Effect of exchange rate changes on cash      2,128              548
    Increase in cash and cash equivalents        7,319           17,464
    Cash and cash equivalents at beginning
     of period                                  40,898           23,434
    Cash and cash equivalents at end of
     period                                    $48,217          $40,898



                           Selected Financial Measures
                                  (In Millions)
                                   (Unaudited)

                                                 For the Twelve Months Ended
                                                       December 31, 2007
                                                  Film      Aluminum
                                                Products   Extrusions   Total
    Operating profit from continuing
     ongoing operations                          $59.4       $16.5      $75.9
    Allocation of corporate overhead              (8.4)       (2.2)     (10.6)
    Add back depreciation and amortization
     from continuing operations                   34.1         8.5       42.6
    Adjusted EBITDA from continuing
     operations (h)                              $85.1       $22.8     $107.9

    Selected balance sheet and other data
     as of December 31, 2007:
       Net debt (cash) (i)                       $33.8
       Shares outstanding                         34.8


        Notes to the Financial Tables

    (a) Plant shutdowns, asset impairments and restructurings in the fourth
        quarter of 2007 include:
        -- A pretax charge of $1.2 million related to the estimated loss on
           the sub-lease of a portion of the AFBS (formerly Therics) facility
           in Princeton, New Jersey;
        -- A pretax charge of $256,000 for asset impairments in Film Products.

        Plant shutdowns, asset impairments and restructurings in 2007 include:
        -- A pretax charge of $2.8 million related to the estimated loss on
           the sub-lease of a portion of the AFBS (formerly Therics) facility
           in Princeton, New Jersey;
        -- Pretax charges of $594,000 for asset impairments in Film Products;
        -- A pretax charge of $592,000 for severance and other employee-
           related costs in Aluminum Extrusions;
        -- A pretax charge of $55,000 for costs related to the shutdown of the
           films manufacturing facility in LaGrange, Georgia; and
        -- A pretax charge of $42,000 related to expected future environmental
           costs at the aluminum extrusions facility in Newnan, Georgia
           (included in "Cost of goods sold" in the condensed consolidated
           statements of income).

        Plant shutdowns, asset impairments and restructurings in the fourth
        quarter of 2006 include:
        -- A net pretax gain associated with the shutdown of the films
           manufacturing facility in LaGrange, Georgia, including a gain of
           $280,000 for related LIFO inventory liquidations (included in "Cost
           of goods sold" in the condensed consolidated statements of income)
           and a gain of $261,000 on the sale of related property and
           equipment (included in "Other income (expense), net" in the
           condensed consolidated statements of income), partially offset by
           other shutdown-related costs of $527,000; and
        -- A pretax charge of $143,000 related to the estimated loss on the
           sub-lease of a portion of the AFBS (formerly Therics) facility in
           Princeton, New Jersey.

        Plant shutdowns, asset impairments and restructurings in 2006 include:
        -- A net pretax gain of $1.4 million associated with the shutdown of
           the films manufacturing facility in LaGrange, Georgia, including a
           gain of $2.9 million for related LIFO inventory liquidations
           (included in "Cost of goods sold" in the condensed consolidated
           statements of income) and a gain of $261,000 on the sale of related
           property and equipment (included in "Other income (expense), net"
           in the condensed consolidated statements of income), partially
           offset by severance and other costs of $1.6 million and asset
           impairment charges of $130,000;
        -- Pretax charges of $1 million for asset impairments in Film
           Products;
        -- A pretax charge of $920,000 related to expected future
           environmental costs at the aluminum extrusions facility in Newnan,
           Georgia (included in "Cost of goods sold" in the condensed
           consolidated statements of income);
        -- Pretax charges of $727,000 for severance and other employee-related
            costs in connection with restructurings in Film Products
           ($213,000) and Aluminum Extrusions ($514,000); and
        -- A pretax charge of $637,000 related to the estimated loss on the
           sub-lease of a portion of the AFBS (formerly Therics) facility in
           Princeton, New Jersey.

    (b) Gain on the sale of corporate assets in 2007 includes a gain related
        to the sale of corporate real estate.  Gain on the sale of corporate
        assets in 2006 includes a gain related to the sale of public equity
        securities.

        The loss from the write-down of an investment of $2.1 million is
        included in "Other income (expense), net" in the condensed
        consolidated statements of income.

        Income taxes in 2007 include the recognition of a valuation allowance
        of $1.1 million in the third quarter for expected limitations on the
        utilization of assumed capital losses on certain investments.

        Income taxes in 2006 include a reversal of a valuation allowance of
        $577,000 for deferred tax assets associated with capital loss
        carryforwards recorded with the write-down of the investment in
        Novalux.  Outside appraisal of the value of corporate assets,
        primarily real estate, performed in December 2006, indicated that
        realization of related deferred tax assets is more likely than not.

    (c) On February 12, 2008, Tredegar sold its aluminum extrusions business
        in Canada for an estimated purchase price of $25.5 million to WXP
        Holdings, Inc., an affiliate of H.I.G. Capital. The final purchase
        price is subject to increase or decrease to the extent that actual
        working capital as of February 12, 2008 is above or below the
        estimated working capital used to determine the estimated purchase
        price. Tredegar expects to realize cash income tax benefits in 2008
        from the sale of approximately $11.4 million, which the company
        recognized as a deferred income tax asset in its consolidated balance
        sheet at December 31, 2007. All historical results for this business
        have been reflected as discontinued operations in the accompanying
        financial tables. The components of income (loss) from discontinued
        operations are presented below:



                                              Fourth
                                           Quarter Ended        Year Ended
                                            December 31         December 31

        (In thousands)                     2007       2006       2007     2006

        Income (loss) from operations
         before income taxes              $(376)    $1,824    $(6,366)  $3,729
        Income tax cost (benefit) on
         operations                        (108)       614     (2,199)     845
                                           (268)     1,210     (4,167)   2,884

        Loss associated with asset
         impairments and disposal
         activities                      (4,144)        --    (31,755)      --
        Income tax cost (benefit) on
         asset impairments and costs
         associated disposal
         activities                     (10,733)        --    (16,241)      --
                                          6,589         --    (15,514)      --
        Income (loss) from discontinued
         operations                      $6,321     $1,210   $(19,681)  $2,884



        In addition to the assets and liabilities shown separately in the
        consolidated balance sheet for discontinued operations, shareholders'
        equity includes net positive foreign currency translation adjustments,
        pension and other postretirement benefit adjustments and unrealized
        gains and losses on derivative financial instruments relating to
        discontinued operations of $10.4 million and $5.0 million at December
        31, 2007 and 2006, respectively.

    (d) Comprehensive income (loss), defined as net income and other
        comprehensive income (loss), was income of $33 million for the fourth
        quarter of 2007 and income of $14.1 million for the fourth quarter of
        2006. Comprehensive income (loss) was income of $49.9 million in 2007
        and income of $46.3 million in 2006. 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,
        amortization of prior service cost and net gains or losses from
        pension and other postretirement benefit plans, and in 2006, minimum
        pension liability, all recorded net of deferred taxes directly in
        shareholders' equity.

    (e) 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.

    (f) Effective January 1, 2006, Tredegar adopted SFAS 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.

    (g) Effective December 31, 2006, Tredegar adopted SFAS No. 158,
        "Employers' Accounting for Defined Benefit Pension and Other
        Postretirement Plans" (SFAS 158). This statement requires the
        recognition in the balance sheet of the funded status of each of our
        defined benefit pension and other postretirement plans. Each
        overfunded plan is recognized as an asset and each underfunded plan is
        recognized as a liability.  The initial impact of SFAS 158, net of
        deferred taxes, was recognized directly in shareholders' equity.

    (h) Adjusted EBITDA for the twelve months ended December 31, 2007,
        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.

    (i) Net debt is calculated as follows (in millions):
        Debt                                             $82.0
        Less:  Cash and cash equivalents                 (48.2)
        Net debt                                         $33.8


        Net debt is not intended to represent total debt or debt defined by
        GAAP. Net debt is utilized by management in evaluating the company's
        financial leverage and equity valuation and the company believes that
        investors also may find net debt to be helpful for the same purposes.


SOURCE Tredegar Corporation

http://www.tredegar.com

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