Edgar Filing: TREDEGAR CORP

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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 June 30, 2007


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


For the transition period from	______________________________	to	___________________________

Commission file number 1-10258

Tredegar Corporation

(Exact Name of Registrant as Specified in Its Charter)


Virginia		54-1497771

(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 o

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


Large accelerated filer o		Accelerated filer x		Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares of Common Stock, no par value, outstanding as of July 25, 2007: 39,595,524.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

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


	June 30, 2007			Dec. 31, 2006

Assets
Current assets:
Cash and cash equivalents	$	32,397		$	40,898
Accounts and notes receivable, net of allowance for doubtful accounts and sales returns of $6,482 in 2007 and $8,559 in 2006		149,650			121,834
Income taxes recoverable		5,265			10,975
Inventories		69,272			68,930
Deferred income taxes		8,101			6,055
Prepaid expenses and other		3,660			4,558

Total current assets		268,345			253,250

Property, plant and equipment, at cost		695,181			676,406
Less accumulated depreciation		377,703			350,643

Net property, plant and equipment		317,478			325,763

Other assets and deferred charges		76,923			64,078
Goodwill and other intangibles		140,226			138,696

Total assets	$	802,972		$	781,787


Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	86,757		$	69,426
Accrued expenses		36,425			41,906
Current portion of long-term debt		488			678

Total current liabilities		123,670			112,010
Long-term debt		31,691			61,842
Deferred income taxes		80,121			75,772
Other noncurrent liabilities		17,800			15,568

Total liabilities		253,282			265,192

Commitments and contingencies (Notes 1 and 2)
Shareholders’ equity:
Common stock, no par value		127,639			120,508
Common stock held in trust for savings restoration plan		(1,299	)		(1,291	)
Foreign currency translation adjustment		29,356			21,522
Gain on derivative financial instruments		1,085			654
Pension and other postretirement benefit adjustments		(20,617	)		(21,211	)
Retained earnings		413,526			396,413

Total shareholders’ equity		549,690			516,595

Total liabilities and shareholders’ equity	$	802,972		$	781,787

See accompanying notes to financial statements.

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


	Three Months Ended June 30				Six Months Ended June 30

	2007		2006		2007		2006

Revenues and other items:
Sales	$	279,582	$	282,491	$	561,176	$	550,455
Other income (expense), net		160		248		454		260

		279,742		282,739		561,630		550,715

Costs and expenses:
Cost of goods sold		239,534		239,691		477,922		466,329
Freight		6,476		7,250		12,623		13,724
Selling, general and administrative		16,699		16,183		34,479		32,435
Research and development		2,130		2,249		4,072		4,098
Amortization of intangibles		38		38		75		75
Interest expense		557		1,468		1,381		2,900
Asset impairments and costs associated with exit and disposal activities		125		1,026		858		2,718

Total		265,559		267,905		531,410		522,279

Income before income taxes		14,183		14,834		30,220		28,436
Income taxes		4,248		5,584		9,952		10,971

Net income	$	9,935	$	9,250	$	20,268	$	17,465


Earnings per share:
Basic	$	.25	$	.24	$	.52	$	.45
Diluted		.25		.24		.51		.45

Shares used to compute earnings per share:
Basic		39,402		38,632		39,337		38,617
Diluted		39,584		38,837		39,537		38,751

Dividends per share	$	.04	$	.04	$	.08	$	.08

See accompanying notes to financial statements.

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


	Six Months Ended June 30

	2007			2006

Cash flows from operating activities:
Net income	$	20,268		$	17,465
Adjustments for noncash items:
Depreciation		22,785			21,757
Amortization of intangibles		75			75
Deferred income taxes		(2,528	)		9,708
Accrued pension and postretirement benefits		(897	)		1,683
Gain on sale of assets		—			(56	)
Loss on asset impairments and divestitures		338			1,150
Changes in assets and liabilities, net of effects of acquisitions and divestitures:
Accounts and notes receivable		(24,774	)		(35,838	)
Inventories		2,323			2,352
Income taxes recoverable		5,710			(1,345	)
Prepaid expenses and other		1,658			2,248
Accounts payable		15,196			30,119
Accrued expenses and income taxes payable		(3,853	)		842
Other, net		719			(1,846	)

Net cash provided by operating activities		37,020			48,314

Cash flows from investing activities:
Capital expenditures		(12,070	)		(24,903	)
Investment in Harbinger ($10 million) and real estate in 2007 and Novalux in 2006		(11,056	)		(400	)
Proceeds from the sale of assets and property disposals & reimbursements from customers for purchases of equipment		3,842			56
Other, net		—			(88	)

Net cash used in investing activities		(19,284	)		(25,335	)

Cash flows from financing activities:
Dividends paid		(3,163	)		(3,104	)
Debt principal payments		(30,341	)		(22,889	)
Borrowings		—			4,000
Proceeds from exercise of stock options		6,437			663

Net cash (used in) provided by financing activities		(27,067	)		(21,330	)

Effect of exchange rate changes on cash		830			342

Increase in cash and cash equivalents		(8,501	)		1,991
Cash and cash equivalents at beginning of period		40,898			23,434

Cash and cash equivalents at end of period	$	32,397		$	25,425

See accompanying notes to financial statements.

Tredegar Corporation
Consolidated Statement of Shareholders’ Equity
(In Thousands, Except Per Share Data)
(Unaudited)


									Accumulated Other Comprehensive Income (Loss)

	Common Stock		Retained Earnings			Trust for Savings Restora- tion Plan			Foreign Currency Trans- lation		Gain (Loss) on Derivative Financial Instruments		Pension & Other Post- retirement Benefit Adjust.			Total Share- holders’ Equity

Balance December 31, 2006	$	120,508	$	396,413		$	(1,291	)	$	21,522	$	654	$	(21,211	)	$	516,595

Comprehensive income:
Net income		—		20,268			—			—		—		—			20,268
Other comprehensive income (loss):
Available-for-sale securities adjustment		—		—			—			—		—		—			—
Foreign currency translation adjustment (net of tax of $4,212)		—		—			—			7,834		—		—			7,834
Derivative financial instruments adjustment (net of tax of $145)		—		—			—			—		431		—			431
Amortization of prior service costs and net gains or losses (net of tax of $332)		—		—			—			—		—		594			594

Comprehensive income																	29,127
Cash dividends declared ($.04 per share)		—		(3,163	)		—			—		—		—			(3,163	)
Stock options and restricted stock awards		629		—			—			—		—		—			629
Issued upon exercise of stock options and stock compensation plans (including related income tax benefits of $168)		6,502		8			(8	)		—		—		—			6,502

Balance June 30, 2007	$	127,639	$	413,526		$	(1,299	)	$	29,356	$	1,085	$	(20,617	)	$	549,690

See accompanying notes to financial statements.

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”, “we” or “our”) contain all adjustments necessary to present fairly, in all material respects, Tredegar’s consolidated financial position as of June 30, 2007, the consolidated results of operations for the three and six months ended June 30, 2007 and 2006, the consolidated cash flows for the six months ended June 30, 2007 and 2006, and the consolidated changes in shareholders’ equity for the six months ended June 30, 2007. 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, 2006. The results of operations for the six months ended June 30, 2007, are not necessarily indicative of the results to be expected for the full year.

2.	Plant shutdowns, asset impairments and restructurings in the second quarter of 2007 shown in the segment operating profit table in Note 8 include:

	•	A pretax charge of $99,000 for severance and other employee-related costs in connection with restructurings in Aluminum Extrusions; and

	•	A pretax charge of $26,000 related to the shutdown of the films manufacturing facility in LaGrange, Georgia.

	Plant shutdowns, asset impairments and restructurings in the second quarter of 2006 shown in the segment operating profit table in Note 8 include:

	•	A net pretax gain of $822,000 associated with the shutdown of the films manufacturing facility in LaGrange, Georgia, including a gain of $1.4 million for related LIFO inventory liquidations (included in “Cost of goods sold” in the consolidated statements of income), partially offset by severance and other costs of $567,000; and

	•	Pretax charges of $459,000 for severance and other employee-related costs in connection with restructurings in Aluminum Extrusions ($405,000) and Film Products ($54,000).

	Plant shutdowns, asset impairments and restructurings in the first six months of 2007 shown in the segment operating profit table in Note 8 include:

	•	A pretax charge of $366,000 related to the estimated loss on the sub-lease of a portion of the AFBS, Inc. (formerly know as Therics, Inc.) facility in Princeton, New Jersey;

	•	A pretax charge of $338,000 for asset impairments relating to machinery and equipment in Film Products;

	•	A pretax charge of $99,000 for severance and other employee-related costs in connection with restructurings in Aluminum Extrusions; and

	•	A pretax charge of $55,000 related to the shutdown of the films manufacturing facility in LaGrange, Georgia.

	Plant shutdowns, asset impairments and restructurings in the first six months of 2006 shown in the segment operating profit table in Note 8 include:

	•	A net pretax gain of $418,000 associated with the shutdown of the films manufacturing facility in LaGrange, Georgia, including a gain of $1.4 million for related LIFO inventory liquidations (included in “Cost of goods sold” in the consolidated statements of income),


		partially offset by severance and other costs of $841,000 and asset impairment charges of $130,000;

	•	Pretax charges of $1 million for asset impairments in Film Products; and

	•	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).

	A reconciliation of the beginning and ending balances of accrued expenses associated with plant shutdowns and divestitures for the six months ended June 30, 2007 is as follows:



(In Thousands)	Severance	Asset Impairments	Other (a)			Total

Balance at December 31, 2006	$ 436	$ —	$	4,622		$	5,058
Changes in 2007:
Charges	99	338		421			858
Cash spent	(346)	—		(891	)		(1,237	)
Charged against assets	—	(338)		—			(338	)

Balance at June 30, 2007	$ 189	$ —	$	4,152		$	4,341


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

	In the first six months of 2006, a pretax gain on the sale of public equity securities of $56,000 (proceeds also of $56,000) is included in “Other income (expense), net” in the consolidated statements of income and “Gain on the sale of corporate assets” in the operating profit by segment table in Note 8.

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



	Three Months Ended June 30					Six Months Ended June 30

(In Thousands)	2007		2006			2007		2006

Net income	$	9,935	$	9,250		$	20,268	$	17,465
Other comprehensive income (loss), net of tax:
Available-for-sale securities adjustment:
Unrealized net holding gains (losses) arising during the period		—		—			—		(2	)
Reclassification adjustment for net gains realized in income		—		—			—		(21	)

Available-for-sale securities adjustment		—		—			—		(23	)

Foreign currency translation adjustment		5,796		3,877			7,834		4,567
Derivative financial instrument adjustment		198		(1,772	)		431		(1,675	)
Amortization of prior service costs and net gains or losses from pension and other postretirement benefit plans		299		—			594		—

Comprehensive income (loss)	$	16,228	$	11,355		$	29,127	$	20,334


4.	The components of inventories are as follows:



(In Thousands)	June 30 2007		Dec. 31 2006

Finished goods	$	14,360	$	15,412
Work-in-process		5,073		4,540
Raw materials		33,786		34,185
Stores, supplies and other		16,053		14,793

Total	$	69,272	$	68,930


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 June 30				Six Months Ended June 30

(In Thousands)	2007		2006		2007		2006

Weighted average shares outstanding used to compute basic earnings per share		39,402		38,632		39,337		38,617
Incremental shares attributable to stock options and restricted stock		182		205		200		134

Shares used to compute diluted earnings per share		39,584		38,837		39,537		38,751


	Incremental shares attributable to stock options and restricted stock are computed using the average market price during the related period. During the three and six months ended June 30, 2007 and three and six months ended June 30, 2006, 52,845, 61,125, 1,381,738 and 1,388,865, respectively, of average out-of-the-money options to purchase shares were excluded from the calculation of incremental shares attributable to stock options and restricted stock.

6.	On April 2, 2007, we invested $10 million in Harbinger Capital Partners Special Situations Fund, L.P. (“Harbinger”), a fund that seeks to achieve superior absolute returns by participating primarily in medium to long-term investments involving distressed/high yield debt securities, special situation equities and private loans and notes. The fund is a highly speculative investment subject to a two-year lock-up and additional limitations on withdrawal. There is no secondary market for interests in the fund. Our investment in Harbinger, which represents less than 2% of Harbinger’s total partnership capital, is accounted for under the cost method. At June 30, 2007, Harbinger reported our capital account value at $12.4 million reflecting $2.4 million of unrealized appreciation ($1.5 million or 4 cents per share after taxes) versus the carrying value in our balance sheet of $10 million (included in “Other assets and deferred charges”).


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



	Pension Benefits for 3 Months Ended June 30						Other Post-Retirement Benefits for 3 Months Ended June 30

(In Thousands)	2007			2006			2007			2006

Service cost	$	(1,252	)	$	(1,491	)	$	(34	)	$	(22	)
Interest cost		(3,254	)		(3,411	)		(103	)		(135	)
Employee contributions		—			—			—			—
Other		(34	)		(36	)		—			—
Expected return on plan assets		5,603			5,430			—			—
Amortization of prior service costs, gains or losses and net transition asset		(476	)		(1,194	)		8			4

Net periodic benefit (cost) income	$	587		$	(702	)	$	(129	)	$	(153	)



	Pension Benefits for 6 Months Ended June 30						Other Post-Retirement Benefits for 6 Months Ended June 30

(In Thousands)		2007			2006			2007		2006

Service cost	$	(2,493	)	$	(2,888	)	$	(55	)	$	(44	)
Interest cost		(6,483	)		(6,667	)		(255	)		(271	)
Employee contributions		—			—			—			—
Other		(66	)		(57	)		—			—
Expected return on plan assets		11,175			10,668			—			—
Amortization of prior service costs, gains or losses and net transition asset		(950	)		(2,433	)		24			9

Net periodic benefit (cost) income	$	1,183		$	(1,377	)	$	(286	)	$	(306	)


	As a result of adopting a required new accounting standard at the end of 2006, beginning in 2007 the service cost, interest cost, employee contributions, other and expected return on plan assets components of net periodic benefit income or cost are included in the consolidated balance sheet with the assets and liabilities comprising the funded status of our pension and other post-retirement benefit plans, which are included in “Other assets and deferred charges” and “Other noncurrent liabilities”. The amortization component of net periodic benefit income or cost is reflected in other comprehensive income or loss (net of related income taxes), which is included directly in shareholder’s equity.

	We expect required contributions to our pension plans of approximately $1.1 million for the year ending December 31, 2007. We fund our other post-retirement benefits (life insurance and health benefits) on a claims-made basis, which were $920,000 for the year ended December 31, 2006.

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 since December 31, 2006, except for working capital fluctuations resulting from changes in business conditions or seasonal factors, changes caused by movement of foreign exchange rates and changes in property, plant and equipment due to capital expenditures, depreciation and other activity, which are described under Item 2 of this report. 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 June 30						Six Months Ended June 30

	2007			2006			2007			2006

Net Sales
Film Products	$	130,259		$	121,405		$	266,320		$	247,736
Aluminum Extrusions		142,847			153,836			282,233			288,995

Total net sales		273,106			275,241			548,553			536,731
Add back freight		6,476			7,250			12,623			13,724

Sales as shown in the Consolidated Statements of Income	$	279,582		$	282,491		$	561,176		$	550,455


Operating Profit
Film Products:
Ongoing operations	$	13,762		$	13,264		$	30,582		$	28,841
Plant shutdowns, asset impairments and restructurings, net of gain on sale of assets and related income from LIFO inventory liquidations		(26	)		768			(393	)		(815	)

Aluminum Extrusions:
Ongoing operations		3,288			5,674			6,754			10,540
Plant shutdowns, asset impairments and restructurings		(99	)		(405	)		(99	)		(514	)

AFBS (formerly Therics):
Ongoing operations		—			—			—			—
Loss on investment in Therics, LLC		—			—						(25	)
Restructurings		—			—			(366	)		—

Total		16,925			19,301			36,478			38,027
Interest income		283			285			671			507
Interest expense		557			1,468			1,381			2,900
Gain on sale of corporate assets		—			—			—			56
Stock option-based compensation costs		196			282			465			493
Corporate expenses, net		2,272			3,002			5,083			6,761

Income before income taxes		14,183			14,834			30,220			28,436
Income taxes		4,248			5,584			9,952			10,971

Net income	$	9,935		$	9,250		$	20,268		$	17,465

The effective tax rate was 30.0% in the second quarter of 2007 and 32.9% in the first six months of 2007, compared with 37.6% in the second quarter of 2006 and 38.6% in the first six months of 2006. The decrease in the effective tax rate, which had a favorable impact of approximately 3 cents and 4 cents per share in the second quarter and first six months of 2007 versus last year, respectively, was mainly due to an adjustment in the second quarter of 2007 of deferred income taxes for a reduction in statutory income tax rates in Canada of $682,000 (2 cents per share) (reflected as a credit to income tax expense) and differences in income taxes accrued on operations outside of the U.S.


10.	During the first quarter of 2007, we adopted new accounting standards for maintenance costs and uncertain tax positions (Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) No. AUG AIR-1, Accounting for Planned Major Maintenance Activities and FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, respectively), neither of which resulted in adjustments to the results of operations or financial condition reported in prior periods. In addition, we adopted FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115, which permits entities to choose to measure many financial instruments and certain other items at fair value, and FASB Statement No. 157, Fair Value Measurements, neither of which had an impact on results for the second quarter or first six months of 2007.

	We account for any planned major maintenance of plant and equipment on the deferral method whereby the actual costs incurred are capitalized and amortized to the next major maintenance (typically no greater than 12 months), which is the estimated period benefited by the planned major maintenance activity. Expenditures for regular repairs and maintenance are expensed as incurred.

	For financial reporting purposes, we had unrecognized tax benefits on uncertain tax positions of $3.4 million as of January 1, 2007. Included in this amount were $2.7 million for tax positions for which ultimate deductibility is highly certain but for which the timing of deductibility is uncertain. Because of the impact of deferred income tax accounting, other than interest, penalties and deductions not related to timing, a longer deductibility period would not affect the total income tax expense or the annual effective tax rate shown for financial reporting purposes, but would accelerate payments to the taxing authority. Tax payments resulting from the successful challenge by the taxing authority for accelerated deductions taken by us would possibly result in the payment of interest and penalties. Accordingly, we also accrue for possible interest and penalties on uncertain tax positions. The balance of accrued interest and penalties on deductions taken relating to uncertain tax positions was approximately $1 million at January 1, 2007 ($600,000 net of corresponding federal and state income tax benefits). As of June 30, 2007, there were no material changes since January 1, 2007 to unrecognized tax benefits on uncertain tax positions and related accrued interest and penalties. Accruals for possible interest and penalties on uncertain tax positions are reflected in income tax expense for financial reporting purposes.

	We anticipate that by December 31, 2007, we will settle several disputed issues raised by the Internal Revenue Service (the “IRS”) during its examination of our U.S. income tax returns for 2001-2003, the most significant of which regards the recognition of our captive insurance subsidiary as an insurance company for U.S. income tax purposes. It is reasonably possible that a settlement with the IRS for the disputed issues would cost us $1.4 million, which would be applied against the balance of unrecognized tax benefits and accrued interest and penalties.

	Tredegar and its subsidiaries file income tax returns in U.S., state and foreign jurisdictions. Tredegar is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2001. With few exceptions, Tredegar and its subsidiaries are no longer subject to state or non-U.S. income tax examinations by tax authorities for years before 2003.

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

Forward-looking and Cautionary Statements

Some of the information contained in this quarterly report on Form 10-Q 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 words such as “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. Risk factors that may cause such a difference are summarized on pages 26-28 and are incorporated herein.

Executive Summary

Second-quarter 2007 net income was $9.9 million (25 cents per share) compared with $9.3 million (24 cents per share) in the second quarter of 2006. The increase was primarily due to lower pension and interest costs, a lower effective income tax rate and higher profits in our films business, partially offset by significantly lower profits in our aluminum business. Gains on the sale of assets and other items and losses related to plant shutdowns, asset impairments and restructurings are described in Note 2 on page 6. The following tables present Tredegar’s net sales and operating profit by segment for the three and six months ended June 30, 2007 and 2006:

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


	Three Months Ended June 30						Six Months Ended June 30

	2007			2006			2007			2006

Net Sales
Film Products	$	130,259		$	121,405		$	266,320		$	247,736
Aluminum Extrusions		142,847			153,836			282,233			288,995

Total net sales		273,106			275,241			548,553			536,731
Add back freight		6,476			7,250			12,623			13,724

Sales as shown in the Consolidated Statements of Income	$	279,582		$	282,491		$	561,176		$	550,455


Operating Profit
Film Products:
Ongoing operations	$	13,762		$	13,264		$	30,582		$	28,841
Plant shutdowns, asset impairments and restructurings, net of gain on sale of assets and related income from LIFO inventory liquidations		(26	)		768			(393	)		(815	)

Aluminum Extrusions:
Ongoing operations		3,288			5,674			6,754			10,540
Plant shutdowns, asset impairments and restructurings		(99	)		(405	)		(99	)		(514	)

AFBS (formerly Therics):
Ongoing operations		—			—			—			—
Loss on investment in Therics, LLC		—			—						(25	)
Restructurings		—			—			(366	)		—


Total		16,925			19,301			36,478			38,027
Interest income		283			285			671			507
Interest expense		557			1,468			1,381			2,900
Gain on sale of corporate assets		—			—			—			56
Stock option-based compensation costs		196			282			465			493
Corporate expenses, net		2,272			3,002			5,083			6,761

Income before income taxes		14,183			14,834			30,220			28,436
Income taxes		4,248			5,584			9,952			10,971

Net income	$	9,935		$	9,250		$	20,268		$	17,465

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.

Film Products. Net sales and operating profit from ongoing operations in Film Products were up 7.3% and 3.8%, respectively, in the second quarter of 2007 versus 2006. Volume was 60.4 million pounds in the second quarter of 2007 compared with 61.9 million pounds in the second quarter of last year. Higher net sales were primarily due to increased sales of high-value elastic, apertured and surface protection materials, partially offset by lower sales of certain commodity barrier films that were dropped in conjunction with the shutdown in the second quarter of 2006 of the plant in LaGrange, Georgia. Volume declined as a result of exiting this market.

Profits increased in the second quarter of 2007 compared with the second quarter of 2006 due primarily to the appreciation of the U.S. Dollar equivalent value of functional currencies for operations outside of the U.S. and the improvement in the sales of high-value materials noted above. We estimate that the impact of the lag in the pass-through of changes in average resin costs was not significant in the second quarter of 2007 compared with a positive impact on operating profit of $500,000 in the second 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.

Net sales and operating profit from ongoing operations in Film Products were up 7.5% and 6.3%, respectively, in the first six months of 2007 versus 2006. Operating profit from ongoing operations excluding the estimated effects of resin pass-through lag was $30.1 million in the first six months of 2007, up 14.0% versus $26.4 million in the first six months of 2006. Volume decreased to 125.7 million pounds in the first six months of 2007 from 126.4 million pounds in the first six months of 2006. The growth in sales and operating profit and decline in volume during the first six months of 2007 versus 2006 were primarily due to the same factors discussed for the second quarter of 2007 versus 2006.

Since the second quarter of last year, excluding the effects of the lag in the passthrough of changes in resin costs, quarterly operating profit in films has had significant ups and downs. Future performance is likely to exhibit similar fluctuations.

Capital expenditures were $8.7 million in the first six months of 2007 and are projected to be approximately $20 million for the year. Depreciation expense was $16.5 million in the first six months of 2007 and is projected to be $33 million for the year.

Aluminum Extrusions. Net sales and operating profit from ongoing operations in Aluminum Extrusions were down 7.2% and 42.1%, respectively, in the second quarter of 2007 versus 2006. Volume decreased to 56.9 million pounds in the second quarter of 2007, down 18.0% from 69.4 million pounds in the second quarter of 2006.

Net sales and operating profit from ongoing operations in Aluminum Extrusions were down 2.4% and 35.2%, respectively, in the first six months of 2007 versus 2006. Volume decreased to 114.7 million pounds in the first six months of 2007, down 13.8% from 133.0 million pounds in the first six months of 2006.

The decreases in net sales and operating profit in the second quarter and first six months of 2007 versus 2006 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. Overall backlog at the end of the quarter was 16.6 million pounds, down from 29.5 million pounds at June 30, 2006.

Demand for extruded aluminum shapes is down significantly in most market segments. Our bookings and backlog are at historic lows for this time of year. The combination of poor demand and a much stronger Canadian Dollar, which impacts our costs, make the prospects for this unit look weak in the near future.

Capital expenditures were $3.4 million in the first six months of 2007 and are projected to be approximately $8 million for the year. Depreciation expense was $6.2 million in the first six months of 2007 and is projected to be $13 million for the year.

Other Items. Net pension income was $587,000 in the second quarter of 2007 and $1.2 million in the first six months of 2007, a favorable change of $1.3 million (2 cents per share after taxes) and $2.6 million (4 cents per share after taxes) from amounts recognized in the second quarter and first six months 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 on page 12. We contributed $1.1 million to our pension plans in 2006 and expect to contribute the same amount in 2007.

Interest expense was $557,000 in the second quarter of 2007 and $1.4 million in first six months of 2007, a decline of $911,000 (2 cent per share after taxes) and $1.5 million (3 cents per share after taxes) versus the second quarter and first six months of last year, respectively, due to lower average debt outstanding.

On April 2, 2007, we invested $10 million in Harbinger Capital Partners Special Situations Fund, L.P. (“Harbinger”), a fund that seeks to achieve superior absolute returns by participating primarily in medium to long-term investments involving distressed/high yield debt securities, special situation equities and private loans and notes. The fund is a highly speculative investment subject to a two-year lock-up and additional limitations on withdrawal. There is no secondary market for interests in the fund. Our investment in Harbinger, which represents less than 2% of Harbinger’s total partnership capital, is accounted for under the cost method. At June 30, 2007, Harbinger reported our capital account value at $12.4 million reflecting $2.4 million of unrealized appreciation ($1.5 million or 4 cents per share after taxes) versus the carrying value in our balance sheet of $10 million (included in “Other assets and deferred charges”).

Net capitalization and other credit measures are provided in the liquidity and capital resources section beginning on page 18.

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, 2006, 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 income taxes. These policies require management to exercise judgments that are often difficult, subjective and complex due to the necessity of estimating the effect of matters that are inherently uncertain. Actual results could differ significantly from those estimates under different assumptions and conditions. 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 have been no changes in these policies that have had a significant impact on results of operations or financial position. See Note 2 on page 6 for losses related to plant shutdowns, asset impairments and restructurings occurring during 2007 and the comparable period in 2006.

Results of Operations

Second Quarter 2007 Compared with Second Quarter 2006

Overall, sales in the second quarter of 2007 decreased by 1.0% compared with 2006. Net sales (sales less freight) increased 7.3% in Film Products primarily due to increased sales of high-value elastic, apertured and surface protection materials, partially offset by lower sales of certain commodity barrier films that were dropped in conjunction with the shutdown in the second quarter of 2006 of the plant in LaGrange, Georgia. Net sales decreased 7.2% in Aluminum Extrusions due to a decline in volume of 18.0% partially offset by higher selling prices. For more information on net sales and volume, see the executive summary beginning on page 12.

Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales decreased to 12.0% in the second quarter of 2007 from 12.6% in 2006. The gross profit margin increased in Film Products but decreased in Aluminum Extrusions primarily because of the changes in net sales noted above.

As a percentage of sales, selling, general and administrative and R&D expenses were 6.7% in the second quarter of 2007, up from 6.5% in the second quarter of last year. The increase is primarily due to higher costs associated with a new information system in Film Products.

Plant shutdowns, asset impairments and restructurings in the second quarter of 2007 shown in the segment operating profit table on page 12 include:


•	A pretax charge of $99,000 for severance and other employee-related costs in connection with restructurings in Aluminum Extrusions; and

•	A pretax charge of $26,000 related to the shutdown of the films manufacturing facility in LaGrange, Georgia.

Plant shutdowns, asset impairments and restructurings in the second quarter of 2006 shown in the segment operating profit table on page 12 include:

•	A net pretax gain of $822,000 associated with the shutdown of the films manufacturing facility in LaGrange, Georgia, including a gain of $1.4 million for related LIFO inventory liquidations (included in “Cost of goods sold” in the consolidated statements of income), partially offset by severance and other costs of $567,000; and

•	Pretax charges of $459,000 for severance and other employee-related costs in connection with restructurings in Aluminum Extrusions ($405,000) and Film Products ($54,000).

	For more information on costs and expenses, see the executive summary beginning on page 12.

Interest income, which is included in “Other income (expense), net” in the consolidated statements of income, was $283,000 in the second quarter of 2007 and $285,000 in 2006. Interest expense was $557,000 in the second quarter of 2007, a decline of $911,000 (2 cents per share after taxes) versus the second quarter of last year due to lower average debt outstanding. Average debt outstanding and interest rates were as follows:



	Three Months Ended June 30

(In Millions)	2007			2006

Floating-rate debt with interest charged on a rollover basis at one-month LIBOR:
Average outstanding debt balance	$	39.6		$	101.5
Average interest rate		6.1	%		5.9	%
Fixed-rate and other debt:
Average outstanding debt balance	$	2.2		$	5.3
Average interest rate		3.3	%		6.3	%

Total debt:
Average outstanding debt balance	$	41.8		$	106.8
Average interest rate		6.0	%		5.9	%

The effective tax rate was 30.0% in the second quarter of 2007 compared with 37.6% in the second quarter of 2006. The decrease in the effective tax rate, which had a favorable impact of approximately 3 cents per share in the second quarter of 2007 versus last year, was mainly due to an adjustment of deferred income taxes for a reduction in statutory income tax rates in Canada of $682,000 (2 cents per share) (reflected as a credit to income tax expense) and differences in income taxes accrued on operations outside of the U.S.

First Six Months of 2007 Compared with First Six Months of 2006

Overall, sales in the first six months of 2007 increased by 1.9% compared with 2006. Net sales (sales less freight) increased 7.5% in Film Products primarily due to increased sales of high-value elastic, apertured and surface protection materials, partially offset by lower sales of certain commodity barrier films that were dropped in conjunction with the shutdown in the second quarter of 2006 of the plant in LaGrange, Georgia. Net sales decreased 2.4% in Aluminum Extrusions due to a decline in volume of 13.8% partially offset by higher selling prices. For more information on net sales and volume, see the executive summary beginning on page 12.

Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales decreased to 12.6% in the first six months of 2007 from 12.8% in 2006. The gross profit margin increased in Film Products but decreased in Aluminum Extrusions primarily because of the changes in net sales noted above.

As a percentage of sales, selling, general and administrative and R&D expenses were 6.9% in the first six months of 2007, up from 6.6% in the first six months of last year. The increase is primarily due to higher costs associated with a new information system in Film Products.

Plant shutdowns, asset impairments and restructurings in the first six months of 2007 shown in the segment operating profit table on page 12 include:


•	A pretax charge of $366,000 related to the estimated loss on the sub-lease of a portion of the AFBS, Inc. (formerly know as Therics, Inc.) facility in Princeton, New Jersey;

•	A pretax charge of $338,000 for asset impairments relating to machinery and equipment in Film Products;

•	A pretax charge of $99,000 for severance and other employee-related costs in connection with restructurings in Aluminum Extrusions; and

•	A pretax charge of $55,000 related to the shutdown of the films manufacturing facility in LaGrange, Georgia.

Plant shutdowns, asset impairments and restructurings in the first six months of 2006 shown in the segment operating profit table on page 12 include:

•	A net pretax gain of $418,000 associated with the shutdown of the films manufacturing facility in LaGrange, Georgia, including a gain of $1.4 million for related LIFO inventory liquidations (included in “Cost of goods sold” in the consolidated statements of income), partially offset by severance and other costs of $841,000 and asset impairment charges of $130,000;

•	Pretax charges of $1 million for asset impairments in Film Products; and

•	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).

In the six months ended June 30, 2006, a pretax gain on the sale of public equity securities of $56,000 (proceeds also of $56,000) is included in “Other income (expense), net” in the consolidated statements of income and “Gain on the sale of corporate assets” in the operating profit by segment table on page 12. For more information on costs and expenses, see the executive summary beginning on page 12.

Interest income, which is included in “Other income (expense), net” in the consolidated statements of income, was $671,000 in the first six months of 2007 and $507,000 in 2006. Interest expense was $1.4 million in the first six months of 2007, a decline of $1.5 million (3 cent per share after taxes) versus the first six months of last year due to lower average debt outstanding. Average debt outstanding and interest rates were as follows:



	Six Months Ended June 30

(In Millions)	2007			2006

Floating-rate debt with interest charged on a rollover basis at one-month LIBOR:
Average outstanding debt balance	$	45.4		$	105.5
Average interest rate		6.1	%		5.6	%
Fixed-rate and other debt:
Average outstanding debt balance	$	2.3		$	5.5
Average interest rate		4.1	%		6.5	%

Total debt:
Average outstanding debt balance	$	47.7		$	111.0
Average interest rate		6.0	%		5.6	%

The effective tax rate was 32.9% in the first six months of 2007 compared with 38.6% in the first six months of 2006. The decrease in the effective tax rate, which had a favorable impact of approximately 4 cents per share in the first six months of 2007 versus last year, was mainly due to an adjustment in the second quarter of 2007 of deferred income taxes for a reduction in statutory income tax rates in Canada of $682,000 (2 cents per share) (reflected as a credit to income tax expense) and differences in income taxes accrued on operations outside of the U.S.

Liquidity and Capital Resources

Changes in operating assets and liabilities from December 31, 2006 to June 30, 2007 are summarized below:


•	Accounts receivable increased significantly by $27.8 million (22.8%).

	–	Accounts receivable in Film Products increased by $6.1 million due to higher sales in the second quarter of 2007 compared with the fourth quarter of 2006. Days sales outstanding (“DSO”) was 49 at June 30, 2007, which is within the range experienced over the last twelve months.

	–	Accounts receivable in Aluminum Extrusions increased by $21.7 million due to higher sales in the second quarter of 2007 compared with the fourth quarter of 2006. DSO was approximately 45 at June 30, 2007, consistent with historical levels.

•	Income taxes recoverable decreased by $5.7 million due to the timing of income and tax payments.

•	Inventories increased by less than $500,000 (less than 1%).

•	Net property, plant and equipment was down $8.3 million (2.5%) due primarily to depreciation of $22.8 million compared with capital expenditures of $12.1 million, $3.7 million received from a customer for reimbursement of certain machinery and equipment costs and asset impairments relating to machinery and equipment in Film Products of $338,000, partially offset by appreciation of foreign currencies relative to the U.S. Dollar (favorable impact of $6.6 million).

•	Other assets increased by $12.8 million (20.0%) due primarily to the $10 million investment in Harbinger (see page 14), an increase in prepaid pension assets of $2.1 million and investments in real estate in the second quarter of 2007 of $1.1 million.

•	Accounts payable increased significantly by $17.3 million (25.0%).

	–	Accounts payable days were 30 in Film Products at June 30, 2007, which is within the range experienced over the last twelve months.

	–	Accounts payable days were 35 in Aluminum Extrusions at June 30, 2007, which is within the range experienced over the last twelve months.

•	Accrued expenses decreased by $5.5 million (13.1%) due primarily to incentive compensation and bonus awards accrued for all of 2006 that were paid in 2007.

Cash provided by operating activities was $37.0 million in the first six months of 2007 compared with $48.3 million in 2006. The change is primarily related to normal volatility of working capital components.

Cash used in investing activities was $19.3 million in the first six months of 2007, down from $25.3 million in 2006 due primarily to lower capital expenditures of $12.8 million and reimbursements received from a customer related to equipment purchases of $3.7 million, partially offset by an investment in Harbinger of $10 million (see page 14) and investments in real estate of $1.1 million.

Capital expenditures in the first six months of 2007 primarily included the normal replacement of machinery and equipment and continued expansion of capacity for surface protection films and elastic materials. Capital expenditures for all of 2007 are expected to be approximately $20 million in Film Products and about $8 million in Aluminum Extrusions.

Net cash flow used in financing activities was $27.1 million in the first six months of 2007, and related to repayments on our revolving credit facility with excess cash flow of $30 million and the payment of first and second quarter regular dividends aggregating $3.2 million (4 cents per share per quarter), partially offset by proceeds received from the exercise of stock options of $6.5 million.

Further information on cash flows for the first six months of 2007 and 2006 are provided in the consolidated statements of cash flows on page 4.

Net capitalization and indebtedness as defined under our revolving credit agreement as of June 30, 2007 are as follows:



Net Capitalization and Indebtedness as of June 30, 2007 (In Thousands)

Net capitalization:
Cash and cash equivalents	$	32,397
Debt:
$300 million revolving credit agreement maturing December 15, 2010		30,000
Other debt		2,179

Total debt		32,179

Debt net of cash and cash equivalents		(218	)
Shareholders’ equity		549,690

Net capitalization	$	549,472

Indebtedness as defined in revolving credit agreement:
Total debt	$	32,179
Face value of letters of credit		5,907
Liabilities relating to derivative financial instruments		42

Indebtedness	$	38,128

Under the revolving credit agreement, borrowings are permitted up to $300 million, and $269 million was available to borrow at June 30, 2007. The credit spread and commitment fees charged on the unused amount under the revolving credit agreement at various indebtedness-to-adjusted EBITDA levels are as follows:



Pricing Under Revolving Credit Agreement (Basis Points)

Indebtedness-to-Adjusted EBITDA Ratio	Credit Spread Over LIBOR	Commitment Fee

> 2.50x but <= 3x	125	25
> 1.75x but <= 2.50x	100	20
> 1x but <=1.75x	87.5	17.5
<= 1x	75	15

At June 30, 2007, the interest rate on debt under the revolving credit agreement was priced at one-month LIBOR plus the applicable credit spread of 75 basis points.

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



Computations of Adjusted EBITDA, Adjusted EBIT, Leverage Ratio and Interest Coverage Ratio as Defined in Revolving Credit Agreement Along with Related Most Restrictive Covenants As of June 30, 2007 (In Thousands)

Computations of adjusted EBITDA and adjusted EBIT as defined in revolving credit agreement for the twelve months ended June 30, 2007:
Net income	$	41,004
Plus:
After-tax losses related to discontinued operations		—
Total income tax expense for continuing operations		19,617
Interest expense		4,001
Charges related to stock option grants and awards accounted for under the fair value-based method		942
Losses related to the application of the equity method of accounting		—
Depreciation and amortization expense for continuing operations		45,309
All non-cash losses and expenses, plus cash losses and expenses not to exceed $10,000, for continuing operations that are classified as unusual, extraordinary or which are related to plant shutdowns, asset impairments and/or restructurings (cash-related of $2,802)		3,140
Minus:
After-tax income related to discontinued operations		—
Total income tax benefits for continuing operations		—
Interest income		(1,404	)
All non-cash gains and income, plus cash gains and income not to exceed $10,000, for continuing operations that are classified as unusual, extraordinary or which are related to plant shutdowns, asset impairments and/or restructurings (cash-related of $261)		(1,761	)
Plus or minus, as applicable, pro forma EBITDA adjustments associated with acquisitions and asset dispositions		—

Adjusted EBITDA as defined in revolving credit agreement		110,848

Less: Depreciation and amortization expense for continuing operations (including pro forma for acquisitions and asset dispositions)		(45,309	)

Adjusted EBIT as defined in revolving credit agreement	$	65,539

Shareholders’ equity at June 30, 2007	$	549,690
Computations of leverage and interest coverage ratios as defined in revolving credit agreement:
Leverage ratio (indebtedness-to-adjusted EBITDA)		.34	x
Interest coverage ratio (adjusted EBIT-to-interest expense)		16.38	x
Most restrictive covenants as defined in revolving credit agreement:
Maximum permitted aggregate amount of dividends that can be paid by Tredegar during the term of the revolving credit agreement ($100,000 plus 50% of net income generated after October 1, 2005)	$	129,680
Minimum adjusted shareholders’ equity permitted ($351,918 plus 50% of net income generated after October 1, 2005)	$	381,598
Maximum leverage ratio permitted:
Ongoing		3.00	x
Pro forma for acquisitions		2.50	x
Minimum interest coverage ratio permitted		2.50	x

We believe that as of June 30, 2007, we were, and currently we are, in compliance with all of our debt covenants. 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 a covenant through an amendment to the revolving 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 the borrowing availability under our revolving credit agreement, 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.

Item 3. 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 18 regarding the revolving 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 energy costs. With the exception of certain contractual arrangements, there is no assurance of our ability to pass through higher raw material and energy costs to our customers.

Average quarterly prices of low density polyethylene resin (a primary raw material for Film Products) are shown in the chart below.

(LINE GRAPH)

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

Resin prices in Europe, Asia and South America have exhibited similar trends. The price of resin is driven by several factors including supply and demand and the prices of oil, ethylene and natural gas. To address fluctuating resin prices, we have indexed pass-through or cost-sharing agreements covering a majority of our sales, but many have a 90-day lag. Most new customer contracts contain resin pass-through arrangements.

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

(LINE GRAPH)

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

In Aluminum Extrusions, we hedge from time-to-time a portion of our exposure to natural gas price volatility (see the chart below) by entering into fixed-price forward purchase contracts with our natural gas suppliers. As of June 30, 2007, we had fixed prices through our natural gas suppliers for a portion of our usage through the end of the year. 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.

(LINE GRAPH)

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

We sell to customers in foreign markets through our foreign operations and through exports from our U.S. plants. The percentage of sales from manufacturing operations related to foreign markets for the first six months of 2007 and 2006 are as follows:



Percentage of Net Sales from Manufacturing Operations Related to Foreign Markets*

	Six Months Ended June 30

	2007						2006

	Exports From U.S.			Foreign Operations			Exports From U.S.			Foreign Operations

Canada		4	%		14	%		4	%		16	%
Europe		1			13			1			12
Latin America		0			2			1			2
Asia		4			5			4			3

Total		9	%		34	%		10	%		33	%


* Based on consolidated net sales from manufacturing operations (excludes AFBS).

We attempt to match the pricing and cost of our products in the same currency (except in Canada where about 80% of our sales of aluminum extrusions are U.S. Dollar-based) and generally view the volatility of foreign currencies (see trends for the Euro, Canadian Dollar and Chinese Yuan in the chart on page 25) 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 relates to the Canadian Dollar, the Euro, the Chinese Yuan, the Hungarian Forint and the Brazilian Real.

The relatively high percentage of U.S. Dollar-priced sales in Canada causes a mismatch between the currency denomination of sales and costs resulting in 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). Changes in the value of the Canadian Dollar relative to the U.S. Dollar had an adverse impact on operating profit in the first six months of 2007 of $700,000 compared with the first six months of 2006. In Film Products, where we have been able to better match the currency of our sales and costs, we estimate that the appreciation of foreign currencies (primarily the Euro and Hungarian Forint and to a lesser extent the Chinese Yuan and Brazilian Real) relative to the U.S. Dollar had a positive impact on operating profit of about $1.2 million in the first six months of 2007 compared with 2006.

We continue 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. In addition, we have partially hedged our exposure to the Canadian Dollar and Euro as shown in the following tables (accounted for as cash flow hedges):


(In Thousands Except Exchange Rates)

				Notional Amount as a % of Forecasted USD-Equiv. CAD- Related Costs for Period
								USD-Equivalent Strike Prices of Options Bought & Sold on CAD/USD						Pretax Unrealized Gain (Loss) on Options at 6/30/07 Included in Shareholders’ Equity						Cash (Paid to) Received from Counter- party at Expiration of Options			Gain (Loss) on Options Recognized in Income for Period
Description of Currency Exposure, Options Hedging Strategy Used & Periods Covered																	USD- Equiv. Average Reference Price of CAD for Period

					Net Option Premium (Paid) Received
	Notional Amount of Option Contracts																						Portion Deemed Effective as Hedge			Portion Deemed Ineffective as Hedge
								Call Options Bought			Put Options Sold



Exposure: About 80% of sales of extrusions manufactured in facilities in Canada are denominated or economically priced in U.S. Dollars (“USD”) while conversion costs are denominated or economically priced in Canadian Dollars (“CAD”).
Hedge Strategy: Bought average rate call options & sold average rate put options on CAD/USD.
Periods Covered by Option Contracts:
5/11/06 to end of second quarter 2006		$	2,500	38%		$	—		$	0.9500		$	0.8850			n/a		$	0.8995		$	—		$	—		$	—
Third quarter 2006			5,000	40%			—			0.9500			0.8749			n/a			0.8919			—			—			—
Fourth quarter 2006			6,500	53%			—			0.9324			0.8650			n/a			0.8793			—			—			—
First quarter 2007			3,500	28%			—			0.9100			0.8380			n/a			0.8534			—			—			—
First quarter 2007			3,500	28%			—			0.9000			0.8345			n/a			0.8534			—			—			—
Second quarter 2007			3,500	28%			—			0.9100			0.8430			n/a			0.9110			1			1			—
Second quarter 2007			3,500	28%			—			0.9000			0.8364			n/a			0.9110			40			40			—
Third quarter 2007			3,500	28%			—			0.9100			0.8473		$	127			n/a			n/a			n/a			—
Third quarter 2007			3,500	28%			—			0.9000			0.8403			165			n/a			n/a			n/a			—
Fourth quarter 2007			3,500	28%			—			0.9100			0.8516			143			n/a			n/a			n/a			—
Fourth quarter 2007			3,500	28%			—			0.9000			0.8446			176			n/a			n/a			n/a			—

															$	611


(In Thousands Except Exchange Rates)

				Sensitivity Analysis of Amount Tredegar (Pays to) Receives from Counterparty in 2007 for Settlement of CAD/USD Options
Average CAD Per USD	Average USD Equiv. of CAD
				First Quarter				Second Quarter				Third Quarter				Fourth Quarter
				First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Total

1.21951		$	0.8200		$	(136	)		$	(164	)		$	(197	)		$	(232	)		$	(729	)
1.20482			0.8300			(52	)			(81	)			(115	)			(149	)			(397	)
1.19048			0.8400			—				(12	)			(32	)			(67	)			(111	)
1.17647			0.8500			—				—				—				(7	)			(7	)
1.16279			0.8600			—				—				—				—				—
1.14943			0.8700			—				—				—				—				—
1.13636			0.8800			—				—				—				—				—
1.12360			0.8900			—				—				—				—				—
1.11111			0.9000			—				—				—				—				—
1.09890			0.9100			39				39				39				39				155
1.08696			0.9200			116				116				116				116				465
1.07527			0.9300			194				194				194				194				774
1.06383			0.9400			271				271				271				271				1,084
1.05263			0.9500			348				348				348				348				1,393
1.04167			0.9600			426				426				426				426				1,702
1.03093			0.9700			503				503				503				503				2,012
1.02041			0.9800			580				580				580				580				2,321
1.01010			0.9900			658				658				658				658				2,631
1.00000			1.0000			735				735				735				735				2,940


(In Thousands Except Exchange Rates)

				Notional Amount as a % of Forecasted USD-Equiv. Royalty from Nether- lands Sub
								USD- Equivalent Strike Prices of Options Bought & Sold on EUR/USD						Pretax Unrealized Gain (Loss) on Options at 6/30/07 Included in Shareholders’Equity						Cash (Paid to) Received from Counter- party at Expiration of Options				Gain (Loss) on Options Recognized in Income for Period
																	USD- Equiv. Average Reference Price of EUR for Period

Description of Currency Exposure, Options Hedging Strategy Used & Periods Covered
	Notional Amount of Option Contracts				Net Option Premium (Paid) Received																			Portion Deemed Effective as Hedge				Portion Deemed Ineffective as Hedge
								Call Options Sold			Put Options Bought



Exposure: Significant royalty on sales from film technology licensed to subsidiary in the Netherlands is earned in Euros (“EUR”).
Hedge Strategy: Sold average rate call options & bought average rate put options on EUR/USD.
Periods Covered by Option Contracts:
First quarter 2007		$	3,200	74%		$	—		$	1.3350		$	1.2800		n/a			$	1.3101		$	—			$	—			$	—
Second quarter 2007			3,200	82%			—			1.3480			1.2800		n/a				1.3485			(1	)			(1	)			—
Third quarter 2007			3,200	75%			—			1.3575			1.2800		$(13	)			n/a			n/a				n/a				—
Fourth quarter 2007			3,200	76%			—			1.3640			1.2800		(28	)			n/a			n/a				n/a				—

															$(41	)


(In Thousands Except Exchange Rates)

Average EUR Per USD	Average USD Equiv. of EUR			Sensitivity Analysis of Amount Tredegar (Pays to) Receives from Counterparty in 2007 for Settlement of EUR/USD Options

				First Quarter				Second Quarter				Third Quarter				Fourth Quarter
				First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Total

0.84034		$	1.1900		$	225			$	225			$	225			$	225			$	900
0.82645			1.2100			175				175				175				175				700
0.81301			1.2300			125				125				125				125				500
0.80000			1.2500			75				75				75				75				300
0.78740			1.2700			25				25				25				25				100
0.77519			1.2900			—				—				—				—				—
0.76336			1.3100			—				—				—				—				—
0.75188			1.3300			—				—				—				—				—
0.74074			1.3500			(36	)			(5	)			—				—				(41	)
0.72993			1.3700			(84	)			(52	)			(29	)			(14	)			(180	)
0.71942			1.3900			(132	)			(100	)			(77	)			(61	)			(369	)
0.70922			1.4100			(180	)			(147	)			(124	)			(108	)			(559	)
0.69930			1.4300			(228	)			(195	)			(171	)			(155	)			(748	)

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

(LINE GRAPH)

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

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 our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) under the 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 to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting during the quarter ended June 30, 2007, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1A. Risk Factors.

There are a number of risks and uncertainties that can have a material effect on the operating results of our businesses and our financial condition. These risk factors 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.* These costs include, without limitation, the cost of resin (the raw material on which Film Products primarily depends), aluminum (the raw material on which Aluminum Extrusions primarily depends), natural gas (the principal fuel necessary for Aluminum Extrusions’ plants to operate), electricity and diesel fuel. Resin, aluminum and natural gas prices are volatile, and the prices for resin and aluminum have increased significantly since early 2002. We attempt to mitigate the effects of increased costs through price increases and contractual pass-through provisions, but there are no assurances that higher prices can effectively be passed through to our customers or that we will be able to offset fully or on a timely basis the effects of higher raw material costs through price increases or pass-through arrangements. Further, there is no assurance that cost control efforts will be sufficient to offset any additional future declines in revenue or increases in energy, raw material or other costs.

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


•	Non-compliance with any of the covenants in our $300 million credit facility could result in all outstanding debt under the agreement becoming due, which could have an adverse effect on our financial condition or liquidity. The credit agreement governing our credit facility contains restrictions and financial covenants that could restrict our financial flexibility. Our failure to comply with these covenants could result in an event of default, which if not cured or waived, could have an adverse effect on our financial condition and liquidity.

•	Our $10 million investment in Harbinger Capital Partners Special Situations Fund, L.P. (“Harbinger”) and $6.6 million investment ($1.6 million carrying value) in Novalux, Inc. have high risk. Harbinger is a fund that seeks to achieve superior absolute returns by participating primarily in medium to long-term investments involving distressed/high yield debt securities, special situation equities and private loans and notes. The fund is a highly speculative investment subject to a two-year lock-up and additional limitations on withdrawal. Novalux is developing laser technology for potential use in a variety of applications and may need several more rounds of financing to have the opportunity to complete product development and bring its technology to market, which may never occur. There is no secondary market for selling our interests in Harbinger or Novalux.

Film Products


•	*Film Products is highly dependent on sales associated with one customer, The Procter & Gamble Company (“P&G”).* P&G comprised approximately 23% of our consolidated net sales in 2006, 25% in 2005 and 27% in 2004. The loss or significant reduction of sales associated with P&G would have a material adverse effect on our business. Other P&G-related factors that could adversely affect our business include, by way of example, (i) failure by P&G to achieve success or maintain share in markets in which P&G sells products containing our materials, (ii) operational decisions by P&G that result in component substitution, inventory reductions and similar changes and (iii) delays in P&G rolling out products utilizing new technologies developed by us. While we have undertaken efforts to expand our customer base, there can be no assurance that such efforts will be successful, or that they will offset any delay or loss of sales and profits associated with P&G.

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

•	*Continued growth in Film Products’ sale of high value protective film products is not assured.* A shift in our customers’ preference to new or different products could have a material adverse effect on our sale of protective films. Similarly, a decline in consumer demand for notebook computers or liquid crystal display (LCD) monitors or a decline in the rate of growth in purchases of LCD televisions could have a significant negative impact on protective film sales.

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


	intellectual property litigation or similar proceeding could have a 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. Because of the high degree of operating leverage inherent in our operations (generally constant fixed costs until full capacity utilization is achieved), the percentage drop in operating profits in a cyclical downturn will likely exceed the percentage drop in volume. Any benefits associated with cost reductions and productivity improvements may not be sufficient to offset the adverse effects on profitability from pricing and margin pressure and higher bad debts that usually accompany a downturn. In addition, higher energy costs and the appreciation of the U.S. Dollar equivalent value of the Canadian Dollar can further reduce profits unless offset by price increases or cost reductions and productivity improvements.

•	*The markets for our products are highly competitive with product quality, service, delivery performance and price being the principal competitive factors.* Aluminum Extrusions has around 1,800 customers in a variety of end-use markets within the broad categories of building and construction, distribution, transportation, machinery and equipment, electrical and consumer durables. No single customer exceeds 4% of Aluminum Extrusions’ net sales. Due to the diverse customer mix across many end-use markets, we believe the industry generally tracks the real growth of the overall economy (historical cross-cycle volume growth has been in the 3% range).

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

	Foreign imports, primarily from China, represent a growing portion of the North American aluminum extrusion market. Foreign competition to date has been primarily large volume, standard extrusion profiles that impact some of our less strategic end-use markets. Market share erosion in other end-use markets remains possible.

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

Item 4. Submission of Matters to a Vote of Security Holders.

Tredegar’s Annual Meeting of Shareholders was held on May 17, 2007. The following sets forth the vote results with respect to each of the matters voted upon by shareholders at the meeting:


(a)	Election of Directors


Nominee	Number of Votes For	Number of Votes Withheld	Broker Non-Votes

Donald T. Cowles	29,684,536	7,741,819	0
John D. Gottwald	29,698,857	7,727,498	0
Thomas G. Slater, Jr.	27,868,792	9,557,563	0


	The term of office for the following directors continued after the annual meeting and such directors were not up for election at the annual meeting:

	Horst R. Adam Austin Brockenbrough, III William M. Gottwald Richard L. Morrill Norman A. Scher R. Gregory Williams


(b)	Ratification of Appointment of PricewaterhouseCoopers LLP

	Ratification of appointment of PricewaterhouseCoopers LLP as Tredegar’s independent registered public accounting firm for the fiscal year ending December 31, 2007:

Item 6. Exhibits.

Exhibit Nos.


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

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


32.2	Certification of D. Andrew Edwards, Vice President, 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.

SIGNATURES

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


		Tredegar Corporation (Registrant)


Date:	August 8, 2007	/s/ D. Andrew Edwards

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