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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, 2002
 
OR
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                    to                     
 
Commission file number 1-10258
 
 
Tredegar Corporation
(Exact Name of Registrant as Specified in its Charter)
 
Virginia
(State or Other Jurisdiction of
Incorporation or Organization)
  
54-1497771
(I.R.S. Employer
Identification No.)
 
1100 Boulders Parkway
Richmond, Virginia
(Address of Principal Executive Offices)
  
23225
(Zip Code)
 
Registrant’s telephone number, including area code: (804) 330-1000
 
 
Indicate by check 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  ¨
 
The number of shares of Common Stock, no par value, outstanding as of July 29, 2002: 38,369,640.
 

 
PART I—FINANCIAL INFORMATION
 
Item 1.    Financial Statements.
 
TREDEGAR CORPORATION
 
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
 
    
June 30,
2002
     
Dec. 31,
2001
  
ASSETS
                  
Current assets:
                  
Cash and cash equivalents
   
$
96,544
 
   
$
96,810
 
Accounts and notes receivable
   
 
99,683
 
   
 
79,274
 
Income taxes recoverable
   
 
2,094
 
   
 
5,410
 
Inventories
   
 
41,237
 
   
 
45,316
 
Deferred income taxes
   
 
15,934
 
   
 
16,022
 
Prepaid expenses and other
   
 
5,263
 
   
 
2,880
 
    
  
Total current assets
   
 
260,755
 
   
 
245,712
 
    
  
Property, plant and equipment, at cost
   
 
516,955
 
   
 
534,491
 
Less accumulated depreciation and amortization
   
 
260,120
 
   
 
267,148
 
    
  
Net property, plant and equipment
   
 
256,835
 
   
 
267,343
 
    
  
Net non-current assets of Therics held for sale
   
 
10,001
 
   
 
—  
 
Venture capital investments
   
 
123,123
 
   
 
155,084
 
Other assets and deferred charges
   
 
67,084
 
   
 
60,404
 
Goodwill and other intangibles
   
 
132,143
 
   
 
136,488
 
    
  
Total assets
   
$
849,941
 
   
$
865,031
 
    
  
LIABILITIES AND SHAREHOLDERS’ EQUITY
                  
Current liabilities:
                  
Accounts payable
   
$
44,482
 
   
$
46,507
 
Accrued expenses
   
 
49,044
 
   
 
47,637
 
Current portion of long-term debt
   
 
30,000
 
   
 
5,000
 
    
  
Total current liabilities
   
 
123,526
 
   
 
99,144
 
Long-term debt
   
 
229,401
 
   
 
259,498
 
Deferred income taxes
   
 
18,324
 
   
 
18,985
 
Other noncurrent liabilities
   
 
9,692
 
   
 
9,505
 
    
  
Total liabilities
   
 
380,943
 
   
 
387,132
 
    
  
Shareholders’ equity:
                  
Common stock, no par value
   
 
108,113
 
   
 
107,104
 
Common stock held in trust for savings restoration plan
   
 
(1,212
)
   
 
(1,212
)
Unrealized gain on available-for-sale securities
   
 
2,360
 
   
 
8,314
 
Foreign currency translation adjustment
   
 
(5,287
)
   
 
(6,007
)
Loss on derivative financial instruments
   
 
(1,568
)
   
 
(2,708
)
Retained earnings
   
 
366,592
 
   
 
372,408
 
    
  
Total shareholders’ equity
   
 
468,998
 
   
 
477,899
 
    
  
Total liabilities and shareholders’ equity
   
$
849,941
 
   
$
865,031
 
    
  
See accompanying notes to financial statements.

2

 
TREDEGAR CORPORATION
 
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
(Unaudited)
 
    
Second Quarter
Ended June 30
     
Six Months
Ended June 30
  
    
2002
     
2001
     
2002
     
2001
  
Revenues:
                                    
Gross sales
   
$
200,554
 
   
$
199,869
 
   
$
378,006
 
   
$
394,027
 
Freight
   
 
4,051
 
   
 
3,998
 
   
 
7,794
 
   
 
7,685
 
    
  
  
  
Net sales
   
 
196,503
 
   
 
195,871
 
   
 
370,212
 
   
 
386,342
 
Other income (expense), net
   
 
(17,266
)
   
 
2,237
 
   
 
(26,962
)
   
 
(3,688
)
    
  
  
  
Total
   
 
179,237
 
   
 
198,108
 
   
 
343,250
 
   
 
382,654
 
    
  
  
  
Costs and expenses:
                                    
Cost of goods sold
   
 
153,968
 
   
 
159,740
 
   
 
291,368
 
   
 
315,381
 
Selling, general and administrative
   
 
14,471
 
   
 
12,608
 
   
 
27,804
 
   
 
25,680
 
Research and development
   
 
5,058
 
   
 
5,069
 
   
 
10,674
 
   
 
9,304
 
Amortization of intangibles
   
 
11
 
   
 
1,242
 
   
 
78
 
   
 
2,456
 
Interest
   
 
2,310
 
   
 
3,232
 
   
 
4,498
 
   
 
7,273
 
Unusual items
   
 
268
 
   
 
(971
)
   
 
1,264
 
   
 
629
 
    
  
  
  
Total
   
 
176,086
 
   
 
180,920
 
   
 
335,686
 
   
 
360,723
 
    
  
  
  
Income from continuing operations before income taxes
   
 
3,151
 
   
 
17,188
 
   
 
7,564
 
   
 
21,931
 
Income taxes
   
 
1,040
 
   
 
4,158
 
   
 
2,563
 
   
 
5,866
 
    
  
  
  
Income from continuing operations
   
 
2,111
 
   
 
13,030
 
   
 
5,001
 
   
 
16,065
 
Discontinued operations:
                                    
Loss from operations of Molecumetics (including expected loss on disposal of $3,900 in 2002)
   
 
(5,446
)
   
 
(917
)
   
 
(7,753
)
   
 
(2,051
)
Income from discontinued energy segment
   
 
—  
 
   
 
1,396
 
   
 
—  
 
   
 
1,396
 
    
  
  
  
Income (loss) from discontinued operations
   
 
(5,446
)
   
 
479
 
   
 
(7,753
)
   
 
(655
)
    
  
  
  
Net income (loss)
   
$
(3,335
)
   
$
13,509
 
   
$
(2,752
)
   
$
15,410
 
    
  
  
  
Earnings (loss) per share:
                                    
Basic:
                                    
Continuing operations
   
$
.06
 
   
$
.34
 
   
$
.13
 
   
$
.42
 
Discontinued operations
   
 
(.14
)
   
 
.02
 
   
 
(.20
)
   
 
(.01
)
    
  
  
  
Net income (loss)
   
$
(.08
)
   
$
.36
 
   
$
(.07
)
   
$
.41
 
    
  
  
  
Diluted:
                                    
Continuing operations
   
$
.05
 
   
$
.34
 
   
$
.13
 
   
$
.42
 
Discontinued operations
   
 
(.14
)
   
 
.01
 
   
 
(.20
)
   
 
(.02
)
    
  
  
  
Net income (loss)
   
$
(.09
)
   
$
.35
 
   
$
(.07
)
   
$
.40
 
    
  
  
  
Shares used to compute earnings (loss) per share:
                                    
Basic
   
 
38,270
 
   
 
38,055
 
   
 
38,219
 
   
 
38,053
 
Diluted
   
 
39,111
 
   
 
38,838
 
   
 
38,990
 
   
 
38,818
 
Dividends per share
   
$
.04
 
   
$
.04
 
   
$
.08
 
   
$
.08
 
 
See accompanying notes to financial statements.

3

 
TREDEGAR CORPORATION
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 
    
Six Months
Ended June 30
  
    
2002
     
2001
  
Cash flows from operating activities:
                  
Net income (loss)
   
$
(2,752
)
   
$
15,410
 
Adjustments for noncash items:
                  
Loss (gain) from discontinued operations
   
 
6,000
 
   
 
(1,396
)
Depreciation
   
 
16,459
 
   
 
16,099
 
Amortization of intangibles
   
 
78
 
   
 
2,456
 
Deferred income taxes
   
 
1,748
 
   
 
(179
)
Accrued pension income and postretirement benefits
   
 
(4,862
)
   
 
(5,108
)
Loss on venture capital investments
   
 
27,388
 
   
 
4,861
 
Changes in assets and liabilities:
                  
Accounts and notes receivable
   
 
(18,965
)
   
 
(3,318
)
Inventories
   
 
4,345
 
   
 
4,080
 
Income taxes recoverable
   
 
3,316
 
   
 
629
 
Prepaid expenses and other
   
 
(185
)
   
 
(135
)
Accounts payable
   
 
(1,838
)
   
 
3,458
 
Accrued expenses and income taxes payable
   
 
(1,455
)
   
 
528
 
Other, net
   
 
(1,450
)
   
 
2,164
 
    
  
Net cash provided by operating activities
   
 
27,827
 
   
 
39,549
 
    
  
Cash flows from investing activities:
                  
Capital expenditures
   
 
(13,851
)
   
 
(22,109
)
Venture capital investments
   
 
(11,137
)
   
 
(9,108
)
Proceeds from the sale of venture capital investments
   
 
6,408
 
   
 
26,792
 
Proceeds from property disposals and divestitures
   
 
89
 
   
 
353
 
Other, net
   
 
(2,450
)
   
 
(1,724
)
    
  
Net cash used in investing activities
   
 
(20,941
)
   
 
(5,796
)
    
  
Cash flows from financing activities:
                  
Dividends paid
   
 
(3,064
)
   
 
(3,043
)
Net (decrease) increase in borrowings
   
 
(5,097
)
   
 
(3,607
)
Proceeds from exercise of stock options (including related income tax benefits realized)
   
 
1,009
 
   
 
152
 
    
  
Net cash used in financing activities
   
 
(7,152
)
   
 
(6,498
)
    
  
Increase (decrease) in cash and cash equivalents
   
 
(266
)
   
 
27,255
 
Cash and cash equivalents at beginning of period
   
 
96,810
 
   
 
44,530
 
    
  
Cash and cash equivalents at end of period
   
$
96,544
 
   
$
71,785
 
    
  
 
See accompanying notes to financial statements.

4

 
TREDEGAR CORPORATION
 
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
 
1.  In the opinion of management, the accompanying consolidated financial statements of Tredegar Corporation and Subsidiaries (“Tredegar”) contain all adjustments necessary to present fairly, in all material respects, Tredegar’s consolidated financial position as of June 30, 2002, and the consolidated results of operations and cash flows for the six months ended June 30, 2002 and 2001. 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, 2001. The results of operations for the six months ended June 30, 2002 are not necessarily indicative of the results to be expected for the full year.
 
Certain previously reported amounts have been reclassified to conform to the current presentation.
 
2.  The Financial Accounting Standards Board issued two new standards that primarily affect the accounting for acquisitions initiated after June 30, 2001, and the accounting for goodwill. We adopted these standards effective January 1, 2002. These standards prohibit amortization of goodwill but require annual impairment reviews that may result in the recognition of losses. We have reclassified from intangible assets to goodwill approximately $396,000 related to Therics’ workforce, which no longer qualifies as a separately identifiable intangible asset. We have made determinations as to what our reporting units are and what amounts of goodwill, intangible assets, other assets and liabilities should be allocated to those reporting units. We completed the transitional impairment test, which did not result in impairment of recorded goodwill. In accordance with this statement, amortization of goodwill was discontinued as of January 1, 2002. A reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion of goodwill amortization, net of related income taxes, is as follows:
 
    
Quarter
Ended
June 30,
2001
   
Six Months
Ended
June 30,
2001
(In Thousands, except per share data)
          
Reported net income
   
$
13,509
   
$
15,410
Goodwill amortization, net of tax
   
 
757
   
 
1,498
    
  
Adjusted net income
   
$
14,266
   
$
16,908
    
  
Basic earnings per share as reported
   
$
.36
   
$
.41
Adjustment to basic earnings per share
   
 
.02
   
 
.04
    
  
Adjusted basic earnings per share
   
$
.38
   
$
.45
    
  
Diluted earnings per share as reported
   
$
.35
   
$
.40
Adjustment to diluted earnings per share
   
 
.02
   
 
.04
    
  
Adjusted diluted earnings per share
   
$
.37
   
$
.44
    
  

5

The carrying value of goodwill at January 1, 2002, of $134.7 million was comprised of $100.7 million related to Film Products, $30.5 million related to Aluminum Extrusions and $3.5 million related to Therics. The goodwill related to Therics has been included in “Net non-current assets of Therics held for sale” in the consolidated balance sheet at June 30, 2002.
 
3.  See pages 13 through 16 for information on unusual items recognized during the quarter and six months ended June 30, 2002 and 2001.
 
On March 22, 2002, we announced our intent to divest our two biotechnology units, Molecumetics and Therics. The long-lived assets for Therics ($10 million at June 30, 2002) have been separately classified in the accompanying balance sheet as “Net non-current assets of Therics held for sale.”
 
Operations at Molecumetics were ceased on July 2, 2002, while efforts to sell its technology and tangible assets continue. The operating results of Molecumetics have been reported as discontinued operations and results for prior periods have been restated. Cash flows for Molecumetics have not been separately disclosed in the accompanying statement of cash flows. For the six months ended June 30, 2002 and 2001, the operating losses for Molecumetics were $12 million and $3.2 million, respectively, while revenue was $515,000 and $2.9 million, respectively. Discontinued operations for the second quarter of 2002 include an expected loss on the disposal of Molecumetics of $6 million ($3.9 million after taxes). The assets of Molecumetics (approximately $1.7 million), have been included in “Prepaid expenses and other” in the consolidated balance sheet at June 30, 2002.
 
Discontinued operations for the second quarter of 2001 also include an after-tax gain of $1.4 million related to the reversal of an income tax contingency accrual upon favorable conclusion of IRS examinations through 1997. The accrual was originally recorded in conjunction with the sale of The Elk Horn Coal Corporation in 1994.
 
4.  A summary of our venture capital activities for the quarter and six months ended June 30, 2002 and 2001, is provided below:
 
    
Second Quarter
Ended June 30
     
Six Months
Ended June 30
  
    
2002
     
2001
     
2002
     
2001
  
    
(In Thousands)
  
Carrying value, beginning of period
   
$
139,298
 
   
$
199,457
 
   
$
155,084
 
   
$
232,259
 
Activity for period (pre-tax):
                                    
New investments
   
 
5,547
 
   
 
4,757
 
   
 
11,137
 
   
 
9,108
 
Proceeds from the sale of investments
   
 
(1,235
)
   
 
(17,910
)
   
 
(6,408
)
   
 
(28,242
)
Realized gains
   
 
222
 
   
 
11,617
 
   
 
3,943
 
   
 
18,862
 
Realized losses, write-offs and write-downs
   
 
(17,853
)
   
 
(9,830
)
   
 
(31,330
)
   
 
(23,723
)
Increase (decrease) in net unrealized gain on available-for-sale securities
   
 
(2,856
)
   
 
10,385
 
   
 
(9,303
)
   
 
(9,788
)
    
  
  
  
Carrying value, end of period
   
$
123,123
 
   
$
198,476
 
   
$
123,123
 
   
$
198,476
 
    
  
  
  
 
Our remaining unfunded commitments to private venture capital funds totaled approximately $35 million at June 30, 2002, and $36.7 million at December 31, 2001.
 
A schedule of investments is provided on the following two pages.
 

6

TREDEGAR CORPORATION
 
Schedule of Investments at June 30, 2002 and December 31, 2001
(In Thousands, Except Per-Share Amounts)
 
                   
Public Common Stock or
Equivalents at 6/30/02
    
6/30/02(f)
  
12/31/01(f)
Investment
  
Symbol
  
Yrs.
Held(a)
  
Description
  
Web Site
(www.)
  
Shares
Held
  
Closing
Price
   
Estimated Restricted Stock Dis-
count(c)
    
Estimated
Fair
Value(b)
    
Carrying
Value(b)
  
Cost
Basis
  
Estimated
Fair
Value(b)
    
Carrying
Value(b)
  
Cost
Basis
Securities of Public Companies Held:
                                                                         
Illumina, Inc.
  
ILMN
  
    3.6    
  
Fiber optic sensor technology ford drug
    screening
  
illumina.com
  
813
  
$
6.72
   
0
%
  
$
5,466
 
  
$
5,466
  
$
1,933
  
$
10,749
 
  
$
10,749
  
$
2,173
Adolor Corporation
  
ADLR
  
3.6
  
Develops pain-management therapeutic     drugs
  
adolor.com
  
—  
  
 
—  
   
0
%
  
 
—  
 
  
 
—  
  
 
—  
  
 
3,704
 
  
 
3,704
  
 
844
Vascular Solutions
  
VASC
  
4.5
  
Vascular access site closure system
  
vascularsolutions.com
  
861
  
 
1.80
   
0
%
  
 
1,549
 
  
 
1,549
  
 
2,429
  
 
2,401
 
  
 
2,401
  
 
2,429
SignalSoft Corporation
  
SGSF
  
4.3
  
Wireless caller location detection
    software
  
signalsoftcorp.com
  
—  
  
 
—  
   
0
%
  
 
—  
 
  
 
—  
  
 
—  
  
 
1,835
 
  
 
1,835
  
 
1,330
Photon Dynamics, Inc.(e)
  
PHTN
  
4.1
  
Test and repair systems for flat panel
    display industry
  
photondynamics.com
  
21
  
 
30.00
   
20
%
  
 
502
 
  
 
502
  
 
940
  
 
763
 
  
 
387
  
 
940
Cisco Systems, Inc.(e)
  
CSCO
  
3.0
  
Worldwide leader in networking for the     Internet
  
cisco.com
  
—  
  
 
—  
   
0
%
  
 
—  
 
  
 
—  
  
 
—  
  
 
245
 
  
 
245
  
 
200
Nortel Networks Corporation(e)
  
NT
  
4.3
  
Networking solutions and services
  
nortelnetworks.com
  
—  
  
 
—  
   
0
%
  
 
—  
 
  
 
—  
  
 
—  
  
 
151
 
  
 
148
  
 
117
CardioGenesis Corporation
  
CGCP
  
8.1
  
Coronary revascularization
  
eclipsesurg.com
  
—  
  
 
—  
   
0
%
  
 
—  
 
  
 
—  
  
 
—  
  
 
132
 
  
 
132
  
 
616
Openwave Systems, Inc.(e)
  
OPWV
  
2.6
  
Infrastructure applications for the Internet
  
openwave.com
  
—  
  
 
—  
   
0
%
  
 
—  
 
  
 
—  
  
 
—  
  
 
14
 
  
 
14
  
 
7
                   
 
  
 
 
 
 
 
 
Total securities of public companies held
                                   
 
7,517
 
  
 
7,517
  
 
5,302
  
 
19,994
 
  
 
19,615
  
 
8,656
                   
 
  
 
 
 
 
 
 
Securities of Private Companies Held:
                                                                         
CryoGen
      
6.8
  
Micro-cryogenic catheters for medical     applications
  
cryogen-inc.com
                   
 
2,339
 
  
 
2,339
  
 
3,910
  
 
2,339
 
  
 
2,339
  
 
3,910
Sensitech Inc.
      
5.3
  
Perishable product mgmt. solutions
  
sensitech.com
                   
 
3,197
 
  
 
2,333
  
 
2,333
  
 
3,197
 
  
 
2,333
  
 
2,333
Songbird Medical, Inc.
      
4.9
  
Disposable hearing aids
                       
 
2,743
 
  
 
2,743
  
 
5,582
  
 
3,303
 
  
 
3,303
  
 
5,215
Appliant, Inc.
      
4.7
  
Software tools for managing executable     software
  
appliant.com
                   
 
995
 
  
 
995
  
 
3,899
  
 
6,439
 
  
 
3,899
  
 
3,899
HemoSense
      
4.6
  
Point of care blood coagulation time test     device
  
hemosense.com
                   
 
2,771
 
  
 
2,485
  
 
2,485
  
 
2,771
 
  
 
2,485
  
 
2,485
Moai Technologies, Inc.
      
4.5
  
System for holding auctions on the
    Internet
  
moai.com
                   
 
—  
 
  
 
—  
  
 
2,021
  
 
—  
 
  
 
—  
  
 
2,021
Babycare, Ltd.
      
4.4
  
Direct retailing of baby care products in     China
                       
 
—  
 
  
 
—  
  
 
1,009
  
 
—  
 
  
 
—  
  
 
1,009
NovaLux, Inc.
      
4.1
  
Blue-green light lasers
  
novalux.com
                   
 
2,618
 
  
 
2,618
  
 
10,149
  
 
10,149
 
  
 
10,149
  
 
10,149
Xcyte Therapies, Inc.
      
3.9
  
Develops drugs to treat cancer & other     disorders
  
xcytetherapies.com
                   
 
4,634
 
  
 
4,634
  
 
4,634
  
 
4,634
 
  
 
4,634
  
 
4,634
Advanced Diagnostics, Inc.
      
3.6
  
3-D medical imaging equipment
                       
 
2,637
 
  
 
2,621
  
 
2,621
  
 
2,137
 
  
 
2,121
  
 
2,121
EndoVasix, Inc.
      
3.4
  
Device for treatment of ischemic strokes
  
endovasix.com
                   
 
926
 
  
 
926
  
 
4,126
  
 
800
 
  
 
800
  
 
4,000
eWireless, inc.
      
3.4
  
Technology linking cell phone users &     advertising
  
ewireless.com
                   
 
—  
 
  
 
—  
  
 
2,250
  
 
—  
 
  
 
—  
  
 
2,250
Cooking.com, Inc.
      
3.3
  
Sales of cooking-related items over the     Internet
  
cooking.com
                   
 
974
 
  
 
974
  
 
4,500
  
 
1,500
 
  
 
1,500
  
 
4,500
MediaFlex.com
      
3.2
  
Internet-based printing & publishing
  
mediaflex.com
                   
 
—  
 
  
 
—  
  
 
3,500
  
 
—  
 
  
 
—  
  
 
3,500
eBabyCare Ltd.
      
3.1
  
Sales of babycare products over the     Internet in China
                       
 
—  
 
  
 
—  
  
 
314
  
 
—  
 
  
 
—  
  
 
314
Kodiak Technologies, Inc.
      
3.0
  
Cooling products for organ & pharma     transport
  
kodiaktech.com
                   
 
2,010
 
  
 
2,010
  
 
2,432
  
 
2,202
 
  
 
2,202
  
 
2,202
Artemis Medical, Inc.
      
3.0
  
Medical devices for breast cancer surgery
                       
 
3,681
 
  
 
2,880
  
 
2,880
  
 
3,267
 
  
 
2,467
  
 
2,467
CEPTYR, Inc.
      
2.9
  
Develops small molecule drugs
  
ceptyr.com
                   
 
1,750
 
  
 
1,750
  
 
1,750
  
 
1,750
 
  
 
1,750
  
 
1,750
ThinkFree.com
      
2.7
  
Java-based software complementary to     Microsoft Office
  
thinkfree.com
                   
 
741
 
  
 
741
  
 
1,491
  
 
741
 
  
 
741
  
 
1,491
BroadRiver Communications
      
2.6
  
Local DSL provider
  
purepacket.com
                   
 
—  
 
  
 
—  
  
 
4,779
  
 
—  
 
  
 
—  
  
 
4,779
Quarry Technologies, Inc.
      
2.6
  
Technology for delivery of differentiated     service levels
  
quarrytech.com
                   
 
2,716
 
  
 
2,716
  
 
4,195
  
 
2,567
 
  
 
2,567
  
 
4,046
FastTrack Systems, Inc.
      
2.4
  
Clinical trial data management
    information systems
                       
 
7,182
 
  
 
5,479
  
 
5,479
  
 
7,182
 
  
 
5,479
  
 
5,479
Riveon, Inc.
      
2.4
  
Web-based data mining software for     business managers
                       
 
—  
 
  
 
—  
  
 
1,990
  
 
—  
 
  
 
—  
  
 
1,990
MedManage Systems Inc.
      
2.2
  
Management of prescription drug
    sampling programs
  
medmanagesystems.com
                   
 
3,049
 
  
 
3,049
  
 
6,095
  
 
5,200
 
  
 
5,200
  
 
5,200
Infinicon, Inc.
      
2.0
  
Manufacturer of infiniband input/output     products
  
infiniconsys.com
                   
 
6,985
 
  
 
6,985
  
 
6,985
  
 
4,573
 
  
 
4,573
  
 
4,573
Cbyon, Inc.
      
2.0
  
Provider of software image data to assist     surgeons
  
cbyon.com
                   
 
2,118
 
  
 
2,118
  
 
5,000
  
 
4,178
 
  
 
4,178
  
 
4,178
Extreme Devices
      
1.8
  
Manufacturer of integrated, solid-state     electron source
                       
 
5,000
 
  
 
5,000
  
 
5,000
  
 
5,000
 
  
 
5,000
  
 
5,000
Locus Discovery, Inc.
      
1.6
  
Computational chemogenomics
    technology
  
locusdiscovery.com
                   
 
6,333
 
  
 
4,000
  
 
4,000
  
 
6,333
 
  
 
4,000
  
 
4,000
eTunnels Inc.
      
1.5
  
VPNs across all ISPs and companies
  
etunnels.com
                   
 
4,619
 
  
 
4,619
  
 
4,619
  
 
3,748
 
  
 
3,748
  
 
3,748
Elixir
      
1.5
  
Evaluation technology for anti-aging     compounds
                       
 
2,827
 
  
 
2,827
  
 
2,827
  
 
2,827
 
  
 
2,827
  
 
2,827
                                    
 
 
 
 
 
Total securities of private companies held
                                   
 
72,845
 
  
 
66,842
  
 
112,855
  
 
86,837
 
  
 
78,295
  
 
106,070
                                    
 
 
 
 
 
Limited partnership interests in private venture capital funds (period held of 1.3—9.5 years) (d)
                       
 
53,183
 
  
 
48,764
  
 
67,292
  
 
64,889
 
  
 
57,174
  
 
75,247
                                    
 
 
 
 
 
Total investments
                       
 
133,545
 
  
$
123,123
  
$
185,449
  
 
171,720
 
  
$
155,084
  
$
189,973
                                            
 
         
 
Estimated tax cost (benefit) on assumed disosal at fair value
                       
 
(18,685
)
              
 
(6,571
)
            
                                    
             
           
Estimated net asset value (“NAV”)
                       
$
152,230
 
              
$
178,291
 
            
                                    
             
           
See notes on page 8.

7

 
TREDEGAR CORPORATION
 
Schedule of Investments at June 30, 2002 and December 31, 2001
(In Thousands, Except Per-Share Amounts)
 
Notes:
 
(a)
 
The period held for an investment in a company or a venture capital fund is computed using the initial investment date and the current valuation date. If a company has merged with another company, then the initial investment date is the date of the investment in the predecessor company.
(b)
 
Amounts are shown net of carried interest estimated using realized and unrealized net gains to date. Amounts may change due to changes in estimated carried interest, and such changes are not expected to be material. Carried interest is the portion of value payable to portfolio managers based on realized net gains and is a customary incentive in the venture capital industry.
(c)
 
Restricted securities are securities for which an agreement exists not to sell shares for a specified period of time, usually 180 days. Also included within the category of restricted securities are unregistered securities, the sale of which must comply with an exemption to the Securities Act of 1933 (usually SEC Rule 144). These unregistered securities are either the same class of stock that is registered and publicly traded or are convertible into a class of stock that is registered and publicly traded.
(d)
 
At June 30, 2002, Tredegar had ownership interests in 28 venture capital funds, including an indirect interest in the following public companies, among others (disposition of shares held by venture funds, including distributions to limited partners, is at the sole discretion of the general partner of the fund):
 
    
Symbol
   
Description
     
Indirect
Interest in Common
Shares
   
Closing
Price
     
Average
Restricted
Stock Dis-count
     
Indirect
Indirect Investment
                      
Estimated
Fair
Value
   
Cost Basis
Illumina, Inc.
   
ILMN
   
Fiber optic sensor technology for drug screening (illumina.com)
     
203
   
$
6.72
     
20
%
   
$
1,090
   
$
333
Adolor Corporation
   
ADLR
   
Develops pain-management therapeutic drugs (adolor.com)
     
88
   
 
11.26
     
20
%
   
 
791
   
 
411
Array Biopharma
   
ARRY
   
Drug discovery research using innovative chemistry (arraybiopharma.com)
     
96
   
 
9.64
     
20
%
   
 
743
   
 
240
Seattle Genetics
   
SGEN
   
Biopharmaceuticals for treatment of cancers (seattlegenetics.com)
     
104
   
 
5.21
     
20
%
   
 
432
   
 
200
 
(e)
 
Public company stock received from the acquisition of a private company in the portfolio.
(f)
 
Our portfolio is subject to risks typically associated with investments in technology start-up companies, which include business failure, illiquidity and stock market volatility.

8

 
5.  Comprehensive income (loss), defined as net income (loss) and other comprehensive income (loss), was a loss of $2.4 million for the second quarter of 2002 and income of $20.6 million for the second quarter of 2001. Comprehensive income (loss) was a loss of $6.8 million for the first six months of 2002 and income of $9.1 million for the first six months of 2001. Other comprehensive income (loss) includes changes in unrealized gains and losses on available-for-sale securities, foreign currency translation adjustments and unrealized gains and losses on derivative financial instruments recorded net of deferred income taxes directly in shareholders’ equity.
 
6.  The components of inventories are as follows:
 
    
June 30,
2002
   
Dec. 31,
2001
    
(In Thousands)
Finished goods
   
$
7,310
   
$
8,407
Work-in-process
   
 
8,596
   
 
4,560
Raw materials
   
 
14,784
   
 
21,800
Stores, supplies and other
   
 
10,547
   
 
10,549
    
  
Total
   
$
41,237
   
$
45,316
    
  
 
7.  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:
 
    
Second Quarter
Ended June 30
   
Six Months
Ended June 30
    
2002
   
2001
   
2002
   
2001
    
(In Thousands)
Weighted average shares outstanding used to compute basic earnings per share
   
38,270
   
38,055
   
38,219
   
38,053
Incremental shares issuable upon the assumed exercise of stock options
   
841
   
783
   
771
   
765
    
  
  
  
Shares used to compute diluted earnings per share
   
39,111
   
38,838
   
38,990
   
38,818
    
  
  
  
 
Incremental shares issuable upon the assumed exercise of outstanding stock options are computed using the average market price during the related period.
 
8.  Our effective tax rate from continuing operations for the quarter ended June 30, 2002 was 33% and for the six months ended June 30, 2002 was 33.9% compared with 24.2% and 26.7% in the same periods of the prior year, respectively. The prior year effective tax rate from continuing operations was low due primarily to the $1.9 million tax benefit related to the reversal of income tax contingency accruals upon favorable conclusion of IRS examinations through 1997.

9

 
9.  On April 30, 2002, we completed a $100 million 364-day revolving credit facility and terminated our $275 million revolver that would have matured in July 2002. The new facility has covenants and restrictions consistent with our existing debt; the most restrictive of which is a debt-to-capitalization limitation of 50%. At June 30, 2002, this ratio was 36%. The new facility provides for interest to be charged at a base rate (generally the London Interbank Offered Rate (“LIBOR”)) plus a spread that is dependent upon our quarterly debt-to-capitalization ratio. The fully-borrowed spread over LIBOR charged at the various debt-to-capitalization levels is as follows:
 
Credit Spread Under $100 Million
364-Day Revolving Credit Facility
Debt-to-Total
Capitalization Ratio
     
Fully-Borrowed
Spread Over
LIBOR (Basis Points)
> 40% and <= 50%
     
125.0
> 30% and <= 40%
     
100.0
<= 30%
     
75.0
 
This short-term facility is an interim step to longer-term financing that we plan to initiate once the divestitures of Molecumetics and Therics have been completed.
 

10

 
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Critical Accounting Policies
 
In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of financial statements in conformity with generally accepted accounting principles. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe the following discussion addresses our most critical accounting policies, which are those that require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
 
Investments
 
We have investments in private venture capital fund limited partnerships and early-stage technology companies, including the stock of privately held companies and the restricted and unrestricted stock of companies that have recently registered shares in initial public offerings. These investments individually represent voting ownership interests of less than 20%.
 
We write down or write off an investment and recognize a loss when events indicate the investment is permanently impaired. For private securities and ownership interests in private venture capital funds, permanent impairment is deemed to exist whenever the estimated fair value at quarterly valuation dates is below carrying value. For available-for-sale securities, permanent impairment is deemed to exist if analyst reports or other information on the company in which we have invested indicates that recovery of value above cost basis is unlikely within several quarters.
 
The fair value of securities of public companies is determined based on closing price quotations, subject to estimated restricted stock discounts. We estimate the fair value of securities of private companies using purchase cost, prices of recent significant private placements of securities of the same issuer, changes in financial condition and prospects of the issuer, and estimates of liquidation value. The fair value of ownership interests in private venture capital funds is based on our estimate of our distributable share of fund net assets using, among other information:
 
 
•
 
The general partners’ estimate of the fair value of non-marketable securities held by the funds (which is usually the indicative value from the latest round of financing or a reduced amount if events subsequent to the financing imply a lower valuation);
 
 
•
 
Closing bid prices of publicly traded securities held by the funds, subject to estimated restricted stock discounts; and
 
 
•
 
Fund formulas for allocating profits, losses and distributions.
 
Because of the inherent uncertainty associated with the valuations of restricted securities or securities for which there is no public market, estimates of fair value may differ significantly from the values that would have been used had a ready market for the securities existed. The portfolio is subject to risks typically associated with investments in technology start-up companies, which include business failure, illiquidity and stock market volatility. Furthermore, publicly traded stocks of emerging, technology-based companies usually have higher volatility and risk than the U.S. stock market as a whole.
 

11

Impairment of Long-lived Identifiable Assets
 
We regularly assess our long-lived assets for impairment when events or circumstances indicate that their carrying value may not be recoverable from future cash flows. Any necessary impairment charges are recorded when we do not believe the carrying value of the long-lived asset will be recoverable.
 
Assets to be disposed of, including assets held for sale, are reported at the lower of their carrying amount or estimated fair value less cost to sell, with an impairment loss recognized for any write-downs required.
 
Impairment of Goodwill
 
On an annual basis we assess goodwill for impairment by comparing the fair value of our reporting units to their carrying amounts. If the carrying amounts of the reporting units exceed their fair values, the deficiency identified with goodwill is recognized as an impairment charge.
 
Pension Benefits
 
We have noncontributory and contributory defined benefit (pension) plans covering most employees. Several statistical and other factors that attempt to anticipate future events are used in calculating the net benefit income or cost and benefit obligations related to the plans. These factors include assumptions about the discount rate, expected return on plan assets and rate of future compensation increases, as determined within certain guidelines. In addition, our actuarial consultants use subjective factors such as withdrawal and mortality rates to estimate the projected benefit obligation. The actuarial assumptions may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These differences may result in a significant impact to the amount of net pension income or expense recorded in future periods.
 
Results of Operations
 
Second Quarter 2002 Compared with Second Quarter 2001
 
The net loss for the second quarter of 2002 was $3.3 million compared with net income of $13.5 million in 2001. Net income from continuing operations was $2.1 million down from $13 million in 2001 (5 cents per share versus 34 cents per share). Results in the second quarter of 2002 include $12.2 million of net after-tax losses from venture capital investments compared with a net after-tax gain of $123,000 in the prior year. Results in 2001 include an after-tax gain of $2.5 million (7 cents per share) related to the reversal of income tax contingency accruals and related interest received on tax overpayments upon favorable conclusion of certain IRS examinations. Results in 2001 also include goodwill amortization expense of $757,000 after taxes or two cents per share.
 
On March 22, 2002, we announced our intent to divest our two biotechnology units, Molecumetics and Therics. The long-lived assets for Therics ($10 million at June 30, 2002) have
 

12

 
been separately classified in the accompanying balance sheet as “Net non-current assets of Therics held for sale.”
 
Operations at Molecumetics were ceased on July 2, 2002, while efforts to sell its technology and tangible assets continue. The operating results of Molecumetics have been reported as discontinued operations. The net loss from discontinued operations of Molecumetics was $5.4 million in 2002 versus $917,000 in 2001. The second quarter of 2002 includes an expected loss on the disposal of Molecumetics of $6 million ($3.9 million after taxes) comprised of an impairment loss for equipment of $4 million and estimated miscellaneous disposal costs of $2 million. The assets of Molecumetics (approximately $1.7 million) have been included in “Prepaid expenses and other” in the consolidated balance sheet at June 30, 2002.
 
Discontinued operations for the second quarter of 2001 also include an after-tax gain of $1.4 million related to the reversal of an income tax contingency accrual upon favorable conclusion of IRS examinations through 1997. The accrual was originally recorded in conjunction with the sale of The Elk Horn Coal Corporation in 1994.
 
Efforts to sell Therics are under way as it continues to progress in its technology development efforts. Therics had net losses of $2 million in the second quarter of 2002 and $2.1 million in 2001 (5 cents per share in each period).
 
Pre-tax gains and losses from venture capital investment activities are included in “Other income (expense), net” in the consolidated statements of income on page 3 and “Venture capital investments” in the operating profit table on page 17. Operating expenses (primarily management fee expenses) for our venture capital investment activities are classified in “Selling, general and administrative expenses” (“SG&A”) in the consolidated statements of income and “Venture capital investments” in the operating profit table.
 
After-tax depreciation in the net asset value (“NAV”) of the venture capital investment portfolio during the second quarter was $15.1 million. At June 30, 2002, the NAV of the portfolio was $152.2 million. For more information on our venture capital investment activities, see pages 18 to 20 and Note 4 on pages 6 to 8.
 
Net sales in the second quarter were relatively flat compared with the prior year. Net sales in Film Products were up 7% while sales in Aluminum Extrusions declined 6%. Volume in Film Products was up 11% while volume in Aluminum Extrusions declined 4%. For more information on net sales, see the business segment review beginning on page 17.
 
The gross profit margin during the second quarter increased to 21.6% from 18.4% in 2001. The higher profit margin was driven mainly by an increase in Film Products due to improved product and customer mix as well as increased operating efficiencies. The gross profit margin in Aluminum Extrusions was up slightly despite continued pressure on both volume and price.
 
SG&A expenses in the second quarter were $14.5 million, up from $12.6 million in 2001 due primarily to increased expenses at Film Products in support of additional sales and marketing efforts. As a percentage of net sales, SG&A expenses were 7.4% in the second quarter of 2002 compared with 6.4% in 2001.
 

13

 
R&D expenses were flat at $5.1 million in both periods.
 
Unusual items in 2002 totaled $268,000 ($172,000 after income taxes) and were primarily for relocation and employee related costs related to the shutdown of the films plant in Tacoma, Washington.
 
Unusual items in 2001 include a pre-tax gain of $1 million related to interest received on tax overpayments upon favorable conclusion of IRS examinations through 1997 (included in “Corporate expenses, net” in the net sales and operating profit by segment table). Income taxes include a second-quarter tax benefit of $1.9 million related to the reversal of income tax contingency accruals upon favorable conclusion of IRS examinations through 1997.
 
Interest income, which is included in “Other income (expense), net” in the consolidated statements of income, was $496,000 in 2002 and $726,000 in 2001. Despite higher average cash and cash equivalents during the quarter, interest income was down due to a lower average tax-equivalent yield earned on cash and cash equivalents (approximately 2% in the second quarter of 2002 and approximately 4.5% in 2001). Our policy permits investment of excess cash in marketable securities that have the highest credit ratings and maturities of less than one year. The primary objectives of our policy are safety of principal and liquidity.
 
Interest expense was $2.3 million compared with $3.2 million in 2001. Average debt outstanding and interest rates for the quarters were as follows:
 
    
Second Quarter Ended
June 30,
  
    
2002
     
2001
  
    
(In Millions)
  
Floating-rate debt with interest charged on a rollover basis at one-month LIBOR:
                  
Average outstanding debt balance
   
$
175.0
 
   
$
225.0
 
Average interest rate
   
 
2.6
%
   
 
5.3
%
Floating-rate debt fixed via interest rate swaps in the second quarter of 2001 and maturing in the second quarter of 2003:
                  
Average outstanding debt balance
   
$
75.0
 
   
$
25.0
 
Average interest rate
   
 
4.8
%
   
 
4.85
%
Fixed-rate and other debt:
                  
Average outstanding debt balance
   
$
13.4
 
   
$
14.5
 
Average interest rate
   
 
7.2
%
   
 
7.2
%
    
  
Total debt:
                  
Average outstanding debt balance
   
$
263.4
 
   
$
264.5
 
Average interest rate
   
 
3.6
%
   
 
5.4
%
    
  
 
Our effective income tax rate from continuing operations was 33% compared with 24.2% in the prior year. The prior year rate was low due to the impact of the $1.9 million tax benefit related to the reversal of income tax contingency accruals upon favorable conclusion of IRS examinations as noted above. The effective income tax rate from manufacturing operations, excluding unusual items, was 35.5% in both periods.
 
Six Months 2002 Compared with Six Months 2001

14

 
The net loss for the first six months of 2002 was $2.8 million compared with net income of $15.4 million in 2001. Net income from continuing operations was $5 million in 2002, down from $16.1 million in 2001 (13 cents per share versus 42 cents per share). Results for 2002 include $19.4 million (50 cents per share) of after-tax losses from venture capital investments compared to $5.2 million (13 cents per share) in 2001. Results in 2001 include an after-tax gain of $2.5 million (seven cents per share) related to the reversal of income tax contingency accruals and related interest received on tax overpayments upon favorable conclusion of certain IRS examinations. Results in 2001 also include goodwill amortization expense of $1.5 million after taxes or four cents per share.
 
Results for 2002 include net losses from discontinued operations of Molecumetics of $7.8 million versus $2.1 million in 2001. In addition to the operating losses, discontinued operations for 2002 include an expected loss on the disposal of Molecumetics of $3.9 million after taxes.
 
Discontinued operations in 2001 also include an after-tax gain of $1.4 million related to the reversal of an income tax contingency accrual upon favorable conclusion of IRS examinations through 1997. The accrual was originally recorded in conjunction with the sale of The Elk Horn Coal Corporation in 1994.
 
The after-tax depreciation in the NAV through the first six months of this year was $29.3 million.
 
Net sales for the six months ended June 30, 2002, decreased by 4.2% compared with the same period of last year. The lower net sales are due primarily to lower volume in Aluminum Extrusions (volume down 4%). For more information on net sales, see the business segment review beginning on page 17.
 
The gross profit margin for the first six months of 2002 increased to 21.3% from 18.4% in 2001 primarily due to increased profit in Film Products due to higher volume and improved product and customer mix.
 
SG&A expenses were $27.8 million in 2002 compared with $25.7 million in 2001. The increase is primarily due to overall higher employee related costs and higher expenses in Film Products in support of additional sales and marketing efforts. As a percentage of net sales, SG&A expenses increased to 7.5% in the first six months of 2002 compared with 6.6% in the same period of 2001.
 
R&D expenses increased to $10.7 million in 2002 from $9.3 million in 2001 due to higher spending at Therics (up $814,000) and higher spending at Film Products (up $556,000).
 
Unusual items for the six months ended June 30, 2002, totaled approximately $1.3 million ($809,000 after income taxes or two cents per share) and included:
 
 
•
 
a pretax charge of $285,000 primarily for relocation and employee-related costs related to the shutdown of a films plant in Tacoma, Washington;
 
 
•
 
a pretax charge of $810,000 for severance and other employee-related costs related to the planned shutdown of a films plant in Carbondale, Pennsylvania; and

15

 
 
•
 
a pretax charge of $169,000 for costs incurred in the transfer of business related to the shutdown of an aluminum plant in El Campo, Texas.
 
Unusual items for the six months ended June 30, 2001, totaled $629,000 ($1.5 million after income taxes or two cents per share) and included:
 
 
•
 
a charge of $1.6 million ($1 million after income taxes) for severance costs related to further rationalization in the films business;
 
 
•
 
a gain of $1 million ($621,000 after income taxes) for interest received on tax overpayments upon favorable conclusion of IRS examinations through 1997 (included in “Corporate expenses, net” in the net sales and operating profit by segment table); and
 
 
•
 
an income tax benefit of $1.9 million related to the reversal of income tax contingency accruals upon favorable conclusion of IRS examinations through 1997 (included in “Income taxes” in the Consolidated Statements of Income).
 
Interest income for the six months ended June 30, 2002 was $1.1 million versus $1.4 million for the same period in 2001. The average cash and cash equivalents balance was $99 million in 2002 versus $58 million in 2001. The average tax-equivalent yield earned on cash equivalents was approximately 2% in 2002 and 4.9% in 2001.
 
Interest expense decreased to $4.5 million in 2002 from $7.3 million in 2001. Average debt outstanding and interest rates were as follows:
 
    
Six Months Ended
June 30,
  
    
2002
     
2001
  
    
(In Millions)
  
Floating-rate debt with interest charged on a rollover basis at one-month LIBOR:
                  
Average outstanding debt balance
   
$
175.0
 
   
$
225.0
 
Average interest rate
   
 
2.6
%
   
 
6.0
%
Floating-rate debt fixed via interest rate swaps in the second quarter of 2001 and maturing in the second quarter of 2003:
                  
Average outstanding debt balance
   
$
75.0
 
   
$
25.0
 
Average interest rate
   
 
4.8
%
   
 
4.85
%
Fixed-rate and other debt:
                  
Average outstanding debt balance
   
$
14.1
 
   
$
14.5
 
Average interest rate
   
 
7.2
%
   
 
7.2
%
    
  
Total debt:
                  
Average outstanding debt balance
   
$
264.1
 
   
$
264.5
 
Average interest rate
   
 
3.6
%
   
 
6.0
%
    
  
 
The effective income tax rate from continuing operations for the six months ended June 30, 2002, was 33.9% compared with 26.7% in the prior year. The prior year rate was low due to the impact of the $1.9 million tax benefit related to the reversal of income tax contingency accruals upon favorable conclusion of IRS examinations. The effective income tax rate from manufacturing operations, excluding unusual items, was 35.5% in both periods.

16

 
Business Segment Review
 
The following tables present Tredegar’s net sales and operating profit by segment for the second quarter and six months ended June 30, 2002 and 2001.
 
Net Sales by Segment
(In Thousands)
(Unaudited)
 
    
Second Quarter
Ended June 30
   
Six Months
Ended June 30
    
2002
   
2001
   
2002
   
2001
Film Products
   
$
97,285
   
$
90,743
   
$
186,194
   
$
187,573
Aluminum Extrusions
   
 
99,124
   
 
105,034
   
 
183,830
   
 
198,506
Therics
   
 
94
   
 
94
   
 
188
   
 
263
    
  
  
  
Total net sales
   
$
196,503
   
$
195,871
   
$
370,212
   
$
386,342
    
  
  
  
 
Operating Profit by Segment
(In Thousands)
(Unaudited)
 
    
Second Quarter
Ended June 30
     
Six Months
Ended June 30
  
    
2002
     
2001
     
2002
     
2001
  
Film Products:
                                    
Ongoing operations
   
$
18,705
 
   
$
12,872
 
   
$
36,797
 
   
$
27,966
 
Unusual items
   
 
(295
)
   
 
—  
 
   
 
(1,095
)
   
 
(1,600
)
    
  
  
  
Total Film Products
   
 
18,410
 
   
 
12,872
 
   
 
35,702
 
   
 
26,366
 
    
  
  
  
Aluminum Extrusions:
                                    
Ongoing operations
   
 
10,277
 
   
 
10,171
 
   
 
15,630
 
   
 
16,552
 
Unusual items
   
 
27
 
   
 
—  
 
   
 
(169
)
   
 
—  
 
    
  
  
  
Total Aluminum Extrusions
   
 
10,304
 
   
 
10,171
 
   
 
15,461
 
   
 
16,552
 
    
  
  
  
Therics
   
 
(3,134
)
   
 
(3,219
)
   
 
(6,827
)
   
 
(5,568
)
    
  
  
  
Tredegar Investments
   
 
(18,999
)
   
 
191
 
   
 
(30,201
)
   
 
(8,071
)
    
  
  
  
Total operating profit
   
 
6,581
 
   
 
20,015
 
   
 
14,135
 
   
 
29,279
 
Interest income
   
 
496
 
   
 
726
 
   
 
1,050
 
   
 
1,414
 
Interest expense
   
 
2,310
 
   
 
3,232
 
   
 
4,498
 
   
 
7,273
 
Corporate expenses, net
   
 
1,616
 
   
 
321
 
   
 
3,123
 
   
 
1,489
 
    
  
  
  
Income from continuing operations before income taxes
   
 
3,151
 
   
 
17,188
 
   
 
7,564
 
   
 
21,931
 
Income taxes
   
 
1,040
 
   
 
4,158
 
   
 
2,563
 
   
 
5,866
 
    
  
  
  
Income from continuing operations
   
 
2,111
 
   
 
13,030
 
   
 
5,001
 
   
 
16,065
 
Income (loss) from discontinued operations
   
 
(5,446
)
   
 
479
 
   
 
(7,753
)
   
 
(655
)
    
  
  
  
Net (loss) income
   
$
(3,335
)
   
$
13,509
 
   
$
(2,752
)
   
$
15,410
 
    
  
  
  

17

 
Second quarter sales in Film Products increased 7.2% to $97.3 million while operating profit, excluding unusual items, increased from $12.9 million in 2001 to $18.7 million in 2002 or 45%. On a year-to-date basis, sales in Film Products fell slightly to $186.2 million from $187.6 million while operating profit, excluding unusual items, was $36.8 million, up 31.6%. Excluding the impact of goodwill amortization expense in the prior year, operating profit was up 35.5% for the quarter and 23.5% for the first six months. The strong sales for the quarter were driven by an increase in volume of 11.4%, offset in part by a decline in selling prices, which are heavily influenced by raw material costs, of approximately 4%. The improved results for the quarter and year-to-date were driven by higher sales of new products combined with a temporary slowdown in the ongoing decline in sales of domestic backsheet products.
 
In Aluminum Extrusions, second-quarter sales were down 5.6% to $99.1 million while operating profit, excluding unusual items, was relatively flat at $10.3 million. On a year-to-date basis, sales declined 7.4% to $183.8 million while operating profit was $15.6 million, down 5.6% compared with the same period of the prior year. Sales and operating profit were negatively impacted by continued pressure on both volume and prices. The negative impact of these factors was offset by lower conversion costs, which were helped by the shutdown of our plant in El Campo, Texas.
 
For Therics, revenue was flat for the quarter and down for the six months ended June 30, 2002 compared with the same periods of the prior year. The second-quarter operating loss was $3.1 million versus $3.2 million in 2001. On a year-to-date basis, the operating loss was $6.8 million versus $5.6 million in 2001.
 
The results of Molecumetics have been reported as discontinued operations and results for prior periods have been restated. The net loss for the second quarter of 2002 was $5.4 million versus $917,000 in 2001. On a year-to-date basis, the net loss was $7.8 million versus $2.1 million in the prior year. Results for 2002 include an expected loss on the disposal of Molecumetics of $3.9 million after taxes.
 
The appreciation (depreciation) in NAV related to venture capital investment activities for the second quarter and six months ended June 30, 2002 and 2001 is summarized below:
 
    
Second Quarter
Ended June 30
   
Six Months
Ended June 30
  
    
2002
     
2001
   
2002
     
2001
  
    
(In Millions)
  
Net realized gains, losses, write-downs and related operating expenses for venture capital investments reflected in Tredegar’s consolidated statements of income (net of tax)
   
$
(12.2
)
   
$
.1
   
$
(19.4
)
   
$
(5.2
)
Change in unrealized appreciation of venture capital investments (net of tax)
   
 
(2.9
)
   
 
1.3
   
 
(9.9
)
   
 
(29.5
)
    
  
  
  
After-tax appreciation (depreciation) in NAV related to investment performance
   
$
(15.1
)
   
$
1.4
   
$
(29.3
)
   
$
(34.7
)
    
  
  
  

18

 
The following companies held directly in the portfolio, or indirectly through our interests in other venture capital funds, accounted for most of the change in NAV during the quarter and six months ended June 30, 2002:
 
             
Appreciation (Depreciation)
in Estimated NAV
  
Investment
     
Reason for Change
     
2nd Quarter
Ended
6/30/02
       
Six Months
Ended
6/30/02
  
             
(In Millions)
  
Public companies:
                             
Illumina, Inc.
     
Change in stock price
     
 
(1.7
)
     
 
(3.2
)
Universal Access, Inc.
     
Change in stock price
     
 
(0.5
)
     
 
(1.4
)
SignalSoft Corporation
     
Change in stock price (position liquidated)
     
 
0.1
 
     
 
(0.7
)
Vascular Solutions
     
Change in stock price
     
 
(0.5
)
     
 
(0.6
)
Private companies:
                             
Venture capital funds
     
Various
     
 
(5.4
)
     
 
(7.1
)
NovaLux, Inc.
     
Lower valuation of the company
     
 
(4.8
)
     
 
(4.8
)
Appliant, Inc.
     
Lower valuation of the company
     
 
—  
 
     
 
(3.5
)
MedManage Systems Inc.
     
Lower valuation of the company
     
 
—  
 
     
 
(1.9
)
Cbyon, Inc.
     
Lower valuation of the company
     
 
—  
 
     
 
(1.8
)
Songbird Medical, Inc.
     
Lower valuation of the company
     
 
(0.6
)
     
 
(0.6
)
Other public and private companies
     
Various
     
 
(0.8
)
     
 
(1.9
)
             
    
Depreciation in NAV before operating expenses
     
 
(14.2
)
     
 
(27.5
)
After-tax operating expenses
     
 
(0.9
)
     
 
(1.8
)
             
    
Depreciation in NAV related to investment performance
     
$
(15.1
)
     
$
(29.3
)
             
    
 
The cost basis, carrying value and NAV of the venture capital portfolio is reconciled below:
 
    
June 30,
2002
     
Dec. 31,
2001
  
    
(In Millions)
  
Cost basis of investments
   
$
185.4
 
   
$
190.0
 
Write-downs taken on securities held (charged to earnings)
   
 
(66.0
)
   
 
(47.9
)
Unrealized appreciation on public securities held by Tredegar (reflected directly in equity net of deferred income taxes)
   
 
3.7
 
   
 
13.0
 
    
  
Carrying value of investments reflected in the balance sheet
   
 
123.1
 
   
 
155.1
 
Unrealized appreciation in private securities held by Tredegar and in its indirect interest in all securities held by venture capital funds
   
 
10.4
 
   
 
16.6
 
    
  
Estimated fair value of venture capital investments
   
 
133.5
 
   
 
171.7
 
Estimated income tax benefit (cost) on assumed disposal at fair value
   
 
18.7
 
   
 
6.6
 
    
  
NAV of venture capital investments
   
$
152.2
 
   
$
178.3
 
    
  
 
We generated taxable capital gains in the portfolio of approximately $158 million in 2000 and $30 million in 2001. The taxable capital gains generated in 2000 and 2001 are available for the carry-back of tax-related capital losses through 2003 and 2004, respectively.

19

 
Changes in NAV for the quarter and six months ended June 30, 2002 and 2001 are summarized below:
 
    
Second Quarter
Ended June 30
     
Six Months
Ended June 30
  
    
2002
     
2001
     
2002
     
2001
  
    
(In Millions)
  
NAV at beginning of period
   
$
166.6
 
   
$
296.5
 
   
$
178.3
 
   
$
335.0
 
    
  
  
  
After-tax appreciation (depreciation) in NAV related to investment performance (net of operating expenses)
   
 
(15.1
)
   
 
1.4
 
   
 
(29.3
)
   
 
(34.7
)
After-tax operating expenses funded by Tredegar
   
 
.9
 
   
 
1.1
 
   
 
1.8
 
   
 
2.1
 
New investments
   
 
5.5
 
   
 
4.7
 
   
 
11.1
 
   
 
9.1
 
Reduction in NAV due to the sale of investments
   
 
(5.7
)
   
 
(14.7
)
   
 
(9.7
)
   
 
(22.5
)
    
  
  
  
(Decrease) increase in NAV
   
 
(14.4
)
   
 
(7.5
)
   
 
(26.1
)
   
 
(46.0
)
    
  
  
  
NAV at end of the period
   
$
152.2
 
   
$
289.0
 
   
$
152.2
 
   
$
289.0
 
    
  
  
  
 
Liquidity and Capital Resources
 
Tredegar’s total assets decreased to $849.9 million at June 30, 2002 from $865 million at December 31, 2001. The decrease is primarily due to the net of the following:
 
 
•
 
a decline in the carrying value of venture capital investments (decrease of $32 million) primarily due to valuation declines;
 
 
•
 
a decrease in inventory (down $4.1 million);
 
 
•
 
an increase in accounts receivable (up $20.4 million) primarily due to higher receivables in Aluminum Extrusions which were at seasonal and cyclical lows at the end of 2001; and
 
 
•
 
an increase in the prepaid pension asset (up $5.3 million) due to pension income recognized during the period.
 
Cash and cash equivalents was relatively flat at $96.5 million at June 30, 2002 and $96.8 million at December 31, 2001. The reasons for changes in cash and cash equivalents for the six months ended June 30, 2002 and 2001 are summarized below:
 
    
Six Months
Ended June 30
  
    
2002
     
2001
  
    
(In Thousands)
  
Cash and cash equivalents, beginning of period
   
$
96,810
 
   
$
44,530
 
    
  
Cash provided by (used in) operating activities net of capital expenditures and dividends
   
 
10,912
 
   
 
14,397
 
Proceeds from the exercise of stock options
   
 
1,009
 
   
 
152
 
Net (decrease) increase in borrowings
   
 
(5,097
)
   
 
(3,607
)
New venture capital investments, net of proceeds from disposals
   
 
(4,729
)
   
 
17,684
 
Proceeds from divestitures and property disposals
   
 
89
 
   
 
353
 
Other, net
   
 
(2,450
)
   
 
(1,724
)
    
  
Net increase (decrease) in cash and cash equivalents
   
 
(266
)
   
 
27,255
 
    
  
Cash and cash equivalents, end of period
   
$
96,544
 
   
$
71,785
 
    
  

20

 
In 2002, cash provided by continuing operating activities, net of capital expenditures and dividends was $10.9 million compared with $14.4 million in 2001. The change is primarily due to changes in the level of working capital offset in part by higher cash generated by manufacturing operations and lower capital expenditures.
 
Capital expenditures decreased from $22.1 million in 2001 to $13.9 million in 2002. Capital expenditures in 2002 reflect the normal replacement of machinery and equipment and the following key capital projects:
 
 
•
 
machinery and equipment to upgrade lines at the films manufacturing facility in Kerkrade, The Netherlands;
 
 
•
 
machinery and equipment for a new production line at the films plant in Terre Haute, Indiana;
 
 
•
 
expansion of capacity at the films plant in Shanghai, China; and
 
 
•
 
machinery and equipment purchased for the aluminum plant in Kentland, Indiana.
 
Debt outstanding of $259.4 million at June 30, 2002, consisted of a $250 million term loan, a note payable with a remaining balance of $5 million and other debt of $4.4 million. On April 30, 2002, we completed a $100 million 364-day revolving credit facility and terminated our $275 million revolver that would have matured in July 2002. The new facility has covenants and restrictions consistent with our existing debt; the most restrictive of which is a debt-to-capitalization limitation of 50%. At June 30, 2002, this ratio was 36%. The new facility provides for interest to be charged at a base rate (generally the London Interbank Offered Rate (“LIBOR”)) plus a spread that is dependent upon our quarterly debt-to-capitalization ratio (see Note 9 on page 10). This short-term facility is an interim step to longer-term financing that we plan to initiate once the divestitures of Molecumetics and Therics have been completed.
 
Our future contractual payments related to debt and operating lease obligations are summarized below:
 
    
Payments Due by Period Ending June 30,
    
2003
   
2004
   
2005
   
2006
   
Remainder
   
Total
    
(In Thousands)
Debt
   
$
30,000
   
$
66,235
   
$
100,256
   
$
62,609
   
$
301
   
$
259,401
Operating leases*
   
 
3,258
   
 
2,939
   
 
2,553
   
 
2,140
   
 
7,993
   
 
18,883
    
  
  
  
  
  
Total
   
$
33,258
   
 
69,174
   
$
102,809
   
$
64,749
   
$
8,294
   
$
278,284
    
  
  
  
  
  
*
 
Future payments for operating leases are estimated on a straight-line basis using annual calendar year obligations.
 
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, foreign currencies, emerging markets and technology stocks.
 
Changes in resin prices, and the timing of those changes, could have a significant impact on profit margins in Film Products; however, those changes are generally followed by a corresponding change in selling prices. Profit margins in Aluminum Extrusions are sensitive to fluctuations in aluminum ingot and scrap prices, but are also generally followed by a corresponding

21

 
change in selling prices; however, there is no assurance that higher ingot costs can be passed along to customers.
 
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. To hedge our exposure to aluminum price volatility under these fixed-price arrangements, which generally have a duration of not more than 12 months, we enter into a combination of forward purchase commitments and futures contracts to acquire aluminum, based on scheduled deliveries.
 
We sell to customers in foreign markets through our foreign operations and through exports from U.S. plants. The percentage of consolidated net sales from manufacturing operations related to foreign markets for the six months ended June 30, 2002 and 2001 is presented below:
 
      
Percentage of Net Sales from Manufacturing
Operations Related to Foreign Markets*
  
      
Six Months
Ended June 30
  
      
2002
       
2001
  
      
Exports
From U.S.
       
Foreign
Operations
       
Exports
From U.S.
       
Foreign
Operations
  
Canada
     
3
%
     
18
%
     
3
%
     
15
%
Europe
     
4
 
     
8
 
     
1
 
     
7
 
Latin America
     
3
 
     
2
 
     
3
 
     
3
 
Asia
     
4
 
     
2
 
     
3
 
     
1
 
      
    
    
    
Total
     
14
%
     
30
%
     
10
%
     
26
%
      
    
    
    
*
 
Based on consolidated net sales from manufacturing operations (excluding Tredegar Biotech and Tredegar Investments).
 
We attempt to match the pricing and cost of our products in the same currency and generally view the volatility of foreign currencies and emerging markets, and the corresponding impact on earnings and cash flow, as part of the overall risk of operating in a global environment. Exports from the U.S. are generally denominated in U.S. Dollars. Our foreign currency exposure on income from foreign operations in Europe primarily relates to the Euro. We believe our exposure to the Canadian Dollar has been substantially neutralized by the U.S. Dollar-based spread (the difference between selling prices and aluminum costs) generated from Canadian casting operations and exports from Canada to the U.S.
 
We have investments in private venture capital fund limited partnerships and early-stage technology companies, including the stock of privately-held companies and the restricted and unrestricted stock of companies that have recently registered shares in initial public offerings. The portfolio is subject to risks typically associated with investments in technology start-up companies, which include business failure, illiquidity and stock market volatility. Furthermore, publicly traded stocks of emerging, technology-based companies have higher volatility and risk than the U.S. stock market as a whole. See pages 18 to 20 and Note 4 on pages 6 to 8 for more information.

22

 
Forward Looking and Cautionary Statements
 
From time to time, we may make statements that may constitute “forward-looking statements” within the meaning of the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on our then current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. Factors that may cause such a difference include, but are not limited to the following:
 
Film Products
 
 
•
 
Film Products is highly dependent on sales associated with one customer, The Procter & Gamble Company (“P&G”).    P&G comprised 31% of our net sales in 2001, 28% in 2000 and 30% in 1999. The loss or significant reduction of sales associated with P&G would have a material adverse effect on our business, as would delays in P&G rolling out products utilizing new technologies developed by Tredegar. While we have undertaken efforts to expand our customer base, there can be no assurance that such efforts will be successful, or that they will offset any delay or loss of sales and profits associated with P&G.
 
 
•
 
Growth of Film Products depends on our ability to develop and deliver new products, especially in the hygiene market, which comprised over 75% of Film Products’ net sales in each of the last three years.    Hygiene products are now being made with a variety of new materials, replacing traditional backsheet and other components. While we have substantial technical resources, there can be no assurance that our new products can be brought to market successfully, or if brought to market successfully, at the same level of profitability and market share of replaced films. A shift in customer preferences away from our technologies, our inability to develop and deliver new profitable products, or delayed acceptance of our new products in domestic or foreign markets, could have a material adverse effect on our business.
 
 
•
 
Film Products operates in a field where our significant customers and competitors have substantial intellectual property portfolios.    The continued success of this business depends on our ability not only to protect our own technologies and trade secrets, but also to develop and sell new products that do not infringe upon existing patents. Although we are not currently involved in any patent litigation, the outcome of any such action could have a significant adverse impact on Film Products.
 
 
•
 
As Film Products expands its hygiene business, we have greater credit risk that is inherent in broadening our customer base.
 
Aluminum Extrusions
 
 
•
 
Sales volume and profitability of Aluminum Extrusions is cyclical and highly dependent on economic conditions of end-use markets in the United States and Canada, particularly in the construction, distribution and transportation industries.    Our market segments are also subject to seasonal slowdowns during the winter months. From 1992 to the second quarter of 2000, profits in Aluminum Extrusions grew as a result of positive economic conditions in the markets we serve and manufacturing efficiencies. However, a slowdown in these markets in the second half of 2000 resulted in a 13% decline in sales volume and 28% decline in ongoing

23

operating profit compared with the second half of 1999. The aluminum extrusions industry continued to be affected by poor economic conditions in 2001 and the first six months of 2002. Our sales volume declined 20% and operating profit declined 52% in 2001 compared with 2000. The decline in ongoing operating profit at approximately two to three times the rate of the decline in sales volume illustrates the operating leverage inherent in our operations (fixed operating costs). Any benefits associated with cost reductions and productivity improvements may not be sufficient to offset the adverse effects on profitability from pricing and margin pressure and higher bad debts that usually accompany a downturn.
 
 
•
 
The markets for our products are highly competitive with product quality, service and price being the principal competitive factors.    As competitors increase capacity or reduce prices to increase business, there could be pressure to reduce prices to our customers. Aluminum Extrusions is under increasing domestic and foreign competitive pressures, including a growing presence of Chinese imports in a number of Aluminum Extrusions’ markets. This competition could result in loss of market share due to their ability to produce at lower costs and sell at lower prices. There can be no assurance that we will be able to maintain current margins and profitability. Our continued success and prospects depend on our ability to retain existing customers and participate in overall industry cross-cycle growth.
 
Therics
 
 
•
 
We are attempting to sell Therics, but given the current market conditions in the biotechnology sector, there is no assurance that we will be successful in those efforts.    We will continue to incur losses as we support Therics’ operations during the sale process. There is no assurance we will realize any return on our continuing investment in Therics.
 
 
•
 
Therics has incurred losses since inception, and we are unsure when, or if, it will become profitable.    We have not brought any drug delivery systems or bone replacement products to the point of human testing. There can be no assurance that any new drug delivery systems or bone replacement products can be brought to market successfully.
 
 
•
 
Our ability to develop and commercialize products will depend on our ability to internally develop preclinical, clinical, regulatory and sales and marketing capabilities, or enter into arrangements with third parties to provide those functions.    We may not be successful in developing these capabilities or entering into agreements with third parties on favorable terms. Further, our reliance upon third parties for these capabilities could reduce our control over such activities and could make us dependent upon these parties. Our inability to develop or contract for these capabilities would significantly impair our ability to develop and commercialize products. In addition, there can be no assurance that the FDA and other regulatory authorities will clear our products in a timely manner.
 
 
•
 
We are highly dependent on several principal members of our management and scientific staff.    The loss of key personnel would have a material adverse effect on Therics’ business and results of operations, and could inhibit product development and commercialization efforts. In addition, recruiting and retaining qualified scientific personnel to perform future R&D work is critical to our success. Competition for experienced scientists is intense. Failure to recruit and retain executive management and scientific personnel on acceptable terms could prevent us

24

from achieving our business objectives.
 
 
•
 
The patent positions of biotechnology firms generally are highly uncertain and involve complex legal and factual questions that can determine who has the right to develop a particular product.    No clear policy has emerged regarding the breadth of claims covered by biotechnology patents in the United States. The biotechnology patent situation outside the United States is even more uncertain and is currently undergoing review and revision in many countries. Changes in, or different interpretations of, patent laws in the United States and other countries might allow others to use our discoveries or to develop and commercialize our products without any compensation to us.
 
Tredegar Investments
 
 
•
 
The success, continued existence and value of the early-stage technology companies in which we invest depends on their ability to create or develop commercially viable products or businesses, and raise additional capital when needed.    The possibility that companies in which we invest will not be able to meet their milestones or commercialize their technology, product or business concept presents significant risk. Additionally, companies in which we make seed or expansion round investments will often require substantial additional equity financing to satisfy continuing working capital requirements. Each round of venture financing is typically intended to provide a company with only enough capital to reach the next stage of development. We cannot predict the circumstances or market conditions under which the companies in which we invest will seek additional capital; however, current market conditions are not favorable. Companies that are unsuccessful in raising the needed additional capital are likely to fail, leaving little or no liquidation value for investors.
 
 
•
 
Many of the venture capital investments we hold are illiquid.    For private companies in which we have invested, there is no secondary market for our shares and there is no assurance that one will be available in the near future. Additionally, once a company becomes publicly traded, there is generally a period of time in which we are not permitted to trade the securities (the “lock-up” period, which is generally six months).
 
 
•
 
The success of our venture capital investments will be significantly affected by the state of the securities markets in general and, more specifically, the market for initial public offerings, the market for communications, life science and information technology companies, and the market for mergers and acquisitions.    We anticipate that a significant portion of our returns will be realized through initial public offerings of companies in which we have invested or through merger and acquisition activity. The market for initial public offerings and merger and acquisition activity is cyclical in nature. Thus, we cannot be certain that the securities markets will be receptive to initial public offerings or merger and acquisition activity, particularly those of early-stage companies. As seen during 2001, any adverse change in the market for initial public offerings could significantly impact our ability to realize our investment objective.
 
 
•
 
Valuing our venture capital investments is difficult and inexact.    We value our venture capital investments based on our best estimate of the value of each individual investment. There is typically no public market for our investments in privately held companies. We will consult with venture funds and consulting firms when needed to assist in the valuation of our

25

investments. Valuation is inherently subjective. The net asset value set by management may not reflect the price at which we could sell our shares in the open market.
 
Item 3.    Quantitative and Qualitative Disclosures About Market Risk
 
See discussion under “Quantitative and Qualitative Disclosures About Market Risk” beginning on page 21.

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PART II—OTHER INFORMATION
 
Item 1.    Legal Proceedings.
 
A consent order was entered into by the Environmental Protection Division, Department of Natural Resources, State of Georgia and the William L. Bonnell Company relating to alleged violations of the conditions and limitations contained in the National Pollutant Discharge Elimination System Permit No. GA0000507 (the “Permit”) for our wastewater treatment facility in Newnan, Georgia. The consent order is in effect through December 31, 2003. We are taking steps to address the permit issues associated with our wastewater treatment facility and have agreed to pay quarterly penalties until the issues are resolved. In 2001, we made payments of $62,000 pursuant to this consent order and expect total payments to be approximately $160,000 before the permit issues are fully resolved.
 
Item 4.    Submission of Matters to a Vote of Security Holders.
 
Tredegar’s Annual Meeting of Shareholders was held on April 25, 2002. The following sets forth the vote results with respect to each of the matters voted upon at the meeting:
 
(a)  Election of Directors
 
Nominee
  
No. of Votes
    “For”    
  
No. of Votes
“Withheld”
Richard W. Goodrum
  
34,222,770
  
4,032,479
Phyllis Cothran
  
34,258,913
  
3,996,336
Floyd D. Gottwald, Jr.
  
34,198,149
  
4,057,100
 
There were no broker non-votes with respect to the election of directors.
 
(b)  Approval of Auditors
 
Approval of the designation of PricewaterhouseCoopers LLP as the auditors for Tredegar for the fiscal year ending December 31, 2002:
 
No. of Votes
    “For”    
  
No. of Votes
“Against”
   
No. of
Abstentions
34,568,604
  
179,227
   
42,096
 
There were no broker non-votes with respect to the approval of auditors.

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Item 6.    Exhibits and Reports on Form 8-K.
 
(a)    Exhibit No.
 
3
  
Amended By-Laws
4
  
Credit Agreement dated April 30, 2002, among Tredegar Corporation, as Borrower, Wachovia Bank, National Association, as Administrative Agent, Suntrust Bank, as Syndication Agent, and Bank of America, N.A., as Documentation Agent
 
(b)  Reports on Form 8-K.    No reports on Form 8-K have been filed for the quarter ended June 30, 2002.

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
TREDEGAR CORPORATION
  (Registrant)
By:
  
/s/    D. ANDREW EDWARDS        
   
D. Andrew Edwards
Vice President,
Finance and Treasurer
(Principal Financial Officer)
 
Date:  August 6, 2002
 
By:
  
/s/    MICHELLE O. MOSIER         
   
Michelle O. Mosier
Corporate Controller
(Principal Accounting Officer)
 
Date:  August 6, 2002

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EXHIBIT INDEX
 
Exhibit No.
   
Description
3
   
Amended By-Laws
4
   
Credit Agreement dated April 30, 2002, among Tredegar Corporation, as Borrower, Wachovia Bank, National Association, as Administrative Agent, Suntrust Bank, as Syndication Agent, and Bank of America, N.A., as Documentation Agent

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