SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2002

OR

For the transition period from _____________________ to _____________________

Commission file number 1-10258

Tredegar Corporation
(Exact Name of Registrant as Specified in its Charter)

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 |   |

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

        The number of shares of Common Stock, no par value, outstanding as of October 29, 2002: 38,419,925.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

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

See accompanying notes to financial statements.

2

Tredegar Corporation
Consolidated Statements of Income
(In Thousands)
(Unaudited)

See accompanying notes to financial statements.

3

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

See accompanying notes to financial statements.

4

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

5

6

7

See notes on page 9.

8

Tredegar Corporation
Schedule of Investments at September 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 September 30, 2002, Tredegar had ownership interests in 29 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):

9

10

11

12

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 there is impairment in the investment that is other than temporary. For private securities and ownership interests in private venture capital funds, impairment is deemed to exist when the estimated fair value at quarterly valuation dates is below carrying value. For available-for-sale securities, 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:

        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. See also Note 5 on page 7 regarding our exploration of alternatives aimed at maximizing the after-tax value of our venture capital investments.

13

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

        We regularly assess goodwill for impairment when events or circumstances indicate that the carrying value may not be recoverable, or, at a minimum, on an annual basis. We compare 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

Third Quarter 2002 Compared with Third Quarter 2001

        The net loss for the third quarter of 2002 was $1.8 million compared with a net loss of $1.1 million in 2001. The net loss from continuing operations was $786,000 (2 cents per share) compared with net income of $915,000 (2 cents per share) in 2001. Results in the third quarter of 2002 include $12.7 million of net after-tax losses from venture capital investments compared with net after-tax losses of $3.6 million in the prior year.

        Excluding unusual items, income from manufacturing operations was $14.2 million versus $13.2 million in 2001. Last year’s results include goodwill amortization expense of $750,000 after taxes. Fourth-quarter results from manufacturing operations are expected to approximate year-ago levels. Looking ahead to the first half of 2003, we expect manufacturing income to trail 2002 results due mainly to lower profits in Film Products, where an accelerating decline in diaper backsheet profits is likely to outpace growth from new products. The resulting income shortfall could widen if market conditions in Aluminum Extrusions do not improve.

14

        On March 22, 2002, we announced our intent to divest our two biotechnology units, Molecumetics and Therics. Efforts to sell Therics are under way as it continues to progress in its technology development efforts. We have retained Adams, Harkness and Hill, a Boston-based investment-banking firm to manage the divestiture process. Therics had net losses of $2.2 million in the third quarter of 2002 and $2.4 million in 2001 (6 cents per share in each period). The long-lived assets for Therics (approximately $10.1 million) have been separately classified in the accompanying balance sheet at September 30, 2002, as “Net non-current assets of Therics held for sale” and are no longer being depreciated.

        Operations at Molecumetics 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 for the third quarter of 2002 was $975,000 (3 cents per share) versus $2 million (5 cents per share) in 2001. The loss for the third quarter of 2002 represents employee-related costs related to the closure of the facility. The long-lived assets of Molecumetics (approximately $1.7 million) have been included in “Prepaid expenses and other” in the consolidated balance sheet at September 30, 2002, and are no longer being depreciated.

        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 20. 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 third quarter was $15.4 million. At September 30, 2002, the NAV of the portfolio was $142.8 million. On October 15, 2002, we announced that we have retained San Francisco-based Probitas Partners to explore alternatives aimed at maximizing the after-tax value of our venture capital investments. Several alternatives are being considered including the sale of substantially all of the portfolio in a secondary market transaction. For more information on our venture capital investment activities, see pages 21 to 23 and Note 5 on pages 7 to 9.

        Net sales in the third quarter of 2002 were $190.3 million compared with $197.8 million in the prior year, down 4%. Net sales in Film Products were down 5% while sales in Aluminum Extrusions declined 3%. Volume in Film Products was down 8% while volume in Aluminum Extrusions declined 3%. For more information on net sales, see the business segment review beginning on page 20.

        The gross profit margin during the third quarter increased to 20% from 18.9% 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 third quarter were $13.3 million, up from $12.5 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% in the third quarter of 2002 compared with 6.3% in 2001.

15

        R&D expenses were down 6.7% from $5.4 million in 2001 to $5 million in 2002 due primarily to decreased spending at Therics.

        Unusual items in 2002 totaled $178,000 ($114,000 after income taxes) and were primarily for relocation and employee-related costs related to the shutdown of the films plant in Carbondale, Pennsylvania.

        Unusual items in the third quarter of 2001 totaled $9.8 million ($6.3 million after income taxes) and included:

        Interest income, which is included in “Other income (expense), net” in the consolidated statements of income, was $448,000 in 2002 and $717,000 in 2001. Despite higher average cash and cash equivalents during the quarter ($100.9 million in 2002 versus $78 million in 2001), interest income was down due to a lower average tax-equivalent yield earned on cash and cash equivalents (approximately 1.8% in the third quarter of 2002 and approximately 3.6% 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 $2.4 million compared with $3 million in 2001. Average debt outstanding and interest rates for the quarters were as follows:

16

        Our effective income tax rate from continuing operations was 42% compared with 31% in the prior year. The increase is due to the amount of non-deductible expenses relative to the pretax loss. The effective income tax rate from manufacturing operations, excluding unusual items, was 35.5% in both periods.

Nine Months 2002 Compared with Nine Months 2001

        The net loss for the first nine months of 2002 was $4.5 million compared with net income of $14.3 million in 2001. Net income from continuing operations was $4.2 million in 2002, down from $17 million in 2001 (11 cents per share versus 45 cents per share). Results for 2002 include $32.1 million (82 cents per share) of after-tax losses from venture capital investments compared to $8.8 million (23 cents per share) in 2001. 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 $2.2 million after taxes or 6 cents per share.

        Results for 2002 include net losses from discontinued operations of Molecumetics of $8.7 million versus $4.1 million in 2001. In addition to the operating losses, discontinued operations in 2002 include an expected loss on the disposal of Molecumetics of $7.5 million ($4.9 million after taxes) comprised of an impairment loss for equipment of $4 million, employee related costs of $1.5 million and estimated miscellaneous disposal costs of $2 million.

        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 nine months of this year was $44.7 million.

        Net sales for the nine months ended September 30, 2002, decreased by 4% compared with the same period of last year. Net sales in Film Products were down 2% and net sales in Aluminum Extrusions were down 6%. For more information on net sales, see the business segment review beginning on page 20.

        The gross profit margin for the first nine months of 2002 increased to 20.8% from 18.5% in 2001 primarily due to increased profit in Film Products due to improved product and customer mix.

        SG&A expenses were $41.1 million in 2002 compared with $38.1 million in 2001. The increase is primarily due to higher expenses in Film Products in support of additional sales and marketing efforts. As a percentage of net sales, SG&A expenses increased to 7.3% in the first nine months of 2002 compared with 6.5% in the same period of 2001.

        R&D expenses increased to $15.7 million in 2002 from $14.7 million in 2001 due to higher spending at Therics (up $370,000) and higher spending at Film Products (up $630,000).

17

        Unusual items for the nine months ended September 30, 2002, totaled approximately $1.4 million ($923,000 after income taxes or 2 cents per share) and included:

        Unusual items for the nine months ended September 30, 2001, totaled $10.5 million ($4.8 million after income taxes or 12 cents per share) and included:

        Income taxes in 2001 include 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 nine months ended September 30, 2002, was $1.5 million versus $2.1 million for the same period in 2001. Despite higher average cash and cash equivalents during the period ($99.7 million in 2002 versus $65 million in 2001), interest income was down due to lower average tax-equivalent yield earned on cash equivalents (approximately 2% in 2002 and 4.5% in 2001).

        Interest expense decreased to $6.9 million in 2002 from $10.2 million in 2001. Average debt outstanding and interest rates were as follows:

18

        The effective income tax rate from continuing operations for the nine months ended September 30, 2002, was 32.2% compared with 27% 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.

19

Business Segment Review

        The following tables present Tredegar’s net sales and operating profit by segment for the third quarter and nine months ended September 30, 2002 and 2001.

Net Sales by Segment
(In Thousands)
(Unaudited)

Operating Profit by Segment
(In Thousands)
(Unaudited)