Edgar Filing: TREDEGAR CORP

TG-2013.12.31-10K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K



x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2013



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission File Number 1-10258

TREDEGAR CORPORATION

(Exact name of registrant as specified in its charter)



Virginia		54-1497771
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1100 Boulders Parkway, Richmond, Virginia		23225
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 804-330-1000

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class		Name of Each Exchange on Which Registered
Common Stock		New York Stock Exchange
Preferred Stock Purchase Rights		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K ¨.

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



Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

Aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of June 28, 2013 (the last business day of the registrant’s most recently completed second fiscal quarter): $701,242,824*

Number of shares of Common Stock outstanding as of January 31, 2014: 32,305,145 (32,267,003 as of June 30, 2013)



*	In determining this figure, an aggregate of 4,981,290 shares of Common Stock beneficially owned by John D. Gottwald, William M. Gottwald and the members of their immediate families has been excluded because the shares are deemed to be held by affiliates. Effective September 2013, Common Stock beneficially owned Floyd D. Gottwald, Jr. was also included in the affiliate group. The aggregate market value has been computed based on the closing price in the New York Stock Exchange Composite Transactions on June 28, 2013.

Documents Incorporated By Reference

Portions of the Tredegar Corporation Proxy Statement for the 2014 Annual Meeting of Shareholders (the “Proxy Statement”) are incorporated by reference into Part III of this Form 10-K.

Index to Annual Report on Form 10-K

Year Ended December 31, 2013



		Page

Part I
Item 1.	Business		1-5
Item 1A.	Risk Factors		5-9
Item 1B.	Unresolved Staff Comments		9
Item 2.	Properties		9
Item 3.	Legal Proceedings		9
Item 4.	Mine Safety Disclosures		10

Part II
Item 5.	Market for Tredegar’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		10-12
Item 6.	Selected Financial Data		12-17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18-37
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		37
Item 8.	Financial Statements and Supplementary Data		37
Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure		37
Item 9A.	Controls and Procedures		37-38
Item 9B.	Other Information		38

Part III
Item 10.	Directors, Executive Officers and Corporate Governance*		38
Item 11.	Executive Compensation		39
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*		39
Item 13.	Certain Relationships and Related Transactions, and Director Independence		39
Item 14.	Principal Accounting Fees and Services		39

Part IV
Item 15.	Exhibits and Financial Statement Schedules		40



*Items	11, 13 and 14 and portions of Items 10 and 12 are incorporated by reference from the Proxy Statement.

PART I


Item 1.	BUSINESS

Description of Business

Tredegar Corporation (“Tredegar”), a Virginia corporation incorporated in 1988, is engaged, through its subsidiaries, in the manufacture of plastic films and aluminum extrusions. The financial information related to Tredegar’s film products and aluminum extrusions segments and related geographical areas included in Note 5 to the Notes to Financial Statements is incorporated herein by reference. Unless the context requires otherwise, all references herein to “Tredegar,” “we,” “us” or “our” are to Tredegar Corporation and its consolidated subsidiaries.

Film Products

Tredegar Film Products Corporation and its subsidiaries (together, “Film Products”) manufacture plastic films, elastics and laminate materials primarily for personal care products and surface protection and packaging applications. These products are manufactured at facilities in the United States (“U.S.”), The Netherlands, Hungary, China, Brazil and India. In October 2011, Film Products acquired Terphane Holdings LLC (“Terphane”), further expanding our films business in Latin America and the U.S. Film Products competes in all of its markets on the basis of product innovation, quality, price and service.

Personal Care Materials. Film Products is one of the largest global suppliers of apertured, breathable, elastic and embossed films, and laminate materials for personal care markets, including:


•	Apertured film and laminate materials for use as topsheet in feminine hygiene products, baby diapers and adult incontinence products (including materials sold under the SoftQuilt^™, ComfortQuilt^™, ComfortAire^™, ComfortFeel^™, SoftAire^™ and FreshFeel^™ brand names);


•	Breathable, embossed and elastic materials for use as components for baby diapers, adult incontinence products and feminine hygiene products (including elastic components sold under the ExtraFlex^™, FabriFlex^™, StretchTab^™, FlexAire^™ and FlexFeel^™ brand names); and


•	Absorbent transfer layers for baby diapers and adult incontinence products sold under the AquiDry^®, AquiDry Plus^™ and AquiSoft^™ brand names.

In 2013, 2012 and 2011, personal care materials accounted for approximately 36%, 38% and 45% of Tredegar’s consolidated net sales (sales less freight) from continuing operations, respectively.

Flexible Packaging Films. Film Products produces specialized polyester (“PET”) films for use in packaging applications that have specialized properties, such as heat resistance, strength, barrier protection and the ability to accept high-quality print graphics. These differentiated, high-value films are primarily sold in Latin America and the U.S. under the Terphane^® and Sealphane^® brand names. Major end uses include food packaging and industrial applications. Flexible packaging films accounted for approximately 14% and 16% of Tredegar’s consolidated net sales from continuing operations in 2013 and 2012, respectively. Tredegar did not offer these films until the fourth quarter of 2011, so flexible packaging films only accounted for approximately 4% of consolidated net sales from continuing operations in 2011.

Surface Protection Films. Film Products produces single- and multi-layer surface protection films sold under the UltraMask^®, ForceField^™ and ForceField PEARL^™ brand names. These films are used in high-technology applications, most notably protecting high-value components of flat panel displays used in televisions, monitors, notebooks, smart phones, tablets, e-readers and digital signage, during the manufacturing and transportation process. In 2013, 2012 and 2011, surface protection films accounted for approximately 10%, 8% and 9% of Tredegar’s consolidated net sales from continuing operations, respectively.

Polyethylene Overwrap & Polypropylene Films. Film Products produces various types of polyethylene and polypropylene overwrap films. Applications for polyethylene films include an emphasis on packaging for paper products. These products provide our customers with thin-gauge films that are readily printable and convertible on conventional processing equipment. Film Products also manufactures polypropylene films for packaging applications. Major end uses for polyethylene and polypropylene films include overwrap for bathroom tissue and paper towels as well as retort pouches.

Films for Other Markets. Film Products also makes a variety of specialty films and film-based products that provide tailored functionality for the illumination market as well as various other markets. By leveraging the combination of film capabilities and our patented microstructure technology, we are able to offer optical management products for a wide range of applications, including lighting, signage and durable goods.

The operations of Bright View Technologies Corporation (“Bright View”) were incorporated into Film Products effective January 1, 2012 to better leverage efforts to produce films for new market segments. Bright View is a developer and producer of high-value microstructure-based optical films for the LED (light-emitting diode) and fluorescent lighting markets.

Raw Materials. The primary raw materials used by Film Products are low density, linear low density and high density polyethylene and polypropylene resins, Purified Terephthalic Acid (“PTA”) and Monoethylene Glycol (“MEG”), which are obtained from domestic and foreign suppliers at competitive prices. Beginning in 2014, in addition to purchasing PTA and MEG to produce polyester resins used in our flexible packaging films, we will be increasing our purchasing of polyester resins directly from suppliers. We believe there will be an adequate supply of these raw materials in the foreseeable future. Film Products also buys polypropylene-based nonwoven fabrics based on the resins previously noted and styrenic block copolymers, and we believe there will be an adequate supply of these raw materials in the foreseeable future.

Customers. Film Products sells to many branded product producers throughout the world. Its largest customer is The Procter & Gamble Company (“P&G”). Net sales to P&G totaled $262 million in 2013, $264 million in 2012 and $280 million in 2011 (these amounts include film sold to third parties that converted the film into materials used with products manufactured by P&G).

P&G and Tredegar have a successful long-term relationship based on cooperation, product innovation and continuous process improvement. For additional information on the relationship with P&G, see “Item 1A. Risk Factors” beginning on page 5.

Aluminum Extrusions

The William L. Bonnell Company, Inc. and its subsidiaries (together, “Aluminum Extrusions”), which is known as Bonnell Aluminum in the marketplace, produce high-quality, soft-alloy and medium-strength aluminum extrusions primarily for building and construction, distribution, transportation, electrical, consumer durables and machinery and equipment markets. Aluminum Extrusions manufactures mill (unfinished), anodized (coated) and painted and fabricated aluminum extrusions for sale directly to fabricators and distributors, and it competes primarily on the basis of product quality, service and price. Sales are made primarily in the U.S.

On October 1, 2012, Aluminum Extrusions acquired AACOA, Inc. (“AACOA”). AACOA produces aluminum extrusions and provides anodizing services to customers in the consumer durables, machinery and equipment and transportation markets. Our acquisition of AACOA allows us to add fabrication capabilities to Aluminum Extrusions’ current array of products and services while providing AACOA with large press capabilities and enhanced geographic sales coverage in a variety of end-use markets.

The primary end-uses in each of Aluminum Extrusions’ primary market segments include:



Major Markets		End-Uses

Building & construction - nonresidential		Commercial windows and doors, curtain walls, storefronts and entrances, walkway covers, ducts, louvers and vents, office wall panels, partitions and interior enclosures, acoustical walls and ceilings, point of purchase displays, pre-engineered structures and bus shelters

Building & construction - residential		Shower and tub enclosures, railing and support systems, venetian blinds, swimming pools and storm shutters

Consumer durables		Office and institutional furniture, pleasure boats, serving carts and refrigerators and freezers,

Machinery & equipment		Material handling equipment, conveyors and conveying systems, industrial erector sets, hospital patient lifts and office equipment

Automotive & other transportation		Automotive and light truck structural components, spare parts, after-market automotive accessories, travel trailers and recreation vehicles

Electrical		Lighting fixtures (LED housings and heat sinks), solar panels, electronic apparatus and rigid and flexible conduits

Distribution (metal service centers specializing in stock and release programs and custom fabrications to small manufacturers)		Various custom profiles including storm shutters, pleasure boat accessories, theatre set structures and various standard profiles (including rod, bar, tube and pipe)

Aluminum Extrusions’ sales volume from continuing operations by market segment over the last three years is shown below:



% of Aluminum Extrusions Sales Volume by Market Segment (Continuing Operations) *
		2013		2012		2011
Building and construction:
Nonresidential		60	%	70	%	70	%
Residential		7	%	9	%	12	%
Consumer durables		12	%	5	%	2	%
Machinery & equipment		7	%	4	%	2	%
Transportation		6	%	5	%	6	%
Distribution		4	%	5	%	6	%
Electrical		4	%	2	%	2	%
Total		100	%	100	%	100	%

*	Includes sales volumes for AACOA subsequent to our acquisition on October 1, 2012.

In 2013, 2012 and 2011, nonresidential building and construction accounted for approximately 19%, 19% and 21% of Tredegar’s consolidated net sales (sales less freight) from continuing operations, respectively.

Raw Materials. The primary raw materials used by Aluminum Extrusions consist of aluminum ingot, aluminum scrap and various alloys, which are purchased from domestic and foreign producers in open-market purchases and under short-term contracts. We believe that we have adequate long-term supply agreements for aluminum and other required raw materials and supplies in the foreseeable future.

Other

Our operations previously included an additional segment, Other, comprised of the start-up operations of Bright View and Falling Springs, LLC (“Falling Springs”). As previously noted, the operations of Bright View were incorporated into Film Products effective January 1, 2012 to better leverage efforts to produce films for new market segments. Prior year balances for Bright View have been reclassified to Film Products to conform with the current presentation.

Falling Springs develops, owns and operates multiple mitigation banks. Through the establishment of perpetual easements to restore, enhance and preserve wetlands, streams or other protected environmental resources, these mitigation banks create saleable credits that are used by the purchaser of credits to offset the negative environmental impacts from private and public development projects. On November 20, 2012, we sold our membership interests in Falling Springs to Arc Ventures, LC, a Virginia limited liability company affiliated with John D. Gottwald, a member of Tredegar’s Board of Directors, for cash and stock proceeds of $16.6 million. The corresponding loss on sale of $3.1 million and the results of operations related to Falling Springs have been classified as discontinued operations for all periods presented. With the sale of Falling Springs, there is no longer an Other segment to report.

General

Intellectual Property. We consider patents, licenses and trademarks to be significant to Film Products. We routinely apply for patents on significant developments in these businesses. As of December 31, 2013, Film Products held 305 issued patents (106 of which are issued in the U.S.) and 121 trademarks (12 of which are issued in the U.S.). Aluminum Extrusions held one U.S. patent and three U.S. trademark registrations. Our patents have remaining terms ranging from 1 to 20 years. We also have licenses under patents owned by third parties.

Research and Development. Tredegar’s spending for research and development (“R&D”) activities in 2013, 2012 and 2011 was primarily related to Film Products. As of December 31, 2013, Film Products has technical centers in Bloomfield, New York; Morrisville, North Carolina; Richmond, Virginia; and Terre Haute, Indiana. R&D spending was approximately $12.7 million in 2013, $13.2 million in 2012 and $13.2 million in 2011.

Backlog. Backlogs are not material to our operations in Film Products. Overall backlog for continuing operations in Aluminum Extrusions at December 31, 2013 increased by approximately 6% compared with December 31, 2012. Volume for Aluminum Extrusions, which we believe is cyclical in nature, was 143.7 million pounds in 2013, 114.8 million pounds in 2012 and 108.0 million pounds in 2011.

Government Regulation. U.S. laws concerning the environment to which our domestic operations are or may be subject include, among others, the Clean Water Act, the Clean Air Act, the Resource Conservation and Recovery Act, the Occupational Safety and Health Act, the National Environmental Policy Act, the Toxic Substances Control Act, the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), all as amended, regulations promulgated under these acts, and any other federal, state or local laws or regulations governing environmental matters. Compliance with these laws is an important consideration for us because we use hazardous materials in some of our operations, we are a generator of hazardous waste, and wastewater from our operations is discharged to various types of wastewater management systems. Under CERCLA and other laws, we may be subject to financial exposure for costs associated with waste management and disposal, even if we fully comply with applicable environmental laws.

The U.S. Environmental Protection Agency has adopted regulations under the Clean Air Act relating to emissions of carbon dioxide and other greenhouse gases (“GHG”), including mandatory reporting and permitting requirements. Additional regulations are anticipated. Several of our manufacturing operations result in emissions or GHG and are subject to the current GHG regulations. Our compliance with these regulations has yet to require significant expenditures. The cost of compliance with any future GHG legislation or regulations is not presently determinable, but we do not anticipate compliance to have a material adverse effect on our financial condition or results of operations based on information currently available.

Tredegar is also subject to the governmental regulations in the countries where we conduct business.

At December 31, 2013, we believe that we were in substantial compliance with all applicable environmental laws, regulations and permits in the U.S. and other countries where we conduct business. Environmental standards tend to become more stringent over time. In order to maintain substantial compliance with such standards, we may be required to incur additional expenditures, the amounts and timing of which are not presently determinable but which could be significant, in constructing new facilities or in modifying existing facilities. Furthermore, our failure to comply with current or future laws and regulations could subject us to substantial penalties, fines, costs and expenses.

Employees. Tredegar employed approximately 2,700 people at December 31, 2013.

Available Information and Corporate Governance Documents. Our Internet address is www.tredegar.com. We make available, free of charge through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). Information filed electronically with the SEC can be accessed on its website at www.sec.gov. In addition, our Corporate Governance Guidelines, Code of Conduct and the charters of our Audit, Executive Compensation and Nominating and Governance Committees are available on our website and are available in print, without charge, to any shareholder upon request by contacting Tredegar’s Corporate Secretary at 1100 Boulders Parkway, Richmond, Virginia 23225. The information on or that can be accessed through our website is not, and shall not be deemed to be, a part of this report or incorporated into other filings we make with the SEC.


Item 1A.	RISK FACTORS

There are a number of risks and uncertainties that could have a material adverse effect on the operating results of our businesses and our consolidated financial condition and liquidity. The following risk factors should be considered, in addition to the other information included in this Annual Report on Form 10-K for the year ended December 31, 2013 (“Form 10-K”), when evaluating Tredegar and our businesses:

General

•

Our performance is influenced by costs incurred by our operating companies, including, for example, the cost of raw materials and energy. These costs include, without limitation, the cost of resin, PTA and MEG (the raw materials on which Film Products primarily depends), aluminum (the raw material on which Aluminum Extrusions primarily depends), natural gas (the principal fuel necessary for Aluminum Extrusions’ plants to operate), electricity and diesel fuel. Resin, aluminum and natural gas prices are extremely volatile as shown in the charts on pages 32-33. We attempt to mitigate the effects of increased costs through price increases and contractual pass-through provisions, but there are no assurances that higher prices can effectively be passed through to our customers or that we will be able to offset fully or on a timely basis the effects of higher raw material and energy costs through price increases or pass-through arrangements. Further, our cost control efforts may not be sufficient to offset any additional future declines in revenue or increases in raw material, energy or other costs.

•

Tredegar and its customers operate in highly competitive markets. Tredegar and its businesses compete on product innovation, quality, price and service, and our businesses and their customers operate in highly competitive markets. Global market conditions continue to exacerbate our exposure to margin compression due to competitive forces, especially as certain products move into the later stages of their product life cycles. We attempt to mitigate the effects of this trend through the introduction of new products, cost saving measures and manufacturing efficiency initiatives, but these efforts may not be sufficient to offset the impact of margin compression as a result of competitive pressure.

•

Tredegar may not be able to successfully execute its acquisition strategy. New acquisitions, such as our October 2011 acquisition of Terphane and our October 2012 acquisition of AACOA, can provide meaningful opportunities to grow our business and improve profitability. Acquired businesses may not achieve expected levels of revenue, profit or productivity, or otherwise perform as we expect. Acquisitions involve special risks, including, without limitation, diversion of management’s time and attention from our existing businesses, the potential assumption of unanticipated liabilities and contingencies and potential difficulties in integrating acquired businesses and achieving anticipated operational improvements. While our strategy is to acquire businesses that will improve our competitiveness and profitability, acquisitions may not be successful or accretive to earnings.

•

Our noncompliance with any of the covenants in our $350 million credit facility could result in all debt under the agreement outstanding at such time becoming due and limiting our borrowing capacity, which could have a material adverse effect on our financial condition and liquidity. The credit agreement governing our revolving credit facility contains restrictions and financial covenants that could restrict our operational and financial flexibility. Our failure to comply with these covenants could result in an event of default, which if not cured or waived, would result in all outstanding debt under the credit facility at such time becoming due, which could have a material adverse effect on our financial condition and liquidity. Renegotiation of the covenant(s) through an amendment to our revolving credit facility may effectively cure the noncompliance, but may have a negative effect on our consolidated financial condition or liquidity depending upon how the amended covenant is renegotiated.

•

Our failure to continue to attract, develop and retain certain key officers or employees could adversely affect our businesses. We depend on our senior executive officers and other key personnel to run our businesses. The loss of any of these officers or other key personnel could have a material adverse effect on our operations. Competition for qualified employees among companies that rely heavily on engineering and technology is intense, and the loss of qualified employees or an inability to attract, retain and motivate highly skilled employees required for the operation and expansion of our businesses could hinder our ability to improve manufacturing operations, conduct research activities successfully and develop marketable products.

•

Tredegar is subject to increased credit risk that is inherent with economic uncertainty and efforts to increase market share as we attempt to broaden our customer base. In the event of the deterioration of operating cash flows or diminished borrowing capacity of our customers, the collection of trade receivable balances may be delayed or deemed unlikely. The operations of our customers for Aluminum Extrusions generally follow the cycles within the economy, resulting in greater credit risk from diminished operating cash flows and higher bankruptcy rates when the economy is deteriorating or in recession. In addition, Film Products’ credit risk exposure could increase as efforts to expand its business may lead to a broader, more diverse customer base.

•

Tredegar is subject to various environmental laws and regulations and could become exposed to material liabilities and costs associated with such laws. We are subject to various environmental obligations and could become subject to additional obligations in the future. In the case of known potential liabilities, it is management’s judgment that the resolution of ongoing and/or pending environmental remediation obligations is not expected to have a material adverse effect on our consolidated financial condition or liquidity. In any given period(s), however, it is possible such obligations or matters could have a material adverse effect on the results of operations. Changes in environmental laws and regulations, or their application, including, but not limited to, those relating to global climate change, could subject us to significant additional capital expenditures and operating expenses. Moreover, future developments in federal, state, local and international environmental laws and regulations are difficult to predict. Environmental laws have become and are expected to continue to become increasingly strict. As a result, we will be subject to new environmental laws and regulations. However, any such changes are uncertain and, therefore, it is not possible for us to predict with certainty the amount of additional capital expenditures or operating expenses that could be necessary for compliance with respect to any such changes.

•

Tredegar could be required to make additional cash contributions to its defined benefit (pension) plan. We sponsor a pension plan that covers certain hourly and salaried employees in the U.S. Recent economic trends have resulted in a significant reduction in interest rates and plan asset investment returns. Cash contribution requirements for the pension plan are sensitive to changes in these market factors. We expect that we will be required to make a cash contribution of approximately $0.2 million to our underfunded pension plan in 2014, and we may be required to make additional cash contributions in future periods if current trends in interest rates continue, volatility in investment returns on plan assets persist or if our plan asset investment returns lag market performance.

•

An information technology system failure may adversely affect our business. We rely on information technology systems to transact our businesses. An information technology system failure due to computer viruses, internal or external security breaches, power interruptions, hardware failures, fire, natural disasters, human error, or other causes could disrupt our operations and prevent us from being able to process transactions with our customers, operate our manufacturing facilities, and properly report those transactions in a timely manner. A significant, protracted information technology system failure may result in a material adverse effect on our financial condition, results of operations, or cash flows.

•

Material disruptions at one of our major manufacturing facilities could negatively impact our financial results. We believe our facilities are operated in compliance with applicable local laws and regulations and that we have implemented measures to minimize the risks of disruption at our facilities. A material disruption in one of our operating locations could negatively impact production and our financial results. Such a disruption could be a result of any number of events, including but not limited to: an equipment failure with repairs requiring long lead times, labor stoppages or shortages, utility disruptions, constraints on the supply or delivery of critical raw materials, and severe weather conditions.

•

An inability to renegotiate one of our collective bargaining agreements could adversely affect our financial results. Some of our employees are represented by labor unions under various collective bargaining agreements with varying durations and expiration dates. Tredegar may not be able to satisfactorily renegotiate collective bargaining agreements when they expire, which could result in strikes or work stoppages or higher labor costs. In addition, existing collective bargaining agreements may not prevent a strike or work stoppage at our facilities in the future. Any such work stoppages (or potential work stoppages) could negatively impact our ability to manufacture our products and adversely affect results of operations.

•

Our investments (primarily $7.5 million of investments in kaléo and a $2.8 million net investment in Harbinger) have high risk. The value of our investment in a specialty pharmaceutical company, kaleo, Inc. (“kaléo”), which was formerly known as Intelliject, Inc., can fluctuate, primarily as a result of kaléo's ability to meet its developmental and commercialization milestones within an anticipated time frame. Commercial sales of kaléo's first licensed product commenced in the first quarter of 2013. As kaléo continues to invest in its product pipeline, it may require additional rounds of financing to have the opportunity to complete product pipeline development and bring its technology to market, which may never occur. The estimated fair value of our investment was $37.1 million at December 31, 2013.

Harbinger Capital Partners Special Situations Fund, L.P. (“Harbinger Fund”) is a private investment fund, and an investment in the fund involves risk and is subject to limitations on withdrawal. The amount of future installments of withdrawal proceeds is uncertain, and the timing of such payments is not known.

There is no secondary market for selling our interests in either investment. As a result, we may be required to bear the risk of our investment in kaléo and the Harbinger Fund for an indefinite period of time.

Film Products

•

Film Products is highly dependent on sales associated with one customer, P&G. P&G comprised approximately 28% of Tredegar’s consolidated net sales from continuing operations in 2013, 31% in 2012 and 36% in 2011. The loss or significant reduction of sales associated with P&G could have a material adverse effect on our business. Other P&G-related factors that could adversely affect our business include, by way of example, (i) failure by P&G to achieve success or maintain share in markets in which P&G sells products containing our materials, (ii) operational decisions by P&G that result in component substitution, inventory reductions and similar changes, (iii) delays in P&G rolling out products utilizing new technologies developed by us and (iv) P&G rolling out products utilizing technologies developed by others that replace our business with P&G. 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.

P&G has informed us that we will lose certain babycare elastic laminate volumes by the middle of 2014 as it consolidates suppliers for its North American product needs. Net sales to P&G associated with these plastic films were $51 million in 2013, or approximately 19% of our net sales to P&G. While we continue our efforts to expand our customer base in order to create long-term growth and profitability by (1) actively competing for new business with various customers across our full product portfolio, (2) expanding capacity in emerging markets, (3) introducing new products and/or improvements to existing applications, and (4) investigating opportunities to diversify our customer and product offerings through additional acquisitions, there is no assurance that these efforts to expand our customer base and mitigate this or any future loss of sales and profits from P&G will be successful.

•

Growth of Film Products depends on our ability to develop and deliver new products at competitive prices. Personal care materials, surface protection films and polyethylene overwrap and polypropylene films are now being made with a variety of new materials and the overall cycle for new product introduction has accelerated. While we have substantial technological 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, results of operations and cash flows. In the long term, growth will depend on our ability to provide innovative products at a price that meets our customers’ needs.

•

Failure of our customers, who are subject to cyclical downturns, to achieve success or maintain market share could adversely impact our sales and operating margins. Our products serve as components for various consumer products sold worldwide. Our customers’ ability to successfully develop, manufacture and market their products is integral to our success. In addition, many of our customers are in industries that are cyclical in nature and sensitive to changes in general economic conditions. Downturns in the businesses that use our products can adversely affect our sales and operating margins.

•

Continued growth in Film Products’ sale of protective film products is not assured. A shift in our customers’ preference to new or different products or new technology that displaces the need for protective films that currently utilize our surface protection applications could have a material adverse effect on our sales of protective films. Surface protection films accounted for approximately 10%, 8% and 9% of Tredegar’s consolidated net sales from continuing operations in 2013, 2012 and 2011, respectively. Unanticipated changes in the demand for our customers’ products, a decline in the rate of growth for flat panel displays or improvements in the durability of flat panel displays could have a material adverse effect on protective film sales.

•

Our substantial international operations subject us to risks of doing business in countries outside the U.S., which could adversely affect our business, financial condition and results of operations. Risks inherent in international operations include the following, by way of example: changes in general economic conditions or governmental policies, potential difficulty enforcing agreements and intellectual property rights, modifications in foreign tax laws and incentives, staffing and managing widespread operations and the challenges of complying with a wide variety of laws and regulations, restrictions on international trade or investment, restrictions on the repatriation of income, fluctuations in exchange rates, imposition of additional taxes on our income generated outside the U.S., nationalization of private enterprises and unexpected adverse changes in international laws and regulatory requirements. In addition, while expanding operations into emerging foreign markets provides greater opportunities for growth, there are certain operating risks, as previously noted.

•

Our inability to protect our intellectual property rights or our infringement of the intellectual property rights of others could have a material adverse impact on Film Products. Film Products operates in an industry where our significant customers and competitors have substantial intellectual property portfolios. The continued success of this business depends on our ability not only to protect our own technologies and trade secrets, but also to develop and sell new products that do not infringe upon existing patents or threaten existing customer relationships. Intellectual property litigation is very costly and could result in substantial expense and diversions of our resources, both of which could adversely affect our businesses and financial condition and results. In addition, there may be no effective legal recourse against infringement of our intellectual property by third parties, whether due to limitations on enforcement of rights in foreign jurisdictions or as a result of other factors. An unfavorable outcome in any intellectual property litigation or similar proceeding could have a material adverse effect on the financial condition and results of operations in Film Products.

•

U.S. and global economic conditions could have an adverse effect on the operating results of some or all of our operations. As Films Products expands its business into new products and geographic regions, operating results and our financial condition could become more sensitive to changes in macroeconomic conditions, including fluctuations in exchange rates. Sales associated with new products and regions tend to more closely follow the cycles within the economy. Cost reductions and productivity improvements may not be sufficient to offset the adverse effects on profitability from lower customer demand in an economic downturn. Therefore, as such product offerings become a greater part of the film products business, our operating results and financial condition may be adversely impacted by seasonal slowdowns, cyclical downturns in the economy or changes in foreign currency rates.

•

An unstable economic environment could have a disruptive impact on our supply chain. Certain raw materials used in manufacturing our products are sourced from single suppliers, and we may not be able to quickly or inexpensively re-source from other suppliers. The risk of damage or disruption to our supply chain has been exacerbated as different suppliers have consolidated their product portfolios or experienced financial distress. Failure to take adequate steps to effectively manage such events, which are intensified when a product is procured from a single supplier or location, could adversely affect our business and results of operations, as well as require additional resources to restore our supply chain.

Aluminum Extrusions

•

Sales volume and profitability of Aluminum Extrusions is cyclical and highly dependent on economic conditions of end-use markets in the U.S., particularly in the construction sector. Our end-use markets can be subject to seasonal slowdowns. Because of the high degree of operating leverage inherent in our operations (generally constant fixed costs until full capacity utilization is achieved), the percentage drop in operating profits in a cyclical downturn will likely exceed the percentage drop in volume. Any benefits associated with cost reductions and productivity improvements may not be sufficient to offset the adverse effects on profitability from pricing and margin pressure and higher bad debts (including a greater chance of loss associated with defaults on fixed-price forward sales contracts with our customers) that usually accompany a downturn. In addition, higher energy costs can further reduce profits unless offset by price increases or cost reductions and productivity improvements.

Although our sales volumes have improved in recent years, there is uncertainty surrounding the extent and timing of a full recovery in the building and construction sector. Therefore, the extent and timing of the recovery of sales volumes and profits for Aluminum Extrusions is uncertain, especially since there can be a lag in the recovery of its end-use markets in comparison to the overall economic recovery.

•

The markets for our products are highly competitive with product quality, service, delivery performance and price being the principal competitive factors. Aluminum Extrusions has approximately 1,500 customers that are in a variety of end-use markets within the broad categories of building and construction, distribution, automotive and other transportation, machinery and equipment, electrical and consumer durables. No single customer exceeds 3% of Aluminum Extrusions’ net sales. Due to the diverse customer mix across many end-use markets, we believe the industry

generally tracks the real growth of the overall economy. Future success and prospects depend on our ability to retain existing customers and participate in overall industry cross-cycle growth.

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

In the past, imports into the U.S., primarily from China, represented an increasing portion of the U.S. aluminum extrusion market. However, following an affirmative determination by the U.S. International Trade Commission in April 2011 that dumped and subsidized imports of aluminum extrusion from China are a cause of material injury to the domestic industry, the U.S. Department of Commerce has applied duties to these imported products. As a result, aluminum extrusion imports from China have decreased significantly. While the risk to the domestic industry has been abated for the time being, efforts continue to address the challenges and circumvention issues that remain.


Item 1B.	UNRESOLVED STAFF COMMENTS

None.


Item 2.	PROPERTIES

General

Most of the improved real property and the other assets used in our operations are owned, and none of the owned property is subject to an encumbrance that is material to our consolidated operations. We consider the manufacturing facilities, warehouses and other properties and assets owned or leased by us to be in generally good condition. Capacity utilization at our various manufacturing facilities can vary with product mix and normal fluctuations in sales levels. We believe that our manufacturing facilities have sufficient capacity to meet our current production requirements. Our corporate headquarters, which is leased, is located at 1100 Boulders Parkway, Richmond, Virginia 23225.

Our principal plants and facilities are listed below:

Film Products



Locations in the U.S.	Locations Outside the U.S.	Principal Operations
Bloomfield, New York (technical center and production facility) Lake Zurich, Illinois Morrisville, North Carolina (technical center and production facility) (leased) Pottsville, Pennsylvania Red Springs, North Carolina (leased) (to be closed in 2014) Richmond, Virginia (technical center) (leased) Terre Haute, Indiana (technical center and production facility)	Cabo de Santo Agostinho, Brazil Guangzhou, China Kerkrade, The Netherlands Pune, India Rétság, Hungary São Paulo, Brazil Shanghai, China	Production of plastic films and laminate materials

Aluminum Extrusions



Locations in the U.S.				Principal Operations
Carthage, Tennessee Elkhart, Indiana Newnan, Georgia Niles, Michigan				Production of aluminum extrusions, fabrication and finishing


Item 3.	LEGAL PROCEEDINGS

None.


Item 4.	MINE SAFETY DISCLOSURES

None.

PART II


Item 5.	MARKET FOR TREDEGAR’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Prices of Common Stock and Shareholder Data

Our common stock is traded on the New York Stock Exchange (“NYSE”) under the ticker symbol TG. We have no preferred stock outstanding. There were 32,305,145 shares of common stock held by 1,962 shareholders of record on December 31, 2013.

The following table shows the reported high and low closing prices of our common stock by quarter for the past two years.



	2013				2012
	High		Low		High		Low
First quarter	$	30.70	$	21.06	$	26.29	$	19.13
Second quarter	30.16		24.23		20.51		13.49
Third quarter	30.73		22.22		18.95		13.50
Fourth quarter	29.74		23.86		20.42		16.54

The closing price of our common stock on February 21, 2014 was $23.62.

Dividend Information

We have paid a dividend every quarter since becoming a public company in July 1989. We paid a quarterly dividend of 7 cents per share in 2013. We paid quarterly dividends of 4¹/2 cents per share in the first two quarters of 2012 and 6 cents per share in the final two quarters of 2012. We also paid a one-time dividend of 75 cents per share to all shareholders in December 2012. We paid a quarterly dividend of 4¹/2 cents per share in 2011.

All decisions with respect to the declaration and payment of dividends will be made by the Board of Directors in its sole discretion based upon earnings, financial condition, anticipated cash needs, restrictions in our revolving credit agreement and other such considerations as the Board deems relevant. See Note 11 beginning on page 63 for the restrictions contained in our revolving credit agreement related to minimum shareholders’ equity required and aggregate dividends permitted.

Issuer Purchases of Equity Securities

On January 7, 2008, we announced that our Board of Directors approved a share repurchase program whereby management is authorized at its discretion to purchase, in the open market or in privately negotiated transactions, up to 5 million shares of Tredegar’s outstanding common stock. The authorization has no time limit. We did not repurchase any shares in the open market or otherwise in 2013, 2012 or 2011 under this standing authorization.

We received 209,576 shares in 2012 at a price of $17.70 per share as consideration from Arc Ventures, LC in connection with our divestiture of Falling Springs. Shares received from the sale of Falling Springs do not represent shares repurchased under the current approved program.

Comparative Tredegar Common Stock Performance

The following graph compares cumulative total shareholder returns for Tredegar, the S&P SmallCap 600 Stock Index (an index comprised of companies with market capitalizations similar to Tredegar) and the Russell 2000 Index for the five years ended December 31, 2013. Tredegar is part of both the S&P SmallCap 600 Index and Russell 2000 Index.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Tredegar Corporation, the S&P SmallCap 600 Index, and the Russell 2000 Index

*$100 invested on 12/31/08 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.

Inquiries

Inquiries concerning stock transfers, dividends, dividend reinvestment, consolidating accounts, changes of address, or lost or stolen stock certificates should be directed to Computershare Investor Services, the transfer agent and registrar for our common stock:

Computershare Investor Services

P.O. Box 30170

College Station, TX 77842-3170

Phone: 800-622-6757

www.computershare.com/investor/Contact

All other inquiries should be directed to:

Tredegar Corporation

Investor Relations Department

1100 Boulders Parkway

Richmond, Virginia 23225

Phone: 800-411-7441

E-mail: invest@tredegar.com

Website: www.tredegar.com

Quarterly Information

We do not generate or distribute quarterly reports to shareholders. Information on quarterly results can be obtained from our website. In addition, we file quarterly, annual and other information electronically with the SEC, which can be accessed on its website at www.sec.gov.


Item 6.	SELECTED FINANCIAL DATA

The tables that follow on pages 12-17 present certain selected financial and segment information for the five years ended December 31, 2013.

FIVE-YEAR SUMMARY

Tredegar Corporation and Subsidiaries



Years Ended December 31	2013				2012				2011				2010				2009
(In Thousands, Except Per-Share Data)

Results of Operations (a):
Sales	$	959,346			$	882,188			$	794,420			$	738,200			$	648,613
Other income (expense), net	1,776			(c)	18,119			(d)	3,213			(e)	(1,182		)	(f)	8,464			(g)
	961,122				900,307				797,633				737,018				657,077
Cost of goods sold	784,675			(c)	712,660			(d)	654,087			(e)	594,987			(f)	516,933			(g)
Freight	28,625				24,846				18,488				17,812				16,085
Selling, general & administrative expenses	71,195			(c)	73,717			(d)	67,808			(e)	67,729				60,481
Research and development expenses	12,669				13,162				13,219				13,625				11,856
Amortization of intangibles	6,744				5,806				1,399				466				120
Interest expense	2,870				3,590				1,926				1,136				783
Asset impairments and costs associated with exit and disposal activities	1,412			(c)	5,022			(d)	1,917			(e)	773			(f)	2,950			(g)
Goodwill impairment charge	—				—				—				—				30,559			(b)
	908,190				838,803				758,844				696,528				639,767
Income from continuing operations before income taxes	52,932				61,504				38,789				40,490				17,310
Income taxes	16,995			(c)	18,319			(d)	10,244			(e)	13,649			(f)	18,663			(g)
Income (loss) from continuing operations (a)	35,937				43,185				28,545				26,841				(1,353		)
Discontinued operations, net of tax (a)	(13,990		)	(a)	(14,934		)	(a)	(3,690		)	(a)	186			(a)	—
Net income (loss)	$	21,947			$	28,251			$	24,855			$	27,027			$	(1,353	)
Diluted earnings (loss) per share (a):
Continuing operations	$	1.10			$	1.34			$	0.89			$	0.82			$	(0.04	)
Discontinued operations	(0.43		)	(a)	(0.46		)	(a)	(0.12		)	(a)	0.01			(a)	—
Net income (loss)	$	0.67			$	0.88			$	0.77			$	0.83			$	(0.04	)

Refer to notes to financial tables on page 17.

FIVE-YEAR SUMMARY

Tredegar Corporation and Subsidiaries



Years Ended December 31	2013			2012				2011			2010			2009
(In Thousands, Except Per-Share Data)

Share Data:
Equity per share	$	12.46		$	11.61			$	12.38		$	13.10		$	12.66
Cash dividends declared per share	0.28			0.96			(k)	0.18			0.16			0.16
Weighted average common shares outstanding during the period	32,172			32,032				31,932			32,292			33,861
Shares used to compute diluted earnings (loss) per share during the period	32,599			32,193				32,213			32,572			33,861
Shares outstanding at end of period	32,305			32,069				32,057			31,883			33,888
Closing market price per share:
High	$	30.73		$	26.29			$	23.00		$	20.19		$	18.68
Low	21.06			13.49				13.92			14.93			12.79
End of year	28.81			$	20.42			22.22			19.38			15.82
Total return to shareholders (h)	42.5		%	(3.8		)%		15.6		%	23.5		%	(12.1		)%
Financial Position:
Total assets	$	793,008		$	783,165			$	780,610		$	580,342		$	596,279
Cash and cash equivalents	52,617			48,822				68,939			73,191			90,663
Debt	139,000			128,000				125,000			450			1,163
Shareholders’ equity (net book value)	402,664			372,252				396,907			417,546			429,072
Equity market capitalization (i)	930,711			654,857				712,307			617,893			536,108

Refer to notes to financial tables on page 17.

SEGMENT TABLES

Tredegar Corporation and Subsidiaries



Net Sales (j)
	2013		2012		2011		2010		2009
(In Thousands)
Film Products	$	621,239	$	611,877	$	535,540	$	520,749	$	455,007
Aluminum Extrusions	309,482		245,465		240,392		199,639		177,521
Total net sales	930,721		857,342		775,932		720,388		632,528
Add back freight	28,625		24,846		18,488		17,812		16,085
Sales as shown in Consolidated Statements of Income	$	959,346	$	882,188	$	794,420	$	738,200	$	648,613

Identifiable Assets
	2013		2012		2011		2010		2009
(In Thousands)
Film Products	$	556,873	$	551,842	$	574,571	$	368,853	$	371,639
Aluminum Extrusions	134,928		129,279		78,661		81,731		82,429
AFBS (formerly Therics)	—		—		—		583		1,147
Subtotal	691,801		681,121		653,232		451,167		455,215
General corporate	48,590		53,222		40,917		41,833		50,401
Cash and cash equivalents	52,617		48,822		68,939		73,191		90,663
Identifiable assets from continuing operations	793,008		783,165		763,088		566,191		596,279
Discontinued operations (a):	—		—		17,522		14,151		—
Total	$	793,008	$	783,165	$	780,610	$	580,342	$	596,279

Refer to notes to financial tables on page 17.

SEGMENT TABLES

Tredegar Corporation and Subsidiaries



Operating Profit
	2013				2012				2011				2010				2009
(In Thousands)

Film Products:
Ongoing operations	$	70,966			$	69,950			$	59,493			$	66,718			$	64,379
Plant shutdowns, asset impairments, restructurings and other	(671		)	(c)	(109		)	(d)	(6,807		)	(e)	(758		)	(f)	(1,846		)	(g)
Aluminum Extrusions:
Ongoing operations	18,291				9,037				3,457				(4,154		)		(6,494		)
Plant shutdowns, asset impairments, restructurings and other	(2,748		)	(c)	(5,427		)	(d)	58			(e)	493			(f)	(639		)	(g)
Goodwill impairment charge	—				—				—				—				(30,559		)	(b)
AFBS (formerly Therics):
Gain on sale of investments in Theken Spine and Therics, LLC	—				—				—				—				1,968			(g)
Total	85,838				73,451				56,201				62,299				26,809
Interest income	594				418				1,023				709				806
Interest expense	2,870				3,590				1,926				1,136				783
Gain on sale of corporate assets	—				—				—				—				404
Gain (loss) on investment accounted for under the fair value method	3,400			(c)	16,100			(d)	1,600			(e)	(2,200		)	(f)	5,100			(g)
Unrealized loss on investment property	1,018			(c)	—				—				—				—
Stock option-based compensation costs	1,155				1,432				1,940				2,064				1,692
Corporate expenses, net	31,857			(c)	23,443			(d)	16,169			(e)	17,118				13,334			(g)
Income from continuing operations before income taxes	52,932				61,504				38,789				40,490				17,310
Income taxes	16,995			(c)	18,319			(d)	10,244			(e)	13,649			(f)	18,663			(g)
Income (loss) from continuing operations	35,937				43,185				28,545				26,841				(1,353		)
Income (loss) from discontinued operations, net of tax (a)	(13,990		)	(a)	(14,934		)	(a)	(3,690		)	(a)	186				—			(a)
Net income (loss)	$	21,947			$	28,251			$	24,855			$	27,027			$	(1,353	)

Refer to notes to financial tables on page 17.

SEGMENT TABLES

Tredegar Corporation and Subsidiaries



Depreciation and Amortization
	2013		2012		2011		2010		2009
(In Thousands)
Film Products	$	35,332	$	39,202	$	36,315	$	34,448	$	32,360
Aluminum Extrusions	9,202		9,984		8,333		9,054		7,566
Subtotal	44,534		49,186		44,648		43,502		39,926
General corporate	121		73		75		74		71
Total continuing operations	44,655		49,259		44,723		43,576		39,997
Discontinued operations (a):	—		10		12		12		—
Total	$	44,655	$	49,269	$	44,735	$	43,588	$	39,997

Capital Expenditures
	2013		2012		2011		2010		2009
(In Thousands)
Film Products	$	64,867	$	30,484	$	13,107	$	15,839	$	11,487
Aluminum Extrusions	14,742		2,332		2,697		4,339		22,530
Subtotal	79,609		32,816		15,804		20,178		34,017
General corporate	52		436		76		236		125
Capital expenditures for continuing operations	79,661		33,252		15,880		20,414		34,142
Discontinued operations (a):	—		—		—		4		—
Total capital expenditures	$	79,661	$	33,252	$	15,880	20,418		34,142

Refer to notes to financial tables on page 17.

NOTES TO FINANCIAL TABLES

(a)

On November 20, 2012, we sold our membership interests in Falling Springs. All historical results for this business have been reflected in discontinued operations. In 2012, discontinued operations also includes an after-tax loss of $2.0 million from the sale of Falling Springs in addition to operating results through the closing date. On February 12, 2008, we sold our aluminum extrusions business in Canada. All historical results for this business have been reflected as discontinued operations. In 2013, 2012 and 2011, discontinued operations include after-tax charges of $(14.0) million, $(13.4) million and $(4.4) million respectively, to accrue for indemnifications under the purchase agreement related to environmental matters.


(b)	A goodwill impairment charge of $30.6 million ($30.6 million after taxes) was recognized in Aluminum Extrusions upon completion of an impairment analysis performed as of March 31, 2009. The non-cash charge resulted from the estimated adverse impact on the business unit’s fair value of possible future losses and the uncertainty of the amount and timing of an economic recovery.

(c)

Plant shutdowns, asset impairments, restructurings and other for 2013 include a charge of $1.7 million related to expected future environmental costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in "Cost of goods sold" in the consolidated statement of income); charges of $0.6 million associated with the shutdown of our aluminum extrusions manufacturing facility in Kentland, Indiana; charges of $0.5 million associated with the shutdown of the film products manufacturing facility in Red Springs, North Carolina, which includes severance and other employee-related costs of $0.3 million and asset impairment charges of $0.2 million; charges of $0.4 million for severance and other employee-related costs in connection with restructurings in Aluminum Extrusions ($0.3 million) and Film Products ($0.1 million); charges of $0.2 million for integration-related expenses and other nonrecurring transactions (included in “Selling, general and administrative expenses” in the consolidated statements of income) associated with the acquisition of AACOA by Aluminum Extrusions; and a loss of $0.1 million related to the sale of previously impaired machinery and equipment at our film products manufacturing facility in Shanghai, China (included in “Other income (expense), net” in the consolidated statements of income). The unrealized gain on our investment in kaléo of $3.4 million, the unrealized loss on our investment in Harbinger of $0.4 million and the unrealized loss on our investment property in Alleghany and Bath County, Virginia of $1.0 million in 2013 are included in “Other income (expense), net” in the consolidated statements of income. Income taxes for 2013 include the recognition of an additional valuation allowance of $0.4 million related to the expected limitations on the utilization of assumed capital losses on certain investments.

(d)

Plant shutdowns, asset impairments, restructurings and other for 2012 include a net charge of $3.6 million associated with the shutdown of our aluminum extrusions manufacturing facility in Kentland, Indiana, which included accelerated depreciation for property and equipment of $2.4 million (included in “Cost of goods sold” in the consolidated statement of income), severance and other employee-related costs of $1.2 million and other shutdown-related charges of $2.3 million, partially offset by adjustments to inventories accounted for under the last-in, first-out method of $1.5 million (included in “Cost of goods sold” in the consolidated statements of income) and gains of $0.8 million (included in “Other income (expense), net” in the consolidated statements of income); a gain of $1.3 million in Film Products (included in “Other income (expense), net” in the consolidated statements of income) associated with an insurance recovery on idle equipment that was destroyed in a fire at an outside warehouse; charges of $1.3 million for acquisition-related expenses (included in “Selling, general and administrative expenses in the consolidated statements of income) associated with the acquisition of AACOA by Aluminum Extrusions; charges of $1.1 million for integration-related expenses and other nonrecurring transactions (included in “Selling, general and administrative expenses” in the consolidated statements of income) associated with the acquisition of Terphane by Film Products; gain of $1.1 million (included in “Other income (expense), net” in the consolidated statements of income) on the sale of a previously shutdown film products manufacturing facility in LaGrange, Georgia; losses of $0.8 million for asset impairments associated with a previously shutdown film products manufacturing facility in LaGrange, Georgia; charges of $0.5 million for severance and other employee-related costs in connection with restructurings in Film Products ($0.3 million) and Aluminum Extrusions ($0.2 million); charges of $0.2 million for asset impairments in Film Products; charges of $0.2 million for integration-related expenses and other nonrecurring transactions (included in “Selling, general and administrative expenses” in the consolidated statements of income) associated with the acquisition of AACOA by Aluminum Extrusions; charges of $0.1 million associated with purchase accounting adjustments made to the value of inventory sold by Aluminum Extrusions after its acquisition of AACOA; and a charge of $0.1 million (included in “Costs of goods sold” in the consolidated statements of income) related to expected future environmental costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in "Cost of goods sold" in the consolidated statement of income). The unrealized gain on our investment in kaléo of $16.1 million and the unrealized loss on our investment in Harbinger of $1.1 million in 2012 are included in “Other income (expense), net” in the consolidated statements of income. Income taxes for 2012 include the recognition of an additional valuation allowance of $1.3 million related to the expected limitations on the utilization of assumed capital losses on certain investments.

(e)

Plant shutdowns, asset impairments, restructurings and other for 2011 include charges of $4.8 million for acquisition-related expenses (included in “Selling, general and administrative expenses” in the consolidated statements of income) associated with the acquisition of Terphane by Film Products; charges of $1.4 million for asset impairments in Films Products; a gain of $1.0 million on the disposition of our film products business in Roccamontepiano, Italy (included in “Other income (expense), net” in the consolidated statements of income), which includes the recognition of previously unrecognized foreign currency translation gains of $4.3 million that were associated with the business; charges of $0.7 million associated with purchase accounting adjustments made to the value of inventory sold by Films Products after its purchase of Terphane (included in “Cost of goods sold” in the consolidated statements of income); charges of $0.5 million for severance and other employee related costs in connection with restructurings in Film Products; charges of $0.4 million for integration-related expenses (included in “Selling, general and administrative expenses” in the consolidated statements of income) associated with the acquisition of Terphane by Film Products; and gains of $0.1 million associated with Aluminum Extrusions for timing differences between the recognition of realized losses on aluminum futures contracts and related revenues from the delayed fulfillment by customers of fixed-price forward purchase commitments (included in “Cost of goods sold” in the consolidated statements of income). The unrealized gain on our investment in kaléo of $1.6 million and the unrealized loss on our investment in Harbinger of $0.6 million in 2011 are included in “Other income (expense), net” in the consolidated statements of income.

(f)

Plant shutdowns, asset impairments, restructurings and other for 2010 include gains of $0.9 million associated with Aluminum Extrusions for timing differences between the recognition of realized losses on aluminum futures contracts and related revenues from the delayed fulfillment by customers of fixed-price forward purchase commitments (included in “Cost of goods sold” in the consolidated statements of income); asset impairment charges of $0.6 million related to Films Products; a charge of $0.4 million related to expected future environmental costs at the aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statements of income); charges of $0.2 million for severance and other employee-related costs in connection with restructurings in Film Products; a gain of $0.1 million on the sale of previously impaired equipment (included in “Other income (loss), net” in the consolidated statements of income) at the film products manufacturing facility in Pottsville, Pennsylvania; and losses of $0.1 million on the disposal of equipment (included in “Other income (expense), net” in the consolidated statements of income) from a previously shutdown film products manufacturing facility in LaGrange, Georgia. The unrealized loss on our investment in kaléo of $2.2 million in 2010 is included in “Other income (expense), net” in the consolidated statements of income. Income taxes in 2010 include the recognition of an additional valuation allowance of $0.2 million related to the expected limitations on the utilization of assumed capital losses on certain investments.

(g)

Plant shutdowns, asset impairments, restructurings and other for 2009 include a charge of $2.1 million for severance and other employee related costs in connection with restructurings for Film Products ($1.3 million), Aluminum Extrusions ($0.4 million) and corporate headquarters ($0.4 million, included in “Corporate expenses, net” in the operating profit by segment table); an asset impairment charge of $1.0 million in Films Products; losses of $1.0 million associated with Aluminum Extrusions for timing differences between the recognition of realized losses on aluminum futures contracts and related revenues from the delayed fulfillment by customers of fixed-price forward purchase commitments (included in “Cost of goods sold” in the consolidated statements of income); a gain of $0.6 million related to the sale of land at our aluminum extrusions facility in Newnan, Georgia (included in “Other income (expense), net” in the consolidated statements of income); a gain of $0.3 million on the sale of equipment (included in “Other income (expense), net” in the consolidated statements of income) from a previously shutdown film products manufacturing facility in LaGrange, Georgia; a gain of $0.2 million on the sale of a previously shutdown aluminum extrusions manufacturing facility in El Campo, Texas (included in “Other income (expense), net” in the consolidated statements of income); a gain of $0.1 million related to the reversal to income of certain inventory impairment accruals in Film Products; and a net charge of $0.1 million (included in “Costs of goods sold” in the consolidated statements of income) related to adjustments of future environmental costs expected to be incurred by Aluminum Extrusions. The gain from the write-up of an investment accounted for under the fair value method of $5.1 million in 2009 is included in “Other income (expense), net” in the consolidated statements of income. The gain on sale of investments in Theken Spine and Therics, LLC, which is also included in “Other income (expense), net” in the consolidated statements of income, includes the receipt of a contractual earn-out payment of $1.8 million and a post-closing contractual adjustment of $0.2 million. AFBS Inc. (formerly Therics, Inc.) received these investments in 2005, when substantially all of the assets of AFBS, Inc., a wholly-owned subsidiary of Tredegar, were sold or assigned to a newly created limited liability company, Therics, LLC, controlled and managed by an individual not affiliated with Tredegar. Income taxes in 2009 include the recognition of an additional valuation allowance of $2.1 million related to the expected limitations on the utilization of assumed capital losses on certain investments.


(h)	Total return to shareholders is defined as the change in stock price during the year plus dividends per share, divided by the stock price at the beginning of the year.


(i)	Equity market capitalization is the closing market price per share for the period multiplied by the shares outstanding at the end of the period.


(j)	Net sales represent gross sales less freight. Net sales is the measure used by the chief operating decision maker of each segment for purposes of assessing performance.


(k)	In addition to quarterly dividends of 4 1/2 cents per share in the first and second quarters and 6 cents per share in the third and fourth quarters of 2012, there was a special one-time dividend of 75 cents per share paid to shareholders in December 2012.


Item 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking and Cautionary Statements

Some of the information contained in this Form 10-K may constitute “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. When we use the words “believe,” “estimate,” “anticipate,” “expect,” “project,” “likely,” “may” and similar expressions, we do so to identify forward-looking statements. Such statements are based on our then current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. It is possible that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. For risks and important factors that could cause actual results to differ from expectations, refer to the reports that we file with or provide to the SEC from time-to-time, including the risks and important factors set forth in “Risk Factors” in Part I, Item 1A of this Form 10-K. Readers are urged to review and consider carefully the disclosures Tredegar makes in the reports Tredegar files with or furnishes to the SEC. Tredegar does not undertake, and expressly disclaims any duty, to update any forward-looking statement to reflect any change in management’s expectations or any change in conditions, assumptions or circumstances on which such statements are based.

Executive Summary

General

Tredegar is a manufacturer of plastic films and aluminum extrusions. Descriptions of all of our businesses are provided on pages 1-9.

Sales from continuing operations were $959.3 million in 2013 compared to $882.2 million in 2012. Income from continuing operations was $35.9 million ($1.10 per diluted share) in 2013, compared with $43.2 million ($1.34 per diluted share) in 2012. Losses associated with plant shutdowns, assets impairments and restructurings and gains and losses on the sale of assets, gains or losses on investments accounted for under the fair value method and other items are described in results of continuing operations beginning on page 23. The business segment review begins on page 35.

Film Products

A summary of operating results for Film Products is provided below:



(In thousands, except percentages)	Year Ended December 31				Favorable/ (Unfavorable)
(In thousands, except percentages)	2013		2012		% Change
Sales volume (pounds)	270,463		270,265		0.1	%
Net sales	$	621,239	$	611,877	1.5	%
Operating profit from ongoing operations	$	70,966	$	69,950	1.5	%

Net sales for 2013 increased in comparison to 2012, primarily due to higher volumes, improved product mix and a favorable change in the U.S. dollar value of currencies for operations outside the U.S., partially offset by the negative impact of lower average selling prices. Higher sales volumes and improved product mix in Film Products had a favorable impact of approximately $14.5 million in 2013 compared to 2012. Higher volumes in surface protection films and personal care materials were partially offset by lower volumes in flexible packaging films, polyethylene overwrap films and films for other markets. The estimated change in average selling prices, net of cost pass-throughs, had an unfavorable impact on net sales of $6.6 million. Average selling prices decreased primarily due to competitive pressures in flexible packaging and polyethylene overwrap films, partially offset by the favorable impact of the contractual pass-through of certain costs, such as higher average resin prices. The change in the U.S. dollar value of currencies for operations outside the U.S. had a favorable impact on net sales of approximately $1.7 million in 2013 compared to 2012.

Operating profit from ongoing operations in 2013 increased in comparison to 2012. Higher sales volumes and a more favorable product mix in surface protection films and personal care materials, partially offset by the negative impact from lower volumes in flexible packaging films, had a favorable impact of approximately $10.3 million in 2013 compared to 2012. Price reductions that were not fully offset by related productivity gains had an estimated unfavorable impact of $10.0 million. Pricing pressures were primarily driven by global supply and demand dynamics in flexible packaging films. Higher production

costs and operational inefficiencies further reduced current year operating profit from ongoing operations by approximately $7.1 million. Increased production expenditures were primarily associated with flexible packaging films due to its spending to increase productivity on an existing production line, inflation and staffing for our new production line to expand capacity in Brazil. Selling, general and administrative expenses decreased by approximately $2.3 million in 2013, primarily as a result of lower depreciation and the timing of legal expenses.

The change in the U.S. dollar value of currencies for operations outside the U.S. had a favorable impact of approximately $7.0 million in 2013 compared to 2012. The estimated impact on operating profit from ongoing operations of the quarterly lag in the pass-through of average resin costs was approximately a negative $2.1 million in 2013 compared to a negative $0.5 million in 2012. The net impact on operating profit from ongoing operations for adjustments related to inventories accounted for under LIFO was a negative $0.3 million in 2013 compared to 2012.

P&G has informed us that we will lose certain babycare elastic laminate volumes due to P&G’s plans to consolidate suppliers for its North American product needs. Net sales for this domestic product line were $50.9 million in 2013, and we expect that sales volumes for the elastic laminates sold to P&G will be fully eliminated by the middle of 2014. The total impact of the loss of this business with P&G on operating results will not be fully realized until 2015, and when realized, it is expected to negatively impact operating profit from ongoing operations on an annual basis by approximately $9 million, based upon operating results for the last twelve months ended. P&G remains an important customer to Film Products, and we do not expect the loss of the elastic laminate volumes to impact other business or initiatives underway with P&G. The loss of this business will result in the shutdown of our film products’ manufacturing facility in Red Springs, North Carolina, a leased facility that is dedicated solely to this product line. We estimate that charges to be incurred related to the shutdown of our Red Springs manufacturing facility, which primarily consist of severance and other employee-related costs, will be approximately $1.3 million.

We will continue to produce elastic films and laminates used in baby diapers and adult incontinence for a variety of customers worldwide, and we are well positioned to capitalize on new growth opportunities for these materials. In addition, we are executing a strategy to position our Film Products business to more aggressively leverage its full product portfolio to compete for new business with new and existing customers, expand capacity in the emerging markets, develop new products with P&G and other customers, and achieve new cost savings and production efficiencies. We anticipate that our efforts to facilitate growth and drive cost savings in Film Products will offset the loss of this business with P&G by 2015. For additional information, see “Item 1A. Risk Factors” beginning on page 5.

As we execute on our strategy to build long-term value, we continue to focus on managing the dynamics within our control. In 2014, we expect to implement company-wide cost savings that will partially mitigate the impact of lower babycare elastic laminate volumes and continued market weakness in flexible packaging films. In addition to cost reduction efforts, we expect to continue to invest in projects that will facilitate profitable growth.

Capital expenditures in Film Products were $64.9 million in 2013 compared to $30.5 million in 2012, which included approximately $41.0 million in capital expenditures for a project that will expand our capacity at the manufacturing facility in Cabo de Santo Agostinho, Brazil. The additional capacity from the project is expected to be available by the end of the second quarter of 2014, and it will primarily serve flexible packaging films customers in Latin America. Film Products currently estimates that capital expenditures will be approximately $50 million in 2014, which includes approximately $15 million for routine capital expenditures required to support operations. Depreciation expense was $30.4 million in 2013 and $33.9 million in 2012, and is projected to be approximately $31 million in 2014. Amortization expense was $4.9 million in 2013 and $5.3 million in 2012, and is projected to be approximately $4.0 million in 2014.

Aluminum Extrusions

A summary of operating results for Aluminum Extrusions is provided below:



(In thousands, except percentages)	Year Ended December 31				Favorable/ (Unfavorable)
(In thousands, except percentages)	2013		2012		% Change
Sales volume (pounds)	143,684		114,845		25.1	%
Net sales	$	309,482	$	245,465	26.1	%
Operating profit from ongoing operations	$	18,291	$	9,037	102.4	%

Net sales in 2013 increased versus 2012 primarily due to the addition of AACOA, Inc. (“AACOA”), which was acquired on October 1, 2012. Net sales associated with AACOA were $88.1 million in 2013 compared to $19.5 million subsequent to the acquisition in 2012. Excluding the impact of our acquisition of AACOA and the shutdown of our manufacturing facility in Kentland, Indiana, volume was relatively flat in 2013. More than half of the volume that was produced at our Kentland manufacturing facility has been transferred to our remaining facilities.

Operating profit from ongoing operations increased in 2013 versus 2012, primarily as a result of the addition of AACOA and cost savings associated with the 2012 shutdown of our Kentland manufacturing facility. The impact on operating profit from ongoing operations directly attributable to the acquisition of AACOA, including synergies, was approximately $4.8 million in 2013. Aluminum Extrusions closed its manufacturing facility in Kentland, Indiana in August 2012. The plant, whose core market was residential construction, previously employed 146 people. Charges associated with the Kentland shutdown were $0.6 million in 2013, which were primarily comprised of environmental assessments, estimated remediation costs and other miscellaneous plant shutdown charges. Estimated cash expenditures for shutdown-related activities that are expected to be recognized in 2014 are approximately $0.2 million. The shutdown of our Kentland manufacturing facility had a favorable impact on operating profit from ongoing operations of approximately $2.3 million in 2013 compared to 2012 and $2.5 million in 2012 compared to 2011. The combined estimated favorable impact on segment operating profit from ongoing operations from the closure of Kentland is consistent with previously disclosed full year estimates of approximately $4-5 million.

In addition to the favorable impact of the addition of AACOA and cost savings associated with the 2012 shutdown of our Kentland manufacturing facility, lower supplies and maintenance-related expenditures in 2013, which had a favorable impact on operating profit from ongoing operations of approximately $0.7 million, were offset by construction-related expenses associated with the new automotive press project at our manufacturing facility in Newnan, Georgia of $0.6 million. The remaining increase in operating profit from ongoing operations can be attributed to favorable pricing on value-added services, partially offset by an unfavorable sales mix and higher production costs.

Capital expenditures for Bonnell Aluminum were $14.7 million in 2013 compared with $2.3 million in 2012. Current year capital expenditures include approximately $11.5 million in capital expenditures for a previously announced project that will expand the capacity at our manufacturing facility in Newnan, Georgia. This additional capacity will serve the automotive industry. Capital expenditures are projected to be approximately $10 million in 2014, which includes approximately $5 million for routine capital expenditures required to support operations. Depreciation expense was $7.4 million in 2013 compared with $9.5 million in 2012, and is projected to be approximately $9 million in 2014. Higher depreciation expense in 2012 is primarily related to approximately $2.4 million in accelerated depreciation on property, plant and equipment at the Kentland manufacturing facility. Amortization expense was $1.8 million in 2013 and $0.5 million in 2012, and is projected to be approximately $1.6 million in 2014.

Other

The Other segment was previously comprised of Bright View and Falling Springs, LLC (“Falling Springs”). Falling Springs develops, owns and operates multiple mitigation banks. As previously noted, the operations of Bright View were incorporated into Film Products in 2012, and all prior year balances for Bright View have been reclassified to Film Products to conform with the current year presentation.

On November 20, 2012, Tredegar Real Estate Holdings, Inc., a wholly-owned subsidiary of Tredegar, sold its membership interests in Falling Springs to Arc Ventures, LC for cash and stock proceeds totaling $16.6 million. Arc Ventures, LC is a Virginia limited liability company affiliated with John D. Gottwald, a member of our Board of Directors. The purchase price paid to Tredegar was comprised of cash of $12.8 million and 209,576 shares of common stock of Tredegar owned by Arc Ventures, LC. The corresponding loss on sale of $3.1 million, which includes transaction-related expenses of $0.5 million, and the results of operations related to Falling Springs have been classified as discontinued operations for all periods presented.

Corporate Expenses, Interest and Income Taxes

Pension expense was $13.7 million in 2013, an unfavorable change of $5.6 million from pension expense recognized in 2012. Most of the change is reflected in “Corporate expenses, net” in the segment operating profit table presented on page 15. We contributed approximately $5.2 million to our pension plans in 2013. Minimum required contributions to our pension plans in 2014 are expected to be $0.2 million. Pension expense is estimated to be $7.5 million in 2014. Corporate expenses, net increased in 2013 in comparison to 2012 primarily due to the increase in pension expenses noted above and the timing of certain non-recurring corporate expenditures. In 2013, corporate expenses, net included $1.4 million in additional expenses related to responding to a Schedule 13D filed with the SEC by certain shareholders. Corporate expenses, net also included an

unrealized loss on our investment in the Harbinger Capital Partners Special Situations Fund, L.P. (“Harbinger Fund”) of $0.4 million in 2013 and $1.1 million in 2012.

Interest expense, which includes the amortization of debt issue costs, was $2.9 million in 2013 in comparison to $3.6 million in 2012 as a result of decrease in the average interest rate on borrowings under our revolving credit facility.

The effective income tax rate from continuing operations was 32.1% in 2013 compared with 29.8% in 2012. The effective tax rate used to compute income taxes from continuing operations increased in 2013 compared to 2012 due to a reduction in the benefit from foreign tax incentives. Significant differences between the effective tax rate for continuing operations and the U.S. federal statutory rate for 2013 and 2012 are further detailed in the effective income tax rate reconciliation provided in Note 17 beginning on page 72.

Our net debt balance (total debt of $139.0 million in excess of cash and cash equivalents of $52.6 million) at December 31, 2013 was $86.4 million, compared to a net debt balance (total debt of $128.0 million in excess of cash and cash equivalents of $48.8 million) at December 31, 2012 of $79.2 million. Net debt, a financial measure that is not calculated or presented in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), is not intended to represent debt as defined by U.S. GAAP, but is utilized by management in evaluating financial leverage and equity valuation. We believe that investors also may find net debt helpful for the same purposes. Consolidated net capitalization and other credit measures are provided in the financial condition section beginning on page 27.

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 U.S. GAAP. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe the following discussion addresses our critical accounting policies. These policies require management to exercise judgments that are often difficult, subjective and complex due to the necessity of estimating the effect of matters that are inherently uncertain.

Impairment and Useful Lives of Long-lived Identifiable Assets and Goodwill

We assess our long-lived identifiable 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. We also reassess the useful lives of our long-lived assets based on changes in our business and technologies.

We 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 (December 1^st of each year). Our reporting units in Film Products include, but are not limited to, Polyethylene and Polypropylene Films and PET Films. As of December 31, 2013, each of the previously identified reporting units in Film Products was carrying a goodwill balance. We have two reporting units in Aluminum Extrusions, AACOA and Bonnell. All goodwill in Aluminum Extrusions is associated with the AACOA reporting unit.

In assessing the recoverability of goodwill and long-lived identifiable assets, we estimate fair value using discounted cash flow analysis and comparative enterprise value-to-EBITDA (earnings before interest, taxes, depreciation and amortization) multiples. These calculations require us to make assumptions regarding estimated future cash flows, discount rates and other factors to determine if an impairment exists. If these estimates or their related assumptions change in the future, we may be required to record additional impairment charges.

Based upon assessments performed as to the recoverability of long-lived identifiable assets, we recorded asset impairment losses for continuing operations of $1.0 million in 2012 and $1.4 million in 2011 (none in 2013).

Investment Accounted for Under the Fair Value Method

In August 2007 and December 2008, we made an aggregate investment of $7.5 million in kaléo (formerly Intelliject, Inc.), a privately held specialty pharmaceutical company. This investment is accounted for under the fair value method. At the time of our initial investment, we elected the fair value option over the equity method of accounting since our investment objectives were similar to those of venture capitalists, which typically do not have controlling financial interests (venture capital funds generally use the fair value method to account for their investment portfolios). At December 31, 2013, our ownership interest was approximately 20% on a fully diluted basis.

We disclose the level within the fair value hierarchy in which fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other

observable inputs (Level 2), and significant unobservable inputs (Level 3). On the dates of our investments, we believe that the amount we paid for our ownership interest and liquidation preferences was based on Level 2 inputs, including investments by other investors. Subsequent to the last round of financing, and until the next round of financing, we believe fair value estimates are based upon Level 3 inputs since there is no secondary market for our ownership interest. Accordingly, after the latest financing and until the next round of financing or any other significant financial transaction, fair value estimates will primarily be based on assumptions relating to meeting product development and commercialization milestones, cash flow projections (projections of development and commercialization milestone payments, sales, costs, expenses, capital expenditures and working capital investment) and discounting of these factors for the high degree of risk.

At December 31, 2013 and 2012, the fair value of our investment (the carrying value included in “Other assets and deferred charges” in our consolidated balance sheet) was $37.1 million and $33.7 million, respectively. The fair market valuation of our interest in kaléo is sensitive to changes in the weighted average cost of capital used to discount cash flow projections for the high degree of risk associated with meeting development and commercialization milestones as anticipated. At December 31, 2013, the effect of a 500 basis point decrease in the weighted average cost of capital assumption would have further increased the fair value of our interest in kaléo by approximately $5 million, and a 500 basis point increase in the weighted average cost of capital assumption would have decreased the fair value of our interest by approximately $5 million. Any future changes in the estimated fair value of our ownership interest will likely be attributed to a new round of financing, a merger or initial public offering or adjustments to the timing or magnitude of cash flows associated with development and commercialization milestones. Adjustments to the estimated fair value of our investment will be made in the period upon which such changes can be quantified.

Pension Benefits

We sponsor noncontributory defined benefit (pension) plans in our continuing operations that have resulted in varying amounts of net pension income or expense, as developed from actuarial valuations. Inherent in these valuations are key assumptions including discount rates, expected return on plan assets and rate of future compensation increases. We are required to consider current market conditions, including changes in interest rates and plan asset investment returns, in determining these assumptions. 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.

The discount rate is used to determine the present value of future payments. The discount rate is the single rate that, when applied to expected benefit payments, provides a present value equal to the present value of expected benefit payments determined by using the AA-rated bond yield curve. In general, our liability increases as the discount rate decreases and vice versa. The weighted average discount rate utilized was 4.99% at the end of 2013, 4.21% at the end of 2012 and 4.95% at the end of 2011, with changes between periods due to changes in market interest rates. Based on plan changes announced in 2006, pay for active participants of the plan was frozen as of December 31, 2007. Beginning in the first quarter of 2014, with the exception of plan participants at two of our U.S. manufacturing facilities, the plan will no longer accrue benefits associated with crediting employees for service, thereby freezing all future benefits under the plan. A lower expected return on plan assets increases the amount of expense and vice versa. Decreases in the level of actual plan assets will also serve to increase the amount of pension expense. The total return on our plan assets, which is primarily affected by the change in fair value of plan assets, current year contributions and current year payments to participants, was 11.2% in 2013, 8.9% in 2012 and a negative 5.1% in 2011. Our expected long-term return on plan assets relating to continuing operations, which is estimated by asset class and generally based on inflation-adjusted historical returns, volatilities, risk premiums and managed asset premiums, was 7.75% in 2013, 8.0% in 2012 and 8.25% from 2009 to 2011. We anticipate that our expected long-term return on plan assets will be 7.75% for 2014. See page 69 for more information on expected long-term return on plan assets and asset mix.

See the executive summary beginning on page 18 for further discussion regarding the financial impact of our pension plans.

Income Taxes

On a quarterly basis, we review our judgments regarding uncertain tax positions and the likelihood that the benefits of a deferred tax asset will be realized. As circumstances change, we reflect in earnings any adjustments to unrecognized benefits for uncertain tax positions and valuation allowances for deferred tax assets.

For financial reporting purposes, we had unrecognized tax benefits on uncertain tax positions of $2.2 million, $0.9 million and $1.0 million as of December 31, 2013, 2012 and 2011, respectively. Tax payments resulting from the successful challenge by the taxing authority on uncertain tax positions taken by us would possibly result in the payment of interest and penalties. Accordingly, we also accrue for possible interest and penalties on uncertain tax positions. The balance of accrued interest and

penalties on deductions taken relating to uncertain tax positions was approximately $0.2 million, $60,000 and $0.4 million at December 31, 2013, 2012 and 2011, respectively ($96,000, $37,000 and $0.2 million, respectively, net of corresponding federal and state income tax benefits). Accruals for possible interest and penalties on uncertain tax positions are reflected in income tax expense for financial reporting purposes.

Tredegar and its subsidiaries file income tax returns in the U.S., various states, and jurisdictions outside the U.S. With few exceptions, Tredegar and its subsidiaries are no longer subject to U.S. federal or state income tax examinations by tax authorities for years before 2010.

As of December 31, 2013 and 2012, we had valuation allowances relating to deferred tax assets of $20.0 million and $18.6 million, respectively. For more information on deferred income tax assets and liabilities, see Note 17 of the notes to financial statements beginning on page 72.

Recently Issued Accounting Standards

In February 2013, the Financial Accounting Standards Board (“FASB”) issued updated guidance to address the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount under the arrangement is fixed at the reporting date. Under the new guidance, an entity would measure its obligation from a joint and several liability arrangement as the sum of the amount the entity agreed with its co-obligors that it will pay, and any additional amount the entity expects to pay on behalf of its co-obligors. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2013. Early application is permitted, and we do not expect the guidance to impact us.

In March 2013, the FASB issued updated guidance related to foreign currency matters. The updated guidance attempts to resolve the diversity in practice about the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. In addition, the amended guidance attempts to resolve the diversity in practice for the treatment of business combinations achieved in stages involving a foreign entity. The guidance is effective for the first annual period beginning after December 15, 2013, and we do expect the guidance to impact us.

In July 2013, the FASB issued new guidance regarding the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The new guidance requires an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, unless certain exceptions are met. The amendments are effective prospectively for fiscal and interim periods beginning after December 15, 2013. We are still assessing the applicability of this guidance in future periods.

Results of Continuing Operations

2013 versus 2012

Revenues. Sales in 2013 increased by 8.7% compared with 2012 due to higher sales in both Film Products and Aluminum Extrusions. Net sales (sales less freight) increased 1.5% in Film Products primarily due to higher volumes, improved product mix and a favorable change in the U.S. dollar value of currencies for operations outside the U.S., partially offset by the negative impact of lower average selling prices. Net sales increased 26.1% in Aluminum Extrusions primarily due to the impact of the acquisition of AACOA, which was acquired on October 1, 2012. For more information on net sales and volume, see the executive summary beginning on page 18.

Operating Costs and Expenses. Consolidated gross profit as a percentage of sales was 15.2% in 2013 and 16.4% in 2012. Gross profit as a percentage of sales was negatively impacted by higher pension expenses in 2013 compared to 2012. The gross profit margin in Film Products, which does not include higher pension expenses, decreased primarily due to competitive pricing pressures, the negative impact of the estimated impact of the quarterly lag in the pass-through of average resin costs, higher production costs and operational inefficiencies in flexible packaging films, partially offset by a more favorable sales mix. Gross profit margin in Aluminum Extrusions, which does not include higher pension expenses, increased due to more favorable pricing on value-added services, the impact of the acquisition of AACOA and lower fixed costs from the shutdown of our manufacturing facility in Kentland, Indiana, partially offset by higher maintenance and production costs. For more information on operating costs and expenses, see the executive summary beginning on page 18.

As a percentage of sales, selling, general and administrative and R&D expenses were 8.7% in 2013, which decreased from 9.8% in 2012. The decrease in selling, general and administrative and R&D expenses as a percentage of sales can be primarily attributed to lower depreciation and acquisition-related expenses and the timing of certain legal and administrative expenses.

Losses associated with plant shutdowns, asset impairments, restructurings and other charges in 2013 totaled $3.4 million ($2.2 million after taxes) and included:


•	A fourth quarter charge of $1.5 million ($0.9 million after taxes), a third quarter charge of $0.1 million ($62,000 after taxes) and a second quarter charge of $85,000 ($53,000 after taxes) related to expected future environmental costs at our aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statements of income);


•	A third quarter charge of $45,000 ($28,000 after taxes), a second quarter charge of $0.4 million ($0.2 million after taxes) and a first quarter charge of $0.2 million ($94,000 after taxes) associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana;


•	A fourth quarter charge of $0.3 million ($0.2 million after taxes) and a third quarter charge of $0.2 million ($83,000 after taxes) associated with the shutdown of the film products manufacturing facility in Red Springs, North Carolina, which includes severance and other employee related costs of $0.3 million and asset impairments of $0.2 million;


•	A fourth quarter charge of $0.3 million ($0.2 million after taxes) in Aluminum Extrusions and a first quarter charge of $0.1 million ($67,000 after taxes) in Film Products associated with severance and other employee related costs in connection with restructurings;


•	A second quarter charge of $90,000 ($54,000 after taxes) and a first quarter charge of $0.1 million ($63,000 after taxes) for integration-related expenses and other non-recurring transactions (included in “Selling, general and administrative expenses” in the consolidated statements of income) associated with the acquisition of AACOA by Aluminum Extrusions; and


•	A second quarter loss of $91,000 ($91,000 after taxes) related to the sale of previously impaired machinery and equipment at our film products manufacturing facility in Shanghai, China (included in “Other income (expense), net” in the consolidated statements of income).

On February 12, 2008, we sold our aluminum extrusions business in Canada for approximately $25.0 million to an affiliate of H.I.G. Capital. All historical results for this business have been reflected as discontinued operations. In 2013, an accrual of $14.0 million ($14.0 million after taxes) was made for indemnifications under the purchase agreement related to environmental matters.

Results in 2013 include an unrealized gain on our investment in kaléo (included in “Other income (expense), net” in the consolidated statements of income) of $3.4 million ($2.2 million after taxes; see further discussion beginning on page 21). An unrealized loss on our investment in the Harbinger Fund (included in “Other income (expense), net” in the consolidated statements of income and “Corporate expenses, net” in the statement of net sales and operating profit by segment) of $0.4 million ($0.3 million after taxes) was recorded in 2013 as a result of a reduction in the fair value of our investment that is not expected to be temporary. We also recorded an unrealized loss on our investment property in Alleghany and Bath County, Virginia of $1.0 million ($0.6 million after taxes) in the second quarter of 2013 as a result of a reduction in the estimated fair value of our investment that is not expected to be temporary. For more information on costs and expenses, see the executive summary beginning on page 18.

Interest Income and Expense. Interest income, which is included in “Other income (expense), net” in the consolidated statements of income, was $0.6 million in 2013, compared to $0.4 million in 2012. Our policy permits investment of excess cash in marketable securities that have the highest credit ratings and maturities of less than one year with the primary objectives being safety of principal and liquidity.

Interest expense, which includes the amortization of debt issue costs, was $2.9 million in 2013, compared to $3.6 million for 2012. Interest expense was lower in the current year as a result of a decrease in the average interest rate on borrowings under our revolving credit facility. Average debt outstanding and interest rates were as follows:



(In Millions)	2013			2012
Floating-rate debt with interest charged on a rollover
basis at one-month LIBOR plus a credit spread:
Average outstanding debt balance	$	133.5		$	112.1
Average interest rate	1.9		%	2.1		%
Fixed-rate and other debt:
Average outstanding debt balance	$	—		$	—
Average interest rate	n/a			n/a
Total debt:
Average outstanding debt balance	$	133.5		$	112.1
Average interest rate	1.9		%	2.1		%

Income Taxes. The effective income tax rate from continuing operations was 32.1% in 2013 compared with 29.8% in 2012. The effective tax rate used to compute income taxes from continuing operations increased in 2013 compared to 2012 due to a reduction in the benefit from foreign tax incentives. Factors impacting our effective tax rate for 2013 and 2012 are further detailed in the effective income tax rate reconciliation provided in Note 17 beginning on page 72.

2012 versus 2011

Revenues. Sales in 2012 increased by 11.0% compared with 2011 due to higher sales in both Film Products and Aluminum Extrusions. Net sales increased 14.3% in Film Products primarily due to the acquisition of Terphane, partially offset by lower volumes in the remaining product lines, the unfavorable change in the U.S. dollar value of currencies for operations outside the U.S. and a decrease in average selling prices. Net sales increased 2.1% in Aluminum Extrusions primarily due to the acquisition of AACOA, partially offset by a decrease in average selling prices driven by lower aluminum prices and lower volumes resulting from the shutdown of the Kentland manufacturing facility.

Operating Costs and Expenses. Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales were 16.4% in 2012 and 15.3% in 2011. The gross profit margin in Film Products was relatively flat primarily due to the favorable impact of the acquisition of Terphane and a reduction in impact of the lag in the pass-through of higher resin costs, offset by lower volumes and margin compression, primarily in personal care materials. Gross profit margin in Aluminum Extrusions increased primarily as a result of improved profitability from the shutdown of our Kentland manufacturing facility, better pricing and lower energy costs.

As a percentage of sales, selling, general and administrative and R&D expenses were 9.8% in 2012, which decreased from 10.2% in 2011. The decrease in selling, general and administrative and R&D expenses as a percentage of sales can be attributed to higher sales and lower acquisition-related expenditures in 2012. Acquisition-related expenses were $2.0 million in 2012 compared to $4.8 million in 2011.

Losses associated with plant shutdowns, asset impairments, restructurings and other charges in 2012 totaled $5.5 million ($3.6 million loss after taxes) and included:

•

A fourth quarter charge of $0.9 million ($0.5 million after taxes), a third quarter charge of $0.8 million ($0.5 million after taxes), a second quarter charge of $1.0 million ($0.7 million after taxes) and a first quarter charge of $0.9 million ($0.5 million after taxes) associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana, which includes accelerated depreciation for property, plant and equipment of $2.4 million (included in “Cost of goods sold” in the consolidated statements of income), severance and other employee related expenses of $1.2 million and other shutdown-related charges of $2.3 million, partially offset by adjustments to inventories accounted for under the LIFO method of $1.5 million (included in “Cost of goods sold” in the consolidated statements of income) and gains on the sale of equipment of $0.8 million (included in “Other income (expense), net” in the consolidated statements of income);


•	A fourth quarter gain of $1.3 million ($0.7 million after taxes) in Film Products (included in “Other income (expense), net” in the consolidated statements of income) associated with an insurance recovery on idle equipment that was destroyed in a fire at an outside warehouse;


•	A fourth quarter charge of $0.9 million ($0.6 million after taxes) and a third quarter charge of $0.3 million ($0.2 million after taxes) for acquisition-related expenses (included in “Selling, general and administrative expenses” in the consolidated statements of income) associated with the acquisition of AACOA by Aluminum Extrusions (see discussion below for further detail);

•

A fourth quarter charge of $0.1 million ($0.1 million after taxes), a third quarter charge of $0.1 million ($0.1 million after taxes), a second quarter charge of $0.6 million ($0.4 million after taxes) and a first quarter charge of $0.3 million ($0.2 million after taxes) for integration-related expenses (included in “Selling, general and administrative expenses” in the consolidated statements of income) associated with the Film Products acquisition of Terphane;


•	A fourth quarter gain of $1.1 million ($0.6 million after taxes) related to the sale of a previously shutdown film products manufacturing facility in LaGrange, Georgia;


•	A second quarter charge of $0.8 million ($0.5 million after taxes) for asset impairments associated with a previously shutdown film products manufacturing facility in LaGrange, Georgia;


•	A fourth quarter charge of $0.2 million ($0.1 million after taxes) and a second quarter charge of $0.1 million ($46,000 after taxes) in Film Products and a first quarter charge of $0.2 million ($0.1 million after taxes) in Aluminum Extrusions for severance and other employee-related costs in connection with restructurings;


•	A fourth quarter charge of $0.2 million ($0.2 million after taxes) for asset impairments in Film Products;


•	A fourth quarter charge of $0.2 million ($0.1 million after taxes) for integration-related expenses (included in “Selling, general and administrative expenses” in the consolidated statements of income) associated with the Aluminum Extrusions’ acquisition of AACOA;


•	A fourth quarter charge of $0.1 million ($0.1 million after taxes) associated with purchase accounting adjustments made to the value of inventory sold by Aluminum Extrusions after its acquisition of AACOA (included in “Cost of goods sold” in the consolidated statements of income); and


•	A fourth quarter charge of $0.1 million ($49,000 after taxes) related to expected future environmental costs at our aluminum extrusions manufacturing facility in Newnan, Georgia (included in “Cost of goods sold” in the consolidated statements of income).

Business combination accounting principles under U.S. GAAP require that we adjust the inventory acquired in the acquisition of AACOA to fair value at the date of acquisition. In particular, finished goods inventory acquired was adjusted to reflect the cost of manufacturing plus a portion of the expected profit margin. The acquired inventory was sold in the fourth quarter of 2012. We believe that the adjustment included in “Cost of goods sold” in the fourth quarter of 2012 should be removed by investors as a means to determine profit and margins from ongoing operations, which reflect the operating trends of the acquired business.

As previously noted, on November 20, 2012, we sold Falling Springs to Arc Ventures, LC. The corresponding loss on sale of $3.1 million ($2.0 million after taxes), which includes transaction-related expenses of $0.5 million, and the results of operations related to Falling Springs (net income of $0.5 million in 2012) have been classified as discontinued operations.

In 2012, an accrual of $13.4 million ($13.4 million after taxes) was made for indemnifications under the purchase agreement associated with the 2008 sale of our aluminum extrusions business in Canada. These contractual indemnifications were related to environmental matters associated with our former aluminum extrusions operations in Canada.

Results in 2012 include an unrealized gain on our investment in kaléo of $16.1 million ($10.2 million after taxes; see further discussion beginning on page 21). An unrealized loss on our investment in the Harbinger Fund of $1.1 million ($0.7 million after taxes) was recorded in 2012 as a result of a reduction in the fair value of our investment that is not expected to be temporary.

Interest Income and Expense. Interest income, which is included in “Other income (expense), net” in the consolidated statements of income, was $0.4 million in 2012, compared to $1.0 million in 2011. Our policy permits investment of excess cash in marketable securities that have the highest credit ratings and maturities of less than one year with the primary objectives being safety of principal and liquidity.

Interest expense, which includes the amortization of debt issue costs, was $3.6 million in 2012, compared to $1.9 million for 2011. In October 2011, we borrowed $125 million under our revolving credit agreement to help fund the acquisition of Terphane. In October 2012, we borrowed an additional $51 million under our revolving credit facility to fund the acquisition of AACOA.

Average debt outstanding and interest rates were as follows:



(In Millions)	2012			2011
Floating-rate debt with interest charged on a rollover
basis at one-month LIBOR plus a credit spread:
Average outstanding debt balance	$	112.1		$	23.6
Average interest rate	2.1		%	2.3		%
Fixed-rate and other debt:
Average outstanding debt balance	$	—		$	0.3
Average interest rate	n/a			4.3		%
Total debt:
Average outstanding debt balance	$	112.1		$	23.9
Average interest rate	2.1		%	2.3		%

Income Taxes. The effective income tax rate from continuing operations was 29.8% in 2012 compared with 26.4% in 2011. Income taxes from continuing operations in 2012 primarily reflect the benefit of current year foreign tax incentives. Income taxes for continuing operations in 2011 reflect the recognition of estimated tax benefits from the divestiture of the film products business in Italy, partially offset by nondeductible acquisition-related expenses associated with the acquisition of Terphane by Film Products. Factors impacting our effective tax rate for 2012 and 2011 are further detailed in the effective income tax rate reconciliation provided in Note 17 beginning on page 72.

Financial Condition

Assets and Liabilities

Significant changes in assets and liabilities from continuing operations from December 31, 2012 to December 31, 2013 are summarized below:


•	Accounts and other receivables decreased $1.6 million (1.5%).


•	Accounts and other receivables in Film Products increased by $0.2 million due mainly to the timing of cash receipts.


•	Accounts and other receivables in Aluminum Extrusions decreased by $1.5 million primarily due to the timing of cash receipts.


•	Other receivables in corporate decreased by approximately $0.3 million due to the payment of contractual amounts due from Arc Ventures, LC from the sale of Falling Springs.


•	Inventories decreased $4.0 million (5.4%).


•	Inventories in Film Products decreased by approximately $5.3 million primarily due to the timing of shipments.


•	Inventories in Aluminum Extrusions increased by approximately $1.3 million in preparation for the utilization of new capacity at our manufacturing facility in Newnan, Georgia and the timing of inventory purchases at our other aluminum extrusion manufacturing facilities.


•	Net property, plant and equipment increased $29.1 million (11.5%) due primarily to capital expenditures of $79.7 million, partially offset by depreciation of $37.9 million, and a change in the value of the U.S. dollar relative to foreign currencies (a decrease of approximately $11.8 million).


•	Goodwill and other intangibles decreased by $14.3 million (6.0%) primarily due to amortization expense of $6.7 million and a change in the value of the U.S. dollar relative to the Brazilian Real.


•	Accounts payable increased by $0.7 million (0.9%).


•	Accounts payable in Film Products decreased by $6.8 million primarily due to the timing of payments.


•	Accounts payable in Aluminum Extrusions increased by $7.3 million, primarily due to higher inventory balances and the timing of payments.


•	Accounts payable in corporate increased by $0.2 million due to the normal volatility associated with the timing of payments.


•	Accrued expenses decreased by $0.4 million (0.8%) from December 31, 2012.

•

Other noncurrent liabilities decreased by $42.1 million (43.1%) due primarily to the change in the funded status of our defined benefit plans. As of December 31, 2013, the funded status of our defined benefit pension plan was a net liability of $42.5 million compared with $83.3 million as of December 31, 2012, and the liability associated with our other post-employment benefits plan was $7.9 million as of December 31, 2013 compared to $8.9 million as of December 31, 2012.

•

Net deferred income tax liabilities in excess of assets increased by $10.0 million primarily due to numerous changes between years in the balance of the components shown in the December 31, 2013 and 2012 schedule of deferred income tax assets and liabilities provided in Note 17 beginning on page 72. Income taxes recoverable/payable was a receivable of $2.9 million at December 31, 2012 compared to a payable of $0.1 million at December 31, 2013. The change is primarily due to the timing of tax payments.

Net capitalization and indebtedness as defined under our revolving credit agreement as of December 31, 2013 were as follows:



Net Capitalization and Indebtedness as of December 31, 2013
(In Thousands)
Net capitalization:
Cash and cash equivalents	$	52,617
Debt:
$350 million revolving credit agreement maturing April 23, 2017	139,000
Other debt	—
Total debt	139,000
Debt net of cash and cash equivalents	86,383
Shareholders’ equity	402,664
Net capitalization	$	489,047
Indebtedness as defined in revolving credit agreement:
Total debt	$	139,000
Face value of letters of credit	2,683
Other	189
Indebtedness	$	141,872

Under the revolving credit agreement, borrowings are permitted up to $350 million, and approximately $165 million was available to borrow at December 31, 2013 based on the most restrictive covenants. The credit spread and commitment fees charged on the unused amount under the revolving credit agreement at various indebtedness-to-adjusted EBITDA levels are as follows:



Pricing Under Revolving Credit Agreement (Basis Points)
Indebtedness-to-Adjusted EBITDA Ratio	Credit Spread Over LIBOR	Commitment Fee
> 2.0x but <= 3.0x	200	35
> 1.0x but <=2.0x	175	30
<= 1.0x	150	25

At December 31, 2013, the interest rate on debt borrowed under the revolving credit agreement was priced at one-month LIBOR plus the applicable credit spread of 175 basis points. Market exposure related to changes in one-month LIBOR (assuming that the applicable credit spread remains at 175 basis points) would not be material to our consolidated financial results.

As of December 31, 2013, we are in compliance with all financial covenants outlined in our revolving credit agreement. Noncompliance with any of the debt covenants may have a material adverse effect on financial condition or liquidity in the event such noncompliance cannot be cured or should we be unable to obtain a waiver from the lenders. Renegotiation of the covenant(s) through an amendment to the credit agreement may effectively cure the noncompliance, but may have an effect on financial condition or liquidity depending upon how the amended covenant is renegotiated.

The computations of adjusted EBITDA, adjusted EBIT, the leverage ratio and interest coverage ratio as defined in the credit agreement are presented below along with the related most restrictive covenants. Adjusted EBITDA and adjusted EBIT

as defined in the credit agreement are not intended to represent net income or cash flow from operations as defined by U.S. GAAP and should not be considered as either an alternative to net income or to cash flow.



Computations of Adjusted EBITDA, Adjusted EBIT, Leverage Ratio and Interest Coverage Ratio as Defined in the Credit Agreement Along with Related Most Restrictive Covenants
As of and for the Twelve Months Ended December 31, 2013 (In Thousands)
Computations of adjusted EBITDA and adjusted EBIT as defined in revolving credit agreement for the twelve months ended December 31, 2013:
Net income	$	21,947
Plus:
After-tax losses related to discontinued operations	13,990
Total income tax expense for continuing operations	16,995
Interest expense	2,870
Depreciation and amortization expense for continuing operations	44,655
All non-cash losses and expenses, plus cash losses and expenses not to exceed $10,000, for continuing operations that are classified as unusual, extraordinary or which are related to plant shutdowns, asset impairments and/or restructurings (cash-related of $2,949)	4,679
Charges related to stock option grants and awards accounted for under the fair value-based method	1,155
Losses related to the application of the equity method of accounting	—
Losses related to adjustments in the estimated fair value of assets accounted for under the fair value method of accounting	—
Minus:
After-tax income related to discontinued operations	—
Total income tax benefits for continuing operations	—
Interest income	(594		)
All non-cash gains and income, plus cash gains and income in excess of $10,000, for continuing operations that are classified as unusual, extraordinary or which are related to plant shutdowns, asset impairments and/or restructurings	—
Income related to changes in estimates for stock option grants and awards accounted for under the fair value-based method	—
Income related to the application of the equity method of accounting	—
Income related to adjustments in the estimated fair value of assets accounted for under the fair value method of accounting	(3,400		)
Plus cash dividends declared on investments accounted for under the equity method of accounting	—
Plus or minus, as applicable, pro forma EBITDA adjustments associated with acquisitions and asset dispositions	—
Adjusted EBITDA as defined in revolving credit agreement	102,297
Less: Depreciation and amortization expense for continuing operations (including pro forma for acquisitions and asset dispositions)	(44,655		)
Adjusted EBIT as defined in revolving credit agreement	$	57,642
Shareholders’ equity at December 31, 2013 as defined in revolving credit agreement	$	383,841
Computations of leverage and interest coverage ratios as defined in revolving credit agreement at December 31, 2013:
Leverage ratio (indebtedness-to-adjusted EBITDA)	1.39x
Interest coverage ratio (adjusted EBIT-to-interest expense)	20.08x
Most restrictive covenants as defined in revolving credit agreement:
Maximum permitted aggregate amount of dividends that can be paid by Tredegar during the term of the revolving credit agreement ($100,000 plus 50% of net income generated beginning January 1, 2012)	$	125,099
Minimum adjusted shareholders’ equity permitted ($320,000 plus 50% of net income generated, to the extent positive, beginning January 1, 2012)	$	345,099
Maximum leverage ratio permitted:	3.00x
Minimum interest coverage ratio permitted	2.50x

We are obligated to make future payments under various contracts as set forth below:



	Payments Due by Period
(In Millions)	2014		2015		2016		2017		2018		Remainder		Total
Debt:
Principal payments	$	—	$	—	$	—	$	139.0	$	—	$	—	$	139.0
Estimated interest expense	2.7		2.7		2.7		0.8		—		—		8.9
Estimated contributions required ⁽¹⁾ :
Defined benefit plans	0.2		9.0		7.7		6.2		5.0		2.5		30.6
Other postretirement benefits	0.5		0.5		0.5		0.5		0.5		5.3		7.8
Capital expenditure commitments	14.5		—		—		—		—		—		14.5
Operating leases	2.2		1.5		1.4		1.4		1.3		—		7.8
Utility contracts	4.4		—		—		—		—		—		4.4
Estimated obligations relating to uncertain tax positions ⁽²⁾	—		—		—		—		—		1.7		1.7
Other ⁽³⁾	4.2		1.8		—		—		—		—		6.0
Total	$	28.7	$	15.5	$	12.3	$	147.9	$	6.8	$	9.5	$	220.7

(1)

Estimated minimum required contributions for defined benefit plans and benefit payments for other postretirement plans are based on actuarial estimates using current assumptions for discount rates, long-term rate of return on plan assets, rate of compensation increases and health care cost trends. The expected defined benefit plan contribution estimates for 2014 through 2023 were determined under provisions of the Pension Protection Act of 2006 using the preliminary assumptions chosen by Tredegar for the 2014 plan year. Tredegar has determined that it is not practicable to present defined benefit contributions and other postretirement benefit payments beyond 2023.


(2)	Amounts for which reasonable estimates about the timing of payments cannot be made are included in the remainder column.


(3)	Includes contractual severance, the expected contingent earnout from our purchase of the assets of Bright View, and other miscellaneous contractual arrangements.

From time to time, we enter into transactions with third parties in connection with the sale of assets or businesses in which we agree to indemnify the buyers or third parties involved in the transaction, or the sellers or third parties involved in the transaction agree to indemnify us, for certain liabilities or risks related to the assets or business. Also, in the ordinary course of our business, we may enter into agreements with third parties for the sale of goods or services that may contain indemnification provisions. In the event that an indemnification claim is asserted, liability for indemnification would be subject to an assessment of the underlying facts and circumstances under the terms of the applicable agreement. Further, any indemnification payments may be limited or barred by a monetary cap, a time limitation, or a deductible or basket. For these reasons, we are unable to estimate the maximum potential amount of the potential future liability under the indemnity provisions of these agreements. We do, however, accrue for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable and the amount is reasonably estimable. We disclose contingent liabilities if the probability of loss is reasonably possible and material.

At December 31, 2013, we had cash and cash equivalents of $52.6 million, including funds held in locations outside the U.S. of $38.6 million. We accrue U.S. federal income taxes on unremitted earnings of all foreign subsidiaries except Terphane Ltda. (a subsidiary of Film Products). Deferred U.S. federal income taxes have not been provided on the undistributed earnings for Terphane Ltda. because of our intent to permanently reinvest these earnings. We have not recorded a deferred liability of approximately $7.1 million related to the U.S. federal income taxes and foreign withholding taxes on approximately $36.0 million of undistributed earnings indefinitely invested outside the U.S. at December 31, 2013. We believe that existing borrowing availability, our current cash balances and our cash flow from operations will be sufficient to satisfy our working capital, capital expenditure and dividend requirements for the foreseeable future.

Shareholders’ Equity

At December 31, 2013, we had 32,305,145 shares of common stock outstanding and a total market capitalization of $930.7 million, compared with 32,069,370 shares of common stock outstanding and a total market capitalization of $654.9 million at December 31, 2012.

We received 209,576 shares in 2012 at a price of $17.70 per share as consideration from Arc Ventures, LC in connection with our divestiture of Falling Springs.

We did not repurchase any shares on the open market in 2013, 2012 or 2011 under our approved share repurchase program.

Cash Flows

The discussion in this section supplements the information presented in the consolidated statements of cash flows on page 45. Cash flows for discontinued operations have not been separately disclosed in the consolidated statements of cash flows.

Cash provided by operating activities was $76.7 million in 2013 compared with $82.6 million in 2012. The decrease is due primarily to normal volatility of working capital components (see the assets and liabilities section beginning on page 27 for discussion of changes in working capital).

Cash used in investing activities was $77.6 million in 2013 compared with $75.6 million in 2012. Cash used in investing activities in 2013 primarily includes capital expenditures of $79.7 million. Cash used in investing activities in 2012 primarily includes the acquisition of AACOA ($54.6 million) and capital expenditures ($33.3 million), partially offset by net cash proceeds received from the sale of Falling Springs ($12.1 million).

Net cash flow provided by financing activities was $5.3 million in 2013, which is primarily due to the net borrowings on our revolving credit facility of $11.0 million and the proceeds from the exercise of stock options and other financing activities of approximately $3.3 million, partially offset by the payment of regular quarterly dividends of $9.0 million (28 cents per share).

Cash provided by operating activities was $82.6 million in 2012 compared with $71.8 million in 2011. The increase is due primarily to normal volatility of working capital components.

Cash used in investing activities was $75.6 million in 2012 compared with $195.2 million in 2011. Cash used in investing activities in 2012 primarily includes the acquisition of AACOA ($54.6 million) and capital expenditures ($33.3 million), partially offset by net cash proceeds received from the sale of Falling Springs ($12.1 million). Cash used in investing activities in 2011 primarily includes the purchase of Terphane ($181.0 million) and capital expenditures ($15.9 million).

Net cash flow used in financing activities was $26.7 million in 2012, which is primarily due to the one-time dividend of $24.0 million in December 2012 and the payment of regular quarterly dividends of $6.8 million (4¹/2 cents per share per quarter in the first and second quarters and 6 cents per share in the third and fourth quarters). Net borrowings against our revolving credit facility were $3.0 million in 2012.

Quantitative and Qualitative Disclosures about Market Risk

Tredegar has exposure to the volatility of interest rates, polyethylene and polypropylene resin prices, Terephtalic Acid (“PTA”) and Monoethylene Glycol (“MEG”) prices, aluminum ingot and scrap prices, energy prices, foreign currencies and emerging markets. See the assets and liabilities section beginning on page 27 regarding interest rate exposures related to borrowings under the revolving credit agreement.

Changes in resin, PTA and MEG prices, and the timing of those changes, could have a significant impact on profit margins in Film Products. Profit margins in Aluminum Extrusions are sensitive to fluctuations in aluminum ingot and scrap prices as well as natural gas prices (natural gas is the principal energy source used to operate our casting furnaces). There is no assurance of our ability to pass through higher raw material and energy costs to our customers.

See the executive summary beginning on page 18 and the business segment review beginning on page 35 for discussion regarding the impact of the lag in the pass-through of resin price changes. The volatility of average quarterly prices of low density polyethylene resin in the U.S. (a primary raw material for Film Products) is shown in the chart below:

Source: Quarterly averages computed by Tredegar using monthly data provided by Chemical Data Inc. ("CDI"). In January 2010, CDI reflected a 15 cents per pound non-market adjustment based on their estimate of the growth of discounts over the 2005 to 2009 period. The 4th quarter 2009 average rate of 61 cents per pound is shown on a pro forma basis as if the non-market adjustment was made in October 2009.

Resin prices in Europe, Asia and South America have exhibited similar long-term trends. The price of resin is driven by several factors including supply and demand and the price of oil, ethylene and natural gas. To address fluctuating resin prices, Film Products has index-based pass-through raw material cost agreements for the majority of its business. However, under certain agreements, changes in resin prices are not passed through for an average period of 90 days (see the executive summary on page 18 and the business segment review on page 35 for more information). Pricing on the remainder of our business is based upon raw material costs and supply/demand dynamics within the markets that we compete.

The volatility of average quarterly prices of PTA and MEG (raw materials for Film Products) is shown in the chart below:

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

In the normal course of business, we enter into fixed-price forward sales contracts with certain customers for the sale of fixed quantities of aluminum extrusions at scheduled intervals. In order to hedge our exposure to aluminum price volatility (see the chart below) under these fixed-price arrangements, which generally have a duration of not more than 12 months, we enter into a combination of forward purchase commitments and futures contracts to acquire or hedge aluminum, based on the scheduled deliveries. See Note 9 beginning on page 61 for more information. The volatility of quarterly average aluminum prices is shown in the chart below:

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

In Aluminum Extrusions, we hedge from time-to-time a portion of our exposure to natural gas price volatility by entering into fixed-price forward purchase contracts with our natural gas suppliers. We estimate that, in an unhedged situation, every $1 per mmBtu per month change in the market price of natural gas has an $80,000 impact on the continuing monthly operating profit for our U.S. operations in Aluminum Extrusions. We have an energy surcharge for our aluminum extrusions business in the U.S. that is applied when the previous quarter’s NYMEX natural gas average settlement price is in excess of $8.85 per mmBtu. The volatility of quarterly average natural gas prices is shown in the chart below:

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

We sell to customers in foreign markets through our foreign operations and through exports from U.S. plants. The percentage of sales and total assets for continuing operations related to foreign markets for 2013, 2012 and 2011 are as follows:



Tredegar Corporation—Continuing Operations Percentage of Net Sales and Total Assets Related to Foreign Markets
	2013			2012			2011
	% of Total		% Total Assets - Foreign Oper- ations *	% of Total		% Total Assets - Foreign Oper- ations *	% of Total		% Total Assets - Foreign Oper- ations *
	Net Sales *			Net Sales *			Net Sales *
	Exports From U.S.	Foreign Oper- ations		Exports From U.S.	Foreign Oper- ations		Exports From U.S.	Foreign Oper- ations
Canada	5	—	—	5	—	—	6	—	—
Europe	1	12	6	1	13	7	1	16	7
Latin America	—	12	24	—	14	23	1	6	24
Asia	9	4	4	7	4	4	7	4	4
Total % exposure to foreign markets	15	28	34	13	31	34	15	26	35



*	The percentages for foreign markets are relative to Tredegar’s consolidated net sales and total assets from continuing operations.

We attempt to match the pricing and cost of our products in the same currency and generally view the volatility of foreign currencies (see trends for the Euro, Brazilian Real and Chinese Yuan in the chart below) 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 continuing foreign operations relates to the Euro, the Chinese Yuan, the Hungarian Forint, the Brazilian Real and the Indian Rupee.

For flexible packaging films produced in Brazil, we price our products in U.S. Dollars, and key raw materials are also priced in U.S. Dollars. However, certain production costs, such as conversion costs and other fixed costs, are priced in Brazilian Real, which exposes our operating margins to some currency exposure. In general, when the U.S. Dollar is strengthening versus the Brazilian Real, operating results will benefit from relatively lower costs, and when the U.S. Dollar is weakening versus the Brazilian Real, operating results will be negatively impacted from relatively higher costs. We are primarily able to match the currency of our sales and costs for the remaining product lines within Film Products.

We estimate that the change in value of foreign currencies relative to the U.S. Dollar had a favorable impact on operating profit from ongoing operations of approximately $7.0 million in 2013 compared to 2012, an unfavorable impact on operating profit from ongoing operations of approximately $1.4 million in 2012 compared with 2011, a favorable impact of approximately $1.8 million in 2011 compared with 2010.

Trends for the Euro are shown in the chart below:

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

Trends for the Brazilian Real and Chinese Yuan are shown in the chart below:

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

Business Segment Review

Net sales and operating profit from ongoing operations are the measures of sales and operating profit used by the chief operating decision maker for purposes of assessing performance.

Film Products

Net Sales. See the executive summary beginning on page 18 for the discussion of net sales (sales less freight) in Film Products in 2013 compared with 2012.

In Film Products, net sales were $611.9 million in 2012, an increase of 14.3% from $535.5 million in 2011. Volume increased to 270.3 million pounds in 2012 from 218.7 million pounds in 2011. Net sales in 2012 increased compared to 2011 primarily due to the acquisition of Terphane. Net sales for Terphane were $138.0 million in 2012 compared to $28.3 million in 2011. Higher net sales from the addition of Terphane were primarily offset by lower volumes in the other product lines of approximately $18.7 million, the unfavorable change in the U.S. dollar value of currencies for operations outside the U.S. of approximately $10.1 million and a decrease in average selling prices of approximately $4.6 million. Lower net sales volumes are primarily related to lower volumes for personal care materials and polyethylene overwrap films, partially offset by improved performance in surface protection films in the fourth quarter of 2012. The decrease in the average selling prices in 2012 compared to 2011 can be primarily attributed to pricing pressures.

Operating Profit. See the executive summary beginning on page 18 for the discussion of operating profit in Film Products in 2013 compared with 2012.

Operating profit from ongoing operations was $70.0 million in 2012, an increase of 17.6% compared with $59.5 million