TG-2014.12.31-10K


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, 2014
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to             
Commission File Number 1-10258
 
TREDEGAR CORPORATION
(Exact name of registrant as specified in its charter)
Virginia
 
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 30, 2014 (the last business day of the registrant’s most recently completed second fiscal quarter): $585,612,317*
Number of shares of Common Stock outstanding as of January 30, 2015: 32,534,984 (32,387,008 as of June 30, 2014)
*
In determining this figure, an aggregate of 7,371,531 shares of Common Stock beneficially owned by Floyd D. Gottwald, Jr., 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. The aggregate market value has been computed based on the closing price in the New York Stock Exchange Composite Transactions on June 30, 2014.




Documents Incorporated By Reference
Portions of the Tredegar Corporation Proxy Statement for the 2015 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, 2014
 
 
 
Page
 
 
 
 
Part I
 
 
 
Item 1.
Business
 
Item 1A.
Risk Factors
 
Item 1B.
Unresolved Staff Comments
 
Item 2.
Properties
 
Item 3.
Legal Proceedings
 
Item 4.
Mine Safety Disclosures
 
 
 
 
 
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
 
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
 
Item 8.
Financial Statements and Supplementary Data
 
Item 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
 
Item 9A.
Controls and Procedures
 

Item 9B.
Other Information
 
 
 
 
 
Part III
 
 
 
Item 10.
Directors, Executive Officers and Corporate Governance*
 
Item 11.
Executive Compensation
 
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*
 

Item 13.
Certain Relationships and Related Transactions, and Director Independence
 
Item 14.
Principal Accounting Fees and Services
 
 
 
 
 
Part IV
 
 
 
Item 15.
Exhibits and Financial Statement Schedules
 
*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,” “the Company,” “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. 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, FlexAire and FlexFeel brand names); and
Absorbent transfer layers for baby diapers and adult incontinence products sold under the AquiDry® and AquiDry Plus brand names.
In 2014, 2013 and 2012, personal care materials accounted for approximately 34%, 36% and 38% 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 12%, 14% and 16% of Tredegar’s consolidated net sales from continuing operations in 2014, 2013 and 2012, respectively.
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 2014, 2013 and 2012, surface protection films accounted for approximately 10%, 10% and 8% 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 overwrap for bathroom tissue and paper towels as these products provide customers with thin-gauge films that are readily printable and convertible on conventional processing equipment. Film Products sells these overwrap films in a highly competitive environment, contending with other commodity-based films. Film Products also manufactures polypropylene films for various industrial applications, including tape and automotive protection.
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. Bright View Technologies Corporation (“Bright View”), a Film Products subsidiary, is a developer and producer of high-value microstructure-based optical films for the LED (light-emitting diode) and fluorescent lighting markets. By leveraging the combination of film capabilities and its patented microstructure technology, Bright View offers optical management products for a wide range of applications, including lighting, signage and durable goods.


1



Film Products’ net sales by market segment over the last three years is shown below:
% of Film Products Net Sales by Market Segment *
 
2014
 
2013
 
2012
Personal care materials
55
%
 
55
%
 
53
%
Flexible packaging films
20
%
 
20
%
 
23
%
Surface protection films
16
%
 
15
%
 
11
%
Polyethylene overwrap & polypropylene films
8
%
 
9
%
 
10
%
Films for other markets
1
%
 
1
%
 
3
%
Total
100
%
 
100
%
 
100
%
 
 
 
 
 
 
* See previous discussion by market segment for comparison of net sales to the Company’s consolidated net sales for material market segments for each of the years presented.
Raw Materials. The primary raw materials used by Film Products in polyethylene and polypropylene films are low density, linear low density and high density polyethylene and polypropylene resins. Purified terephthalic acid (“PTA”) and monoethylene glycol (“MEG”) are the primary raw materials used by Film Products to produce the polyester resins utilized in PET films. Prospectively, Film Products will purchase additional polyester resins directly from suppliers.
All of these raw materials are obtained from domestic and foreign suppliers at competitive prices, and Film Products believes that there will be an adequate supply of polyethylene, polypropylene, and polyester resins as well as PTA and MEG in the foreseeable future. Film Products also buys polypropylene-based nonwoven fabrics based on the resins previously noted and styrenic block copolymers, and it believes 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 $221 million in 2014, $262 million in 2013 and $264 million in 2012 (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, automotive, consumer durables, machinery and equipment, electrical and distribution 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. The acquisition of AACOA allows Aluminum Extrusions to add fabrication capabilities to its array of products and services while providing AACOA with large press capabilities and enhanced geographic sales coverage in a variety of end-use markets.

2



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 and pre-engineered structures
 
 
 
Building & construction - residential
 
Shower and tub enclosures, railing and support systems, venetian blinds, swimming pools and storm shutters
 
 
 
Consumer durables
  
Furniture, pleasure boats, refrigerators and freezers, appliances and sporting goods
 
 
 
Machinery & equipment
  
Material handling equipment, conveyors and conveying systems, industrial modular assemblies and medical equipment
 
 
 
Automotive
  
Automotive and light truck structural components, spare parts, after-market automotive accessories, travel trailers and recreation vehicles
 
 
 
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, theater set structures and various standard profiles (including rod, bar, tube and pipe)
 
 
 
Electrical
  
Lighting fixtures, solar panels, electronic apparatus and rigid and flexible conduits
Aluminum Extrusions’ net sales from continuing operations by market segment over the last three years is shown below:
 
% of Aluminum Extrusions Net Sales
by Market Segment (Continuing Operations) *
 
2014
 
2013
 
2012
Building and construction:
 
 
 
 
 
Nonresidential
58
%
 
58
%
 
67
%
Residential
6
%
 
7
%
 
10
%
Consumer durables
13
%
 
13
%
 
5
%
Machinery & equipment
8
%
 
7
%
 
4
%
Automotive
6
%
 
6
%
 
5
%
Distribution
5
%
 
4
%
 
6
%
Electrical
4
%
 
5
%
 
3
%
Total
100
%
 
100
%
 
100
%
 
 
*
Includes net sales for AACOA subsequent to being acquired on October 1, 2012.
In 2014, 2013 and 2012, nonresidential building and construction accounted for approximately 22%, 19% and 19% 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. Aluminum Extrusions believes that it has adequate long-term supply agreements for aluminum and other required raw materials and supplies in the foreseeable future.

3



Other
Tredegar’s operations previously included an additional segment, Other, comprised of the start-up operations of Bright View and Falling Springs, LLC (“Falling Springs”). 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.
As a subsidiary of Tredegar, Falling Springs developed, owned and operated multiple mitigation banks. Through the establishment of perpetual easements to restore, enhance and preserve wetlands, streams or other protected environmental resources, these mitigation banks created saleable credits that were used by the purchaser of credits to offset the negative environmental impacts from private and public development projects. On November 20, 2012, the Company sold its 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. Tredegar considers patents, licenses and trademarks to be significant to Film Products. As of December 31, 2014, Film Products held 273 issued patents (81 of which are issued in the U.S.) and 122 trademarks (14 of which are issued in the U.S.). Aluminum Extrusions held one U.S. patent and three U.S. trademark registrations. These patents have remaining terms ranging from 1 to 20 years. Tredegar also has licenses under patents owned by third parties.
Research and Development. Tredegar’s spending for research and development (“R&D”) activities in 2014, 2013 and 2012 was primarily related to Film Products. Film Products has technical centers in Bloomfield, New York; Durham, North Carolina; Richmond, Virginia; and Terre Haute, Indiana. R&D spending was approximately $12.1 million in 2014, $12.7 million in 2013 and $13.2 million in 2012.
Backlog. Backlogs are not material to the operations in Film Products. Overall backlog for continuing operations in Aluminum Extrusions at December 31, 2014 increased by approximately 54% compared with December 31, 2013. Volume for Aluminum Extrusions, which it believes is cyclical in nature, was 153.8 million pounds in 2014, 143.7 million pounds in 2013 and 114.8 million pounds in 2012.
Government Regulation. U.S. laws concerning the environment to which the Company’s 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 because Tredegar uses hazardous materials in some of its operations, is a generator of hazardous waste, and wastewater from the Company’s operations is discharged to various types of wastewater management systems. Under CERCLA and other laws, Tredegar may be subject to financial exposure for costs associated with waste management and disposal, even if the Company fully complies 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 the Company’s manufacturing operations result in emissions or GHG and are subject to the current GHG regulations. The Company’s 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 Tredegar does not anticipate compliance to have a material adverse effect on its financial condition or results of operations based on information currently available.
Tredegar is also subject to the governmental regulations in the countries where it conducts business.
At December 31, 2014, the Company believes that it was in substantial compliance with all applicable environmental laws, regulations and permits in the U.S. and other countries where it conducts business. Environmental standards tend to become more stringent over time. In order to maintain substantial compliance with such standards, the Company 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, failure to comply with current or future laws and regulations could subject Tredegar to substantial penalties, fines, costs and expenses.
Employees. Tredegar employed approximately 2,700 people at December 31, 2014.

4



Available Information and Corporate Governance Documents. Tredegar’s Internet address is www.tredegar.com. The Company makes available, free of charge through its website, its 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, the Company’s Corporate Governance Guidelines, Code of Conduct and the charters of the Audit, Executive Compensation, Strategic Finance and Nominating and Governance Committees are available on Tredegar’s 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 the Company’s website is not, and shall not be deemed to be, a part of this report or incorporated into other filings it makes 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 the Company’s businesses and 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, 2014 (“Form 10-K”), when evaluating Tredegar and its businesses:
General
Tredegar may not be able to successfully execute its acquisition strategy. New acquisitions, such as the October 2011 acquisition of Terphane Holdings LLC (“Terphane”) and the October 2012 acquisition of AACOA, can provide meaningful opportunities to grow the Company’s business and improve profitability.  Acquired businesses may not achieve expected levels of revenue, profit or productivity, or otherwise perform as expected.  Acquisitions involve special risks, including, without limitation, diversion of management’s time and attention from existing businesses, the potential assumption of unanticipated liabilities and contingencies and potential difficulties in integrating acquired businesses and achieving anticipated operational improvements.  While the Company’s strategy is to acquire businesses that will improve its competitiveness and profitability, acquisitions may not be successful or accretive to earnings.
Tredegar’s performance is influenced by costs incurred by its 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 34-36. The Company attempts 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 customers or that Tredegar 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, the Company’s cost control efforts may not be sufficient to offset any additional future declines in revenue or increases in raw material, energy or other costs.
Noncompliance with any of the covenants in the Company’s $350 million credit facility could result in all debt under the agreement outstanding at such time becoming due and limiting its borrowing capacity, which could have a material adverse effect on financial condition and liquidity. The credit agreement governing Tredegar’s revolving credit facility contains restrictions and financial covenants that could restrict the Company’s operational and financial flexibility. 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 the Company’s financial condition and liquidity. Renegotiation of the covenant(s) through an amendment to the revolving credit facility may effectively cure the noncompliance, but may have a negative effect on the Company’s consolidated financial condition or liquidity depending upon how the amended covenant is renegotiated.
Failure to continue to attract, develop and retain certain key officers or employees could adversely affect Tredegar’s businesses. The Company depends on its senior executive officers and other key personnel to run the businesses. The loss of any of these officers or other key personnel could have a material adverse effect on 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 Tredegar’s businesses could hinder its ability to improve manufacturing operations, conduct research activities successfully and develop marketable products.

5



Tredegar is subject to various environmental laws and regulations and could become exposed to material liabilities and costs associated with such laws. The Company is 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 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 Tredegar 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, Tredegar will be subject to new environmental laws and regulations. However, any such changes are uncertain and, therefore, it is not possible for the Company 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.
Material disruptions at one of the Company’s major manufacturing facilities could negatively impact financial results. Tredegar believes its facilities are operated in compliance with applicable local laws and regulations and that the Company has implemented measures to minimize the risks of disruption at its facilities. A material disruption in one of the Company’s operating locations could negatively impact production and 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 information technology system failure may adversely affect the business. Tredegar relies on information technology systems to transact its 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 operations and prevent the Company from being able to process transactions with its customers, operate its 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 the Company’s financial condition, results of operations, or cash flows.
Tredegar is subject to credit risk that is inherent with efforts to increase market share as the Company attempts to broaden its customer base. In the event of the deterioration of operating cash flows or diminished borrowing capacity of the Company’s customers, the collection of trade receivable balances may be delayed or deemed unlikely. Film Products’ credit risk exposure could increase as efforts to expand its business may lead to a broader, more diverse customer base. In addition, the operations of the 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.
Tredegar could be required to make additional cash contributions to its defined benefit (pension) plan. Tredegar sponsors a pension plan that covers certain hourly and salaried employees in the U.S. Tredegar has experienced a significant reduction in interest rates and fluctuations in plan asset investment returns in recent years. Cash contribution requirements for the pension plan are sensitive to changes in these market factors. Tredegar expects that it will be required to make a cash contribution of approximately $2.4 million to its underfunded pension plan in 2015, and the Company 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 plan asset investment returns lag market performance.
Tredegar and its customers operate in highly competitive markets. Tredegar and its businesses compete on product innovation, quality, price and service, and its businesses and their customers operate in highly competitive markets. Global market conditions continue to exacerbate the Company’s exposure to margin compression due to competitive forces, especially as certain products move into the later stages of their product life cycles. Tredegar attempts 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.
An inability to renegotiate one of the Company’s collective bargaining agreements could adversely affect financial results. Some of the Company’s 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 the Company’s facilities in the future. Any such work stoppages (or potential work stoppages) could negatively impact Tredegar’s ability to manufacture its products and adversely affect results of operations.

6



Tredegar’s investments (primarily $7.5 million of investments in kaléo and a $1.8 million net investment in Harbinger) have high risk. The value of the Company’s 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, and commercial sales of its second product commenced in the third quarter of 2014. 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 this investment was $39.1 million at December 31, 2014.
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 the Company’s interests in either investment. As a result, Tredegar may be required to bear the risk of its 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 24% of Tredegar’s consolidated net sales from continuing operations in 2014, 28% in 2013 and 31% in 2012. The loss or significant reduction of sales associated with P&G could have a material adverse effect on the Company’s business. Other P&G-related factors that could adversely affect the 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 Film Products’ 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 Film Products and (iv) P&G rolling out products utilizing technologies developed by others that replace Film Products’ business with P&G. While Film Products has undertaken efforts to expand its 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.
In 2014, Film Products lost certain babycare elastic laminate volumes sold to P&G due to P&G’s consolidation of suppliers for its North American product needs. Annualized net sales to P&G associated with these plastic films were approximately $51 million. While it continues to identify new business opportunities with P&G, Film Products is also working to expand its customer base in order to create long-term growth and profitability by (1) actively competing for new business with various customers across its 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 its customer and product offerings through additional acquisitions. There is no assurance that these efforts to expand the revenue base and mitigate this or any future loss of sales and profits from P&G will be successful.
Growth of Film Products depends on its 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 Film Products has substantial technological resources, there can be no assurance that its 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 Film Products’ technologies, its inability to develop and deliver new profitable products, or delayed acceptance of its new products in domestic or foreign markets, could have a material adverse effect on the business, results of operations and cash flows. In the long term, growth will depend on Film Products’ ability to provide innovative products at a price that meets the customers’ needs.
Failure of Film Products’ customers, who are subject to cyclical downturns, to achieve success or maintain market share could adversely impact its sales and operating margins. The Company’s plastic films serve as components for various consumer products sold worldwide. A customer’s ability to successfully develop, manufacture and market their products is integral to Film Products’ success. In addition, many customers are in industries that are cyclical in nature and sensitive to changes in general economic conditions. Downturns in the businesses that use the Company’s plastic film products can adversely affect sales and operating margins.
Continued growth in Film Products’ sale of protective film products is not assured. A shift in customer preference to new or different products or new technology that displaces the need for protective films that currently utilize Film Products’ surface protection applications could have a material adverse effect on the sales of these protective films. Surface protection films accounted for approximately 10%, 10% and 8% of Tredegar’s consolidated net sales from continuing operations in 2014, 2013 and 2012, respectively. Unanticipated changes in the demand for the products of Film Products’ customers, 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.

7



Substantial international operations subject Film Products to risks of doing business in countries outside the U.S., which could adversely affect its 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, imposition of additional taxes on income generated outside the U.S., nationalization of private enterprises, unexpected adverse changes in international laws and regulatory requirements and fluctuations in exchange rates. In the countries where Film Products conducts its operations, significant fluctuations in the foreign currencies relative to the U.S. dollar could have a material impact on operating results. In addition, while expanding operations into emerging markets provides greater opportunities for growth, there are certain operating risks, as previously noted.
The Company’s inability to protect its intellectual property rights or its infringement of the intellectual property rights of others could have a material adverse impact on Film Products. Film Products operates in an industry where its significant customers and competitors have substantial intellectual property portfolios. The continued success of its business depends on its ability not only to protect its 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 its resources, both of which could adversely affect its operations and financial condition and results. In addition, there may be no effective legal recourse against infringement of the Company’s 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 Film Products’ operations. As a global entity, the operating results and financial condition for Film Products 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, the Company’s 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 Film Products’ supply chain. Certain raw materials used in manufacturing the Company’s products are sourced from single suppliers, and Film Products may not be able to quickly or inexpensively re-source from other suppliers.  The risk of damage or disruption to its 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 Film Products’ business and results of operations, as well as require additional resources to restore its supply chain.
Governmental failure to extend anti-dumping duties in Brazil on imported products or prevent competitors from circumventing such duties could adversely impact Film Products. In recent years, imports into Brazil, primarily from Asia, represented an increasing portion of the Brazilian flexible packaging films market. The Brazilian government currently applies anti-dumping duties on PET films imported from the UAE, Mexico, and Turkey, and these protective tariffs may be extended to other countries in Asia and the Middle East in the near future. In the absence of these anti-dumping duties, some suppliers may choose to sell excess inventory in Brazil, especially when markets for PET films in Europe and Asia are saturated. Additional supply in the Brazilian market could have a material adverse impact on pricing, thereby creating margin compression that Film Products may not be able to offset with cost savings measures and/or manufacturing efficiency initiatives. An inability to extend and/or expand anti-dumping duties on PET films in Brazil could have a material adverse effect on the operating results of Film Products.

8



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. Aluminum Extrusions’ end-use markets can be subject to seasonal slowdowns. Because of the high degree of operating leverage inherent in its 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 customers defaulting on fixed-price forward sales contracts) 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.
The markets for Aluminum Extrusions’ 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, the Company believes the industry generally tracks the real growth of the overall economy. Future success and prospects depend on its 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 its 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.
Aluminum Extrusions’ efforts to expand into new market segments may not be successful. Aluminum Extrusions has made significant capital investments in recent years to execute on its market diversification strategy. Investments in new aluminum extrusion presses dedicated to serve automotive and light truck tier suppliers are intended to provide meaningful opportunities to grow Aluminum Extrusions and improve profitability. Efforts to expand product offerings and broaden the customer base are tied to successfully substituting the Company’s aluminum extrusions for current market alternatives. Additional volume and/or alternative products offered by Aluminum Extrusions may not be demanded or accepted by market participants. If customer purchases do not meet expectations, Aluminum Extrusions’ market diversification strategy may not be successful, which could have a material adverse effect on the operating results of Aluminum Extrusions.
Failure to extend duties on imported products or prevent competitors from circumventing such duties could adversely impact Aluminum Extrusions. In previous years, imports into the U.S., primarily from China, represented an increasing portion of the U.S. aluminum extrusion market. However, due to an affirmative determination by the U.S. International Trade Commission in April 2011 that asserted that dumped and subsidized imports of aluminum extrusion from China unfairly and negatively impacted 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, these protective duties are scheduled to expire in 2016. There are ongoing efforts within the U.S. aluminum extrusions industry to extend these protective duties. An unfavorable outcome could have a material adverse effect on the operating results of Aluminum Extrusions.
Item 1B.
UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
General
Most of the improved real property and the other assets used in the Company’s operations are owned, and none of the owned property is subject to an encumbrance that is considered to be material to its consolidated operations. Tredegar considers the manufacturing facilities, warehouses and other properties and assets that it owns or leases to be in generally good condition. Capacity utilization at its various manufacturing facilities can vary with product mix and normal fluctuations in sales levels. The Company believes that its manufacturing facilities have sufficient capacity to meet its current production requirements. Tredegar’s corporate headquarters, which is leased, is located at 1100 Boulders Parkway, Richmond, Virginia 23225.

9



The Company’s principal manufacturing 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
Durham, North Carolina (technical center and production facility) (leased)
Pottsville, Pennsylvania
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
Tredegar’s common stock is traded on the New York Stock Exchange (“NYSE”) under the ticker symbol TG. The Company has no preferred stock outstanding. There were 32,422,082 shares of common stock held by 2,343 shareholders of record on December 31, 2014.
The following table shows the reported high and low closing prices of Tredegar’s common stock by quarter for the past two years.
 
 
2014
 
2013
 
High
 
Low
 
High
 
Low
First quarter
$
28.45

 
$
22.48

 
$
30.70

 
$
21.06

Second quarter
25.08

 
19.65

 
30.16

 
24.23

Third quarter
24.07

 
18.41

 
30.73

 
22.22

Fourth quarter
22.49

 
16.76

 
29.74

 
23.86

The closing price of Tredegar’s common stock on February 20, 2015 was $21.65.

10



Dividend Information
Tredegar has paid a dividend every quarter since becoming a public company in July 1989. During the past three years, the Company paid quarterly dividends as follows:
9 cents per share in each of the final three quarters of 2014;
7 cents per share in the first quarter of 2014 and each of the quarters of 2013;
6 cents per share in each of the final two quarters of 2012; and
4 1/2 cents per share in each of the first two quarters of 2012.
Tredegar also paid a one-time dividend of 75 cents per share to all shareholders in December 2012.
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 the Company’s revolving credit agreement and other such considerations as the Board deems relevant. See Note 11 beginning on page 67 for the restrictions contained in the Company’s revolving credit agreement related to minimum shareholders’ equity required and aggregate dividends permitted.
Issuer Purchases of Equity Securities
On January 7, 2008, Tredegar announced that its Board of Directors approved a share repurchase program whereby management is authorized at its discretion to purchase, in the open market or in privately negotiated transactions, up to 5 million shares of the Company’s outstanding common stock. The authorization has no time limit. Tredegar did not repurchase any shares in the open market or otherwise in 2014, 2013 and 2012 under this standing authorization. The maximum number of shares remaining under this standing authorization was 1,732,003 at December 31, 2014.
Tredegar received 209,576 shares in 2012 at a price of $17.70 per share as consideration from Arc Ventures, LC in connection with the Company’s divestiture of Falling Springs. Shares received from the sale of Falling Springs do not represent shares repurchased under the current approved share repurchase program.

11



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, 2014. 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 12/31/09 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.

Copyright© 2015 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
Copyright© 2015 Russell Investment Group. All rights reserved.


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 the Company’s 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
Tredegar does not generate or distribute quarterly reports to its shareholders. Information on quarterly results can be obtained from the Company’s website. In addition, Tredegar files quarterly, annual and other information electronically with the SEC, which can be accessed on its website at www.sec.gov.

12



Item 6.
SELECTED FINANCIAL DATA
The tables that follow on pages 13-18 present certain selected financial and segment information for the five years ended December 31, 2014.

FIVE-YEAR SUMMARY
Tredegar Corporation and Subsidiaries
 
Years Ended December 31
2014
 
 
2013
 
 
2012
 
 
2011
 
 
2010
 
(In Thousands, Except Per-Share Data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Results of Operations (a):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales
$
951,826

  
 
$
959,346

  
 
$
882,188

  
 
$
794,420

  
 
$
738,200

  
Other income (expense), net
(6,697
)
(b) 
 
1,776

(c) 
 
18,119

(d) 
 
3,213

(e) 
 
(1,182
)
(f) 
 
945,129

  
 
961,122

  
 
900,307

  
 
797,633

  
 
737,018

  
Cost of goods sold
778,113

(b) 
 
784,675

(c) 
 
712,660

(d) 
 
654,087

(e) 
 
594,987

(f) 
Freight
28,793

  
 
28,625

  
 
24,846

  
 
18,488

  
 
17,812

  
Selling, general & administrative expenses
69,526

 
 
71,195

(c) 
 
73,717

(d) 
 
67,808

(e) 
 
67,729

  
Research and development expenses
12,147

  
 
12,669

  
 
13,162

  
 
13,219

  
 
13,625

  
Amortization of intangibles
5,395

  
 
6,744

  
 
5,806

  
 
1,399

  
 
466

  
Interest expense
2,713

  
 
2,870

  
 
3,590

  
 
1,926

  
 
1,136

  
Asset impairments and costs associated with exit and disposal activities
3,026

(b) 
 
1,412

(c) 
 
5,022

(d) 
 
1,917

(e) 
 
773

(f) 
 
899,713

  
 
908,190

  
 
838,803

  
 
758,844

  
 
696,528

  
Income from continuing operations before income taxes
45,416

  
 
52,932

  
 
61,504

  
 
38,789

  
 
40,490

  
Income taxes
9,387

(b) 
 
16,995

(c) 
 
18,319

(d) 
 
10,244

(e) 
 
13,649

(f) 
Income from continuing operations (a)
36,029

  
 
35,937

  
 
43,185

  
 
28,545

 
 
26,841

  
Income (loss) from discontinued operations, net of tax (a)
850

(a) 
 
(13,990
)
(a) 
 
(14,934
)
(a) 
 
(3,690
)
(a) 
 
186

(a)
Net income
$
36,879

  
 
$
21,947

  
 
$
28,251

  
 
$
24,855

 
 
$
27,027

  
Diluted earnings (loss) per share (a):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
$
1.11

  
 
$
1.10

  
 
$
1.34

  
 
$
0.89

 
 
$
0.82

  
Discontinued operations
0.02

(a) 
 
(0.43
)
(a) 
 
(0.46
)
(a) 
 
(0.12
)
(a) 
 
0.01

(a) 
Net income
$
1.13

  
 
$
0.67

  
 
$
0.88

  
 
$
0.77

 
 
$
0.83

  
Refer to notes to financial tables on page 18.

13



FIVE-YEAR SUMMARY
Tredegar Corporation and Subsidiaries
 
Years Ended December 31
2014
 
2013
 
2012
 
 
2011
 
2010
(In Thousands, Except Per-Share Data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Share Data:
 
 
 
 
 
 
 
 
 
 
Equity per share
$
11.47

 
$
12.46

 
$
11.61

 
 
$
12.38

 
$
13.10

Cash dividends declared per share
0.34

 
0.28

 
0.96

(j) 
 
0.18

 
0.16

Weighted average common shares outstanding during the period
32,302

 
32,172

 
32,032

 
 
31,932

 
32,292

Shares used to compute diluted earnings (loss) per share during the period
32,554

 
32,599

 
32,193

 
 
32,213

 
32,572

Shares outstanding at end of period
32,422

 
32,305

 
32,069

 
 
32,057

 
31,883

Closing market price per share:
 
 
 
 
 
 
 
 
 
 
High
$
28.45

 
$
30.73

 
$
26.29

 
 
$
23.00

 
$
20.19

Low
16.76

 
21.06

 
13.49

 
 
13.92

 
14.93

End of year
22.49

 
$
28.81

 
20.42

 
 
22.22

 
19.38

Total return to shareholders (g)
(20.8
)%
 
42.5
%
 
(3.8
)%
 
 
15.6
%
 
23.5
%
Financial Position:
 
 
 
 
 
 
 
 
 
 
Total assets
$
788,626

 
$
793,008

 
$
783,165

 
 
$
780,610

 
$
580,342

Cash and cash equivalents
50,056

 
52,617

 
48,822

 
 
68,939

 
73,191

Debt
137,250

 
139,000

 
128,000

 
 
125,000

 
450

Shareholders’ equity (net book value)
372,029

 
402,664

 
372,252

 
 
396,907

 
417,546

Equity market capitalization (h)
729,173

 
930,711

 
654,857

 
 
712,307

 
617,893

Refer to notes to financial tables on page 18.


14



SEGMENT TABLES
Tredegar Corporation and Subsidiaries
Net Sales (i)
 
 
 
 
 
 
 
 
 
 
2014
 
2013
 
2012
 
2011
 
2010
(In Thousands)
 
 
 
 
 
 
 
 
 
Film Products
$
578,687

 
$
621,239

 
$
611,877

 
$
535,540

 
$
520,749

Aluminum Extrusions
344,346

 
309,482

 
245,465

 
240,392

 
199,639

Total net sales
923,033

 
930,721

 
857,342

 
775,932

 
720,388

Add back freight
28,793

 
28,625

 
24,846

 
18,488

 
17,812

Sales as shown in Consolidated Statements of Income
$
951,826

 
$
959,346

 
$
882,188

 
$
794,420

 
$
738,200

 
 
 
 
 
 
 
 
 
 
Identifiable Assets
 
 
 
 
 
 
 
 
 
 
2014
 
2013
 
2012
 
2011
 
2010
(In Thousands)
 
 
 
 
 
 
 
 
 
Film Products
$
546,210

 
$
556,873

 
$
551,842

 
$
574,571

 
$
368,853

Aluminum Extrusions
143,328

 
134,928

 
129,279

 
78,661

 
81,731

AFBS (formerly Therics)

 

 

 

 
583

Subtotal
689,538

 
691,801

 
681,121

 
653,232

 
451,167

General corporate
49,032

 
48,590

 
53,222

 
40,917

 
41,833

Cash and cash equivalents
50,056

 
52,617

 
48,822

 
68,939

 
73,191

Identifiable assets from continuing operations
788,626

 
793,008

 
783,165

 
763,088

 
566,191

Discontinued operations (a):

 

 

 
17,522

 
14,151

Total
$
788,626

 
$
793,008

 
$
783,165

 
$
780,610

 
$
580,342

Refer to notes to financial tables on page 18.

15



SEGMENT TABLES
Tredegar Corporation and Subsidiaries
Operating Profit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2014
 
 
2013
 
 
2012
 
 
2011
 
 
2010
 
(In Thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Film Products:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ongoing operations
$
58,054

  
 
$
70,966

  
 
$
69,950

  
 
$
59,493

  
 
$
66,718

  
Plant shutdowns, asset impairments, restructurings and other
(12,827
)
(b) 
 
(671
)
(c) 
 
(109
)
(d) 
 
(6,807
)
(e) 
 
(758
)
(f) 
Aluminum Extrusions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ongoing operations
25,664

  
 
18,291

  
 
9,037

  
 
3,457

 
 
(4,154
)
 
Plant shutdowns, asset impairments, restructurings and other
(976
)
(b) 
 
(2,748
)
(c) 
 
(5,427
)
(d) 
 
58

(e) 
 
493

(f) 
Total
69,915

  
 
85,838

  
 
73,451

  
 
56,201

  
 
62,299

  
Interest income
588

  
 
594

  
 
418

  
 
1,023

  
 
709

  
Interest expense
2,713

  
 
2,870

  
 
3,590

  
 
1,926

  
 
1,136

  
Gain (loss) on investment accounted for under the fair value method
2,000

(b) 
 
3,400

(c) 
 
16,100

(d) 
 
1,600

(e) 
 
(2,200
)
(f) 
Gain on sale of investment property
1,208

(b)
 

 
 

 
 

 
 

 
Unrealized loss on investment property

 
 
1,018

(c)
 

 
 

 
 

 
Stock option-based compensation expense
1,272

  
 
1,155

  
 
1,432

  
 
1,940

  
 
2,064

  
Corporate expenses, net
24,310

(b) 
 
31,857

(c) 
 
23,443

(d) 
 
16,169

(e) 
 
17,118

 
Income from continuing operations before income taxes
45,416

  
 
52,932

  
 
61,504

  
 
38,789

  
 
40,490

  
Income taxes
9,387

(b) 
 
16,995

(c) 
 
18,319

(d) 
 
10,244

(e) 
 
13,649

(f) 
Income from continuing operations
36,029

  
 
35,937

  
 
43,185

  
 
28,545

 
 
26,841

  
Income (loss) from discontinued operations, net of tax (a)
850

(a) 
 
(13,990
)
(a) 
 
(14,934
)
(a) 
 
(3,690
)
(a)
 
186

(a) 
Net income
$
36,879

  
 
$
21,947

  
 
$
28,251

  
 
$
24,855

 
 
$
27,027

  
Refer to notes to financial tables on page 18.

16



SEGMENT TABLES
Tredegar Corporation and Subsidiaries

Depreciation and Amortization
 
 
 
 
 
 
 
 
 
 
2014
 
2013
 
2012
 
2011
 
2010
(In Thousands)
 
 
 
 
 
 
 
 
 
Film Products
$
30,730

 
$
35,332

 
$
39,202

 
$
36,315

 
$
34,448

Aluminum Extrusions
9,974

 
9,202

 
9,984

 
8,333

 
9,054

Subtotal
40,704

 
44,534

 
49,186

 
44,648

 
43,502

General corporate
114

 
121

 
73

 
75

 
74

Total continuing operations
40,818

 
44,655

 
49,259

 
44,723

 
43,576

Discontinued operations (a):

 

 
10

 
12

 
12

Total depreciation and amortization expense
$
40,818

 
$
44,655

 
$
49,269

 
$
44,735

 
$
43,588

 
 
 
 
 
 
 
 
 
 
Capital Expenditures
 
 
 
 
 
 
 
 
 
 
2014
 
2013
 
2012
 
2011
 
2010
(In Thousands)
 
 
 
 
 
 
 
 
 
Film Products
$
38,806

 
$
64,867

 
$
30,484

 
$
13,107

 
$
15,839

Aluminum Extrusions
6,092

 
14,742

 
2,332

 
2,697

 
4,339

Subtotal
44,898

 
79,609

 
32,816

 
15,804

 
20,178

General corporate

 
52

 
436

 
76

 
236

Capital expenditures for continuing operations
44,898

 
79,661

 
33,252

 
15,880

 
20,414

Discontinued operations (a):

 

 

 

 
4

Total capital expenditures
$
44,898

 
$
79,661

 
$
33,252

 
15,880

 
20,418

Refer to notes to financial tables on page 18.

17



NOTES TO FINANCIAL TABLES
(a)
On November 20, 2012, Tredegar sold its 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. In 2012, 2011 and 2010, net income of $0.5 million, $0.7 million and $0.2 million, respectively, have been reclassified to discontinued operations. On February 12, 2008, Tredegar sold its aluminum extrusions business in Canada. All historical results for this business have been reflected as discontinued operations. In 2014, accruals for indemnifications under the purchase agreement were adjusted, resulting in income from discontinued operations of $0.9 million. In 2013, 2012 and 2011, discontinued operations include after-tax charges of $14.0 million and $13.4 million and $4.4 million, respectively, to accrue for indemnifications under the purchase agreement related to environmental matters.
(b)
Plant shutdowns, asset impairments, restructurings and other for 2014 include a charge of $10.0 million (included in “Other income (expense), net” in the consolidated statements of income) associated with the one-time, lump sum license payment to 3M after the Company settled all litigation issues associated with a patent infringement complaint; charges of $2.3 million for severance and other employee-related costs in connection with restructurings in Film Products ($2.3 million) and Aluminum Extrusions ($31,000); charges of $0.9 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 $0.7 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 $0.4 million and asset impairment and other shutdown-related charges of $0.3 million; gain of $0.1 million related to the sale of previously shutdown film products manufacturing facility in LaGrange, Georgia (included in “Other income (expense), net” in the consolidated statements of income); and charges of $54,000 associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana. The unrealized gain on the Company’s investment in kaléo of $2.0 million; the unrealized loss on the Company’s investment in Harbinger of $0.8 million and the gain on sale on a portion the Company’s investment property in Alleghany and Bath County, Virginia was $1.2 million in 2014 are included in “Other income (expense), net” in the consolidated statements of income. Income taxes from continuing operations in 2014 includes the recognition of a tax benefit for a portion of the Company’s capital loss carryforwards of $4.9 million. These capital loss carryforwards were previously offset by a valuation allowance associated with expected limitations on the utilization of these assumed capital losses. As a result of changes in the underlying basis of certain foreign subsidiaries, income taxes from continuing operations in 2014 also included an adjustment of $2.2 million to reverse previously accrued deferred tax liabilities arising from foreign currency translation adjustments.
(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 the Company’s 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 the Company’s film products manufacturing facility in Shanghai, China (included in “Other income (expense), net” in the consolidated statements of income). The unrealized gain on the Company’s investment in kaléo of $3.4 million, the unrealized loss on the Company’s investment in Harbinger of $0.4 million and the unrealized loss on the Company’s 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 the Company’s 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 assets associated with 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 the Company’s investment in kaléo of $16.1 million and the unrealized loss on the Company’s 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 the 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 the Company’s investment in kaléo of $1.6 million and the unrealized loss on the Company’s 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 the Company’s 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)
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.
(h)
Equity market capitalization is the closing market price per share for the period multiplied by the shares outstanding at the end of the period.
(i)
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.
(j)
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.

18



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 Tredegar uses the words “believe,” “estimate,” “anticipate,” “expect,” “project,” “likely,” “may” and similar expressions, it does so to identify forward-looking statements. Such statements are based on current expectations at the time of the filing 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 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 the Company files with or provides 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 the Company’s businesses are provided on pages 1-9.
Sales from continuing operations were $951.8 million in 2014 compared to $959.3 million in 2013. Income from continuing operations was $36.0 million ($1.11 per diluted share) in 2014, compared with $35.9 million ($1.10 per diluted share) in 2013. Losses associated with plant shutdowns, asset 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 25. The business segment review begins on page 37.
Film Products
A summary of operating results for Film Products is provided below:
 
(In thousands, except percentages)
Year Ended
December 31
 
Favorable/
(Unfavorable)
2014
 
2013
 
% Change
Sales volume (pounds)
247,267

 
270,463

 
(8.6
)%
Net sales
$
578,687

 
$
621,239

 
(6.8
)%
Operating profit from ongoing operations
$
58,054

 
$
70,966

 
(18.2
)%
Net sales for 2014 decreased in comparison to 2013, primarily due to lower volumes and the unfavorable impact of the change in the U.S. dollar value of currencies for operations outside the U.S. Lower volumes had an unfavorable impact of approximately $39.6 million on net sales, as lost business related to certain babycare elastic laminate films sold in North America accounted for approximately $33.9 million of this change. Net sales in Film Products were also impacted by reduced sales volumes for polyethylene overwrap and surface protection films, partially offset by higher volumes for other personal care materials. Lower volumes in surface protection films were primarily related to customer inventory corrections in 2014 and a minor loss of market share in a lower-tier film due to competitive pricing pressures. Average selling prices were favorably impacted by the contractual pass-through of certain costs, primarily an increase in average resin prices, in 2014. The impact of contractual pass-throughs was offset by competitive pricing pressures in flexible packaging films and personal care materials. The change in the U.S. dollar value of currencies for operations outside the U.S. had an unfavorable impact on net sales in 2014 of approximately $2.6 million.
Operating profit from ongoing operations in 2014 decreased by $12.9 million in comparison to 2013. The previously noted loss of babycare elastic laminate film volumes had an estimated unfavorable impact on operating profit from ongoing operations of approximately $7.0 million in 2014 compared to 2013. The loss of this business is expected to negatively impact operating profit from ongoing operations by approximately $2 million in 2015. Lower volumes noted above and changes in

19



product mix had an unfavorable effect on operating profit from ongoing operations of approximately $1.7 million. Competitive pricing pressure in flexible packaging films, which were partially offset by favorable pricing in other products, lowered operating profit from ongoing operations by approximately $3.4 million in 2014. Higher manufacturing expenses in flexible packaging films, partially offset by improved operational performance in personal care materials and surface protection films, decreased operating profit from ongoing operations by approximately $5.9 million. Lower selling, general and administrative expenses and reduced research and development project costs within Film Products had a favorable impact on operating profit from ongoing operations of approximately $0.8 million.
Fourth-quarter 2014 operating results included a pair of inventory valuation adjustments. As part of its evaluation of operational performance, Film Products assessed the raw materials required to optimize the operational effectiveness of its production lines in flexible packaging films, which resulted in an inventory valuation adjustment of approximately $1.3 million. There was an additional inventory valuation adjustment of approximately $0.8 million associated with supplies inventories not expected to be utilized as a result of expected changes in product mix in personal care materials.
The change in the U.S. dollar value of currencies for operations outside the U.S. had a favorable impact of approximately $4.5 million in 2014 compared to 2013. 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 of approximately $0.1 million in 2014 compared to a negative of approximately $2.1 million in 2013.

As previously noted, in 2014, Film Products lost certain babycare elastic laminate volumes sold to P&G due to its consolidation of suppliers for its North American product needs. Net sales for this domestic product line were $17.1 million in 2014 and $50.9 million in 2013. 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. P&G remains an important customer to Film Products, and Film Products does not expect the loss of the elastic laminate volumes in North America to impact other business or initiatives underway with P&G. The loss of this business resulted in the shutdown of the film products’ manufacturing facility in Red Springs, North Carolina, a leased facility that was dedicated solely to this product line. Charges incurred related to the shutdown of the Red Springs manufacturing facility, which primarily consisted of severance and other employee-related costs, were approximately $0.7 million in 2014 and $0.5 million in 2013.
Capital expenditures in Film Products were $38.8 million in 2014 compared to $64.9 million in 2013. Capital expenditures in 2014 and 2013 included approximately $17 million and $41 million, respectively, for the project to expand capacity at Film Products’ manufacturing facility in Cabo de Santo Agostinho, Brazil. The additional capacity from this project, which will primarily serve flexible packaging films customers in Latin America, became available for commercial production at the end of the third quarter of 2014, and production volumes started to ramp-up in the fourth quarter of 2014. Film Products currently estimates that capital expenditures will be approximately $31 million in 2015, which includes approximately $15 million for routine capital expenditures required to support operations. Depreciation expense was $27.0 million in 2014 and $30.4 million in 2013, and is projected to be approximately $27 million in 2015. Amortization expense was $3.8 million in 2014 and $4.9 million in 2013, and is projected to be approximately $4 million in 2015.
Outlook
In 2013 and 2014 Film Products invested in multiple projects that it believes will facilitate long-term growth. As previously noted, additional capacity serving flexible packaging films customers in Latin America became available for commercial production at the end of the third quarter of 2014. In addition, capacity expansion projects for surface protection film and personal care materials are expected to be completed in the first half of 2015.
The global PET films industry has experienced significant capacity expansion in recent years, and lower-than-anticipated demand in Europe and Asia has driven suppliers from Asia and the Middle East to sell their excess inventories in Latin America. Given current global supply-demand dynamics, Film Products anticipates that market share in Brazil and other parts of Latin America will improve in the second half of 2015 and into 2016 as a result of increased capacity. With industry projections for annual global growth of PET films of approximately 7% through 2018, Film Products expects global supply-demand dynamics to improve in the coming years.
Consistent with its strategy, Film Products will leverage new products and added capacity to create long-term growth and increase shareholder value.

20



Aluminum Extrusions
A summary of operating results for Aluminum Extrusions is provided below:
 
(In thousands, except percentages)
Year Ended
December 31
 
Favorable/
(Unfavorable)
2014
 
2013
 
% Change
Sales volume (pounds)
153,843

 
143,684

 
7.1
%
Net sales
$
344,346

 
$
309,482

 
11.3
%
Operating profit from ongoing operations
$
25,664

 
$
18,291

 
40.3
%
Net sales in 2014 increased versus 2013 primarily due to higher sales volumes and an increase in average selling prices. Higher sales volumes had a favorable impact of approximately $18.5 million in 2014. The increase in average selling prices, which had a positive impact on net sales of approximately $16.4 million, can be attributed to inflationary price increases, higher average aluminum costs and favorable changes in product mix due to a higher percentage of painted and anodized finished products as well as an increase in the sales of fabricated components.
Operating profit from ongoing operations increased in 2014 versus 2013, primarily as a result of an improved product mix, higher volumes, the favorable impact of manufacturing efficiencies and reduced selling, general and administrative expenses. Higher sales volumes and improved product mix had a favorable impact of approximately $5.3 million in comparison to the prior year. Despite unanticipated utility, distribution and manufacturing costs as a result of adverse weather conditions in the first quarter of 2014, improved margins from manufacturing efficiencies and reduced selling, general and administrative expenses increased operating profit from ongoing operations by approximately $1.4 million. In addition, operating profit from ongoing operations in the prior year includes one-time, construction-related expense of approximately $0.6 million associated with the automotive press project at the Company’s manufacturing facility in Newnan, Georgia. The remaining portion of the change in operating profit from ongoing operations in 2014 compared to 2013 is primarily related to favorable pricing from value-added services.
Capital expenditures for Bonnell Aluminum were $6.1 million in 2014 compared with $14.7 million in 2013. Capital expenditures in 2014 and 2013 include approximately $2.8 million and $11.5 million, respectively, for a project that added capacity at the manufacturing facility in Newnan, Georgia. This additional capacity serves the automotive industry. Capital expenditures are projected to be approximately $10 million in 2015, which includes approximately $5 million for routine capital expenditures required to support operations. Depreciation expense was $8.3 million in 2014 compared with $7.4 million in 2013, and is projected to be approximately $9 million in 2015. Amortization expense was $1.6 million in 2014 and $1.8 million in 2013, and is projected to be approximately $1 million in 2015.
Outlook
Aluminum Extrusions is encouraged by continued improvement in nonresidential building and construction volumes. Consistent with industry trends, nonresidential building and construction volumes in Aluminum Extrusions grew 6% in 2014 compared to 2013, and the Company is optimistic about the expected growth trends for this market in 2015. Operating results in 2014 benefited from an improved product mix and increased demand for anodized products. Aluminum Extrusions is currently in the process of expanding and upgrading its anodizing capacity to satisfy the strong demand for finished extrusions. As previously discussed, additional capacity dedicated to the automotive industry came on-line in 2014, and Aluminum Extrusions expects the ramp-up of the associated production volumes to accelerate in 2015. The Company believes that the combination of improving nonresidential building and construction volumes and market diversification efforts position Aluminum Extrusions for continued growth in 2015.
Corporate Expenses, Interest and Income Taxes
Pension expense was $6.7 million in 2014, a favorable change of $7.0 million from pension expense recognized in 2013. Most of the change is reflected in “Corporate expenses, net” in the segment operating profit table presented on page 16. The Company contributed approximately $2.8 million to its pension plans in 2014. Minimum required contributions to pension plans in 2015 are expected to be $2.4 million. Pension expense is estimated to be $12.3 million in 2015. Corporate expenses, net decreased in 2014 in comparison to 2013 primarily due to the reduction in pension expenses noted above, lower stock-based employee benefit costs and a reduction in performance incentive accruals, partially offset by the timing of certain non-recurring corporate expenditures. Corporate expenses, net included costs of $0.9 million and $1.4 million related to responding to a Schedule 13D filed with the SEC by certain shareholders in 2014 and 2013, respectively. Corporate expenses, net also included

21



an unrealized loss on the Company’s investment in the Harbinger Capital Partners Special Situations Fund, L.P. (“Harbinger Fund”) of $0.8 million in 2014 and $0.4 million in 2013.
Interest expense, which includes the amortization of debt issue costs, was $2.7 million in 2014 in comparison to $2.9 million in 2013.
The effective income tax rate from continuing operations was 20.7% in 2014 compared with 32.1% in 2013. Income taxes from continuing operations in 2014 included the recognition of a tax benefit for a portion of the Company’s capital loss carryforwards of $4.9 million. These capital loss carryforwards were previously offset by a valuation allowance associated with expected limitations on the utilization of these assumed capital losses. As a result of changes in the underlying basis of certain foreign subsidiaries, income taxes from continuing operations in 2014 also included an adjustment of $2.2 million to reverse previously accrued deferred tax liabilities arising from changes in tax basis due to foreign currency translation adjustments and unremitted earnings. Income taxes from continuing operations in 2013 primarily reflect the benefit of foreign tax incentives, partially offset by the impact of adjustments for tax contingency matters. Significant differences between the effective tax rate for continuing operations and the U.S. federal statutory rate for 2014 and 2013 are further detailed in the effective income tax rate reconciliation provided in Note 17 beginning on page 76.
The net debt balance (total debt of $137.3 million in excess of cash and cash equivalents of $50.1 million) at December 31, 2014 was $87.2 million, compared to a net debt balance (total debt of $139.0 million in excess of cash and cash equivalents of $52.6 million) at December 31, 2013 of $86.4 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. The Company believes 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 28.
Critical Accounting Policies
In the ordinary course of business, the Company makes 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. The Company believes the following discussion addresses its 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
The Company assesses its 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 the Company does not believe the carrying value of the long-lived asset(s) will be recoverable. Tredegar also reassesses the useful lives of its long-lived assets based on changes in the business and technologies.
The Company assesses 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 1st of each year). The reporting units in Film Products include, but are not limited to, Polyethylene Films and PET Films. As of December 31, 2014, each of the previously identified reporting units in Film Products was carrying a goodwill balance. There are 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, the Company estimates fair value using discounted cash flow analysis and comparative enterprise value-to-EBITDA (earnings before interest, taxes, depreciation and amortization) multiples. These calculations require management 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, the Company may be required to record additional impairment charges.
Based upon assessments performed as to the recoverability of long-lived identifiable assets, the Company recorded asset impairment losses for continuing operations of $1.0 million in 2012 (none in 2014 and 2013).
Investment Accounted for Under the Fair Value Method
In August 2007 and December 2008, Tredegar 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 the initial investment, the Company elected the fair value option over the equity method of accounting since its investment objectives were similar to those of venture capitalists, which typically do not have controlling financial

22



interests (venture capital funds generally use the fair value method to account for their investment portfolios). At December 31, 2014, Tredegar’s ownership interest was approximately 20% on a fully diluted basis.
The Company discloses 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 its investments, Tredegar believes that the amount it paid for its 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, the Company believes fair value estimates are based upon Level 3 inputs since there is no secondary market for Tredegar’s 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. Adjustments to the estimated fair value of this investment will be made in the period upon which such changes can be quantified.
At December 31, 2014 and 2013, the fair value of the Company’s investment (the carrying value included in “Other assets and deferred charges” in the consolidated balance sheet) was $39.1 million and $37.1 million, respectively. The fair market valuation of Tredegar’s 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, 2014, the effect of a 500 basis point decrease in the weighted average cost of capital assumption would have further increased the fair value of the Company’s interest in kaléo by approximately $6 million, and a 500 basis point increase in the weighted average cost of capital assumption would have decreased the fair value of the Company’s interest by approximately $6 million.
Pension Benefits
Tredegar sponsors noncontributory defined benefit (pension) plans in its 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. The Company is 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, the pension liability increases as the discount rate decreases and vice versa. The weighted average discount rate utilized was 4.17% at the end of 2014, 4.99% at the end of 2013 and 4.21% at the end of 2012, with changes between periods due to changes in market interest rates. 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 the Company’s 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 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 4.1% in 2014, 11.2% in 2013 and 8.9% in 2012. The 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 2014 and 2013, 8.0% in 2012 and 8.25% from 2009 to 2011. The Company anticipates that its expected long-term return on plan assets will be 7.5% for 2015. See page 73 for more information on expected long-term return on plan assets and asset mix.
See the executive summary beginning on page 19 for further discussion regarding the financial impact of the Company’s pension plans.
Income Taxes
On a quarterly basis, Tredegar reviews its judgments regarding uncertain tax positions and the likelihood that the benefits of a deferred tax asset will be realized. As circumstances change, the Company reflects in earnings any adjustments to unrecognized benefits for uncertain tax positions and valuation allowances for deferred tax assets.

23



For financial reporting purposes, unrecognized tax benefits on uncertain tax positions were $3.3 million, $2.2 million and $0.9 million as of December 31, 2014, 2013 and 2012, respectively. Tax payments resulting from the successful challenge by the taxing authority on uncertain tax positions taken by Tredegar would possibly result in the payment of interest and penalties. Accordingly, the Company also accrues 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 $0.3 million, $0.2 million and $60,000 at December 31, 2014, 2013 and 2012, respectively ($0.2 million, $96,000 and $37,000, 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, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction, various states and jurisdictions outside the U.S. With few exceptions, Tredegar is no longer subject to U.S. federal, state or non-U.S. income tax examinations by tax authorities for years before 2011.
As of December 31, 2014 and 2013, valuation allowances relating to deferred tax assets were $14.6 million and $20.0 million, respectively. For more information on deferred income tax assets and liabilities, see Note 17 of the notes to financial statements beginning on page 76.
Recently Issued Accounting Standards

In April 2014, the Financial Accounting Standards Board (“FASB”) issued a revised standard that changes current guidance for discontinued operations. Under the revised standard, to be a discontinued operation, a component or group of components must represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. Failure to eliminate significant continuing cash flows of or involvement with a disposed component from an entity’s ongoing operations after a disposal no longer precludes presentation as a discontinued operation. Expanded disclosures for discontinued operations under the revised standard will also include more details about earnings and balance sheet accounts, total operating and investing cash flows and cash flows resulting from continuing involvement. New disclosures are also required for disposals of individually significant components that do not qualify as discontinued operations. The new guidance is to be applied prospectively to all new disposals of components and new classifications as held for sale for annual reporting periods beginning after December 15, 2014, with early adoption permitted. The Company will implement this revised standard as transactions and events warrant.
In May 2014, the FASB and International Accounting Standards Board (“IASB”) issued their converged standard on revenue recognition. The revised revenue standard contains principles that an entity will apply to direct the measurement of revenue and timing of when it is recognized. The core principle of the guidance is that the recognition of revenue should depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods and services. To achieve that core principle, an entity will utilize a principle-based five-step approach model. The converged standard also includes more robust disclosure requirements which will require entities to provide sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in this revised standard are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The converged standard can be adopted either retrospectively or through the use of a practical expedient. The Company is still assessing the impact of this new guidance.
In June 2014, the FASB issued a new standard to eliminate the concept of development stage entities and all related specified presentation and reporting requirements under U.S. GAAP. In addition, the amended standard eliminated the scope exception for development stage entities when evaluating the sufficiency of equity at risk for a variable interest entity (“VIE”), thereby changing consolidation conclusions in some situations. Except for the elimination of the scope exception for development stage entities when evaluating the sufficiency of equity at risk for a VIE, the revised guidance is effective for annual reporting periods beginning after December 15, 2014, including interim periods within that reporting period. The amendments to the consolidation guidance are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. The new standard is not expected to impact the Company.
In June 2014, the FASB amended the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating grant-date value of the award, and compensation expense should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amended standard is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early adoption is permitted. The new standard is not expected to impact the Company.

24



In January 2015, the FASB simplified income statement classification by removing the concept of extraordinary items. Items that are both unusual and infrequent in nature will no longer be separately reported net of tax after continuing operations. The existing requirement to separately present items that are of an unusual nature or occur infrequently on a pre-tax basis within income from continuing operations has been retained and expanded to include items that are both unusual and infrequent. The standard is effective for periods beginning after December 15, 2015. Early adoption is permitted, but only as of the beginning of the fiscal year of adoption. The new standard is not expected to impact the Company.
Results of Continuing Operations
2014 versus 2013
Revenues. Sales in 2014 decreased by 0.8% compared with 2013 due to lower sales in Film Products, partially offset by higher sales in Aluminum Extrusions. Net sales (sales less freight) decreased 6.8% in Film Products primarily due to lower volumes and the unfavorable impact of the change in the U.S. dollar value of currencies for operations outside the U.S. Net sales increased 11.3% in Aluminum Extrusions primarily due to higher sales volumes and an increase in average selling prices driven by various factors, primarily including inflationary price increases, higher average aluminum costs and favorable changes in product mix due to a higher percentage of painted and anodized finished products as well as an increase in fabricated components. For more information on net sales and volume, see the executive summary beginning on page 19.
Operating Costs and Expenses. Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales was 15.2% in 2014 and 15.2% in 2013. Gross profit as a percentage of sales was favorably impacted by lower pension expenses in 2014 compared to 2013. As previously noted, most of the impact of lower pension expense is not allocated to Film Products and Aluminum Extrusions. The gross profit margin in Film Products, which does not include lower pension expenses, decreased due to lower volumes, competitive pricing pressures and higher manufacturing costs, partially offset by the favorable impact of the change in the U.S. dollar value of currencies for operations outside the U.S. The gross profit margin in Aluminum Extrusions, which does not include lower pension expenses, increased primarily as a result of improved product mix, higher volumes, additional manufacturing efficiencies and improved pricing on value-added services. For more information on operating costs and expenses, see the executive summary beginning on page 19.
As a percentage of sales, selling, general and administrative and R&D expenses were 8.6% in 2014, which decreased from 8.7% in 2013. The decrease in selling, general and administrative and R&D expenses as a percentage of sales can be primarily attributed to the reduction of selling, general and administrative costs in Aluminum Extrusions and lower performance-based incentive costs.
Losses associated with plant shutdowns, asset impairments, restructurings and other charges in 2014 totaled $13.8 million ($9.3 million after taxes) and included:
A second quarter charge of $10.0 million ($6.8 million after taxes) associated with a one-time, lump sum license payment to the 3M Company (“3M”) after the Company settled all litigation issues associated with a patent infringement complaint (included in “Other income (expense), net” in the consolidated statements of income; see Note 19 for additional detail on this legal matter);
A fourth quarter charge of $0.5 million ($0.3 million after taxes), a third quarter charge of $0.4 million ($0.2 million after taxes), a second quarter charge of $0.6 million ($0.4 million after taxes) and a first quarter charge of $0.8 million ($0.5 million after taxes) in Film Products and a third quarter charge of $31,000 ($18,000 after taxes) in Aluminum Extrusions associated with severance and other employee-related costs associated with restructurings;
A fourth quarter charge of $0.7 million ($0.4 million after taxes), a third quarter charge of $75,000 ($46,000 after taxes) and a second quarter charge of $0.2 million ($0.1 million after taxes) 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);
A fourth quarter adjustment of previously accrued severance and other employee-related costs of $0.1 million ($63,000 after taxes) and a third quarter charge of $37,000 ($23,000 after taxes), a second quarter charge of $0.3 million ($0.2 million after taxes) and a first quarter charge of $0.5 million ($0.3 million after taxes) associated with the shutdown of the film products manufacturing facility in Red Springs, North Carolina, which includes net severance and other employee-related costs of $0.4 million and asset impairment and other shutdown-related charges of $0.3 million;

25



A fourth quarter gain of $0.1 million ($73,000 after taxes) related to the sale of a previously shutdown film products manufacturing facility in LaGrange, Georgia (included in “Other income (expense), net” in the consolidated statements of income); and
A fourth quarter charge of $11,000 ($7,000 after taxes), a third quarter charge of $20,000 ($12,000 after taxes) and a second quarter charge of $24,000 ($15,000 after taxes) associated with the shutdown of the aluminum extrusions manufacturing facility in Kentland, Indiana.
On February 12, 2008, Tredegar sold its 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. Accruals for indemnifications under the purchase agreement related to environmental matters were adjusted in 2014, resulting in income from discontinued operations of $0.9 million ($0.9 million after taxes).
Results in 2014 include an unrealized gain on the Company’s investment in kaléo (included in “Other income (expense), net” in the consolidated statements of income) of $2.0 million ($1.0 million after taxes; see further discussion beginning on page 22). An unrealized loss on the Company’s 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 $0.8 million ($0.4 million after taxes) was recorded in 2014 as a result of a reduction in the fair value of the investment that is not expected to be temporary. The Company realized a gain on the sale of a portion of its investment property in Alleghany and Bath Counties, Virginia (included in “Other income (expense), net” in the consolidated statements of income) of $1.2 million ($0.8 million after taxes) in 2014. For more information on costs and expenses, see the executive summary beginning on page 19.
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 2014, compared to $0.6 million in 2013. The Company’s 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 $2.7 million in 2014, compared to $2.9 million for 2013. Average debt outstanding and interest rates were as follows:
(In Millions)
2014
 
2013
Floating-rate debt with interest charged on a rollover
 
 
 
basis at one-month LIBOR plus a credit spread:
 
 
 
Average outstanding debt balance
$
136.5

 
$
133.5

Average interest rate
2.0
%
 
1.9
%
Fixed-rate and other debt:
 
 
 
Average outstanding debt balance
$

 
$

Average interest rate
n/a

 
n/a

Total debt:
 
 
 
Average outstanding debt balance
$
136.5

 
$
133.5

Average interest rate
2.0
%
 
1.9
%
Income Taxes. The effective income tax rate from continuing operations was 20.7% in 2014 compared with 32.1% in 2013. Income taxes from continuing operations in 2014 included the recognition of a tax benefit for a portion of the Company’s capital loss carryforwards of $4.9 million. These capital loss carryforwards were previously offset by a valuation allowance associated with expected limitations on the utilization of these assumed capital losses. As a result of changes in the underlying basis of certain foreign subsidiaries, income taxes from continuing operations in 2014 also included an adjustment of $2.2 million to reverse previously accrued deferred tax liabilities arising from changes in tax basis due to foreign currency translation adjustments and unremitted earnings. Income taxes from continuing operations in 2013 primarily reflect the benefit of foreign tax incentives, partially offset by the impact of adjustments for tax contingency matters. Factors impacting the effective tax rate for 2014 and 2013 are further detailed in the effective income tax rate reconciliation provided in Note 17 beginning on page 76.

26



2013 versus 2012
Revenues. Sales in 2013 increased by 8.7% compared with 2012 due to higher sales in 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 19.
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 higher average prices from additional 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 19.
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 the 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 the film products manufacturing facility in Shanghai, China (included in “Other income (expense), net” in the consolidated statements of income).
On February 12, 2008, Tredegar sold its 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, accruals of $14.0 million ($14.0 million after taxes) were made for indemnifications under the purchase agreement related to environmental matters.
Results in 2013 include an unrealized gain on the Company’s 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 22). An unrealized loss on the Company’s 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

27



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 the investment that is not expected to be temporary. The Company also recorded an unrealized loss on its 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 the investment that was not expected to be temporary. For more information on costs and expenses, see the executive summary beginning on page 19.
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. The Company’s 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 2013 as a result of a decrease in the average interest rate on borrowings under the Company’s 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 the effective tax rate for 2013 and 2012 are further detailed in the effective income tax rate reconciliation provided in Note 17 beginning on page 76.
Financial Condition
Assets and Liabilities
Tredegar’s management continues to focus on improving working capital management, and measures such as days sales outstanding (“DSO”), days inventory outstanding (“DIO”) and days payables outstanding (“DPO”) are used by the Company to evaluate changes in working capital. Significant changes in assets and liabilities from continuing operations from December 31, 2013 to December 31, 2014 are summarized below:
Accounts and other receivables increased $14.1 million (14.2%).
Accounts and other receivables in Film Products increased by $5.1 million due mainly to the timing of cash receipts. DSO (represents trailing 12 months net sales divided by a rolling 12-month average of accounts and other receivables balances) was approximately 46.2 days in 2014 and 43.2 days in 2013.
Accounts and other receivables in Aluminum Extrusions increased by $9.0 million primarily due to higher sales. DSO was approximately 45.3 days in 2014 and 47.1 days in 2013.
Inventories increased $3.6 million (5.2%).
Inventories in Film Products increased by approximately $0.8 million primarily due to the timing of shipments at the end of the year. DIO (represents trailing 12 months costs of goods sold calculated on a first-in, first-out basis divided by a rolling 12-month average of inventory balances calculated on the first-in, first-out basis) was approximately 52.0 days in 2014 and 54.1 days in 2013.
Inventories in Aluminum Extrusions increased by approximately $2.8 million as a result of new capacity at the Company’s manufacturing facility in Newnan, Georgia and higher sales volumes in 2014 versus 2013. DIO was approximately 24.1 days in 2014 and 25.0 days in 2013.

28



Net property, plant and equipment decreased $12.6 million (4.5%) due primarily to depreciation of $35.4 million and a change in the value of the U.S. dollar relative to foreign currencies (a decrease of approximately $17.6 million), partially offset by capital expenditures of $44.9 million.
Goodwill and other intangibles decreased by $11.2 million (4.9%) primarily due to amortization expense of $5.4 million and changes in the value of the U.S. dollar relative to the Brazilian Real.
Accounts payable increased by $11.3 million (13.7%).
Accounts payable in Film Products increased by $2.5 million primarily due to the timing of payments at the end of the year. DPO (represents trailing 12 months costs of goods sold calculated on a first-in, first-out basis divided by a rolling 12-month average of accounts payable balances) was approximately 36.0 days in 2014 and 36.8 days in 2013.
Accounts payable in Aluminum Extrusions increased by $9.0 million, primarily due to higher inventory balances and the timing of payments. DPO was approximately 48.0 days in 2014 and 45.5 days in 2013.
Accrued expenses decreased by $10.1 million (24.0%) from December 31, 2013. The decrease is related to various factors, including lower accruals for contractual indemnifications associated with the sale of the Company’s aluminum extrusions business in Canada, lower accruals for performance incentives and other employee benefits and the timing of payments for non-federal income and payroll related taxes.
Other noncurrent liabilities increased by $58.4 million (105.3%) due primarily to the change in the funded status of the Company’s defined benefit plans. As of December 31, 2014, the funded status of the defined benefit pension plan was a net liability of $96.4 million compared with $42.5 million as of December 31, 2013, and the liability associated with the other post-employment benefits plan was $8.4 million as of December 31, 2014 compared to $7.9 million as of December 31, 2013.
Net deferred income tax liabilities in excess of assets decreased by $34.8 million primarily due to numerous changes between years in the balance of the components shown in the December 31, 2014 and 2013 schedule of deferred income tax assets and liabilities provided in Note 17 beginning on page 76. The Company had an income tax receivable of $0.9 million at December 31, 2014 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 the Company’s revolving credit agreement as of December 31, 2014 were as follows:
Net Capitalization and Indebtedness as of December 31, 2014
(In Thousands)
 
Net capitalization:
 
Cash and cash equivalents
$
50,056

Debt:
 
$350 million revolving credit agreement maturing April 23, 2017
137,250

Other debt

Total debt
137,250

Debt net of cash and cash equivalents
87,194

Shareholders’ equity
372,029

Net capitalization
$
459,223

Indebtedness as defined in revolving credit agreement:
 
Total debt
$
137,250

Face value of letters of credit
2,884

Other
230

Indebtedness
$
140,364


29



Under the revolving credit agreement, borrowings are permitted up to $350 million, and approximately $155 million was available to borrow at December 31, 2014 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, 2014, 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 the consolidated financial results. The Company has historically had indebtedness-to-adjusted EBITDA ratios of less than 2.0x.
As of December 31, 2014, Tredegar is in compliance with all financial covenants outlined in its 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 the Company 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.

30




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, 2014 (In Thousands)
Computations of adjusted EBITDA and adjusted EBIT as defined in revolving credit agreement for the twelve months ended December 31, 2014:
Net income
$
36,879

Plus:
 
After-tax losses related to discontinued operations

Total income tax expense for continuing operations
9,387

Interest expense
2,713

Depreciation and amortization expense for continuing operations
40,818

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 $10,000)
10,993

Charges related to stock option grants and awards accounted for under the fair value-based method
1,272

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
(850
)
Total income tax benefits for continuing operations

Interest income
(588
)
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
(2,000
)
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
98,624

Less: Depreciation and amortization expense for continuing operations (including pro forma for acquisitions and asset dispositions)
(40,818
)
Adjusted EBIT as defined in revolving credit agreement
$
57,806

Shareholders’ equity at December 31, 2014 as defined in revolving credit agreement
$
384,938

Computations of leverage and interest coverage ratios as defined in revolving credit agreement at December 31, 2014:
Leverage ratio (indebtedness-to-adjusted EBITDA)
1.42x

Interest coverage ratio (adjusted EBIT-to-interest expense)
21.31x

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)
$
143,539

Minimum adjusted shareholders’ equity permitted ($320,000 plus 50% of net income generated, to the extent positive, beginning January 1, 2012)
$
363,539

Maximum leverage ratio permitted:
3.00x

Minimum interest coverage ratio permitted
2.50x


31



Tredegar is obligated to make future payments under various contracts as set forth below:
 
Payments Due by Period
(In Millions)
2015
 
2016
 
2017
 
2018
 
2019
 
Remainder
 
Total
Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
Principal payments
$

 
$

 
$
137.3

 
$

 
$

 
$

 
$
137.3

Estimated interest expense
2.7

 
2.7

 
0.8

 

 

 

 
6.2

Estimated contributions required (1) :
 
 
 
 
 
 
 
 
 
 
 
 
 
Defined benefit plans
2.4

 
5.9

 
5.0

 
12.2

 
11.8

 
50.6

 
87.9

Other postretirement benefits
0.5

 
0.5

 
0.5

 
0.5

 
0.5

 
5.9

 
8.4

Capital expenditure commitments
4.9

 

 

 

 

 

 
4.9

Operating leases
2.4

 
1.9

 
1.9

 
1.8

 
0.7

 
1.3

 
10.0

Estimated obligations relating to uncertain tax positions (2)

 

 

 

 

 
2.8

 
2.8

Other (3)
1.8

 
0.3

 

 

 

 

 
2.1

Total
$
14.7

 
$
11.3

 
$
145.5

 
$
14.5

 
$
13.0

 
$
60.6

 
$
259.6

 
(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 2015 through 2024 were determined under provisions of the Pension Protection Act of 2006 using the preliminary assumptions chosen by Tredegar for the 2015 plan year. Tredegar has determined that it is not practicable to present defined benefit contributions and other postretirement benefit payments beyond 2024.
(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 the purchase of the assets of Bright View, and other miscellaneous contractual arrangements.
From time to time, the Company enters into transactions with third parties in connection with the sale of assets or businesses in which it agrees to indemnify the buyers or third parties involved in the transaction, or the sellers or third parties involved in the transaction agree to indemnify Tredegar, for certain liabilities or risks related to the assets or business. Also, in the ordinary course of business, the Company 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, the Company is unable to estimate the maximum potential amount of the potential future liability under the indemnity provisions of these agreements. Tredegar does, 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. The Company discloses contingent liabilities if the probability of loss is reasonably possible and material.
At December 31, 2014, Tredegar had cash and cash equivalents of $50.1 million, including funds held in locations outside the U.S. of $40.5 million. The Company accrues U.S. federal income taxes to the extent permitted under U.S. GAAP 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 the Company’s intent to permanently reinvest these earnings. Because of the accumulation of significant losses related to foreign currency translations at Terphane Ltda., there were no unrecorded deferred tax liabilities at December 31, 2014 associated with the U.S. federal income taxes and foreign withholding taxes on undistributed earnings indefinitely invested outside the U.S. The Company believes that existing borrowing availability, current cash balances and cash flow from operations will be sufficient to satisfy working capital, capital expenditure and dividend requirements for at least the next twelve months.
Shareholders’ Equity
At December 31, 2014, Tredegar had 32,422,082 shares of common stock outstanding and a total market capitalization of $729.2 million, compared with 32,305,145 shares of common stock outstanding and a total market capitalization of $930.7 million at December 31, 2013.
The Company received 209,576 shares in 2012 at a price of $17.70 per share as consideration from Arc Ventures, LC in connection with the divestiture of Falling Springs. Tredegar did not repurchase any shares on the open market in 2014, 2013 or 2012 under its approved share repurchase program.

32



Cash Flows
The discussion in this section supplements the information presented in the consolidated statements of cash flows on page 48. Cash flows for discontinued operations have not been separately disclosed in the consolidated statements of cash flows.
Cash provided by operating activities was $51.2 million in 2014 compared with $76.7 million in 2013. The decrease is due primarily to normal volatility of working capital components (see the assets and liabilities section beginning on page 28 for discussion of changes in working capital).
Cash used in investing activities was $38.3 million in 2014 compared with $77.6 million in 2013. Cash used in investing activities in 2014 primarily includes capital expenditures of $44.9 million, partially offset by proceeds from the sale of a portion of its investment property in Alleghany and Bath Counties, Virginia ($4.5 million). Cash used in investing activities in 2013 primarily consists of capital expenditures of $79.7 million.
Net cash flow used by financing activities was $12.4 million in 2014, which is primarily due to the payment of regular quarterly dividends of $11.0 million (34 cents per share) and net payments on the Company’s revolving credit facility of $1.8 million, partially offset by the proceeds from the exercise of stock options and other financing activities of approximately $0.4 million.
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.
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 consists of capital expenditures ($79.7 million). Cash used in investing activities in 2012 primarily consists of 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 the Company’s 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).
Quantitative and Qualitative Disclosures about Market Risk
Tredegar has exposure to the volatility of interest rates, polyethylene, polypropylene and polyester 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 28 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 its casting furnaces). There is no assurance of the Company’s ability to pass through higher raw material and energy costs to its customers.
See the executive summary beginning on page 19 and the business segment review beginning on page 37 for discussion regarding the impact of the lag in the pass-through of resin price changes.

33



The volatility of average quarterly prices of low density polyethylene resin in the U.S. (a primary raw material for polyethylene 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.
Polyethylene resin prices in Europe, Asia and South America have exhibited similar long-term trends.
Polyester resins, MEG and PTA used in flexible packaging films produced in Brazil are primarily purchased domestically, with other sources available mostly from Asia and the U.S. Given that the nature of these products as commodities, pricing is derived from Asian pricing indexes. The volatility of the average quarterly prices for polyester fibers in Asia, which is representative of polyester resin (a primary raw material for polyester film products) prices, is shown in the chart below:
Source: Quarterly averages computed by Tredegar using monthly data from CMAI Global Index data.


34



The volatility of average quarterly prices of PTA and MEG in Asia (raw materials used in the production of polyester resins produced by Film Products) is shown in the chart below:


Source: Quarterly averages computed by Tredegar using monthly data from CMAI Global Index data.
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 19 and the business segment review on page 37 for more information). Pricing on the remainder of the Film Products business is based upon raw material costs and supply and demand dynamics within the markets that it competes.
In the normal course of business, Aluminum Extrusions enters 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 its 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, the Company enters 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 65 for more information. The volatility of quarterly average aluminum prices is shown in the chart below:
Source: Quarterly averages computed by Tredegar using daily Midwest average prices provided by Platts.

35



From time-to-time, Aluminum Extrusions hedges a portion of its exposure to natural gas price volatility by entering into fixed-price forward purchase contracts with its natural gas suppliers. The Company estimates that, in an unhedged situation, every $1 per mmBtu per month change in the market price of natural gas has an $85,000 impact on the continuing monthly operating profit for U.S. operations in Aluminum Extrusions. There is an energy surcharge for Aluminum Extrusions 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.
Tredegar sells to customers in foreign markets through its foreign operations and through exports from U.S. plants. The percentage of sales and total assets for continuing operations related to foreign markets for 2014, 2013 and 2012 are as follows:
Tredegar Corporation—Continuing Operations
Percentage of Net Sales and Total Assets Related to Foreign Markets
 
2014
 
2013
 
2012
 
% 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

 

 

 
5

 

 

Europe
1

 
12

 
5

 
1

 
12

 
6

 
1

 
13

 
7

Latin America

 
11

 
27

 

 
12

 
24

 

 
14

 
23

Asia
8

 
4

 
4

 
9

 
4

 
4

 
7

 
4

 
4

Total % exposure to foreign markets
14

 
27

 
36

 
15