INVESTMENTS

In August 2007 and December 2008, we made an aggregate investment of $7.5 million in kaleo, Inc. (“kaléo”), a privately held specialty pharmaceutical company formerly known as Intelliject, Inc. The mission of kaléo is to set a new standard in life-saving personal medical products designed to enable superior treatment outcomes, improved cost effectiveness and intuitive patient administration. Our ownership interest on a fully diluted basis is approximately 20%, and the investment is accounted for under the fair value method. At the time of our initial investment, we elected the fair value option over the equity method of accounting since our investment objectives were similar to those of venture capitalists, which typically do not have controlling financial interests. We recognized a net unrealized gain of $3.4 million ($2.2 million after taxes) in 2013 that primarily related to favorable adjustments in the fair value for the passage of time as anticipated cash flows associated with achieving product development and commercialization milestones were discounted at 55% for their high degree of risk, partially offset by unfavorable adjustments in the fair value due to a reassessment of the amount and timing of projected receipt of royalty and milestone payments from commercial sales of kaléo's licensed product, which launched in early 2013, and unfavorable adjustments for higher development and commercialization expenses related to its product pipeline.

We recognized an unrealized gain of $16.1 million ($10.2 million after taxes) in 2012 attributed to various factors, most notably:


•	a favorable adjustment to the timing and amount of anticipated cash flows derived from updated marketing research;


•	the passage of time as anticipated cash flows associated with achieving product development commercialization milestones are discounted at 55% for their high degree of risk; and


•	a reduction in the weighted average cost of capital used to discount cash flows in our valuation in the first quarter to reflect the completion of certain process testing and a reassessment of the risk associated with the timing for obtaining final marketing approval from the U.S. Food and Drug Administration (“FDA”) for the company’s first product.

In 2011, we recognized an unrealized gain of $1.6 million ($1.0 million after taxes) attributed to the appreciation of our interest upon changes in the market dynamics and pricing associated with an upcoming product introduction and the addition of projects to the product pipeline. Unrealized gains (losses) associated with this investment are included in “Other income (expense), net” in the consolidated statements of income and separately stated in the segment operating profit table in Note 5.

At December 31, 2013 and 2012, the estimated fair value of our investment (included in “Other assets and deferred charges” in the consolidated balance sheets) was $37.1 million and $33.7 million, respectively. Subsequent to our most recent investment (December 15, 2008), and until the next round of financing, we believe fair value estimates are based upon Level 3 inputs since there is no secondary market for our ownership interest. Accordingly, until the next round of financing or any other significant financial transaction, 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. As a result, any future changes in the estimated fair value of our ownership interest will likely be attributed to a new round of financing, a merger or initial public offering or adjustments to the timing or magnitude of cash flows associated with development and commercialization milestones. If kaléo does not meet its development and commercialization milestones and there are indications that the amount or timing of its projected cash flows or related risks are unfavorable versus our most recent valuation, or a new round of financing or other significant financial transaction indicates a lower enterprise value, then our estimate of the fair value of our ownership interest in the company is likely to decline. Adjustments to the estimated fair value of our investment will be made in the period upon which such changes can be quantified.

The fair market valuation of our interest in kaléo is sensitive to changes in the weighted average cost of capital used to discount cash flow projections for the high degree of risk associated with meeting development and commercialization milestones as anticipated. The weighted average cost of capital used in the fair market valuation of our interest in kaléo was 55% at December 31, 2013 and 2012. At December 31, 2013, the effect of a 500 basis point decrease in the weighted average cost of capital assumption would have further increased the fair value of our interest in kaléo by approximately $5 million, and a 500 basis point increase in the weighted average cost of capital assumption would have decreased the fair value of our interest by approximately $5 million.

Had we not elected to account for our investment under the fair value method, we would have been required to use the equity method of accounting. The condensed balance sheets for kaléo at December 31, 2013 and 2012 and related condensed statements of operations for the last three years ended December 31, 2013, that were reported to us by kaléo, are provided below:



	December 31,					December 31,
(In Thousands)	2013		2012			2013		2012
Assets:					Liabilities & Equity:
Cash & cash equivalents	$	33,560	$	53,288	Long-term debt, net of discount, current portion	$	5,414	$	—
Other current assets	5,682		686		Other current liabilities	4,845		13,405
Other long-term assets	11,004		4,278		Other noncurrent liabilities	3,098		1,449
Identifiable intangibles assets	2,433		2,152		Long-term debt, net of discount	9,372		14,696
					Redeemable preferred stock	21,970		20,995
					Equity	7,980		9,859
Total assets	$	52,679	$	60,404	Total liabilities & equity	$	52,679	$	60,404



	2013			2012			2011
Revenues & Expenses:
Revenues	$	15,305		$	38,179		$	8,839
Expenses and other, net	(18,631		)	(13,073		)	(10,474		)
Income tax (expense) benefit	1,586			(9,642		)	927
Net income (loss)	$	(1,740	)	$	15,464		$	(708	)

The audited financial statements and accompanying footnotes of kaléo as of December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011 have been included as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission.

On April 2, 2007, we invested $10.0 million in Harbinger Capital Partners Special Situations Fund, L.P. (“Harbinger”), a private investment fund that is subject to limitations on withdrawal. There is no secondary market for interests in the fund. Our investment in Harbinger, which represents less than 2% of its total partnership capital, is accounted for under the cost method. We recorded unrealized losses of $0.4 million ($0.3 million after taxes), $1.1 million ($0.7 million after taxes) and $0.6 million ($0.4 million after taxes) on our investment in Harbinger in 2013, 2012 and 2011, respectively, as a result of a reduction in the estimated fair value of our investment that is not expected to be temporary. The December 31, 2013 and 2012 carrying value in the consolidated balance sheets (included in “Other assets and deferred charges”) was $2.8 million and $3.6 million, respectively. The carrying value at December 31, 2013 reflected Tredegar’s cost basis in its investment in Harbinger, net of total withdrawal proceeds received and unrealized losses. Withdrawal proceeds were $0.4 million in 2013, $0.5 million in 2012 and $0.6 million in 2011. The timing and amount of future installments of withdrawal proceeds was not known as of December 31, 2013. There were no realized gains or losses associated with our investment in Harbinger in 2013, 2012 and 2011. Gains on our investment in Harbinger, if any, will be recognized when the amounts expected to be collected from our withdrawal from the investment are known, which will likely be when cash in excess of our remaining carrying value is received. Losses will be recognized if management believes it is probable that future withdrawal proceeds will not exceed the remaining carrying value.

We have investment property in Alleghany and Bath County, Virginia. We also recorded an unrealized loss on our investment property in Alleghany and Bath County, Virginia of $1.0 million ($0.6 million after taxes) in 2013 as a result of a reduction in the estimated fair value of our investment that is not expected to be temporary. Our carrying value in this investment property (included in “Other assets and deferred charges” on the consolidated balance sheets) was $5.9 million at December 31, 2013 and $6.9 million at December 31, 2012.