In August 2007 and December 2008, the Company made an aggregate investment of $7.5 million in kaléo, a privately held specialty pharmaceutical company. 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. Tredegar’s 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 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 interests.

The estimated fair value of the investment in kaléo (also the carrying value, which is included in “Other assets and deferred charges” in the consolidated balance sheet) was $39.1 million at September 30, 2015 and December 31, 2014, respectively. In 2009, kaléo licensed exclusive rights to sanofi-aventis U.S. LLC (Sanofi) to commercialize an epinephrine auto-injector in the U.S. and Canada. Sanofi began manufacturing and distributing the epinephrine auto-injector, under the names Auvi-Q® in the U.S. and Allerject® in Canada, in 2013. Sanofi announced on October 28, 2015 a voluntary recall of all Auvi-Q and Allerject epinephrine injectors currently on the market. The adverse impact that this recall will have on the estimated fair value of the Company’s investment in kaléo is unknown at this time.

The fair value estimates are based upon significant unobservable (Level 3) inputs since there is no secondary market for the Company’s ownership interest. Accordingly, until the next round of financing or other significant financial transaction, value estimates will primarily be based on assumptions relating to meeting product development and commercialization milestones, corresponding cash flow projections (projections of 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 the Company’s investment in kaléo will be made in the period during which changes can be quantified.

The Company recognized an unrealized gain on its investment in kaléo (included in “Other income (expense), net” in the consolidated statements of income) of $4.0 million and $2.9 million in the third quarter and first nine months of 2014, respectively (none in the third quarter and first nine months of 2015). The unrealized gain in the third quarter of 2014 can be primarily attributed to favorable changes for the passage of time as cash flows associated with achieving product development and commercialization milestones are discounted at 45% for their high degree of risk. In addition to the passage of time for discounted cash flows, the prior-year-to-date change in the fair value of kaléo reflected the impact of a lower weighted average cost of capital used to discount cash flow projections and adjustments to the amount and timing of cash flows associated with achieving product development and commercialization milestones.

The fair market valuation of the Company’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. The weighted average cost of capital used in the fair market valuation of Tredegar’s interest in kaléo was 45% at September 30, 2015 and December 31, 2014. At September 30, 2015, the effect of a 500 basis point decrease in the weighted average cost of capital assumption would have increased the fair value of the 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 interest by approximately $5 million.

Had the Company not elected to account for its investment under the fair value method, it would have been required to use the equity method of accounting. The condensed balance sheets for kaléo at September 30, 2015 and December 31, 2014 and condensed statement of operations for the three and nine months ended September 30, 2015 and 2014, as reported to the Company by kaléo, are provided below:



(In Thousands)	September 30, 2015		December 31, 2014			September 30, 2015			December 31, 2014
Assets:					Liabilities & Equity:
Cash & short-term investments	$	95,720	$	117,589
Restricted cash	8,182		14,498		Other current liabilities	$	8,192		$	8,123
Other current assets	36,991		17,916		Other noncurrent liabilities	1,181			1,247
Property & equipment	8,955		10,824		Long term debt, net (a)	147,161			146,629
Patents	2,790		2,702		Redeemable preferred stock	23,675			22,946
Other long-term assets (a)	669		15		Equity	(26,902		)	(15,401		)
Total assets	$	153,307	$	163,544	Total liabilities & equity	$	153,307		$	163,544



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Revenues & Expenses:
Revenues	$	28,084		$	11,560		$	43,002		$	18,528
Cost of goods sold	(3,438		)	(576		)	(8,575		)	(576		)
Expenses and other, net (b)	(17,337		)	(13,832		)	(45,727		)	(36,806		)
Income tax benefit (expense)	—			1,074			(4		)	7,205
Net income (loss)	$	7,309		$	(1,774	)	$	(11,304	)	$	(11,649	)

(a) Certain immaterial prior year balances have been reclassified to conform with current year presentation.

(b) “Expenses and other, net” includes selling, general and administrative expense, research and development expense, interest expense and other income (expense), net.

The Company’s investment in the Harbinger Fund had a carrying value (included in “Other assets and deferred charges”) of $1.7 million and $1.8 million at September 30, 2015 and December 31, 2014, respectively. The carrying value at September 30, 2015 reflected Tredegar’s cost basis in its investment in the Harbinger Fund, net of total withdrawal proceeds received and unrealized losses. The Company recorded unrealized losses of $0.2 million and $0.8 million in the third quarter and first nine months of 2014, respectively, on its investment in the Harbinger Fund (included in “Other income (expense), net” in the consolidated statements of income) as a result of a reduction in the value of the investment that is not expected to be temporary (none in the third quarter and first nine months of 2015). Withdrawal proceeds were $0.1 million and $0.2 million in the first nine months of 2015 and 2014, respectively. The timing and amount of future installments of withdrawal proceeds, which commenced in August 2010, were not known as of September 30, 2015. Gains on the Company’s investment in the Harbinger Fund will be recognized when the amounts expected to be collected from any withdrawal from the investment are known, which will likely be when cash in excess of the remaining carrying value is received. Losses will be recognized when management believes it is probable that future withdrawal proceeds will not exceed the remaining carrying value.

Tredegar has investment property in Alleghany and Bath Counties, Virginia. The Company realized a gain (included in “Other income (expense), net” in the consolidated statements of income) of $1.2 million ($0.8 million after taxes) on the sale of a portion of this investment property in the second quarter of 2014. The carrying value in this investment property (included in “Other assets and deferred charges” on the consolidated balance sheets) was $2.6 million at September 30, 2015 and December 31, 2014.