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Fair Value Measurements and Derivative Instruments | 6 Months Ended
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Jun. 30, 2024
Fair Value Disclosures [Abstract] |
Fair Value Measurements and Derivative Instruments | Fair Value Measurements and Derivative Instruments We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. An entity is required to classify certain assets and liabilities measured at fair value based on the following fair value hierarchy that prioritizes the inputs used to measure fair value: Level 1 – Unadjusted quoted prices in active markets for identical assets and liabilities. Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3– Unobservable inputs that are supported by little or no market activity, may be derived from internally developed methodologies based on management’s best estimate of fair value and that are significant to the fair value of the asset or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect its placement within the fair value hierarchy. The following tables show, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis.
| June 30, 2024
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |
Investment securities |  |  |  |  |  |  |
Money market funds | $ | 44,687 |  |  | $ | 146,980 |  |  | $ | — |  |  | $ | 191,667 |
Equity securities | — |  |  | 16,644 |  |  | — |  |  | 16,644 |
Commingled fixed income securities | 1,580 |  |  | 4,380 |  |  | — |  |  | 5,960 |
Government and related securities | 8,125 |  |  | 13,275 |  |  | — |  |  | 21,400 |
Corporate debt securities | — |  |  | 51,548 |  |  | — |  |  | 51,548 |
Mortgage-backed / asset-backed securities | — |  |  | 112,365 |  |  | — |  |  | 112,365 |
Derivatives |  |  |  |  |  |  |
Interest rate swap | — |  |  | 4,810 |  |  | — |  |  | 4,810 |
Total assets | $ | 54,392 |  |  | $ | 350,002 |  |  | $ | — |  |  | $ | 404,394 |
| December 31, 2023
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |
Investment securities |  |  |  |  |  |  |
Money market funds | $ | 13,366 |  |  | $ | 188,484 |  |  | $ | — |  |  | $ | 201,850 |
Equity securities | — |  |  | 15,341 |  |  | — |  |  | 15,341 |
Commingled fixed income securities | 1,581 |  |  | 5,741 |  |  | — |  |  | 7,322 |
Government and related securities | 11,489 |  |  | 18,999 |  |  | — |  |  | 30,488 |
Corporate debt securities | — |  |  | 54,330 |  |  | — |  |  | 54,330 |
Mortgage-backed / asset-backed securities | — |  |  | 119,901 |  |  | — |  |  | 119,901 |
Derivatives |  |  |  |  |  |  |
Interest rate swap | — |  |  | 8,425 |  |  | — |  |  | 8,425 |
Total assets | $ | 26,436 |  |  | $ | 411,221 |  |  | $ | — |  |  | $ | 437,657 |
Investment Securities The valuation of investment securities is based on a market approach using inputs that are observable, or can be corroborated by observable data, in an active marketplace. The following information relates to our classification within the fair value hierarchy: •Money Market Funds: Money market funds typically invest in government securities, certificates of deposit, commercial paper and other highly liquid, low risk securities. Money market funds are principally used for overnight deposits and are classified as Level 1 when unadjusted quoted prices in active markets are available and as Level 2 when they are not actively traded on an exchange. •Equity Securities: Equity securities are comprised of mutual funds investing in U.S. and foreign stocks. These mutual funds are classified as Level 2. •Commingled Fixed Income Securities: Commingled fixed income securities are comprised of mutual funds that invest in a variety of fixed income securities, including securities of the U.S. government and its agencies, corporate debt, mortgage-backed securities and asset-backed securities. Fair value is based on the value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares outstanding, as reported by the fund manager. These mutual funds are classified as Level 1 when unadjusted quoted prices in active markets are available and as Level 2 when they are not actively traded on an exchange. •Government and Related Securities: Debt securities are classified as Level 1 when unadjusted quoted prices in active markets are available. Debt securities are classified as Level 2 where fair value is determined using quoted market prices for similar securities or benchmarking model derived prices to quoted market prices and trade data for identical or comparable securities. •Corporate Debt Securities: Corporate debt securities are valued using recently executed comparable transactions, market price quotations or bond spreads for the same maturity as the security. These securities are classified as Level 2. •Mortgage-Backed Securities / Asset-Backed Securities: These securities are valued based on external pricing indices or external price/spread data. These securities are classified as Level 2. Derivative Securities •Interest Rate Swaps: The valuation of interest rate swaps is based on an income approach using inputs that are observable or that can be derived from, or corroborated by, observable market data. These securities are classified as Level 2. Available-For-Sale Securities Investment securities classified as available-for-sale are recorded at fair value with changes in fair value due to market conditions recorded in accumulated other comprehensive loss (AOCL), and changes in fair value due to credit conditions recorded in earnings. There were no unrealized losses charged to earnings in the six months ended June 30, 2024 and 2023. Available-for-sale securities consisted of the following:
| June 30, 2024
| Amortized cost |  |  |  | Gross unrealized losses |  | Estimated fair value
Government and related securities | $ | 24,929 |  |  |  |  | $ | (6,551) |  |  | $ | 18,378 |
Corporate debt securities | 62,572 |  |  |  |  | (11,024) |  |  | 51,548 |
Commingled fixed income securities | 1,811 |  |  |  |  | (231) |  |  | 1,580 |
Mortgage-backed / asset-backed securities | 139,887 |  |  |  |  | (27,522) |  |  | 112,365 |
Total | $ | 229,199 |  |  |  |  | $ | (45,328) |  |  | $ | 183,871 |
| December 31, 2023
| Amortized cost |  |  |  | Gross unrealized losses |  | Estimated fair value
Government and related securities | $ | 35,048 |  |  |  |  | $ | (7,018) |  |  | $ | 28,030 |
Corporate debt securities | 65,008 |  |  |  |  | (10,678) |  |  | 54,330 |
Commingled fixed income securities | 1,788 |  |  |  |  | (207) |  |  | 1,581 |
Mortgage-backed / asset-backed securities | 146,022 |  |  |  |  | (26,121) |  |  | 119,901 |
Total | $ | 247,866 |  |  |  |  | $ | (44,024) |  |  | $ | 203,842 |
Investment securities in a loss position were as follows:
| June 30, 2024 |  | December 31, 2023
| Fair Value |  | Gross unrealized losses |  | Fair Value |  | Gross unrealized losses
Greater than 12 continuous months |  |  |  |  |  |  |
Government and related securities | $ | 18,378 |  |  | $ | 6,551 |  |  | $ | 28,030 |  |  | $ | 7,018 |
Corporate debt securities | 51,376 |  |  | 11,022 |  |  | 51,948 |  |  | 10,466 |
Mortgage-backed / asset-backed securities | 112,365 |  |  | 27,522 |  |  | 119,901 |  |  | 26,121 |
Total | $ | 182,119 |  |  | $ | 45,095 |  |  | $ | 199,879 |  |  | $ | 43,605 |
Less than 12 continuous months |  |  |  |  |  |  |
Corporate debt securities | $ | 172 |  |  | $ | 2 |  |  | $ | 2,382 |  |  | $ | 212 |
Commingled fixed income securities | 1,580 |  |  | 231 |  |  | 1,581 |  |  | 207 |
Total | $ | 1,752 |  |  | $ | 233 |  |  | $ | 3,963 |  |  | $ | 419 |
At June 30, 2024, all securities in the investment portfolio were in an unrealized loss position. However, we have the ability and intent to hold these securities until recovery of the unrealized losses or expect to receive the stated principal and interest at maturity. Accordingly, we have not recognized an impairment loss and our allowance for credit losses on these investment securities is not significant. Scheduled maturities of available-for-sale securities at June 30, 2024 were as follows:
| Amortized cost |  | Estimated fair value
Within 1 year | $ | 1,986 |  |  | $ | 1,752 |
After 1 year through 5 years | 6,739 |  |  | 6,186 |
After 5 years through 10 years | 65,737 |  |  | 55,512 |
After 10 years | 154,737 |  |  | 120,421 |
Total | $ | 229,199 |  |  | $ | 183,871 |
Actual maturities may not coincide with scheduled maturities as certain securities contain early redemption features and/or allow for the prepayment of obligations. Held-to-Maturity Securities Held-to-maturity securities at June 30, 2024 and December 31, 2023 totaled $285 million and $265 million, respectively. Held-to-maturity securities include certificates of deposits with maturities less than 90 days and highly-liquid government securities with maturities less than two years. Derivative Instruments We are exposed to the impact of changes in interest rates and foreign currency exchange rates. We may use derivative instruments to limit the effects on our financial results from changes in interest rates and currency exchange rates. We do not use derivatives for trading or speculative purposes. Interest Rate Swaps At June 30, 2024, we had outstanding interest rate swap agreements that effectively convert $200 million of variable rate debt to fixed rates. Under the terms of the interest rate swaps, we pay fixed-rate interest of 0.585% and receive variable-rate interest based on one-month SOFR plus 0.1%. The variable interest rates under the term loans and the swaps reset monthly. These swaps are designated as cash flow hedges and are recorded at fair value at the end of each reporting period. Changes in fair value are reflected in AOCL. The impact of these interest rate swaps was as follows:
|  | Three Months Ended June 30,
|  | Derivative Gain (Loss) Recognized in AOCL (Effective Portion) |  | Location of Gain (Loss) (Effective Portion) |  | Gain (Loss) Reclassified from AOCL to Earnings (Effective Portion)
Derivative Instrument |  | 2024 |  | 2023 |  |  | 2024 |  | 2023
Interest rate swap |  | $ | (2,098) |  |  | $ | 586 |  |  | Interest expense |  | $ | 2,584 |  |  | $ | 138 |
|  | Six Months Ended June 30,
|  | Derivative Gain (Loss) Recognized in AOCL (Effective Portion) |  | Location of Gain (Loss) (Effective Portion) |  | Gain (Loss) Reclassified from AOCL to Earnings (Effective Portion)
Derivative Instrument |  | 2024 |  | 2023 |  |  | 2024 |  | 2023
Interest rate swap |  | $ | (3,615) |  |  | $ | (2,000) |  |  | Interest expense |  | $ | 5,175 |  |  | $ | 275 |
Foreign Exchange Contracts In the first half of 2023, we had outstanding foreign exchange contracts to minimize the impact on earnings from the revaluation of short-term interest-bearing intercompany loans denominated in a foreign currency. These foreign exchange contracts were not designated as hedging instruments and the revaluation of intercompany loans and the change in fair value of these derivatives were recorded in earnings. The mark-to-market adjustment on these foreign exchange contracts for the three and six months ended June 30, 2023, was a gain of $6 million and a gain of $7 million, respectively, and significantly offset the corresponding loss on the revaluation of intercompany loans.
Fair Value of Financial Instruments Our financial instruments include cash and cash equivalents, available-for-sale and held-to-maturity investment securities, accounts receivable, loan receivables, derivative instruments, accounts payable and debt. The carrying value of cash and cash equivalents, held-to-maturity investment securities, accounts receivable, loans receivable, and accounts payable approximate fair value. The fair value of available-for-sale investment securities and derivative instruments are presented above. The fair value of debt is estimated based on recently executed transactions and market price quotations. The inputs used to determine the fair value of debt were classified as Level 2 in the fair value hierarchy. The carrying value and estimated fair value of debt was as follows:
| June 30, 2024 |  | December 31, 2023
Carrying value | $ | 2,122,324 |  |  | $ | 2,146,032 |
Fair value | $ | 1,941,153 |  |  | $ | 1,893,620 |

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