Investments

6 Months Ended

Jun. 30, 2019

Investments Debt And Equity Securities [Abstract]

7. INVESTMENTS

Debt Securities and Other Investments

At June 30, 2019, we held the following debt securities and other investments, recorded at either fair value or cost:

	Amortized		Gross Unrealized					Carrying
(In thousands)	Cost		Gains		Losses			Value
Corporate bonds	$	14,132	$	111	$	(4	)	$	14,239
Municipal fixed-rate bonds		930		—		(3	)		927
Asset-backed bonds		6,580		32		(3	)		6,609
Mortgage/Agency-backed bonds		5,362		23		(6	)		5,379
U.S. government bonds		5,027		6		(6	)		5,027
Foreign government bonds		1,852		1		(1	)		1,852
Available-for-sale debt securities held at fair value	$	33,883	$	173	$	(23	)	$	34,033
Restricted investment held at cost									25,600
Other investments held at cost									1,199
Total carrying value of available-for-sale investments								$	60,832

At December 31, 2018, we held the following debt securities and other investments, recorded at either fair value or cost:

	Amortized		Gross Unrealized					Carrying
(In thousands)	Cost		Gains		Losses			Value
Corporate bonds	$	20,777	$	19	$	(112	)	$	20,684
Municipal fixed-rate bonds		1,339		—		(26	)		1,313
Asset-backed bonds		5,230		5		(14	)		5,221
Mortgage/Agency-backed bonds		3,833		2		(44	)		3,791
U.S. government bonds		9,271		1		(66	)		9,206
Foreign government bonds		592		—		(8	)		584
Available-for-sale debt securities held at fair value	$	41,042	$	27	$	(270	)	$	40,799
Restricted investment held at cost									25,600
Other investments held at cost									397
Total carrying value of available-for-sale investments								$	66,796

As of June 30, 2019, our debt securities had the following contractual maturities:

(In thousands)	Corporate bonds		Municipal fixed-rate bonds		Asset- backed bonds		Mortgage / Agency- backed bonds		U.S. government bonds		Foreign government bonds
Less than one year	$	2,749	$	—	$	96	$	—	$	2,443	$	—
One to two years		8,460		927		430		264		—		891
Two to three years		3,030		—		1,667		588		1,346		961
Three to five years		—		—		2,018		510		1,238		—
Five to ten years		—		—		1,772		425		—		—
More than ten years		—		—		626		3,592		—		—
Total	$	14,239	$	927	$	6,609	$	5,379	$	5,027	$	1,852

Actual maturities may differ from contractual maturities as some borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

Realized gains and losses on sales of debt securities are computed under the specific identification method. The following table presents gross realized gains and losses related to our debt securities:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In thousands)	2019			2018			2019			2018
Gross realized gains on debt securities	$	8		$	25		$	49		$	25
Gross realized losses on debt securities		(14	)		(241	)		(33	)		(315	)
Total gain (loss) recognized, net	$	(6	)	$	(216	)	$	16		$	(290	)

Our investment policy provides limitations for issuer concentration, which limits, at the time of purchase, the concentration in any one issuer to 5% of the market value of our total investment portfolio.

At June 30, 2019, we held a $25.6 million restricted certificate of deposit that is carried at cost. This investment serves as a collateral deposit against the principal amount outstanding under loans made to ADTRAN pursuant to an Alabama State Industrial Development Authority revenue bond (the “Bond”), which totaled $25.6 million at June 30, 2019 and December 31, 2018. At June 30, 2019 and December 31, 2018, the estimated fair value of the Bond using a level 2 valuation technique was approximately $25.6 million and $25.4 million, respectively, based on a debt security with a comparable interest rate and maturity and a Standard and Poor’s credit rating of AAA. We have the right to offset the balance of the Bond with the collateral deposit in order to reduce the balance of the indebtedness. The Bond matures on January 1, 2020, and bears interest at the rate of 2% per annum. In conjunction with this program, we are eligible to receive certain economic incentives from the State of Alabama that reduce the amount of payroll withholdings we are required to remit to the state for those employment positions that qualify under this program. We are required to make payments in the amounts necessary to pay the interest on the amounts currently outstanding. We have made annual principal payments in addition to the interest amounts that are due. The restricted funds held as collateral against the outstanding principal amount of the Bond will be used to pay the outstanding principal and interest upon the Bond’s maturity on January 1, 2020.

Marketable Equity Securities

Our marketable equity securities consist of publicly traded stock, funds and certain other investments measured at fair value or cost (where appropriate).

On January 1, 2018, we adopted ASU 2016-01, which requires us to measure all equity investments that do not result in consolidation and are not accounted for under the equity method at fair value, with any changes in fair value recognized in net investment gain (loss). Upon adoption, we reclassified $3.2 million of net unrealized gains related to marketable equity securities from accumulated other comprehensive income (loss) to retained earnings.

ASU 2016-01 also provides a measurement alternative for equity investments that do not have a readily determinable fair value in which investments can be recorded at cost less impairment, if any, adjusted for observable price changes for an identical or similar investment. We elected to record our equity investment that does not have a readily determinable fair value using the measurement alternative method. As of December 31, 2018, the Company had a note receivable of approximately $4.3 million, which was included in other receivables on the Condensed Consolidated Balance Sheet. During the three months ended March 31, 2019, this amount was repaid as follows. Approximately $3.4 million was issued as an equity investment, which represented a non-cash investing activity. The carrying value of this investment under the measurement alternative was $3.4 million as of June 30, 2019. The remaining amount was converted into a new note receivable, which is included in other receivables on the Condensed Consolidated Balance Sheet and represents a non-cash operating activity.

Realized and unrealized gains and losses for our marketable equity securities for the three and six months ended June 30, 2019 and 2018 were as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In thousands)	2019			2018			2019			2018
Realized gains (losses) on equity securities sold	$	(49	)	$	(52	)	$	(63	)	$	347
Unrealized gains on equity securities held		2,540			1,258			8,458			836
Total gain recognized, net	$	2,491		$	1,206		$	8,395		$	1,183

As of June 30, 2019 and 2018, gross unrealized losses related to individual investments in a continuous loss position for twelve months or longer were not material.

We have categorized our cash equivalents and our investments held at fair value into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique for the cash equivalents and investments as follows: Level 1 - Values based on unadjusted quoted prices for identical assets or liabilities in an active market; Level 2 - Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly; Level 3 - Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs include information supplied by investees.

			Fair Value Measurements at June 30, 2019 Using
(In thousands)	Cost or Fair Value		Quoted Prices in Active Market for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents
Money market funds	$	1,337	$	1,337	$	—	$	—
Commercial paper		2,973		—		2,973		—
Cash equivalents		4,310		1,337		2,973		—
Available-for-sale debt securities
Corporate bonds		14,239		—		14,239		—
Municipal fixed-rate bonds		927		—		927		—
Asset-backed bonds		6,609		—		6,609		—
Mortgage/Agency-backed bonds		5,379		—		5,379		—
U.S. government bonds		5,027		5,027		—		—
Foreign government bonds		1,852		—		1,852		—
Marketable equity securities
Marketable equity securities – various industries		32,548		32,548		—		—
Equity in escrow		185		185		—		—
Deferred compensation plan assets		21,228		21,228		—		—
Total debt and equity securities at fair value		87,994		58,988		29,006		—
Other investments held at cost
Other investments		3,375		—		—		—
Total other investments held at cost		3,375		—		—		—
Total	$	95,679	$	60,325	$	31,979	$	—

			Fair Value Measurements at December 31, 2018 Using
(In thousands)	Cost or Fair Value		Quoted Prices in Active Market for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents
Money market funds	$	1,554	$	1,554	$	—	$	—
Cash equivalents		1,554		1,554		—		—
Available-for-sale debt securities
Corporate bonds		20,684		—		20,684		—
Municipal fixed-rate bonds		1,313		—		1,313		—
Asset-backed bonds		5,221		—		5,221		—
Mortgage/Agency-backed bonds		3,791		—		3,791		—
U.S. government bonds		9,206		9,206		—		—
Foreign government bonds		584		—		584		—
Marketable equity securities
Marketable equity securities – various industries		26,763		26,763		—		—
Equity in escrow		253		253		—		—
Deferred compensation plan assets		18,256		18,256		—		—
Total debt and equity securities at fair value		86,071		54,478		31,593		—
Total	$	87,625	$	56,032	$	31,593	$	—

The fair value of our Level 2 securities is calculated using a weighted average market price for each security. Market prices are obtained from a variety of industry standard data providers, security master files from large financial institutions, and other third-party sources. These multiple market prices are used as inputs into a distribution-curve-based algorithm to determine the daily market value of each security.