Kartoon Studios, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Marketable Securities

Marketable Securities

3 Months Ended

Mar. 31, 2023

Marketable SecuritiesThe Company classifies and accounts for its marketable debt securities as AFS and the securities are stated at fair value. On January 1, 2023, the Company adopted ASU 2016-13 Measurement of Credit Losses on Financial Instruments (Topic 326), which replaced the legacy GAAP other-than-temporary impairment (“OTTI”) model with a credit loss model. The credit loss model applicable to AFS debt securities require the recognition of credit losses through an allowance account but retains the concept from the OTTI model that credit losses are recognized once securities become impaired. The adoption of the ASU did not have a material impact on the Company's financial statements.

The investments in marketable securities had an adjusted cost basis of $73.9 million and a market value of $69.7 million as of March 31, 2023. The balances consisted of the following securities (in thousands):


	Adjusted Cost		Unrealized Gain/(Loss)		Fair Value
Corporate Bonds	$	35,901	$	(1,962)	$	33,939
U.S. Treasury	20,816		(1,041)		19,775
U.S. agency and government sponsored securities	6,898		(506)		6,392
U.S. states and municipalities	10,283		(739)		9,544
Total	$	73,898	$	(4,248)	$	69,650

The investments in marketable securities as of December 31, 2022 had an adjusted cost basis of $90.3 million and a market value of $83.7 million. The balances consisted of the following securities (in thousands):


	Adjusted Cost		Unrealized Gain/(Loss)		Fair Value
Corporate Bonds	$	40,823	$	(2,579)	$	38,244
U.S. Treasury	20,869		(1,313)		19,556
Mortgage-Backed	5,980		(606)		5,374
U.S. agency and government sponsored securities	10,781		(1,221)		9,560
U.S. states and municipalities	11,801		(895)		10,906
Asset-Backed	67		(1)		66
Total	$	90,321	$	(6,615)	$	83,706

The Company holds sixty-eight AFS securities, all of which are in an unrealized loss position and have been in an unrealized loss position for a period greater than twelve months as of March 31, 2023. The AFS securities held by the Company as of December 31, 2022 have also been in an unrealized loss position for a period greater than twelve months. The Company reported the net unrealized losses in accumulated other comprehensive (loss) income, a component of stockholders' equity. As of March 31, 2023 and December 31, 2022, no allowance for credit loss impairment has been recognized as the issuers of these securities have not established a cause for default and various rating agencies have reaffirmed each security's investment grade status. The fair value of these securities has fluctuated since the purchase date as market interest rates fluctuate. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell before the recovery of the securities' amortized cost basis.

Realized losses of $1.5 million were recognized in earnings during the three months ended March 31, 2023. The realized losses were primarily due to the sale of certain mortgage and asset-backed securities prior to their maturities to prevent further losses on the securities due to market conditions during the quarter. Realized losses of $0.1 million were recognized during the three months ended March 31, 2022 due to prepayments of principal on certain mortgage-backed securities.

The contractual maturities of the Company’s marketable investments as of March 31, 2023 were as follows (in thousands):


	Fair Value
Due within 1 year	$	16,240
Due after 1 year through 5 years	53,410
Total	$	69,650

The Company may sell certain of its marketable debt securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation.